Alston & Bird Consumer Finance Blog

Department of Housing and Urban Development (HUD)

Assumptions on the Rise: Are You Ready for Mortgage Assumptions?

A&B ABstract:

Mortgage assumptions – where a buyer assumes the existing mortgage loan of a seller – have fluctuated in popularity since the 1980s. However, inflation and the high interest rate environment, coupled with an observable shift to a buyer’s market, are raising the prospect that assumable mortgages – especially those with historically low interest rates – are likely to become a selling point for potential sellers. Statements by the real estate broker industry, U.S. Department of Housing and Urban Development (HUD), and former Ginnie Mae officials, to name a few, corroborate this hunch. Ultimately, given these rumblings, it appears that lenders, and more so mortgage servicers, will need to prepare for a potential increase in mortgage assumption volume. Below are several key considerations with respect to mortgage assumptions.

Servicer Capabilities

Servicers generally will need to diligently evaluate the assuming buyer’s creditworthiness. In certain cases, servicers may need to offer and service home equity lines of credit (HELOCs) and second liens to support the cost difference between the amount of the loan to be assumed and the cost of the property. Further, as servicers will likely have to evaluate the assuming consumer’s credit eligibility in connection with the processing of most mortgage assumptions, such activities may give rise to additional state mortgage lender and/or loan originator licensing obligations. While the federal SAFE Mortgage Licensing Act and its implementing Regulation G and H generally do not consider mortgage loan origination activity to encompass a servicer’s activities in connection with the processing of a loan modification, when the borrower is reasonably likely to default, there is no such exemption for mortgage assumptions. Moreover, states that license mortgage loan origination activities may vary as to whether a license is required to process an assumption.

 Investor Restrictions

Even if a buyer is deemed creditworthy to assume the seller’s mortgage payments, the agency or investor backing the seller’s mortgage loan must approve the assumption. Most government-backed mortgage loans, such as those guaranteed or insured by the Federal Housing Administration (FHA), U.S. Department of Veteran Affairs (VA), and U.S. Department of Agriculture (USDA) are assumable, provided specific requirements are met.  On the other hand, conventional mortgages (i.e., loans meeting the requirements for purchase by Fannie Mae and Freddie Mac (the “GSEs”)) may be more difficult to assume.

It is important to note that the requirements for processing and/or approving an assumption vary from agency to agency and among the GSEs. By way of example:

  • FHA loans are assumable if the buyer meets certain credit requirements, according to FHA guidelines. Buyers who assume FHA mortgages pay off the remaining balance at the current rate, and the lender releases the seller from the loan.
  • VA mortgage assumption guidelines are similar to FHA, with some notable differences. The VA or the VA-approved lender must evaluate the creditworthiness of the buyer, who generally must also pay a VA funding fee of 0.5% of the loan balance as of the transfer date. Unlike new loans, buyers can’t finance the funding fee when assuming a loan, it must be paid in cash at the time of transfer. Moreover, the only way the seller can have their VA entitlement restored would be to have the home assumed by a fellow eligible active-duty service member, reservist, veteran, or eligible surviving spouse.
  • USDA permits loan assumptions but operates differently from FHA-insured or VA-guaranteed loans. For example, according to USDA guidelines, when most buyers assume a USDA loan, the lender will generally issue new terms, which may include a new rate.
  • Fannie Mae and Freddie Mac may permit an assumption under certain circumstances. For example, Fannie Mae may permit the assumption of certain first-lien adjustable-rate mortgage (ARMs) loans that have not been converted to a fixed-rate-mortgage loan.

Due-on-Sale Clauses

Many conventional mortgages today contain “due-on-sale” clauses that authorize a lender, at its option, to declare due and payable sums secured by the lender’s security interest if all or any part of the property, or an interest therein, securing the loan is sold or transferred without the lender’s prior written consent. However, the Garn-St. Germain Depository Institutions Act prohibits a lender from exercising its option pursuant to a due-on-sale clause in connection with certain exempt transfers or dispositions, including, among others: (1) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (2) a transfer to a relative resulting from the death of a borrower; (3) a transfer where the spouse or children of the borrower become an owner of the property; and (4) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property. 12 U.S.C. § 1701j–3(d).


