FHA Loan In Trouble? HUD's Loss Mitigation Program Can Help
The U.S. Department of Housing and Urban Development (HUD) requires that mortgage lenders do all they can to prevent mortgage foreclosures on Federal Housing Administration (FHA) home loans. If you are in trouble with your FHA mortgage, there are several types of assistance that might be available to you:
- Partial claim
- Special forbearance
- Extension of time
- Deed in lieu of foreclosure
- FHA HAMP
The kind of assistance you might be eligible for depends on your income (is it sufficient to make a modified payment?), situation (do you want to keep your home?), equity position (would someone be willing to assume your loan?), and hardship (is your mortgage problem due to circumstances beyond your control?). Here is a run-down of each program.
Assumption involves having someone else assume the responsibility for making your mortgage payment, as well as take possession of your home. Even if your mortgage has been modified, someone else may be allowed to take it over. The new borrower must first qualify to assume the loan. This is a viable solution if you aren't underwater (if that were the case, no one would want your loan) and you can't or don't want to keep the property.
If your mortgage is at least four months overdue, you may qualify for a partial claim. This means that some of your mortgage insurance policy (covered by the FHA pool) will be advanced to cover your delinquencies and make your loan current. To qualify, you must have overcome the cause of default (for example, if you lost your job, you must have found a new one), and you must continue to use the home as a primary residence.
The purpose of this option is to reinstate mortgages that are in default and in danger of foreclosure. If you are at least three months behind on your home loan, you may qualify. With a mortgage loan in forbearance, you are allowed to skip payments or make partial payments; the unpaid payments are then added to your mortgage balance. The maximum delinquency allowed is 12 months of payments.
Extension of Time
This is a 90-day extension granted to those in foreclosure proceedings. Borrowers who want to keep their homes get additional time to pursue mortgage modifications or cure the default.
Deed in Lieu of Foreclosure
This option is for those who don't want to keep their property, and who cannot manage the financial commitment of their mortgage. It is not available to those who have the means to make their payments. It allows a homeowner in default -- who does not qualify for any other HUD loss mitigation option -- to sign the house back over to the mortgage company. To qualify, you must occupy the home, document a reduction in income or an increase in living expenses, and agree to leave the property in good condition. According to HUD, you may be paid up to $2,000 to voluntarily turn over the property.
FHA's version of the Home Affordable Modification Program (HAMP) differs from the standard government modification plan in that it combines modification with a partial MI claim advance. In addition to mortgage rate reductions and bringing arrearages current, the FHA HAMP may include a reduction of your principal balance of up to 30%. Here are the particulars:
- During the first three months, you complete a trial loan modification.
- You receive a partial advance from your mortgage insurance to bring your loan current.
- You may receive a reduction of up to 30% of the unpaid principal balance.
- You cannot be more than 12 months behind on payments.
- Your interest rate is reduced.
- Your modified loan must be a 30-year fixed-rate mortgage.
If you have an FHA mortgage and need help, first contact your mortgage lender or loan servicer to ask about FHA loss mitigation. Another option is to contact a HUD mortgage counselor. One way or another, you should be able to secure the help you need.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.