Letters to Regulators: Letter Urging HUD to Extend the Foreclosure Moratorium and Deadline to Request Forbearance for FHA Borrowers

June 21, 2021 

The Honorable Marcia L. Fudge
U.S. Department of Housing and Urban Development
451 7th Street N.W.
Washington, DC 20410

Dear Secretary Fudge: 

On behalf of the clients and communities we represent, the 155 undersigned organizations are  writing regarding the FHA foreclosure moratorium and the deadline for FHA borrowers to  access COVID-19 forbearance plans, both of which expire on June 30, 2021, pursuant to  Mortgagee Letter 2021-05. We urge HUD to extend the foreclosure moratorium and the deadline  to access forbearance plans to August 31, 2021, for forward mortgages, and to extend this  deadline to December 31, 2021, for Home Equity Conversion Mortgages (HECMs, or reverse  mortgages). 

Extending the foreclosure moratorium is necessary given the high numbers of seriously  delinquent FHA- insured borrowers in the mortgage market. According to HUD’s Neighborhood  Watch data through May 2021, there are still over 840,000 seriously delinquent FHA-insured  borrowers. By comparison in April of 2020, at the start of the pandemic, there were  approximately 315,000 seriously delinquent FHA-insured borrowers. The current level of  seriously delinquent borrowers indicates an overburdened servicing system that cannot easily  process requests for relief. The significant burden on the servicing system is further illustrated by  the fact that the monthly numbers of seriously delinquent borrowers are reducing at a much  slower pace than the monthly reduction of borrowers in forbearance plans, per FHA’s  Neighborhood Watch early warning system. A significant number of borrowers are leaving plans  without loss mitigation programs lined up. These borrowers should not face foreclosure. 

Moreover, seriously delinquent FHA-insured borrowers should have access to the new COVID 19 loss mitigation options that HUD is currently developing. A further pause on foreclosures will  provide opportunity to borrowers who are not served by the present system to obtain relief under  revised rules.  

An extension of the foreclosure moratorium for forward mortgages to August 31, 2021, also fits  with the proposal from the CFPB, which indicated that its pre-foreclosure review period would  likely become effective around September 1, 2021. By extending the moratorium to August 31, FHA will help prevent servicers from hastening foreclosure filings in advance of the CFPB’s  effective date. 

With respect to forbearance, while it is true that COVID-19 cases have reduced, the ripple effects  of the pandemic have continued, and we do not yet have a full recovery. Borrowers may still  have COVID-19 hardships that require forbearance, and HUD should allow them to access it.  This is in line with Fannie Mae and Freddie Mac who have no deadline for requesting  forbearance.

Reverse mortgage borrowers face a particularly pressing need for an extension of the foreclosure  moratorium and the window to seek a forbearance (known here as a “HECM extension period”).  Reverse mortgage borrowers have been severely impacted by the pandemic. As of February  2021, reverse mortgage servicers estimated that approximately 27,000 reverse mortgage  borrowers were in default on property charges, and half of these defaults had occurred after  March 1, 2020. The loss mitigation options that HUD allows servicers to offer for these  borrowers are extremely limited. HECM borrowers need to be able to apply for Homeowner  Assistance Fund programs; yet none of those programs are currently online, and most likely will  not be fully operational until this fall.  

Reverse mortgage borrowers also are not protected by the CFPB’s loss mitigation rule. If the  moratorium ends on June 30, reverse mortgage servicers will immediately be referring these  loans to attorneys to prepare to initiate (or continue) the foreclosure process. If the goal is to eventually get these borrowers brought current through state Homeowner Assistance Fund  (HAF) programs, it makes no sense to run up legal and foreclosure fees before borrowers can  even apply for such programs. The HAF programs may not pay the foreclosure fees as part of the  cure of default, in which case those costs will be passed along to the MMI fund as part of an  eventual insurance claim. Therefore, HUD should extend the foreclosure moratorium for  HECMs through December 31, 2021.  

We thank you for your continued work on behalf of borrowers facing COVID-19 hardships and  for your continued dialogue with advocates. If you have any questions, please do not hesitate to  contact Linda Jun, Senior Policy Counsel, Americans for Financial Reform Education Fund at  linda@ourfinancialsecurity.org.  

View or download a PDF of the letter here.