FHA’s Mortgagee Letter 2025-06 rebuilt the permanent loss-mitigation framework (effective February 2, 2026): it retired FHA-HAMP, sunset the COVID-19 Recovery options, and stood up one consolidated waterfall around the Payment Supplement, Partial Claim, and Loan Modification. If your FHA servicing / loss-mitigation P&P still describes the old options, it’s now directing staff to run retired programs.
Here’s what it looks like to bring one current with the AI you already have. I opened an AI chat (Copilot, Claude, or ChatGPT), uploaded the servicer’s P&P and the verbatim FHA loss-mitigation rule file, and the AI rewrote the P&P to conform — every change tied back to the controlling ML 2025-06 / Handbook 4000.1 section.
What changed — the cited change log
A. Retired options — deleted by ML 2025-06
A1 · FHA-HAMP and the 31% targeted-payment math — REMOVED. Before: the P&P calculated a target payment as “31% of gross monthly income” and ran the FHA-HAMP standalone modification, standalone partial claim, and combination to reach it. After: FHA-HAMP is removed; affordability is now reached through the modernized Loan Modification (§10.2(e)), targeting a minimum 25% reduction to the P&I portion of the payment. Cite — ML 2025-06 Summary of Changes: “deletes FHA-HAMP (III.A.2.k.v).”
A2 · Special Forbearance–Unemployment — REMOVED. A distinct minimum-12-month unemployment forbearance is gone; a single modernized Forbearance construct (§10.2(a)) bridges temporary hardships. Cite — “deletes Special Forbearance-Unemployment (III.A.2.k.iv).”
A3 · Informal / Formal Forbearance tiers — REMOVED. The “Informal” (oral, ≤3 months) vs. “Formal” (written) split is replaced by the single Forbearance construct (§10.2(a)). Cite — “deletes Forbearance Plans (III.A.2.k.iii).”
A4 · COVID-19 Recovery option set — SUNSET. The COVID-19 Recovery waterfall (Standalone Partial Claim, Recovery Modification, Non-Occupant Modification) is removed from the standing waterfall; the permanent §10.2 options apply to all hardships. Cite — ML 2025-06 extends the COVID-19 Recovery options only “through February 1, 2026” — the day before the permanent framework’s effective date.
B. Standing conflicts — non-compliant under the prior rule too
B1 · Owner-occupant gating on the options — REMOVED. §2 and §10.1 require considering Owner-Occupant and Non-Occupant Borrowers for all options; the occupancy gate comes out everywhere HUD doesn’t expressly require it. This was a live fair-servicing conflict — the rule change is what surfaced it. Cite — “The Mortgagee must consider Owner-Occupant Borrowers and Non-Occupant Borrowers for all Loss Mitigation Options.”
B2 · Conditioning an option on a borrower cash contribution — REMOVED. §10.1 and §17 prohibit conditioning any option on a cash contribution or fee payment. Cite — “The Mortgagee must not condition the use of a Loss Mitigation Option on the receipt of a Borrower’s cash contribution or a Borrower’s payment of fees or charges.”
See it for yourself — before, after, and the change log
The artifacts below are anonymized samples (a fictional servicer), free to download and to experiment with before you run it on your own P&Ps:
- Before — FHA Loss Mitigation P&P (2024): FHA-HAMP and its 31% math, a COVID-19 Recovery waterfall, owner-occupant gating.
- After — remediated to ML 2025-06 (2026): the consolidated waterfall, the 25% P&I-reduction target, the Borrower Affordability Attestation, all borrower types for all options, plus a clause-level change map.
- Change log — every change, with reg citations: the audit trail behind the rewrite, each entry quoting the controlling ML 2025-06 / Handbook 4000.1 section.
Run it on your own shop
Same method, your policy. The FHA Loss Mitigation kit gives you the verbatim ML 2025-06 / Handbook 4000.1 rule text as a machine-readable file and the prompt to run your own loss-mit P&P against it — surfacing the stale, conflicting, and missing provisions before the February 2, 2026 effective date.
Facing the bigger, firm-wide AI-governance job too? That’s the FNMA AI Lender Letter compliance kit — the same DIY, verbatim-grounded approach, scaled to inventory all your AI and build the governance program LL-2026-04 requires.
Everything here is a working draft for your compliance/attorney review — not legal advice.