Recently, the FHA issued a press release announcing changes to its loss mitigation and foreclosure avoidance policies. We’ve reported on some of those changes in previous blog posts; we haven’t yet covered the FHA’s revised loss mitigation options and changes to those policies.
According to HUDNo.12-22, in the section titled “Updated Loss Mitigation Priority Order Requirements” you’ll find the following new policy information on how the FHA handles its loss mitigation options–described in order of priority. According to the FHA, “After evaluating a delinquent mortgagor for Informal and Formal Forbearance Plans, FHA’s Loss Mitigation options must be considered in the following order: (1) Special Forbearances; (2) Loan Modifications; and (3) FHA-HAMP.”
How does this evaluation process work? The FHA explains, “Before four full monthly installments due on the mortgage have become unpaid, and monthly thereafter, the mortgagee must evaluate a mortgagor’s financial situation to determine the appropriate Loss Mitigation option when the mortgage is in default or imminent default.”
“The mortgagee’s servicing records should include monthly notations, explaining the mortgagee’s analysis used to determine the appropriate loss mitigation option. If there has been no change in the mortgagor’s circumstances, the mortgagee may simply notate this in its records.”
Unlike loan forbearance, which may be offered as a verbal or written agreement between the borrower and lender to avoid foreclosure, the loss mitigation plans can involve major adjustments to the loan to include incentive payments, changes to the amount of the loan or other alterations. For more information on these changes, contact the FHA directly at 1-800 CALL FHA and your lender. We’ll discuss the specifics of the FHA’s loss mitigation options in another blog post.
Do you have questions about the FHA loan process? Ask us in the comments section.