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This Week in Washington

FHA announces foreclosure prevention options for hurricane victims

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This Week in Washington
Monday, August 20, 2018

Mortgage help is underway for those struggling in the aftermath of Hurricanes Irma and Maria.

The Federal Housing Administration (FHA) will offer new foreclosure prevention options to allow borrowers in Puerto Rico and the U.S. Virgin Islands with delinquent FHA-insured mortgages easier access to bring their mortgages current without increasing their interest rates or monthly payments.

FHA is also providing a final 30-day extension of its foreclosure moratorium to allow distressed FHA-insured homeowners in Puerto Rico and the U.S. Virgin Islands an opportunity to find a permanent mortgage resolution, according to a news release from the U.S. Department of Housing and Urban Development (HUD).

FHA Commissioner Brian Montgomery addressed the situation in an Aug. 15 mortgagee letter to amend the loss mitigation procedures for disaster-affected borrowers who previously have not received an FHA permanent loss mitigation option.

“As Puerto Rico and the U.S. Virgin Islands continue to recover from the devastation of Hurricane Maria, mortgage delinquencies remain significantly elevated and utilization rates for FHA loss mitigation options are lagging compared to other disaster-impacted areas,” Montgomery said in the letter. “This mortgagee letter is intended to reduce foreclosures and minimize losses to the Insurance Fund by expanding certain loss mitigation assistance to borrowers in default.”

In February, FHA introduced the Disaster Standalone Partial Claim option to help struggling borrowers impacted by 2017 natural disasters to resume their pre-disaster mortgage payments without payment shock. This option was intended to be used if all other home retention options were exhausted. Effective immediately, FHA’s “Disaster Standalone Partial Claim” now will be the first mortgage relief option available for hurricane victims with FHA-insured homes located in Puerto Rico and the U.S. Virgin Islands.

Although some borrowers already have received payment relief in the form of a permanent loss mitigation, there are others in need of a permanent resolution who have not contacted their servicer for help or are on a temporary forbearance. The updated Disaster Standalone Partial Claim provides these borrowers with an opportunity to be immediately evaluated for a permanent loss mitigation solution that is affordable and sustainable. This option is the best solution for many borrowers seeking to cure arrearages and resume making payments without modifying their loan and re-amortizing the loan term, the news release stated.

The Disaster Standalone Partial Claim option covers missed mortgage payments up to 30 percent of unpaid principal balance through an interest-free second loan on the mortgage, payable only when the borrower sells the home or refinances their mortgage. In addition, this option requires no trial period or balloon payment and allows borrowers to keep their existing interest rate and existing amortization schedule. FHA’s Disaster Standalone Partial Claim also streamlines income documentation and other requirements to expedite relief to homeowners struggling to pay their mortgage while recovering from last year's disasters.

FHA borrowers may qualify for the updated Disaster Standalone Partial Claim if they live within the geographic boundaries of the applicable presidentially-declared disaster area in Puerto Rico and the U.S. Virgin Islands; their ability to make mortgage payments is directly or substantially affected by the disaster; their mortgage was no more than 60 days past due prior to the date of the presidentially- declared major disaster and they have not already been approved for a forbearance or other loss mitigation option.

To ensure that FHA-insured borrowers in Puerto Rico and the U.S. Virgin Islands are protected from foreclosure while applying for the updated assistance, FHA is providing a final 30-day extension of the foreclosure moratorium. HUD is instructing FHA-approved mortgage servicers to continue suspending all foreclosure actions against eligible FHA borrowers in the Presidentially Declared Major Disaster Areas until Sept. 16. FHA does not intend to further extend the foreclosure moratoriums after this date, so FHA borrowers in the eligible areas needing assistance are strongly urged to contact their mortgage servicer immediately.

“We need borrowers to contact their servicers right away and begin the process of finding a permanent solution to their mortgage situation,” Montgomery said in the news release. “We have a lot of options available to help FHA-insured families keep their homes but every day we wait, those options become more limited. Meanwhile, we intend to monitor our servicers very closely to make sure eligible families get the mortgage relief they qualify for.”

Other alternatives for disaster relief include:

  • Forbearance and loan modification options – HUD offers different forbearance and loan modification options for FHA borrowers affected by disasters. Borrowers having trouble making regular payments should contact their loan servicer as soon as possible for more information;
  • FHA-insured mortgage for disaster victims – HUD’s Section 203(h) program provides an FHA insured mortgage loan to disaster victims who have lost their homes and are facing the daunting task of rebuilding or buying another home. Borrowers must work with a participating FHA-approved lender in order to be considered for 100 percent financing, including closing costs; and
  • FHA-insured mortgage for home rehabilitation – HUD’s Section 203(k) loan program enables those who have lost their homes to refinance a home or finance the purchase of a home along with its repair costs by using a single mortgage.
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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other consideration

Regulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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