Thursday, June 21, 2012

Distressed FHA-Backed Loans To Be Sold in New Foreclosure Reduction Plan

The Federal Housing Administration (FHA), a branch of the United States Department of Housing and Urban Development (HUD), is taking steps designed to hopefully prevent foreclosure for thousands of homeowners across the country.  The measures will also enable the agency to rid itself of numerous distressed home mortgages that are threatening the housing market.  According to an article in the Chicago Herald-Tribune, the FHA plans to sell 5,000 mortgages each quarter, and will begin putting this plan into action in September.

HUD’s website states that the FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.  The FHA, which insures mortgages on both single family and multifamily homes, is the largest insurer of mortgages in the world.  At the moment, the agency is reportedly burdened with more than 700,000 delinquent loans.  Selling those mortgages will have an impact on foreclosure because many banks have failed to address FHA-backed loans, even though they are eligible for debt reduction, preferring to address loans that were not backed by the agency.  As our Oak Park foreclosure defense lawyers know, by dragging their feet during the mortgage foreclosure process, banks benefit from fees and penalties racked up by homeowners who cannot pay.  This drives those homeowners further and further into debt as they wait for the resolution of the foreclosure process.

Shaun Donovan, Secretary of HUD, has supported debt reduction for some homeowners, particularly for owners who now own more than their homes are worth due to the market crash.  Those of us working in Oak Park and River Forest mortgage foreclosure understand that many Chicago residents are distressed by falling home prices.  If your home is underwater, you may feel as though you will never be able to get out from under your debt.  However, programs such as the FHA’s plan to sell off loans to reduce foreclosures can be a good option for some homeowners.  For example, the FHA’s program will provide investors with more freedom to reduce homeowners’ principal.  It will also provide them with the flexibility to offer rent-to-own plans.  Some homeowners whose loans are sold under the new FHA program may even benefit from reduced mortgage payments.

Homeowners seeking eligibility under the new FHA program will have to meet a few requirements:

1.  To qualify, loans must be more than six months delinquent
2.  Delinquent loans must also have gone through foreclosure-prevention programs
3.  The loan’s servicer must have already begun the foreclosure process, and
4.  The loan borrower must not be in bankruptcy

If the above criteria were met, the investor would have to halt foreclosure proceedings for at least six months, as well as agree not to sell half the properties secured by the loans for at least three years.  In order for all of this to work, the FHA also will have to sell its distressed loans at significant discounts.

The FHA’s pilot program has sold more than 2,000 distressed loans, but it is still unclear whether the program has been successful.

See Our Related Blog Posts:

Bank of America Announces Principal Reduction Plan for Underwater Homeowners

Oak Park Foreclosure Defense Lawyers Discuss the State of Illinois Foreclosure

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