source:
  type: guide
  id: hud-4000-1-iii-e-loan-default-and-loss-mitigation
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan
    Default and Loss Mitigation (05/09/2022)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan
    Default and Loss Mitigation (05/09/2022).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-e-loan-default-and-loss-mitigation-full
  canonical_id: hud-4000-1-iii-e-loan-default-and-loss-mitigation-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan Default
    and Loss Mitigation (05/09/2022)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan
      Default and Loss Mitigation (05/09/2022)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'e. Loan Default and Loss Mitigation (05/09/2022) As part of
      prudent and diligent loan servicing, HUD encourages Lenders to make a reasonable
      effort to assist delinquent Borrowers in bringing the Loan current prior to
      accelerating the Loan. For any loss mitigation strategy implemented, the Lender
      must determine that the Borrower is reasonably able to repay past arrearages
      and qualify based on the Approvable Qualifying Ratio. i. Contact with the Borrower
      Before taking action to accelerate the maturity of the Loan, the Lender or its
      agent must contact the Borrower and any co-maker or Co-signer, either in a face-to-face
      meeting or by telephone, to discuss the reasons for the Default and to seek
      its cure. If the Borrower and the co-makers or Co-signers cannot be located,
      will not discuss the Default, or will not agree to its cure, the Lender may
      proceed to take action. The Lender must document the results of its efforts
      to contact the Borrower and any co-maker or Co-signer. ii. Loss Mitigation Tools
      HUD encourages loss mitigation to help a delinquent Borrower return the Loan
      to good standing. The purpose of loss mitigation is to reduce HUD and Lender
      losses, and preserve insurance reserves. Listed below are the tools available
      to Lenders and Borrowers that can assist in bringing the Loan current. III.
      SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property
      Improvement Loan Program Handbook 4000.1 1544 Last Revised: 11/26/2025 (A) Refinance
      A Loan that is in Default may be refinanced. There can be no “cash out” to the
      Borrower. The principal amount of the new Loan may not exceed the lesser of:
      1) the cost to the Borrower of prepaying the existing Loan or 2) the original
      principal balance of the original Loan being refinanced. (B) Modification Agreement
      The Borrower may be considered for a Loan Modification if the Borrower has recently
      experienced an involuntary reduction in income or an unexpected increase in
      living expenses, and the Lender determines the Borrower has a reasonable ability
      to pay under the terms of the loan modification plan to eliminate the arrearage.
      A Lender may enter into a modification agreement with a Borrower without prior
      permission from HUD. A modification agreement: • requires a written agreement
      signed by the Borrower; • need not be recorded; • may increase or decrease the
      monthly payment amount; • cannot increase the interest rate or loan term; •
      cannot include new funds; and • does not require any further insurance reporting
      to HUD, but all documentation of the modification must be submitted if an insurance
      claim is filed. (C) Repayment Plan A repayment plan does not require a Borrower’s
      signed agreement. A Borrower may be eligible for a repayment plan if the Borrower
      has recently experienced an involuntary reduction in income or an unexpected
      increase in living expenses, and the Lender determines the Borrower has a reasonable
      ability to pay under the terms of the repayment plan. A Lender may enter into
      a repayment plan without HUD’s permission. A repayment plan: • must be evidenced
      by a copy of the Lender’s letter to the Borrower outlining the terms of the
      agreement; • cannot extend beyond six months; and • does not require any further
      insurance reporting to HUD. (D) Partial Payments (1) Definition A Partial Payment
      refers to a payment of any amount less than the full amount due on the Loan
      at the time the payment is tendered, including Late Charges and III. SERVICING
      AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement
      Loan Program Handbook 4000.1 1545 Last Revised: 11/26/2025 amounts advanced
      by the Lender on behalf of the Borrower (such as for the payment of taxes).
      (2) Standard The Lender may agree to accept a Partial Payment, thereby assisting
      a Borrower who is having a temporary problem making their Loan Payment. This
      practice will usually be advantageous for the Lender and HUD. Except as outlined
      below, a Lender must accept any Partial Payment and apply it to the Borrower’s
      account or hold it in a trust account pending disposition. When Partial Payments
      held for disposition aggregate a full monthly installment, they must be applied
      to the Borrower’s account, thus advancing the date of the oldest unpaid installment.
      If the Lender did not agree to accept Partial Payments, it must return a Partial
      Payment to the Borrower with a letter of explanation if any of the following
      apply: • The Loan is not in Default. • The payment represents less than half
      of the full amount then due. • The payment is less than the amount agreed to
      in a modification agreement or repayment plan. • The Lender has issued a Notice
      of Default and Acceleration. • The Loan has been Delinquent for six months.
