In a bid to provide relief for borrowers facing financial hardship, the U.S. Department of Housing and Urban Development (HUD) has unveiled a Payment Supplement program for Federal Housing Administration (FHA) insured Title 2 mortgage loans. This new initiative, detailed in Mortgagee Letter 2024-02, aims to offer sustainable solutions for mortgage servicers and eligible borrowers.
Commencing May 1, 2024, mortgage servicers can begin implementing the Payment Supplement program, with a mandate to extend the solution to all eligible borrowers by January 1, 2025.
Federal Housing Commissioner Julia Gordon emphasized the necessity for this innovative tool, stating, "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 program, designed to address the evolving needs of borrowers, offers a lifeline to those encountering financial challenges amidst changing economic conditions.
The Payment Supplement option combines a standalone Partial Claim with a new Monthly Principal Reduction (MoPR), aimed at alleviating the burden of mortgage payments over a three-year period without necessitating a modification of the mortgage loan. Upon implementation, servicers may claim an incentive of $1,750 from HUD.
To ensure fair implementation, servicers are required to assess if alternative loss mitigation options are viable before considering a Payment Supplement. Importantly, borrowers will not incur additional fees or interest related to the Payment Supplement. Furthermore, late charges and penalties, except those accumulated prior to March 1, 2020, must be waived by servicers.
Eligibility criteria include -
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The mortgage being a fixed-rate mortgage.
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Availability of sufficient Partial Claim funds.
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Compliance with loss mitigation requirements during bankruptcy proceedings.
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Demonstrated ability by the borrower to meet monthly mortgage payments.
Notably, income documentation is not required to determine eligibility for the Payment Supplement. The program ensures that the minimum MoPR is at least 5% of the monthly principal and interest payment, with a maximum reduction capped at 25% for 36 months.
Funds for the Payment Supplement must be maintained separately in a designated Payment Supplement Account, ensuring transparency and accountability in fund allocation. Servicers are mandated to submit claims within 60 days of the borrower executing Payment Supplement documents.
Additionally, the Mortgagee Letter delineates various aspects of the Payment Supplement, including calculations, documentation requirements, and reporting obligations to HUD. It also outlines protocols for borrower communication, annual disclosures, and payment supplement payoff procedures.
As the housing landscape evolves, the Payment Supplement program stands as a testament to HUD's commitment to fostering stability and sustainability in the mortgage market. By offering a tailored approach to address borrowers' needs, this initiative underscores HUD's proactive stance in supporting homeowners during challenging times.