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Loss Mitigation

Prescribed set of default workout options that allow lenders to effectively work with delinquent FHA borrowers to find solutions to avoid foreclosure.

Nature of Program: FHA Loss Mitigation delegates to mortgagees both the authority and the responsibility to utilize certain actions and strategies to assist borrowers in default or imminent default retain their homes, and/or reduce losses to the insurance fund that result from mortgage foreclosures. Mortgagees may utilize any of several loss mitigation options that lead to home retention, including: FHA-HAMP, long-term special forbearance, mortgage modification, and partial claim (an option exclusive to HUD wherein the Department makes a no-interest loan to the borrower in an amount sufficient to reinstate the mortgage). If the borrower is unable or unwilling to support the mortgage debt, servicers must consider use of other loss mitigation tools, including a pre-foreclosure sale or a deed in lieu of foreclosure, before initiating legal action to foreclose the mortgage.

HUD encourages mortgagees to utilize loss mitigation by reimbursing administrative costs (title reports, recording fees) involved in these actions and by paying financial incentives. Though mortgagees have flexibility in selecting the loss mitigation strategy appropriate for each borrower, participation in the loss mitigation program is not optional. Prior to initiation of foreclosure, mortgagees are required to evaluate all defaulted borrowers for loss mitigation options eligibility, quickly activate appropriate loss mitigation options, provide housing counseling availability information, consider all reasonable means to assist the borrower in addressing the delinquency, and retain written documentation of compliance with loss mitigation requirements. Failure to comply may result in the loss of incentive compensation, interest curtailment, and other financial and administrative sanctions, including withdrawal of HUD's approval of a mortgagee.

Mortgagor Eligibility: Any FHA-insured borrower who is in default for at least 90 days (120 days for partial claim) and who occupies the mortgaged property as a primary residence may be eligible for home retention loss mitigation. FHA-HAMP, pre-foreclosure sale and deed-in-lieu options are available immediately upon default, if the cause of the default is incurable.

Legal Authority: Sections 204(a) and 230 of the National Housing Act. Regulations are at 24 CFR part 203.

Administering Office: Assistant Secretary for Housing-Federal Housing Commissioner,
U.S. Department of Housing and Urban Development, Washington, DC 20410-8000.

Information Sources: HUD's National Servicing Center. On the Web

Current Status: Active.