If you currently have an FHA loan and have been working with your lender on a loan modification - good news! HUD has just issued a "new set of rules" that your lender should be very interested in following.
Recently HUD issued the official mortgagee letter that outlines what servicers should be doing to help people with FHA loans that are having trouble making their mortgage payments.
The reason that HUD gave for issuing the letter is that apparently recent studies show that more people are trying to get their loan modified and that many borrowers who were actually successful in getting their loan modified often had an increased monthly mortgage payment after their loan modification and that there was a significantly higher re-default rate than borrowers whose loan modification provided a lower payment.
As FHA looked deeper into what kind of loan modifications that borrowers were seeing, they discovered that generally speaking, many people actually ended up with a higher monthly mortgage payment than they had before because their lender still charged them too high of a rate and/or didn't extend the term of the loan to 30 years.
Basically what FHA found was that many lenders were just tacking on any past due amounts and late fees to the back of the loan.
As a result, FHA/HUD issued the updated guidance for lenders to follow.
From the letter:
Mortgagee Incentives for Loan Modifications
This Mortgagee Letter clarifies and updates the guidance provided... with respect to interest rate and term requirements for loan modifications that are eligible for payment of a mortgagee incentive and costs for a title search and/or recording fees on the Loan Modification.
Interest rate and term requirements
In cases where the current note rate is 50 basis points or more over the current market rate:
The Mortgagee shall reduce the loan modification note rate to the current Market Rate. For purposes of this requirement, the Department shall consider Market Rate to be no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the Modification Agreement is executed. The weekly survey results are published on the Freddie Mac website at http://www.freddiemac.com/pmms/ and the Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates that it publishes weekly in its Statistical Release H.15 at http://www.federalreserve.gov/releases/h15/.
The Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage.
Will the new guidance help? It should. Hopefully any FHA borrower who is trying to work with their lender now knows what their lender is being asked to do by HUD and they can ask for the same.