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FHA Introduces Simplified COVID-19 Recovery “Waterfall”
Foreclosures are inevitable! Once the moratorium ends, there is a high likelihood that many homeowners will lose their homes, and not just that, with rents on the rise, many renters will also lose their homes. Seeing the worst on the horizon, the U.S. Department of Housing and Urban Development published a fully revised version of the “Waterfall” loss mitigation options for the borrowers who are almost to the end of their forbearance period.
WHAT IS WATERFALL LOSS MITIGATION?
Basically, these are loss mitigation options to help vulnerable renters and homeowners from being evicted and falling into foreclosure. The loss mitigation measures by FHA apply what is known as the “waterfall method” which assesses the homeowner’s eligibility if they do not qualify for FHA’s National Emergency Standalone Partial Claim.
The Federal Housing Administration compared this version of loss mitigation to that of a filter which means that, when the homeowner fails to meet the qualification of the servicing interventions, they will be streamlined down to a series of waterfall options as the servicer attempts to get the borrower into the sustainable mortgage payment. “Due to the fact that servicers are facing an unprecedented number of loss mitigation actions on the backside of this, we want to make it as easy for them as possible to get borrowers in a feasible situation on the other side forbearance,” said a HUD official.
In order to streamline this process, the Federal Housing Administration intends to scrap off their old model and instead of providing servicers with two options for processing the borrowers who are coming out of forbearance that is;
• The recovery standalone partial claim for the borrowers who are able to continue with their mortgage payments.
• A recovery modification option for the borrowers who cannot.
The HUD claims that these steps have been taken in order to “to support a sustained and equitable recovery as well as to protect the Mutual Mortgage Insurance Fund (MMIF).”
NEW CHANGES
For the borrowers who are comfortable continuing making their payments, this is a good thing because the new recovery standalone partial claim replaces the previous one and offers to help the borrowers “quickly resolve the outstanding delinquency and arrearages through a zerointerest subordinate lien,” The FHA noted in a letter. These changes are a continuation of some earlier programs initiated by the FHA to control the damage of the evictions and foreclosures. According to HUD, the new Covid-19 Recovery Waterfall “streamlines and revises FHA’s previous options for struggling homeowners, reduces required documentation, and allows mortgage servicers to provide greater payment reduction for eligible homeowners with FHA-insured Single Family Title II forward mortgages.”
It is to be noted that earlier, the department announced the Covid-19 Advance Loan Modification (Covid-19 ALM) review program that will take effect even before the rollout of the new waterfall program. For the ALM, servicers are required to proactively offer the Covid-19 ALM to the eligible borrowers who are delinquent but can achieve a 25% reduction to the principal and the interest portion of their monthly mortgage payment through a 30-year rate and term loan modification.
Meanwhile, the Covid-19 recovery modification option will extend the terms of the mortgage to 360 months at a fixed rate while attempting to decrease the borrower’s monthly principal payment and interest by 25%. According to FHA, this option must include a partial claim, if at all it is available.
Marcia Fudge, the HUD Secretary said that “these options for FHA borrowers will ensure equitable relief and recovery”
“As Americans get back to work and our economy continues to recover, we are taking targeted steps to make sure homeowners impacted financially by COVID-19 have the support they need to remain in their homes,” Fudge said.
In addition,, according to the letter by HUD, servicers have to review the homeowners for the new Covid-19 recovery options in circumstances where an existing retention option that was not completed, where the homeowner was previously ineligible for a home retention option, or where the homeowner has re-defaulted after a Covid-19 retention option.
The forbearance period was extended and would be ending in September. The fact is, foreclosures are inevitable but I like what the FHA is doing. At least, by providing the waterfall loss mitigation options, many borrowers will have a softer landing. Right now, many borrowers are acting cautiously because one wrong move could mean disaster. Therefore, if you risk your home from being foreclosed, it is time to start taking action. Right now, you may be covered by the forbearance moratoria, but what happens when that comes to an end? While there is still some bargaining ground provided by the HUD, it is all up to you to take all the necessary steps to save yourself and your home. To learn more about your options to avoid foreclosure, talk to Eric Lawrence Frazier MBA today.
Eric Lawrence Frazier MBA Founder | President | CEO The Power Is Now Media Inc.
Sources
https://www.housingwire.com/articles/fha-introduces-simplified-covid-19recovery-waterfall/ https://www.housingwire.com/articles/fha-employs-waterfall-method-to-expandhome-retention-measures/ https://www.natlawreview.com/article/hud-announces-new-covid-19-recoveryloss-mitigation-options https://www.nolo.com/legal-encyclopedia/help-homeowners-fha-loans.html https://fortune.com/2021/07/26/2021-housing-market-real-estate-foreclosuresmortage-forbearance/
