The U.S. Department of Housing and Urban Development (HUD) finalized a rule amending its regulations to allow for mortgagees to recast a total unpaid loan for a new term limit of 480 months. The previous maximum term limit was 360 months.
This increase, HUD stated, allows mortgagees to further reduce a borrower’s monthly payment by spreading the outstanding balance over a longer time-frame. This provides more borrowers the ability to retain their homes after default.
This change will go into effect on May 8 and applies to mortgages insured through the Federal Housing Administration (FHA).
Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit said the organization appreciates FHA’s engagements with mortgage servicers and other stakeholders on the issue.
“This additional tool will allow mortgage servicers to help struggling FHA borrowers stay in their homes through a more affordable and sustainable mortgage payment,” Broeksmit said. “Adding the 40-year loan modification to FHA’s loss mitigation toolkit creates better alignment across the government and with Fannie Mae and Freddie Mac, a long-standing MBA priority that we most recently recommended in our new white paper on the future of loss mitigation.
“Better alignment will improve consumer experience and lead to consistency and simplicity when addressing adverse market conditions, national emergencies, and natural disasters.”