Ruth
Simon, 8-7-09
Significantly Reduce FHA Mortgage
Payments
The U.S. Dept. of Housing and Urban Development
(HUD) Secretary Shaun Donovan recently
announced that the Federal Housing
Administration (FHA) has implemented changes to
its loan modification program to ensure
consistency with the Obama Administration's
Home Affordable Modification Program.
By August 15, FHA borrowers will be able to
significantly reduce their monthly mortgage
payments by seeking a loan modification through
their current mortgage company or loan servicer
under the new FHA-Home Affordable Modification
Program (FHA-HAMP).
FHA expects all servicers to implement the
changes by August 15. The program permanently
reduces a family's monthly mortgage payment
through the use of a partial claim, which
defers the repayment of mortgage principal
through an interest-free subordinate mortgage
that is not due until the first mortgage is
paid off.
The program will allow HUD to bring the
borrower's payment down to an affordable level.
This will be accomplished by bringing the
mortgage current, buying down the loan by up to
30 percent of the unpaid principal balance and
deferring these amounts in a partial claim.
"We're bringing another important tool to the
table to help struggling families who are
desperate to keep their homes," said Donovan.
"Tens of thousands of FHA borrowers will now be
able to modify their mortgages in the same
manner as so many others who are taking
advantage of the administration’s Making Home
Affordable program. This is just the latest
tool we are providing to help homeowners
prevent foreclosures through the Making Home
Affordable program. Earlier this month we
announced an expansion of the Home Affordable
Refinance Program to borrowers who are up to
125 percent underwater. Together, these actions
will significantly increase the help available
to homeowners."
The guidelines implement changes enacted by
Congress in May to bring the FHA's
loan-modification program more in line with the
White House's foreclosure-prevention plan. The
Obama plan, announced in February, provides
financial incentives for mortgage companies to
reduce loan payments to affordable levels.
The FHA doesn't have an estimate of how many
borrowers are likely to be helped by the new
program, said a spokeswoman for the Department
of Housing and Urban Development, which is
announcing the guidelines. Some 14.2% of FHA
loans are at least 30-days past due and not yet
in foreclosure, according to LPS Applied
Analytics.
FHA Commissioner David Stevens said the changes
"offer borrowers an opportunity to stay in
their homes, make payments that are manageable
and defer [payment of] the money owed to a
later time when, hopefully, home values have
improved."
Like the broader Obama program, the FHA plan
seeks to reduce mortgage-related payments to
31% of monthly income. But it gets there in a
different way, by focusing on changes in the
principal amount rather than the interest
rate.
Under the FHA plan, mortgage servicers can
reduce the amount of principal on which the
borrower must make loan payments by as much as
30% to get monthly payments to affordable
levels. The borrower makes the reduced payments
for the life of the loan, but is responsible
for paying off the full loan amount when the
home is sold or the loan is refinanced. This
approach is designed to fit guidelines set by
Congress, FHA officials said.
The need to bolster the FHA program was one of
the many issues discussed at Tuesday's meeting
between Obama administration officials and
executives from 25 mortgage companies who were
summoned to Washington this week to discuss
efforts to improve and speed up implementation
of the administration's housing rescue
plan.
Under the new guidelines, FHA borrowers can
receive a loan modification after they have
missed one loan payment, rather than waiting
until they are at least three payments late, as
in the past. This is different from the Obama
program, which allows borrowers who are at risk
of default to get help, even if they are
current on their loan. The FHA can't offer
similar help to at-risk borrowers, officials
said, because it would run afoul of contracts
with investors who buy GNMA securities, bonds
made up of FHA and other government-backed
loans.
Mortgage servicers will receive incentive fees
of as much as $1,250 for each successful
modification. FHA officials said they expect
the approach to save the government money by
reducing foreclosure-related losses on loans
the government insures.
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