HUD: Federal Housing Administration Proposes Innovative Approach to Keep Struggling Homeowners in their Homes

Wednesday, May 31, 2023

Executive Summary:

  • The Federal Housing Administration (FHA) proposes a new home retention option, Payment Supplement Partial Claim, aiming to help homeowners meet mortgage obligations.
  • This option would permit mortgage servicers to use the FHA Partial Claim to update a borrower’s mortgage and offer temporary reductions to monthly payments for up to five years.
  • This new option would enable homeowners unable to obtain significant payment reduction to keep their existing interest rate and reduce their monthly payments temporarily.
  • The FHA is seeking feedback on this proposal until June 30, 2023.

Unedited Press Release Text:

In consideration of steeply increased interest rates, FHA seeks input on new approach to help its borrowers

WASHINGTON – Today, the Federal Housing Administration (FHA) posted for feedback a proposal for a new home retention option to help struggling homeowners meet their mortgage obligations. The new option, called the Payment Supplement Partial Claim, would allow mortgage servicers to use the FHA Partial Claim both to bring a borrower’s mortgage current and to provide temporary reductions to their monthly mortgage payments for up to five years.

The rapid and steep interest rate increases of the past year have limited the effectiveness of some of FHA’s existing loss mitigation options in assisting borrowers. FHA’s widely used loan modification option, which has historically reduced borrowers’ monthly payments to levels they can afford, is no longer as effective as it once was because borrowers are forced to modify at market rates that may be higher than their current rates.

The Payment Supplement Partial Claim allows homeowners experiencing a hardship who are unable to obtain a significant payment reduction with other loss mitigation options to keep their existing interest rate and reduce their monthly payment temporarily using funds from the FHA Partial Claim, which is a subordinate zero interest lien. The homeowners then pay FHA back when they sell their home or refinance.

“Many homeowners continue to experience hardships due to health or financial difficulties that occurred during the pandemic, and these challenges have been exacerbated for these and other borrowers by current economic uncertainties,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “When we saw that our existing loan modifications were no longer providing adequate payment relief, our team painstakingly explored every possible alternative to provide relief in the current rate environment, resulting in this innovative proposal.”

FHA is seeking feedback on this proposal on the Single Family Policy Drafting Table through June 30, 2023.



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