FHA Mortgage Guide

The FHA has restructured its loan modification policies to assure that foreclosure fees and attorney charges can be financed.

This may seem like a fairly-obscure action and one of little consequence, but it’s a good example of how a little tweak in the rule-book can potentially benefit troubled FHA mortgage borrowers and cut foreclosure rates at the same time.

“Where loss mitigation is being attempted after foreclosure has been initiated,” says the FHA, “mortgage servicers and mortgagors have advised that foreclosure related costs and legal fees are often impediments to successful loss mitigation. Many mortgagors who are able to resume making monthly mortgage payments frequently do not have sufficient funds to reimburse the mortgagee the legal fees and foreclosure costs incurred prior to qualifying for loss mitigation and therefore are denied participation.”

In other words, there are situations where an FHA borrower has enough money to make payments after a foreclosure action has started but not enough money to pay off foreclosure costs. It’s better for everyone to avoid a foreclosure, so HUD is saying that rather than demand immediate repayment, foreclosure costs can be financed over time.

“Effective with this Mortgagee Letter, the Department will begin allowing legal fees and foreclosure costs related to a canceled foreclosure action to be incorporated into either the Loan Modification or the Partial Claim,” says the FHA.”

To make sure that consumers are not gouged with foreclosure costs, HUD has a price list of allowable fees. You know, three “thereofs” for a dollar, two “whereas” for 50 cents, etc…. (kidding, just kidding….)

The new FHA policy can be found at MORTGAGEE LETTER 2008-21.

Check out these FHA resources for more information

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