FHA Loss Mitigation
The Federal Housing Administration or FHA is a government agency that is part of the Department of Housing and Urban Development. The goal of the FHA is to help people obtain home ownership with a focus on low income and minorities. Foreclosures are always present when it comes to home ownership and the FHA is vulnerable as well. Perhaps more so than other lending agencies because their borrowers already have income problems and one small personal problem can snowball into a foreclosure. To help combat this problem the FHA has developed what is called the FHA Loss Mitigation Program.
The Loss Mitigation Program makes it possible for lenders to assist homeowners who are at risk for foreclosure. This program connects lenders to HUD/FHA options that they can use to help the home owner. These options are: special forbearance, modifications, partial claim, pre-foreclosure sale and deed in lieu of foreclosure. The following explains how each works.
Special forbearance - This is a repayment plan. Your financial situation is analyzed so that a payment plan can be made. Sometimes homeowners are able to get a temporary reduction or suspense of payments. To qualify the homeowner must have recently have had a loss in income or a raise in living expenses.
Mortgage modification - This is where the debt is refinanced. In some cases the current mortgage is just adjusted to extend the terms. To qualify the homeowner must not be in a financial crisis and be able to afford to make the new payment amount.
Partial claim - This is where a payout is issued by the FHA insurance fund to cover all overdue payments and related fees. You must sign a promissory note to pay back the payment. A lien will be placed on your property until the payment is paid off. To qualify a homeowner must have a loan that is past due by at least four months, but not more than 12 months and be able to start making payments as scheduled.
Pre-foreclosure sale - This is where the property is sold for less than the amount due on the mortgage. This avoids foreclosure. To qualify the homeowner must be at least two months late on payments, able to sell within three to five months and get an appraisal that show the homes value meets HUD program guidelines.
Deed in lieu of foreclosure - This is where the property is given back to the lender. The homeowner loses their home, but does not suffer a foreclosure on their credit report. To qualify a homeowner must not qualify for any other option and not have another FHA mortgage in default.
The Loss Mitigation Program replaced what was called the Assignment Program. The Assignment Program granted a HUD mortgage assignment that reduced or suspended payments for up to 36 months. The program was replaced because many cases showed that homeowners were unable to return to normal payment amounts within the time limit.
The Loss Mitigation Program set up by HUD and the FHA is aimed at bringing foreclosure rates down and keeping homeownership up. Studies so far have shown that this approach is working.
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