July 11, 2011
The FHA offers help for those in trouble on their FHA mortgages in the form of the Loss Mitigation Program. The FHA recently sent out additional guidance aimed to specifically help homeowners who struggle to pay on their FHA loans during period of unemployment.
The FHA’s “Unemployment Special Forbearance” was temporarily amended and clarified to further help prevent unemployed homeowners from going into default and foreclosure.
“In Mortgagee Letter 2000-05, FHA provided mortgagees with additional guidance concerning the Loss Mitigation Program that all mortgagees must follow, when applicable, to reduce FHA insurance losses in those circumstances, as determined by the mortgagee, where delinquent mortgagors might be able to find an alternative to foreclosure.”
Previous changes to the program as described in past FHA Mortgagee Letters permitted FHA lenders to “offer forbearance to unemployed mortgagors with good payment records and stable employment histories, even when mortgagees are not able to determine whether the special forbearance will lead to reinstatement of the loan.”
Now the FHA has further changed the program. In FHA Mortgagee Letter ML-2011-23, FHA/HUD removed “the requirement that the mortgagee verify that the mortgagor has a good payment record and stable employment history.” The new, temporary guidelines also set the minimum forbearance period to one year.
The new guidelines also place great emphasis on the requirement that lenders review a borrower’s case at the end of the forbearance period, “all applicable loss mitigation programs, and notify the mortgagor in writing whether or not he/she qualifies for a loss mitigation option.”
Lenders are also required to take an additional step, notifying the borrower as to why they were denied where applicable and give the borrower a full week to respond or submit additional information that could help their chances with a give foreclosure avoidance program.
The new guidelines are not permanent. They are set to expire two years from the effective date of the new changes, which was August 1, 2011.
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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