Homeowners with FHA Mortgages Are Now Eligible for a Loan Modification
Beginning August 15, 2009, homeowners holding FHA mortgages on their primary homes and who are in default or who are facing foreclosure will be eligible for loan modifications.
Under the new program, current FHA borrowers can seek a permanently reduction in their monthly mortgage payments if they request and receive a loan modification from their current mortgage company or loan servicer.
The new modification guidelines will utilize the partial claim option through FHA's mortgage insurance premium (MIP). Previously, FHA used the partial claim option of the MIP to allow servicers to advance funds to homeowners who were behind on the FHA mortgage payments. Those funds can now be used to lower the monthly payment of an FHA mortgage to an affordable level. This can be accomplished by reducing the remaining principal balance of the loan by as much as 30 percent, and recalculating the monthly mortgage payments based on that new reduced mortgage amount.
The funds advances from FHA's mortgage insurance program are not considered as gifts or grants, and the portion of the mortgage balance that was reduced by the program will be deferred - not written off. That means homeowners with FHA mortgages must repay the amount of the mortgage that was deferred when that mortgage is paid off either by refinancing or by selling the home.
To qualify for the loan modification, a borrower must provide documentation that details his or her financial situation, and attest to a hardship. The front end ratio (consisting of the total monthly mortgage payment, including principle, interest, property taxes, homeowner's insurance, and the mortgage insurance premium) must be "as close as possible to but not less than 31 percent," and the total or back-end ratio of the total monthly debt payments can not exceed 55 percent of your total monthly gross income. In addition. the FHA borrower must prove he or she can make the new monthly mortgage payments by entering into a three month trial period at the new payment level. If any of the three monthly payments are not made in a timely manner, the borrower will lose any eligibility for the modification.
If you are an FHA borrower and you want to learn more about the new loan modification program, either contact your mortgage servicer (the company you make the monthly mortgage payments to), or call HUD's National Servicing Center toll-free at (888) 297-8685.
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