In a recent Mortgagee Letter (ML2012-22), the FHA and HUD describe a variety of changes to FHA Loss Mititgation options. “Loss Mitigation” basically refers to foreclosure avoidance programs for borrowers in trouble on their FHA mortgages.
The FHA Mortgagee Letter opens by stating, “No later than 90 days after issuance of this Mortgagee Letter, (November 16, 2012) mortgagees must begin to assess mortgagors in default under FHA’s loss mitigation priority order and policies referenced herein.
FHA updates on its loss mitigation/foreclossure avoidance policies includes the following new requirements, as described below. According to the FHA, “Before a mortgagee considers a delinquent mortgagor for one of FHA’s Loss Mitigation Home Retention Options, the mortgagee must first evaluate the mortgagor for both Informal and Formal Forbearance Plans.”
Additionally, “Informal and Formal Forbearance Plans are the only options available for delinquent mortgagors without verifiable losses of income or increases in living expenses.”
What does the FHA consider a ‘forbearance plan’? According to ML2012-22, “Forbearance Plans are arrangements between a mortgagee and mortgagor that may allow for a period of reduced or suspended payments and may provide specific terms for repayment, depending on the circumstances.”
The informal forbearance plan is described as an “oral agreements relating to a period of three months or less” while formal forbearance requires an agreement in writing that covers a period of time longer than three months but less than six months.
“If the mortgagee has concluded that 85 percent of the mortgagor’s surplus income is sufficient to bring the mortgage current within six months, the only available loss mitigation option is a Formal Forbearance plan that provides for repayment within the six months.” The new guidelines also state, “Informal and Formal Forbearances are ineligible for loss mitigation incentive payments.”
For more information on these programs, contact the FHA directly at 1-800 CALL FHA.
Do you have questions about how the FHA loan program works? Ask us in the comments section.