FHA Enhances Mortgage Relief Waterfall With 25 Payment Reductions

The Federal Housing Administration (FHA) unveiled expanded recovery options for homeowners most in danger of losing their homes due to the impacts of COVID-19.

The FHA COVID-19 Recovery “waterfall” builds upon previous efforts to provide mortgage relief to struggling homeowners and streamlines the process, requiring less documentation and allowing for greater payment reductions.

Mortgage servicers -- companies that receive mortgage payments -- may implement the system of recovery options, nicknamed the "recovery waterfall" as soon as possible. But they make it available within 90 days of July 23.

The recovery plan come shortly before the July 31 sunset on the foreclosure moratorium and a few months before the September 30 deadline to apply for forbearance.

The FHA made the announcement on the same day the Biden administration unveiled preliminary payment reduction plans for all government-backed mortgage programs.

What is the recovery waterfall?

The recovery waterfall consists of two tiers. Borrowers who do not qualify for the first option fall into the second. The mortgage relief plans apply to FHA loan holders who occupy the property as a primary residence, although other options exist if the homeowner no longer lives in the property.

FHA homeowners who can resume full mortgage payments: COVID-19 Recovery Standalone Partial Claim

• Late mortgage payments can be placed in a zero interest second loan
• The second loan is repaid when home is sold or refinanced

Homeowners who cannot resume making their full payment: COVID-19 Recovery Modification

• Extends the mortgage to 30 years from the modification date with the current market rate
• Reduces the borrower’s monthly principal and interest payment by 25%

“As Americans get back to work and our economy continues to recover, we are taking targeted steps to make sure homeowners impacted financially by COVID-19 have the support they need to remain in their homes,” said Housing and Urban Development Secretary Marcia L. Fudge. “Housing affordability is at its worst and losing your home now would devastate households. These options for FHA borrowers will ensure equitable relief and recovery to people who need it most.”

The recovery waterfall is being implemented in addition to the FHA’s COVID-19 Advance Loan Modification (ALM) announced on June 25. The ALM applies to borrowers currently 90 or more delinquent or at the end of their COVID-19 forbearance. This modification also extends the loan 30 years and reduces principal and interest payments by at least 25%.

In need of mortgage relief? Contact your servicer

The FHA’s COVID-19 recovery waterfall is another lifeline for homeowners struggling to make payments. As such, it has the potential to keep many of them out of foreclosure and in their homes.

Homeowners who would like to take advantage of one of the recovery options should contact their mortgage servicer – the company to which they make their mortgage payment each month. This may be a different company than where they got their loan initially. 

A servicer’s contact information is typically easily located on the mortgage statement.

Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.