FHFA Adopts Key Recommendation From CFA Report to Assist Covid-19 Affected Homeowners

New Changes Will Eliminate FHFA’s Previous Loan-to-Value Ratio Restrictions on Mortgagors Modifying Borrowing Terms Due to Covid-19

Washington, D.C. —In a kickoff to this past weekend’s Fourth of July celebrations, the Federal Housing Finance Agency (FHFA) announced a key change to its rules governing relief for COVID-19 affected homeowners. Specifically, the FHFA eliminated its previous loan-to-value ratio restrictions on mortgagors seeking a modification to their borrowing terms due to hardships caused by COVID-19. As a result, a servicer now has the ability to reduce the interest rate on a borrower’s loan even if the borrower’s loan-to-value ratio is less than 80%.

In May of 2021, CFA released a new report by independent researcher Kanav Bhagat entitled, Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-backed Loans, specifically recommending that FHFA drop the loan-to-value ratio restriction to allow borrowers with more equity in their homes the chance to restructure their loans. This will help borrowers weather the economic hardships caused by the pandemic. Under the previous rules, borrowers with more equity in their homes were blocked from seeking payment restructuring.

“The prior rule put borrowers with greater home equity in a tenuous position by forcing them to either sell their homes or risk foreclosure if they were no longer able to afford their existing payments as a result of an economic hardship caused by COVID-19,” said Mitria Wilson-Spotser, Director of Housing Policy at the Consumer Federation of America.“

“Allowing homeowners to receive an interest rate reduction as part of their mortgage modification regardless of their loan-to-value ratio will help families suffering from COVID-19 related financial hardship keep their home. By taking this step, the FHFA and the GSEs will be able to offer more homeowners with a GSE-backed mortgage deeper payment reductions that create affordable monthly payments and avoid foreclosures,” said Kanav Bhagat, author of the paper.

Contact: Mitria Wilson-Spotser, 202-387-6121