September 26, 2013
The FHA recently updated its rules associated with foreclosure avoidance and loss mitigation on FHA mortgages; borrowers who get into financial difficulty and may have trouble paying their FHA insured home loans should contact their loan officer immediately to discuss options for avoiding foreclosure. The newly updated FHA loan rules in this area include something known as Special Forbearance.
Special Forbearance is described by the FHA as, “a written agreement between a mortgagee and mortgagor to reduce and/or suspend mortgage payments.” According to the most recent guidance from the FHA, “A Special Forbearance is available only to mortgagors who are unemployed. Special Forbearance agreements must provide for a minimum of 12 months for re-employment and require subsequent evaluation for a more permanent Loss Mitigation option to cure the default.”
This information comes by way of FHA Mortgagee Letter 13-32, which also adds, “The delinquency amount can never exceed 12 months PITI during the Special Forbearance. (Note: The terms of a Special Forbearance agreement will not provide for reinstatement because mortgagees must re-evaluate mortgagors for more permanent Loss Mitigation options to cure a default).” This information is written to assist lenders in dealing with such cases, but borrowers should know about the rules also, to better understand their options.
ML 13-32 continues, “Special Forbearance agreements, used as a result of the mortgagor(s) being unemployed, are also referred to as Type I Special Forbearances and are the only forbearance agreements for which mortgagees may collect incentive payments. Please note that Type II Special Forbearances have been eliminated.”
The FHA loan rules also say in situations where the mortgagor is still employed or, in the words of the FHA, “where 85 percent of the mortgagor’s surplus income is sufficient to cure the arrearage within six months” the lender must offer the borrower a “Formal or Informal Forbearance Agreement.”
Those considering this as a possible option in times of financial difficulty should know, “Special Forbearances are not available until three monthly mortgage payments are due and unpaid. Thus, even if Step 2 in Attachment A results in a mortgagor qualifying for a Special Forbearance, the mortgagee must wait to effectuate the Special Forbearance until three monthly mortgage payments are due and unpaid.”
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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