FHA Finalizes 40-Year Loan Modification Option

FHA recently published its final rule regarding the increase of a loan modification period. This change amends 24 CFR 203.616 by changing the maximum term of a loan modification from 360 months to 480 months for FHA-insured mortgages with a default episode.  This will permit mortgagees to offer a 40-year loan modification option to borrowers under FHA’s COVID-19 Loss Mitigation policies.  Following this rule, FHA requirements now align with loan modification options available to lenders who hold mortgages backed by Fannie Mae and Freddie Mac, which also have a 40-year loan modification option.  FHA has also published Mortgagee Letter 2023-06 which discusses the requirements for utilizing the 40-year loan modification option.  The final rule is effective May 8, 2023.