Moving the missed payments to the end of the note

Often borrowers who have defaulted on their home mortgage and get a work-out from their lender on their FHA loan will say the lender "moved the missed payments to the end of the note."  In reality this is what is referred to as a "partial claim."  When a borrower defaults and the lender must foreclose on a borrower, the lender can recoup losses by filing a claim against the FHA mortgage insurance. A partial claim is similar except it prevents foreclosure and is a claim against the amount necessary to bring the loan current instead of a full claim for losses, thus it is a "partial claim."

When the borrower had had a hardship but now is able to pay the house payment but does not have funds to bring the loan current and does not have income to support a repayment plan to bring the loan current, then a partial claim may be an option.

Under a partial claim, HUD pays the missed payments and the borrower signs a note to HUD for the amount of the money HUD paid the lender.  The note is due when the first mortgage is paid off and it is a loan at a zero interest rate.

Lenders may use an FHA-HAMP stand-alone partial claim without an accompanying loan modification if certain criteria is met.  One of the criteria is that the current house payment is affordable to the borrower and that the the borrower’s current interest rate is at or below the market rate of interest.

For more information see mortgagee letter 2013-32.

 For expect advice, call a well-trained, experienced HUD-approved housing Counselor, Rod Williams 615-850-3453.