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HUD’s partial claim regulations at 24 CFR 203.371 and 203.414 were last updated in 2007 and 1997, respectively. Since that time, the Helping Families Save Their Homes from Foreclosure Act of 2009 (Pub. L. 111-22) (HEARTH) amended the partial claim provisions of Section 230 of the National Housing Act (12 U.S.C. 1715u). Also, partial claim and other loss mitigation requirements changed through Mortgagee Letter as permitted by HEARTH and HUD expanded partial claim types to include new terms and options. HUD is updating 24 CFR 203.371 and 203.414 to reflect the current statutory and policy requirements and partial claim options.

Additionally, HUD is proposing to revise the partial claim regulations to provide for the partial claim debt to be secured under the FHA-insured first mortgage, instead of under a subordinate note and mortgage as currently required. Securing payments under the first mortgage aligns with other payment deferral programs used by the mortgage industry and avoids judicial foreclosure of the partial claim when possible. Overall, these change would modernize the program, reduce foreclosure challenges, and save taxpayer dollars by increasing partial claim recoveries for the Mutual Mortgage Insurance Fund while greatly reducing HUD’s costs.