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FHA helps struggling borrowers

By Polyana da Costa ·
Tuesday, November 27, 2012
Posted: 11 am ET

The Federal Housing Administration has changed some of its rules to help more distressed borrowers avoid foreclosure.

Lenders and servicers have until mid-February to adopt the new guidelines, which includes a series of revisions to the FHA's Loss Mitigation Home Retentions Options.

The program, which was first established in 1996, offered options to borrowers struggling to pay their mortgages. It has now been streamlined into a three-tier structure.

  • Special forbearance: allows unemployed borrowers or those with reduced income to have their mortgage payments temporarily suspended or reduced.
  • Permanent loan modification: for borrowers whose income were affected but can still afford the payments on the modified mortgage.
  • FHA's Home Affordable Modification Program, or HAMP: a combination of a loan modification with a temporary reduction of the mortgage balance. The FHA does not allow lenders to offer borrowers any principal reduction, but under HAMP, the lender can advance funds on behalf of the borrower to bring the loan current and to reduce the balance. The borrower has to sign a promissory note for the amount advanced. It's as if the lender offered the borrower a new loan with no interest to reduce the balance and payments of the original loan. That promissory note has to be repaid when the homeowner sells the house or finishes paying off the first mortgage.

Among the many changes, the FHA has eliminated the requirement that prevented borrowers who were more than a year past due on their mortgages from qualifying for HAMP.

Borrowers who were approved for HAMP but failed to make the required trial payments before a permanent modification was granted will also be allowed to reapply for the program if their financial circumstances change. Under the old rules, borrowers were only allowed one chance to successfully complete the program.

Carol Galante, FHA commissioner, says the changes are designed to help borrowers and also reduced losses to the FHA from foreclosures.

"Not only are we taking steps to make sure more borrowers can benefit from FHA loss-mitigation assistance, but we are also targeting our assistance to provide more sustainable payments for borrowers so that they are successful in retaining their homes over the long term," she says.

It's too early to tell how many borrowers will actually benefit from these changes, but some industry experts are optimistic about the announcement.

"I believe the changes will provide more borrower opportunities for quicker solutions and align better with other agency programs," says Loren Morris, senior vice president of Retreat Capital Management, a company that offers management and consulting services to the mortgage industry.

FHA borrowers, please let me know how the new rules work out for you. You can follow me on Twitter @Polyanad.

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Master Spikey
November 27, 2012 at 5:30 pm

You should contact your mortgage lender and ask for the loan modification.

November 27, 2012 at 5:25 pm

What about if I am a land owner that took out a 5 year land loan that expired, and the bank will not extend my contract for me to build my dream house? They have denied a 2 short sale offers, an extension to my loan, and even an Deed In Leui. I'm only asking for an extension, instead I am facing foreclosure. What is the president doing for families that purchased land and are forced to foreclosure instead of a loan extension? Never missed a payment in all 5 years of the loan.

M Mark
November 27, 2012 at 5:07 pm

I was told the same thing by Wells Fargo, however the woman I was talking to also mentioned that they may be reverting back to your loans current PMI, she was thinking by mid January.
Has anyone else heard of this?
Or where can I find out more?

Iris C Heyward
November 27, 2012 at 5:04 pm

I have a 2nd mortgage through beneficial, and its killing me..........what is available for I qualify for a bailout??????????????

November 27, 2012 at 4:59 pm

There's a lot of razzle-dazzle to this HAMP program, including something they vaguely referred to as "capitalized interest." That directs that interest not paid with the (reduced) mortgage payment is later added back into principal, so that you can pay interest on interest. Hmmmm. If you can qualify for a straight refi, that would be simpler...

Steve J.
November 27, 2012 at 4:57 pm


I worked for 50 years, lived in my home for 30 years, am retired with a mortgage due to kids college expenses, home upkeep, medical issues, increased taxes,inflation, insurance etc. etc. etc. etc. When will the government bail me out? Please let me know as soon as possible as I am in need of help as my realtor tells me to update my home or it won't sell.

Anna Drake
November 27, 2012 at 4:45 pm

Do this applies to a homeowner that has a mortgage with Chase Bank?

Peggy Vincent
November 27, 2012 at 4:41 pm

None of these programs help me. We bought in 2009 for $252,000. Our home is now valued at about $160,000. We haven't been late. We have an FHA loan and we can't even refi without paying more in PMI because our loan wasn't certified by FHA before June 1, 2009. We can't reduce our payment amount even with the lower interest rates, because of the increased cost of PMI insurance. No wonder why everyone is walking away from their homes.

jane doe
November 27, 2012 at 4:34 pm

BOA should got a bail out they do not care about us

kevin plamondon
November 27, 2012 at 4:18 pm

will this apply to people who have mortgages through hsbc-beneficial?