Understanding HUD's New 40-Year Loan Mod Option

As every mortgage servicer knows, keeping up to date on the latest regulatory and guideline changes is crucial for success. That’s particularly important when it comes to making sure borrowers who are having trouble making payments choose the best loss mitigation options.

Recently, the Department of Housing and Urban Development (HUD) introduced a new 40-year loan modification program for struggling homeowners. After talking to our clients and others in the industry, we’re finding that not everyone understands exactly how HUD’s new modification option works, or what servicers need to know to fully take advantage of it.

Related: Are You Keeping Tabs on New State Servicing Regs?

Since MCC Mortgage Solutions is committed to keeping our clients informed about these sorts of things, let’s take a closer look at the new 40-year loan modification program.

Happy homeowners with new HUD 40 year loan modification playing at home.

The Why and How of HUD’s New Option

The benefits of the new option are pretty obvious. By extending the borrower’s loan term to 40 years, the monthly payments can be significantly reduced, which can help homeowners catch up on missed payments and avoid foreclosure. Another benefit of the new option is that it allows homeowners to roll over any missed payments and fees into the new loan. This means that homeowners won’t have to pay any upfront costs to take advantage of the 40-year loan modification program.

The ability to modify loans to a 40-year term is particularly important right now, as rising interest rates often mean that a 30-year loan modification may not lower a borrower’s monthly payments enough so they can stay in their homes. Theoretically, it will also help lower overall foreclosure rates, which can have a negative impact on surrounding property values.

Related: How Prepared Are You for Rising Default Rates?

To be eligible for HUD’s 40-year loan modification program, a borrower must have an FHA-based mortgage and be at least 90 days delinquent on their payments. The property must also be the borrower’s primary residence, and they must have a DTI ratio of 55% or higher. The interest rate for the modified loan will be based on the current market rate for FHA-insured mortgages and will be fixed for the life of the loan.

Having the Right Technology

The job of determining a borrower’s eligibility is the servicer’s, not HUD’s. That means servicers need to carefully review each application to ensure that the homeowner meets all of the eligibility requirements. It’s also likely that servicers will face an increase in demand for 40-year loan modifications, given current uncertainty about the U.S. economy.

Effective communication is crucial to the loan modification process since servicers are responsible for communicating with all stakeholders—including borrowers and investors—in a timely and efficient manner. For these reasons, having the right technology platform can make a huge difference in a servicer’s ability to handle 40-year loan mod requests, as it can streamline the communication process and ensure that all requests are handled efficiently and accurately.

Related: Are You Paying Too Much for Outdated Technology?

How We Can Help

At MCC Mortgage Solutions, we understand how important it is to have the right technology when addressing new industry guidelines. That’s why, with user-defined parameters, our platform is designed to automate the widest possible variety of servicing processes, including loan modifications, to ensure that every borrower’s need is handled efficiently and accurately. And it’s why our platform is designed and constantly updated based on client feedback to make it easier for clients to comply with all applicable guidelines and regulations, including those related to HUD’s new 40-year loan modification option.

At the same time, our platform is designed to be flexible and configurable to meet the needs of each individual mortgage servicer. This flexibility helps ensure that mortgage servicers can handle loan modification requests efficiently and accurately, without having to compromise on their own unique processes. Our platform is also scalable, with the ability to handle large volumes of loan modification requests without impacting performance or availability.

While understanding the details and benefits of HUD’s new 40-year loan modification option is important for mortgage servicers, having a technology platform in place that can accommodate new rules and guidelines established by HUD is equally critical. If you’d like to learn more about how our technology can help your borrowers apply and get approved for HUD’s new loan mod option, just reach out to us at 248-350-9290 or at: info@mccmortgagesolutions.com. We’re always ready to help.