What Is An FHA Loan Modification? According to the FHA loan handbook, HUD 4000.1, such modifications are part of a loss-mitigation program from the FHA and HUD designed to help FHA borrowers avoid foreclosure and keep their homes.
HUD 4000.1 states that FHA loan modification is available through a program called FHA-HAMP, or the FHA Home Affordable Modification Program.
“The use of an FHA-HAMP Option is to both alleviate the Borrower’s burden of immediate repayment of arrears and to adjust monthly payments to a level sustainable by the household’s current income. The FHA-HAMP Option may or may not include a Partial Claim.”
A “partial claim” is defined in the FHA loan rules as follows:
“The total amount available is the lesser of: (1) the unpaid principal balance as of the date of Default associated with the initial Partial Claim, if applicable, multiplied by 30%, less any previous Partial Claim(s) paid on this Mortgage; (2) if there are no previous Partial Claim(s), the unpaid principal balance as of the date of the current Default multiplied by 30%; or (3) the total amount required to meet the target payment. The Partial Claim amount may include: arrearages; legal fees and foreclosure costs related to a canceled foreclosure action; and principal deferment…”
FHA-HAMP, or FHA loan modification, is only one option among several loss mitigation and foreclosure avoidance measures. According to HUD 4000.1, enrollment in this program is not automatic, must be applied for, and your loan officer is required to determine your eligibility for one of several options, not just loan modification.
“The Mortgagee must verify that the Borrowers are eligible to participate in HUD’s Loss Mitigation Program. As a part of determining eligibility, the Mortgagee must utilize the appropriate system to determine if the Borrower is excluded from HUD’s Loss Mitigation Program. The Credit Alert Interactive Reporting System (CAIVRS) must be used when determining the Borrower’s eligibility for the following Loss Mitigation Options:
– Special Forbearance
– Loan Modification
– Pre-foreclosure Sale Program
– Deed-in-Lieu of Foreclosure
HUD’s Limited Denial of Participation (LDP) and the System for Award Management (SAM) exclusion lists must be used when determining the Borrower’s eligibility for FHA-HAMP.”
We will examine FHA loan modification in detail in a future blog post. FHA HAMP has been, in the past, described as a program with an expiration date in 2016 but at the time of this writing, the FHA/HUD official site lists HAMP as an active program according to https://portal.hud.gov/hudportal/HUD?src=/hudprograms/fhahamp.