FHA Establishes New Payment Supplement Loss Mitigation Home Retention Solution

(Mortgagee Letter illustration courtesy of FHA)

The Federal Housing Administration on Wednesday published a Mortgagee Letter establishing a new Payment Supplement loss mitigation home retention solution.

The FHA said the new policy is designed to help borrowers avoid foreclosure and retain their homes when other FHA home-retention options cannot generate a sustainable monthly mortgage payment reduction.

The new Payment Supplement allows servicers to bring the borrower’s mortgage current and temporarily reduce the principal portion of their monthly mortgage payment for a term of three years without modifying the mortgage. The Payment Supplement is only repaid when the borrower sells or refinances the home, or the mortgage is otherwise extinguished.

When implemented, the Payment Supplement will be a permanent addition to FHA’s loss mitigation tools and will be incorporated into future revisions to FHA’s loss mitigation waterfall.

MBA President and CEO Bob Broeksmit, CMB, said MBA supports the additional tool, “[which] will allow servicers to better help struggling borrowers avoid foreclosure in today’s high-interest rate environment.” He commended FHA for its transparency and engagement with industry stakeholders throughout the proposal process.