The Federal Housing Administration has updated its distressed borrower policies, which set out procedures for mortgage companies to follow when offering consumers ways to avoid foreclosure.
The new loss mitigation procedures streamline home retention options in line with industry interest in a more efficient approach to measures added piecemeal amid the pandemic, and provide model disclosures for language service.
Implementation for the updated policies occurs in 2026, with some temporary pandemic measures further extended, easing the transition and accommodating potential future redirection from the new head of the Department of Housing and Urban Development.
“We appreciate FHA’s efforts to streamline the loss mitigation process,” Mortgage Bankers Association President and CEO Bob Broeksmit said in a press statement. “These flexibilities will be critically important in assisting borrowers who are impacted by natural disasters, such as the flooding in the Southeast last fall and this month’s California wildfires.
“We will work with the incoming leadership at FHA on policy changes that make mortgage servicing more efficient for consumers and servicers alike,” he added.
Particularly notable in the updated polices for handling distressed borrowers with FHA insured mortgages are some boundaries around the numbers of forms of assistance that can be exercised in a particular period, according to the Community Home Lenders of America.
CHLA Executive Director Scott Olson showed particular appreciation for an update that restricts borrowers to one executed home retention option every 18 months.
“Every distressed FHA borrower deserves fair consideration for a loss mitigation option — but this has to be balanced by a process that does not allow defaulted borrowers to string the process along just for the purpose of delay,” he said in a press statement.
The FHA updates also include some model language-service disclosure wording for borrowers with limited English proficiency, which is notable because Census data has shown they make up 8% of the U.S. population and the industry historically has wanted guidance in this area.
The department’s handbook update provides a model for wording informing LEP borrowers either of the type of language access service a company offers, or encouraging them to seek it themselves. That model wording is provided in English and Spanish.
Most or about 70% of LEP households in the United States speak Spanish, according to an Urban Institute study published last year.
Broader industry policy around language access requirements over time has varied and there has been some compromise built into it over time. With the incoming leadership in Washington broadly anticipated to be more in favor of deregulation, the language access requirement and other aspects of the FHA’s loss mitigation update could later be revised.
During the first Trump administration, then-Federal Housing Finance Agency Director Mark Calabria removed a limited English proficiency question pertinent to mortgages the government-sponsored enterprises buy from a loan application update.
Under the Biden administration, FHFA Director Sandra Thompson revived and followed through on adding this type of requirement.
The second Trump administration is broadly considered likely to finish work around many first term initiatives, including removing the GSEs from government conservatorship, a move that could diminish the significant influence they currently have in the broader market.
