Mortgage Strategies By Michele Francis Builder & Remodelor- Dec.2002

Families with FHA-insured mortgages will receive immediate assistance to avoid foreclosure, thanks to a new initiative by HUD and Urban Development Secretary Mel Martinez. Known as the Special Forbearance Initiative, the program looks to permit lenders of FHA-insured mortgages to assist credit-worthy borrowers who are behind in making mortgage payments, due to temporary unemployment.

The Initiative, which was recently distributed to FHA-approved lenders, is expected to assist thousands of homeowners. In Fiscal Year 2002, HUD helped more than 64,000 FHA-insured homeowners avoid foreclosure. That number is expected to increase during the coming year.

Under the terms of the Initiative, a lender may enter into a written forbearance agreement with a borrower whose mortgage is at least three months in default, but no more than twelve months overdue, and whose loan is not in foreclosure at the time of the agreement.

In order for a borrower to qualify for this program they must:

• Prior to this default, have a good payment and employment history
• Have a verifiable loss of income or increase in living expenses
• Be actively seeking new employment, however not committed to re-employment at the time the lender is reviewing the mortgage.
• Property must be owner-occupied during the term of the forbearance agreement.

Furthermore, this program will not be offered to negligent borrowers who have broken forbearance agreements in the past without good cause.

The agreement must be for a minimum of four months. There is no limit on the maximum number of months, however at no time can the delinquency exceed twelve months of principle, interest, taxes and insurance (PITI).

HUD will require the lender to monitor the borrower’s employment status monthly. In addition, the lender is to renegotiate the terms of the forbearance based upon any changes in employment status. Please note, a borrower may not be able to obtain the forbearance if the property has deteriorated to the extent that repairs would drain the borrower’s monthly resources.