Borrowers with federally-insured mortgages now don’t have to be late on their payments before qualifying for foreclosure help under an early relief program for those in “imminent default.”
The Federal Housing Administration today announced that homeowners experiencing financial hardship can get loss mitigation assistance before they fall behind on mortgage payments. Previously, homeowners were not eligible for such assistance until after they had missed payments.
The agency also issued guidance to FHA-approved loan servicers on how to assist these borrowers.
This week, in a separate announcement, the FHA issued tougher measures for borrowers, including higher mortgage insurance premiums, tighter credit scoring requirements and higher down payments. The stricter rules were a result of the agency’s depleted reserves.
The FHA does not lend to home buyers, but provides mortgage insurance for borrowers who meet its down payment and other requirements.
“Loss mitigation assistance is beneficial to both borrowers and FHA because it helps borrowers retain their homes while protecting the FHA insurance fund from unnecessary losses,” said FHA Commissioner David Stevens.
Loss mitigation options of forbearance and FHA’s Home Affordable Modification Program (FHA-HAMP) may be used to assist borrowers facing imminent default.
The agency defines “imminent default” as:
“An FHA borrower who is current or less than 30 days past due on the mortgage obligation and is experiencing a significant reduction in income or some other hardship that will prevent him or her from making the next required payment on the mortgage during the month that it is due.”
An FHA forbearance agreement is when a loan servicer acts “to postpone, reduce or suspend payments” due on a loan or a limited time period.
FHA-HAMP allows qualified FHA-insured borrowers to reduce their monthly mortgage payment permanently through the use of a “partial claim combined with a loan modification.” The partial claim defers the repayment of a portion of the mortgage principal through an “interest-free, subordinate mortgage” that is not due until the first mortgage is paid off.
Additional information can be found on HUD’s website.
