The U.S. Department of Housing and Urban Development on
Friday announced that it is increasing incentive payments available to lenders
who utilize HUD's most powerful loss mitigation options for helping borrowers
in default avoid foreclosure and retain their homes.
To ensure that families with mortgage loans insured by the
Federal Housing Administration (FHA) are offered every opportunity to avoid
foreclosure, HUD pays financial incentives to FHA lenders to encourage use of
the Department's loss mitigation tools. Under the increased incentives, FHA
lenders who utilize mortgage modification and partial claim tools will be
entitled to claim an additional financial incentive of $250 per loan. The total
financial incentive that will be payable is $750 for mortgage modifications and
$500 for partial claims. Reimbursements and incentives for other loss
mitigation options remain unchanged at this time.
In fiscal year 2004, more than 78,000 borrowers were able to
retain home ownership through FHA loss mitigation options, according to a press
statement.
The FHA Loss Mitigation Program delegates to lenders both
the authority and responsibility to utilize actions and strategies to assist
borrowers in default and reduce losses to FHA's insurance funds. Two of the
most effective home retention tools are mortgage modification and partial
claim. Mortgage modification is a permanent change to one or more of the
mortgage terms, such as an increase in the total amount due to include the
amount of the delinquency, an extension of the length of time the borrower has
to repay or a change in the interest rate to achieve a payment the borrower can
afford. Partial claim is a loss mitigation option available only to borrowers
with FHA-insured loans. Through a partial claim, HUD lends the borrower money
to cure the default. The loan carries no interest and does not become due until
the property is sold or paid off.
The increased incentives are effective June 1, 2005. This
action is being taken in recognition of the increased costs lenders incur when
providing personal loss mitigation assistance to borrowers experiencing
financial difficulties.
HUD is a federal agency that implements housing policy.
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