184.108.40.206.2a COVID-19 Advance Loan Modification
The COVID-19 Advance Loan Modification (ALM) provides eligible borrowers with a 25% reduction of their monthly principal and interest payment through pre-set loan modification terms.363 Borrowers do not apply for the ALM. Instead, during a specified period during the pandemic, servicers review their FHA-insured loan portfolio for loans that would achieve the ALM target payment through the modification.364 The servicer will send the ALM modification offer to borrowers who meet the eligibility guidelines. No lump sum payment is required.
The ALM modification involves three steps. First, the borrower’s arrears are capitalized into the mortgage balance in order to bring the loan current. The arrears include “unpaid accrued interest, Mortgagee advances for escrow items, projected escrow shortage amount, [and] related legal fees and foreclosure and bankruptcy costs not higher than the foreclosure-related fees and costs HUD has identified as customary and reasonable.”365 The modification can also include an additional month of outstanding debt to account for processing the paperwork. Second, the payment term of the borrower’s mortgage is extended to 360 months. Third, the interest rate is adjusted to the Freddie Mac Primary Mortgage Market Survey (PMMS) interest rate rounded to the nearest 0.125.366
If the three steps result in a 25% reduction in the borrower’s pre-hardship monthly principal and interest payment, the servicer should offer the ALM subject to additional eligibility requirements. The key eligibility requirement is that the loan must be ninety days or more delinquent for the servicer to review the loan for ALM. In addition, the ALM is not a permanent program and is only available for borrowers on COVID-19 forbearance plans or for borrowers ninety days or more behind “through the termination of the COVID-19 National Emergency.”367
For borrowers on forbearance, servicers are required to send the ALM offer within thirty days of the end of their forbearance plans.
363 HUD, Mortgagee Letter 2021-18 (July 23, 2021).
364 HUD, Mortgagee Letter 2021-18 (July 23, 2021).
365 HUD, Mortgagee Letter 2021-18 (July 23, 2021).
366 HUD, Mortgagee Letter 2021-18 (July 23, 2021).
367 HUD, Mortgagee Letter 2021-18 (July 23, 2021) (emphasis added)