U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSING-
FEDERAL HOUSING COMMISSIONER
August 14, 2008
MORTGAGEE LETTER 2008-21
TO:ALL APPROVED MORTGAGEES
ATTENTION: Single Family Servicing Managers
SUBJECT:FHA Loss Mitigation Program Updates
The Federal Housing Administration (FHA) is pleased to announce several changes to its Loss Mitigation Program that will strengthen both the Loan Modification and Partial Claim Initiatives.
While these changes are designed to address borrowers who are facing serious defaults, most delinquencies can and should be resolved through early intervention. Mortgagees are reminded of the critical importance of early and constructive contact with delinquent borrowers and the requirement to notify borrowers of the availability of default counseling by HUD-approved counseling agencies.
This Mortgagee Letter announces three changes to the existing Loss Mitigation program designed to give mortgagees additional latitude to help borrowers cure defaults and retain homeownership. The changes noted below are effective immediately.
First, with respect to Loan Modifications, mortgagees may use the Treasury 10-year constant maturity as a basis for establishing the maximum interest rate for loan modifications. The maximum interest allowable should be calculated as 200 basis points above the monthly average yield on United States Treasury Securities, adjusted to a constant maturity of 10 years. Mortgagees shall refer to the rate that is in effect as of the date of execution of the loan modification. For information on the 10-year monthly constant maturities, please refer to the statistical release H.15, which is available on the following web site:
Next, where loss mitigation is being attempted after foreclosure has been initiated, mortgage servicers and mortgagors have advised that foreclosure related costs and legal fees are often impediments to successful loss mitigation. Many mortgagors who are able to resume making monthly mortgage payments frequently do not have sufficient funds to reimburse the mortgagee the legal fees and foreclosure costs incurred prior to qualifying for loss mitigation and therefore are denied participation.