FHA Mortgage Loans Now Eligible for Payment Reduction Modifications

Beginning August 15, FHA borrowers will be able to apply to reduce their monthly mortgage payments by seeking a loan modification through their current lender or loan servicer under the new FHA-Home Affordable Modification Program (FHA-HAMP). The Helping Families Save Their Homes Act of 2009 allows FHA to give qualified FHA-insured borrower's the opportunity to reduce their monthly mortgage payment by modifying the mortgage through the new program.

The program will permanently reduce a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage. FHA-HAMP will allow lenders to set aside up to 30% of the total principal balance until the house is sold or the property is refinanced. No interest will be charged on that amount. FHA has used the partial claim option in the past to allow a lender to advance funds on behalf of a borrower. Under the new FHA-HAMP guidelines, HUD will allow lenders to bring the borrower's payment down to a more affordable level. This will be accomplished by bringing the existing FHA mortgage current, buying down the loan by up to 30% of the unpaid principal balance and deferring these amounts in the form of the partial claim.

FHA borrowers who are experiencing difficulty making their mortgage payments should contact their loan servicer or HUD's National Servicing Center at (888) 297-8685 to determine if they qualify for the FHA-Home Affordable Modification Program.

FHA-HAMP Eligibility/Requirement Highlights:

• The property securing the FHA-insured mortgage must be the borrower's primary and only residence; and only single family (1 to 4 unit) properties are eligible.
• The existing FHA-insured mortgage must be in default, but not more than 12 full mortgage payments past due.
• The first payment due date of the existing FHA-insured mortgage must be at least 12 months in the past, and at least 4 full mortgage payments must have been paid.
• The existing FHA-insured mortgage must be re-amortized to a 30-year fixed interest rate mortgage.
• FHA-HAMP mortgages are required to have a lower monthly principal and interest payment than the unmodified FHA-insured mortgage and are made without an appraisal.
• No minimum credit score required. (credit report is only to be used to verify recurring debts.)
• The lender must place the borrower(s) under a trial modification payment plan for the modified mortgage payment prior to completing the FHA-HAMP. The borrower (s) must have made the first three consecutive trial monthly mortgage payments on time before the FHA-HAMP can be completed, and a partial claim filed.
• To be considered for any of the loss mitigation options, the borrower(s) must provide detailed financial information to the lender. Every borrower and co-borrower must sign a hardship affidavit attesting to and describing their hardship. The lender must independently verify the financial information provided by the borrower(s) by obtaining a credit report and using any other forms of verification the lender deems appropriate.
• The Front-End ratio (monthly PITI - principal+interest+taxes+insurance to monthly gross income) must be as close as possible to, but not less than, 31%.
• The Back-End ratio (the borrower(s) total recurring monthly debts such as Front-End PITI, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income from all investment properties owned, and monthly mortgage payments for second homes) to the borrower(s) monthly gross income. This ratio must not exceed 55%.
• The maximum one-time only principal reduction on the modification is determined by multiplying the outstanding principal balance of the existing mortgage as of the date of default by 30% reduced by (a) arrearage amounts advanced to cure the default for up to 12 months PITI and/or (b) allowable foreclosure costs. However, the actual principal reduction amount for a specific case shall be limited to such amount that will bring the borrower(s) PITI to an amount not to exceed 31% of gross monthly income. No interest will accrue on the partial claim. The payment of the partial claim is not due until (1) the maturity of the FHA-HAMP mortgage, or (2) a sale of the property, or (3) a pay-off or refinancing of the existing FHA-HAMP mortgage.

Metro Mortgage Company is a federally regulated Mortgage Banker specializing in residential Florida home loans including Conventional, Jumbo and FHA/VA mortgages. Visit our home loan approval process page for more information or call us today at 888-617-3674.

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