The Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2025-12, “Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options,” which set a date to end the COVID-19 era loss mitigation waterfall, among other things.

“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,” the FHA said in a release about the ML. “FHA’s prior failure to definitively sunset the COVID-19 emergency loss mitigation ‘waterfall’ has increased risk in the Mutual Mortgage Insurance Fund (MMIF), hurt taxpayers, set up many FHA borrowers for failure, and enabled other FHA borrowers to abuse the current process.”

The new loss mitigation options include limiting borrower eligibility for receipt of any permanent home retention loss mitigation option to once every 24 months instead of once every 18 months.

The new options also permanently sunset the COVID-19 Loss Mitigation Options on Sept. 30; move up the effective date of the new permanent loss mitigation options to Oct. 1 from Feb. 2, 2026; continue the suspension of FHA-Home Affordable Modification Program Options and sunsetting the program effective Sept. 30; and cancel 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.

“The Trump administration will continue its review of the entire FHA permanent loss mitigation waterfall to ensure the policy prevents foreclosures while protecting taxpayers and mitigating financial risks to the MMIF,” the ML read. “FHA will continue to review how the available home retention options could be improved to better incent reperformance and ensure borrower ability-to-repay.”

The NL also stated the Department of Housing and Urban Development (HUD) will assess the performance and function of the Payment Supplement tool to determine if it should remain a part of HUD's loss mitigation program.

The provisions of the ML apply to all FHA Title II Single Family forward mortgage programs.

The Mortgage Bankers Association (MBA) said it welcomed the new permanent loss mitigation framework.

“Specifically, we appreciate FHA’s efforts to reinstate a cap on the number of times a borrower can utilize a home-retention program and require the successful completion of trial payments to demonstrate long-term affordability,” MBA President and CEO Bob Broeksmit said. “Together, these safeguards will improve sustainability, protect the FHA insurance fund, preserve borrower equity, and further align FHA with the government-sponsored enterprises.

“We commend FHA’s approach that appropriately balances borrower access to streamlined loss mitigation with prudent risk management. We appreciate HUD and FHA for implementing these safeguards, and we will continue to advocate for policy changes that will ensure that mortgage servicing remains efficient for both consumers and servicers.”