HUD No. 07-037
April 9, 2007
GOVERNMENT PROGRAM HELPS FAMILIES STAY IN THEIR HOMES
Federal Housing Administration helps homeowners avoid foreclosure HUD Secretary Urges Congress to pass FHA Modernization Bill so HUD can help more even families
WASHINGTON - More than 36,500 families have been able to stay in their homes and avoid foreclosure this year thanks to the U.S. Department of Housing and Urban Development's Federal Housing Administration (FHA) comprehensive lending relief measures. The FHA's Loss Mitigation Program gives lenders who provide FHA-insured mortgages the authority and responsibility to assist homeowners who have fallen into financial difficulties with their home mortgages.
"Owning a home is the American Dream, and the last thing we want is for families to see their dream turned into a nightmare. FHA lending relief measures continues to help families around the nation work through difficult times, stay in their homes and avoid foreclosure," said HUD Secretary Alphonso Jackson.
Since last October, the FHA Loss Mitigation Program has helped 36,512 families, who are behind on their mortgage payments, keep their homes. In Fiscal Year 2006, this program helped 75,000 families with FHA-insured loans continue to enjoy the benefits of homeownership. In total, there are currently nearly 4 million homeowners in FHA homes.
The potential loss of a home, due to unexpected events such as unemployment or illness, can be financially and personally devastating. But it can be avoided by taking the right steps. Under the FHA Loss Mitigation Program, lenders have the ability to offer borrowers a number of HUD-approved options for avoiding foreclosure, including:
- Special Forbearance: This option can include a temporary reduction or suspension of a mortgage payment until the borrower can reestablish financial stability, or a permanent revision in the payment amount to reflect a borrower's new and reduced financial status.
- Modifications: The lender can rewrite the mortgage note in order to roll delinquent amounts into the principal or extend the term of the loan to reduce monthly payments.
- Partial Claim: FHA's insurance fund makes a one-time payment to bring the mortgage current, which becomes an interest-free subordinate mortgage due when the insurance is terminated.
- Pre-Foreclosure Sale: The borrower avoids foreclosure by selling the property for its appraised value even if the proceeds are not enough to pay off the mortgage.
- Deed-in-Lieu of Foreclosure: This option is a negotiated settlement where the borrower deeds the house back to the lender, saving the borrower all of the credit ramifications of a foreclosure while also saving the government some legal costs.
Created in 1934 to stimulate the housing market during the depression, the FHA has since helped more than 34 million first-time, minority, and low-income families who do not qualify on their own for prime mortgages to become homeowners. But as lending practices have evolved and modernized, the FHA has not had the ability, without Congressional legislation, to adapt to the new marketplace and become a viable alternative to subprime loan products.
FHA Commissioner Brian D. Montgomery has made much-needed updates to FHA's policies and procedures that did not require legislation, but statutory reform must be enacted for this critical mortgage insurance program to adapt to today's marketplace. Then FHA could truly meet its mission of serving low- to moderate-income families who deserve something better than teaser rates and drastic interest rate hikes.
To maximize the FHA's ability to help families purchase and keep their homes, Secretary Jackson continues to urge Congress to quickly pass legislation that updates the FHA's mortgage programs and makes affordable homeownership opportunities available to more Americans.
"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. Modernizing the FHA would provide more hard working families with a strong alternative to risky mortgages," said Jackson.
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. For buyers with sufficient income to make mortgage payments but without the funds for a down payment, FHA-insured mortgages would eliminate the current 3 percent down requirement and instead offer flexible low downpayment options. For borrowers with impaired credit, but with enough funds for a down payment, FHA would offer safer mortgages products at more affordable rates. And for borrowers who live in high cost real estate markets, the FHA would increase its loan limits.
FHA's collection of insurance premiums from homebuyers has allowed the program to be self-sustaining. A modernized FHA would be able to continue operating without taxpayer support, while providing the consumer with affordable alternative mortgage products.
For more information on how families with FHA-insured mortgages can avoid foreclosure, visit www.hud.gov/foreclosure/ or call 1-800-CALL-FHA.
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, and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.