The U.S. Department of Housing and Urban Development has made it easier for servicers to modify delinquent loans insured by the Federal Housing Administration.
Mortgagees can now use the Treasury 10-year constant maturity as a basis for establishing the maximum interest rate for loan modifications, according to Mortgagee Letter 2008-21 announced today. The maximum interest rate should be calculated based on the monthly average 10-year yield plus 200 basis points at the modification date.
When a borrower can afford to maintain a mortgage after a modification or loss mitigation but cannot afford to reimburse the servicer for costs of a foreclosure that has already been initiated, the costs can be rolled into the loan modification or partial claims.
Qualifying costs include those that were incurred for work completed prior to the foreclosure cancellation. Late fees are not eligible, and the mortgagee should waive all accrued late fees.
HUD made the change in response to feedback from servicers and mortgagors that foreclosure related costs and legal fees are often impediments to successful loss mitigation.
A third change to the agency's loss mitigation program is the inclusion of all payments due plus an additional month in loan modifications.
HUD gave an example of a loan modification being evaluated on June 27, where all past due payments plus July and August were included in the loan modification, and the next payment became due on Sept. 1.
HUD said it added one month because the industry has requested enough time for the mortgagee to complete all required actions related to a loan modification