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WASHINGTON – The Department of Housing and Urban Development published a proposed rule that would tripe the amount of damages the agency can seek against a FHA lender that fails to use loss mitigation techniques. That enable many homeowners who are in default on their FHA mortgage to remain in their home. Currently the maximum penalty that can be imposed on lenders is $6,500 for each violation, up to a limit of $1.25 million for all violations committed during any one-year period. The new triple damages penalty would be in addition to the current penalty and not subject to the current limitations. According to HUD, failure to engage in loss mitigation is defined as a servicing lender’s failure to: * evaluate a loan for loss mitigation before four full monthly mortgage installments are due and unpaid; * determine which, if any, loss mitigation techniques are appropriate, and take appropriate loss mitigation actions. Loss mitigation techniques include: * special forebearance, in which the lender arranges a repayment plan based on the borrower’s financial situation and possible provide for a temporary reduction or suspension of payments; * mortgage modification, in which the lender reduces the monthly payment and/or extends the term of the mortgage; * partial claim, in which the lender obtains a one-time payment from the FHA insurance fund to bring the mortgage current; * pre-foreclosure sale, in which the borrower avoids foreclosure by selling the property for less than the amount necessary to pay off the mortgage; and * deed-in-lieu of foreclosure, in which the borrower gives back the property to the lender. The borrower loses the house, but does not damage their credit rating as much as a foreclosure would. To exercise any of these options, HUD says the borrower must meet certain qualifications, based on their circumstances. HUD Secretary Alphonso Jackson said the agency is “working to ensure that every qualifying FHA borrower is afforded the opportunity to explore all options to keep their homes.”

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