Mortgage Bankers Association, Housing Policy Council Issue Public Comment to HUD
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To: Regulations Division,
Re: Docket No.: HUD-2022-0024, Increased Forty Year Term for Loan Modifications
To Whom It May Concern:
The
1 The
2
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In short, we offer the following in response to HUD's proposal:
* A term up to 480 months should be available for the Home Affordable Modification Program (FHA-HAMP) and Presidentially Declared Major Disaster Areas (PDMDA) modification programs either with or without a partial claim modification to achieve the target payment
* The 30-year (360-month) modification should be maintained as a core component of FHA's permanent set of loss mitigation programs
* Like the policy outlined in Mortgagee Letter 2022-07, Update to COVID-19 Recovery Loss Mitigation Options, flexibility should be provided to achieve a target payment reduction at a term less than 480 months
* FHA and
Extended Term Useful for Substantial Hardship and Adverse Market Conditions
HUD's proposal to allow for a modification of up to 480 months will help consumers facing long-term hardships and address the unique challenges of adverse market conditions. For those borrowers for whom a traditional 360-month (30-year) modification does not reduce the monthly payment to an affordable level, the extended term of up to 480-months will be helpful. We agree that this tool will be particularly beneficial to drive payment reduction for more distressed consumers in a higher interest rate environment, which may also include consumers who redefault after completing a COVID-19 Loss Mitigation Recovery Option.
Further, aligning loss mitigation policy across the government and with
The success of industry's efforts to align loss mitigation policies and options after the COVID-19 Pandemic should continue. Consistent program terms help servicers and industry stakeholders communicate and educate consumers on the available loss mitigation options, as well as introduce scalable processes. More standardized programs provide a consistent, easily understandable consumer experience, no matter the hardship reason or the investor/agency backing the loan.
We support the regulatory proposal and recommend that FHA introduce a term of up to 480 months into standard FHA-HAMP and PDMDA (natural disaster) waterfalls outlined in the 4000.1 Handbook, Section III., Servicing and Loss Mitigation in a future policy update. The extended term modification, on its own, would help consumers achieve the target payment who maximized their life of loan 30% UPB partial claim allowable. If necessary, however, final policy should consider combining an extended term modification with a partial claim to help consumers who have a remaining partial claim amount as an available tool to achieve their target payment. Regardless, FHA should not eliminate the existing loss mitigation structure.
3 Government Loan Modifications (urban.org); One Mod -Principles for Post-HAMP Loan Modifications.pdf (nysba.org)
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Flexibility to Achieve Affordability
To be clear, introducing a modification with a term of up to 480 months (40 years) into FHA's permanent suite of loss mitigation solutions should not replace a standard 30-year modification as a tool in FHA's loss mitigation toolkit. Consumers that can achieve an affordable payment with the standard 30-year modification programs are given the opportunity to limit the amount of additional interest paid and accumulate equity in their home more quickly than they would receiving a 40-year modification. Our members support for a 40-year modification is support for an additional option to achieve retention, not the only option.
In that same spirit, FHA should also allow for flexibility to qualify a consumer for a home retention option at a term between 360 months and 480 months if such term meets the target payment. In fact, we suggest that FHA consider narrowly tailoring its guidance around the 480month term extension to provide that servicers incrementally extend the term beyond 360 months only as needed to hit the target payment up to a maximum term extension of 480 months. This will allow servicers to ensure consumers are only extending loan terms beyond 360 months to the duration necessary to achieve affordability and home retention. Likewise, ensuring access to liquidity is also important for extended term modifications.
Secondary Market Certainty
The ability to deliver a modification with an extended term into a
As you know, access to liquidity is vital for the health of the housing finance system. Although
Therefore,
4 10272021_letter_hpc-and-mba-40-year-fha-mod-comments.pdf (Pg. 5, 6)
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Conclusion
MBA, HPC, and our members have appreciated FHA's direct engagement with industry and servicers throughout the past two years of the COVID-19 pandemic. As HUD finalizes a future policy to implement a 40-year modification, we encourage continued engagement--especially as our industry considers the future of loss mitigation based on lessons learned from the COVID-19 National Emergency. We encourage FHA to use the drafting table to solicit comments on the more expansive FHA guidance that will accompany ultimate execution of modifications with up to 480month terms.
Thank you in advance for your consideration of these comments. Should you have any questions or wish to discuss further, please contact
Sincerely,
Housing Policy Council
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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