Today, the Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2025-12, Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options, which modifies and replaces certain provisions in ML 2025-06, Updates to Servicing Loss Mitigation, and Claims, published January 16, 2025, and provides revised and updated loss mitigation guidance.

 

Through ML 2025-12, the Trump Administration is definitively announcing the end of the relaxed COVID-19 era loss mitigation waterfall administered in FHA’s Single Family Housing program. Additionally, the Administration is announcing that it will continue its review of the entire FHA permanent loss mitigation waterfall to ensure the policy protects taxpayers while mitigating financial risks to the Mutual Mortgage Insurance Fund (MMIF).

 

The Department of Housing and Urban Development (HUD) will be conducting an overall evaluation of the Payment Supplement tool as well – including an assessment of its performance and function – to determine if it should remain a part of HUD’s loss mitigation program.

 

Many of the emergency loss mitigation policies implemented by FHA at the onset of the COVID-19 National Emergency – which were intended to be temporary – have instead been extended for years and remain in place today.

 

FHA’s prior failure to definitively sunset the COVID-19 emergency loss mitigation “waterfall” has increased risk in the MMIF, hurt taxpayers, set up many FHA borrowers for failure, and enabled other FHA borrowers to abuse the current process.

 

To address the elevated taxpayer risk to the MMIF and improve borrower outcomes, the FHA, through today's ML, is limiting borrower eligibility for receipt of any permanent home retention loss mitigation option to once every 24 months. This important safeguard aligns with the FHA-HAMP standard and represents a return to the prudent risk management approach FHA observed prior to the outbreak of COVID-19.

 

Highlights of ML 2025-12 include:

 

• Permanently sunsetting the COVID-19 Loss Mitigation Options on September 30, 2025;
• Moving up the effective date of the new permanent loss mitigation options to October 1, 2025 from February 2, 2026;
• Continuing the suspension of FHA-HAMP and sunsetting the program effective September 30, 2025;
• Extending the time on the eligibility of a borrower for a subsequent permanent loss mitigation option to once every 24 months, from once every 18 months; and
• Canceling the scheduled increases in borrower compensation under FHA’s Pre-foreclosure Sale Program, Deed-in-Lieu of Foreclosure disposition options, and Cash for Keys incentives, maintaining the current amounts.

 

The Single Family Default Monitoring System (SFDMS) Reporting Codes and Reporting Elements, and the FHA Single Family Housing Claim Filing Technical Guide (Claim Filing Guide) are available on the supplemental documents webpage, with the following effective dates:

 

• the updates to the SFDMS Delinquency/Default Status (DDS) Codes, Delinquency/Default Reason (DDR) Codes, and Occupancy Status Codes will be effective October 1, 2025;
• the updates to the SFDMS Default Reporting Elements will be effective February 2, 2026; and
• updates to the Claim Filing Guide will be effective October 1, 2025.

 

FHA systems will be updated concurrently with the effective date of the ML.

 

Mortgagees and other stakeholders in FHA transactions are encouraged to review today’s ML 2025-12 and contact the FHA Resource Center (referenced below) with questions.