Housing Counselor Certification (HUD) Practice Exam

What is the most suitable FHA Loss Mitigation option for a client facing income reduction but not yet delinquent?

1. Formal Forbearance

2. Loan Modification

3. Special Forbearance

4. Informal Forbearance

The correct answer is: Informal Forbearance

The most suitable option for a client facing income reduction but not yet delinquent is Informal Forbearance. This approach allows the borrower to temporarily reduce or delay their mortgage payments without the formalities that accompany a formal forbearance agreement. Since the client is not yet delinquent, an informal arrangement can provide immediate relief while maintaining the existing mortgage terms. Informal Forbearance is particularly beneficial because it offers flexibility. The lender may agree to a temporary reduction in payments or allow the client to skip payments for a short period, which can help the client manage their cash flow without the stress of falling behind. This option also encourages communication between the borrower and the lender, fostering a cooperative relationship designed to address the client's financial challenges proactively. In contrast to Informal Forbearance, other options like Special Forbearance or Formal Forbearance are typically more suited for borrowers who are already delinquent or facing imminent foreclosure. Loan Modification would require a more permanent change to the mortgage terms, which may not be appropriate at this stage given the client's situation.