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FHA helps struggling borrowers

By Polyana da Costa · Bankrate.com
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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33 Comments
Dave
November 27, 2012 at 8:45 pm

How do i get out of an interest only loan.

s park
November 27, 2012 at 8:37 pm

I wish the lender(Wells Fargo)
could just lower the interest(we're paying 6% now) to those who are unemployed like us. That will be a huge help. We had tried loan modification, refinancing, but none worked out for us. So the bank makes more money from people like us with higher interest???

Bob
November 27, 2012 at 8:29 pm

Why should my tax dollars that go to both Fannie Mae and Freddie mac be used to support these mortgage programs? I took out a mortgage and purchased a home that was within our budget, something that I knew i could pay for without being overextended or "house poor" Now what we have is a bunch of whining home owners that took out balloon mortgages, purchased homes that they knew they could not afford just becaus ethey felt they deserved it. People who thought they would buy big and cash in by selling later because the real estate market was growing at a exponetial rate. Now they are all underwater with these homes that they knew they could not afford from the beginning and you WANT MY TAX $$ to help pay for it.....I say cry me a river and just deal with it. if you can't pay then it's foreclosed, but I don't want to pay for YOUR GREED!

DAVID A. VON ROEMER
November 27, 2012 at 8:11 pm

What is being done for or offered to 100% disabled veterans on a fixed income and are not allowed to work by the terms of their disability. My loan is VA(government financed) yet no one hears of any programs to help us out.Our income is fixed, we are not allowed to work even part time yet prices on everything continue to escalate for everyone but we can not catch up let alone get a little bit ahead. We live hand to mouth and check to check with no relief or help in sight or offered by our benevolent government. Like the one comment above, what good for my neighbor, why can't I take advantage of the same relief?

tony k
November 27, 2012 at 7:38 pm

i would like to refinance at a lower interest rate but i owe more than the house is worth imy payments are up to date with no late payments but as long as the bank is getting paid the bank wont do anything the gov should do to help those that want to pay

J Wilbert
November 27, 2012 at 7:09 pm

At this point, it's not the banks but the accounting professionals. If bank's changes loan terms and they are not the same as new underwriting criteria...the banks have to account for the modified loan as problem loans. Your payment history doesn't matter. FHA, Fannie Mae and Freddie are Congressional experiments gone bad.

Rick
November 27, 2012 at 7:06 pm

Just want to say.. I was SMART enough to not buy over my head to start with.. BUT with that said, I have made all of my payments on time at my rate but that does not mean I should not get a break either. I could use the extra monies to go on vacation, buy a new car or ANYTHING else I care to do. SO WHAT IS GOOD FOR MY NEIGHBOR OR PERSON DOWN THE STREET IS GOOD FOR ME....

David Johnson
November 27, 2012 at 6:18 pm

As I see it, there is an easy fix to the whole "underwater" problem, if the banks would only agree to it. All that needs be done is allow anyone who is upside down to re-finance their loan at the current market value at a lower interest rate. Yes, it would mean the lender would have to eat the balance, but the owner would benefit from a lower mortgage payment which would put more disposable income into their pockets which, in turn, would then be used to energize the economy. I can't believe that in this age of hi-tech capabilities that a program couldn't be devised to accomplish this. It does lead one to speculate that the banks have somehow schemed to actually make money on a foreclosed home. With all the talk from our politicians on their "plans" to improve the sagging economy, a little common-sense thinking could go a long way to rectify the problem. It would be really nice if, for once, the consumer's best interest would be served first. I know, wishful thinking, but one can dream, I guess.

betty j
November 27, 2012 at 6:09 pm

I have a loan with chase never been late Tried to get help had to have 500 to 600 dollars to get started. why is it that the big companie can get help without any money but us normal everyday people cant? we lost 4000 a month in income.So come on chase bank help us out......

Laura Griffin
November 27, 2012 at 5:35 pm

The government never helps nor does the press report on the fact that almost all of the people who bought condominiums in Florida and other states during 2005-2007 are underwater. There are no government programs to help them and they are being forced to sell in a cash depressed market through either a short sale or foreclosure because of Fannie Mae rules. Lenders refuse to refinance their mortgages or make loans to buyers of condos so sellers can not sell their condos except for cash in a cash depressed market. Lenders can't resell the paper to Fannie Mae because Fannie Mae refuses to buy these mortgages unless the condominium complex has a certain percentage of owner occupied units and the lender vouches for the condo documents. The only people who are benefiting are wealthy cash investors who are buying up these condos for low cash prices leaving a trail of tears for the original owner who must seek foreclosure or a short sell and wind up with bad credit. Non-investor wwners who originally bought these condos in Fla. in 2005-2007 weren't given any notice these Fannie Mae restrictions would make it impossible for them to refinance their mortgages or get buyers for their property and they would be forced to sell for cash. Original non-investor owners had no ability to control how many investors bought condos in their complex after it was developed and sold out making it not eligible for Fannie Mae. The government has done nothing to help innocent owners who bought these condos and who were misled by lenders who did not tell them they would be unable to refinance their mortgages or get a buyer except for cash and their loans would become underwater because they would have to sell in a cash depressed market. This system has only rewarded these original lenders and cash investors, many of whom are coming from foreign countries now to scoop up these condos at the low cash prices owners are having to sell them at. Since these loans never met FHA rules, condo owners are not eligible for their programs or the Hamp program. Please write about the failure of the government to help innocent owner occupied condo owners caught up in this.