FHA Announces New COVID-19 Loan Modification Program for Mortgage Borrowers

FHA is offering a new loan modification option for homeowners affected by the coronavirus crisis.

By , Attorney

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), offers protections and options to homeowners who've been affected by the coronavirus (COVID-19) pandemic and are facing foreclosure.

Under a new HUD directive, loan servicers have to evaluate borrowers with FHA-insured loans for a COVID-19 Advance Loan Modification (COVID-19 ALM) if the loan is 90 or more days delinquent. Servicers may immediately implement the COVID-19 ALM option as of June 25, 2021, but must implement it no later than 60 days from this date, which is August 24, 2021.

How the COVID-19 ALM Program Works

Under the COVID-19 ALM program, eligible borrowers get a minimum 25% reduction in their monthly mortgage payment's principal and interest portion.

The COVID-19 ALM program is automatic: servicers must review eligible borrowers for this option and provide loan modification documents that will significantly reduce the borrowers' monthly payments. Borrowers don't need to contact their lender or servicer to get this modification.

Eligibility Requirements

To qualify, the property may be owner-occupied or non-owner occupied, and the borrower must be 90 or more days delinquent.

If eligible, the servicer must prepare and send loan modification documents to the borrower, along with a cover letter that includes:

  • an explanation of terms, including the modified mortgage payment amount
  • the date the next payment is due
  • a statement that no lump-sum payment is required
  • a statement that if the borrower doesn't accept this offer, the borrower might qualify for another loss mitigation option to bring their mortgage current (servicers must evaluate borrowers who don't qualify for the COVID-19 ALM for other COVID-19 loss mitigation options)
  • a statement that the borrower must sign and return the loan modification documents within 30 days of getting them, and
  • information for the borrower to contact the servicer, if needed.

What If I'm Already In a COVID-19 Forbearance?

Servicers have to evaluate all borrowers on a COVID-19 forbearance for a COVID-19 ALM within 30 days of a forbearance expiring. No later than August 24, 2021, servicers must review the following borrowers for a COVID-19 ALM if final documents haven't been sent to the borrower as of June 25, 2021 to complete a loss mitigation option:

  • borrowers who've exited or requested to exit their COVID-19 forbearance
  • borrowers whose COVID-19 forbearance has expired or will expire by August 24, 2021, or
  • borrowers who weren't on a COVID-19 forbearance.

Other Relief for Borrowers With FHA-Insured Loans

In addition, FHA extended its foreclosure and eviction moratorium through July 31, 2021, and extended the date by which borrowers can request a COVID-19 mortgage forbearance until September 30, 2021.

Effective date: June 25, 2021