The Federal Housing Administration (FHA), which is a part of the U.S. Department of Housing and Urban Development (HUD), offers several options to homeowners who have FHA-insured loans and are facing foreclosure. (To learn about programs that can help you if you don't have an FHA-insured loan, see our Alternatives to Foreclosure area.)
Under HUD policy, the lender must review a borrower who has a FHA-insured loan and is behind in payments (or about to fall behind) for loss mitigation—foreclosure avoidance—options.
The lender must evaluate the borrower using a process called a "waterfall" to determine which, if any, of the below options are appropriate. Under the waterfall, a borrower might qualify for a:
Under a forbearance plan, the borrower makes reduced payments, or does not have to make payments, for a specific time period.
A partial claim is an interest-free loan from HUD to get caught up on the overdue payments. The loan does not have to be repaid until the first mortgage is paid off or until the borrower no longer owns the property.
Partial claims are sometimes completed along with a loan modification.
A pre-foreclosure sale (short sale) is when the borrower sells the home for less than the amount owed on the mortgage loan. In a FHA pre-foreclosure sale, the lender can't get a deficiency judgment.
With a deed in lieu of foreclosure, the borrower voluntarily offers the home's deed to HUD in exchange for a release from all obligations under the mortgage. In a FHA deed in lieu of foreclosure, the lender can't get a deficiency judgment.
To learn more about loss mitigation options for FHA-backed loans, go to www.hud.gov and search for "Loss Mitigation Services for FHA Homeowners." To learn what options are available in your particular situation, contact your lender or loan servicer directly. Be sure to mention you have a FHA-backed loan.