FHA Mortgage

Most homeowners are frozen with fear and have no clue which direction to go in when faced with foreclosure. Unknowingly, there are many options available to homeowners that currently have a FHA mortgage, but few people are aware that this assistance is available. Below please review the options currently available to individuals with a FHA Mortgage.

Loss Mitigation Options

HUD has created a Loss Mitigation Program, which gives the mortgage company the option of providing assistance to FHA homeowners who are behind on their mortgage. The loss mitigation tools are used at the option of the lender. The loss mitigation options include:

Special forbearance plans

Mortgage modifications

Partial claims.

Pre-foreclosure sales

Deeds-in-lieu of foreclosure

Special Forbearance

Special forbearance allows lenders to suspend or reduce mortgage payments over an 18-month period with the total amount of arrearages (the amount owed) not to exceed the equivalent of 12 months of payments. Mortgagees may enter into a special forbearance agreement without HUD's permission. The eligibility conditions for a special forbearance plan are: 1) an involuntary reduction in income or an increase in living expenses, and 2) the lender determines the borrower has a reasonable ability to pay under the terms of the forbearance plan to eliminate the arrearage. This tool is intended for homeowners who have experienced an involuntary, temporary reduction in income, or increase in living expenses. The special forbearance agreement may be entered into after 4 months of missed payments, but no later than 7 missed payments.

Mortgage Modification

A mortgage modification changes the terms of the loan agreement by either extending the time over which the loan will be repaid and/or reducing the interest rate to the current market rate. This tool is geared to homeowners who have recovered from financial crisis but have experienced a permanent reduction in income. This is a particularly valuable tool during times of low interest rates.

Partial Claims

Through a partial claim, FHA will pay off the amounts owed by the homeowner's (excluding late charges) equaling up to 12 months of payments and accumulated over a period of no more than 18 months in order to cure the default. The lender must create a repayment plan involving no more than 36 monthly installments. Homeowners are required to repay this "subordinate loan" to FHA after satisfying the terms of the original mortgage. This tool can only be used when the homeowner has missed at least 4 payments and when mortgage modification or special forbearance alone will not resolve the delinquency. A partial claim can be used in conjunction with a special forbearance but not mortgage modification.

Pre-foreclosure Sale

Pre-foreclosure sales offer homeowners who are unable to recover from their default an opportunity to sell their home in order to avoid foreclosure. Homeowners are given a three month period to sell their homes for at least 95% of the appraised value. Lenders must initiate foreclosure or deed-in-lieu within 60 days of the end of this three month period if the attempt at pre-foreclosure is unsuccessful.

Deed-in-Lieu of Foreclosure

Deed-in-lieu allows homeowners who are unable to bring their mortgage current through the use of the other loss mitigation tools to voluntarily turn over the deed to their homes "in lieu" of, or instead of satisfying the terms of their mortgage. This should be considered when the borrower does not qualify for any other loss mitigation options or an attempt at a pre-foreclosure sale fails. Homeowners who choose this option may be paid up to $500.

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