FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss Mitigation Program (12/30/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss Mitigation Program (12/30/2025)

h. Loss Mitigation Program (12/30/2025) HUD’s Loss Mitigation Options are intended to minimize economic impact to the MMIF and to avoid foreclosure, when possible. The Loss Mitigation Options are: • Repayment Plan; • Forbearance; • Partial Claim; • Loan Modification; • Combination Loan Modification and Partial Claim; • Payment Supplement; • Outside of the Waterfall Loan Modification (OWL); III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1202 Last Revised: 11/26/2025 • Pre-Foreclosure Sale (PFS); and • Deed-in-Lieu (DIL) of Foreclosure. In implementing HUD’s Loss Mitigation Program, the Mortgagee must: • consider all reasonable means to address delinquency at the earliest possible time; • adhere to the requirements for communication with Borrowers in Default as set out in the Collection Communication Timeline; • utilize HUD’s Loss Mitigation Options to avoid foreclosure, when feasible; and • re-evaluate each Delinquent Mortgage for Loss Mitigation Options, as required. When reviewing Borrowers for Loss Mitigation Options, a streamlined or refinanced Mortgage on the same Property and by the same Borrowers is not considered a new Mortgage for seasoning requirements. The Mortgagee may offer eligible Borrowers Loss Mitigation Options in accordance with program-specific procedures for: • Section 203(q) Mortgages, Mortgages on Property in Allegany Reservation of Seneca Indians; • Section 248 Mortgages on Indian Land insured pursuant to Section 248 of the National Housing Act; and • Section 247 Mortgages, Mortgages on Hawaiian Home Lands insured pursuant to Section 247 of the National Housing Act. i. Definitions For the purposes of loss mitigation, the following definitions apply: Borrower refers to the original Borrower who signs the Note and their heirs, executors, administrators, assigns, and approved substitute Borrowers. This includes any Borrower who is occupying or not occupying the Property. Financial Hardship refers to an increase in living expenses or a loss of income affecting the Borrower’s ability to continue their Mortgage Payments as attested by the Borrower. ii. Servicemember Status The Mortgagee must offer eligible servicemember Borrowers mortgage protections under the SCRA and Servicing FHA-Insured Mortgages for Servicemember-Borrowers. iii. Standard (A) Eligibility to Participate in HUD Programs The Mortgagee must verify that the Borrowers are eligible to participate in HUD’s Loss Mitigation Program. To be eligible to participate in HUD’s Loss Mitigation Program, the Borrower: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1203 Last Revised: 11/26/2025 • may not own other real estate subject to FHA insurance, except within the stated exceptions; • has not been the Borrower, except through inheritance or as a co-signer only, on prior loans on which an FHA claim has been paid within the past three years; • for purposes of a Loan Modification, Partial Claim, Combination Loan Modification and Partial Claim, or Payment Supplement, must not be debarred, suspended or subject to a HUD Limited Denial of Participation (LDP) as determined in accordance with Excluded Parties requirements; and • for purposes of a Partial Claim, Combination Loan Modification and Partial Claim, or Payment Supplement, may not have unresolved delinquent Federal Debt as determined in accordance with Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt requirements. The Delinquent FHA-insured Mortgage associated with the Loss Mitigation does not constitute a disqualifying delinquent Federal Debt. (1) Occupancy (a) Definitions An Owner-Occupant Borrower refers to a Borrower residing in the Property secured by the FHA-insured Mortgage as a Principal Residence. A Non-Occupant Borrower refers to a Borrower on a Mortgage securing a Property that is not occupied by any Borrower or is not the Principal Residence. (b) Standard The Mortgagee must consider Owner-Occupant Borrowers and Non-Occupant Borrowers for all Loss Mitigation Options. (2) Non-Borrowers Who Acquired Title through an Exempted Transfer The Mortgagee may consider Repayment Plans, Forbearances, Permanent Home Retention Options, and Home Disposition Options for a non-borrower who acquires title to a Property securing an FHA-insured Mortgage if the Mortgage is not due and payable pursuant to the Garn-St. Germain Depository Institutions Act, (i.e., an Exempted Transfer), and that the non-borrower: • is willing to assume personal liability for repayment of the Mortgage in accordance with the agreed loss mitigation terms; • will occupy the home as a Principal