The FHA has announced extended foreclosure relief measures for those in qualifying federal disaster areas. According to a press release on the FHA official site, new guidance for participating FHA lenders will apply for those affected by a wide range of natural disasters including:
- Louisiana (Hurricane Harvey) DR-4345
- Texas (Hurricane Harvey) DR-4332
- Florida (Hurricane Irma) DR-4337
- Georgia (Hurricane Irma) DR-4338
- Puerto Rico (Hurricane Irma) DR-4336
- South Carolina (Hurricane Irma) DR-4346
- Virgin Islands (Hurricane Irma) DR-4335
- Puerto Rico (Hurricane Maria) DR-4339
- Virgin Islands (Hurricane Maria) DR-4340
- California (Wildfires) DR-4344 or California (Wildfires, Flooding, Mud Flows, Debris Flows) FEMA-DR-4353
There is a lengthy description of some of the new program changes (which we will cover in another blog post) but one of the most important developments included in the FHA announcement has to do with offering a “disaster standalone partial claim” loss mitigation options for borrowers who are in loan forbearance.
This assistance is available to those who are ready to resume their pre-disaster mortgage payments while avoiding “payment shock”.
Under the new rules, qualified home owners with FHA loans who are not experiencing a loss of income or in what the press release describes as “long-term delinquency” may be eligible for file a “partial claim” as part of a return to making mortgage payments once more.
When applying for this foreclosure avoidance / loss mitigation option, the maximum value of the partial claim is “30% of the Unpaid Principal Balance of each FHA-insured Mortgage and any costs that are approved” according to FHA.gov.
FHA Borrowers affected by income loss or long-term delinquency should discuss existing FHA home loan modification/loss mitigation programs instead.
Borrowers who aren’t sure how this new FHA loan guidance affects them should discuss their loan situation with the lender.
The idea of making such a claim isn’t exactly new, but it has been a few years since the practice (or something like it) made headlines. According to the FHA official site:
“in 2005, FHA leveraged its Partial Claim loss mitigation product to assist victims of Hurricanes Katrina, Rita and Wilma with FHA-insured mortgage loan delinquencies. Circa 2010, during the recovery of the housing market crisis, FHA again used the Partial Claim product to cure FHA borrowers’ long-term mortgage loan delinquencies and help borrowers retain home ownership.”
This process is credited with helping to prevent repeat FHA home loan delinquencies for participants. The FHA press release includes mention of a “drastic reduction” in “re-default rates” for those who successfully applied for a partial claim in a federally declared disaster area.
Lenders have until May to fully implement the policy changes and the new partial claim option, but are not required to wait until May to do so.