Whether an assumption fee can be charged, and the amount of such fee, will depend on many factors including application of the Garn-St. Germain Act, the CFPB mortgage servicing rules, investor and agency guidelines, and state laws. Further, the Fair Debt Collection Practices Act (FDCPA) may impact whether a servicer may assess and collect an assumption fee. While most states neither expressly permit nor prohibit assumption fees, several other states, such as Idaho and Michigan, explicitly recognize and permit assumption fees in limited cases (e.g., only where the fee is included in the purchase contract or other agreement). Other states may regulate the amount of an assumption fee. For example, Colorado law limits assumption fees to one-half of 1% of the outstanding principal mortgage amount.

General Federal Consumer Financial Compliance

Assumption transactions also raise compliance considerations under federal consumer financial laws. Under TILA and Regulation Z, an assumption occurs if the transaction meets the following elements: (1) includes the creditor’s express acceptance of the new consumer as a primary obligor; (2) includes the creditor’s express acceptance in a written agreement; and (3) is a “residential mortgage transaction” as to the new consumer. 12 C.F.R. § 1026.20(b). A “residential mortgage transaction” is a transaction: (a) in which a security interest is created or retained in the new consumer’s principal dwelling; and (b) which finances the acquisition or initial construction of the new consumer’s principal dwelling. 12 C.F.R. 1026.2(a)(24). If the transaction is an assumption under Regulation Z (12 C.F.R. § 1026.20(b)), then, as noted by the CFPB in its TILA-RESPA Factsheet, creditors must provide a Loan Estimate and Closing Disclosure, unless the transaction is otherwise exempt. Moreover, the assumption transaction may also trigger requirements under Regulation Z’s loan originator compensation and ability-to-repay rules.

With respect to RESPA and Regulation X, however, assumptions are exempt unless the mortgage instruments require lender approval for the assumption and the lender approves the assumption. Specifically, Regulation X expressly exempts from its coverage any “assumption in which the lender does not have the right expressly to approve a subsequent person as the borrower on an existing federally related mortgage loan.” 12 C.F.R. § 1024.5(b)(5). By way of example, the Fannie/Freddie Uniform Security Instrument provides that:

Subject to the provisions of Section 18, any Successor in Interest of Borrower who assumes Borrower’s obligations under this Security Instrument in writing, and is approved by Lender, shall obtain all of Borrower’s rights and obligations under this Security Instrument.  Borrower shall not be released from Borrower’s obligations and liability under this Security Instrument unless Lender agrees to such release in writing.  The covenants and agreements of this Security Instrument shall bind (except as provided in Section 20) and benefit successors of Lender.

Finally, with respect to the CFPB’s Mortgage Servicing Rules, if a successor in interest assumes a mortgage loan obligation under state law or is otherwise liable on the mortgage loan obligation, the protections that the consumer enjoys under Regulation X go beyond the protections that apply to a confirmed successor in interest. 12 C.F.R. § 1024.30(d).


The processing of mortgage assumptions involves many of the same regulatory considerations as originating a new loan. However, because of varying requirements under agency and investor guidelines, there are several unique aspects to processing assumptions, which may pose challenges for servicers that do not regularly engage in mortgage origination. The economic climate appears to be ripe for an uptick in mortgage loan assumption activity. Accordingly, servicers should ensure their compliance management systems are prepared to manage the associated compliance risks.

FHA Issues Final Rule on Acceptance of Private Flood Insurance Policies

A&B ABstract:

 On November 21, 2022, the Federal Housing Administration (“FHA”) announced a final rule to provide for the acceptance of private flood insurance in connection with FHA-insured loans.