Residence; • meets the criteria for loss mitigation assistance; • for a Permanent Home Retention Option, successfully completes a six- month TPP; and III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1204 Last Revised: 11/26/2025 • for a Permanent Home Retention Option, has a valid SSN or EIN or meets the eligibility requirement exception regarding social security numbers. (B) 90-Day Review A Mortgagee is required to complete an evaluation of a Defaulted Mortgage for appropriate Loss Mitigation Options before four monthly installments are due and unpaid and send a written Notice to Borrower with the determination of eligibility. (C) Required Documentation The Mortgagee must retain in the Servicing File and the Claim File, if applicable, documentation evidencing that the Borrower is eligible to participate in an FHA transaction, and a copy of the Notice to Borrower, and document efforts to reach each Borrower in Default in advance of the 90-Day Review deadline. The Mortgagee may obtain confirmation from the Borrower, verbally or in writing, that the Borrower does not own any other FHA-insured Property or meets one of the stated exceptions. iv. Evaluation of Borrower for Loss Mitigation Assistance (A) Definition A Complete Loss Mitigation Request is a request for loss mitigation assistance that contains all information from the Borrower required to evaluate all Loss Mitigation Home Retention Options and Home Disposition Options. (B) Standard The Mortgagee must ensure that the Complete Loss Mitigation Request includes: • the reason for Financial Hardship; • Borrower occupancy status; and • documentation that may impact a Mortgagee’s ability to provide a Loss Mitigation Option for Servicemembers, or Non-Borrowers Who Acquired Title through an Exempted Transfer. The Borrower is not required to provide financial documentation to be evaluated for a Loss Mitigation Option. The Mortgagee must not use any financial documentation about the Borrower to disqualify the Borrower from a Loss Mitigation Option other than the required Financial Hardship documentation. 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. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1205 Last Revised: 11/26/2025 For loss mitigation requests received after the initiation of foreclosure, the Mortgagee must evaluate and respond to Complete Loss Mitigation Requests according to the time frame requirements in Loss Mitigation during the Foreclosure Process. (C) Financial Hardship Documentation Mortgagees must obtain the Borrower’s reason for Financial Hardship and documentation, as required in the table below. The Mortgagee may obtain the reason for Financial Hardship verbally, electronically, or in writing. Type of Hardship Required Hardship Documentation Unemployment Not required Reduction in income: a hardship that has caused a decrease in your income due to circumstances outside your control (e.g., elimination of overtime, reduction in regular working hours, a reduction in base pay) Not required Increase in housing-related expenses: a hardship that has caused an increase in your housing expenses due to circumstances outside your control (e.g., uninsured losses, increased property taxes, HOA special assessment) Not required Disaster (natural or man-made) impacting the Property or Borrower's place of employment Not required Long-term or permanent disability, or serious illness of a Borrower/co- Borrower or dependent Family Member Not required Divorce or legal separation Final divorce decree or final separation agreement OR Recorded quitclaim deed Separation of Borrowers unrelated by marriage, civil union, or similar domestic partnership under applicable law Recorded quitclaim deed OR Legally binding agreement evidencing that the non-occupying Borrower or co- Borrower has relinquished all rights to the Property III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1206 Last Revised: 11/26/2025 Death of Borrower or death of either the primary or secondary wage earner Death certificate OR Obituary or newspaper article reporting the death Active duty servicemember employment transfer/relocation For active duty servicemembers: Permanent Change of Station (PCS) orders or letter showing transfer Other hardship not listed above Not required unless needed to evidence legal ownership due to the hardship The Mortgagee must review the required documents to identify if the documents indicate that Borrowers or non-borrowers: • have or will have legal ownership of the Property; and • will be included on Loss Mitigation documents for the Permanent Home Retention Option. (D) Required Documentation The Mortgagee must document in the Servicing File and the Claim File, if applicable, the Complete Loss Mitigation