source:
  type: guide
  id: hud-4000-1-iii-h-loss-mitigation-program
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss
    Mitigation Program (12/30/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss
    Mitigation Program (12/30/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-h-loss-mitigation-program-full
  canonical_id: hud-4000-1-iii-h-loss-mitigation-program-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — h. Loss Mitigation
    Program (12/30/2025)
  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 — h. Loss
      Mitigation Program (12/30/2025)
    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: 'h. Loss Mitigation Program (12/30/2025) HUD’s Loss Mitigation
      Options are intended to minimize economic impact to the MMIF and to avoid foreclosure,
      when possible. The Loss Mitigation Options are: • Repayment Plan; • Forbearance;
      • Partial Claim; • Loan Modification; • Combination Loan Modification and Partial
      Claim; • Payment Supplement; • Outside of the Waterfall Loan Modification (OWL);
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1202 Last Revised: 11/26/2025
      • Pre-Foreclosure Sale (PFS); and • Deed-in-Lieu (DIL) of Foreclosure. In implementing
      HUD’s Loss Mitigation Program, the Mortgagee must: • consider all reasonable
      means to address delinquency at the earliest possible time; • adhere to the
      requirements for communication with Borrowers in Default as set out in the Collection
      Communication Timeline; • utilize HUD’s Loss Mitigation Options to avoid foreclosure,
      when feasible; and • re-evaluate each Delinquent Mortgage for Loss Mitigation
      Options, as required. When reviewing Borrowers for Loss Mitigation Options,
      a streamlined or refinanced Mortgage on the same Property and by the same Borrowers
      is not considered a new Mortgage for seasoning requirements. The Mortgagee may
      offer eligible Borrowers Loss Mitigation Options in accordance with program-specific
      procedures for: • Section 203(q) Mortgages, Mortgages on Property in Allegany
      Reservation of Seneca Indians; • Section 248 Mortgages on Indian Land insured
      pursuant to Section 248 of the National Housing Act; and • Section 247 Mortgages,
      Mortgages on Hawaiian Home Lands insured pursuant to Section 247 of the National
      Housing Act. i. Definitions For the purposes of loss mitigation, the following
      definitions apply: Borrower refers to the original Borrower who signs the Note
      and their heirs, executors, administrators, assigns, and approved substitute
      Borrowers. This includes any Borrower who is occupying or not occupying the
      Property. Financial Hardship refers to an increase in living expenses or a loss
      of income affecting the Borrower’s ability to continue their Mortgage Payments
      as attested by the Borrower. ii. Servicemember Status The Mortgagee must offer
      eligible servicemember Borrowers mortgage protections under the SCRA and Servicing
      FHA-Insured Mortgages for Servicemember-Borrowers. iii. Standard (A) Eligibility
      to Participate in HUD Programs The Mortgagee must verify that the Borrowers
      are eligible to participate in HUD’s Loss Mitigation Program. To be eligible
      to participate in HUD’s Loss Mitigation Program, the Borrower: III. SERVICING
      AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2.
      Default Servicing Handbook 4000.1 1203 Last Revised: 11/26/2025 • may not own
      other real estate subject to FHA insurance, except within the stated exceptions;
      • has not been the Borrower, except through inheritance or as a co-signer only,
      on prior loans on which an FHA claim has been paid within the past three years;
      • for purposes of a Loan Modification, Partial Claim, Combination Loan Modification
      and Partial Claim, or Payment Supplement, must not be debarred, suspended or
      subject to a HUD Limited Denial of Participation (LDP) as determined in accordance
      with Excluded Parties requirements; and • for purposes of a Partial Claim, Combination
      Loan Modification and Partial Claim, or Payment Supplement, may not have unresolved
      delinquent Federal Debt as determined in accordance with Borrower Ineligibility
      Due to Delinquent Federal Non-Tax Debt requirements. The Delinquent FHA-insured
      Mortgage associated with the Loss Mitigation does not constitute a disqualifying
      delinquent Federal Debt. (1) Occupancy (a) Definitions An Owner-Occupant Borrower
      refers to a Borrower residing in the Property secured by the FHA-insured Mortgage
      as a Principal Residence. A Non-Occupant Borrower refers to a Borrower on a
      Mortgage securing a Property that is not occupied by any Borrower or is not
      the Principal Residence. (b) Standard The Mortgagee must consider Owner-Occupant
      Borrowers and Non-Occupant Borrowers for all Loss Mitigation Options. (2) Non-Borrowers
      Who Acquired Title through an Exempted Transfer The Mortgagee may consider Repayment
      Plans, Forbearances, Permanent Home Retention Options, and Home Disposition
      Options for a non-borrower who acquires title to a Property securing an FHA-insured
      Mortgage if the Mortgage is not due and payable pursuant to the Garn-St. Germain
      Depository Institutions Act, (i.e., an Exempted Transfer), and that the non-borrower:
      • is willing to assume personal liability for repayment of the Mortgage in accordance
      with the agreed loss mitigation terms; • will occupy the home as a Principal
      Residence; • meets the criteria for loss mitigation assistance; • for a Permanent
      Home Retention Option, successfully completes a six- month TPP; and III. SERVICING
      AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2.