FHA to Permit Private Flood Insurance Policies

Effective December 21, 2022, the FHA has adopted a long-awaited final rule (the “FHA Rule”) permitting the acceptance of private flood insurance policies in connection with FHA-insured loans.  Proposed nearly two years ago, the regulations align requirements for the acceptance of private flood insurance for FHA-insured loans with those that apply to loans made by federally regulated financial institutions (“federally regulated lenders”).


In 2012, Congress enacted the Biggert-Waters Act Flood Insurance Reform Act, amending the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 (collectively, the “Flood Act”) to clarify the obligations of federally regulated lenders to accept private flood insurance – among other provisions.  Specifically, Biggert-Waters included a provision requiring the federal banking regulatory agencies  – the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the National Credit Union Administration (the “Agencies”) – to adopt a rule directing regulated lenders to accept private flood insurance policies meeting statutory criteria, and to notify borrowers of the availability of private flood insurance coverage as an alternative to that available through the National Flood Insurance Program (“NFIP”).  The Agencies first proposed such a rule in October 2013, and finalized it in February 2019 – with the provisions taking effect on July 1 of that year.

The FHA Rule

Neither the Biggert-Waters provision addressing private flood insurance nor the Agencies’ rule on the same topic, however, applies to FHA-insured loans.  As a result, as of July 2019, there existed a significant disparity between most loans made by federally regulated lenders and those insured by the FHA:  Private flood insurance was an option for the former, but prohibited for the latter because it did not comport with the requirements of FHA regulations. To address the differences, in November 2020, the FHA proposed to amend its regulations (24 CFR Parts 201, 203, and 206) to permit the acceptance of private flood insurance policies and provide other clarification on mortgagees’ obligation to ensure that appropriate flood insurance coverage is in place for FHA-insured loans.

Definition of Private Flood Insurance

Amending 24 C.F.R. 203.16a, the FHA Rule mirrors the definition of “private flood insurance” found in the Agencies’ rule, which includes four prongs.  First, such a policy must be issued by an insurance company that is:

    • Licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located; or
    • Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property.

Second, the policy must provide flood insurance coverage that is at least as broad as the coverage provided under an NFIP Standard Flood Insurance Policy (“SFIP”) for the same type of property, including when considering deductibles, exclusions, and conditions offered by the insurer (and as further specified in the definition).

Third, the policy must include:

    • A requirement for the insurer to give written notice 45 days before cancellation or non-renewal of flood insurance coverage to the insured and the federally regulated lender that made the designated loan secured by the property covered by the flood insurance, or the servicer acting on its behalf;
    • Information about the availability of flood insurance coverage under the NFIP;
    • A mortgage interest clause similar to the clause contained in an SFIP; and
    • A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy.

Finally, the policy must contain cancellation provisions that are as restrictive as the provisions contained in an SFIP.  The Agencies’ rule also gives a federally regulated lender discretion to accept a policy offered by a private insurer that does not meet all of the above criteria – such as a policy offered by a mutual aid society.

Like the Agencies’ rule, the FHA Rule includes a compliance aid intended to help mortgagees identify whether a private flood insurance policy meets the regulatory standard.  The FHA Rule makes clear, however, that regardless of the presence of the compliance aid statement, a mortgagee may make its own determination of whether a private flood insurance policy meets the definition above.  Unlike the Agencies’ counterpart, the FHA Rule does not provide discretion for a lender to accept a policy that does not meet the definition of (or other criteria for) private flood insurance as set forth in the rule.  As a result, in its Federal Register notice of the rule adoption, the FHA emphasized that a policy acceptable under the Agencies’ rule may not satisfy the FHA standard.

Other Provisions

The FHA Rule includes other important clarifications regarding the maintenance of flood insurance on FHA-insured loans.

First, under the Flood Act and the Agencies regulations, the minimum amount of coverage that must remain in place on property securing a loan throughout the life of the loan is the lesser of: (1) the outstanding principal balance of the loan; (2) the maximum limit of coverage available for the particular type of property under the Flood Act; or (3) the insurable value of the property.  The FHA Rule states that for an FHA loan, the insurable value should be calculated as “100 percent replacement cost of the insurable value of the improvements, which consists of the development of project cost less estimated land cost.”

