The Federal Housing Administration (FHA) this week published Mortgagee Letter (ML) 2025-06, which codifies “updates to FHA’s permanent loss mitigation options based on learnings from its temporary COVID-19 policies and feedback received on the draft policies” from a proposal published this past November.
Published on Thursday, the letter extends existing COVID-19 recovery options to February 2026. The FHA said it is aiming to give stakeholders “time to implement the new loss mitigation, claims, and reporting requirements.”
The letter clocks in at 243 pages, detailing a large number of changes that will be incorporated into a revision of the Single Family Housing Handbook 4000.1 for all of the agency’s Title II forward mortgage programs.
Among the changes, the ML updates FHA’s repayment plan and forbearance policies; changes the agency’s home retention options for borrowers who either can or cannot resume their existing monthly payments; revises the agency’s loan modification option for unresponsive borrowers; and updates both allowable loan modification interest rate pricing and policies toward Presidentially-Declared Major Disaster Areas (PDMDAs).
The ML also “adds guardrails to mitigate the risk of redefault and ensure that borrowers receive the most appropriate loss mitigation option.” This includes a minimum requirement to the number of payments made; borrower attestation that a loan modification is affordable; and successful completion of a three-month trial payment plan. The ML also makes changes to FHA’s home disposition options.
Last month, a coalition of six mortgage trade organizations sent a letter to FHA Commissioner Julia Gordon pushing for the current loss-mitigation waterfall be extended to February 2026 while updates to the agency’s servicing handbook are deliberated. Both the Mortgage Bankers Association (MBA) and the Community Home Lenders of America (CHLA) lauded the ML’s publication.
“MBA 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,” Bob Broeksmit, MBA’s president and CEO, said in a statement.
“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. We appreciate FHA’s efforts to streamline the loss mitigation process,” Broeksmit added. “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.”
MBA vowed to work with incoming housing leadership to continue assessing new efficiencies for mortgage servicing.
“CHLA commends FHA for changes to its loss mitigation requirements, which we believe will help in curtailing excessive requests by defaulted borrowers to request payment relief — while fully protecting borrowers,” executive director Scott Olson said in a statement. “Every distressed FHA borrower deserves fair consideration for a loss mitigation option — but this has to be balanced by a process that does not allow defaulted borrowers to string the process along just for the purpose of delay.”
In its update, the FHA limits borrowers to one executed home retention option within each 18-month period. CHLA said it “voiced similar concerns about repeated loss mitigation requests in its September 9 comment letter to the Consumer Financial Protection Bureau (CFPB) on servicing requirements.”
