An FHA loan is a government-backed loan insured by the Federal Housing Administration ("FHA loan"). One feature of FHA loans is that they have lower credit and down payment requirements for qualified homebuyers. For example, the required down payment for an FHA loan may be only 3.5%.

Homeowners with FHA loans who are struggling to make mortgage payments may have access to different programs to help avoid foreclosure through the Department of Housing and Urban Development ("HUD").

What are the HUD options available to homeowners?

According to HUD policy, loan servicers must follow a "waterfall" process to consider loss mitigation alternatives for homeowners who are behind on payments or at risk of falling behind. Failure to comply with HUD guidelines may be considered a defense against foreclosure. Previously, under the "waterfall" process the loan servicer would evulate each homeowner for these loss mitigation alternatives in the specific order:

• forbearance (informal, formal, or special forbearance)
• repayment plan
• loan modificaiton
• partial claim
• loan modification plus partial claim
• preforeclosure sale/short sale, or
• deed in leiu of foreclocsure

As soon as a borrower is eligible for a particular option, the waterfall evaluation stops. However, the "waterfall" process was amended during Covid-19. Although the amended waterfall process was initially scheduled to expire, it will now be available through Cotober 30, 2024.

How is the amended Covid-19 waterfall different from the original waterfall?

Under the amended Covid-19 waterfall process, loan services must evaluate all eligible homeworners with FHA loans regardless of the cause of their financial difficulties. The specifics of the Covid-19 policy changes are as follows:

• Extend temporary Covid-19 recovery loss mitigation options to all eligible borrowers, including non-occupant borrowers.
• Update the partial claim components of both the Covid-19 recovery standalone partial claim and the Covid-19 recovery modification by raising the maximum partial claim amount from 25 percent of the mortgage's unpaid principal balance to the maximum 30 percent allowed by statute.
• Extend the availability of Covid-19 recovery loss mitigation options for 18 months past the April 30, 2023 mandatory effective date for loan servicers.
• Expand the definition of imminent default to include borrowers who qualified for or used HAF funds (from the U.S. Department of the Treasury's Homeowner Assistance program).
• Provide incentive payments to loan servicers for the successful completion of Covid-19 recovery options.
• In light of all the foregoing changes, FHA temporarily suspended the use of FHA-Home Affordable Modification options concurrently.

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At The Law Center, we are a team of specialists that are passionate and up to date about the foreclosure process (including the FHA loss mitigation options) from start to finish and helping homeowners at the highest level. Our staff and attorneys approach each client and each property as a new challenge, one that requires thorough analysis, zealous representation, and thoughtful strategy. It’s your home, let The Law Center help you defend it.

Call us now and speak with a foreclosure expert on how you can make the foreclosure process work for you -- not against you. (312) 600-8815