Second, the FHA Rule clarifies the application of flood insurance obligations to Home Equity Conversion Mortgages (HECMs), adding language to mirror the loss payee and compliance aid provisions of the rule applicable to forward mortgages.


The FHA Rule provides long-awaited clarity for lenders, brings FHA requirements relating to the acceptance of private flood insurance policies more into line with those applicable to federally regulated lenders, and expands the options that FHA borrowers have when their properties are located in special flood hazard areas.

Biden-Harris Administration Announces Extension of COVID-19 Foreclosure Moratorium

A&B Abstract:

Today, the Biden Administration announced an extension of the foreclosure moratorium for federally-backed mortgage loans (the “Presidential Announcement”). To implement the Presidential Announcement, the federal agencies (i.e., HUD/FHA, USDA, and VA) and GSEs (i.e., Fannie Mae and Freddie Mac) have announced (or are anticipated to announce) extensions of the foreclosure moratorium until July 31, 2021.

Presidential Announcement

According to the Presidential Announcement, the three federal agencies that back mortgages – the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) – will extend their respective foreclosure moratorium for one, final month, until July 31, 2021. Similarly, the Federal Housing Finance Agency (FHFA) will announce that it has extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021.

The Presidential Announcement goes on to provide that once the moratoria end, HUD, VA, and USDA will take additional steps to prevent foreclosures on mortgages backed by those agencies until borrowers are reviewed for COVID-19 streamlined loss mitigation options that are affordable, while FHFA will continue to work with Fannie Mae and Freddie Mac to ensure that borrowers are evaluated for home retention solutions prior to any referral to foreclosure.

In addition, the Presidential Announcement notes that HUD, VA, and USDA will also continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021, while homeowners with Fannie Mae or Freddie Mac-backed mortgages who have COVID-related hardships will also continue to be eligible for COVID-related forbearance.

Finally, the Presidential Announcement indicates that HUD, VA, and USDA will be announcing additional steps in July to offer borrowers payment reduction options that will enable more homeowners to stay in their homes.

Federal Agency and GSE Announcements

In addition to the foregoing, the USDA and the GSEs issued the following guidance today implementing the Presidential Announcement:

  • USDA:  Today, the USDA issued a brief press release announcing a one-month extension, through July 31, 2021, of the moratorium on foreclosure from properties financed by USDA Single-Family Housing Direct and Guaranteed loans. Beyond July 31, 2021, the USDA indicated that it would continue to support homeowners experiencing financial hardship due to the pandemic by making loss mitigation options available to help keep them in their homes.
  • Fannie Mae LL-2021-02:  Today, Fannie Mae updated LL-2021-02 to extend the moratorium on foreclosures with respect to Fannie Mae loans through July 31, 2021.  Specifically, servicers must continue the suspension of the following foreclosure-related activities through July 31, 2021. Servicers may not, except with respect to a vacant or abandoned property: (1) initiate any judicial or non-judicial foreclosure process, (2) move for a foreclosure judgment or order of sale, or (3) execute a foreclosure sale.  All other guidance set forth in LL-2021-02 remains the same.
  • Freddie Mac Guide Bulletin 2021-23:  Similarly, today Freddie Mac issued Guide Bulletin 2021-23, which announces an extended effective date for the COVID-19 foreclosure moratorium.  Specifically, Freddie Mac is extending the foreclosure moratorium last announced in Guide Bulletin 2021-8. Servicers must suspend all foreclosure actions, including foreclosure sales, through July 31, 2021. This includes initiation of any judicial or non-judicial foreclosure process, motion for foreclosure judgment or order of sale. This foreclosure suspension does not apply to mortgages on properties that have been determined to be vacant or abandoned.

As of today, we are not aware of any formal announcement by HUD or VA regarding the implementation of the Presidential Announcement. However, we anticipate that both HUD and VA will issue guidance consistent with the above announcement in short order.


