The Federal Housing Authority (FHA) on Wednesday announced a new loss mitigation program designed to help homeowners make their mortgage payments current and avoid foreclosure.
The program, called the Payment Supplement, would allow mortgage servicers to temporarily decrease a borrower's mortgage payment by up to 25% using funds from a "partial claim." The funds are an interest-free second lien from the U.S. Department of Housing and Urban Development (HUD) that can be used by homeowners to catch up on any mortgage payments past due and get back to good standing. The lien will not modify the borrower's current mortgage interest rate, per a press release.
"HUD uses every tool in our toolkit to ensure we can help struggling borrowers avoid foreclosure," HUD Secretary Marcia L. Fudge said. "Today's new policy will enable the families we serve to get back on their feet while staying in their homes."
How Does the Program Work?
Under the program, borrowers can access up to 30% of their outstanding balance of an FHA-insured mortgage. The funds from the partial claim would first be used to make all payments current. Any remaining funds following the payments would be deposited in an FHA custodial account managed by the mortgage servicer, who could then use the money to temporarily supplement the monthly payments the borrower would make within the next three years.
After the payment supplement period ends, however, homeowners will again be responsible for resuming mortgage payments of the full monthly principal and interest amount. The partial claim would be paid back when a homeowner sells their property, refinances or terminates the mortgage.
"Payment Supplement will bring borrowers current and temporarily reduce their monthly payments for up to three years, which we hope will enable them to weather their hardship and once again begin making their full mortgage payments," Federal Housing Commissioner Julia Gordon said.
Who Is Eligible Under FHA's New Program?
The Payment Supplement program will be available to borrowers who have yet to exhaust their partial claim allowance through previous loss mitigation actions, according to the press release.
Mortgage servicers can begin implementing the new home loss mitigation initiative beginning May 1, 2024. However, the solution must be made available for all eligible borrowers by Jan. 1, 2025.
