The purpose of the Federal Housing Administration (FHA) within the Department of Housing and Urban Development is to expand homeownership opportunities for people who are not adequately served by the private market.
FHA does not lend money; private lenders finance the home purchase loan, and the FHA guarantees the lender that it will be made whole in the event of a mortgage default.
Mortgage servicers of FHA loans must comply with the FHA loan servicing guidelines.1 These guidelines formerly provided six different options for homeowners who were threatened with foreclosure: forbearance, refinancing, loan modification, partial claim, pre-foreclosure sale, and deed in lieu of foreclosure. However, the COVID-19 era resulted in the suspension of some of these programs and the creation of others. Any client with an FHA loan should be referred to a HUD counselor for the latest information.
Mortgage servicers must review an FHA loan for these loss mitigation options before proceeding to foreclosure.2
HUD-guaranteed loans must be at least 3 months past due before foreclosure. Additionally, all Consumer Financial Protection Bureau rules and regulations must be complied with. HUD may pursue a deficiency judgment but currently (as of May 2023) does not do so as a matter of policy and politics.
- 1 24 C.F.R. §§ 203.500–.685.
- 2See U.S. Dep’t of Hous. & Urb. Dev., Handbook 4000.1, FHA Single Family Housing Policy Handbook tit. I, § III(A)(2)(j) (2021.