The takeaway from today’s announcements is that, except with respect to vacant and abandoned properties, all foreclosure-related activities that could constitute the initiation of any judicial or non-judicial foreclosure process, movement for a foreclosure judgement or order of sale, or execution of a foreclosure sale should continue to be paused until the expiration of the extended foreclosure moratorium.  Moreover, the Presidential Announcement suggests that additional guidance will be issued by the federal agencies permitting borrowers who have not yet taken advantage of a COVID-19 forbearance to do so through September 30, 2021 and announcing additional steps in July to offer borrowers additional payment reduction options to enable more homeowners to stay in their homes. Accordingly, servicers should continue to monitor for any additional guidance from the federal agencies and GSEs regarding the foreclosure moratorium or other COVID-19-related borrower relief.

CFPB Rescinds Compliance Bulletin on Marketing Services Arrangements and Issues FAQs on RESPA Section 8

A&B ABstract: 

On October 7, 2020, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) rescinded Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements (“Bulletin 2015-05”).  In addition, the Bureau published Frequently Asked Questions (“RESPA FAQs”) on the Real Estate Settlement Procedures Act (“RESPA”) Section 8 topics in an effort to “provide clearer rules of the road and to promote a culture of compliance.”

Background on Bulletin 2015-05

The Bureau issued the Bulletin 2015-05 on October 8, 2015, under then-Director Richard Cordray, in an effort to remind participants in the mortgage industry of the prohibition on kickbacks and referral fees under RESPA and to describe “the substantial risks posed by entering into marketing services agreements” (“MSAs”).  At the time, the Bureau characterized Bulletin 2015-05 as a nonbinding general statement of policy that merely articulated considerations relevant to the Bureau’s exercise of its supervisory and enforcement authority.  Consequently, Bulletin 2015-05 was not issued pursuant to the notice and comment rulemaking requirements under the Administrative Procedures Act (5 U.S.C. § 553(b)).

Through Bulletin 2015-05, however, the Bureau presented an ostensibly novel interpretation of RESPA Section 8 to caution against MSAs altogether.

For example, RESPA Section 8(c)(2) expressly provides that “[n]othing in this section shall be construed as prohibiting… the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  Similarly, Regulation X, 12 CFR § 1024.14(g)(iv), provides that “Section 8 of RESPA permits . . . payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  Moreover, HUD’s long-standing interpretation of Section 8(c)(2) provided that Section 8(c)(2) only allows “the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or services actually performed,” i.e., permitting only that compensation which is reasonably related to the goods or facilities provided or services performed” (HUD RESPA Statement of Policy 2001-1).

In contrast, the Bureau’s prior interpretive position was that the opportunity to enter into an MSA by contract was itself a thing of value, regardless of whether the resulting agreement provided for payment for bona fide services at fair market value.  The Bureau relied on this interpretive theory in issuing Bulletin 2015-05, which effectively took the position that if a person is in a position to receive referrals from a third party, they could not otherwise do business with that party because the CFPB would attribute compensation paid to that party to be for referrals, even if the person paid fair market value for services actually rendered, because, the CFPB believed MSAs “are designed to evade” RESPA, such that engaging in MSAs poses a “substantial legal and regulatory risk of violating RESPA,” even where the MSA is “technically compliant with the provisions of RESPA.”

A three-judge panel of the D.C. Circuit Court, in PHH Corp. v. CFPB, rejected the Bureau’s theory, as it unanimously overturned then-Director Cordray’s interpretation of RESPA, holding that tying arrangements are ubiquitous and that Section 8 permits captive reinsurance arrangements so long as mortgage insurers pay no more than reasonable market value for reinsurance. The Court noted that the “CFPB’s interpretation of Regulation X is a facially nonsensical reading of Regulation X,” since Regulation X makes clear that, if a provider “makes a payment at reasonable market value for services actually provided, that payment is not a payment for a referral.” (emphasis in original).

