In late December of 2021, a group of attorneys general from 20 states plus the District of Columbia wrote a letter to the FHA claiming that several mortgage service providers have failed to implement the mandated loan modification options for eligible borrowers.
In July of 2021, the U.S. Department of Housing and Urban Development (HUD) introduced several initiatives designed to assist homeowners with FHA-insured mortgages who have been financially impacted by the COVID-19 pandemic. The COVID-19 Advance Loan Modification, Mortgagee Letter 2021-18, and the Recovery Modification allowed borrowers with FHA mortgages to reduce their monthly principal and interest payments by 25% through an extension of the term of the loan. Mortgage servicers were required to implement the program by Oct. 21, 2021. However, according to the letter from the attorneys general, serval mortgage servicers have failed to implement the program or have not fulfilled the requirements laid out by the FHA.
The letter states that some servicers of FHA-insured loans have not informed borrowers of their options, have implemented requirements not consistent with the FHA’s guidelines, or have even told borrowers that loan modification options do not exist.
In a press release related to the situation, District of Columbia Attorney General Karl A. Racine said, “The purpose of the federal program is to reduce the displacement of families from their homes, and, as a result, thwart homelessness during the pandemic. The truth is that too many FHA approved mortgage loan servicers have not been honest and transparent about the FHA’s protections for borrowers. Indeed, too many of them continue to send borrowers letters that fail to provide legally required information, impose unnecessary burdens, including cumbersome forms and inapplicable legal qualifications, and wrongly deny the existence of applicable programs that protect buyers. These practices are illegal, unacceptable, and dangerous, and they discriminate against low-income borrowers and borrowers of color. The FHA must take immediate and firm action to ensure that mortgage loan servicers comply with the law by proactively implementing required policies and programs that provide borrowers with accurate information that they need. Failure to act, puts families at risk."
While the letter does not specify which or how many service providers have failed to implement the required loan modification options, the accompanying statement alleges that “several” service providers have failed, and this is not limited to a single provider.
The attorneys general have called on the FHA to take immediate action to ensure compliance. They’ve asked the FHA to require FHA-approved lenders to demonstrate that loan service providers are taking the necessary actions to help borrowers in need of assistance. The letter states, “The FHA’s COVID-19 Recovery Modification can only reach its intended goals, however, if it is implemented by lenders.”