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FHA Reduces Foreclosures

Mitigation helping lenders

April 9, 2007

By MortgageDaily.com staff

The Department of Housing and Urban Development reported mitigation practices at the Federal Housing Administration have helped prevent more than 36,000 foreclosures.

Through comprehensive lending relief measures, HUD announced Monday it has empowered FHA lenders with "the authority and responsibility to assist homeowners who have fallen into financial difficulties with their home mortgages."

The loss mitigation program enables servicers to offer special forbearance -- where a payment is reduced or suspended until the borrower can reestablish financial stability or the payment can be lowered, the statement said. Lenders can also rewrite delinquent payments into an increased loan amount or extend payments.

Borrowers can also apply for a partial claim, where the FHA insurance fund makes a one-time payment to bring the loan current, HUD said. In that case, the payout becomes an interest-free loan due when the insurance is terminated.

In addition, borrowers can attempt to sell the house before it enters foreclosure or grant the lender a deed-in-lieu of foreclosure -- helping the borrower preserve credit while saving the government legal costs, the press release indicated.

The program helped 36,512 delinquent FHA borrowers avoid foreclosure this year, according to the announcement. During the last fiscal year, HUD claims 75,000 delinquent borrowers avoided foreclosure.

Nearly 4 million borrowers are in FHA-insured loans, the agency reported.

The agency called on Congress to pass legislation updating the program.

"Too many families have been lured into accepting high-cost, exotic loans to purchase their homes because the market doesn't provide enough choices that are safe, fair and affordable," HUD Secretary Alphonso Jackson said in the statement. "With this legislation, which passed the House by a 415-7 vote last year with wide bipartisan support, Americans with less than perfect credit will no longer have to think the subprime market is their only choice for obtaining a mortgage."

And the country's Realtors called on FHA to help borrowers with rising mortgage payments.

"We believe FHA can design a mechanism where credit worthy borrowers could refinance subject to prudent guidelines, and therefore avoid losing their homes," the National Association of Realtors said in its own announcement today.

The group is requesting a waiver of a requirement that borrowers be current in order to qualify for an FHA refinance -- adding that various lenders have expressed a desire to do just this in recent days.

"This would not be a bailout for lenders," NAR said. "We believe that with some minor regulatory adjustments to the FHA program that a significant subset of borrowers facing the prospect of foreclosure could safely refinance into an FHA mortgage."

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