•    A permanent change in the interest rate.
•    Capitalization of delinquent principal, interest, or escrow items.
•    Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance. Refer to Mortgagee Letter 2005-30 for allowable attorney fees.
•    Possible extension of loan term.
•    The use of any four of the above items will result in the re-amortization of the loan.
•    Mortgagees may use the Treasury 10-year constant Maturity Rate plus 200 basis points OR the Debenture Interest Rate plus 150 basis points in determining the “new” note interest rate. Although at mortgagee’s discretion, note interest rates may be reduced below market.
•    All or a portion of the PITI arrearage (Principal, Interest, and Escrow Items) may be capitalized to the mortgage balance.
•    When establishing a loan modification, it is acceptable for mortgagees to include all payments due including an additional month.
•    Late fees associated with the current default episode should be waived.
•    No administrative fees for completing the Loan Modification documents can be passed on to the mortgagor.
•    The modified principal balance may exceed the principal balance at origination.
•    The modified principal balance may exceed 100% loan-to-value.
•    Mortgagees may re-amortize the total unpaid amount due over the remaining term of the mortgage, or may extend the term not more than 10 years beyond the original maturity date or 360 months from the due date of the first installment required under the modified mortgage, whichever is less.
•    All Loan Modifications must result in a fixed rate loan.
•    The Loan Modification must fully reinstate the loan.
•    Subsequent defaults are to be treated as a new default.

•    Minimum of 12 months elapsed since loan origination date.
•    The mortgagor must be 61 days delinquent (3 full payments due and unpaid) or more.
•    Default due to a verifiable loss of income or increase in living expenses.
•    The Loan Modification mortgage must remain in first lien position.
•    Loan may not be in foreclosure when executed.
•    Owner-occupant, committed to occupying property as primary residence.
•    Mortgagor has stabilized surplus income sufficient to support the Loan Modification mortgage.
•    Does not have another FHA-insured mortgage.

1.    Mortgagee is required to assess the mortgagor’s financial condition.

2.    Mortgagee is to perform a retroactive escrow analysis at the time the loan modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

3.    Mortgagee must verify the property has no adverse physical conditions.

4.    Home repair costs may not be calculated into the Loan Modification.

5.    Mortgagee must comply with State and Federal disclosure laws or notice requirements, including whether recordation is necessary to maintain first lien position requirement.

6.    Loans reinstated using a Loan Modification within the past three (3) years requires written justification prior to a subsequent modification.

7.    Subsequent reason for default cannot be related to the previous reason for default.