November 7, 2013
The FHA has updated its loss mitigation rules for the foreclosure process. FHA Mortgagee Letter 13-40, which supersedes or overrules previous or contradictory FHA foreclosure rules, has a collection of guidance for lenders. Some of that guidance is very important for borrowers who may be facing foreclosure on FHA mortgages to understand fully.
According to the publication, “Effective loss mitigation is essential to stabilizing communities affected by natural disasters, poor housing market conditions, etc. Therefore, servicers are reminded that participation in FHA’s Loss Mitigation Program is not optional, they are to inform borrowers of and evaluate them for each loss mitigation retention and non-retention option1 in a timely manner.”
The clarified loss mitigation procedures include direct instructions to the lender on when and how foreclosure proceedings may take place.
“Pursuant to 24 CFR 203.606(a), a foreclosure may not be commenced for monetary defaults unless at least three consecutive monthly payments are unpaid” the new mortgagee letter says. That’s a very important guideline, which is further supplemented by the following instruction:
“…servicers are required to consider borrowers for each appropriate loss mitigation option prior to initiating foreclosure, unless the property has been abandoned or vacant for more than 60 days. Servicers are expected to comply with all applicable federal laws when initiating foreclosure, including 12 CFR 1024.41 when it becomes effective.”
When “at least” three consecutive months of FHA mortgage payments are not rendered, FHA loan rules say the lender can begin foreclosure proceedings on the FHA loan if one of the following conditions applies:
- The servicer has completed its review of the borrower’s loss mitigation request, determined that the borrower does not qualify for a loss mitigation option, properly notified the borrower of this decision, and rejected any available appeal by the borrower;
- The borrower has failed to perform under an agreement on a loss mitigation option, and the servicer has determined that the borrower is ineligible for other loss mitigation options; or
- The servicer has been unable to make a determination of the borrower’s eligibility for any loss mitigation option due to the borrower not responding to the servicer’s efforts to contact the borrower.”
These clarifications offer help for both borrower and lender when it comes to knowing what the FHA expects at each stage of the process when an FHA loan is in danger of becoming delinquent. Borrowers who are in financial difficulty with their FHA home loans should contact the lender as soon as possible to make arrangements and avoid going into default or foreclosure.
Do you have questions about FHA home loans? Ask us in the comments section.
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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