In late February 2018, the FHA announced additional foreclosure relief measures for victims in federally declared disaster areas in 2017.
According to the FHA official site, the new measures are intended to be an expanded version of “mortgage relief to FHA-insured homeowners who live or work in areas impacted by Hurricanes Harvey, Irma and Maria as well as California wildfires and subsequent flooding and mudslides.”
The FHA has ordered participating FHA lenders to offer “additional options to eligible disaster victims in Texas, Louisiana, Georgia, Florida, South Carolina, California, Puerto Rico and the U.S. Virgin Islands, allowing them to remain in their homes while reducing losses that would otherwise negatively impact FHA’s Mutual Mortgage Insurance Fund” according to the press release.
At the heart of these new measures is something called the Disaster Standalone Partial Claim, which is designed to be an option “to help struggling borrowers to resume their pre-disaster mortgage payments without payment shock”.
An approved Disaster Standalone Partial Claim allows relief for up to 12-months of missed mortgage payments via an interest-free second loan on the mortgage, “payable only when the borrower sells the home or refinances their mortgage.”
Furthermore, the press release adds that the new option “requires no trial period or balloon payment and allows borrowers to keep their existing low interest rate and loan term as well as their existing monthly mortgage payment”.
Other new loss mitigation measures include streamlining of approval processes related to income documentation and other requirements. “It’s clear that FHA homeowners in these areas need more help to get back on their feet as they recover from these storms,” said HUD Secretary Ben Carson, who was quoted in the press release.
Carson adds, “Today, we offer immediate relief to these borrowers which will allow them to resume their mortgage payments without crippling payment shock and fees while protecting our insurance fund in the process.”
The new foreclosure avoidance measures are available “to certain borrowers who live and work in Presidentially Declared Major Disaster Areas and who became delinquent on their mortgage payments because of last year’s disasters” according to the FHA official site. This help applies to those who have initial mortgage forbearance periods which are now ending or ending soon. FHA also requires the following in order to receive this assistance:
- Borrower must have been current on mortgage payments at the date of the disaster;
- Borrower’s income is equal to or more than “pre-disaster” income;
- Property must be owner-occupied.
For borrowers who still need assistance but do not qualify for this FHA program, it’s important to ask the lender about whether or not other loan modification options are available under the FHA-HAMP program.