How Servicers Can Operationalize the New Requirements

ONAP Establishes Permanent Loss Mitigation Framework

HUD’s Office of Native American Programs (ONAP) has issued permanent loss mitigation requirements for loans guaranteed under the Section 184 Indian Housing Loan Guarantee and Section 184A Native Hawaiian Housing Loan programs.

Published in Lender Letter 2026-03, the framework replaces prior COVID-era relief options and introduces a more structured, standardized approach to borrower assistance.

A More Defined Decision Framework for Loan Modifications

The updated guidance creates clearer servicing pathways by distinguishing between:

• Borrowers who require payment reduction
• Borrowers who are able to resume existing payments

For borrowers requiring payment relief:

Servicers must first evaluate whether a 30-year loan modification can achieve at least a 25% payment reduction.

• If achievable → the modification must be offered at the market rate
• If not → and the borrower has at least $1,000 in available Loss Mitigation Advance (LMA) funds, a combined modification + LMA must be evaluated
• If LMA funds are insufficient → a 30-year modification must still be offered, even if it results in a higher payment

For borrowers able to resume payments:

The 25% reduction threshold does not apply.

Instead, servicers must:

• Compare the modified payment against the LMA outcome
• Offer the option that results in the lower payment

Loss Mitigation Advance (LMA): Key Structural Considerations

An LMA allows ONAP to advance funds to bring a loan current, but requirements differ across programs:

• Section 184 loans:
  Borrowers must execute a subordinate note and security instrument
• Section 184A loans:
  Due to leasehold interest structures, only a note is required

These distinctions introduce additional documentation and process considerations for servicers.

Why It Matters

These updates formalize post-pandemic loss mitigation practices and introduce more prescriptive requirements for evaluating and delivering borrower relief.

Servicers should assess:

• Existing policies and procedures
• Decisioning workflows
• Document sets and templates

to ensure alignment with the new framework and avoid operational inconsistencies.

Supporting Execution with Propel

As loss mitigation requirements become more structured, the ability to consistently generate accurate, compliant documents becomes increasingly critical.

Solutions like Propel support:

• Standardized document generation across modification scenarios
• Alignment with evolving regulatory requirements
• Operational efficiency in executing complex loss mitigation workflows

Organizations should evaluate whether their current processes can support the level of precision and consistency these updates require.