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12.2.4.4 Home Retention Options

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The loss mitigation option waterfall for borrowers transitioning from forbearance is the following: Disaster Loan Modification, Disaster Standalone Partial Claim, pre-foreclosure sale, or deed in lieu of foreclosure. If the borrower is evaluated but fails to qualify for either the Disaster Loan Modification or the Disaster Standalone Partial Claim, the mortgagee must evaluate the borrower for other loss mitigation home retention options, including informal and formal forbearance, SFB-Unemployment, and FHA-HAMP.195

For borrowers who receive informal or formal forbearance based solely on location of their mortgaged property or place of employment within a disaster area, the mortgagee must offer a Disaster Loan Modification at the end of the forbearance period.

Under the Disaster Loan Modification, the mortgage’s principal and interest payment does not change from its pre-disaster level, and late fees are waived.196 The lender capitalizes the past due amounts to bring the loan current, sets the interest rate to the HUD-defined market rate, and extends the term up to 360 months.

The Disaster Loan Modification is designed to help people who have recovered their income. Unlike the previous version, which required the borrower to provide verification of income,197 the system allows borrowers to either confirm their income through documentation or by simply completing a three-month trial plan, which does not have to be signed.198 The loan must have been current or fewer than thirty days past due at the time of the disaster declaration.

In addition to the Disaster Loan Modification, Mortgagee Letter 2019-14 also established the Disaster Standalone Partial Claim, which was also temporarily in place for the 2017 disasters. Like the standard Standalone Partial Claim, the disaster-related option simply addresses the past due amounts with a no-interest loan to HUD, and therefore the principal and interest portion that the borrower pays in monthly installments does not change. The homeowner can confirm that income has been restored either through income documentation or through the completion of a three-month trial plan.199 The loan must have been current or fewer than thirty days past due at the time of the disaster declaration.

The existence of these disaster-specific options does not preclude consideration of the borrower for FHA-HAMP. This is especially true if the homeowner has not fully recovered income. The Single Family Housing Policy Handbook requires that a mortgagee consider disaster-affected homeowners for all regular FHA loss mitigation options.200 Borrowers who do not have an increase in living expenses but are delinquent due to a forbearance received following a disaster declaration, are deemed to satisfy the conditions for eligibility to be considered for FHA loss mitigation options.201

Footnotes

  • 195 For a description of these options, see U.S. Dep’t of Hous. & Urban Dev., FHA Single Family Housing Policy Handbook 4000.1, III.A.2.k, Loss Mitigation Home Retention Options.

  • 196 U.S. Dep’t of Hous. & Urban Dev., Mortgagee Letter 2019-14 (Aug. 29, 2019), available at https://www.hud.gov.

  • 197 U.S. Dep’t of Hous. & Urban Dev., 4000.1: FHA Single Family Housing Policy Handbook, III.A.3.c.iv(C)(1) (version in effect on Aug. 14, 2019).

  • 198 U.S. Dep’t of Hous. & Urban Dev., 4000.1: FHA Single Family Housing Policy Handbook, III.A.2.n.iv.D(1), Eligibility for Disaster Loan Modification; U.S. Dep’t of Hous. & Urban Dev., Mortgagee Letter 2019-14 (Aug. 29, 2019), available at https://www.hud.gov.

  • 199 U.S. Dep’t of Hous. & Urban Dev., 4000.1: FHA Single Family Housing Policy Handbook, III.A,2.n.iv.D(1), Eligibility for Disaster Loan Modification; U.S. Dep’t of Hous. & Urban Dev., Mortgagee Letter 2019-14 (Aug. 29, 2019), available at https://www.hud.gov.

  • 200 See U.S. Dep’t of Hous. & Urban Dev., 4000.1: FHA Single Family Housing Policy Handbook, III.A.2.n.iv.F, Required Financial Evaluation for other Loss Mitigation Home Retention Options.

  • 201 U.S. Dep’t of Hous. & Urban Dev., 4000.1: FHA Single Family Housing Policy Handbook, III.A.2.n.iv.F, Required Financial Evaluation for other Loss Mitigation Home Retention Options.