April 29, 2005
HUD INCREASES LENDER INCENTIVES FOR LOSS MITIGATION ACTIONS
Helping families avoid foreclosure and retain their homes
WASHINGTON - The U.S. Department of Housing and Urban Development today announced that it is increasing incentive payments available to lenders who utilize HUD's most powerful loss mitigation options for helping borrowers in default avoid foreclosure and retain their homes.
To ensure that families with mortgage loans insured by the Federal Housing Administration (FHA) are offered every opportunity to avoid foreclosure, HUD pays financial incentives to FHA lenders to encourage use of the Department's loss mitigation tools. Under the increased incentives, FHA lenders who utilize mortgage modification and partial claim tools will be entitled to claim an additional financial incentive of $250 per loan. The total financial incentive that will be payable is $750 for mortgage modifications and $500 for partial claims. Reimbursements and incentives for other loss mitigation options remain unchanged at this time.
Annually, the loss mitigation program helps thousands of FHA-insured borrowers to successfully resolve mortgage defaults and retain homeownership. In fiscal year 2004, more than 78,000 borrowers were able to retain homeownership through FHA loss mitigation options. This exceeds the number of foreclosure claims paid during the same period and reflects the commitment of HUD and FHA lenders to the program.
"At the same time we move closer to the Administration's goal of creating 5.5 million new minority homeowners by the end of this decade, we are also committed to helping existing borrowers retain homeownership. We encourage FHA lenders to make use of the increased incentives to ensure that borrowers in default are given every reasonable opportunity to recover from their financial hardship and keep their homes," said John C. Weicher, Assistant Secretary for Housing-Federal Housing Commissioner.
The FHA Loss Mitigation Program delegates to lenders both the authority and responsibility to utilize actions and strategies to assist borrowers in default and reduce losses to FHA's insurance funds. Two of the most effective home retention tools are mortgage modification and partial claim. Mortgage modification is a permanent change to one or more of the mortgage terms such as an increase in the total amount due to include the amount of the delinquency, an extension of the length of time the borrower has to repay or a change in the interest rate to achieve a payment the borrower can afford. Partial claim is a loss mitigation option available only to borrowers with FHA-insured loans. Through a partial claim, HUD lends the borrower money to cure the default. The loan carries no interest and does not become due until the property is sold or paid off.
The increased incentives are effective June 1, 2005. This action is being taken in recognition of the increased costs lenders incur when providing personal loss mitigation assistance to borrowers experiencing financial difficulties.
HUD is the nations housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.
# # #