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Mortgage Servicing and Loan Modifications: 12.2.7.1 Sources of Information

Servicers of USDA-guaranteed loans must comply with 7 C.F.R. § 3555.307 and chapter 18, section 5 of the Rural Development SFH Guaranteed Loan Program Technical Handbook (HB-1-3555 Handbook).249 According to 7 C.F.R. § 3555.307, “The servicer must evaluate on an individual case-by-case basis a mortgage that is (or becomes) seriously delinquent as the result of the borrower’s incurring extraordinary damages or expenses related to the natural disaster.”250

Mortgage Servicing and Loan Modifications: 12.2.7.2 Moratorium

The HB-1-3555 Handbook mandates that servicers of Rural Development’s single-family guaranteed loans suspend all foreclosure-related actions for ninety days from the date of declaration unless extended by the agency. This includes the initiation of new foreclosures as well as foreclosures already in process. To be eligible for a suspension of foreclosure activities, the property or the borrower’s place of employment must be directly affected by the disaster.251

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.

Bankruptcy Basics: Student Loans

The United States Department of Education’s National Student Loan Data System (NSLDS) provides information on federal direct and guaranteed student loan obligations online at https://nsldsfap.ed.gov/login. After creating a Federal Student Aid (FSA) ID, students can check loan amounts, loan types, loan status, and disbursements. Alternatively, the student can call the Federal Student Aid Information Center at (800) 4-FED-AID ((800) 433-3243) or (800) 730-8913 (TTY).

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.