If you have a mortgage with the Federal Housing Administration (FHA), and have missed payments because of a hardship or are at risk of foreclosure, there are options available to help you save your home. One of these options is called the FHA HAMP Loan Modification Program.
It is important you know that FHA had recently changed their loan workout guidelines. In this article I will list these changes so you can become educated on the current process and conditions when applying for FHA loan modification.
A loan modification is when your lender works with you in modifying your current mortgage to a more affordable payment structure. This can be done in various ways, such as lowering your current interest rate, extending the term of the loan, and/or forgiving part of your mortgage balance.
In order to qualify for a loan modification, you first have to meet the current FHA guidelines and requirements.
For example, you need some type of hardship and explanation why you have missed payments, such as a job loss, reduction in income, or medical emergency. You will also need to have a solution to this original hardship. Meaning, if you lost your job, you will have found new steady employment, or if the reason was a reduction in income, you have to show that you can still make payments if they were to modify your loan in order to pay your mortgage on time over the long term.
Most mortgage lenders such as FHA have specific guidelines that mortgage servicers use to determine if someone is eligible for a loan modification. If you have a FHA loan and need mortgage assistance, you need to study these guidelines to understand exactly what they require when you apply for help.
Below are the basic FHA HAMP loan modification guidelines and changes updated for 2014:
These are the FHA changes you need to be aware of;
1. The old requirement that was for borrowers to have a back-end max debt ratio of 55% has been eliminated. Currently, there is no maximum back-end debt ratio.
2. The old front-end debt ratio was 31%. That now has been raised to where the total first mortgage payment (PITI) cannot exceed a 40% front-end debt ratio.
3. The old requirement that a borrower could only have a maximum of 12 months of missed payments; currently, this has been eliminated and now you can have a maximum of 36 months or more of missed payments.
4. Loan modifications are now allowed to be combined with a partial claim. In addition, insurance (PITI) may also be included in an FHA-HAMP Partial Claim. FHA-HAMP allows the use of a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification. Below I have listed the facts on this new guideline and on partial claims.
Please keep in mind that in addition to the above changes, you will also have to meet other requirements. These facts are directly quoted from HUD and FHA:
1. The Borrower does not have surplus income that is at least the greater of $300 and 15 percent of net monthly income
2. 85% of the borrower’s surplus income is insufficient to cure arrearages within 6 months, and
3. The borrower’s monthly principal, interest, taxes, and insurance (PITI) mortgage payment can be reduced by the greater of 10% of the original monthly mortgage payment amount or $100, as a result of the lender setting the interest rate at the Market Rate and amortizing the new loan over 30 years.
Loan Modification Interest Rate
The lender should modify the interest rate to the current Market Rate, defined as a rate that is no more than 25 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30 year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date a Trial Payment Plan is offered to a borrower.
To see the most current 30 year fixed conforming mortgage rate from Freddie Mac, click here.
Trial Payment Plan
To confirm if the mortgagor is capable of making the new FHA-HAMP payment, the mortgagor must successfully complete a trial payment plan. The trial payment plan shall be for a three month period and the mortgagor must make each scheduled payment on time. The mortgagor’s monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment.
The Mortgagee must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance. If the mortgagor does not successfully complete the trial payment plan by making the three payments on time, the mortgagor is no longer eligible for FHA-HAMP.
Applicant Eligibility: Mortgagors with FHA-insured mortgages that do not qualify for other loss mitigation programs and with adequate debt-to-income ratios. Homeowners must successfully complete a trial payment plan before becoming a full participant in the program.
Partial Claim Facts
FHA-HAMP typically involves the combination of a Loan Modification and a Partial Claim. However, FHA-HAMP may now involve the use of one or both of those Loss Mitigation options. As part of FHA-HAMP, a Partial Claim may include an amount needed to cover arrears in loan payments and, potentially, an additional amount for principal deferment. See Attachment A for guidelines in calculating principal deferment. See Attachment B, Examples 3(a) and (b), for guidance on qualifying mortgagors for FHA-HAMP and for calculating the amount of principal deferment.
A mortgagee may use an FHA-HAMP stand-alone Partial Claim, without an accompanying Loan Modification, provided the following three conditions are met: (i) the mortgagor’s current interest rate is at or below market rate, (ii) the mortgagor’s current mortgage payment is at or below the target monthly payment (as defined in Attachment A), and (iii) the mortgagor otherwise qualifies for FHA-HAMP as described below.
There are additional guidelines and facts that you can study at the links below. If you have anymore questions or need expert help, we also have a free online mortgage forum you can join here.
For help with a FHA loan refinance, please call Erik Sandstrom with New American Funding at 1-800-779-4547