The FHA has extended a program designed to help unemployed borrowers avoid FHA loan default and foreclosure. A recent FHA mortgagee letter announced, “the extension of the unemployment special forbearance policies detailed in Mortgagee Letter 2011-23, Unemployment Special Forbearance: Temporary Program Changes and Clarifications.”
This program allowed FHA borrowers, “having trouble making their mortgage payments due to unemployment postpone or reduce their monthly mortgage payment while they look for work” according to a letter by Assistant Secretary For Housing Carol J. Galante, who also writes, “Beginning in August 2011, HUD required FHA servicers to offer suspended or reduced payments for at least 12 months or until the struggling borrower found a job.”
That FHA loss mitigation program was set to expire August 1, 2013. But now, that program has been extended and at the time of this writing has no expiration date.
The minimum loan forbearance under this program is 12 months. Additionally, lenders are required to “conduct a review at the end of the forbearance period to evaluate the mortgagor for all applicable loss mitigation programs, and notify the mortgagor in writing whether or not he/she qualifies for a loss mitigation option.”
What happens if the borrower is not eligible for any loss mitigation option at the time of this review? According to the FHA mortgagee letter, “…the mortgagee must provide the mortgagor with the reason for denial and allow the mortgagor at least seven calendar days to submit additional information that may impact upon the mortgagee’s evaluation. Reasons for denial could include, but are not limited to: (1) the delinquency exceeds 12 months worth of Principal, Interest, Taxes and Insurance (PITI) installments; (2) the mortgagor is unable to make a partial payment; and/or (3) the mortgagor is determined to be better suited for an alternative loss mitigation option.”
Additionally, the loan forbearance program must continue “to its end point” unless one of the following happens:
- The mortgagor abandons the property.
- The mortgagor advises the mortgagee he/she is no longer going to seek employment and/or will not honor the terms of the forbearance agreement.
- The mortgagor allows forbearance payments to become 60 days past due and unpaid.
- The mortgagor finds a job and the loan is reinstated.
For more information contact the FHA directly or speak to your loan officer.
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