FHA Servicing and Loss Mit Changes
HUD has issued several updates revising its requirements for servicing FHA-insured mortgages and associated claims, with a focus on loss mitigation. The key documents are Mortgagee Letter 2025-06 from January 2025 and its subsequent update, Mortgagee Letter 2025-12 from April 2025. Here's a breakdown of the key changes:
New Permanent Loss Mitigation Framework: HUD is implementing a new framework aimed at streamlining processes, providing sustainable solutions for borrowers facing delinquency, preventing foreclosure, and protecting the Mutual Mortgage Insurance Fund (MMIF). The effective date for these new options has been expedited to October 1, 2025.
Expiration of COVID-19 Recovery Options: The temporary COVID-19 Recovery Loss Mitigation Options will expire on September 30, 2025.
FHA-HAMP Sunset: The FHA-Home Affordable Modification Program (FHA-HAMP) options will end on September 30, 2025, except for non-borrowers who acquired title through an exempted transfer.
Limit on Permanent Loss Mitigation Options: Borrowers are limited to one permanent Loss Mitigation Option every 24 months.
Reversal of Incentive Increases: Scheduled increases in borrower and/or servicer incentives related to certain loss mitigation options have been reversed to their prior levels.
Key changes from the latest Mortgagee letter that modify the original release:
Language Access Provisions Removed: Certain language accessibility requirements initially added to Handbook 4000.1 by ML 2025-06 have been removed.
Nondiscrimination Policy Update: Language regarding "sexual orientation or gender identity" has been removed from the Nondiscrimination Policy in Handbook 4000.1.
Evaluation of Payment Supplement: HUD will conduct an overall evaluation of the Payment Supplement tool.
Updates to Delinquency Notices and Early Default Intervention: There are updates to the requirements for delinquency notice cover letters and the use of early default intervention tools.
Changes to Loss Mitigation Review Process: The Loss Mitigation Review Process section in the handbook has been deleted.
Modifications to Pre-Foreclosure Sales (PFS) and Deed-in-Lieu (DIL): There are specific adjustments to borrower compensation and allowable settlement costs for PFS and relocation assistance for DIL.
Updates to Servicing Requirements: ML 2025-12 updates various aspects of servicing, including responsibilities for servicing actions, transfers of servicing rights, providing information to HUD and counseling agencies, application of payments, items to be escrowed, timeliness of payments from escrow accounts, hazard insurance payments, late charges, partial payments, lien status, imminent default, and delinquent mortgage identification.
In summary, HUD is moving forward with a new permanent loss mitigation framework for FHA-insured loans, with a faster implementation timeline. ML 2025-12 mad key adjustments to requirements initially introduced in ML 2025-06.
Continue following SCA’s newsletter and blog to stay up to date on these crucial FHA mortgage servicing changes, or contact our Director, Bill Dolan at wdolan@scapartnering.com or by phone at (617) 694-2617 to get in touch with our industry experts for more information.
