The Crisis: When an FHA Loan Falls Behind

The Federal Housing Administration (FHA) loan is one of the most popular mortgage options, especially for first-time or moderate-income buyers. Because FHA loans are insured by the government (specifically, the Department of Housing and Urban Development or HUD), they come with a crucial safety net known as FHA Loss Mitigation options, designed to help you avoid losing your home when financial hardship strikes.

The most powerful tool in this arsenal for homeowners who have fallen significantly behind on payments is the FHA Partial Claim.

What Exactly is an FHA Partial Claim?

The FHA Partial Claim is not a loan modification or a payment plan; it is an interest-free loan provided by HUD to cover your missed mortgage payments, including principal, interest, taxes, and insurance (PITI).

Here is a breakdown of how it works:

• The Advance: HUD gives your mortgage servicer (e.g., PHH Mortgage, etc.) the funds needed to pay off your entire past-due amount (the “arrearage”). This immediately brings your loan current.
• The Second Lien: A second mortgage, or subordinate lien, is placed on your property for the amount of the claim.
• Zero-Interest: Crucially, this second lien does not accrue interest and requires no monthly payments (hence why it is often referred to as an “interest-free loan”).

Expert Insight: The Partial Claim acts as a bridge. It stabilizes your current mortgage, allowing you to resume your regular monthly payments without the added burden of trying to catch up on all the missed months at once.  However, there are drawbacks in doing a Stand Alone Partial Claim yourself.

The Mechanics: How the Partial Claim Stops Foreclosure

The core benefit of the Partial Claim is its power to stop the foreclosure process by instantly curing the default.

1. Curing the Delinquency: Foreclosure proceedings are based on the fact that the borrower is in default (missed payments). When the Partial Claim funds are applied, the loan is technically brought back to a “current” status, removing the legal grounds for the foreclosure to proceed.
2. Repayment is Deferred: Since there are no new monthly payments required for the Partial Claim amount, your existing monthly budget is not inflated. This allows you to realistically resume your regular payments.
3. When is it Repaid? The Partial Claim only becomes due when one of three major events occurs:
   • You sell the property.
   • You pay off the first mortgage.
   • You refinance the first mortgage.

FHA Loss Mitigation Options for 2025

While the Standalone Partial Claim is powerful, FHA/HUD constantly updates its options to ensure affordability. In 2025, FHA Loss Mitigation options often involve combining the Partial Claim with other tools:

• Partial Claim + Loan Modification: This is often used when a borrower needs a permanent payment reduction in addition to curing the delinquency. The modification can lower the interest rate and/or extend the loan term (up to 40 years) to create a more sustainable monthly payment.

The Payment Supplement (Newer Tool): This option uses the Partial Claim funds to pay off the arrears and also holds a portion of the funds to temporarily supplement the borrower’s monthly payment for a period (e.g., 36 months), leading to a significant temporary reduction in the borrower’s out-of-pocket payment. This is a key tool for FHA borrowers with low existing interest rates who cannot benefit from a traditional rate modification.

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