FHA Changes Pre-Foreclosure Assistance Rules

Posted by Fred Chamberlin
January 25, 2010

 

Last year, the Helping Families Save Their Home Act of 2009 expanded FHA’s authority to use its loss mitigation tools to assist FHA borrowers avoid foreclosure to include those facing ”imminent default” as defined by the Secretary. FHA today issued guidance to FHA-approved loan servicers on how to assist these FHA borrowers.

Effective immediately, the loss mitigation options of forbearance and FHA’s Home Affordable Modification Program (FHA-HAMP) may be used to assist borrowers facing imminent default.

  • FHA defines an “FHA borrower facing imminent default” to be 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.
  • A forbearance agreement is an agreement by the loan servicer to postpone, reduce or suspend payments due on a loan for a limited and specific time period.
  • FHA-HAMP allows qualified FHA-insured borrowers to reduce their monthly mortgage payment to an affordable level by permanently reducing the payment 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. The remaining balance is then modified through re-amortization and in some cases, an interest rate reduction.

The borrower must be able to document the cause of the imminent default which may include, but is not limited to, one or more of the following types of hardship:

  1. A reduction in or loss of income that was supporting the mortgage loan, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings. A scheduled temporary shutdown of the employer, (such as for a scheduled vacation), would not in and by itself be adequate to support an imminent default.
  2. A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability.

 

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This is great news for those that have been struggling each month to make their payment but knew that eventually it would all fall apart. The great part of this change is that it will make the client eligible for a purchase or refinance in the future because they won’t have the late payments to contend with, that are killers when attempting to get a new loan.

If you need assistance with anything having to do with the loan process, give me (Fred Chamberlin) a call today at 541-342-7576/541-221-3455 cell or e-mail me. Alpine Mortgage Planning is located at 1200 Executive Pkwy., Ste. 100, Eugene OR 97401.

FHA Mortgage, FHA Mortgagee Letters, Mortgage Refinance, foreclosure

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