September 24, 2013
On Friday September 20, 2013, the FHA issued a Mortgagee Letter that updates its Loss Mitigation program options. The new Mortgagee letter, ML 2013-32, overrides a previous mortgagee letter issued in 2012.
The changes are designed to, “help reduce the number of full claims against FHA’s Mutual Mortgage Insurance Fund by assisting a greater number of distressed mortgagors in retaining their homes; thus, Mortgagee Letter 2012-22 will remain effect until servicers are able to fully implement this Mortgagee Letter.”
The Loss Mitigation Program was established by the FHA in 1996, “to ensure that distressed FHA mortgagors were afforded opportunities to retain their homes and to assist in minimizing losses to FHA’s Mutual Mortgage Insurance Fund”.
The most recent changes include a variety of program modifications. Keep in mind that the following list is intended for the lender’s use–we’ll discuss the finer points of many of these program changes in future blog posts. The changes include:
- Eliminating the FHA-HAMP maximum Back End Debt-to-Income Ratio requirement of 55 percent;
- Eliminating the 12-month restriction on the amount of principal, interest, taxes and insurance (PITI) that may be included in an FHA-HAMP Partial Claim;
- Eliminating the FHA-HAMP eligibility requirement that the FHA-insured mortgage be no more than 12 full payments past due;
- Streamlining FHA’s Loss Mitigation Home Retention Option priority order by replacing its current 4-tier incentive structure with a 3-tier incentive structure, consisting of Special Forbearances, Loan Modifications, and FHA- HAMP;
- Requiring the use of a “Special Forbearance” only in cases where the mortgagor(s) are unemployed;
- Permitting mortgagors to receive a Loan Modification or FHA-HAMP only once in a 24-month period;
- Expanding FHA-HAMP so that it now consists of a stand-alone Loan Modification, stand-alone Partial Claim, or a combination of a Loan Modification and Partial Claim;
- Permitting those mortgagors who were initially unsuccessful in completing Trial Payment Plans to re-apply for standard Loan Modifications or FHA- HAMP if their financial circumstances have changed since their initial application for assistance; and
- Defining “surplus income percentage” as surplus income divided by net income (i.e., net take-home income).
These changes, as mentioned above, do overrule a previous set of alterations made by the FHA last year, but lenders have until December 1, 2013 to implement the above list. We’ll discuss these changes to the FHA Loss Mitigation Program in detail in future posts. Contact the FHA or your lender directly for assistance with Loss Mitigation options
Do you have questions about the FHA loan program? Ask us in the comments section.