HUD No. 05-164
December 5, 2005
HUD ANNOUNCES MORTGAGE ASSISTANCE FOR DISASTER VICTIMS
$200 million initiative designed to rebuild lives and communities
WASHINGTON - Help is on the way for up to 20,000 families displaced by Hurricane Katrina and other recent disasters, Department of Housing and Urban Development Secretary Alphonso Jackson announced today. Under the Mortgage Assistance Initiative, HUD will make mortgage payments for up to one year for disaster victims with FHA-insured mortgages who want to start living in their homes again.
To be eligible for this mortgage assistance, families must have homes that are repairable and located in a presidentially declared disaster area that is designated for individual assistance. HUD will not only make mortgage payments for qualifying homeowners who are in default, its current practice, but will make advance mortgage payments on behalf of borrowers for up to 12 months.
"These families have been devastated. Not only are they living far from home right now, but many have lost their source of income," said Jackson. "We want to help end that hopeless feeling for them, by letting them come back home and concentrate on putting their lives in order without having to worry about making mortgage payments."
This unprecedented mortgage relief will enable FHA borrowers in the impacted areas to retain homeownership as they concentrate on repairing their homes and finding jobs. In addition, it will assist FHA lenders and protect communities by encouraging homeowners not to abandon damaged properties. After the mortgage assistance period, the borrower will resume making normal mortgage payments. The payment on the borrower's behalf will be secured by a second mortgage that carries no interest rate and is repaid to HUD upon payment-in-full of the first mortgage.
Jackson said, "This is our way of reducing the insurmountable odds these families face and will give them the breathing room they need to rebuild their homes and their lives. It's also an investment in the long-term stability of the their neighborhoods."
This assistance is available to FHA homeowners who: Have a property that is damaged by the hurricanes but can be rebuilt given adequate time; have access to funds from insurance proceeds, loans or personal resources to complete the repairs; and, are currently employed or are very likely to return to work within a short period of time.
FHA-insured families in disaster areas whose houses are not damaged, but have lost their source of income as a result of the hurricanes, will also be eligible for this mortgage relief. These borrowers must be able to demonstrate that their primary source of employment was located in an area designated for individual assistance, that they suffered a reduction in income that makes them unable to pay their mortgage and that they are likely to be reemployed within a reasonable period of time.
These requirements will remain in effect for an eighteen-month period unless extended or rescinded by the Department. It is estimated that up to 20,000 families could benefit by this action, in which case the outlay by HUD would be approximately $200 million.
"The Mortgage Bankers Association applauds Secretary Jackson for assisting FHA borrowers in such a generous and much needed way," said Kurt Pfotenhauer, MBA's senior vice president for government affairs. "We believe the amount of financial assistance being offered will help many borrowers get their lives back on track and allow them to focus on the formidable task of rebuilding."
HUD is asking lenders to contact as many families as possible that may be eligible for this special assistance. FHA homebuyers can also contact their lender or HUD's National Servicing Center at: 1 (888) 297-8685.
HUD also has FHA insurance programs that provide options for homeowners in need of repair funding. Under the 203(h) program, FHA insures mortgages for disaster victims whose homes have been damaged or destroyed and are in the process of rebuilding or buying another home. HUD's streamlined 203(k) program is specially designed for properties that require only limited repairs. Homebuyers will be able to finance into a new mortgage up to $35,000 that can be applied to the repair and rehabilitation of the home.
The Mortgage Assistance Initiative is one of a series of steps HUD is taking to address the recent disasters. The Department recently made several changes to its servicing procedures for FHA mortgages in the Gulf States. These changes, which ease burdens on lenders, include allowing more frequent property inspections, allowing boarding of properties without prior approval and cautioning lenders to post notices on vacant properties providing guidance on how to reach their lenders. To benefit impacted homebuyers, HUD has asked FHA lenders not to report any derogatory information to credit bureaus.
HUD is the nation's 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.
Questions & Answers
Regarding the FHA Mortgage Assistance Initiative.
1. Who Is Eligible?
- Have an FHA insured first mortgage on their primary residence.
- Live or have full time employment in a county or parish in Alabama, Florida, Louisiana, Mississippi or Texas that FEMA has declared to be eligible for individual assistance as a result of Hurricanes Katrina, Rita or Wilma;
- Are temporarily unable to make monthly mortgage payments due to a verifiable loss of income, increase in living expenses or property damage to their principal residence attributable to Hurricanes Katrina, Rita or Wilma;
- Are expected to have the ability to resume making full mortgage payments after all mortgage assistance funds have been applied (not to exceed a total of 12 monthly payments);
- Own a principal residence that is habitable or can be made habitable;
- Are committed to continued occupancy of the property as a primary residence;
- Have missed at least four but not more than 12 mortgage payments on a FHA insured loan.
