AWACSMortgage compliance intelligence from Flightline

FHA · Mortgagee Letter ML 2026-08 · Published

Updates to Loss Mitigation Requirements

FHA establishes that a borrower failing to accept a Trial Payment Plan (TPP) Agreement for a third time during a default episode constitutes a TPP failure that servicers must report in SFDMS. The letter also limits loss mitigation re-reviews prior to foreclosure initiation and clarifies TPP payment terms.

Action requiredEffective Sep 21, 2026Checks passed· adjusted automaticallyRead the letter ↗ (opens in a new tab)

Loan impact

From the letter text · needs review

Applies to: Applies to all FHA-insured Title II Single Family forward mortgages undergoing loss mitigation or trial payment plans.

Addressed to
All FHA-Approved Mortgagees
Investor
FHAFrom the publisher, not quoted from the text
Programs
FHAFrom the publisher, not quoted from the text
Affected areas
Foreclosure; Loss mitigationGuide Section III.A.2.i.iii(C)(1)
Affected documents
Trial Payment Plan Agreement
Effective
Sep 21, 2026
Applicability confidence
Needs review: some rows could not be matched to a quote from the source
Supporting quotes from the letter
  • affected areas“The Federal Housing Administration’s (FHA) servicing and loss mitigation requirements include home retention options that help prevent foreclosure and reduce losses to FHA’s Mutual Mortgage Insurance Fund (MMIF).”
  • guide sections“This ML: • updates Trial Payment Plans – Definitions (III.A.2.i.iii(C)(1)); • updates Trial Payment Plans – Standard (III.A.2.i.iii(C)(2)); • updates Trial Payment Plan Failure – Standard (III.A.2.i.iii(C)(5)(a)); and • updates When to Initiate Foreclosure (III.A.2.p.i(C)).”
  • affected documents“A Trial Payment Plan (TPP) Agreement is a written document that establishes the TPP terms, which must be provided to the Borrower prior to the first payment due under the TPP payment due date.”

What changed

From the letter text · Sections III.A.2.i.iii(C)(5)(a), III.A.2.p.i(C)
RequirementPreviouslyNow
Trial Payment Plan failure reason for unaccepted agreementsTightenedRequiredSection III.A.2.i.iii(C)(5)(a)New requirementWhen a Borrower fails to accept a TPP Agreement for a third time during a default episode, this will be considered a TPP failure.
Evaluation for Home Disposition Options upon TPP failureTightenedRequiredSection III.A.2.i.iii(C)(5)(a)Not statedIf a borrower fails a TPP and is not eligible for another Permanent Home Retention Option, the mortgagee must evaluate the borrower for Home Disposition Options.
Foreclosure initiation conditions and limits on loss mitigation re-reviewsTightenedSection III.A.2.p.i(C)Not statedMortgagees may initiate foreclosure for monetary default after at least three full monthly payments are unpaid only if specific conditions are met, limiting subsequent reviews to those with changes in borrower circumstances impacting eligibility.
Advance payment of TPP installmentsRelaxedNot statedBorrowers are permitted to remit TPP payments in advance of the month they are due.

Also affected: Sections III.A.2.i.iii(C)(1), III.A.2.i.iii(C)(2).

What to do

AWACS interpretation · not source language

What to review: Review default servicing and loss mitigation workflows to implement mandatory SFDMS reporting for third-time Trial Payment Plan non-acceptances and required evaluations for Home Disposition Options by September 21, 2026.

Servicing

Report a TPP failure in SFDMS when a borrower fails to accept a Trial Payment Plan Agreement for a third time during a default episode, and evaluate borrowers who fail a TPP for Home Disposition Options if they are ineligible for another Permanent Home Retention Option, no later than September 21, 2026.

Compliance

Update default servicing policies and reporting oversight to ensure third-time unaccepted Trial Payment Plan Agreements trigger SFDMS failure reporting and subsequent Home Disposition evaluations no later than September 21, 2026.

QC implications

  • Sample default files where a borrower did not accept three Trial Payment Plan Agreements to confirm that an SFDMS failure was reported.
  • Review failed Trial Payment Plan records lacking eligibility for additional Permanent Home Retention Options to verify that evaluations for Home Disposition Options were performed.
  • Verify that servicing systems correctly accommodate borrowers submitting Trial Payment Plan payments in advance of the month they are due.

Source and record

Version 1 · archived

Checks

  • Source verified: Passed

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  • Quotes match the source: Passed, adjusted automatically

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  • In scope: Passed

    The document is about residential mortgage lending.

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