      • The Loan has been chronically Delinquent (i.e. two or more instances where
      the account was Delinquent, brought current, and then reverted back to a Delinquent
      status). (E) Assumption If a Borrower cannot afford to continue to make Loan
      Payments and elects to sell the Property, the Lender may approve an assumption
      of the Loan. iii. Notice of Default and Acceleration The Lender must provide
      each Borrower with written notice that the Loan is in Default and that the loan
      maturity is to be accelerated. This notice must be sent when the Loan is at
      least 30 Days Delinquent but after the Lender has attempted to contact the Borrower.
      Exceptions to sending the notice include when the Borrower cures the Default,
      agrees to a modification agreement or repayment plan, or is in bankruptcy. The
      notice must be in a font size no smaller than the equivalent of Times New Roman
      Size 12 for the entire notice. In addition to complying with applicable state
      or local notice requirements, the notice must be sent by certified mail and
      must contain: III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs
      1. Title I Property Improvement Loan Program Handbook 4000.1 1546 Last Revised:
      11/26/2025 • a description of the obligation or security interest held by the
      Lender; • a statement of the nature of the Default and of the amount due to
      the Lender as unpaid principal and earned interest on the Note as of the date
      30 Days from the date of the notice; • a demand upon the Borrower either to
      cure the Default (by bringing the Loan current or by refinancing the Loan) or
      to agree to a modification agreement or a repayment plan, no later than the
      date 30 Days from the date of the notice; • a statement that if the Borrower
      fails either to cure the Default or to agree to a modification agreement or
      a repayment plan by the date accruing 30 Days from the date of the notice, then,
      as of the date 30 Days from the date of the notice, the maturity of the Loan
      is accelerated and full payment of all amounts due under the Loan is required;
      and • a statement that if the Default persists the Lender will report the Default
      to an appropriate credit reporting agency: This Loan is insured against nonpayment
      by the federal government. If you do not repay the Loan as agreed, we may assign
      the debt to the U.S. Department of Housing and Urban Development (HUD) for collection.
      If your Loan is assigned to HUD, your failure to pay the debt in accordance
      with the terms set by HUD may result in any or all of the following actions:
      • seizing your federal income tax refunds, Social Security benefit payments,
      federal employee wages or retirement, or other federal payments; • administrative
      garnishment of your wages if you are not a federal employee (which does not
      require a judgment and court order to implement); • referring the debt to the
      U.S. Department of Justice, U.S. Department of the Treasury, or to private collection
      agencies; and • making you liable for penalties and administrative costs that
      HUD may impose as authorized by Section 3717 to Title 31 of the United States
      Code (including collection fees charged by the Department of Justice, Department
      of Treasury or private collection agencies). iv. Notice to Credit Reporting
      Agency If the loan maturity is accelerated and the Loan is not reinstated, the
      Lender must report the Default to an appropriate credit reporting agency. v.
      Reinstatement of the Loan The Lender may rescind the acceleration of maturity
      after full payment is due and reinstate the Loan only if the Borrower brings
      the Loan current, executes a modification agreement, or agrees to an acceptable
      repayment plan. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs
      1. Title I Property Improvement Loan Program Handbook 4000.1 1547 Last Revised:
      11/26/2025 vi. Bankrupt or Deceased Borrower When a Lender becomes aware that
      a Borrower has filed bankruptcy or has died, the Lender must take prompt, effective
      action to protect the Lender’s interest as holder of the Loan. (A) Bankruptcy
      The Lender must file a proof of claim with the bankruptcy court, unless the
      court notifies the Lender that the Borrower has no assets. A proof of claim
      must be filed even if the Borrower is current on the Title I Loan. The Lender
      must verify that the proof of claim is filed, on time and without objection,
      and takes any other steps necessary to protect the Lender’s interest as holder
      of the Note. If the bankruptcy is closed, the Lender must have evidence of the
      bankruptcy discharge or dismissal. Documentation of these steps can be in the
      form of notices from the bankruptcy court, or other official records such as
      the Public Access to Court Electronic Records (PACER). (B) Deceased Borrower
      The Lender must confirm the death of a Borrower via a death certificate or other
      reasonable evidence. The Lender must determine if a probate proceeding exists
      and document its findings. If there is a probate proceeding, the Lender must
      file a timely proof of claim.'
  judgment: false
