According to HUD.gov, there are a variety of options for borrowers to consider when trying to avoid FHA loan default or foreclosure. The options are not guaranteed for all borrowers–you may be required to qualify for each program depending on your circumstances, whether or not you are current on the FHA home loan and other factors.
It’s very important to consider these options before you have missed any payments or are in ongoing financial trouble on the loan–doing so keeps you eligible for the most advantageous terms and options.
FHA Borrowers who want to modify or refinance their loans for lower payments should consider one or more of the following options:
Home Affordable Modification Program: This program, also known as HAMP, lowers the borrower’s monthly mortgage payment to 31 percent of the verified, pre-tax monthly gross income. According to the FHA, a typical HAMP modification “results in a 40 percent drop in a monthly mortgage payment. Eighteen percent of HAMP homeowners reduce their payments by $1,000 or more.” Lenders are not forced to offer this program but you should definitely ask your financial institution if it is an option in your case should you qualify.
Principal Reduction Alternative: This option, called PRA for short, is intended for “underwater” home owners. According to HUD.gov, PRA “was designed to help homeowners whose homes are worth significantly less than they owe by encouraging servicers and investors to reduce the amount you owe on your home.”
The Second Lien Modification Program or 2MP is created for borrowers who had a first mortgage “permanently modified under HAMP SM” and who have a second mortgage on the same property. HUD.gov adds, “If you have a home equity loan, HELOC, or some other second lien that is making it difficult for you to keep up with your mortgage payments, learn more about this MHA program.”
Home Affordable Refinance Program (HARP):