FHA and HUD Modify FHA Home Loan Rules for Coronavirus
The alterations come at the same time that COVID-19-specific guidance for foreclosure avoidance takes effect.
The prior version of HUD 4000.1 did not include specific guidance for lenders trying to help borrowers avoid foreclosure due to coronavirus issues; the old instructions are updated to include policy for lenders to help borrowers via CARES Act measures signed into law to help struggling companies and workers.
The new additions to HUD 4000.1 include a new Section addressing the “Presidentially-Declared COVID-19 National Emergency” guidance for lenders, which is effective immediately and as you’ll read below, supersedes prior guidance issued prior to the pandemic.
The updates were needed because FHA loan rules for presidentially declared major disaster areas (known by the acronym PDMDA) didn’t take into account additional relief measures incorporated into the CARES Act. From the Mortgagee Letter, we learn:
“For Borrowers impacted by the COVID-19 National Emergencyand whose Mortgaged Property is located in a COVID-19 PDMDA,” the new and updated FHA policy for FHA borrowers applies instead of the more general guidance for PDMA.”
Lenders who were simply using the broader, non-coronavirus specific guidance are required to “convert to the COVID-19 National Emergency Loss Mitigation Options” in the updates for this emergency only.
The text of the updates in lengthy, but here’s an example of the instructions participating FHA lenders are getting:
“Any Borrower who is granted a ‘Forbearance for Borrowers Affected by the COVID-19 National Emergency’ and is otherwise performing as agreed is not considered to be delinquent for purposes of credit reporting.”
Furthermore, “FHA requires Servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA); however, FHA encourages Servicers to consider the impacts of the COVID-19 National Emergency on Borrowers’ financial situations and any flexibilities a Servicer may have under the FCRA when taking any negative credit reporting actions.”
Remember, these foreclosure prevention measures are NOT AUTOMATIC. Call your loan servicer to request forbearance, loan modification, or other measures. You will not qualify for these loss prevention options indefinitely--the more payments you miss the fewer your options are, the worse your credit is potentially affected, and the closer to foreclosure you get.
Seek help from your loan servicer right away if you are in danger of missing a payment or have already missed payments. DO NOT DELAY.
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