In response to the significant developments regarding COVID-19, on March 14, 2020, the US Department of Housing and Urban Development ("HUD" or "Department") issued a temporary waiver of its face-to-face interview requirement for servicers of delinquent Federal Housing Administration ("FHA") loans. HUD also extended the deadline to complete the annual recertification process for FHA-approved mortgagees with fiscal years ending on December 31, 2019, and issued Frequently Asked Questions ("FAQs") to provide guidance to FHA participants on other important topics related to the impacts of COVID-19. This Legal Update provides details regarding these announcements.
Temporary Waiver of the Face-to-Face Interview Requirement
In direct response to public health concerns around the spread of COVID-19, HUD issued FHA Info #20-20 to announce a partial waiver of the regulation and section of HUD Handbook 4000.1 that require servicers to conduct, or make reasonable efforts to arrange, a face-to-face interview with delinquent FHA borrowers. Both the regulatory waiver and the waiver of HUD Handbook 4000.1 Section III.A.2.h.xii. were effective immediately as of March 13, 2020, and will extend for a 12-month period from that date.
Currently, the Department's regulation and Handbook guidance require mortgagees to have a face-to-face interview with the borrower, or make a reasonable effort to arrange a face-to-face interview, no later than the 61st day of delinquency, unless the loan meets one of a few limited exceptions.1 The Department's waivers allow mortgagees, in lieu of face-to-face interviews, to use alternative methods for contacting borrowers in early delinquency to meet HUD's early default intervention requirements. Specifically, the waivers permit contact with delinquent borrowers through phone interviews, email or video calling or conferencing technology and provide examples of such technology including, but not limited to, Skype, Zoom, Webex, Microsoft Teams, FaceTime and GoToMeeting.
Through these alternative methods, servicers are still required to assess the borrower's circumstances and determine appropriate repayment plans. Servicers also remain required to inform the borrower: (i) that HUD will make information regarding the status and payment history of the borrower's loan available to local credit bureaus and prospective creditors; (ii) of other available assistance, if any; and (iii) of the names and addresses of HUD officials to whom further communications may be addressed. Both waivers make clear that FHA-approved servicers must document their contact with the borrower, under the same protocol as currently required, noting the alternative contact method used in lieu of face-to-face contact.
Unlike past guidance from HUD on the face-to-face interview requirements, which came in the form of issuances of answers to "frequently asked questions," this most recent announcement was accomplished through HUD's authority to issue regulatory waivers under the Department of Housing and Urban Development Act and its implementing regulation.2 Both waivers make clear that the face-to-face requirement for FHA-insured mortgages under the Section 248 – Single Family Mortgage Insurance on Indian Reservations is still applicable, due to statutory provisions governing the Section 248 insurance program.
The Department's regulatory waiver expressly states that the current in-person meeting requirement is not practical given the public health recommendations being disseminated by government agencies to contain the spread of COVID-19 and could hinder the servicing of FHA-insured loans or lead to non-compliance with HUD's early default intervention requirements and harm to FHA's Mutual Mortgage Insurance Fund. The waiver expressly states that its issuance will assist in ensuring the continued availability of FHA servicing and early intervention options. These temporary waivers compliment HUD's announcement earlier this month reminding FHA-approved servicers of the availability of loss mitigation options for borrowers negatively impacted by COVID-19. This combined guidance will assist servicers in providing needed assistance to impacted FHA borrowers and reflects a commitment by the Department to assist FHA borrowers and servicers in this uncertain time.
Extension of the Annual Recertification Deadline and Other Important FAQs
In FHA Info #20-20, HUD also announced that it has issued FAQs to provide guidance to FHA participants on other important topics related to the impacts of COVID-19 and continued compliance with FHA origination and servicing requirements during this time.
Significantly, HUD announced that it has extended the deadline to complete the annual recertification for FHA-approved mortgagees with fiscal years ending on December 31, 2019. According to the FAQs, audited financial statements for these mortgagees will be due on or before April 30, 2020, which provides a 30-day extension to the original March 31, 2020, deadline. Mortgagees have the ability to submit audited financials prior to the April 30, 2020, deadline and HUD encouraged lenders to do so. The FAQs do not expressly reference the annual certification or fees requirements, but those steps must be completed in HUD's LEAP system prior to the submission of the mortgagee's audited financial statements.
The FAQs include other important announcements related to the Department's operations in the wake of COVID-19's continuing impact. HUD reassured FHA participants that it intends to continue business operations in this evolving environment. Specifically, HUD stated that all of FHA, including operations related to the single-family mortgage program, is prepared to operate remotely to ensure business operations continue with as little disruption as possible in the event of office closures. To that end, the FHA Resource Center will continue to operate, though HUD noted that, if Homeownership Centers are closed, there will not be FHA staff on hand to receive escalated calls. For this reason, the Department recommended that interested parties email questions to email@example.com for a quicker response. HUD suspended in-person trainings through the end of March 2020 and will continue to reassess whether to postpone or cancel future in-person trainings. HUD also suspended on-site mortgagee reviews until further notice but informed mortgagees that FHA will continue to conduct these reviews remotely.
HUD will continue to endorse FHA Title I and Title II forward and reverse mortgages and process FHA insurance claims, although there may be processing delays for both functions if staff must work remotely, particularly for claims submitted manually. FHA will continue to process applications for FHA lender approval and requests for Lender Insurance ("LI") approval. The CAIVRS and FHA TOTAL Scorecard functions remain available to FHA-approved mortgagees.
For FHA-approved loan originations, the FAQs state that the Department will continue to require appraisals with property inspections in compliance with existing Appraisal Reporting Forms and Protocols for its single-family loan programs. HUD recommends that appraisers "stay informed of CDC Coronavirus updates" and "incorporate prudent measures in their business practice regarding personal contact with the borrower and/or occupants." FHA noted that it is closely monitoring developments and will provide updated guidance on this point, as needed.
With regard to FHA servicing activities, the FAQs make clear that the Department will continue to require servicers to conduct exterior occupancy inspections, noting that no physical contact with the borrower and/or occupants is required for this process. HUD also clarified that, when mortgagees acquire possession of a property in connection with an occupied conveyance, FHA does not require physical contact with the borrower and/or occupants. HUD's Homestore bidding site for HUD-owned properties continues to be available.
HUD noted that it will update these FAQs as needed and asks FHA participants to regularly check the Department's FAQ document for updates.
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HUD's announcements regarding its response to COVID-19 developments provide welcome and needed guidance to FHA lenders, servicers and borrowers in these uncertain and rapidly changing times. We expect the Department to issue updated and additional guidance as necessary as circumstances continue to develop. We will issue Legal Updates to keep you up-to-date on any significant future announcements.
These announcements by HUD are part of an evolving trend that is moving across regulatory agencies and, increasingly, the courts, in the United States. Please visit our website to learn more.
2. See 42 U.S.C. § 3535(q); 24 C.F.R. § 5.110 ("Upon determination of good cause, the Secretary may, subject to statutory limitations, waive any provision of this title and delegate this authority in accordance with section 106 of the Department of Housing and Urban Development Reform Act of 1989 (42 U.S.C. 3535(q)).").
March 16 2020
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