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FHA And HUD Offer Foreclosure Avoidance Option

March 26, 2024

FHA loans

In late February 2024, the FHA announced a new home retention option for borrowers with FHA single-family home loans who may experience financial trouble along the way.

The FHA Payment Supplement Program Is An Important Option

The FHA Payment Supplement allows participating FHA lenders to temporarily alter the terms of the FHA loan to lower monthly payments without changing the home loan interest rate.

This adjustment is not permanent but is designed to help borrowers avoid foreclosure during financial difficulties.

FHA lenders working with borrowers in financial trouble now can lower the FHA mortgage payment by as much as 25%. That is meant as a temporary reduction designed to help those who can’t keep up with payments and have an FHA loan with an interest rate lower than current rates.

The Department of Housing and Urban Development official site says FHA borrowers “who cannot sufficiently be assisted by existing FHA home retention solutions because the interest rate on their mortgage is lower than current interest rates” should look into this option as soon as possible.

According to HUD, programs like this have helped more than 1.6 million struggling borrowers stay in their homes.

Using An FHA Partial Claim To Help?

The program temporarily lowers mortgage payments by allowing the lender to draw funds from an FHA “partial claim” on the property. When used, this “enables the borrower to access up to 30 percent of the outstanding balance of their FHA-insured mortgage,” according to the HUD official site.

The amount of this FHA partial claim option is added to the loan as a “junior lien.” This lien may be declared due “when the homeowner sells or refinances the home” or the mortgage is ended by other means.

“FHA developed this innovative tool because after interest rates rose the FHA Recovery Modification could no longer reliably provide payment reduction to borrowers facing a hardship,” says Federal Housing Commissioner Julia Gordon, quoted in a HUD press release about the new program. 

Gordon was also quoted in the press release noting that this Payment Supplement program makes delinquent borrowers current “and temporarily reduce their monthly payments for up to three years, which we hope will enable them to weather their hardship and once again begin making their full mortgage payments.”

This FHA option is available for borrowers who have not used their FHA partial claim options in other ways. Ask your participating FHA lender if you qualify.

Your FHA lender is allowed to start implementing the Payment Supplement program starting May 1, 2024” but the program must be open for any eligible FHA borrowers by the first of the new year in 2025.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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