New FHA Program Offers Temporary Mortgage Relief Amid Rising Interest Rates

The Federal Housing Administration (FHA) has introduced a new initiative known as the Payment Supplement program aimed at assisting struggling borrowers by offering temporary relief in the form of reduced monthly mortgage payments, all without altering their existing interest rates. Under this program, mortgage servicers can utilize funds from a “partial claim,” an interest-free second lien provided by the U.S. Department of Housing and Urban Development (HUD), to help homeowners address past due payments and regain financial stability. This partial claim, accounting for up to 30% of the outstanding balance of an FHA loan, must be repaid when the homeowner sells the property, refinances, or concludes the mortgage.

The funds from the partial claim are allocated to clear any overdue payments on the original mortgage, with any remaining amount deposited into an FHA custodial account managed by the mortgage servicer. These deposited funds are then utilized to supplement the borrower’s monthly payments, aiming to decrease the principal and interest (P&I) payments by 25% for the duration of the active partial claim payment supplement, which spans three years. After this period, the borrower resumes responsibility for the full monthly P&I amount.

The initiative, driven by the significant increase in interest rates over the past year, seeks to address the challenges faced by borrowers experiencing financial hardship. FHA Commissioner Julia Gordon highlights the necessity of this innovative approach due to the limitations of existing programs in providing adequate payment reduction following the rise in interest rates. The program, which garnered industry praise and support, is set to be implemented by mortgage servicers starting May 1, with a deadline of January 1, 2025, for all eligible borrowers to benefit from this assistance, aiming to mitigate foreclosure risks and facilitate homeownership stability.

https://www.scotsmanguide.com/news/fha-adds-new-option-to-help-homeowners-catch-up-on-past-due-payments/