The Federal Housing Administration (FHA) proposed a plan on Wednesday to temporarily reduce monthly bills for mortgage borrowers who are behind on payments. In addition, borrowers would avoid giving up their super-low mortgage rates.
Using its insurance fund, the FHA plans to pay part of the homeowners' monthly bills, then structure the repayment as a second loan due after the first is paid off, Realtor.com reports. The modification program will be offered to those who otherwise wouldn’t benefit from a traditional modification that involves giving up a low rate for a higher one.
The FHA-insured loan program is already focused on first-time home buyers and tends to serve borrowers with lower incomes and credit scores than mortgages backed by Fannie Mae or Freddie Mac. The program currently has about 320,000 seriously delinquent borrowers.
“Now when we say modification, we have to educate the borrower that you’re likely to have a higher payment,” said Marissa Vetter, a housing counselor at Jacksonville Area Legal Aid.
With the proposed new option, FHA would help struggling homeowners catch up on past due payments and reduce their monthly bill. For a period of up to five years, the monthly principal and interest payment may drop as much as 25% and the total FHA supplement could be as much as 30% of the loan balance.