The FHA has announced important changes to its Loss Mitigation Home Retention options, intended as stated in FHA Mortgagee Letter 2012-22, to “reduce the number of full claims against the FHA Mutual Mortgage Insurance Fund by assisting a greater number of qualified, distressed mortgagors in retaining their homes.”
The new rules, posted on November 16, have specific requirements for the lender. “No later than 90 days after issuance of this Mortgagee Letter, mortgagees must begin to assess mortgagors in default under FHA’s loss mitigation priority order and policies referenced herein.”
The new FHA loan rules alter FHA’s Home Affordable Modification Program’s (FHA-HAMP) guidelines, as well as “the definition of “Special Forbearance” in Mortgagee Letter 2002-17; and Loss Mitigation priority order guidelines in Mortgagee Letter 2000-05.”
What are these changes? We will cover them in detail in other blog posts, but in general, the FHA changes include the following as described in Mortgagee Letter 2012-22:
“Eliminating the FHA-HAMP maximum Back End Debt-to-Income Ratio requirement of 55 percent;
Eliminating the 12-month restriction on the amount of principal, interest, taxes and insurance (PITI) that may be included in an FHA-HAMP Partial Claim;
Eliminating the FHA-HAMP eligibility requirement that the FHA-insured mortgage be no more than 12 full payments past due;
Streamlining FHA’s Loss Mitigation Home Retention Option priority order by replacing its current 4-tier incentive structure with a 3-tier incentive
Updated Loss Mitigation Informal and Formal Forbearance Options structure, consisting of Special Forbearances, Loan Modifications, and FHA-HAMP;
Redefining “Special Forbearance” to apply only in cases where the mortgagors are unemployed;
Permitting mortgagors to receive a Loan Modification or FHA-HAMP only once in a 24-month period;
Expanding FHA-HAMP so that it now consists of a stand-alone Modification, stand-alone Partial Claim, or a combination of a Loan Modification and Partial Claim;
Permitting those mortgagors who were initially unsuccessful in completing Trial Payment Plans to re-apply for standard loan modifications or FHA- HAMP if their financial circumstances have changed since their initial application for assistance; and
Defining “surplus income percentage” as surplus income divided by net income (i.e., net take-home income).”
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