Request and the date of receipt. v. HUD’s Loss Mitigation Option Waterfall The Mortgagee must evaluate Borrowers using the Loss Mitigation Option Waterfall below and the requirements for the specific Loss Mitigation Options. Loss Mitigation Waterfall Options Question Decision Point Yes (If the Loss Mitigation Option cannot be offered, proceed to the next Question) No 1 Is the Borrower no more than 120 Days* in Default and able to repay arrearages over a set period of no more than 24 months? *Default may be greater than 120 Days for specific Borrowers Review for a Repayment Plan Proceed to Question 2 III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1207 Last Revised: 11/26/2025 2 Does the Borrower require a period of reduced or suspended payments before they are able to resume payments? Review for a Forbearance Proceed to Question 3 3 Has the Borrower received a Permanent Home Retention Option in the past 24 months (other than for a PDMDA)? Proceed to Question 8 Proceed to Question 4 4 Does the Borrower attest they can resume making their current Mortgage Payments? Review for a Standalone Partial Claim Proceed to Question 5 5 Can a Standalone Loan Modification achieve the target payment? Review for a Standalone Loan Modification Proceed to Question 6 6 Can a Combination Loan Modification and Partial Claim achieve the target payment? Review for a Combination Loan Modification and Partial Claim Proceed to Question 7 7 Does the Borrower qualify for a Payment Supplement? Review for a Payment Supplement Return to Question 6, if required, or proceed to Question 8 8 Does the Borrower meet the requirements to participate in a Home Disposition Option? Review for a PFS If an approved PFS marketing period is unsuccessful, review for a DIL of Foreclosure Foreclosure vi. Notice to Borrower after Loss Mitigation Review The Mortgagee must send a written notice to the Borrower after an evaluation of the Borrower for Loss Mitigation Option eligibility, which indicates: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1208 Last Revised: 11/26/2025 • the Mortgagee’s determination of the Borrower’s eligibility for a Loss Mitigation Option and which Loss Mitigation Option, if any, the Mortgagee will offer to the Borrower; • the amount of time in which the Borrower must accept or reject an offer of a Loss Mitigation Option; • the actual reason or reasons they have been denied for any HUD Loss Mitigation Option; • the process for appeals or escalation of cases; • the process and time frame for submission of additional information that may impact the Mortgagee’s evaluation; • the Mortgagee’s points of contact; and • if loss mitigation is denied, rejected by the Borrower, unsuccessful, or unable to be considered due to the Borrower’s failure to execute the documents to complete the Loss Mitigation Option or to provide additional information requested by the Mortgagee, and any applicable appeal period has expired: o the Borrower’s Mortgage may be included in a Single Family Loan Sale (SFLS); or o the Borrower’s Mortgage may be foreclosed upon. vii. Loss Mitigation Agreements (A) Definition A Loss Mitigation Agreement refers to all Permanent Home Retention or Home Disposition Options documents that require execution by the Borrower. (B) Standard The Mortgagee must ensure that Loss Mitigation Agreements are executed by all parties necessary to ensure: • that HUD’s first lien position is preserved; and • that the Agreement is enforceable under state and local law. The Mortgagee may exclude certain signatories to the Agreement or waive the need for a quit claim deed because of divorce, legal separation, domestic violence, mental incapacity, military deployment, or abandonment if the Mortgagee can ensure HUD’s first lien position and the Agreement is enforceable under state and local law. (C) Mortgagee Signature Where a Mortgagee signature is required on a Loss Mitigation Agreement, the servicing Mortgagee with this delegated authority may provide this signature. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1209 Last Revised: 11/26/2025 (D) Authorized Third Parties When a Loss Mitigation Agreement is to be signed by an Authorized Third Party with authority to act on behalf of the Borrower, the Mortgagee must include a copy of that party’s authorization in the Servicing File and Claim File, if applicable. (E) Electronic Signatures The use of electronic signatures is voluntary. HUD will accept an electronic signature conducted in accordance with the Policy on Use of Electronic Signatures on HUD Loss Mitigation documents requiring signatures, unless otherwise prohibited by law. (F) No Waiver of Rights The Mortgagee must not include any language in any loss mitigation documents that requires