The inconsistency between the Bureau’s apparent misinterpretation of Section 8, as espoused in Bulletin 2015-05, and longstanding HUD interpretations (and the D.C. Circuit’s decision in PHH Corp.), led to calls for rescission of Bulletin 2015-05.

Bureau’s Rescission of Bulletin 2015-05

 In rescinding Bulletin 2015-05, the Bureau acknowledged that the bulletin “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.”  Consistent with the rescission, Bulletin 2015-05 no longer has any force or effect.  The Bureau noted that its rescission of Bulletin 2015-05 does not mean that MSAs are per se or presumptively legal.  Rather, whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented.  The Bureau made clear that MSAs remain subject to scrutiny, and that the CFPB remains committed to vigorous enforcement of RESPA Section 8.


Contemporaneous with its rescission of Bulletin 2015-05, the Bureau issued FAQs pertaining to compliance with RESPA Section 8.  The FAQs provide an overview of the provisions of RESPA Section 8 and respective Regulation X sections, and address the application of certain provisions to common scenarios described in Bureau inquiries involving gifts and promotional activities, and MSAs.

With respect to MSAs, the FAQs provide guidance on the following questions:

  1. What are MSAs?
  2. What is the distinction between referrals and marketing services for purposes of analyzing MSAs under RESPA Section 8?
  3. How do the provisions of RESPA Section 8 apply when analyzing whether an MSA is lawful?
  4. What are some examples of MSAs prohibited by RESPA Section 8?

Notably, the FAQs provides that under RESPA Section 8(c)(2), if the MSA or conduct under the MSA reflects an agreement for the payment for bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, the MSA or the conduct is not prohibited. Thus, RESPA Section 8 does not prohibit payments under MSAs if the purported marketing services are actually provided, and if the payments are reasonably related to the market value of the provided services only.


While rescission of Bulletin 2015-05 is likely to be welcomed by the industry and help to restore confidence in the viability of MSAs under the current legal landscape, it remains to be seen how the Bureau’s priorities on RESPA Section 8 enforcement will change.  Companies should consider reviewing existing MSAs to ensure compliance with the Bureau’s new guidance.  Moreover, it should be noted that the Bureau specifically designated its new FAQs as “compliance aids” as opposed to official interpretations. Under the Bureau’s policy statement on Compliance Aids issued earlier this year, the Bureau states only that it “does not intend to sanction, or ask a court to sanction, entities that reasonably rely on Compliance Aids.” An interpretive rule issued by the Bureau, to the contrary, affords market participants a clear legal safe harbor from liability under RESPA.

Attorneys General Urge FHFA and HUD to Take Additional Measures to Protect Borrowers Affected by COVID-19

A&B Abstract:

On April 23, 2020, the attorneys general of 33 states, the District of Columbia and Puerto Rico (the “Attorneys General”) sent two letters, one to the Federal Housing Finance Agency (“FHFA”) and the other to the U.S. Department of Housing and Urban Development (“HUD” and collectively with FHFA, the “Agencies”), respectively, noting that the “national response must recognize the unique challenges presented by the unprecedented number of homeowners who are affected by COVID-19, including the fact that all of these homeowners need relief at the same time..[and that] [m]eeting this challenge will require straightforward and consistent guidance that can be quickly operationalized.”  As a result, the Attorneys General urged the Agencies to make changes to their respective guidelines addressing COVID-19-related mortgage and foreclosure relief.

Revision of Forbearance Programs

The Attorneys General acknowledged that forbearance plans are a critical first response to borrowers affected by the COVID-19 pandemic.  However, the Attorneys General expressed concern that both the mortgage servicing industry and homeowners will become overwhelmed if changes are not made.   The Attorneys General recommended or encouraged that:

