The Federal Housing Administration (FHA) unveiled a new loss mitigation option of FHA-insured, single-family forward mortgages to assist families who are facing financial hardship due to mortgage payment delinquencies. The new initiative, known as the Payment Supplement, offers mortgage servicers an additional tool to alleviate the burden on borrowers by temporarily reducing their monthly mortgage payments by up to 25%, without altering the current interest rate on their mortgage.
“HUD uses every tool in our toolkit to ensure we can help struggling borrowers avoid foreclosure,” said HUD Secretary Marcia L. Fudge. “Today’s new policy will enable the families we serve to get back on their feet while staying in their homes.”
Under the Payment Supplement program, mortgage servicers can leverage funds from a Partial Claim to facilitate the temporary reduction in mortgage payments. The Partial Claim allows borrowers to access up to 30% of the outstanding balance of their FHA-insured mortgage, which is then utilized as follows:
Initially, the Partial Claim is used to cover any overdue payments and bring the borrower's mortgage current.
The remaining funds are placed in an FHA custodial account managed by the mortgage servicer. These funds are then utilized to supplement the principal and interest portion of the borrower's monthly mortgage payment, with the aim of achieving a reduction of up to 25% in the monthly payments.
Federal Housing Commissioner Julia Gordon highlighted the necessity for this tool, explaining, "FHA developed this innovative tool because after interest rates rose, the FHA Recovery Modification could no longer reliably provide payment reduction to borrowers facing hardship."
The Payment Supplement option is accessible to all eligible borrowers who have not already exhausted their Partial Claim allowance through prior loss mitigation actions. Mortgage servicers are directed to commence implementation of the Payment Supplement program by May 1, 2024, with a mandate to apply the solution to all eligible borrowers by January 1, 2025.
In addition to introducing the Payment Supplement policy, FHA also extended its array of temporary loss mitigation options through April 30, 2025. Originally established as part of FHA's COVID-19 recovery measures, these options are accessible to mortgage servicers to assist all borrowers behind on mortgage payments, regardless of the cause of their financial hardship. Initially slated to expire on October 30, 2024, this extension aims to provide continued support to homeowners navigating economic challenges.
