The Federal Housing Administration (FHA) has released a notice to servicers outlining new guidelines pertaining to trial payment plans for FHA loss mitigation actions. The new rules go into effect October 1.

When offering permanent modifications or partial claims, servicers must implement trial payment plans for any borrowers who have missed at least two payments in the past year; have failed a HAMP trial payment plan; have a net surplus income of less than 20 percent of their total net income; or whose mortgage was originated fewer than 14 months ago.

Trial plans are also required when a borrower has been 90 or more days delinquent at any time in the previous 36 months; has defaulted within 90 days of a loss mitigation action in the past year; or in any case when a servicer feels a trial period is necessary.

“A trial payment plan is an important tool for confirming a mortgagor’s readiness and ability to make regular monthly mortgage payments and avoid re-default,” the FHA stated in its letter to servicers.

All trial payment periods must last for at least three months.

For any FHA loan modifications, the FHA prohibits servicers from including any provisions which would require a borrower to relinquish his or her right to loss mitigation options.

Additionally, the permanent rate for a modification must be determined at the same time that the servicer approves the trial payment plan.

FHA is also requiring that the final payment required under the permanent modification cannot exceed the amount of the trial period payment.

For all partial claims, the FHA is requiring that the monthly payment during the trial period be the same as the future monthly payment.

The FHA also mandates that during any trial period plan, foreclosure actions must be halted.

When a trial period fails, the servicer must re-evaluate the borrower to determine whether another loss mitigation action may be taken. The servicer has a 90-day extension to continue with foreclosure or an alternate loss mitigation action after failure of a trial payment plan.