FHA Approves 40-Year Loan Modifications

If homeowners with an FHA loan default, they may still be able to keep the house through a mortgage modification, which now includes a 40-year option.

WASHINGTON – The Federal Housing Administration (FHA) published a final rule in the Federal Register, Increased Forty-Year Term for Loan Modifications, that allows homeowners who default on an FHA loan to opt for a 40-year, fixed-rate loan (from 360 to 480 months) as part of a mortgage modification.

FHA also simultaneously published a Mortgagee Letter explaining the change, Establishment of the 40-Year Loan Modification Loss Mitigation Option.

The provisions of the final rule expand FHA’s loss mitigation options by adding the 40-year loan modification to their toolbox. A 40-year loan can help borrowers avoid foreclosure because it spreads the outstanding mortgage balance out over a longer period, making monthly payments more affordable.

FHA announced the rule after considering public comments, which is says were “overwhelmingly supportive of the 40-year loan modification option and recognized the many benefits to borrowers.”

The regulations in this final rule are effective on May 8, 2023. However, mortgage servicers can start using them immediately. FHA says updates will be incorporated in a future version of its Single Family Housing Policy Handbook.

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