Skip to main content

Search

Mortgage Servicing and Loan Modifications: 12.3.6.4.2 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 preset loan modification terms.390 Borrowers do not apply for the ALM. Instead, during a specified period, servicers review their FHA-insured loan portfolio for loans that would achieve the ALM target payment through the modification.391 The servicer will send the ALM modification offer to borrowers who meet the eligibility guidelines.

Mortgage Servicing and Loan Modifications: 12.2.1 Introduction

Mortgage relief following a natural disaster may include a moratorium on foreclosure sales, suspension of foreclosure eviction, suspension of credit reporting, suspension of late charges, mortgage forbearance, loss mitigation options, and the distribution of insurance proceeds or other insurance-related assistance. The relief available will vary depending upon the relevant investor of the mortgage.

Mortgage Servicing and Loan Modifications: 12.3.1 Overview and Practice Tips

This section covers the relief measures available for borrowers facing hardship from the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act covered most of the residential mortgage market; however, it only addressed short-term assistance to borrowers and not long-term relief. The CARES Act did not apply to many loan types, and it left crucial details about programs up to the covered investors.

Mortgage Servicing and Loan Modifications: 12.3.2 COVID-19 Assistance

There has been local, state, and federal assistance for borrowers with COVID-19 hardships. The federal provisions generally apply only to “federally-backed” mortgages, which includes loans backed by Fannie Mae and Freddie Mac and loans insured by federal agencies. There are very limited published guidelines to assist borrowers without federally backed loans. Knowing the relevant investor of the loan is critical to knowing what assistance a borrower is entitled to receive.

The general categories of assistance are as follows:

Mortgage Servicing and Loan Modifications: 12.3.3.1 Introduction, Timing, and Coverage

As described above, forbearance is temporary pause on the borrower’s obligation to make payments. The CARES Act provides details on when forbearance applies and leaves some other specific details to investors, as described in later sections.

In response to the rising pandemic, Congress passed the CARES Act to, among many other things, assist borrowers facing COVID-19 hardship. According to the section covering mortgages, section 4022, its provisions apply “during the covered period.”278

Mortgage Servicing and Loan Modifications: 12.3.3.2 No Formal Application Required for CARES Act Forbearance

Under the CARES Act, borrowers have the right to receive forbearance if they have “a financial hardship due, directly or indirectly, to the COVID-19 emergency.”290 By recognizing hardships that are indirectly caused by the pandemic, the CARES Act provides relief to a broad scope of hardships. Advocates should cite this language to any servicer scrutinizing whether a hardship is sufficient.

Mortgage Servicing and Loan Modifications: 12.3.3.3 Approval of CARES Act Forbearance Request Is Mandatory

Upon request of the borrower with a federally backed loan, forbearance “shall” be granted. As described above, the CARES Act, which was drafted quickly in response to the pandemic, includes two sections with slightly different language describing forbearance from the borrower and the servicer’s perspective. Critically, both sections use the word “shall” when describing granting forbearance requests. The CARES Act gives servicers no discretion to deny the forbearance as long as the borrower makes the required attestation within the relevant period.

Mortgage Servicing and Loan Modifications: 12.3.3.5 The Terms of CARES Act Forbearance

Forbearance under the CARES Act suspends the borrower’s obligation to make ongoing payments as they become due under the mortgage. The principal amount due under each payment subject to forbearance remains a debt the borrower must repay. Similarly, interest accrues with each scheduled payment coming contractually due during forbearance. The key benefit of forbearance is that it eliminates the contractual consequences of not having made the payments on time.

Mortgage Servicing and Loan Modifications: 12.3.4.1 Overview

The government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, have implemented similar policies for borrowers facing COVID-19 hardships, pursuant to the Federal Housing Finance Agency’s (FHFA) Servicing Alignment Initiative, but with some variation.308 The GSEs do not vary in terms of the basic options available, but they have some different rules regarding access to relief. Effective November 1, 2023, Fannie Mae began retiring its COVID-19 policies described below.

Mortgage Servicing and Loan Modifications: 12.3.4.2 Fannie Mae Foreclosure Moratorium

On March 18, 2020, Fannie Mae announced a sixty-day moratorium on foreclosures due to COVID-19 through Lender Letter 2020-02.310 The initial moratorium only provided a pause on foreclosure sales and did not mention a stay on the initiation of the foreclosure process. As discussed above, the CARES Act broadened the scope of the moratorium to include initiating foreclosures and moving for judgment in active foreclosure cases.

