October 22, 2019
In August of 2019, the FHA and HUD issued press releases and Mortgagee Letters describing changes to the FHA loss mitigation guidelines for those recovering from natural disasters in federally-declared natural disaster areas.
The FHA states that the new rules affect homeowners who live or work in a “Presidentially-Declared Major Disaster Areas (PDMDAs) of Hurricanes Harvey, Irma and Maria or certain California Wildfires, Flooding, Mudflows, and Debris Flows” according to the HUD official site.
Certain temporary measures the FHA and HUD passed in recent times to help improve disaster recovery in these areas are now made permanent. There are some features that have been added that streamline the application process for FHA loan relief, forbearance, and other measures.
According to the HUD official site, lenders can use a recent bank statement, W2, or other documents acceptable to the FHA and the lender to show current income in order to qualify for certain loans or other disaster relief. But sometimes after a disaster, such documentation may be hard to come by.
Enter the new FHA loan policy which states that FHA rules are now modified to allow an alternative; “As an alternative to providing income documentation, the borrower can complete a three month Trial Payment Plan (TPP) to confirm income has returned to pre-disaster levels. The TPP does not have to be signed by the borrower.”
FHA loan modification procedures have also been modified. In this case, the FHA has chosen to eliminate the requirement of a Trial Payment Plan and to “allow the term of the modified mortgage to be less than 360 months from the modification effective date and allow the interest rate to be equal to or less than the Market Rate as defined by HUD”.
Changes to the Disaster Standalone Partial Claim process includes adding a streamlined “alternative Loss Mitigation solution that Mortgagees may use with disaster-affected borrowers who do not qualify for a Disaster Loan Modification”.
There is no required trial payment plan. Instead, “the requirement that the Borrower demonstrates the ability to resume total monthly mortgage payments of Principal and Interest (P&I) has been eliminated”.
The borrower is simply instructed to three consecutive monthly mortgage payments, which is considered “as an alternative to income and employment documentation”.
These are just a few of the changes that have been made; temporary programs have become permanent, certain older requirements no longer apply, and participating lenders were able to start implementing these changes immediately following the publication of the FHA guidance in these areas.
Otherwise, all participating FHA lenders are required to add these changes no later than the end of November 2019.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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