In February of 2024, the Federal Housing Association announced a new loss mitigation program for homeowners with FHA loans. The Payment Supplement Program is designed to help FHA borrowers who cannot be assisted through the FHA’s previously existing retention solutions. But what exactly is the Payment Supplement Program, how does it work, and who qualifies? Here’s what you need to know.
Explanation of the FHA Payment Supplement Program
The Payment Supplement Program for FHA loans helps homeowners who are struggling financially. It combines a Partial Claim to cover missed payments with a Monthly Principal Reduction (MoPR) that lowers the borrower’s monthly principal payment for three years, without altering the original mortgage terms.
Who Qualifies for the Payment Supplement Program?
To qualify for the FHA’s Payment Supplement Program, homeowners must have an FHA-insured mortgage and have experienced financial hardship. Before applying for this program, servicers must assess if other loss mitigation options are inadequate for achieving necessary payment reductions. The Payment Supplement Program is available to all borrowers who have not already exhausted their Partial Claim allowance.
How the Process Works
The Payment Supplement Program operates in a structured way to assist borrowers. Here’s how it works step-by-step:
- Partial Claim: The program begins by utilizing a Partial Claim, which is an advance of up to 30 percent of the outstanding balance of the borrower’s FHA-insured mortgage. This advance is used primarily to address and clear any arrearages on the mortgage, effectively bringing the mortgage current.
- Junior Lien Creation: The amount accessed through the Partial Claim is secured by placing it in a junior lien position. This means it does not need to be repaid until a triggering event occurs, such as the sale or refinancing of the home, or when the mortgage is otherwise terminated.
- Allocation of Funds: After clearing the arrears, any remaining funds from the Partial Claim are deposited into an FHA custodial account. This account is managed by the mortgage servicer.
- Monthly Payment Reduction: From this custodial account, funds are disbursed monthly to temporarily supplement the principal and interest component of the borrower’s mortgage payment. The goal is to achieve up to a 25 percent reduction in the monthly principal and interest payments.
Have Questions About FHA Loans?
You’ve come to the right place. Our mortgage experts will be more than happy to answer any questions you may have, whether they’re about the Payment Supplement Program or another aspect of FHA mortgages. Call today to get in touch and speak to a member of our team.
