HUD: Mortgage Assistance Coming for Disaster Victims

Help is on the way for up to 20,000 families displaced by Hurricane Katrina and other recent disasters, Department of Housing and Urban Development Secretary Alphonso Jackson announced Monday. Under the Mortgage Assistance Initiative, HUD will make mortgage payments for up to one year for disaster victims with FHA-insured mortgages who want to start living in their homes again.

To be eligible for this mortgage assistance, families must have homes that are repairable and located in a presidentially declared disaster area that is designated for individual assistance. HUD will not only make mortgage payments for qualifying homeowners who are in default, its current practice, but will make advance mortgage payments on behalf of borrowers for up to 12 months.

“These families have been devastated. Not only are they living far from home right now, but many have lost their source of income,” said Jackson. “We want to help end that hopeless feeling for them, by letting them come back home and concentrate on putting their lives in order without having to worry about making mortgage payments.”

This unprecedented mortgage relief will enable FHA borrowers in the impacted areas to retain homeownership as they concentrate on repairing their homes and finding jobs. In addition, it will assist FHA lenders and protect communities by encouraging homeowners not to abandon damaged properties. After the mortgage assistance period, the borrower will resume making normal mortgage payments. The payment on the borrower’s behalf will be secured by a second mortgage that carries no interest rate and is repaid to HUD upon payment-in-full of the first mortgage.

Jackson said, “This is our way of reducing the insurmountable odds these families face and will give them the breathing room they need to rebuild their homes and their lives. It’s also an investment in the long-term stability of the their neighborhoods.”

This assistance is available to FHA homeowners who: Have a property that is damaged by the hurricanes but can be rebuilt given adequate time; have access to funds from insurance proceeds, loans or personal resources to complete the repairs; and, are currently employed or are very likely to return to work within a short period of time.

FHA-insured families in disaster areas whose houses are not damaged, but have lost their source of income as a result of the hurricanes, will also be eligible for this mortgage relief. These borrowers must be able to demonstrate that their primary source of employment was located in an area designated for individual assistance, that they suffered a reduction in income that makes them unable to pay their mortgage and that they are likely to be reemployed within a reasonable period of time.

These requirements will remain in effect for an eighteen-month period unless extended or rescinded by the Department. It is estimated that up to 20,000 families could benefit by this action, in which case the outlay by HUD would be approximately $200 million.

“The Mortgage Bankers Association applauds Secretary Jackson for assisting FHA borrowers in such a generous and much needed way,” said Kurt Pfotenhauer, MBA’s senior vice president for government affairs. “We believe the amount of financial assistance being offered will help many borrowers get their lives back on track and allow them to focus on the formidable task of rebuilding.”

HUD is asking lenders to contact as many families as possible that may be eligible for this special assistance. FHA homebuyers can also contact their lender or HUD’s National Servicing Center at: 1 (888) 297-8685.

HUD also has FHA insurance programs that provide options for homeowners in need of repair funding. Under the 203(h) program, FHA insures mortgages for disaster victims whose homes have been damaged or destroyed and are in the process of rebuilding or buying another home. HUD’s streamlined 203(k) program is specially designed for properties that require only limited repairs. Homebuyers will be able to finance into a new mortgage up to $35,000 that can be applied to the repair and rehabilitation of the home.

The Mortgage Assistance Initiative is one of a series of steps HUD is taking to address the recent disasters. The Department recently made several changes to its servicing procedures for FHA mortgages in the Gulf States.

These changes, which ease burdens on lenders, include allowing more frequent property inspections, allowing boarding of properties without prior approval and cautioning lenders to post notices on vacant properties providing guidance on how to reach their lenders. To benefit impacted homebuyers, HUD has asked FHA lenders not to report any derogatory information to credit bureaus.