The Department of Housing and Urban Development issued a Mortgagee Letter on April 1 with guidance spelling out how it will implement one of the key provisions of the CARES Act. The Mortgagee Letter spells out special loss mitigation options that mortgagees are required to offer to borrowers on any Federal Housing Administration Title II single-family mortgages who are affected by the coronavirus (“COVID-19”). The HUD announcement and the Mortgagee Letter also contain information about special considerations for Home Equity Conversion Mortgages.
The primary relief described in the letter is forbearance. If a borrower is unable to make his or her mortgage payment on time due to the COVID-19 emergency, then the mortgagee must offer the borrower a forbearance permitting one or more reduced or suspended payments. The initial period of forbearance may be up to six months and can be extended at the borrower’s option for up to an additional six months. During the forbearance period, the mortgagee must waive all late charges, fees, and penalties. Also, any borrower who is granted a forbearance under this program but is otherwise performing in accordance with the terms of his or her loan may not be considered delinquent for purposes of credit reporting.
The other relief explained in the letter is the COVID-19 National Emergency Partial Claim. The Emergency Partial Claim program authorizes servicers to advance funds on behalf of borrowers to reinstate their loans after the forbearance period ends. Repayment of those advances is deferred through interest-free subordinate mortgages that the borrowers do not have to repay until their first mortgages are paid off. Each borrower is entitled to only one Emergency Partial Claim.
For continuous updates and the latest COVID-19-related information, be sure to check the Troutman Sanders/Pepper Hamilton COVID-19 Resource Center.