Can You Do a Loan Modification on an FHA Loan?
The Federal Housing Administration (FHA) offers several loss mitigation options to single family homeowners with FHA loans that are in default. The options include FHA Special Forbearance, Loan Modification, Partial Claim and the FHA-Home Affordable Modification Program (FHA-HAMP).
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Avoid Foreclosure
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As of April 26, 1996, the Department of Housing and Urban Development (HUD) structured its policies to encouraged lenders to increase their use of FHA loss mitigation options. This focused all efforts on helping borrowers avoid foreclosure.
FHA Special Forbearance
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A Special Forbearance allows lenders to reach a special repayment agreement with the borrower. Provisions of the repayment agreement include suspending or reducing payments and an option for borrowers to defer payment of the delinquent payments until a later date.
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Loan Modification
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The Loan Modification option allows a lender to change the terms of a mortgage loan when a borrower has experienced a reduction in income or an increase in expenses. This is a favored option in situations where the income reduction or expense increase is long term or permanent.
Partial Claim
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The Partial Claim option allows the lender to advance the delinquent amount to the borrower. After the loan is reinstated, the lender files a Partial Claim with HUD for the amount of the advance plus incentive fees. The borrower must repay the Partial Claim amount to HUD after the initial loan is paid in full or the property is sold.
FHA-HAMP
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FHA-HAMP combines a Partial Claim advance with a Loan Modification agreement. The Partial Claim advance can be as much as 30 percent of the outstanding loan amount. The borrower must complete a trial period before the agreement is finalized.
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- Photo Credit Image by Flickr.com, courtesy of Cambodia4kids.org Beth Kanter
