The Federal Housing Administration’s loan loss-mitigation program has helped 36,000 families with FHA-backed loans avoid foreclosure since October, HUD Secretary Alphonso Jackson said in urging Congress to pass a modernization bill.

In a press release, Jackson asked Congress to pass legislation updating the FHA’s mortgage programs so they are available to more Americans.

The modernization bill would increase loan limits in high-cost real estate markets, such as California, where fewer than 300 families have been able to take advantage of FHA loan relief measures this year, Jackson said in a version of the release sent to news media in California.

“Too many families have been lured into accepting high-cost, exotic loans to purchase their homes because the market doesn’t provide enough choices that are safe, fair and affordable,” Jackson said. “Modernizing the FHA would provide more hard-working families with a strong alternative to risky mortgages.”

FHA’s Loss Mitigation program gives lenders the ability to offer borrowers a number of HUD-approved options for avoiding foreclosure, including:

  • Special Forbearance: This option can include a temporary reduction or suspension of a mortgage payment until the borrower can re-establish financial stability, or a permanent revision in the payment amount to reflect a borrower’s new and reduced financial status.

  • Modifications: The lender can rewrite the mortgage note in order to roll delinquent amounts into the principal or extend the term of the loan to reduce monthly payments.

  • Partial Claim: FHA’s insurance fund makes a one-time payment to bring the mortgage current, which becomes an interest-free subordinate mortgage due when the insurance is terminated.

  • Pre-Foreclosure Sale: The borrower avoids foreclosure by selling the property for its appraised value even if the proceeds are not enough to pay off the mortgage.

  • Deed-in-Lieu of Foreclosure: This option is a negotiated settlement where the borrower deeds the house back to the lender, saving the borrower all of the credit ramifications of a foreclosure while also saving the government some legal costs.

The modernization bill, which stalled in the Senate last year, would also eliminate the current 3 percent down-payment requirement and offer more flexible options. FHA would be permitted to offer more affordable rates to borrowers with impaired credit but with enough funds for a down payment.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top