FHA extends servicer deadline for new loss-mitigation rules

The Federal Housing Administration (FHA) has extended the timeline for mortgage servicers to comply with the new loss-mitigation waterfall, according to a mortgagee letter issued Wednesday.

While the provisions may be implemented by Oct. 1, they must be fully in place no later than Dec. 30, 2025, according to the letter signed by Frank Cassidy, the principal deputy assistant secretary at the U.S. Department of Housing and Urban Development (HUD).

The letter also introduces “minor changes” to facilitate implementation of servicing and loss-mitigation requirements, aligning the updates with broader goals of supporting homeownership and safeguarding HUD’s Mutual Mortgage Insurance Fund (MMIF) to protect taxpayer dollars.

The FHA initially announced a replacement for the COVID-19-era loss-mitigation waterfall in April, setting an Oct. 1 deadline for servicers to adopt the new framework. Pandemic-era tools were implemented on an emergency basis and were never intended as permanent features of the waterfall, the agency said. 

But many of these provisions have persisted for years. Under the Trump administration, FHA said that this continuation increased risks to its programs.

“FHA’s prior failure to definitively sunset the COVID-19 emergency loss mitigation ‘waterfall’ has increased risk in the MMIF, hurt taxpayers, set up many FHA borrowers for failure and enabled other FHA borrowers to abuse the current process,” FHA said in its announcement of the waterfall.

The FHA’s budget is funded through fees collected from borrowers and lenders, not government appropriations. These fees support the MMIF, which achieved a capital reserve ratio of 11.47% as of Sept. 30, 2024, up roughly 0.9 percentage points from 2023.