HUDs new FHA Loss Mitigation Concept
Anyone understand how HUDs new loss mitigation concept supposed to reduce mortgage payments? I'm not getting it. Particularly this paragraph here. I just don't see how the extra 2nd mortgage is supposed to (temporarily) lower existing payments. Anyone (you may have to register for a free account to read the whole article)?
"The struggle is that in the rising rate environment, if you want to recast a mortgage, someone might go from maybe around 3%, to a rate of 6% or more, and they really wouldn't see any reduction in their monthly payment," said Peter Idziak, senior associate, Polunsky Beitel Green.
The draft concept appears to provide a mechanism through which the mortgage can stay at its original rate and the payment can be supplemented by a second lien loan that's applied to monthly principal for three to five years, after it absorbs any arrearages.
This would allow borrowers with reduced incomes to pay reduced amounts during the three-to-five year period, according to the FHA, which is an arm of the Department of Housing and Urban Development. The payment returns to normal afterwards, potentially with an ease-in period."
https://www.nationalmortgagenews.com/news/fha-releases-draft-of-new-foreclosure-prevention-option
Quote from @Ibrahim Hughes:It's a modification of a modification plan. I haven't read it in it's entirety but it would be along the lines of taking missed payments, creating a second lien to dump the missed payments into (instead of doing a foreclosure) and have a period of time (6 months ?) that the borrower doesn't make payments on the 2nd.
Anyone understand how HUDs new loss mitigation concept supposed to reduce mortgage payments? I'm not getting it. Particularly this paragraph here. I just don't see how the extra 2nd mortgage is supposed to (temporarily) lower existing payments. Anyone (you may have to register for a free account to read the whole article)?
"The struggle is that in the rising rate environment, if you want to recast a mortgage, someone might go from maybe around 3%, to a rate of 6% or more, and they really wouldn't see any reduction in their monthly payment," said Peter Idziak, senior associate, Polunsky Beitel Green.
The draft concept appears to provide a mechanism through which the mortgage can stay at its original rate and the payment can be supplemented by a second lien loan that's applied to monthly principal for three to five years, after it absorbs any arrearages.
This would allow borrowers with reduced incomes to pay reduced amounts during the three-to-five year period, according to the FHA, which is an arm of the Department of Housing and Urban Development. The payment returns to normal afterwards, potentially with an ease-in period."
https://www.nationalmortgagenews.com/news/fha-releases-draft-of-new-foreclosure-prevention-option
Many of the old modification plans took the arrears and added then the 1st payment on an increased basis for 36 months. So, the old way, if you were $10,000 behind on a $1,000 a month payment, you'd take the arrears ($10,000 and divide by 36 months) and add that to the new monthly payment for 36 months so the new monthly payment would be $1,000 + $278 fo $1,278 until the arrears was paid, 36 months then it would drop back down to the original payment of $1,000.
The question I always had on the old model is: "if they can't make a $1,000 a month payment, how are they supposed to make a $1,278 a month payment?"
I bought a house that was in foreclosure and the payment was $900 a month. There were 6 adults and a child living in the house and they wouldn't work enough to pay a $900 mortgage payment. You can make plenty delivering pizzas as Dave Ramsey would say, but, 9 people and only one of them worked, part time. Crazy!
Looks to me like another attempt to kick the can down the road, for a 3-5 year period. Partial claims are already a massive problem as FHA likes to give them out like candy. During covid, most of the forbearances were rolled into partial claims ( interest free loans that sit on the back, payment free, until resale). Problem is these balloon to humongous amounts and the customers never really understand them. Then when its time to sell they realize they still owe the partial claim as well as the mortgage, and a lot of the time the partial claims are so huge they eat up all the equity - resulting in a short sale.
Sounds to me like in addition to back due amounts they are already rolling in, they are also proposing now adding in 3-5 years of future payments to keep the payment at a lower point - for now. Basically, they are offering customers a lower payment now, in exchange for more lost equity, with hopes that will all self correct in 3-5 years.
And if it does not, no problem, as FHA ( a taxpayer funded entity ) will absorb all the losses if it does not. I'm actually surprised FHA has not imploded yet. They are the worst subprime lender there is.
