FHA Helps Severely Delinquent Homeowners to Stay In Their Homes

By Liz Clinger Updated on 6/11/2012

For homeowners in foreclosure with FHA backed mortgages that have exhausted all loss-mitigation tools through existing FHA programs with their servicers may now have one more option.

While HUD’s inventory of distressed properties hit a three year low, FHA backed mortgages that are severely delinquent has reached record highs the beginning of 2012, reaching around 707,000. A pilot initiative introduced by HUD to expand its Distressed Asset Stabilization program lit the way, as HUD sold 2,000 non-performing loans to investors.

The FHA will sell 5,000 mortgages each quarter starting September 2012 to outside investors that may offer options outside government program allowances. Each loan will sell for a market-determined price, and the servicer of the loan will agree to refrain from foreclosure on the home for six months while the borrower has a chance to work out staying in the home.

For a borrower to be eligible for this initiative, they must be a minimum of 6 months delinquent, have attempted all current FHA loss-mitigation programs available and be in foreclosure but not have filed for bankruptcy.

Non-FHA lenders may be able to provide special options to borrowers, such as a reduction in principle or a rent-to-own type program where the borrowers can attempt to re-purchase the home after an allotted time period.

Carole Galante, the FHA Commissioner outline some parameters for the mortgage sales, one of which that the investor can only report half of the loans they bought were eventually moved to REO after they purchased the loan.

Severely delinquent homeowners with FHA backed mortgages may have that one last chance, afterall.