      Default Servicing Handbook 4000.1 1204 Last Revised: 11/26/2025 • for a Permanent
      Home Retention Option, has a valid SSN or EIN or meets the eligibility requirement
      exception regarding social security numbers. (B) 90-Day Review A Mortgagee is
      required to complete an evaluation of a Defaulted Mortgage for appropriate Loss
      Mitigation Options before four monthly installments are due and unpaid and send
      a written Notice to Borrower with the determination of eligibility. (C) Required
      Documentation The Mortgagee must retain in the Servicing File and the Claim
      File, if applicable, documentation evidencing that the Borrower is eligible
      to participate in an FHA transaction, and a copy of the Notice to Borrower,
      and document efforts to reach each Borrower in Default in advance of the 90-Day
      Review deadline. The Mortgagee may obtain confirmation from the Borrower, verbally
      or in writing, that the Borrower does not own any other FHA-insured Property
      or meets one of the stated exceptions. iv. Evaluation of Borrower for Loss Mitigation
      Assistance (A) Definition A Complete Loss Mitigation Request is a request for
      loss mitigation assistance that contains all information from the Borrower required
      to evaluate all Loss Mitigation Home Retention Options and Home Disposition
      Options. (B) Standard The Mortgagee must ensure that the Complete Loss Mitigation
      Request includes: • the reason for Financial Hardship; • Borrower occupancy
      status; and • documentation that may impact a Mortgagee’s ability to provide
      a Loss Mitigation Option for Servicemembers, or Non-Borrowers Who Acquired Title
      through an Exempted Transfer. The Borrower is not required to provide financial
      documentation to be evaluated for a Loss Mitigation Option. The Mortgagee must
      not use any financial documentation about the Borrower to disqualify the Borrower
      from a Loss Mitigation Option other than the required Financial Hardship documentation.
      The Mortgagee must not condition the use of a Loss Mitigation Option on the
      receipt of a Borrower’s cash contribution or a Borrower’s payment of fees or
      charges. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 2. Default Servicing Handbook 4000.1 1205 Last Revised: 11/26/2025
      For loss mitigation requests received after the initiation of foreclosure, the
      Mortgagee must evaluate and respond to Complete Loss Mitigation Requests according
      to the time frame requirements in Loss Mitigation during the Foreclosure Process.
      (C) Financial Hardship Documentation Mortgagees must obtain the Borrower’s reason
      for Financial Hardship and documentation, as required in the table below. The
      Mortgagee may obtain the reason for Financial Hardship verbally, electronically,
      or in writing. Type of Hardship Required Hardship Documentation Unemployment
      Not required Reduction in income: a hardship that has caused a decrease in your
      income due to circumstances outside your control (e.g., elimination of overtime,
      reduction in regular working hours, a reduction in base pay) Not required Increase
      in housing-related expenses: a hardship that has caused an increase in your
      housing expenses due to circumstances outside your control (e.g., uninsured
      losses, increased property taxes, HOA special assessment) Not required Disaster
      (natural or man-made) impacting the Property or Borrower''s place of employment
      Not required Long-term or permanent disability, or serious illness of a Borrower/co-
      Borrower or dependent Family Member Not required Divorce or legal separation
      Final divorce decree or final separation agreement OR Recorded quitclaim deed
      Separation of Borrowers unrelated by marriage, civil union, or similar domestic
      partnership under applicable law Recorded quitclaim deed OR Legally binding
      agreement evidencing that the non-occupying Borrower or co- Borrower has relinquished
      all rights to the Property III. SERVICING AND LOSS MITIGATION A. Title II Insured
      Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1206
      Last Revised: 11/26/2025 Death of Borrower or death of either the primary or
      secondary wage earner Death certificate OR Obituary or newspaper article reporting
      the death Active duty servicemember employment transfer/relocation For active
      duty servicemembers: Permanent Change of Station (PCS) orders or letter showing
      transfer Other hardship not listed above Not required unless needed to evidence
      legal ownership due to the hardship The Mortgagee must review the required documents
      to identify if the documents indicate that Borrowers or non-borrowers: • have
      or will have legal ownership of the Property; and • will be included on Loss
