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HUD and FHA Foreclosure Assistance

HUD and FHA Foreclosure Assistance
Daniel Cohen
UpdatedDec 1, 2010
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    4 min read

FHA and HUD Have Resources Available to Help you Avoid Foreclosure.

If you are in danger of being foreclosed, first visit HUD's tips for avoiding foreclosure. The sooner you act, the more likely you are to save your home. HUD also approves housing counselors who can help you find other options. Visit the above link to locate a housing counselor in your state.

You can also contact the FHA at (800) CALL-FHA if you have an FHA loan and are at risk of being foreclosed. Lenders are required to meet FHA's loan servicing standards when they provide FHA loans. If they're not, please report them to the FHA's National Servicing Center at (888) 297-8685.

Help for Service Members

If you're a service member on active duty, you may also be eligible for a reduced interest rate under special FHA rules. You can apply to temporarily reduce your interest rate below 6% if you acquired the mortgage before enlisting, or before being called to active duty. Your lender is prohibited from foreclosing on your home while you're on active duty or within 90 days of ending your service.

Advice for Protecting Your Credit

The most important thing you can do to avoid losing your home and protect your credit is to act quickly. Both HUD and the FHA advise contacting your lender as soon as you become aware of the problem. Do not wait for a notice of default. Acting sooner gives you more time to find an equitable solution for everyone, whether that solution is entering into a loan modification program or selling your home.

If you cannot avoid foreclosure, your credit will be damaged, however working with your lender to mitigate some of the damage is better than simply mailing back your keys. Fannie Mae, which works with the FHA, announced that it will disqualify borrowers who walked away from their homes from receiving new Fannie Mae-backed loans for five years. They will also require a minimum credit score of 680. Finally, the IRS may also opt to issue a 1099-A or 1099-C to those who walk away on the unpaid balance.

FHA Short Refinance

The Federal Housing Administration (FHA) initiated a government loan program to assist homeowners who have seen their property values drop. The program, called the FHA Short Refinance, began on September 7th, 2010 and is slated to run through December 21st, 2012. The goal is to help borrowers in a negative equity position refinance into a more secure loan.

Under the FHA Short Refinance program, a lender reduces the principal balance on the mortgage. The reduced-balance loan then passes from the private hands of the lender or investor that owns the loan to a loan that is guaranteed by the federal government. Previous government programs attempted to aid those who are behind on their mortgage payments. The new FHA Short Refi is targeted to borrowers who are current and can afford their payments, borrowers who could not qualify for the different loan modification programs available.

The FHA Short Refinance program has a lot of restrictions. To qualify for the program a borrower must:

  1. Be up-to-date on the payments for the current mortgage
  2. Be in a negative equity position
  3. Live in the property as the primary residence
  4. Have a current loan that is NOT an FHA guaranteed loan
  5. Meet FHA qualifying rules for debt-to-income ratio
  6. Have a credit score greater than 500
  7. Receive at least a 10% reduction in the principal balance from the current lender
  8. Not exceed a loan-to-value of 97.75% on the new FHA loan

Even borrowers who have gone through a loan modification may qualify for the new FHA Short Refinance program. If a borrower went through the Making Homes Affordable Program, he may be eligible for the new FHA program in the month after the loan modification was made permanent. A three month on-time payment history is required for eligibility for any borrower who had a loan modification outside of the Making Homes Affordable Program. In fact, the new FHA Short Refi may be an ideal way for someone who has completed a loan modification to further improve his or her financial position.

FHA Short Refinance Negatives

Potential negative effects of the program include an FHA requirement to purchase mortgage insurance, closing costs for the new loan, and the chance that a lender can report a reduction in the principal balance to the credit bureaus, harming the borrower's credit score. The FHA Short Refinance option is aimed at homeowners that are current on their mortgage payments and who suffered substantial depreciation in the value of their homes. Borrowers must secure a principal reduction from their lenders of at least 10%. If your home is underwater and you would benefit from lowering your current interest rate, it is worthwhile to consider this program. Separately, even if you have a good interest, if you can get your lender to agree to reduce your principal balance, the program may benefit you strongly.


JJan, Aug, 2011
I contacted Bank of America to get a modification or other help with my FHA mortgage payment when my husband's UIA benefits were about to expire. At that time I was current on my payments. After many contacts to several different people at BOA and someone from FHA I was finally told that I didn't qualify for any program because I had to be 61 days behind on my payments. We are living on my Soc.Sec. disability of less than $1000.00 a month. So now I'm 3 months in arrears and they sent me a letter of default and then an accelerated letter of default. My mortgage balance is $57,000.00 and my house is now worth $21,000.00. That's what my neighbors property is going for as well. My only recourse at this point is to file Chapter 7 bankruptcy. So why didn't they help me when, according to current information I qualified for one of those programs?
BBill, Aug, 2011
If I could answer your question, I would. No matter how I try, I can't come up with a good reason you were treated as you have been. Sadly, the system has failed you and so many others.
jjackie, Apr, 2011
i am currently 3,000 dollar behind in my mortgage payment, and have receive notice from lender, that they are intending to file for forclosure i had to file for bankrupty 2year ago. ineed sixty-day to pay. what can i do
BBill, Apr, 2011
I do not have enough information about your situation to offer any observations. Consult with your bankruptcy lawyer to learn if your personal liability for the mortgage was stripped in your bankruptcy two years ago.
aadvise, Apr, 2011
foreclose on your property and save your money.takes 18 months to forclose because mortgage company's are behind. watch out for scammers...some states are non-recourse states.
BBe, Jul, 2011
Hi, you say it takes a long time to foreclose. What happens when they send you the letter from their attorney and place the sale date within 2 weeks?? YIKES!
BBill, Jul, 2011
Each state legislature wrote different rules for foreclosures. Consult with a lawyer in your state to learn if the lender is following your state's rules. Your lawyer will want to know if and when you stopped paying your monthly home loan payment and what notices you received from the lender after you stopped making your monthly payments.