The Basics

• FHA is an agency within the Department of Housing and Urban Development. FHA does not lend or service loans, but insures loans made by HUD-approved lenders. As such, borrowers must notify their lender or a HUD-approved counselor -- which will work with the lender on their behalf -- upon becoming unemployed or realizing they will soon be unemployed and unable to make their monthly mortgage payments. To avoid foreclosure, a borrower must occupy the home as their primary residence, whereas abandonment or use of the property as a rental may disqualify them from any of FHA's programs.
  
  

Types

• To remain in the property, a borrower may opt for an FHA loan modification, partial claim or special forbearance programs. A modification involves a refinance of the debt or extension of the repayment term to make the monthly payment affordable. Special forbearance involves a reduction or suspension of payment based on the borrower's ability to pay. FHA also offers an enhanced loss mitigation option known as FHA Home Affordable Modification Program or FHA-HAMP, which combines the features of a loan modification with a partial claim. A partial claim is a one-time payment from the FHA insurance fund which brings the loan current.
  
  

Loan Modification

• Unemployed borrowers may qualify for a loan modification if the household gross monthly income is sufficient to cover the new payment but insufficient to repay the amount in arrears. The lender determines this through a review of the homeowner's financial documentation, including other income (Social Security, disability, unemployment), debts and assets.
  
  An unemployed principal borrower with no income may qualify if the co-borrower qualifies with their own income. An unemployed principal borrower may still qualify in the absence of a co-borrower, if the borrower's spouse is employed and the lender determines they can make payments. The lender may need to refer to their own legal counsel to determine this, according to HUD.
  
  

Special Forbearance

• When continued unemployment is the cause of at least three missed payments on an FHA-insured loan, the borrower may receive a special forbearance, Type I. This repayment plan brings a loan that is no more than 12 month past due current. Because the borrower's repayment is based on their income, an unemployed borrower's payment may be reduced to an amount they can afford based on household income, debts and assets or suspended temporarily. The borrower must agree to actively pursue employment during the forbearance period. The lender reviews their employment each month to determine the amount they are able to pay.