Simply put, a portion of the mortgage principal will be deferred and subordinated to an interest-free loan due at the pay-off and termination of the first mortgage. The remaining balance of the loan will be modified by re-amortizing the loan (term of the loan, usually 30 years) and/or reducing the interest rate.
So, let’s dissect this equation, here’s an example:
Assume you have a $200,000 loan balance. Let’s begin with the 2nd loan (subordinate loan)
A partial claim up to 30% of $200,000 is $60,000 better known as a “silent second” it is interest free and due upon payment of the 1st loan (a.k.a.; loan modification)
Assuming that the 1st loan is being amortized over 30 years at a loan balance of $140,000 at the same or reduced interest rate (4.75%) due in 30 years.
Loan Balance $140,000, IR = 4.75% for 30 Yrs = $730.33 payment
So that means at the end of 30 years $60,000 is also due and payable. Sounds like a balloon payment to me!
Do not mistake a partial claim for principal reduction…it is not.
Also do not become confused by the terminology. Let’s set the record straight! A partial claim is considered a “silent second,” subordinate lien, 2nd loan. The loan modification is the 1st loan or primary loan, lst lien. Got it!
This loss mitigation option offered by FHA should render a substantial amount of relief to struggling homeowners. However, prior to this loan becoming a permanent solution, homeowners will be placed on a trial payment plan.
Trial Payment Plan
To confirm if the homeowner is capable of making the new FHA-HAMP payment, the homeowner must successfully complete a trial payment plan. The trial payment plan will be for a three month period and the homeowner must make each scheduled payment on time.
The homeowner’s monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment. The lender or mortgage servicer must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance.
If the homeowner does not successfully complete the trial payment plan by making the three payments on time, the homeowner is no longer eligible for FHA-HAMP.
Homeowners with FHA-insured mortgages that do not qualify for other loss mitigation programs and with adequate debt-to-income ratios of 31/55%.
Homeowners must successfully complete a trial payment plan before becoming a full participant in the program.
Be sure to consult with your mortgage servicer/lender for the FHA-HAMP Program