State AGs Want FHA to Ensure Lenders Comply with COVID-19 Relief Options | Man’s pepper with trout
Twenty-one attorneys general in the Democratic states say many mortgage services approved by the Federal Housing Administration (FHA) have consistently flouted the agency-mandated COVID-19 relief options, including its loan modification program. In a December 21 letter to the FHA , state attorneys general have called on the FHA to ensure that all FHA lenders implement and fully comply with required COVID-19 relief options.
Last summer, the US Department of Housing and Urban Development (HUD) launched several initiatives to help homeowners financially affected by the COVID-19 pandemic with FHA insured mortgages. The changes were a continuation of previous programs that allowed affected borrowers to withhold monthly payments for up to 18 months – through September or October 2021. Fearing that many affected borrowers would start making again. regular payments or to repay arrears accumulated when the previous programs expired, HUD announced new clawback options.
Together the COVID-19 advance loan modification (COVID-19 ALM), Letter from the mortgagee 2021-18, and the Recovery modification allowed borrowers with FHA insured mortgages to extend the terms of their mortgages and lock in lower monthly payments, resulting in a 25% reduction in their principal and interest payments through a loan modification on 30 years.
Under the programs, FHA mortgagees were required to re-examine borrowers for newly announced COVID-19 recovery options by October 22, 2021 if: (1) the mortgagee had not sent final documentation for a COVID-19 home retention option previously available by August 22, 2021; (2) the borrower was not eligible for a COVID-19 home support option; or (3) the borrower became delinquent due to the COVID-19 pandemic after returning to the facility using a COVID-19 home retention option.
Letter to FHA
In the letter to the FHA, state attorneys general say many FHA-approved lenders not only inadequately implemented the new COVID-19 recovery options, but also consistently flouted them. Instead of complying with the requirements, the letter says, lenders routinely sent letters that did not include the COVID-19 recovery modification as an available option and required unnecessary documentation and qualifications. During the calls, they also allegedly informed borrowers that this option did not exist.
The letter outlined the laudable goals of the FHA for creating the loan modification option. The option was designed “to create a sustainable path to recovery for families, and the FHA predicted that it would particularly help low-income households, new homeowners, and households of color that the pandemic has disproportionately affected. “. But until the “implementation failures” of lenders are rectified, state attorneys general believe the goal of helping borrowers cannot be successfully achieved.
As a result, the letter called on the FHA to take immediate action to ensure all lenders fully implement COVID-19 recovery options by requiring FHA lenders to show their loan officers take positive action.
In an accompanying press release, District of Columbia Attorney General Karl Racine said, “The purpose of the federal program is to reduce the displacement of families from their homes. . . [T]too much [FHA-approved mortgage loan servicers] continue to send letters to borrowers that do not provide the information required by law, impose unnecessary burdens, including cumbersome forms and unenforceable legal qualifications, and wrongly deny the existence of applicable programs that protect buyers. These practices are illegal, unacceptable and dangerous, and they discriminate against low-income borrowers and borrowers of color.
It is not without precedent that state attorneys general play this role during emergencies and crises. During the “housing crisis” and its aftermath, state attorneys general were heavily involved in similar efforts regarding loan modifications and other relief efforts to prevent and reduce the displacement of families from their homes. Over the next few months, we expect to see increased involvement of state attorneys general in COVID-19 recovery options, as they continue to scrutinize lenders and real estate agents.