HUD Finalizes FHA Loss Mitigation Rules — Compliance Deadline Now October 1, 2025

The U.S. Department of Housing and Urban Development (HUD), on April 15, 2025, issued major updates to FHA loss mitigation policies in Mortgagee Letter 2025-12.  The Trump administration issuance makes a number of changes and accelerates the compliance deadline to October 1, 2025.

This replaces the earlier Mortgagee Letter 2025-06 issued during the Biden administration, which had set a much later effective date. The new timeline compresses the compliance window and locks in significant policy changes.

What Mortgage Lenders and Servicers Need to Know

1. Compliance Deadline Moved to October 1, 2025

Mortgagees and servicers must update systems, policies, and training months earlier than anticipated.

2. 24-Month Limit on Permanent Loss Mitigation

Borrowers will be limited to one permanent loss mitigation option every 24 months (previously proposed at 18 months). HUD cited concerns about repeated interventions and increasing defaults.

3. FHA-HAMP and COVID-19 Recovery Options Expire September 30, 2025

Popular COVID-era flexibilities will sunset, requiring servicers to transition borrowers to the new framework.

4. Language Accessibility Notices Eliminated

HUD rescinded the prior mandate for language accessibility disclosures in borrower communications, reducing servicer compliance burdens.

5. No Increase in Borrower Compensation

Proposed compensation increases under Pre-Foreclosure Sales, Deed-in-Lieu of Foreclosure, and Cash for Keys have been reversed. Existing compensation limits remain in place.

6. Structural Overhaul Remains in Place

The new loss mitigation waterfall introduced in ML 2025-06 remains largely intact. Tools such as Partial Claims, Payment Supplements, and early default interventions are retained. But, servicers must adapt to changes in reporting, claim type definitions, and documentation standards.

Action Plan: Preparing for October 1, 2025

• Review internal policies for alignment with the updated loss mitigation waterfall and documentation standards.

• Update training for staff on the new 24-month eligibility limit for permanent home retention options.

• Audit borrower communications to remove references to rescinded requirements.

• Confirm system readiness for updated reporting and claim classifications.

• Monitor the phase-out of FHA-HAMP and COVID-19 Recovery tools to ensure compliance.

• Stay informed about additional HUD updates and clarifications.

Bottom Line

HUD’s accelerated timeline requires mortgagees and servicers to act quickly. These policy changes will define FHA loss mitigation practices for years to come. Delays could expose mortgage companies to compliance risks and borrower dissatisfaction.

Read Mortgagee Letter 2025-12 here.

Need Help?

For more information on preparing for October 1 or navigating the new FHA loss mitigation framework, contact Troy Garris at troy@garrishorn.com. Our team is actively monitoring HUD developments and helps businesses stay compliant and competitive.