Under what conditions may Mortgagees modify an FHA performing mortgage without HUD approval?

The Mortgagee may modify a performing Mortgage without HUD approval when:
  • the modification is only for a reduction of the interest rate;
  • the mortgage term is decreased and the Mortgage Payment will be increased $100 or less per month; or
  • the mortgage term is decreased and the Mortgage is more than three years old.
The new principal amount of the modified Mortgage is the total unpaid amount due and payable under the original Mortgage. The Mortgagee may not include the following in the new principal amount:
  • any revision of periodic Mortgage Insurance Premium (MIP) payments; and
  • any legal or administrative costs attributable to the modification (these costs may be collected separately from the Borrower).
The Mortgagee must perform the legal steps required to accomplish the modification and must ensure that the Mortgage remains a valid first lien against the Property.

For policy information see Handbook 4000.1 III.A.1.j.ii.(A), (C), (D) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-05238