FHA Covid era mortgage workouts are finally ending!
Over the past 5 years, FHA has been very busy offering workouts to non-paying homeowners, in order to keep them from facing foreclosure. After offering these up like candy for the last 5 years, even to homeowners that never asked for help, the free ride is finally over.
Mortgagee Letter 2025-16: Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options, replaces previous guidance about extending these programs and sunsets all the current offering by September 2025 and affects the following loss mitigation options: Informal or Formal Forbearance; Special Forbearance (SFB)-Unemployment; COVID-19 Advance Loan Modification; COVID-19 Recovery Standalone Partial Claim; COVID-19 Recovery Modification: COVID-19 Pre-Foreclosure Sale; and COVID-19 Deed-in-Lieu of Foreclosure.
FHA is set to return to more conservative loss mitigation guidelines for their short sales effective Oct. 1, 2025, with changes including:
- Borrower must indicate a financial hardship affecting their ability to sustain the mortgage.
- Borrower must be 61 days or more delinquent on the FHA-insured mortgage as of the date of the mortgagee’s approval; and
- Borrower must have exhausted or been deemed ineligible for all permanent Loss Mitigation Home Retention Options.
- Until the PFS transaction has closed, the Borrower must maintain the Property in “ready to show” condition, make basic property repairs,and perform all normal property maintenance activities (e.g., interior cleaning, lawn maintenance, etc.).
- A Property that is condemned or that the Mortgagee determined is abandoned is not eligible for PFS.
- HUD offers Owner-Occupant Borrowers who act in good faith and successfully sell their Properties using the PFS Option a compensation of up to $3,000, down from the current $7,500.
I am out of available workout options with my FHA loan, but now I am upside down!
Many folks who have opted in to the FHA loss mitigation offerings of the past few years, and now need to sell, find themselves owing more than their property could sell for, mostly due to excess HUD Partial Claim debts. If these homeowners are still unable to start making their mortgage payments they will face foreclosure, or pursue a short sale.
The easy streamline Covid-19 short sale is still in effect through September 2025, so if you need to sell under the old guidelines you still have some time!
How will this all affect the housing market?
FHA has a significant backlog of homes that are in some state of non payment or pre-foreclosure. As these workout programs expire, more homes will be liquidated through sales, pre foreclosure sales, or as REO (bank owned foreclosures). All will eventually end up on the market for resale contributing significant inventory to the market, and adding further downward pressure on home prices.
Need help with your home facing foreclosure?
Reid Real Estate Group has been helping home-owners with excessive mortgage debt sell their homes and have their mortgage debt forgiven with short sales since 2008!
I can not say enough good things about Minna and her team, After a few other real estate agents were not able to have my house sold due to a Short Sale Minna and her team did not stop working until it was, every time I felt to give up Minna always encouraged me not to and always told me that she could get it done and she delivered a better service that I could ever expect. If you are in need of a great Real Estate Professional give Minna and her team a call!
R.R.
Last Updated on April 28, 2025 by Minna Reid