The Federal Housing Administration’s (FHA) Loss Mitigation Program was originally established in 1996 as a replacement to the U.S. Department of Housing and Urban Development’s (HUD) assignment program. The objectives were to ensure that distressed FHA borrowers were afforded opportunities to retain their homes and to assist in minimizing loss to the Mutual Mortgage Insurance (MMI) Fund. In 2000, Congress authorized additional loss mitigation tools and enabled FHA to adopt a comprehensive loss mitigation program to help borrowers either retain their homes or dispose of their property in ways that mitigated the costs of foreclosure for both the borrower and the MMI Fund. FHA offered servicers incentive payments for completing each of these loss mitigation options and imposed financial penalties on those that failed to adhere to FHA’s loss mitigation guidelines.

FHA classifies its loss mitigation options into two categories: “home retention options” and “home disposition options.” Home retention options are designed to offer effective ways to keep struggling borrowers in their homes through forbearance plans and loan modifications. This report evaluates the following home retention options: FHA Forbearance, FHA Loan Modification, FHA Partial Claim, and the FHA Home Affordable Modification Plan.