November 3, 2011
There have been several reader questions lately about the foreclosure process on FHA home loans. What options do FHA borrowers have when facing the risk of default and/or foreclosure on their FHA mortgages?
A quick look at the FHA official site’s page on the subject of foreclosure avoidance at http://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure reveals several options.
One program known as HAMP is the Home Affordable Modification Program, which “lowers your monthly mortgage payment to 31 percent of your verified monthly gross (pre-tax) income to make your payments more affordable.” According to the FHA, a typical FHA loan modification under HAMP “results in a 40 percent drop in a monthly mortgage payment. Eighteen percent of HAMP homeowners reduce their payments by $1,000 or more.”
Another program borrowers may consider is the Principal Reduction Alternative, which the FHA says is intended to help underwater homeowners “by encouraging servicers and investors to reduce the amount” owed on the property.
The Second Lien Modification Program is designed for borrowers who had first mortgages permanently modified under the HAMP program and need help with second mortgages. “If…you have a second mortgage on the same property, you may be eligible for a modification or principal reduction on your second mortgage under 2MP. Likewise, If you have a home equity loan, HELOC, or some other second lien that is making it difficult for you to keep up with your mortgage payments, learn more about this MHA program.”
There is also an FHA program known as the Home Affordable Refinance Program. The FHA says HARP is for those in search of refinancing under certain conditions; “If you are current on your mortgage and have been unable to obtain a traditional refinance because the value of your home has declined, you may be eligible to refinance through HARP. HARP is designed to help you refinance into a new affordable, more stable mortgage.”
No FHA foreclosure avoidance program can force lenders to participate, and some borrowers can’t avoid going into default or foreclosure for a variety of reasons. In cases of foreclosure, some states allow the borrower one last chance to reclaim their homes through something called a redemption period, which is “a period after your home has already been sold at a foreclosure sale when you can still reclaim your home. You will need to pay the outstanding mortgage balance and all costs incurred during the foreclosure process,” according to the FHA.
State laws govern the redemption period, not the FHA, and the period is often affected by the nature of the foreclosure. Your ability to take advantage of a redemption period could depend on whether the foreclosure is judicial or non-judicial.
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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