In April 2022, the U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) announced it would be adding a new 40-year mortgage modification option for mortgage servicers to offer struggling borrowers. Per the release, the “new loss mitigation home retention option is designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.”
The FHA, a part of HUD, provides mortgage insurance on loans made by FHA-approved lenders. Its goal is to improve access to mortgage credit for low- and moderate-income households, as well as first-time homebuyers.
With the proposal, the FHA would join the ranks of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), among others, in permitting 40-year modified mortgages. The NCUA also permits credit unions to issue 40-year mortgages with Board approval.
The proposal has since met with support from the Credit Union National Association (CUNA) and the National Association of Federally-Insured Credit Unions.
CUNA wrote in a May 31 letter that it applauded HUD’s issuance of the proposal, especially as it will encourage more credit unions to become FHA-approved lenders. By aligning term limits for modifications with other major providers, it reduces the burden of achieving eligibility, CUNA asserted. The organization also hopes that as FHA-insured mortgages account for approximately half of Ginnie Mae securitized loans, the changes will help increase liquidity for FHA lenders.
In its May 27 letter to HUD, a NAFCU representative voiced the organization’s support of the proposal, but also suggested HUD extend it to origination of 40-year mortgages. Citing the benefits of lower monthly payments and lower risk of default at the cost of slower equity buildup, NAFCU urged for that amendment. “The allowance of a long-term mortgage loan will not affect the safety and soundness of the housing finance system or the credit union system. In fact, smaller more affordable mortgage payments also mean fewer risks for the lender.”
The public comment period for the proposal ended May 31, 2022.