HUD has provided specific options for borrowers facing long-term COVID-19 related hardships and has expanded them during the pandemic. On April 1, 2020, HUD issued Mortgagee Letter 2020-06 that implemented the COVID-19 Standalone Partial Claim for borrowers with pandemic related hardships who fall behind on their loans. In response to consumer advocates, HUD expanded the options through Mortgagee Letter 2020-22 on July 8, 2020. Servicers could immediately implement the system and were required to do so by ninety days after release of the Mortgagee Letter.
For owner-occupants who wish to stay in their homes, HUD provides four specific COVID-19 options in Mortgagee Letter 2020-22 and has stated that servicers should evaluate borrowers for them in the order listed. The options are: COVID-19 Standalone Partial Claim, COVID-19 Owner-Occupant Loan Modification, COVID-19 Combination Partial Claim and Loan Modification, and COVID-19 FHA-HAMP Combination Loan Modification and Partial Claim with Reduced Documentation.
Borrowers can receive the listed options if they faced a COVID-19 related hardship and if they “were current or less than 30 Days past due as of March 1, 2020.”84 Though forbearances are referenced in the section, a borrower’s participation in a forbearance plan is not listed as an eligibility criterion. Borrowers who were not current or less than thirty days behind as of March 1, 2020 will be evaluated under the standard FHA-HAMP waterfall.85 Borrowers are only allowed one COVID-19 loss mitigation option over the life of their loan. Unlike standard loss mitigation options, no trial plan is required for COVID-19 options and it appears that there are no seasoning limits or exclusions for borrowers who have had loan modifications within the past twenty-four months. Borrowers who are eligible for these options will have “Late Charges, fees, and penalties” waived.
Advocates should help borrowers navigate HUD’s loss mitigation options. As described below, the loss mitigation option the borrower receives will depend on which option the borrower states is affordable in a conversation with the servicer. These conversations with servicers are often confusing for borrowers and sometimes involve servicer misstatements of the available options. Moreover, the options provided in Mortgagee Letter 2020-22 are complicated. Therefore, advocates will play a critical role is ensuring that borrowers receive appropriate options and that the system works in a just and efficient manner.