Falling Behind on Your FHA Mortgage - Help May Be on the Way

Across America millions of homeowners are trying to get their mortgages modified, many times these people are told that they need to "fall behind" or to be late on their payments before their lender will even consider talking to them about a loan modification. Let me first say that while it is true, many lenders are acting more quickly to help those homeowners who are at risk of foreclosure, it is NOT necessary for a homeowner to be late on payments in order to get assistance.

Many of these struggling homeowners who are seeking mortgage modifications have their homes financed with FHA mortgages, and many of these people have found it extremely difficult to work through the red tape and successfully achieve their goal of a modified mortgage and a lower monthly payment.

In response to these difficulties, it has been reported that on this past Friday, January 22nd, the Federal Housing Administration announced that it is going to implement a plan that would help borrowers get their loans modified before they become delinquent. What's the catch? Well the borrower must be able to provide verifiable proof that their hardship or delinquency has been caused by reduction of income from a job loss, slashed wages, having fewer paid hours or even a decline in their self-employed business earnings.

A borrower may also qualify if the hardship or reduction in household income was as a result of a dramatic change in household circumstances such as divorce, disability or death.

In a prepared statement David Stevens, FHA Commissioner said that "The 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, and 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." Let's hope these loan servicers were listening and got the memo.

The examples of workouts or modifications that are being offered include such options as forbearance (where the lender will agree to delay or postpone your payments for several months). Keep in mind that this forbearance does not forgive the required payment, however it simply pauses payments which will then need to be paid back over a specific period of time or even added to the back of the loan. A forbearance also can cause an increase in the loan balance due to interest that accrues on the postponed payment amounts.

In other more serious situations borrowers may qualify for a permanent reduction in payment or a permanent modification. This is achieved by either a permanent reduction in the mortgage interest rate, an increase to the length or term of the loan, even possibly a forgiveness of loan principle. In some cases a combination of two or all of these options could be offered to the borrower, however it has been my experience that a reduction in principle is rarely offered.

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