FHA Issues Mortgagee Letter on FHA Underwriting Guidelines for Borrowers with Previous Mortgage Payment Forbearance

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FHA recently issued Mortgagee Letter 2020-30 (ML 2020-30) to expand FHA’s underwriting guidelines for borrowers in forbearance and who are seeking new FHA insured financing.

ML 2020-30 lists circumstances under which a borrower who was granted forbearance may be eligible for a new FHA loan.  Among other things, the letter expands on general standards, payment history requirements, and documentation requirements.  For example, borrowers who continue to make payments under the terms of the original note while under a forbearance plan are not considered delinquent or late and must be treated as if not in forbearance if the forbearance plan is terminated at or prior to closing.  In addition, any borrower in forbearance and who is otherwise performing under the terms of a forbearance plan will not be considered delinquent for purposes of credit underwriting.  In certain cases, where the forbearance was due to the impact of COVID-19, a copy of the forbearance plan is not required.

The changes will be incorporated into the applicable sections of Handbook 4000.1 and may be implemented immediately.  ML 2020-30 must be implemented for case numbers assigned on or after November 9, 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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