This Article Is About The UPDATED HUD Coronavirus Forbearance Agency Guidelines On FHA Loans

HUD is the parent of FHA and is the federal agency that sets all lending agency guidelines on FHA loans. This is a very confusing area where many lenders do not know the exact answer on when borrowers can qualify for FHA loans after forbearance. Many of our viewers have heard conflicting reports as to the mandatory waiting period requirements after the CARES ACT mortgage forbearance program. The bottom line is borrowers can move forward with obtaining an FHA home purchase and/or refinance mortgage loans if the home was sold and/or made whole by the sale of the home. The mandatory three payments borrowers need to make after the forbearance period is over is not a HUD agency guideline but rather a lender overlay by the individual lenders.

In this article, we will discuss and cover the updated HUD coronavirus forbearance agency guidelines on FHA loans.

HUD Coronavirus Forbearance Agency Guidelines With Regards To The Mandatory Waiting Period After The CARES ACT Forbearance

The CARES ACT mortgage forbearance was created and launched to help Americans who are in distress due to unemployment from the coronavirus outbreak that hit the United States in February 2020. Many companies have furloughed and/or laid off employees due to the economic impact of the coronavirus outbreak that came from Wuhan China and spread to the United States as well as the world. To avoid another potential housing meltdown and credit collapse similar to the 2008 financial crisis, President Trump and Congress acted quickly in creating and launching the CARES ACT as well as the CARES ACT mortgage forbearance program.

The forbearance loan program is by no means loan forgiveness or a loan modification program. It is deferring mortgage payments for up to six months with an option to extend it for another six month months. All payments missed from the CARES ACT mortgage forbearance need to get repaid through a payment plan and/or a lump sum. It is now clear that HUD and other mortgage agencies including Fannie Mae and Freddie Mac do not mandate a waiting period if the homeowner has come current with all of their missed payment during the CARES ACT mortgage forbearance loan program. The three-month waiting period and/or seasoning requirement is a lender overlay by the individual lender.

What Are Wholesale Lending Partners Saying

One of our top wholesale mortgage lenders at Gustan Cho Associates has confirmed with Gustan Cho Associates their organization will allow a purchase mortgage loan to move forward after the CARES ACT forbearance has been paid in full. The borrower will be downgraded to a manual underwrite on an FHA and/or VA loan. The missed payments during the CARES ACT mortgage forbearance are not considered derogatory late payments. Lenders cannot use the missed forbearance payments against the homeowner and/or borrower. FHA and VA loans are the only two loan programs that allow manual underwriting on an FHA and/or VA loan.  FHA and VA mortgages are the only two loan programs that allow manual underwriting during the Chapter 13 Bankruptcy repayment plan. Chapter 13 Bankruptcy does not have to be discharged. There is no waiting period after the Chapter 13 Bankruptcy discharged date on FHA and/or VA loans. We have a confirmed email from our wholesale rep informing us the wholesale lender will accept the scenario and write to the updated guidelines (06/21 4001, pages 195-198).

As loan officers will encounter, every wholesale lender will have different lender overlays as of the HUD forbearance agency guidelines on FHA loans. Other correspondent and wholesale lenders instituted an overlay on 10/13 that makes all transactions that have not exited the forbearance and made three consecutive months of payments ineligible. This includes files in processing prior to 10/13. Another very aggressive wholesale lender used by Gustan Cho Associates is still requiring the 3 payments to be made post forbearance. This includes FHA & USDA. VA still allows purchase immediately after forbearance.

Trying To Get To The Bottom Line With HUD Forbearance Agency Guidelines On FHA Loans

Is a borrower eligible for an FHA purchase mortgage if they sold their property, or will sell their property, that secured a mortgage that was in forbearance due to COVID-19?

A borrower who was granted forbearance due to COVID-19 may be eligible for a new FHA insured mortgage provided the borrower has completed the Forbearance Plan, prior to the sale or with the payoff at the consummation of the sale.  If the borrower has made less than 3 consecutive monthly housing payments post forbearance, the new FHA- insured loan must be downgraded to a Refer and manually underwritten following Manual Guidelines in Handbook 4000.1 Section II.A.5.

For additional information, see: 

• Handbook 4000.1, Section II.A.5.a.iii(C):  http://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

What are the general requirements for determining housing payment history delinquencies for the purpose of loan underwriting, when a mortgage is under a Forbearance Plan due to COVID-19?

A Mortgage that has been granted forbearance as a result of COVID-19 must utilize the mortgage payment history in accordance with the Forbearance Plan for the time period of forbearance in determining late housing payments.  A borrower who is granted forbearance and is otherwise performing under the terms of the Forbearance Plan is not considered to be delinquent for purposes of credit underwriting. A Forbearance Plan is not required if the forbearance was due to the impacts of the COVID-19 pandemic.