FHA’s New Compliance Deadlines & Loan Modification Changes for 2025

In 2025, the Federal Housing Administration (FHA) has rolled out important updates and extensions aimed at enhancing mortgage servicers' ability to engage with borrowers and support those facing financial distress. Key changes focus on compliance timelines, foreclosure mitigation, and loan modification options, reflecting a growing emphasis on borrower retention and operational flexibility.

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FHA Extends Compliance Date for Modernization of Engagement with Mortgagors in Default

The FHA has extended the compliance date for key provisions in its Modernization of Engagement with Mortgagors in Default rule. Initially published on November 21, 2024, mortgagees now have until July 1, 2025, to comply with new requirements for meeting with borrowers in default. This extension is crucial for mortgagees needing additional time to update technology, processes, and staff training to meet the new standards.

The final rule requires mortgagees to conduct meetings with all borrowers in default, removing two previously existing exceptions:

• If the borrower does not reside in the mortgaged property

• If the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either

This compliance extension effectively preserves these exceptions until July 1, 2025, giving mortgagees additional time to adjust their operations accordingly. The extended timeline provides mortgagees with the necessary flexibility to implement required changes without disrupting current operations.

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FHA Announces Permanent Loss Mitigation Updates

In response to the evolving needs of homeowners at risk of foreclosure, the FHA has introduced permanent updates to its loss mitigation policies. Building on lessons learned from COVID-19 recovery efforts, these changes provide more flexible options for distressed borrowers, including:

• Enhanced Repayment Plans & Forbearance – More lenient repayment options and extended forbearance periods to support struggling homeowners.

• Expanded Loan Modifications – Broader terms for loan modifications to improve affordability.

• Support for Unresponsive Borrowers – New protocols for maintaining effective borrower outreach.

• Increased Foreclosure Avoidance Incentives – Additional incentives to help borrowers stay in their homes and protect equity.

These updates, outlined in Mortgagee Letter (ML) 2025-06, are set to take effect in February 2026. The policies are designed to offer borrowers greater flexibility while protecting against redefaults. Additionally, the extension of existing COVID-19 recovery options until February 1, 2026, allows stakeholders time to transition smoothly into the new requirements.

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Key Takeaways

1. Extended Compliance Deadline – Mortgage servicers now have until July 1, 2025, to meet new borrower engagement requirements, allowing more time for process and technology updates.

2. Stronger Borrower Protections – FHA’s updates prioritize foreclosure prevention, offering more flexible repayment plans and expanded loan modification options.

3. Support for Unresponsive Borrowers – New protocols ensure continued outreach efforts and engagement with borrowers who may not initially respond.

4. Incentives for Foreclosure Avoidance – Additional measures aim to help borrowers stay in their homes while protecting their equity.

5. Gradual Transition to New Policies – The extension of COVID-19 recovery options until February 2026 gives servicers and stakeholders time to adjust to the new requirements.