The Federal Housing Administration (FHA) has introduced a new loss mitigation option for FHA-insured borrowers who live or work in areas impacted by Hurricanes Harvey, Irma and Maria, as well as California wildfires and subsequent flooding and mudslides. The new option allows affected borrowers to remain in their homes while reducing losses that would otherwise adversely affect the FHA’s Mutual Mortgage Insurance Fund, the FHA said.
The “Disaster Standalone Partial Claim” option is designed to provide relief to struggling borrowers in government-designated disaster areas. It allows them to resume their pre-disaster mortgage payments without “payment shock,” which generally happens when a borrower’s monthly payments suddenly increase. By doing so, it allows affected borrowers to remain in their homes while reducing losses that would otherwise adversely affect the FHA’s Mutual Mortgage Insurance Fund.
The new option covers up to 12 months of missed mortgage payments through an interest-free second loan on the mortgage, payable only when the borrower sells the home or refinances their mortgage. It does not require a trial period or a balloon payment and allows borrowers to retain their existing interest rate and loan terms, as well as their existing monthly mortgage payment, according to FHA.
In Mortgagee Letter 2018-01, the FHA instructed mortgage servicers to offer such relief to eligible disaster victims in Texas, Louisiana, Georgia, Florida, South Carolina, California, Puerto Rico and the U.S. Virgin Islands.
“It’s clear that FHA homeowners in these areas need more help to get back on their feet as they recover from these storms,” HUD Secretary Ben Carson said in a press release. “Today, we offer immediate relief to these borrowers which will allow them to resume their mortgage payments without crippling payment shock and fees while protecting our insurance fund in the process.”
The expanded loss mitigation will also streamline income documentation and other requirements to expedite relief to homeowners struggling to pay their mortgage while recovering from last year’s disasters.
Borrowers who became delinquent on their mortgage payments as a result of last year’s disasters, and whose initial mortgage forbearance periods are ending, are qualified for the new partial claim office, provided that:
- They were current on their mortgage payments at the date of the disaster;
- Their income is equal to or more than their pre-disaster income; and
- Their property is owner-occupied.