WASHINGTON—Is the long tradition of the 30-year mortgage in the U.S. on its way to becoming the 40-year mortgage? It could be, and one plan to extend terms has the support of the credit union trade groups.
Both CUNA and NAFCU have told the Department of Housing and Urban Affairs (HUD) they support for its notice of proposed rulemaking 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 (40 years) to cure a borrower’s default
According to HUD, the changes would allow mortgagees to reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame. 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.
‘Exactly What is Needed’
"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 NAFCU Senior Regulatory Affairs Counsel Aminah Moore in the association’s letter.
Moore emphasized 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.
NAFCU further noted the 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.
Won’t Affect Safety & Soundness
In the letter, Moore recommended HUD allow for the option of the origination of 40-year mortgages, stating 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.
CUNA: ‘Helpful Tool’
Meanwhile, in its letter to the U.S. Department of Housing and Urban Development, CUNA also said it supports the agency's proposal to increase the term limit for the modification of FHA-
insured mortgages.
“Credit unions report that the increase in the term will be a helpful tool for assisting credit union members struggling to make their mortgage payments and will allow credit unions to extend the same opportunities to modify their mortgage to members who rely on FHA-loans, particularly those who are low-income and first-time homebuyers,” the letter reads. “In addition to creating parity for credit union members, aligning the term limits for modifications across Fannie Mae, Freddie Mac, USDA, and FHA lending creates operational ease for mortgage servicers."
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