FHA Advance Loan Modification or COVID-19 ALM
Mortgages are huge responsibilities that shouldn’t be taken lightly. In many instances, borrowers agree to 15- or 30- year loan terms. So if you’re ever unhappy with your mortgage, it may feel like you’re stuck and have no choice but to manage and just cope.
The COVID-19 Advance Loan Modification is a permanent change in terms offered to both owner and non-occupant borrowers that reduces their monthly P&I payments by at least 25 percent, without the borrower having to take any action.
If the borrower qualifies for a payment reduction, servicers will send revised mortgage papers to those who can make the required payment reduction. The COVID-19 ALM is only used if the borrower agrees to accept it.
What happens when you do an advanced loan modification?
A loan modification is a change to your original mortgage terms. A loan modification differs from a refinance in that it does not pay off your current mortgage and replaces it with another. Instead, it immediately updates the terms of your loan.
Eligible borrowers who participate in this modification program will see at minimum a 25% reduction in their monthly mortgage payments. The program is automated, so lenders must evaluate qualifying borrowers for this option and provide loan modification papers that would significantly decrease the borrower’s monthly repayments. This change does not require the borrower to contact his or her lender or servicer.
If your FHA-insured loan is delinquent by 90 days or more, under a new HUD directive, your loan servicer has to evaluate you for a COVID-19 Advance Loan Modification (COVID-19 ALM). Servicers have been able to start using the COVID-19 ALM option from June 25, 2021, onward.
Who qualified for a COVID-19 ALM?
If the borrower qualifies for an Advanced Loan Modification (COVID-19 ALM), the servicer must have assessed them by August 24, 2021.
Borrowers who qualified are those who have left or requested to leave their COVID-19 forbearance, whose COVID-19 forbearance has expired by August 24, 2021, or borrowers who were not on a COVID-19 forbearance at the time of application.
Borrowers must not have been asked for any information by the servicers to determine their ALM eligibility.
If you’re looking to take advantage of the COVID-19 ALM, remember that the property must be owner-occupied or non-owner-occupied and that the borrower has to have been delinquent for at least 90 days.
Pros of FHA Loans
You can acquire a home with an FHA mortgage if you no longer want to rent. Because FHA loans make it simpler to get a mortgage, you may start accruing equity faster. You won’t have to wait as long as you would if you were attempting to save money or improve your credit score.
It’s not the end of the world if your credit score is low: If you don’t have a good credit history or have experienced some difficulties in making on-time payments, 620 may appear to be an unreachable objective for a typical mortgage. Most FHA-approved lenders will still deal with you if your credit score is 580.
With an FHA loan, you can make a lower down payment than with other types of loans. If your credit score is at least580, you can put down 3.5 percent. Even if your credit score falls between 500 and 579, you may still get an FHA-backed mortgage by making a 10 percent deposit.
Cons of FHA Loans
When you compare the interest rates of FHA and conventional loans, you might find that the FHA loan has a lower interest rate. However, it is important to look at the APR instead because it represents the total cost of borrowing. On FHA loans, the APR can sometimes be higher than on conventional loans.
Since your credit score is lower, you will have to pay mortgage insurance. This protects the lender in case you can’t make your payments. The insurance premium can be rolled into your closing costs, but you will have to pay the annual premiums in monthly installments that will show up on your mortgage bill.
In conclusion
The FHA’s ability to help Americans buy and keep their homes in the face of adversity serves as a reminder of why it was created during the Great Depression: to ultimately assist Americans in purchasing and keeping their houses.
Servicers must have as many tools at their disposal as possible to help homeowners recover from the economic effects of the pandemic. This policy provides issuers with clear guidance on how to move forward and help tens of thousands of FHA homeowners who are coming out of forbearance benefit from the FHA Advance Loan Modification.
