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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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Daya Bhai
December 12, 2012 at 5:30 pm

I have a first with BOA. The Loan is FHA. I have a second with Wells Fargo and they own my loan. I am underwater by approx $75K.
Wells Fargo took over my loan from Wachovia mortage through a merger. I tried to combine both loans into one loan with affortable payments in 2009 but could not proceed as Wachovia mortgage had a prepayment penalty close on the second loan a took. While I was waiting for the two year prepayment penalty period to expire, the housing market took a dive. Now I am underwater and unable to refinance. Wells Fargo refused to refinance and I was 5 months behind in my payments as i could not afford the high repayments. They added my arrears into my loan but kept the high repayments. I am still finding it difficult to afford the high repayments at 7.74%. Wells Fargo told me that I need to do a short sale or sign the property over to them. I want to keep my property and all repayments to my first mortgage is made on time. No lender wants to combine both mortages as I am under water. I will lose my property I think if Wells Fargo does not help.

November 28, 2012 at 1:49 pm

We are financed with Citibank, with 1st and 2nd mortgages. We were one month behind on the second. We contacted them for a loan modification and they sent the parerwork for the 2nd. It was difficult to get it all correctly done and it took several mailings and numerous calls over a 2 month period but we managed it. While we were in the trial payment period on the 2nd they sent a modification package for the 1st. We had the same difficulty with that paperwork but after a couple on months we finally got it all right. It worked out that they forgave $40,000 on the 2nd, which reduced the payment significantly and restructured the 1st so the the payment was over $200 per month less. It was not an easy process and we almost gave up a couple of times but in the end it saved our home. I have to say that the Citibank people really tried to be helpful.

November 28, 2012 at 10:35 am

I file chapter 13 can I still get help-pleaseeeeeeeeeeee

November 28, 2012 at 4:38 am

Yes I have wells Fargo and i spent 8 months resubmitting the information. I faxed sent certified mail. They would say I didn't sign each page it was a joke.They finally called and said since I wouldn't cooperate that they were not going to help me

November 28, 2012 at 2:08 am

I applied for a loan modification with SunTrust Mortgage, Inc. started the process and submitted all documentation to them back in March 2012. Due to medical reason and delays in my disability income I fell behind. Still no loan modification, no help, and still I am getting the run around. Each month the bank has told me, thank you for providing all of your documentation, but due to this being the next month we need to update all of monthly statement. So, as time past by, I am still submitting updated bank statements and disability statements! Suntrust Mortgage isn't working with me in a timely manner. Requesting a Loan Modification is a huge disappointment. I hope this new rule help other homeowners, and allow people to keep their homes. Will this new rule apply to all other Mortgage Companies or just FHA loans?

November 28, 2012 at 1:20 am

Beware of WELLS FARGO ! ! Heres my story and please bear with me. Back in March I had a serious accident at home. I had severely damaged both legs. I was ahead on my mortgage payments and looking at long recovery I contacted wells fargo to let them know what was in my near future. they patted me on the back and praised me for getting started on a loan modification early. They pretty much said don't worry they would be able to help ! After 5 months , dozens of fax's , thousand papers mailed and faxed to them, a dozen over night letters, they came back to me and said they could not help me since I had a fair amount of equity in my house! They said I had three options. First was to sell my house and take what money I would get and run ! Second option they said was to put my house up for a short sale ! The third and most shocking option they offered was for me to sign the house over to them " Deed In Lieu Of Foreclosure " . Needless to say I was stunned ! I ended up having to take money out of my 401k to save my house and in the five months I messed around with Wells Fargo put a serious dent on my credit rating! I would love to share my story about Wells Fargo and their Home Modification programs on Capitol Hill one day at a hearing.All Wells Fargo did was set me up for FAILURE ! Please beware of any help from WELLS FARGO !

November 28, 2012 at 1:00 am

I have heard so many stories about the loan modifications that I would like to apply but for the same reason of foreclosure I am afraid to apply now. They tell you have to be two or more payments behind to do this and it just to risky to do this and gamble my home with this so called modification. I had sent to modify my home three times to Wells Fargo and they say they never get my information..

November 28, 2012 at 12:37 am

Is there any program for people who have bad credit. My wife lost her job for 6 months and our credit tanked.

November 28, 2012 at 12:21 am

Beware loan modification with Bank of America you will never get one and if you do. The payments will be so high , you will lose your home. I tried for a loan modification and was told everything was good and the day before I was to find out Bank of America said I was not qualified and they will going to foreclose. Called the Council of Banks and they put a stay for a month. Then Bank of America reviewd again and foreclosed on my home in June 2010. People these big banks were helped from the Federal government and look how many house they have foreclosed on. There are five banks who are not fair to deal with and one id Bank of America. They simply heartless individuals and dont care who how and when they hurt hard working families . Please beware of these refianacing promises I wasnt and now live and pay rent to someone else

November 27, 2012 at 8:56 pm

how can I refinance for a lower interest rate when my home is worth less than what I owe