      Mitigation documents for the Permanent Home Retention Option. (D) Required Documentation
      The Mortgagee must document in the Servicing File and the Claim File, if applicable,
      the Complete Loss Mitigation Request and the date of receipt. v. HUD’s Loss
      Mitigation Option Waterfall The Mortgagee must evaluate Borrowers using the
      Loss Mitigation Option Waterfall below and the requirements for the specific
      Loss Mitigation Options. Loss Mitigation Waterfall Options Question Decision
      Point Yes (If the Loss Mitigation Option cannot be offered, proceed to the next
      Question) No 1 Is the Borrower no more than 120 Days* in Default and able to
      repay arrearages over a set period of no more than 24 months? *Default may be
      greater than 120 Days for specific Borrowers Review for a Repayment Plan Proceed
      to Question 2 III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing
      Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1207 Last Revised:
      11/26/2025 2 Does the Borrower require a period of reduced or suspended payments
      before they are able to resume payments? Review for a Forbearance Proceed to
      Question 3 3 Has the Borrower received a Permanent Home Retention Option in
      the past 24 months (other than for a PDMDA)? Proceed to Question 8 Proceed to
      Question 4 4 Does the Borrower attest they can resume making their current Mortgage
      Payments? Review for a Standalone Partial Claim Proceed to Question 5 5 Can
      a Standalone Loan Modification achieve the target payment? Review for a Standalone
      Loan Modification Proceed to Question 6 6 Can a Combination Loan Modification
      and Partial Claim achieve the target payment? Review for a Combination Loan
      Modification and Partial Claim Proceed to Question 7 7 Does the Borrower qualify
      for a Payment Supplement? Review for a Payment Supplement Return to Question
      6, if required, or proceed to Question 8 8 Does the Borrower meet the requirements
      to participate in a Home Disposition Option? Review for a PFS If an approved
      PFS marketing period is unsuccessful, review for a DIL of Foreclosure Foreclosure
      vi. Notice to Borrower after Loss Mitigation Review The Mortgagee must send
      a written notice to the Borrower after an evaluation of the Borrower for Loss
      Mitigation Option eligibility, which indicates: III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1208 Last Revised: 11/26/2025 • the Mortgagee’s determination
      of the Borrower’s eligibility for a Loss Mitigation Option and which Loss Mitigation
      Option, if any, the Mortgagee will offer to the Borrower; • the amount of time
      in which the Borrower must accept or reject an offer of a Loss Mitigation Option;
      • the actual reason or reasons they have been denied for any HUD Loss Mitigation
      Option; • the process for appeals or escalation of cases; • the process and
      time frame for submission of additional information that may impact the Mortgagee’s
      evaluation; • the Mortgagee’s points of contact; and • if loss mitigation is
      denied, rejected by the Borrower, unsuccessful, or unable to be considered due
      to the Borrower’s failure to execute the documents to complete the Loss Mitigation
      Option or to provide additional information requested by the Mortgagee, and
      any applicable appeal period has expired: o the Borrower’s Mortgage may be included
      in a Single Family Loan Sale (SFLS); or o the Borrower’s Mortgage may be foreclosed
      upon. vii. Loss Mitigation Agreements (A) Definition A Loss Mitigation Agreement
      refers to all Permanent Home Retention or Home Disposition Options documents
      that require execution by the Borrower. (B) Standard The Mortgagee must ensure
      that Loss Mitigation Agreements are executed by all parties necessary to ensure:
      • that HUD’s first lien position is preserved; and • that the Agreement is enforceable
      under state and local law. The Mortgagee may exclude certain signatories to
      the Agreement or waive the need for a quit claim deed because of divorce, legal
      separation, domestic violence, mental incapacity, military deployment, or abandonment
      if the Mortgagee can ensure HUD’s first lien position and the Agreement is enforceable
      under state and local law. (C) Mortgagee Signature Where a Mortgagee signature
      is required on a Loss Mitigation Agreement, the servicing Mortgagee with this
      delegated authority may provide this signature. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1209 Last Revised: 11/26/2025 (D) Authorized Third Parties When
      a Loss Mitigation Agreement is to be signed by an Authorized Third Party with
      authority to act on behalf of the Borrower, the Mortgagee must include a copy
      of that party’s authorization in the Servicing File and Claim File, if applicable.
