The U.S. Department of Housing and Urban Development (HUD) has updated the Federal Housing Administration’s (FHA) loss mitigation waterfall, giving mortgage servicers more options to help struggling borrowers with FHA-insured single-family mortgages from going into foreclosure.
The new options essentially make permanent the temporary options FHA implemented during the COVID-19 pandemic, which helped more than two million struggling borrowers stay in their homes over the last four years.
Servicers must implement and make these options available to borrowers beginning February 2, 2026, HUD says in a release.
FHA’s current, temporary COVID-19 options will remain in place through February 1, 2026.
“HUD is focused on helping first time homeowners, and we are also focused on helping homeowners keep their homes,” says Adrianne Todman, agency head for HUD, in a statement. “The updates to our home retention options build upon options we created during the pandemic to help borrowers.”
Julia Gordon, commissioner of the FHA, says the updates will help “reduce losses to the Mutual Mortgage Insurance Fund.
“We are confident that this updated, permanent set of options will help FHA sustain homeownership during future challenging times,” Gordon says.
As per the release, the updated loss mitigation tools are structured to meet a variety of borrower needs under the following categories:
- Early Default Intervention: For borrowers who begin to experience problems with making mortgage payments, servicers may provide a repayment plan to bring the mortgage current or provide a forbearance period – a temporary pause or reduction in mortgage payments – incrementally for up to 12 months. For borrowers impacted by natural disasters, a special disaster forbearance option provides additional flexibilities.
- Home Retention Options: Depending on a borrower’s financial situation, servicers are provided with loss mitigation tools that will help bring the mortgage current so the borrower can retain their home. Options include FHA’s standalone partial claim or a standalone loan modification that offers payment reduction for borrowers who can resume making their existing monthly mortgage payments. For those borrowers who cannot afford their current monthly mortgage payment, additional options that target a 25 percent reduction in the Principal and Interest portion of the payment – a standalone loan modification, a combination loan modification with a partial claim, and Payment Supplement – are available.
- Home Disposition Options: Where borrowers who, after exhausting all other home retention options, cannot afford to keep their homes, servicers will provide options that will help these borrowers avoid foreclosure, including a pre-foreclosure sale and a deed-in-lieu of foreclosure.
“The updated waterfall is based upon the successful outcomes we’ve achieved for borrowers by continually evolving our loss mitigation options throughout the pandemic,” says Sarah Edelman, deputy assistant secretary for single family housing for HUD. “The waterfall also adds additional guardrails to reduce risk and losses to HUD. We attribute our loss mitigation success in part to the regular ongoing dialogue we’ve maintained with industry and consumer group stakeholders throughout the pandemic and beyond to share lessons learned on how to best help those who are struggling financially.”
In a statement, Bob Broeksmit, CMB, president and CEO of the Mortgage Bankers Association, says the association “appreciates FHA’s efforts to update its loss mitigation waterfall to preserve COVID-19 flexibilities and give mortgage servicers a variety of effective tools to help distressed homeowners – regardless of their financial hardship – stay in their homes.”
“Mortgage servicers have provided forbearance to approximately 8.5 million borrowers since March 2020, performing diligently to implement new forbearance and home retention programs from FHA and other federal agencies,” Broeksmit says. “We appreciate FHA’s efforts to streamline the loss mitigation process. These flexibilities will be critically important in assisting borrowers who are impacted by natural disasters, such as the flooding in the Southeast last fall and this month’s California wildfires.”
“We will work with the incoming leadership at FHA on policy changes that make mortgage servicing more efficient for consumers and servicers alike,” Broeksmit adds.
Photo: Matthieu Joannon
