Useful Link: HUD Loss Mitigation Options – HUD Mortgagee Letter 00-05

Why It’s Useful:  This is a link to an HUD Loss Mitigation Options letter

Subject:   HUD/FHA Homes – Loss Mitigation Options/Rules (Short Sale / Mortgage Modification / Deed in Lieu)

Useful Link:


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U.S. Department of Housing and Urban Development

Washington, D. C.  20410-8000

 January 19, 2000







 The purpose of this mortgagee letter is to announce clarifications of policy and procedural changes in FHA’s Loss Mitigation Program and provide an updated consolidation of the existing program guidance. 


 After April 25, 1996, FHA ceased accepting applications for assignment of insured loans that had gone into default and initiated a comprehensive loss mitigation program to provide relief to borrowers in default.  FHA’s Loss Mitigation Program returns responsibility for managing loan defaults to mortgagees, and provides financial incentives to recognize them for their efforts.  Loss mitigation is considered critical to FHA because it works to fulfill the goal of helping borrowers in default retain home ownership while reducing, or mitigating the economic impact on the insurance fund.

 The program includes five strategies to be used by mortgagees as they deem appropriate, based on an individual assessment of the borrower’s financial circumstances and the status of the loan.  Three of the options (“reinstatement options”) promote retention of home ownership, while two assist borrowers in default transition to lower cost housing (“disposition options”).

 This mortgagee letter provides a complete description of each option, identifies requirements for their use, and describes circumstances in which each may be appropriate.  This issuance contains several clarifications of HUD policy.  It replaces and supersedes the following mortgagee letters:

Mortgagee letter 97-43, FHA Loss Mitigation – Mortgage Modification Clarification

Mortgagee letter 96-32, Loss Mitigation  – Mortgage Modification

Mortgagee letter 96-25, Existing Alternatives to Foreclosure

This mortgagee letter partially supersedes the following mortgagee letters: 

 Mortgagee letter 96-61, Loss Mitigation Procedures – Special Instructions

(Superseded and replaced, except for the loss mitigation claims instructions, which were changed by Mortgagee letter 99-27.)

Mortgagee letter 97-17, FHA Loss Mitigation –  Clarification of Procedures

(Superseded and replaced, except for the model form of note(s) and subordinate mortgage provided, which remain unchanged and are still in effect.)…..

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