  • the Agencies “issue simple, self-executing guidance that servicers can easily implement to meet demand while providing an immediate, responsive resolution to borrowers.” The Attorneys General specifically expressed concern about HUD guidelines requiring an individualized evaluation for every borrower who receives a CARES Act forbearance, as well as guidelines issued by both of the Agencies requiring an individualized evaluation for borrowers coming out of forbearance, due to “grave doubts about servicers’ abilities to effectively manage the unprecedented number of borrowers who will be emerging from forbearance plans related to COVID-19 if individualized evaluations are required for each borrower.”
  • the Agencies amend their forbearance programs so that the obligation to repay forborne payments is automatically placed at the end of the loan term in the form of additional monthly payments that will follow the current term of the loan.  The Attorneys General noted that “there can be no reasonable expectation that a borrower who has experience a loss of employment or a reduction in income will be able to repay the forborne payments in a lump sum at the end of the forbearance period.” FHFA subsequently clarified its repayment requirements for its forbearance program on April 27, 2020.
  • the Agencies issue guidance allowing these post-forbearance agreements to occur without requiring borrowers to execute any additional documents, such as a loan modification agreement or a promissory note for the forborne payments, or at least waiving or easing those requirements until the pandemic abates.
  • FHFA to clarify that a borrower may receive a forbearance based on the borrower’s verbal attestation of a hardship related to COVID-19, and to encourage servicers to proactively notify borrowers of their right to verbally request a forbearance.

Expanded Eligibility for Disaster Relief-Related Modifications and Loss Mitigation Programs

The Attorneys General urged the Agencies to expand their eligibility standards for post-forbearance loss mitigation programs to enable a greater number of borrowers to qualify.  The Attorneys General urged HUD to reconsider its decision to remove the Disaster Loan Modification option for borrowers affected by COVID-19.  Further, the Attorneys General requested that the Agencies revise their respective loan modification eligibility criteria to ensure these programs have the same reach as the forbearance program mandated by the CARES Act, as the Agencies’ current guidelines impose several delinquency-related eligibility requirements.  For example:

  • Under current Fannie Mae and Freddie Mac guidelines, borrowers affected by COVID-19 are eligible for any one of three modification programs. Currently, however, a borrower is only eligible for such programs if the borrower was current or less than 31 days delinquent as of March 13, 2020. Additional delinquency-related eligibility criteria apply for the Cap and Extend Modification and Flex Modification programs.
  • Under current HUD guidelines, a borrower is only eligible for the COVID-19 Partial Claim if the borrower was current or less than 30 days delinquent as of March 1, 2020 and the partial claim amount does not exceed 30 percent of the unpaid balance. If a borrower is ineligible for the COVID-19 Partial Claim, then the borrower will be reviewed for HUD’s FHA-HAMP program. The Attorneys General noted that the FHA-HAMP program has additional seasoning requirements, such as requiring the borrower to have made at least 4 payments and the loan to have aged at least 12 months.

The Attorneys General urged the Agencies to waive the delinquency status requirements of these modification programs and noted that post-forbearance modification programs should be commensurate with the forbearance plans required by the CARES Act, as the CARES Act requires forbearance for any borrower experiencing a COVID-19 financial hardship regardless of delinquency status.  Moreover, the CARES Act authorizes forbearances of up to 360 days, so many borrowers receiving CARES Act forbearances will be more than 360 days delinquent by the end of the forbearance period.

Eviction and Foreclosure Moratoriums

Finally, the Attorneys General urged the Agencies to “instruct servicers that they also must suspend all foreclosures and evictions currently in process and cannot move forward to complete any step in the judicial or non-judicial foreclosure or eviction process while the moratorium is in place,” to address differences in various states’ foreclosure and eviction processes.

Currently, the CARES Act states that servicers of federally backed mortgages may not initiate any judicial or non-judicial foreclosures process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale until at least May 17, 2020. The Attorneys General asserted that advancing any step of the eviction or foreclosure process during a forbearance related to COVID-19 will only lead to borrower confusion and harm.


As the COVID-19 pandemic continues to affect homeowners and the mortgage servicing industry, there will likely be continued political pressure on the Agencies to further revise servicer loss mitigation guidelines. Servicers will need to be vigilant to stay on top of the rapidly evolving market conditions and regulatory environment.