HUD Modifies Upcoming Permanent Loss Mitigation Options

HUD recently issued Mortgagee Letter (ML) 2025-12, modifying certain provisions of ML 2025-06 and providing revised and updated loss mitigation guidance.  Citing concerns over increased default rates associated with COVID-19 recovery options and the need to further protect the Mutual Mortgage Insurance Fund, HUD is implementing changes before the framework under ML 2025-06 takes effect.

The changes include:

• Permanently ending the COVID-19 Loss Mitigation Options on September 30, 2025;
• Lengthening the required time period for loss mitigation eligibility from once every 18 months to once every 24 months; and
• Cancelling scheduled increases in compensation amounts offered to borrowers under Home Disposition Options and Cash for Keys programs.

The effective date for the new permanent loss mitigation framework has been moved up from February 2, 2026, to October 1, 2025.