40-Year Loan Modification Proposed Rule Published in the Federal Register for Public Comment
On April 1, 2022, HUD published a proposed rule, Increased Forty-Year Term for Loan Modifications (Docket No. FR-6263-P-01) in the Federal Register for public comment. The rule proposes to increase the maximum modification loan term limit from 360 to 480 months and expands the Federal Housing Administration's (FHA) current loan modification policy.
When finalized, FHA’s proposal will allow mortgagees to provide a 40-year loan modification option to borrowers who may not otherwise qualify for payment reduction or other loss mitigation options. The proposal also offers an option to borrowers that are facing or experiencing a financial hardship, including those that were financially impacted by the COVID-19 pandemic. Extending the loan term limit to 480 months can help borrowers avoid foreclosure by spreading the outstanding mortgage balance over a longer period and making their monthly mortgage payments more affordable.
This change would also align the FHA with modifications available to borrowers with mortgages backed by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and the U.S. Department of Agriculture (USDA), which all currently provide a 40-year loan modification option to borrowers.
Interested stakeholders are encouraged to review and provide comments on the proposed rule using the methods outlined in the Federal Register no later than 60 days after the date of publication in the Federal Register.