FHA Expands Foreclosure Relief for Homeowners Affected by 2017 Disasters

On February 22, 2018, FHA issued Mortgagee Letter 2018-01, announcing expanded mortgage relief to FHA-insured homeowners who live or work in areas impacted by hurricanes Harvey, Irma, and Maria, as well as California wildfires and subsequent flooding and mudslides.

The agency instructed mortgage servicers to offer additional options to eligible disaster victims in Texas, Louisiana, Georgia, Florida, South Carolina, Puerto Rico, and the U.S. Virgin Islands, allowing them to remain in their homes while reducing losses that would otherwise negatively impact the agency’s mutual Mortgage Insurance Fund.

The agency introduced a “Disaster Standalone Partial Claim” option to help struggling borrowers resume their pre-disaster mortgage payments without payment shock. This new option covers up to 12-months of missed mortgage payments via an interest-free second loan on the mortgage, payable only when the borrower sells the home or refinances their mortgage. In addition, this new option requires no trial period or balloon payment and permits borrowers to keep their existing interest rate and loan term as well as their existing monthly mortgage payment.

The expanded loss mitigation will also streamline income documentation and other requirements to expedite relief to homeowners struggling to pay their mortgage while recovering from last year’s disasters.

The new partial claim option is available to certain borrowers who live and work in Presidentially Declared Major Disaster areas and become delinquent on their mortgage payments because of last year’s disasters, and whose initial forbearance periods are ending. Other requirements include:

• Borrowers were current on their mortgage payments at the date of the disaster.
• Borrower’s income is equal to or more than their pre-disaster income.
• Property is owner occupied.

Disaster- impacted borrowers who do not meet the eligibility requirements of this partial claim option may be eligible for a loan modification under the FHA-HAMP option.

Mortgagee Letter 2018-01 is available at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee.