Letter to HUD on Increased Forty-Year Term for Loan Modifications

Office of the General Counsel
Regulations Division
Department of Housing and Urban Development
451 Seventh Street, SW, Room 10276
Washington, DC 20410

Dear Sir or Madam:

The American Bankers Association(ABA) appreciates this opportunity to submit comments on the Department of Housing and Urban Development (HUD) proposed rule to amend HUD's current regulation to allow for mortgagees to recast the total unpaid loan for a new term limit of 480 months.

ABA supports this effort to amend the current regulations of the Federal Housing Administration (FHA), which currently allow mortgagees to modify a FHA insured mortgage by recasting the total unpaid loan amount due for a new term, by replacing the current maximum of 360 months with a new maximum of 480 months. This will assist more borrowers with retaining their homes after default, while mitigating losses to FHA's Mutual Mortgage Insurance (MMI) Fund.

ABA strongly supports this proposal and believes that allowing servicers to further reduce FHA-insured borrowers’ monthly payments for loans by recasting the unpaid principal balance for up to 40 years will help improve these borrowers’ ability to maintain their home. A longer recast of amortization terms should provide a significant reduction in the borrowers’ monthly payment as the outstanding balance would be spread over a longer period. By significantly lowering the monthly payments for the borrower, more homeowners would have the ability to retain their homes after default following periods of hardship. This change should also help mitigate foreclosure for many FHA-insured borrowers.

Due to the historical low interest rates, most borrowers’ loans have been originated at or refinanced in the past few years at these low interest rates. At these low interest rates, borrowers do not have enough payment relief if the unpaid balance is recast for 30 years. By amending the maximum term for modifications up to 480 months, HUD’s proposal should provide the opportunity for many borrowers to have significant payment relief compared to that available under the current 360-month maximum term.

ABA notes that the proposed rule permits FHA to offer modifications comparable to those available to borrowers with mortgages backed by Fannie Mae and Freddie Mac, as both currently provide a 40-year loan modification option. Additionally, National Credit Union Association and U.S. Department of Agriculture allow for 40-year modification terms, if certain conditions are met. We support this alignment. We believe HUD should amend 24 C.F.R. § 203.616 by replacing the current maximum of 360 months with a new maximum of 480 months to ensure FHA-insured borrowers receive comparable opportunities for home retention.

Thank you for the opportunity to comment on the proposed rule. If you have any questions about our comment letter, please contact me at [email protected] or (202)-663-5321.

Respectfully submitted,

Sharon Whitaker
Vice President, Real Estate Finance
Regulatory Compliance and Policy