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 email@example.com.