The Federal Housing Administration
said Friday it will provide early loss mitigation assistance for borrowers before they fall behind on their mortgage payments.
According to the Helping Families Save Their Home Act of 2009, the FHA has the authority to use loss mitigation tools for delinquent borrowers facing "imminent default" -- authority that the U.S. Dept. of Housing and Urban Development intends to put to active use.
"Loss mitigation assistance is beneficial to both borrowers and FHA because it helps borrowers retain their homes while protecting the FHA insurance fund from unnecessary losses," said FHA commissioner David Stevens. "FHA has always required lenders to establish early contact with delinquent borrowers to discuss the reason for missing a payment and to evaluate reinstatement options. Now servicers will have additional options for those borrowers who seek help before they go delinquent, which increases the likelihood that the borrower will be able to retain their home."
The loss mitigation options include a forbearance or a modification through the Home Affordable Modification Program. An FHA borrower facing "imminent default" is usually current or less than 30 days delinquent on a mortgage obligation but is experiencing significant economic hardship. The US Treasury Department
cites curtailment of income (job loss) and/or excessive obligations (more going out than coming in) as the two top reasons for borrowers facing default, at 51% and 11% respectively.
Under HAMP, the Treasury provides capped incentives to servicers for the modification of loans on the verge of foreclosure. Currently, the total cap sits at more than $35bn
. The servicers combined to provide permanent modification for more than 66,000 borrowers
through the month of December, according to the latest Treasury report.
The borrower must prove hardship, and loan servicers must maintain documents regarding the financial difficulties.
Write to Jon Prior