Twenty-one Democratic state attorneys general claim that many Federal Housing Administration (FHA)-approved mortgage servicers have routinely flouted the agency’s mandated COVID-19-related relief options, including its loan modification program. In a December 21 letter to the FHA , the state attorneys general asked the FHA to ensure that all FHA lenders are implementing and fully complying with the required COVID-19 relief options.


This past summer, the U.S. Department of Housing and Urban Development (HUD) pushed several initiatives to help homeowners financially impacted by the COVID-19 pandemic with FHA-insured mortgages. The changes were a continuation of earlier programs that allowed affected borrowers to forbear monthly payments for up to 18 months — through September or October 2021. Out of concern that many of the affected borrowers would not resume making regular payments or repay the accrued arrearages when the earlier programs expired, HUD announced new recovery options.

Together, the COVID-19 Advance Loan Modification (COVID-19 ALM), Mortgagee Letter 2021-18, and the Recovery Modification allowed borrowers with FHA-insured mortgages to extend the term of their mortgages and lock in lower monthly payments, resulting in a 25% reduction to their principal and interest payments through a 30-year loan modification.

Under the programs, FHA mortgagees were required to re-review borrowers for the newly announced COVID-19 Recovery Options by October 22, 2021 if: (1) the mortgagee had not sent final documentation for a previously available COVID-19 Home Retention Option by August 22, 2021; (2) the borrower was not eligible for a COVID-19 Home Retention Option; or (3) the borrower became delinquent due to the COVID-19 pandemic after reinstating using a COVID-19 Home Retention Option.

Letter to FHA

In the letter to the FHA, the state attorneys general claim that many FHA-approved lenders not only inadequately implemented the new COVID-19 Recovery Options, but also have routinely flouted them. Instead of complying with the requirements, the letter said, lenders routinely sent letters that failed to include the COVID-19 Recovery Modification as an available option, and required unnecessary paperwork and qualifications. During calls, they allegedly also instructed borrowers that this option does not exist.

The letter highlighted the laudable goals of the FHA for creating the loan modification option. The option was designed “to create a pathway for sustained recovery for families, and the FHA anticipated that it would particularly help low-income households, first-time homeowners, and households of color that the pandemic has disproportionately impacted.” But until the lenders’ “implementation failures” are rectified, the state attorneys general believe that the goal to aid borrowers cannot be achieved successfully.

Accordingly, the letter asked the FHA to take immediate action to ensure that all lenders were fully implementing the COVID-19 Recovery Options by requiring FHA lenders to show that their loan servicers are taking affirmative steps.

In an accompanying press release, District of Columbia Attorney General Karl Racine stated, “The purpose of the federal program is to reduce the displacement of families from their homes . . . [T]oo many [FHA-approved mortgage loan servicers] continue to send borrowers letters that fail to provide legally required information, impose unnecessary burdens, including cumbersome forms and inapplicable legal qualifications, and wrongly deny the existence of applicable programs that protect buyers. These practices are illegal, unacceptable, and dangerous, and they discriminate against low-income borrowers and borrowers of color.”

It is not unprecedented for state attorneys general to play this role during emergencies and crises. During the “housing crisis” and its aftermath, state attorneys general were heavily involved in similar efforts surrounding loan modifications and other relief efforts to prevent and reduce the displacement of families from their homes. In the coming months, we expect to see increased involvement of state attorneys general with the COVID-19 Recovery Options, as they continue to scrutinize mortgage lenders and servicers.