Definitions
Informal Repayment Plans- These are usually short term in nature and are established on the borrower's ability to repay. This program is used mostly when a loan is in early stages of delinquency (30-60 days will run from 90-120 days in term). Informal plans can be verbal or written.
Formal Repayment Plans - The most widely used program for a loss mitigation work-out. Financial screening is obtained from the borrower and, based on their ability to repay the arrearages, a plan to cure the delinquency is established. Counseling usually is offered to the borrower. Formal repayment plans are always written and can have a much longer term than informal plans. Based on the borrowers overage at the end of the month, formal plans are usually set up for a payment and 1/4 or a payment and 1/2.
Subprime Loan - Typically, subprime loans are made for people with blemished or limited credit histories. These loans carry a higher rate of interest than prime loans to compensate for increased credit risk. (Source: HUD.gov.)
Special Forbearance - A written repayment agreement between a servicer/lender and the borrower which contains a plan to reinstate a loan that is delinquent, and provides the borrower with relief not typically afforded under an informl or formal repayment plan. The term of the plan can be four or more months, suspension or reduction of payments for one or more months (to allow the borrower to recover from the cause of default), and/or an agreement to allow the borrower to resume making full monthly payments while delaying repayment of the arrearage.
Loan Modifications - A permanent change in one or more of the terms of a borrower's loan which, if made, allows the loan to be reinstated and results in a payment the borrower can afford. Modifications may include a change in the interest rate, capitalization of the delinquent principal, interest or escrow items, extension of the time available to repay the loan, and/or reamortization of the balance due.
Short Sale / Pre-foreclosure sale / Compromise Sale – These terms, all of which mean the same thing, allow a borrower in default to sell his or her home and use the sale proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed. This option is appropriate for borrowers whose financial situation requires that they sell their home, but who are unable to sell without the insurer/guarantor relief because the value of the property has declined to less than the amount owed on the mortgage.
Partial Claim - Under this-option, a servicer/lender will advance funds on behalf of a borrower in an amount necessary to reinstate a delinquent loan. This amount should not exceed the equivalent of 12 months PITI. The borrower, upon acceptance of the advance, will execute a promissory note and subordinate the mortgage payable to HUD. Currently these promissory or "partial Claim" notes carry no interest and are not due and payable until the borrower either pays off the first mortgage or no longer owns the property.
Deed-in-Lieu of Foreclosure - A disposition option in which a borrower voluntarily deeds collateral property to the servicer/lender in exchange for a release from all obligations under the mortgage. Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower lessens the cost and emotional trauma of foreclosure. In most cases, the insurer/guarantor requires this option to be used only after all other options have been exhausted.