2. What mortgage assistance is available?
The amount needed to cover monthly mortgage obligations for principal, interest, taxes and insurance (PITI) currently in default plus amounts needed to cover monthly PITI obligations that will become due and payable before the date the borrower is expected to be able to resume full monthly mortgage payments. The total assistance provided may not exceed an amount equivalent to 12 months of PITI.
3. Do the mortgage assistance funds have to be repaid?
Yes. The borrower must execute a note and subordinate mortgage payable to HUD for the amount of the mortgage assistance provided. However, no interest is payable on the mortgage assistance funds and repayment is not required until the balance of the FHA-insured first mortgage is paid in full either through amortization or early payoff.
4. Can mortgage assistance funds be used for property repairs or other purposes?
No. All mortgage assistance funds must be applied toward mortgage obligations for principal, interest, taxes and insurance (PITI). If the property securing the loan has suffered storm damage, the borrower must demonstrate that sufficient funds are available from insurance loss settlements and/or other sources to return the home to a habitable condition. Borrowers who have the ability to repay additional debt can obtain low interest disaster loans from the Small Business Administration (SBA) for property repairs not covered by insurance.
5. How does a borrower take advantage of the FHA Mortgage Assistance Initiative?
Borrowers should contact their mortgage lender at the earliest possible time following default. The mortgage lender will ask for information about the extent of the property damage, if any; the borrower's employment and income status; the availability and amount of anticipated hazard and flood insurance claim proceeds; and any other sources of funds the borrower will have to pay for needed repairs.
6. What if the property has not been damaged but the borrower is unemployed as a result of the hurricanes?
Many properties in the counties eligible for individual assistance were not physically damaged by the hurricanes, yet the property owners have experienced a temporary or permanent loss of employment as a result of business closures. Any FHA insured borrower who had full time employment in a county or parish in Alabama, Florida, Louisiana, Mississippi or Texas that FEMA declared to be eligible for individual assistance, and who has experienced a significant loss of income due to temporary or permanent employment disruption, may also be eligible for FHA mortgage assistance.
7. How does a mortgage lender determine if a borrower is eligible?
Lenders will review the financial and insurance information provided by the borrower to determine if the borrower has a commitment to continuing to live in the property as a primary residence and has adequate financial resources to complete the needed repairs and resume making full mortgage payments within 12 months. If the borrower is currently unemployed as a result of the hurricanes, the mortgagee will need documentation that the borrower is expected to return to a former job within 12 months, or has a high likelihood of finding new employment that will provide sufficient income to support the mortgage payments.
8. Is any help available for borrowers who are not eligible for mortgage assistance advances?
Borrowers who are not eligible for this assistance may qualify for some other form of relief under HUD's loss mitigation program. Information on available help for homeowners can be found on HUD's website.
9. Does HUD offer any other sources of funding to pay for repair of disaster damage?
Yes. HUD has two programs that may be options for borrowers in need of additional repair funding.
- 203h - Under the 203(h) program, FHA insures mortgages for victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home. Individuals are eligible for this program if their home -- whether they owned their home or rented-- was located in an area designated by the President as a disaster area, and their home was damaged to such an extent that reconstruction or replacement is necessary.
No down payment is required under the Section 203(h) program. Subject to maximum loan amount restrictions, eligible individuals who are able to qualify for a mortgage through FHA's underwriting guidelines can obtain 100 percent financing for purchase of a home anywhere in the United States. For more information, visit HUD's website.
- Standard 203k - This loan program allows borrowers to obtain a single loan for both the purchase and rehabilitation of a property that needs extensive repair. A 203k loan can be used to buy a new home, or to refinance an current loan, even if the original loan is not FHA insured.
- Streamlined 203k - This loan is similar to the 203k but is specially designed for properties that require only limited repairs that will cost between $5,000 and $15,000. Under this program, a homebuyer can finance into the mortgage an additional amount up to $15,000 to be applied toward the repair and rehabilitation of the home.
More information regarding both of these home repair loan programs can be found on HUD's website.
For more information about any of HUD's loan programs contact a HUD-approved lender or call the HUD National Servicing Center Hotline at: 1 (888) 297-8685.