FHA publishes 40-year loan modification final rule

The Federal Housing Administration today published a final rule allowing mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a default episode. FHA also published the mortgage letter establishing the standalone 40-year loan modification policy. The rule goes into effect on May 8.

The rule will permit mortgagees to provide a 40-year loan modification to borrowers, which expands FHA’s loss mitigation options to include a standalone 40-year loan modification. According to FHA, the 40-year loan modification can assist borrowers in avoiding foreclosure by spreading the outstanding mortgage balance over a longer period, making their monthly payments more affordable. The rule also aligns FHA’s requirements with loan modification options available to mortgagees for borrowers with mortgages backed by Fannie Mae and Freddie Mac, which provide a 40-year loan modification option.

The agency considered public comments from last year when finalizing the rule. In May, the American Bankers Association shared its support for amending the regulations and increasing the loan term length to 40 years.