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 and provided further updates through Mortgagee Letter 2021-05 on February 16, 2021.
For owner-occupants who wish to stay in their homes, HUD provides four specific COVID-19 options in Mortgagee Letter 2020-22 (as updated by Mortgagee Letter 2021-05) 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. HUD had limited the availability of COVID-19 post-forbearance options to borrowers that “were current or less than 30 Days past due as of March 1, 2020.”94 HUD removed that eligibility requirement in Mortgagee Letter 2021-05. According to HUD, the letter “allow[s] additional Borrowers, regardless of delinquency status or participation on a COVID-19 Forbearance, to utilize FHA’s COVID-19 Loss Mitigation Options.”95
Mortgagee Letter 2021-05 also clarifies that borrowers with COVID-19 hardships do not have to first access forbearance to access pandemic-specific loss mitigation. “The Mortgagee must review all Borrowers who did not participate on a COVID-19 Forbearance or other forbearance related to the COVID-19 pandemic for COVID-19 Loss Mitigation Home Retention and Home Disposition Options when the Borrower is 90 or more Days Delinquent and the Borrower affirms they have been negatively impacted by COVID-19.”96 While referred to as an expansion by HUD, it is important to note that participation in forbearance plans was never listed as an eligibility criterion.97 HUD, however, states that its policy is subject to revision at a later time.
Pursuant to Mortgagee Letter 2021-05, Borrowers are no longer limited to one COVID-19 loss mitigation option over the life of their loan.98 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 some 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 2021-05 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.
94 HUD, Mortgagee Letter 2020-22 at 5.
95 HUD, Mortgagee Letter 2021-05 (Feb. 16, 2021).
96 HUD, Mortgagee Letter 2021-05 (Feb. 16, 2021).
97 HUD, Mortgagee Letter 2020-22 (July 8, 2020).
98 HUD, Mortgagee Letter 2021-05 (Feb. 16, 2021).