The Federal Housing Administration (‘FHA”) announced last week that it is increasing the options available to borrowers unable to make their payments on FHA-insured mortgages. FHA is now making COVID-19 loss mitigation options available to all eligible borrowers, regardless of the reason for their delinquency.

FHA is also raising the maximum partial claim amount from 25% of the mortgage’s unpaid principal balance to 30% of the unpaid balance (the maximum amount allowed by law). This will help more borrowers who currently are unable to return to making their existing mortgage payments. By reducing the individual borrower’s loan balance, it will facilitate identifying a target payment reduction that will be more manageable.

"We are committed to ensuring that no FHA borrower experiences foreclosure unnecessarily," said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. "FHA's COVID-19 forbearances and streamlined COVID-19 loss mitigation options have successfully helped millions of struggling borrowers in the last two fiscal years alone. Our action today lets us capitalize on what we have learned through the pandemic to continue helping borrowers avoid foreclosure, regardless of the nature of their hardship."

Servicers are required to implement the changes announced by the FHA by April 30, 2023 but may immediately begin to offer these options to borrowers. The availability of FHA’s COVID-19 Recovery loss mitigation options has been extended for 18 months past the April 30, 2023 mandatory effective date for servicers.

To assist servicers with the expected influx of COVID-19 Recovery loss mitigation options, FHA indicated they are temporarily suspending the use of its FHA-Home Affordable Modification (“FHA-HAMP”) options effective immediately.

To read the FHA announcement in its entirety, please visit FHA Mortgagee Letter 2023-02.