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FHA Boosts Foreclosure Help for At-Risk Owners

FHA says foreclosure protections during the pandemic “successfully helped millions of borrowers,” so it's offering them to every homeowner with an FHA loan.

WASHINGTON – The Federal Housing Administration (FHA) announced that it’s expanding and enhancing loss mitigation options created during the COVID-19 pandemic to help homeowners with an FHA loan avoid foreclosure – all “eligible borrowers who fall behind on their mortgage payments, regardless of the cause of their delinquency.”

The updates also allow mortgage servicers to use the full 30% of FHA’s partial claim option rather than the previous 25%, to help the greatest number of borrowers retain their homes.

The mandatory effective date is April 30, 2023, but mortgage servicers are being encouraged to immediately offer the new options to borrowers.

“FHA’s COVID-19 forbearances and streamlined COVID-19 loss mitigation options have successfully helped millions of struggling borrowers in the last two fiscal years alone,” says Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “Our action today lets us capitalize on what we have learned through the pandemic to continue helping borrowers avoid foreclosure, regardless of the nature of their hardship.”

Policy changes for FHA-insured Single Family Title II forward mortgages

  • Extend temporary COVID-19 Recovery loss mitigation options to all eligible borrowers, including non-occupant borrowers, regardless of the nature of their hardship. Servicers must assess borrowers who are in default or who are at risk of defaulting (imminent default) using FHA’s COVID-19 Recovery loss mitigation “waterfall” of options.
  • Update Partial Claim components by raising the maximum partial claim amount from 25% of the mortgage’s unpaid principal balance to the maximum 30%.
  • Extend FHA’s COVID-19 Recovery loss mitigation options for 18 months past the April 30, 2023, mandatory effective date for servicers. The temporary COVID-19 options previously expired at the official end of the COVID-19 National Emergency.
  • Expand the definition of imminent default to include borrowers who qualified for U.S. Department of the Treasury’s Homeowner Assistance Funds (HAF). FHA says this will help homeowners who are no longer technically at risk of default but need extra help.
  • Provide incentive payments to servicers for the successful completion of COVID-19 Recovery options. Incentive payments are part of FHA’s standard loss mitigation options but not COVID-19 Recovery options.

FHA is also temporarily suspending use of its FHA-Home Affordable Modification (FHA-HAMP) options. It says that will simplify mortgage servicers’ lost-mitigation options.

From the start of fiscal year 2021 through Nov. 30, 2022, more than one million borrowers obtained an FHA loss mitigation home retention option, significantly reducing FHA’s serious delinquency rate – mortgages where a borrower is 90 or more days past due on their mortgage payments.

In Nov. 2021, the serious delinquency rate was 7.83%; in Nov. 2022, it was 4.79%. At its highest point in Nov. 2020, the delinquency rate was 11.90%.

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