Help for Homeowners With FHA Loans

If you have an FHA-insured loan and are struggling to make mortgage payments, HUD has programs to help you avoid foreclosure.

The Federal Housing Administration (FHA), which is a part of the U.S. Department of Housing and Urban Development (HUD), offers protections and options to homeowners who have FHA-insured loans and are facing foreclosure.

Under HUD policy, the servicer must review a borrower who has a FHA-insured loan and is behind in payments, or about to fall behind, for loss mitigation alternatives using what's called a "waterfall" process.

How the Waterfall Process Generally Works

In the waterfall process, the servicer usually, subject to a few exceptions, has to evaluate the borrower to determine which, if any, of the below options are appropriate to avoid a foreclosure. The servicer must evaluate the borrower for these loss mitigation alternatives in the following specific order, and once a borrower is deemed eligible for a particular option, the evaluation stops:

Informal or Formal Forbearance

Under a forbearance plan, the borrower makes reduced payments, or doesn't have to make payments, for a specific amount of time.

Informal Forbearance. An informal forbearance plan is an oral agreement between the servicer and borrower. The servicer (on the lender's behalf) agrees to let the borrower make reduced payments or to stop making payments for a period of three months or less.

Formal Forbearance. A formal forbearance plan is a written agreement that allows the borrower to make reduced payments or to stop making payments for a period greater than three months, but not more than six months, unless otherwise authorized by HUD.

FHA Special Forbearance for Unemployed Homeowners

HUD's Special Forbearance-Unemployment option is for borrowers who have become unemployed and can't continue to make their monthly mortgage payments.

Repayment Plan

The servicer will also evaluate whether the borrower has enough income and a sufficiently reasonable payment so that a repayment plan is appropriate.

Loan Modification

A loan modification is a permanent change to one or more terms in the borrower's mortgage. A modification might:

  • lower the interest rate
  • capitalize the delinquent principal, interest, or escrow amounts
  • extend the time the borrower has to repay the mortgage, or
  • re-amortize the balance due.

While the federal Home Affordable Modification Program (HAMP) and its associated programs expired at the end of 2016, FHA still calls its loan modification program "FHA-HAMP."

Partial Claim

A partial claim is an interest-free loan from HUD to get caught up on the overdue payments. The loan doesn't 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.

Pre-Foreclosure Sale (Short Sale)

A pre-foreclosure sale (short sale) is when the borrower sells the home for less than the amount owed on the mortgage loan. After a FHA pre-foreclosure sale, the lender can't get a deficiency judgment.

Deed in Lieu of Foreclosure

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. Following a FHA deed in lieu of foreclosure, the lender can't get a deficiency judgment.

For More Information

To learn more about loss mitigation options for FHA-backed loans, see HUD's Loss Mitigation Services for FHA Homeowners website. To learn what options are available in your particular situation, contact your loan servicer directly. Be sure to mention you have a FHA-backed loan.

If you need help dealing with your loan servicer, want more information about different ways to avoid foreclosure, or are seeking information about how to fight a foreclosure, consider talking to a foreclosure attorney. If you can't afford a lawyer, a HUD-approved housing counselor is another good resource of information.

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