Mortgage Servicing and Loan Modifications: 12.3.4.3.1 Generally

Even after the end of the COVID-19 national emergency, borrowers facing COVID-19 hardships have access to forbearance. The availability of forbearance from Fannie Mae is not time limited because COVID-19 hardships may fit within Fannie Mae’s standard forbearance language.314 It is important to note that Fannie Mae’s forbearance provisions are not mandatory.

Mortgage Servicing and Loan Modifications: 12.3.4.3.2 Fannie Mae post-forbearance options

For borrowers with COVID-19 hardships that are exiting forbearance, Fannie Mae has developed options to address the unpaid amounts. While Fannie Mae states that a servicer should determine if the borrower is able to resolve the delinquency with a lump sum or afford a payment plan, its regulator has said lump sums cannot be required at the end of forbearance.319 Fannie Mae provides a menu of alternatives that hinge on whether the borrower can resume making their pre-forbearance mortgage payments.

Mortgage Servicing and Loan Modifications: 12.3.4.3.3 Eligibility for Fannie Mae’s COVID-19 Deferral

Fannie Mae’s initial option for addressing forborne payments is its COVID-19 deferral program.320 To access this option, borrowers must have their COVID-19 hardship identified before November 1, 2023, and the final evaluation for the deferral must be completed before November 1, 2024.321 Borrowers with hardships identified on or after November 1, 2023, may have access to the standard deferral described in Chapter 7.

Mortgage Servicing and Loan Modifications: 12.3.4.3.4 How borrowers obtain a Fannie Mae COVID-19 Deferral

Fannie Mae does not require borrowers with COVID-19 hardships identified prior to November 1, 2023, to submit documentation of hardship or a borrower response package (BRP) or other financial documentation to access this option. Fannie Mae guidelines state that “quality right party contact” (QRPC) is required in order to determine basic information about the borrower’s finances, including whether the borrower can afford the pre-forbearance monthly payment.

Mortgage Servicing and Loan Modifications: 12.3.5.1 Freddie Mac Foreclosure Moratorium

On March 18, 2020, Freddie Mac announced a sixty-day moratorium on foreclosures due to COVID-19 through Freddie Mac Bulletin 2020-4. The initial moratorium only required a pause on foreclosure sales. As discussed above, the CARES Act broadened the scope of the moratorium to include initiating foreclosures and moving for judgment in active foreclosure cases.

Mortgage Servicing and Loan Modifications: 12.3.5.2.1 Generally

Even after the end of the COVID-19 national emergency, borrowers with Freddie Mac loans are entitled to forbearance for COVID-19 hardships. The availability of forbearance from Freddie Mac is not time limited because COVID-19 hardships fit within Freddie Mac’s standard forbearance language. It is important to note that Freddie Mac’s forbearance provisions are not mandatory.

Mortgage Servicing and Loan Modifications: 12.3.5.2.2 Freddie Mac post-forbearance options

For borrowers with COVID-19 hardships that are exiting forbearance, Freddie Mac has developed options to address the unpaid amounts beyond making a lump sum payment. While Freddie Mac includes payment of a lump sum as one possible means of addressing forborne payments, its regulator has said that a servicer cannot require a lump sum payment at the end of forbearance.349 Freddie Mac provides a menu of alternatives that hinge on whether the borrower can resume making their pre-forbearance mortgage payment.

Mortgage Servicing and Loan Modifications: 12.3.5.2.3 Eligibility for Freddie Mac COVID-19 deferral

Freddie Mac’s initial option for addressing forborne payments is its COVID-19 deferral program.350 To access this option, borrowers must have their COVID-19 hardship identified before November 1, 2023, and the final evaluation for the deferral must be completed before November 1, 2024.351 Borrowers with hardships identified on or after November 1, 2023, may have access to the standard deferral described in Chapter 7.

Mortgage Servicing and Loan Modifications: 12.3.6.2 FHA Foreclosure Moratorium

The FHA issued an initial moratorium on foreclosures, which covered the initiation of foreclosures, on March 18, 2020, through HUD Mortgagee Letter 2020-04.367 Upon expiration of the CARES Act, HUD extended the moratorium to June 30, 2020, to August 31, 2020, to December 31, 2020, to February 28, 2021, to March 31, 2021, to June 30, 2021, and then to July 31, 2021.368 The extension of the deadline to July 31, 2021, was in response to the Biden Administration’s policy announcement to help borrowe