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FHA Revises Loss Mitigation Home Retention Options

NOV 21, 2012 11:59am ET

The Federal Housing Administration made changes to its loss mitigation program intended to allow more borrowers the opportunity to remain in their properties.

Through revisions made to FHA’s Loss Mitigation Home Retention Options, a greater number of distressed borrowers will be able to qualify for FHA loss mitigation interventions. Also, the level of assistance available to these individuals will be larger than under previous guidelines.

One of the variations being made to the program is to streamline FHA’s Loss Mitigation Home Retention Option priority order to a new 3-tier incentive structure, consisting of special forbearance, loan modification, and FHA-HAMP.

Special forbearance is a written agreement between a lender and borrower to reduce and/or suspend mortgage payments. A loan modification is a permanent change to one or more of the terms of a mortgage loan. Lastly, FHA-HAMP involves the combination of a loan modification and a partial claim where the lender will advance funds on behalf of the borrower in an amount necessary to reinstate the delinquent loan.

Another change impacting borrowers is that FHA is redefining the term “special forbearance” to only apply in cases where the mortgagors are unemployed. The administration is also eliminating some requirements which limited lenders’ ability to provide the assistance borrowers needed and expanded the FHA-HAMP program so more borrowers can find sustainable long-term aid.

Lastly, under the new guidelines, FHA lender/servicers have no longer than 90 days after issuance of a mortgagee letter to begin assessing delinquent borrowers.

FHA said these changes will not only assist families in keeping their homes, but will reduce the number of full claims against the FHA Mutual Mortgage Insurance Fund.

“FHA’s Loss Mitigation Program has long been an industry leader in helping to ensure that distressed borrowers are afforded maximum opportunities to retain their homes,” said Carol Galante, acting commissioner for FHA. “Not only are we taking steps to make sure 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.”