May 31, 2022

NAFCU offers support for HUD’s proposal to increase FHA insured mortgage loan term to 40 years

HousingNAFCU Senior Regulatory Affairs Counsel Aminah Moore Friday wrote to the Department of Housing and Urban Development (HUD) to offer support for its notice of proposed rulemaking (NPRM) that would allow mortgagees to modify a mortgage insured by the Federal Housing Administration (FHA) by recasting the total unpaid loan for a new term limit of 480 months to cure a borrower’s default. These changes would allow mortgagees to reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame. Additionally, use of the 40-year mortgage modification in conjunction with the FHA’s partial claim option can begin immediately and must be offered to eligible borrowers within 90 calendar days.

"A lower monthly payment may be exactly what is needed to keep a borrower in their home and continue to build wealth through homeownership," wrote Moore.

Highlighting the increased incentive this rulemaking would provide credit unions to become FHA lenders, Moore emphasized that credit unions want to be able to provide their members with a variety of options for mortgage lending. “NAFCU supports credit unions having more options for government-backed loans, including through the FHA,” stated Moore. 

Of note, this proposal aligns HUD’s rules with those of the government-sponsored enterprises, the NCUA, the Department of Agriculture, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

"Parity among all lenders is necessary for the housing finance system and allows FHA borrowers to receive comparable opportunities for home retention," added Moore.

In the letter, Moore recommended HUD allow for the option of the origination of 40-year mortgages, noting the allowance of a long-term mortgage loan "will not affect the safety and soundness of the housing finance system or the credit union system."

"In fact, smaller more affordable mortgage payments also mean fewer risks for the lender," added Moore.

NAFCU sent members a Regulatory Alert to break down the proposal and solicit feedback to inform the association's comments. NAFCU will continue keep credit unions updated on the latest from HUD via NAFCU Today.