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Delinquent borrowers on loans insured by the Federal Housing Administration are being offered junior liens with no required monthly payments in order to bring their first liens current and defer up to a quarter of their monthly payments.
Mortgagee Letter 2024-02 from the Department of Housing and Urban Development outlined the new loss mitigation home retention option, Payment Supplement.
Julia Gordon, HUD
“FHA developed this innovative tool because after interest rates rose, the FHA Recovery Modification could no longer reliably provide payment reduction to borrowers facing a hardship,” Federal Housing Commissioner Julia Gordon stated in a news release. “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.”
Borrowers on FHA-insured Title II single-family forward mortgages can utilize the new option only if they can’t be adequately assisted by existing FHA home retention solutions because the interest rate on their existing first-lien loan is lower than current market rates. Only borrowers who haven’t exhausted their partial claim allowance through prior loss-mitigation action are eligible.
Funds from an FHA partial claim enable borrowers to move up to 30% of the outstanding first mortgage balance to a junior lien that does not require any monthly payments until the borrower sells the home, refinances the mortgage, or the mortgage otherwise terminates.
Funds collected through the partial claim are first used to bring the first mortgage current. Remaining funds are deposited in servicer-managed custodial account and used to temporarily reduce the monthly first mortgage payment by up to 25% for three years.
Marcia Fudge, HUD
HUD Secretary Marcia L. Fudge noted in a written statement, “Today’s new policy will enable the families we serve to get back on their feet while staying in their homes.”
HUD first released a draft of the proposed mortgagee letter back n May 2023.
Mortgagees can begin implementing the new loss mitigation option as of May 1, while implementation is required by January 1, 2025.
