FHA once again extends it's Covid 19 loss mitigation policies.
On January 16, FHA released mortgagee letter 2025-06, extending Covid 19 recovery programs through February of 2026. These programs consist of forbearances and loan modifications, usually made possible through the expanded use of HUD partial claims. This suite of programs also offers a streamline short sale option.
HUD partial claims are in essence silent second loans that sit at the end of the loan and require no payment until the home loan is paid off or the property is sold. HUD has written millions of these partial claims since 2020, far exceeding the total amount written in the past 24 years since the inception of the HUD Partial Claim program in 1996. Per Housing Wire: “Mortgage servicers have provided forbearance to approximately 8.5 million borrowers since March 2020, performing diligently to implement new forbearance and home retention programs from FHA and other federal agencies.
The good news:
Homeowners in trouble now have even more time to come up with an alternative to foreclosure. This is helpful for those who have not been able to make the payments and continue to struggle.
The bad news:
HUD partial claims are being used excessively to solve payment issues temporarily, usually at the cost of all the homeowners equity. These silent second loans are almost always forgotten about and far larger than the customer anticipates. It is usually at resale when the problems come to light.
Homeowners anticipating a traditional sale are shocked to find out that they have zero or even negative equity, leaving them unable to sell traditionally and pay off their mortgage obligations. These homeowners are only able to sell their home through a short sale. Fortunately FHA is also offering a no-doc, streamline Covid 19 short sale making short sales easier than ever, and homeowners are even receiving a $7,500 relocation assistance check at close!
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Last Updated on March 18, 2025 by Minna Reid