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Increased Forty-Year Term for Loan Modifications rule (2023)

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The Increased Forty-Year Term for Loan Modifications rule is a significant rule issued by the Office of Housing (HUD) effective May 8, 2023, that allowed those with mortgages insured by the Federal Housing Administration (FHA) to recast their total unpaid mortgage loans to a 480-month term limit to help decrease the amount of each monthly payment, which aimed to help people retain their homes. This rule was in accordance with the National Housing Act.[1]

HIGHLIGHTS
  • Name: Increased Forty-Year Term for Loan Modifications
  • Agency: Office of Housing (HUD)
  • Action: Final rule
  • Type of significant rule: Economically significant rule

    • Timeline

    The following timeline details key rulemaking activity:

    Background

    The Office of Housing recognized that lower monthly mortgage payments could help those who are borrowing retain their homes. The Balanced Budget Downpayment Act of 1996 gave the HUD authority to provide insurance benefits to those whose mortgages were in default so that they might retain their homes. These benefits included, though were not limited to, loan modifications. Under the National Housing Act that the Balanced Budget Downpayment Act amended, HUD issued the Increased Forty-Year Term for Loan Modification proposed rule in 2022 to assist homeowners who may be adversely affected by the COVID-19 pandemic or other financial strains.[1]

    Summary of the rule

    The following is a summary of the rule from the rule's entry in the Federal Register:

    “ On April 1, 2022, HUD published for public comment a proposed rule to amend 24 CFR 203.616, which allows a mortgagee to modify a mortgage for the purpose of changing the amortization provisions by recasting the total unpaid amount due for a new term, by replacing the maximum of 360 months with a new maximum of 480 months. The proposed rule sought to allow mortgagees to provide a 40-year loan modification to support HUD's mission of fostering homeownership by assisting more borrowers with retaining their homes after a default episode while mitigating losses to FHA's Mutual Mortgage Insurance (MMI) Fund. In response to public comments as discussed further below, and in further consideration of issues addressed at the proposed rule stage, HUD is publishing this final rule without change from the proposed rule.[1][3] ”

    Summary of provisions

    The following is a summary of the provisions from the rule's entry in the Federal Register:[1]

    “ HUD's regulations allow mortgagees to modify a Federal Housing Administration (FHA) insured mortgage by recasting the total unpaid loan for a term limited to 360 months to cure a borrower's default. This rule amends HUD's regulation to allow for mortgagees to recast the total unpaid loan for a new term limit of 480 months. Increasing the maximum term limit to 480 months will allow mortgagees to further reduce the borrower's monthly payment as the outstanding balance would be spread over a longer time frame, providing more borrowers with FHA-insured mortgages the ability to retain their homes after default. This change will also align FHA with modifications available to borrowers with mortgages backed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which both currently provide a 40-year loan modification option. This final rule adopts HUD's April 1, 2022, proposed rule without change.[1][3] ”

    Significant impact

    See also: Significant regulatory action

    Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.

    Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]


    The text of the Increased Forty-Year Term for Loan Modifications rule states that OMB deemed this rule economically significant under E.O. 12866:

    “ This rule was determined to be a “significant regulatory action” because it is likely to have an annual effect on the economy of $100 million or more. This rule will increase available loss mitigation options for borrowers and enable more borrowers to avoid foreclosure and remain in their homes. HUD also anticipates that this will have a positive effect on the FHA MMI Fund by lowering defaults.[3] ”

    Text of the rule

    The full text of the rule is available below:[1]

    See also

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Federal Register, "Increased Forty-Year Term for Loan Modifications," November 27, 2023.
    2. ↑ Federal Register, "Increased Forty-Year Term for Loan Modifications", November 27, 2023.
    3. ↑ 3.0 3.1 3.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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