The Department yesterday proposed to triple the damages it can seek against FHA lenders that fail to engage in loss mitigation techniques. Loss mitigation options can enable homeowners in default on their FHA mortgages to remain in their homes.

The current maximum penalty that can be imposed on lenders is $6,500 for each violation, up to a limit of $1.25 million for all violations committed during any year. The proposed triple damages penalty would be in addition to the current penalty and not subject to the current limitations.

Loss mitigation techniques include:

• Special Forbearance, in which the lender arranges a repayment plan based on the borrower's financial situation and possibly provide for a temporary reduction or suspension of payments;
  
  
• Mortgage Modification, in which the lender reduces the monthly payment and/or extends the term of the mortgage;
  
  
• Partial Claim, in which the lender obtains a one-time payment from the FHA insurance fund to bring the mortgage current;
  
  
• Pre-Foreclosure Sale, in which the borrower avoids foreclosure by selling the property for less than the amount necessary to pay off the mortgage, and
  
  
• Deed-in-Lieu of Foreclosure, in which the borrower gives back the property to the lender. The borrowers lose their house, but do not damage their credit rating as much as a foreclosure would.