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 what to do, and what not do, if you’re facing a foreclosure, see Foreclosure Do's and Don'ts.)
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 options. (Read about the foreclosure of FHA loans.)
The servicer generally, subject to a few exceptions, has to 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.
The servicer will also evaluate whether the borrower has enough income and a sufficiently reasonable payment so that a repayment plan is appropriate.
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, 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.