The U.S. Dept. of Housing and Urban Development (HUD) recently announced that the Federal Housing Administration (FHA) has implemented changes to its loan modification program to ensure consistency with the Obama Administration’s Making Home Affordable Modification Program. By August 15, FHA borrowers will be able to reduce their monthly mortgage payments by seeking a loan modification through their current mortgage company or loan servicer under the new FHA-Home Affordable Modification Program (FHA-HAMP).
The program will allow HUD to bring a borrower’s payment down to an affordable level. Under the plan, mortgage servicers can reduce the amount of principal on which the borrower must make loan payments by as much as 30 percent to get monthly payments to affordable levels. The borrower makes the reduced payments for the life of the loan, but is responsible for paying off the loan in full when the home is sold or the loan is refinanced.
FHA borrowers can receive a loan modification after they have missed one loan payment, rather than waiting until they are at least three payments behind, as in the past. This differs from the Making Home Affordable Program in that borrowers who are current, but are at risk of default can qualify for assistance.
HUD does not have an estimate on the number of borrowers that will be assisted. According to LPS Applied Analytics, 14.2 percent of FHA loans are at least 30 days past due and not yet in foreclosure.