HUD Publishes Proposed Rule Increasing the Maximum Term for Loan Modifications to 40 Years

HUD recently published a proposed rule in the Federal Register that would amend 24 CFR § 203.616 to increase the maximum loan modification term limit from 360 months (30 years) to 480 months (40 years).

HUD first promulgated final rules adding loss mitigation options to 24 CFR part 203 in 1996 and 1997.  One of those loss mitigation options allows mortgagees to modify a mortgage and recast the total unpaid amount due for a term not exceeding 360 months from the date of the modification.  HUD’s proposed rule would increase that maximum loan modification term to 480 months, thereby spreading the outstanding mortgage balance over a longer period of time, and reducing the borrower’s monthly payment. 

The proposed change would bring FHA’s maximum loan modification term in line with what is already available to borrowers with mortgages backed by Fannie Mae, Freddie Mac, the National Credit Union Administration, and the U.S. Department of Agriculture.  Ginnie Mae is also prepared to support the change, as the corporation announced the “creation of a new pool type to support the securitization of modified loans with terms up to 40 years” in a press release on June 25, 2021.

Public comments are due by May 31, 2022.