The Department of Housing and Urban Development is considering principal balance reductions of up to 30 percent on FHA loans in an effort to keep homeowners afloat, according to National Mortgage News.
Details are preliminary, but basically the FHA would pay a partial claim to the loan servicer or investor of the mortgage to cover the write-down and bring the loan current.
Here’s the kicker though…eventually, the borrower would have to repay the forgiven balance, something I see as a deal killer.
Hope for Homeowners had similar issues, with the whole forcing borrowers to split any future profits from the sale of the property with the government if they accepted a write-down.
FHA loans 90 days or more past due, including those in foreclosure, rose to 7.46 percent last month, up from 6.16 percent a year ago.
While the numbers aren’t awful, comparatively, the FHA’s expanded role in the housing market going forward puts them at serious risk of failure.
Back in early February, Wells Fargo revealed it was extending principal balance reductions to some of its inherited Wachovia borrowers, but such offers continue to be rather rare in favor of simple repayment plans and interest rate reductions.