The Federal Housing Administration yesterday announced a temporary policy for lenders to obtain FHA insurance endorsements on mortgages where the borrower has requested or obtained a COVID-19 forbearance. This temporary policy applies to FHA borrowers that close in accordance with FHA requirements and are adversely affected by the COVID-19 pandemic immediately after closing but prior to FHA’s endorsement of the loan for insurance.
Under the policy, FHA will provide mortgagees the ability to endorse mortgages under a special program that requires lenders to provide an indemnification agreement to FHA for 20% of the original mortgage amount, which only becomes payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. This indemnification agreement between the lender and FHA will generally result in a reduction of the claim amount FHA would need to pay to the lender for defaulted mortgages. FHA will not require upfront payments by lenders.