HUD Payment Loss Mitigation Option

On Feb. 21, HUD issued payment supplement loss mitigation option.

  • HUD issued Mortgage Letter 2024-02 on payment supplement loss mitigation option.
  • Offering will help borrowers bring mortgage payments current and avoid foreclosure.
  • Follows draft mortgage letter on payment supplement partial claims in 2023, #174634
  • Also reported extension of loss mitigation options for borrowers through Apr. 30, 2025.
  • Home Retention Offering
  • New offering, called the payment supplement, provides mortgage servicers with an additional tool to temporarily reduce a borrower’s monthly mortgage payment.
  • May be modified by up to 25% without modifying the mortgage’s current interest rate.
  • Meant to help those borrowers who cannot be assisted by existing FHA home retention solutions because the interest rate on mortgage is lower than current interest rates.
  • Loss Mitigation Option
  • Servicers may temporarily reduce a borrower’s mortgage payment by using funds from a partial claim which enables the borrower to access up to 30% of outstanding balance
  • Partial claim amount is placed in a junior lien and paid back when homeowner sells or refinances home or mortgage otherwise terminates; defined how funds may be used.
  • First, partial claim is used to pay arrearages and to bring mortgage payment current.
  • Next, remaining funds deposited in FHA custodial account managed by the servicer.
  • Used to temporarily supplement the principal and interest portion of the mortgage payment each month, with a target of up to a 25% reduction in monthly payments.
  • Payment supplement option is available to all borrowers who have not already exhausted their partial claim allowance through previous loss mitigation actions.
  • Established servicing roles and responsibilities for servicing and loss mitigation.
  • COVID-19 Recovery Options
  • Mortgage letter also Extended the COVID-19 Recovery Options through Apr. 30, 2025.
  • For the COVID-19 recovery modifications, they must comply with the Government National Mortgage Association’s (Ginnie Mae) mortgage-backed securities requirement.
  • Loans must be 90 or more days delinquent before bought out of a Ginnie Mae pool.
  • Effectiveness
  • Mortgage servicers may begin implementing the payment supplement on May 1, 2024.
  • Servicers required to implement the solution for all eligible borrowers by Jan. 1, 2025.
  • Extend full suite of loss mitigation options for all borrowers through Apr. 30, 2025.
  • In Mar. 2024, HUD FHA issued FHA Info 2024-11 on XML requirements, see #206216.

Regulators HUD
Entity Types Bank; CU; MG Orig; Servicer; Thrift
Reference Lt 2024-02, Nt FHA INFO-2024-03, PR, 2/21/2024; COVID-19;
Functions Compliance; Financial; Legal; Operations; Registration/Licensing; Training
Countries United States of America
Products Banking; Loan; Mortgage
Regions Am
Rule Type Final
Rule Date 2/21/2024
Effective Date 5/1/2024
Rule Id 201940
Linked to Rule :174634
Reg. Last Update 2/21/2024
Report Section US Banking

Last substantive update on 02/23/2024