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12.2.7.5 Transition from Forbearance

The HB-1-3555 Handbook provides that, after the forbearance period ends, servicers may use existing loss mitigation workout options to reinstate a borrower who is ready to resume mortgage responsibilities.247 It also provides for “special relief measures,” as described immediately below.

On February 20, 2018, USDA Rural Development issued an announcement entitled “Special Relief for Natural Disasters.”248 This announcement stated that the agency, in response to recent natural disaster events, would amend the HB-1-3555 Handbook to add special relief measures. These measures, which were subsequently published in the Handbook, are designed for servicers to respond immediately to borrowers who are near the end of their forbearance periods.

Thus, eligible borrowers may now be offered certain special relief measures in addition to standard workout options. These special relief measures may be offered without the required standard financial evaluation if the following conditions are met:

  • 1. The loan was current or fewer than thirty days delinquent as of the date of the disaster;
  • 2. The servicer receives verification that the hardship (employment and/or property) has been resolved; and
  • 3. The total modified principal and interest payment is less than or equal to the payment prior to modification.249

First mentioned among the special relief measures is Term Extension.250 Term Extension helps borrowers who can resume their pre-disaster mortgage payment, including any shortage in the escrow account, spread out up to sixty months. Under this option, the servicer extends the loan term by the number of months of forbearance. The HB-1-3555 Handbook directs servicers to waive interest accrued during the forbearance period and allows reamortization of the loan.

Second among the special relief measures is Capitalization of Delinquency and Term Extension.251 This measure assists borrowers who can afford their pre-disaster payment, but cannot manage to pay the additional escrow repayment amount. The servicer must:

  • 1. Capitalize the accumulated arrearages and eligible unreimbursed servicer advances, fees and costs into the modified mortgage balance;
  • 2. Extend the term up to 360 months; and
  • 3. Reduce the rate to no greater than fifty basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) rate for thirty-year, fixed-rate conforming mortgages (US Average), rounded to the nearest one-eighth of one percentage (0.125%), as of the date a plan is offered to the borrower.

The post-modified PITI payment must be equal to or less than the pre-disaster payment.

Third among the special relief measures is the Mortgage Recovery Advance.252 The Mortgage Recovery Advance is discussed in § 9.3.3.2.4, supra. The Mortgage Recovery Advance is limited to an amount no greater than what is necessary to resolve any accumulated interest and unreimbursed servicer advances made during the forbearance period.253

Footnotes

  • 247 See U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, § 18.15, Special Relief Alternatives.

  • 248 U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Servicing, Special Relief for Natural Disasters (Feb. 20, 2018).

  • 249 U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, § 18.15, Special Relief Alternatives.

  • 250 U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, § 18.15, Special Relief Alternatives.

  • 251 .S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, section 18.15, Special Relief Alternatives

  • 252 U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, section 18.15, Special Relief Alternatives

  • 253 U.S. Dep’t of Agriculture, Rural Development, SFH Guaranteed Loan Program Technical Handbook HB-1-3555, section 18.15, Special Relief Alternatives.