FHA experience over the years shows that very often in temporary hardship situations, when the lender is willing to exercise patience and prudent forbearance, the mortgage can be salvaged and the homeowner can be spared the loss of his home. It is important that FHA provisions for forbearance be made available to all homeowners whose mortgages can reasonably be expected to be salvaged through their use. NEAL J. HARDY, Commissioner. When a homeowner who conscientiously tries to avoid default finds it temporarily impossible to keep his payments up to date on his FHA-insured mortgage, he should promptly confer with his lender about the possibilities for some form of relief for his situation. Under the FHA program there are several things that can be done to help the homeowner faced with an employment setback, an illness, a family emergency, a disaster, or a similar occurrence that eats into his income to the point where he is forced to default on his mortgage. VOLUNTARY FORBEARANCE FHA home mortgage regulations allow the lender to wait as long as a year from the date of default before beginning foreclosure action. Many lenders are willing to use this 12-month leeway in helping the borrower to avoid foreclosure by getting his mortgage back into current condition. During this time, the lender can voluntarily accept reduced monthly payments from the homeowner or carry the mortgage in its delinquent condition. In either event, the borrower agrees to make up the back amount later on through extra payments equivalent to partial or to full installments. Most lenders are willing to be lenient with responsible borrowers whose mortgages go into default as the result of financial difficulties that can be straightened out in a reasonable amount of time. SPECIAL FORBEARANCE IN HARDSHIP CASES Besides the voluntary relief they furnish in default cases, lenders are encouraged, in hardships cases, to submit forbearance proposals to the local FHA insuring office for approval. By this means FHA gives lenders full discretion to grant special forbearance relief to any homeowner whose default is due to circumstances beyond his control and whose mortgage will probably be restored to good standing within a reasonable period. In hardship cases of this sort the lender (1) Makes an arrangement with the homeowner through which payments may be either postponed or reduced for a specified forbearance period not to exceed 18 months. (2) Makes an agreement with the homeowner for a plan under which regular monthly payments will be resumed after the forbearance period and the back amount on the mortgage will be paid up before the mortgage matures. FHA does not dictate the repayment terms of such agreements other than to require provision for repayment by the maturity date of the mortgage. This leaves the lender free to work out a method for the borrower to make up the defaulted portion of his mortgage in such a way as to relieve him from higher payments for a time after the actual forbearance period. If the mortgage were eventually foreclosed FHA, in accordance with its regulations, would reimburse the lender for mortgage interest accrued and uncollected during the forbearance period. FORBEARANCE THROUGH ASSIGNMENT OF MORTGAGE TO FHA There are instances where, even for a deserving homeowner in a hardship case, the lender is unable or unwilling to enter into an appropriate forbearance arrangement. If special forbearance is justifiable but the homeowner cannot obtain it from the lender, he can seek assistance from the FHA insuring office serving his area. The director of that office will then request the lender to assign the mortgage to FHA so that foreclosure can be avoided. After FHA accepts the assignment, the director of the local office works out with the homeowner whatever relief provisions are most suitable to his circumstances. When FHA takes over the mortgage, the director has leeway to make reasonable arrangements with the borrower to help him keep his home and restore his mortgage to current standing. The forbearance provisions are set forth in a letter of agreement which specifies how long FHA will withhold foreclosure, as well as how payments during the forbearance period will be suspended or modified and how they will later be made in order to overcome the delinquency. FORBEARANCE RELIEF FOR MILITARY PERSONNEL The FHA special forbearance procedures do not apply to mortgagors who are called into the military service. Such mortgagors are afforded a means for protecting their homes against foreclosure under the Soldiers' and Sailors' Civil Relief Act. FHA does, however, do everything possible to protect the interest of the homeowner who is called into active military service. FHA regulations permit lenders to exclude such a borrower's entire military service period in computing the 1 year from default within which foreclosure proceedings must start and to postpone completing any such proceedings already started. FHA regulations also contain a provision to help the serviceman keep his mortgage from going into default. Under this provision, all during the time the borrower is in service and for 3 months more, the lender can accept monthly payments that do not include payment to principal or that include only part of it. At the end of that time the homeowner, according to agreement with the lender, resumes monthly payments in an amount sufficient to pay off the mortgage by its due date. If at any time after the homeowner's military service ends, his case is found to be a hardship case, then special forbearance relief may be granted in accordance with FHA procedures applicable to hardship cases. Senator YARBOROUGH. The hearing is now adjourned. |