This is part of our ongoing series on mortgage relief options and how to handle your loan in a crisis.
Feeling confused about your Federal Housing Administration (FHA) loan?
With so many homeowners out of work due to COVID-19, the term “forbearance” is buzzing all over the place.
A form of loss mitigation, forbearance is an agreement between a borrower and your loan servicer that temporarily reduces or suspends your mortgage payments during financial hardship.
In response to COVID-19, lenders like Fannie Mae and Freddie Mac quickly made changes to their forbearance practices to address the needs of borrowers (see our post on mortgage relief options).
Meanwhile, the federal CARES Act allows homeowners with FHA-insured loans to receive forbearance, too. But the FHA has gone a step further with its relief efforts by offering both a COVID-19 forbearance plan and a partial claim specific to the emergency.
If this is all getting a little confusing, don’t stress — we’re here to clear things up! Below is a breakdown of what the FHA is providing.
COVID-19 Forbearance
The FHA is offering forbearance tailored specifically to address the problems arising during COVID-19. Specifics include:
- A borrower can request a COVID-19 forbearance if they’re experiencing financial hardship caused by COVID-19 including reduced income from job loss, illness from the virus, caring for a sick family member, or being unable to work regular hours due to a lack of telework options or childcare.
- Forbearance is available to both owner-occupied and non-owner occupied homes. A borrower can receive forbearance for a single-family home that landlord if the tenant is unable to pay rent due to COVID-19.
- Forbearance can last for one to six months (with an additional six months available if needed) just by asking – no verification documents are required.
- Borrowers can request forbearance via written notice, by phone, email or text message.
- If borrowers meet the terms of their agreement, the forbearance will not be reported to their credit.
- All late fees will be waived during the forbearance period.
- Before the forbearance period ends the borrower must be reviewed for options to make up the missed payments.
- If a borrower cannot make up the missed payments, they could be at risk of foreclosure. Because of this risk, the FHA advises that borrowers should only request forbearance if their income is seriously affected by COVID-19.
COVID-19 National Emergency Standalone Partial Claim
The FHA COVID-19 National Emergency Standalone Partial Claim is a loan offered at the end of a forbearance period to the amount owed in overdue payments. Partial claims keep the existing terms of a mortgage, including the monthly payment amount, and the missed payments become an interest-free loan to be paid back when the first mortgage is paid off or the borrower no longer owns the property. Here are more specifics:
- These claims are available for owner-occupied properties only.
- Borrowers must have been fewer than 30 days late on their mortgage payment as of March 1, 2020 to qualify.
- Borrowers must verbally indicate (no document verification required) that they can resume on-time mortgage payments.
- The maximum value of a partial claim is the total of the missed payments (including taxes and insurance), not to exceed 30% of the unpaid principal balance.
- The COVID-19 Standalone Partial Claim is limited to one per borrower.
- The “standalone” part of the partial claim indicates that borrowers are still likely to be eligible even if they received a loan modification or other partial claim in the past 24 months. However, all partial claims combined cannot exceed 30% of the unpaid principal balance.
If you feel like you need to dive deeper, this COVID-19 FAQ from the US Department of Housing and Urban Development, which oversees the FHA, may help.
We hope that cleared some things up! For more info about homeowner finances during the national emergency, visit our COVID-19 Resource Hub.
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