WASHINGTON – July 30, 2009 – Loans backed by the Federal Housing Administration (FHA) will be eligible for payment reductions similar to the Obama administration’s loan modification program, the government will announce Thursday.
Effective Aug. 15, financially troubled homeowners who have an FHA-insured loan can apply for a modification under a program parallel to “Making Home Affordable” to help lower their payments and avoid foreclosure.
The program, launched in March, is designed to lower monthly payments for 3 million to 4 million borrowers, although only about 200,000 have been helped so far. Lenders agreed this week to adjust 500,000 loans by Nov. 1.
The FHA, which backs about 5 million loans, is a government-run mortgage insurance program. It became the main source of home loans to borrowers with poor credit and low down payments after the collapse of the subprime lending market.
The agency lets borrowers take out home loans with down payments as low as 3.5 percent, compared with 20 percent for a typical loan that doesn’t require mortgage insurance.
By law, FHA cannot offer borrowers interest rates as low as 2 percent, which are available under the Obama plan. Instead, FHA will allow lenders to set aside up to 30 percent of the total principal balance until the house is sold or the property is refinanced. No interest will be charged on that amount.
Government officials did not have an estimate of how many borrowers would qualify.
“We’re bringing another important tool to the table to help struggling families who are desperate to keep their homes,” Housing and Urban Development Secretary Shaun Donovan said in a statement.
Lenders who participate in the FHA program will receive an incentive fee of up to $1,250 and can be reimbursed for $250 in costs.