The Federal Housing Administration introduced an innovative proposal designed to help keep struggling homeowners in their homes.
The FHA unveiled a new home retention option, known as the Payment Supplement Partial Claim, in order to assist homeowners struggling to meet their mortgage payments, according to a May 31 U.S. Department of Housing and Urban Development news release.
“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," Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. "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."
The proposal seeks to allow mortgage servicers to temporarily lower borrowers' monthly mortgage payments for a period of up to five years, while simultaneously bringing their loans up to date, the release reported. This new option, the FHA Partial Claim, aims to provide relief and stability to homeowners facing financial difficulties.
Some of the FHA's current loss mitigation alternatives are less effective at helping borrowers due to the recent rapid and severe interest rate rises, the release said. Because borrowers are required to modify at market rates, which may be higher than their existing rates, the commonly used FHA loan modification option is no longer as efficient as it once was at lowering borrowers' monthly payments to amounts they can afford.
The Payment Supplement Partial Claim enables homeowners who are having financial difficulties and who are unable to obtain a significant payment reduction through other loss mitigation options to maintain their current interest rate and temporarily lower their monthly payment using money from the FHA Partial Claim, which is a subordinate zero interest lien, according to the release. When the homeowners sell or refinance their home, FHA receives payment.
The FHA is now seeking comments and feedback on the proposal from industry stakeholders and the public, highlighting its commitment to an inclusive and transparent decision-making process, the release reported. As the Federal Housing Administration works towards finalizing this initiative, it remains dedicated to finding creative solutions to support struggling homeowners and protect the stability of the housing market in the face of evolving economic circumstances.
