FHA LOAN WORKOUTS QUINTUPLE DURING LOWEST MORTGAGE DELINQUENCY RATE ON RECORD
It doesn't seem to make sense, but it is true. While delinquency rates have hit record lows in the last few years, FHA has managed to quintuple its loan workouts during the same time.
FHA LOAN WORKOUTS GROW BY 500% SINCE 2019
Over a million mortgages have been modified since the beginning of the pandemic.
FHA loan workouts (mortgage modifications and/or partial claims) have exploded since covid-19. More have been written in the last 2 years than the previous 10 years combined.
DELINQUENCY RATES HAVE BEEN DOWN TO RECORD LOWS DURING THAT SAME TIME.
Delinquency rates have been below 2% since the pandemic.
If delinquency rates are low, who would borrower assistance programs be growing at a never before seen rate?
FHA has been aggressively pushing Covid 19 loan workouts to all borrowers, even those that are not even behind, and with no documentation required.
This has led to an obvious increase on borrowers taking loan workout offers. However, borrowers frequently don't understand the long term costs involved in taking a break from their mortgage, or having the loan restructured to make a lower payment.
More often than not, loan restructures involve a silent second mortgage (partial claim) that is used to capture arrearages and some portion of the loans principal balance. This deferred balance becomes due at resale or refinance. The problem with partial claims is homeowners rarely realize their amount, and end up losing most/all of their equity in the process of taking one.
Why are loan workouts problematic?
While few studies exist, they show that the long term rates of loan modifications are only 50-60%. That means almost half of those who modify their mortgages, fall behind again within 12 months and end up in foreclosure.
So here we have FHA aggressively pushing loan modifications to all, even while we know they fail half the time and reduce the homeowners equity position. What could go wrong?
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Last Updated on October 24, 2023 by Minna Reid