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HUD Updates Options to Help Homeowners Keep Their Homes

Industry Update
January 16, 2025

Source: U.S. Department of Housing and Urban Development

The U.S. Department of Housing and Urban Development (HUD), through its Federal Housing Administration (FHA), announced an updated set of permanent options for mortgage servicers to help borrowers with FHA-insured single-family mortgages keep their homes or otherwise avoid foreclosure when they fall behind on their mortgage payments. The options, commonly referred to as FHA’s loss mitigation “waterfall,” builds off and update the temporary options FHA implemented during the COVID-19 pandemic based on FHA and mortgage servicers’ experience in helping 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. 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,” said HUD Agency Head Adrianne Todman. “The updates to our home retention options build upon options we created during the pandemic to help borrowers.”

“The updates we’re announcing today are based on solutions that have proven to be effective in helping struggling homeowners avoid foreclosure and reduce losses to the Mutual Mortgage Insurance Fund,” said Federal Housing Commissioner Julia Gordon. “We are confident that this updated, permanent set of options will help FHA sustain homeownership during future challenging times.”

FHA’s permanent loss mitigation options will be available through mortgage servicers for borrowers who fall behind on their mortgage payments regardless of the reason for their hardship. The updated 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. The waterfall also adds additional guardrails to reduce risk and losses to HUD,” said Deputy Assistant Secretary for Single Family Housing Sarah Edelman. “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.”

FHA is also announcing an additional 60-day feedback period for its proposed Equity Saver Sale. The Equity Saver Sale would be a future addition to FHA’s Home Disposition Options and would permit borrowers to list and sell homes that have retained equity while the mortgage servicer pauses foreclosure. The proposal is posted on FHA’s Single Family Drafting Table web page. FHA is soliciting feedback on this proposal through March 17, 2025.