Announcing FHA's Advance Loan Modification
WaterfallCalc.com is happy to announce that we are now able to calculate the new FHA Advance Loan Modification (ALM).
FHA’s Mortgage Letter 2021-15 establishes a new COVID-19 loss mitigation option, the Advance Loan Modification (ALM). Mortgagees must review eligible borrowers for the COVID-19 ALM. The ALM is a permanent change in one or more terms of the borrower’s mortgage that achieves a minimum 25% reduction to the monthly Principal & Interest and does not require borrower contact. Borrowers who do not qualify for the COVID-19 ALM must be evaluated for the other COVID-19 loss mitigation options.
- Property may be owner-occupied or non-owner occupied
- Borrower must be 90 or more days delinquent
- A 30-year loan modification at the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMM
S) Rate rounded to the nearest one-eight of 1 percent (0.125 percent) will achieve a minimum 25% reduction in the monthly P&I.
- Mortgagees must review all Borrowers on a COVID-19 forbearance for a COVID-19 ALM within 30 days of the expiration of the forbearance
- By August 24, 2021, Mortgagees must review the following borrowers for a COVID-19 ALM where the Mortgagee has not yet sent out the final documents to the borrower to complete a Loss Mitigation Option as of June 25, 2021
o Borrowers who have exited or requested to exit their COVID-19 Forbearance;
o Borrowers whose COVID-19 Forbearance has expired or will expire by August 24, 2021; or
o Borrowers who were not on a COVID-19 Forbearance
COVID-19 ALM Terms
- The ALM must achieve a minimum 25% P&I monthly payment reduction;
- The modified mortgage is a fixed rate mortgage;
- The interest rate of the modified mortgage is the PMMS Rate rounded to the nearest one-eighth of 1 percent (0.125 percent);
- The term for the modified mortgage is 360 months
- The COVID-19 ALM only capitalizes arrearages, which refers to any amounts needed to bring the borrower current and includes:
o Unpaid accrued interest;
o Mortgagee advances for escrow items;
o Projected escrow shortage amount;
o Related legal fees and foreclosure and bankruptcy costs not higher than the foreclosure-related fees and costs HUD has identified as customary and reasonable; and
o Mortgagees may include an additional month in the total outstanding debt to be resolved to allow time for the Borrower to return the executed Mortgage modification documents before the modified Mortgage Payment begins;
- The COVID-19 ALM fully reinstates the Mortgage; and
- All Late Charges, fees, and penalties are waived except that Mortgagees are not required to waive Late Charges, fees, and penalties, if any, accumulated prior to March 1, 2020.
The Mortgagee must ensure the FHA-insured Mortgage remains in first lien position and is legally enforceable.
Loans Eligible for the ALM
If a borrower is eligible, the Mortgagee must:
- Prepare and send out the loan modification documents to the borrower; and
- Provide a cover letter that includes:
o An explanation of terms including the modified Mortgage Payment amount;
o The date the next payment is due;
o A statement that no lump sum payment is required;
o A statement that if the Borrower does not accept this offer, this does not keep them from obtaining another loss mitigation option to bring their mortgage current;
o A statement that the Borrower must sign and return the loan modification documents within 30 days of receipt of the documents; and
o Information for the borrower to contact the Servicer, if needed.