FHA Changes – Borrowers in Forbearance
Effective November 9, 2020
The U.S. Department of Housing and Urban Development recently issued Mortgagee Letter (ML) 2020-30 changing Federal Housing Administration (FHA) underwriting guidelines for mortgages involving borrowers who were granted a previous mortgage forbearance on a subject property or other residence. The ML applies to FHA Title II Single Family Forward mortgage programs only.
In light of many borrowers experiencing financial hardship due either to a presidentially declared major disaster, or the COVID-19 National Emergency, mortgage servicers may offer the borrower a Mortgage Payment Forbearance Plan as one of the Home Retention Options to avoid foreclosure. To maintain the stability of the Mutual Mortgage Insurance Fund (MMIF), while concurrently aiding the housing market generally, FHA is expanding its underwriting guidelines to address Housing Obligations/Mortgage Payment History requirements for borrowers who were granted Forbearance and are seeking new FHA insured financing.
Summary of the FHA Underwriting Guidelines
Generally, a borrower who was granted mortgage payment forbearance is eligible for a new FHA insured mortgage provided:
· The borrower continued to make regularly scheduled payments and the forbearance plan is terminated;
· For cash-out refinances, the borrower has completed the forbearance plan and made at least 12 consecutive monthly payments post forbearance;
· For purchase and no cash-out refinances, the borrower has completed the forbearance plan and made at least three consecutive monthly payments post forbearance;
· For credit qualifying streamline refinances, the borrower has completed the forbearance plan and made less than three consecutive monthly payments post forbearance;
· For all streamline refinance transactions, the borrower has made at least six payments on the FHA-insured mortgage being refinanced (where the FHA insured mortgage has been modified after forbearance, the Borrower must have made at least six payments under the modification).
These policy changes for borrowers with previous mortgage payment forbearance will be incorporated into applicable sections of HUD Handbook 4000.1.
For more information, contact Troy Garris at 301-461-8952 or troy@garrishorn.com.
