It is important to note that the general HAMP criteria do not apply to FHA, VA, or RHS loans. With FHA loans, however, HUD has introduced its own, rather flawed, FHA-HAMP program.

The distinguishing characteristic of this program is the hybrid of the modification and partial claim loss mitigation channels.

eligibility:

• the homeowner must be at least one – but no more than twelve – monthly payments behind;
• the current payment of interest, principal, taxes and insurance must take up at least 31% of the borrowers’ gross monthly income;
• other FHA options, such as special forbearance, loan modification and partial claim must not suffice as a means of preserving home ownership.

FHA-HAMP liens do not carry interest and have two constituent components:

1. arrearage due on the mortgage;
   • *arrearage – generally comprised of unpaid interest, principal, andforeclosure costs.
2. second lien.

The second lien is created by lowering the interest bearing loan principal to an amount that falls under the 31% threshold of the household gross monthly income. Moreover, the interest free FHA-HAMP lien is satisfied either by a sale of the property or by a subsequent refinance.

The lien cannot exceed 30% of the outstanding principal balance at the time the lien is created. Similarly, like most mods, FHA-HAMP has a trial payment period of three months that must be completed before the modification can be made permanent.

Moreover, a foreclosure sale cannot take place where there is a pending review to determine eligibility for a modification. However, the case can still proceed – as there are no strict rules prohibiting the foreclosure case, just the sale.

If you have an FHA loan, be mindful of these rules and also make sure that your lender has sent you notice of all potential workout options. Failure of the lender to do this may trigger defenses that you can assert in your foreclosure case.