      (E) Electronic Signatures The use of electronic signatures is voluntary. HUD
      will accept an electronic signature conducted in accordance with the Policy
      on Use of Electronic Signatures on HUD Loss Mitigation documents requiring signatures,
      unless otherwise prohibited by law. (F) No Waiver of Rights The Mortgagee must
      not include any language in any loss mitigation documents that requires Borrowers
      to waive their rights under state or federal law or under the mortgage contract
      as a condition for consideration, approval, or implementation of a Loss Mitigation
      Option. viii. Loss Mitigation during Bankruptcy Proceedings (A) Standard The
      Mortgagee must comply with and seek relief, if appropriate, from the automatic
      stay. The Mortgagee may review Borrowers with active Chapter 7 or Chapter 13
      bankruptcy cases for Loss Mitigation Options to the extent that such loss mitigation
      does not violate federal bankruptcy laws or orders of the bankruptcy court or
      bankruptcy trustee. (1) Eligibility for Loss Mitigation The Mortgagee may consider
      Loss Mitigation Options for those Borrowers who have received a Chapter 7 bankruptcy
      discharge and did not reaffirm the FHA- insured mortgage debt under applicable
      law. (2) Bankruptcy Proceedings for which Borrower Has an Attorney The Mortgagee
      must, upon receipt of notice of a bankruptcy filing, send information to the
      Borrower’s attorney indicating that Loss Mitigation Options may be available,
      and provide: • requirements for additional financial information documentation;
      • applicable time frames; • Mortgagee contact information; and • additional
      instructions to facilitate workout discussions, as appropriate. The Mortgagee
      must ensure that this communication does not infer that it is in any way an
      attempt to collect a debt. III. SERVICING AND LOSS MITIGATION A. Title II Insured
      Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1210
      Last Revised: 11/26/2025 (3) Bankruptcy Proceedings for which Borrower does
      Not Have an Attorney (Bankruptcy Pro Se) Where the Borrower filed the bankruptcy
      pro se, the Mortgagee must send information indicating that Loss Mitigation
      Options may be available to the Borrower, with a copy to the bankruptcy trustee.
      The Mortgagee must ensure that this communication does not infer that it is
      in any way an attempt to collect a debt. (B) Required Documentation The Mortgagee
      must retain documentation supporting efforts to comply with or seek relief from
      automatic stays and documentation supporting any delays in meeting required
      HUD timelines in the Servicing File and the Claim File. ix. Escalated Cases
      (A) Definition Escalated Cases are Borrower inquiries and complaints requiring
      additional Mortgagee review because they include allegations of: • improper
      analysis of Borrower information or denials of Loss Mitigation Options; • foreclosures
      initiated or continued in violation of HUD’s policy; or • other violations of
      HUD policy. (B) Standard The Mortgagee must escalate cases to its designated
      escalation team at the request of: • HUD staff; or • the Borrower or Borrower’s
      Authorized Third Party representative. (C) Escalation Processes The Mortgagee
      must escalate and respond to cases in accordance with their written internal
      policies. The Mortgagee must ensure that, at a minimum, the policies include
      the following: • which staff members will be responsible for resolving escalated
      cases. These staff members must: o not be the same staff members responsible
      for the first evaluation of the loss mitigation application; and o have access
      to the Borrowers’ Servicing Files; • provide for timely responses to escalated
      cases as follows: o within seven Days of categorizing a Borrower’s inquiry or
      complaint as an escalated case, the Mortgagee should notify the Borrower in
      writing that III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing
      Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1211 Last Revised:
      11/26/2025 their inquiry and/or complaint has been escalated and that a resolution
      to their case will be provided no later than 30 Days from the date of escalation;
      and o if the Mortgagee is unable to resolve an escalated case within 30 Days,
      the Mortgagee must send the Borrower written updates on the status of their
      case every 15 Days until the case is resolved; • provide Borrowers with the
      direct contact information of the department and/or staff member responsible
      for resolving its escalated cases; • include methodologies for assessing a Servicer’s
      compliance with its escalation policies. These methodologies must be included
      in a Mortgagee’s Quality Control (QC) Plan; and • detail the Mortgagee’s process
      for resolving escalated cases and managing foreclosure activity when a foreclosure
      sale has been scheduled. x. Required Documentation The Mortgagee must document
      their compliance with HUD’s Loss Mitigation Program in the Servicing File and
      the Claim File, if applicable, including: • all loss mitigation actions, including
      all efforts to contact the Borrowers; and • all documentation used to analyze
      and make loss mitigation decisions and to confirm compliance with loss mitigation
      requirements.'
  judgment: false
