COVID-19: What are the requirements for using a COVID-19 Owner-Occupant Loan Modification?

For FHA Owner-Occupant Borrowers who do not qualify for the COVID-19 Standalone Partial Claim, the Mortgagee must review the Borrower for a COVID-19 Owner-Occupant Loan Modification, which modifies the rate and term of the Mortgage.
 
Eligibility for the COVID-19 Owner-Occupant Loan Modification
The Mortgagee must ensure that Borrowers and the FHA-insured Mortgage meet the following requirements for a COVID-19 Owner-Occupant Loan Modification:
  • The Borrower indicates they have the ability to make the modified Mortgage Payment; and
  • The Property is Owner-Occupied.
Terms of the COVID-19 Owner-Occupant Loan Modification
The Mortgagee must modify the Mortgage as follows:
  • All Late Charges, fees, and penalties must be waived except that Mortgagees are not required to waive Late Charges, fees, and penalties, if any, accumulated prior to March 1, 2020;
  • The Mortgagee must only capitalize into a COVID-19 Owner-Occupant Loan Modification:
    • arrearages for unpaid accrued interest,
    • Mortgagee advances for escrowed item, and
    • an escrow shortage that falls below the target balance, calculated during an escrow analysis, that exceeds the amount of the Mortgagee’s advances already capitalized in the modified mortgage.
  • The Mortgagee must ensure that the COVID-19 Owner-Occupant Loan Modification fully reinstates the Mortgage.
  • The Mortgagee must ensure that the modified Mortgage, including Adjustable Rate Mortgage (ARM), Graduated Payment Mortgage (GPM) or Growing Equity Mortgage (GEM), is modified to a fixed rate Mortgage.
  • The Mortgagee must ensure that the interest rate is no greater than the Market Rate as defined by HUD.
  • The Mortgagee must ensure that the term for the modified Mortgage is 360 months.
    • The term may be less than 360 months if requested by the Borrower.
  • The Borrower’s Principal and Interest (P&I) may not increase under the COVID-19 Owner-Occupant Loan Modification unless:
    • The Borrower has exhausted the 30 percent maximum statutory value of all Partial Claims for an FHA-insured Mortgage.
  • HUD does not provide a model for COVID-19 Loan Modification documents, but the Mortgagee must ensure the FHA-insured Mortgage remains in first lien position and is legally enforceable.
For additional information see:

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-05567