Hud" s Loss Mitigation Program
With defaults and foreclosures continuing to rise, the U.S. Department of Housing and Urban Development (HUD) has taken new steps to help struggling homeowners. Part of its efforts is encouraging lenders to offer loss mitigation options to keep borrowers in their homes and help them get back on track. The HUD loss mitigation program currently offers several options, the most important of which are discussed below.
Loan modification
This is probably the most popular form of loss mitigation among borrowers. In a loan modification, the lender agrees to change the terms of the mortgage to better match the borrowers paying capacity. Under the loss mitigation program, the borrower has to stay current throughout a three-month trial period before the change is made permanent.
Assumption
Assumption means passing the responsibility of paying your mortgage to someone else. Needless to say, this also means letting them take possession of your home. The person assuming the loan must meet the banks lending standards. This loss mitigation option is best for those whose loans arent underwater yet, but are already having trouble keeping it current.
Partial claim
In a partial claim, part of your mortgage insurance policy will be used to cover missed payments and penalties, thus bringing your loan current. This form of loss mitigation is offered to borrowers who have already overcome the cause of the default (e.g. they have found a new job after getting dismissed), and only for loans at least four months behind.
Special forbearance
This option was placed in the loss mitigation program to address mortgages already at risk of foreclosure. Borrowers who have missed at least three months can skip part or all of the following payments for up to 12 months. The difference is added to the mortgage balance and can then be paid on a month-to-month basis.
Extension of time
An extension of time is another loss mitigation form that offers an option for those who are already in the foreclosure process. Basically, it offers a 90-day extension to let the borrower try to cure the default or seek other loss mitigation options, such as loan modification.
Deed in lieu of foreclosure
Borrowers who can no longer afford to pay their mortgage despite the various loss mitigation programs can offer their lenders a deed in lieu of foreclosure. As the name suggests, it involves turning the deed to the property over to the lender. To qualify, one has to reside in the home, have a tangible financial difficulty, and leave the home in good condition.
Loan modification
This is probably the most popular form of loss mitigation among borrowers. In a loan modification, the lender agrees to change the terms of the mortgage to better match the borrowers paying capacity. Under the loss mitigation program, the borrower has to stay current throughout a three-month trial period before the change is made permanent.
Assumption
Assumption means passing the responsibility of paying your mortgage to someone else. Needless to say, this also means letting them take possession of your home. The person assuming the loan must meet the banks lending standards. This loss mitigation option is best for those whose loans arent underwater yet, but are already having trouble keeping it current.
Partial claim
In a partial claim, part of your mortgage insurance policy will be used to cover missed payments and penalties, thus bringing your loan current. This form of loss mitigation is offered to borrowers who have already overcome the cause of the default (e.g. they have found a new job after getting dismissed), and only for loans at least four months behind.
Special forbearance
This option was placed in the loss mitigation program to address mortgages already at risk of foreclosure. Borrowers who have missed at least three months can skip part or all of the following payments for up to 12 months. The difference is added to the mortgage balance and can then be paid on a month-to-month basis.
Extension of time
An extension of time is another loss mitigation form that offers an option for those who are already in the foreclosure process. Basically, it offers a 90-day extension to let the borrower try to cure the default or seek other loss mitigation options, such as loan modification.
Deed in lieu of foreclosure
Borrowers who can no longer afford to pay their mortgage despite the various loss mitigation programs can offer their lenders a deed in lieu of foreclosure. As the name suggests, it involves turning the deed to the property over to the lender. To qualify, one has to reside in the home, have a tangible financial difficulty, and leave the home in good condition.
