The Federal Housing Administration (FHA) is rolling out a new loss mitigation home retention option aimed at delinquent borrowers with FHA-insured single-family forward mortgages.
The new option is called the Payment Supplement and it allows mortgage servicers to temporarily reduce a borrower’s monthly mortgage payment by up to 25% without modifying the mortgage’s current interest rate. According to the FHA, the Payment Supplement is meant to help those borrowers who cannot sufficiently be assisted by the agency’s existing home retention solutions because the interest rate on their mortgage is lower than current interest rates.
When implemented, the Payment Supplement will allow mortgage servicers to temporarily reduce a borrower’s mortgage payment by using funds from a Partial Claim which enables the borrower to access up to 30% of the outstanding balance of their FHA-insured mortgage. The Partial Claim amount is placed in a junior lien and paid back when the homeowner sells or refinances the home or the mortgage otherwise terminates.
The Partial Claim is first used to pay any arrearages and to bring the borrower’s mortgage payment current. The remaining funds are then deposited in an FHA custodial account managed by the mortgage servicer and used to temporarily supplement the principal and interest portion of a borrower’s mortgage payment each month, with a target of up to a 25% reduction in monthly principal and interest payments.
The Payment Supplement option is available to all borrowers who have not already exhausted their Partial Claim allowance through previous loss mitigation actions. Mortgage servicers may begin implementing Payment Supplement on May 1, but must implement the solution for all eligible borrowers by Jan. 1, 2025.
“FHA developed this innovative tool because after interest rates rose the FHA Recovery Modification could no longer reliably provide payment reduction to borrowers facing a hardship,” said Federal Housing Commissioner Julia Gordon. “Payment Supplement will bring borrowers current and temporarily reduce their monthly payments for up to three years, which we hope will enable them to weather their hardship and once again begin making their full mortgage payments.”
