“Early Relief” Plan Comes To FHA Borrowers

by Peter G. Miller
January 25th, 2010

HUD has just introduced a new loan modification concept, one which private-sector lenders might want to duplicate.

Under the plan, HUD does not want FHA mortgage borrowers to first get in trouble and then seek modification. Instead, HUD has a smart idea: Why wait? If you see you’re running into trouble let’s try to do something before things get worse? In other words, even if you’re now making your FHA loan payments, if you’re not delinquent, you may still qualify for help.

The Early Relief program outlined by HUD works this way:

If you’re facing “imminent default” and your monthly payment is current or less than 30 days past due, then you may qualify for early relief in the form of a forbearance agreement, an agreement to postpone, reduce or suspend payment(s) for a short period. The HUD says the new FHA guidelines will offer three forms of forbearance: informal, formal or special.

Informal — A verbal agreement between you and the loan servicer that can last up to three months. Comment — Not good for borrowers. What if the servicer “forgets” you were allowed to skip a payment or pay less?

Formal – A written agreement with servicer. Can be for more than three months.

Special — Undefined. HUD only says that “the use of Special forbearances is not applicable for use in cases of imminent default.” Er, well, how about a long term default….

Forbearance Options

HUD says “a forbearance agreement is an agreement by the loan servicer to postpone, reduce or suspend payments due on a loan for a limited and specific time period.” In other words, you can use the”Early Relief” program before trying the government’s Making Home Affordable program which — if you’re successful with a three-month trial that features lower monthly costs — leads to a permanent loan modification.


The government puts it this way:

>>>FHA defines an “FHA borrower facing imminent default” to be an FHA borrower that is current or less than 30 days past due on the mortgage obligation and is experiencing a significant reduction in income or some other hardship that will prevent him or her from making the next required payment on the mortgage during the month that it is due. The borrower must be able to document the cause of the imminent default which may include, but is not limited to, one or more of the following types of hardship:

>>>1. A reduction in or loss of income that was supporting the mortgage loan, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings. A scheduled temporary shut down of the employer, (such as for a scheduled vacation), would not in and by itself be adequate to support an imminent default.

>>>2. A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability.

Borrowers, of course, must document their situation — another reason why a verbal agreement with a lender does not seen like a good idea.

For more information, please speak with your FHA mortgage lender or with a HUD counselor.

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