In January 2025 the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2025-06 revising servicing and claims requirements and loss mitigation options for FHA insured mortgage loans effective February 2, 2026.
HUD recently issued Mortgagee Letter 2025-12 further revising the requirements and options effective October 1, 2025. The revisions apply to all FHA Title II forward mortgage loans.
HUD provides the following explanation for the further revisions:
“In January 2025, HUD published a new permanent set of loss mitigation tools intended to maintain streamlined processes that minimize burdens on Mortgagees, provide sustainable loss mitigation solutions to Borrowers to address delinquency, prevent foreclosure, and mitigate risks to the Mutual Mortgage Insurance Fund (MMIF).”
“Upon further review of the policies, HUD has determined additional changes are necessary to protect the MMIF. HUD continues to see increased default rates on the COVID-19 Recovery Options, as well as the use of the COVID-19 Recovery Options in a manner inconsistent with prudent management of the MMIF. To help address both issues, HUD has determined that Borrowers should be limited to one permanent Loss Mitigation Option every 24 months versus every 18 months.”
In addition to the changes noted above, other changes made by the Mortgagee Letter and the related attachment that contains amendments to HUD Handbook 4000.1 are the following:
• The FHA-Home Affordable Modification Program Options and currently published Standard Pre-Foreclosure Sale and Standard Deed-in-Lieu of Foreclosure options will remain suspended through September 30, 2025, except for non-borrowers who acquired title through an exempted transfer. The options will expire on September 30, 2025.
• The COVID-19 Recovery Loss Mitigation Options are extended through, and will expire on, September 30, 2025.
• HUD determined that “certain language access provisions are unnecessarily burdensome.” HUD removed the provisions, and modified another provision.
Specifically,
• The language accessibility provisions that Mortgagee Letter 2025-06 added to section (III.A.1.a.ii(D)) of Handbook 4000.1 were removed.
• The requirement that a servicer transferring servicing inform the transferee servicer of the borrower’s language preference was made optional.
• The Loss Mitigation Waterfall is updated.
• Borrower compensation under the Pre-Foreclosure Sale option is reduced from $7,500 to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.
• Borrower compensation under the Cash For Keys option is reduced from $7,500 if the borrower vacates the property within 30 days of notice to vacate, and from $5,000 if the borrower vacates the property within 60 days of the notice to vacate, to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.
• Borrower compensation under a Deed in Lieu Agreement is reduced from $7,500 to $3,000, which was the amount prior to the changes made by Mortgagee Letter 2025-06.
The Mortgage Bankers Association’s President and CEO Bob Broeksmit, CMB, released the following statement regarding the HUD actions:
“MBA welcomes FHA’s adoption of a new, permanent loss mitigation framework, which will help evaluate performance and ensure the protection of the Mutual Mortgage Insurance (MMI) fund. Specifically, we appreciate FHA’s efforts to reinstate a cap on the number of times a borrower can utilize a home-retention program and require the successful completion of trial payments to demonstrate long-term affordability. Together, these safeguards will improve sustainability, protect the FHA insurance fund, preserve borrower equity, and further align FHA with the GSEs.”
“We commend FHA’s approach that appropriately balances borrower access to streamlined loss mitigation with prudent risk management. We appreciate HUD and FHA for implementing these safeguards, and we will continue to advocate for policy changes that will ensure that mortgage servicing remains efficient for both consumers and servicers.”
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