FHA Advanced Loan Modification Notice
FHA Advanced Loan Modification Notice
On June 25, 2021, the FHA issued Mortgagee Letter 2021-15 (subsequently updated in July by FHA ML 2021-18), which introduced a new FHA COVID-19 Advance Loan Modification (“ALM”) option. Under its terms, mortgagees must either solicit or review eligible borrowers for an ALM. The new ALM treatment requires making a minimum 25 percent reduction to the borrower’s Principal and Interest (“P&I”) payment and does not require the borrower to make initial contact. The ALM is considered a pre-waterfall loss-mitigation option.
Cenlar has begun to identify eligible FHA loans that meet the new ALM requirements and will continue ALM reviews as new FHA loans become eligible.
Eligibility Process Fee
Cenlar will charge a $75 per-loan fee for all loans run through the eligibility process. Clients will be charged their contractual loss-mitigation decisioning fee for borrowers who are approved for an ALM solicitation. If the borrower returns the ALM documents within the 30-day window, clients will be charged the contractual loss-mitigation disposition fee. If a borrower is not approved for an ALM solicitation, clients will incur a $75 fee.
Clients will be charged the contractual loss mitigation decisioning and/or disposition fees if a borrower requests assistance on an FHA loan and is decisioned for an ALM or other approved FHA treatment option.
FHA Loans in a GNMA Pool
If a borrower whose FHA loan is in a GNMA pool decides to take advantage of the ALM modification, clients will need to purchase the loan out of the GNMA pool to complete the modification. Because the loan has to be 90 days or more delinquent in order to be ALM eligible, the loan can be bought out of the GNMA pool without preapproval from GNMA once ALM modification documents have been executed and approved.
ALM Modification Requirements
Eligibility
- The property may be owner-occupied or non-owner occupied
- The borrower must be 90 or more days delinquent
- A 30-year loan modification at the most recent Freddie Mac Weekly Primary Mortgage Market Survey (“PMMS”) Rate rounded to the nearest one-eighth of 1% (0.125 percent) in order to achieve a minimum 25% reduction in the Borrower’s P&I.
Review
The Mortgagee must review all borrowers:
- On a COVID-19 forbearance for a COVID-19 ALM within 30 days of the expiration of the forbearance, or
- Borrowers 90 or more days delinquent and not on a COVID-19 forbearance through termination of the COVID-19 National Emergency.
Terms and Conditions
The Mortgagee must ensure that:
- The COVID-19 ALM achieves a minimum 25% P&I monthly payment reduction
- The modified mortgage is a fixed-rate mortgage
- The interest rate of the modified mortgage is the PMMS Rate rounded to the nearest one-eighth of 1% (0.125%)
- The term for the modified mortgage is 360 months
- The COVID-19 ALM only capitalizes arrearage, including:
- Unpaid accrued interest
- Mortgagee advances for escrow items
- Projected escrow shortage amount
- Related legal fees and foreclosure/bankruptcy costs not higher than the foreclosure-related fees and costs HUD has identified as customary and reasonable
- Mortgagees may include an additional month in the total outstanding debt to be resolved to allow time for the borrower to return the executed mortgage modification before the modified mortgage payment begins.
- The COVID-19 ALM fully reinstates the mortgage.
- The mortgage remains in first-lien position and is legally enforceable.
- All late charges, fees, and penalties are waived except for those late charges, fees and penalties accumulated prior to March 1, 2020.
Procedures
For borrowers who are determined to be eligible, the Mortgagee must:
- Prepare and send the loan modification documents to the borrower.
- Provide a cover letter that includes:
- An explanation of terms, including the modified Mortgage Payment amount
- The date the next payment is due
- A statement that no lump sum payment is required
- A statement that if the borrower does not accept this offer, the borrower may obtain another loss-mitigation option to bring the loan current
- A statement that the borrower must sign and return the loan modification documents within 30 days of receipt of the documents, and
- Information for the borrower to contact the servicer, if needed.