Borrowers to waive their rights under state or federal law or under the mortgage contract as a condition for consideration, approval, or implementation of a Loss Mitigation Option. viii. Loss Mitigation during Bankruptcy Proceedings (A) Standard The Mortgagee must comply with and seek relief, if appropriate, from the automatic stay. The Mortgagee may review Borrowers with active Chapter 7 or Chapter 13 bankruptcy cases for Loss Mitigation Options to the extent that such loss mitigation does not violate federal bankruptcy laws or orders of the bankruptcy court or bankruptcy trustee. (1) Eligibility for Loss Mitigation The Mortgagee may consider Loss Mitigation Options for those Borrowers who have received a Chapter 7 bankruptcy discharge and did not reaffirm the FHA- insured mortgage debt under applicable law. (2) Bankruptcy Proceedings for which Borrower Has an Attorney The Mortgagee must, upon receipt of notice of a bankruptcy filing, send information to the Borrower’s attorney indicating that Loss Mitigation Options may be available, and provide: • requirements for additional financial information documentation; • applicable time frames; • Mortgagee contact information; and • additional instructions to facilitate workout discussions, as appropriate. The Mortgagee must ensure that this communication does not infer that it is in any way an attempt to collect a debt. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1210 Last Revised: 11/26/2025 (3) Bankruptcy Proceedings for which Borrower does Not Have an Attorney (Bankruptcy Pro Se) Where the Borrower filed the bankruptcy pro se, the Mortgagee must send information indicating that Loss Mitigation Options may be available to the Borrower, with a copy to the bankruptcy trustee. The Mortgagee must ensure that this communication does not infer that it is in any way an attempt to collect a debt. (B) Required Documentation The Mortgagee must retain documentation supporting efforts to comply with or seek relief from automatic stays and documentation supporting any delays in meeting required HUD timelines in the Servicing File and the Claim File. ix. Escalated Cases (A) Definition Escalated Cases are Borrower inquiries and complaints requiring additional Mortgagee review because they include allegations of: • improper analysis of Borrower information or denials of Loss Mitigation Options; • foreclosures initiated or continued in violation of HUD’s policy; or • other violations of HUD policy. (B) Standard The Mortgagee must escalate cases to its designated escalation team at the request of: • HUD staff; or • the Borrower or Borrower’s Authorized Third Party representative. (C) Escalation Processes The Mortgagee must escalate and respond to cases in accordance with their written internal policies. The Mortgagee must ensure that, at a minimum, the policies include the following: • which staff members will be responsible for resolving escalated cases. These staff members must: o not be the same staff members responsible for the first evaluation of the loss mitigation application; and o have access to the Borrowers’ Servicing Files; • provide for timely responses to escalated cases as follows: o within seven Days of categorizing a Borrower’s inquiry or complaint as an escalated case, the Mortgagee should notify the Borrower in writing that III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1211 Last Revised: 11/26/2025 their inquiry and/or complaint has been escalated and that a resolution to their case will be provided no later than 30 Days from the date of escalation; and o if the Mortgagee is unable to resolve an escalated case within 30 Days, the Mortgagee must send the Borrower written updates on the status of their case every 15 Days until the case is resolved; • provide Borrowers with the direct contact information of the department and/or staff member responsible for resolving its escalated cases; • include methodologies for assessing a Servicer’s compliance with its escalation policies. These methodologies must be included in a Mortgagee’s Quality Control (QC) Plan; and • detail the Mortgagee’s process for resolving escalated cases and managing foreclosure activity when a foreclosure sale has been scheduled. x. Required Documentation The Mortgagee must document their compliance with HUD’s Loss Mitigation Program in the Servicing File and the Claim File, if applicable, including: • all loss mitigation actions, including all efforts to contact the Borrowers; and • all documentation used to analyze and make loss mitigation decisions and to confirm compliance with loss mitigation requirements.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss Mitigation Program (12/30/2025) · source URL · snapshot 8c03836f77f317e1