MBA, Other Groups Send FHA Letter on Loss Mitigation Update Recommendations

The Mortgage Bankers Association, along with a number of other trade groups, sent a letter to FHA on its November 2024 proposal on loss mitigation updates to its Servicing Handbook.

The recommendations in the letter included:

• FHA should finalize a streamlined loss mitigation process for loss mitigation reviews as reflected in the proposed handbook.
• The groups urge FHA to extend the current loss mitigation waterfall to Feb. 1, 2026, and correspondingly set Feb. 1, 2026, as the implementation deadline for the final, revised handbook.
• The groups support the use of one waterfall of permanent loss mitigation options for all hardships, including natural disasters, which includes access to standalone partial claims, loan modifications, and payment supplements. While individual circumstances may impact when permanent loss mitigation options are appropriate and effectively implemented, the waterfall of permanent options should be flexible enough to provide relief for any hardship.
• The groups support FHA’s decision to incorporate targeted payment reductions in the permanent waterfall.
• The groups recommend using trial payment plans to measure affordability is significantly better than full documentation.

The letter also noted that while the groups generally support FHA’s proposal for revising the loss mitigation provisions of Handbook 4000.1, they also believe the following provisions need further work. They recommend the FHA:

• Eliminate hardship documentation requirements as they impose unnecessary barriers to relief.
• Reduce duplicative seasoning rules for modification access.
• Prioritize access to standalone partial claims for borrowers.

To see the full letter click here.