HUD walks back prior default guidance as too ‘burdensome’ for mortgage servicers

The Federal Housing Administration (FHA) has released a new Mortgagee Letter (ML) to simplify previous policies related to borrower default engagement practices. The new ML, 2025-14, modifies guidance initially proposed last summer to enhance communication between mortgage lenders and defaulted borrowers through remote and electronic methods. The earlier policy, outlined in ML 2024-24 from December, aimed to increase options for borrowers to interact with lenders, building on successful remote communication during the COVID-19 pandemic.

However, the current leadership at the U.S. Department of Housing and Urban Development (HUD) has reviewed the prior guidance set to take effect on July 1 and found it overly burdensome. The HUD stated that the requirements in ML 2024-24 were unnecessary, leading to updates in the new ML that will become effective on July 1, 2025. The revised policies offer more flexibility in meeting reasonable effort requirements and technical corrections to guidance issued just before the previous administration changeover.

The new ML also sets an end date of September 2025 for COVID-era loss-mitigation practices, with provisions for cases already in progress after that date. Changes in terminology and definitions, such as renaming “loss mitigation consultation” to “interview” and adjusting the definition of “reasonable effort,” are part of the updated guidance. Lenders are encouraged to engage with borrowers early in the process, with added procedural flexibility to achieve desired outcomes.

Repayment plan eligibility rules have been strengthened in the revised letter, now requiring a borrower attestation of plan affordability.