FHA, VA, and USDA Released Some Changes Recently for Loans in COVID Forbearance and Loss Mitigation
On June 25, 2021, FHA established the COVID-19 Advance Loan Modification. This modification is proactively offered to eligible delinquent borrowers. FHA has determined that given the COVID-19 hardships that homeowners have faced, broader payment relief could support a sustained and equitable recovery as well as protect the Mutual Mortgage Insurance Fund. With these objectives in mind, FHA has evaluated ways to streamline the existing loss mitigation options and established the COVID-19 Recovery Modification that targets a 25% P&I reduction for all borrowers who are unable to return to making their existing mortgage payments. For borrowers who can return to making their existing mortgage payments, FHA’s COVID-19 Recovery Standalone Partial Claim will enable those Borrowers to quickly resolve the outstanding delinquency and arrearages through a zero-interest subordinate lien.
On July 23, 2021, VA announced the COVID-19 Refund Modification, specific to those borrowers needing payment reductions when exiting COVID-19 forbearance, effective July 27, 2021 until July 1, 2023. Until now, VA’s current procedures have not allowed servicers to offer similar terms and conditions without first obtaining VA approval. Through the recent VA Circular, however, VA now is providing the parameters within which servicers have VA’s consent for offering the COVID-19 Refund Modification. It is similar to the VA COVID partial claim option in that VA can purchase indebtedness up to 30% of a borrower’s unpaid principal balance. However, unlike the VA COVID partial claim, the COVID-19 Refund Modification is not a stand-alone option. Instead, VA provides a partial loan refund along with the servicer’s loan modification.
On July 23, 2021, USDA announced an advance notice of Handbook updates with new COVID-19 Special Relief Alternatives and to clarify existing policies. The updates include an option that targets a 20% reduction in the borrower’s monthly principal and interest payments by offering a combination of interest rate reduction, term extension, and mortgage recovery advance. The COVID-19 Special Relief Measures are immediately available and will remain in effect until December 31, 2022.
In this blog post concerning legal and regulatory matters of interest to the mortgage industry, Sandler Law Group (SLG) provides general information and industry observations that are not motivated by or concerned with a particular past occurrence or event, or a specific existing legal problem of which SLG is aware. Nothing published herein is intended to constitute legal advice and the use of the blog post by a reader shall not give rise to an attorney-client relationship with SLG. SLG expressly disclaims any representation of accuracy or reliability as to the content of this blog post, as well as an obligation to maintain such content over time or to ensure it is free from errors. Brad Cope is the attorney responsible for the SLG content of this blog post. Unless otherwise noted, the attorneys of SLG are not certified by the Texas Board of Legal Specialization.