FHA 2010-23 refi

[Bill B.]

Hi,

My partner's corporation and my corporation are in a JV that owns a note in Ohio. The JV is in forbearance on that note. The JV has been receiving payments (through a well known servicing company) on time since April. If the July payment is timely, the JV is going to modify. The proposed modification is to reduce the interest rate from the current 9.125% to 6% and leave UPB untouched. The target exit is to have the borrower apply for an FHA 10-23 refi after four payments under modified terms.

First, having read the FHA letter, is the program still running? Specifically, has any BPer used this exit in the last couple of months? Assuming the program is still running, what pitfalls should the JV be looking for? Importantly, the 10-23 program requires that the borrower be current on the present mortgage. Does that mean that current payments in forbearance count? Or, does it mean that we must modify first and the borrower must remain current after the mod? Can I hold arrearages "over the borrower's head" after modification, stating that arrearages will be forgiven if four payments are made after modification, or must I forgive the arrearages at the point of modification? Finally, what have I NOT asked that I should have asked?

Thanks to all!!

[Mike Hartzog]

Hi Bill,

"Current" means that the borrower is not behind on payments, i.e., no arrears.  You would need to modify the loan to either forgive or capitalize the arrears in the mod and get a minimum of 3 payments from the borrower on the modified terms after any trial period the mod may define.  I would recommend finding a mortgage broker who handles these for further guidance.  The broker should be able to pre-qualify the borrower with regard to requirements such as minimum credit score and establish borrower income level.  You would need to know income level in order to properly structure the modification so that it qualifies for the program.