What Is the Mortgage Relief Program and Who Qualifies?

Mortgage relief programs are arrangements with your loan servicer, or backed by a federal agency, that adjust your payments or loan terms so you can avoid foreclosure during a financial hardship. Some options pause payments for a few months. Others permanently rewrite the loan. A few give you a way out of the home without a foreclosure on your record. The right fit depends on whether your hardship is temporary or lasting, who backs your loan, and how far behind you already are.

The Main Relief Options

Forbearance

Forbearance lets you pause or reduce payments for a set period while you work through a rough patch. Your servicer agrees not to enforce collection during that time, but the unpaid balance doesn’t go away.¹ Fannie Mae, for example, offers an initial forbearance of up to six months with possible extensions.² When the forbearance period ends, you and your servicer agree how to repay what was missed: a lump sum, a repayment plan spread over several months, or a loan modification.

Loan Modification

A modification permanently changes your loan terms to make the payment affordable going forward. The servicer may lower your interest rate, extend your repayment period, or both. FHA-insured mortgages can now be modified for up to 480 months (40 years), matching options already available through Fannie Mae and Freddie Mac.³ Fannie Mae’s Flex Modification program aims for roughly a 20 percent reduction in the principal and interest payment.⁴ Stretching payments over a longer term lowers your monthly bill but increases the total interest you pay over the life of the loan.

Repayment Plan

If you can resume the regular payment but need to catch up on what you missed, a repayment plan adds a portion of the past-due balance to each monthly bill until you’re current. Fannie Mae requires written approval for any repayment plan longer than 12 months, and a combined forbearance-plus-repayment arrangement cannot exceed 36 months total.⁵

Partial Claim

On certain government-backed loans, the servicer can advance the past-due amount on your behalf and place it in a separate, interest-free lien that you repay later, often when you sell, refinance, or reach the end of your loan term. For FHA-insured loans, the total balance of all partial claims cannot exceed 30 percent of the unpaid principal balance at the time of default.⁶ Because no interest accrues on the advanced amount, a partial claim can cost less over time than a modification.

When Keeping the Home Isn’t Realistic

Two options let you exit without a full foreclosure. Both appear in FHA’s loss mitigation waterfall as alternatives of last resort.⁶

A short sale means you sell the home for less than the remaining mortgage balance, and the lender accepts the proceeds as settlement. You need a real buyer and lender approval before the sale closes. Any second mortgages or other lienholders must also agree.
A deed in lieu of foreclosure transfers ownership directly to the lender, bypassing the foreclosure process. Lenders are more likely to accept when there are no other liens on the property.

Both can result in forgiven debt with tax consequences (see below). Before signing anything, get the lender to agree in writing not to pursue you for any remaining balance after the transaction.

Options Vary by Who Backs Your Loan

Federal agencies and government-sponsored enterprises each run their own loss mitigation programs with their own rules.⁷ Knowing who owns or backs your loan tells you what’s actually on the menu.

Fannie Mae and Freddie Mac. The Flex Modification program targets roughly a 20 percent reduction in principal and interest through a combination of rate reduction, term extension up to 40 years, and principal forbearance.⁴
FHA loans. HUD’s waterfall evaluates you in a set order: repayment plan, forbearance, partial claim, loan modification, a combination of modification and partial claim, and finally pre-foreclosure sale or deed in lieu. Your servicer must work through each option before moving to the next.⁶
VA loans. The VA Servicing Purchase (VASP) program offers a loan modification to eligible veteran borrowers. You must be an owner-occupant, and the circumstance that caused default must be resolved or not expected to recur.⁸
USDA loans. The Rural Housing Service does not require a lump-sum payment after forbearance. Servicers arrange an affordable repayment plan or a term extension to defer missed payments to the end of the loan.⁹

If your loan isn’t backed by any of these, contact your servicer directly about proprietary options. Your monthly statement shows who your servicer is. If you’re unsure who owns your loan, the servicer must tell you on request.

Who Qualifies

Eligibility comes down to a genuine financial hardship that keeps you from making the full payment. The situations servicers commonly accept include:

Involuntary job loss or a significant drop in household income
Major medical expenses from injury or ongoing illness
Death of a household earner, or a divorce that leaves remaining income unable to cover the mortgage
A natural disaster that damages the home or disrupts your livelihood

The property generally has to be your primary residence; second homes and investment properties are typically excluded. The servicer will look at your debt-to-income ratio to decide whether a modified payment plan is sustainable. For FHA-insured loans, HUD requires you to attest that default or imminent default was caused by a financial hardship, and you generally cannot have received another permanent home retention option in the past 24 months.⁶

How to Apply

Contact the loss mitigation department of your mortgage servicer, which is the company you send payments to and may not be the original lender. Submit your package through the servicer’s secure online portal, by certified mail, or by fax. Certified mail gives you a tracking number and proof of delivery, which matters if a deadline is later disputed.

Before you send anything, gather:

Your two most recent pay stubs
The last two months of statements for all checking and savings accounts
Federal tax returns for the last two years
A hardship letter explaining what happened and whether the situation is temporary or lasting
IRS Form 4506-C, which authorizes the servicer to pull a tax transcript directly from the IRS to verify the income you reported¹⁰

Incomplete packages are one of the most common reasons applications stall. Send everything at once.

Consider working with a HUD-approved housing counselor before or during the application. They help you assess your finances, weigh your options, and communicate with the servicer, and foreclosure prevention counseling is free.¹¹ Find one through the CFPB at consumerfinance.gov/find-a-housing-counselor or by calling 1-855-411-2372.

Federal Protections While Your Application Is Reviewed

Federal law prohibits your servicer from filing the first legal notice to begin foreclosure until your loan is more than 120 days past due.¹² That window is meant to give you time to explore relief before foreclosure begins.

If your application arrives at least 45 days before a scheduled foreclosure sale, the servicer must notify you in writing within five business days confirming receipt and telling you whether the package is complete or what documents are still missing. Once the servicer has a complete application, it generally has 30 days to evaluate you for every available loss mitigation option and send a written decision.¹³

Your servicer also cannot pursue foreclosure while reviewing your complete application, a practice known as dual tracking. If you file a complete application before foreclosure has been initiated, the servicer cannot start until the review and any appeal are finished. If foreclosure has already begun, the servicer cannot conduct the sale while your complete application is pending, provided you submitted it more than 37 days before the scheduled sale date.¹²

If a loan modification is denied and you submitted your complete application at least 90 days before a foreclosure sale, the servicer must let you appeal. You have 14 days after receiving the denial notice to file, and staff other than those who made the original decision must review it.¹³ The servicer has 30 days to issue a written decision on the appeal, and that decision is final under federal rules.

Tax Consequences of Forgiven Debt in 2026

If any portion of your mortgage debt is forgiven, whether through a principal reduction in a modification, a short sale, or a deed in lieu, the IRS generally treats the forgiven amount as taxable income. Your lender reports the canceled debt on Form 1099-C, and you include it on your return.

From 2007 through 2025, homeowners could exclude up to $2 million of forgiven debt on a primary residence from taxable income. That exclusion, for what the IRS calls qualified principal residence indebtedness, expired on December 31, 2025, and has not been renewed for 2026.¹⁴ Forgiven mortgage debt discharged in 2026 is taxable unless another exclusion applies.

The most widely available remaining exclusion is insolvency. You qualify if your total liabilities exceeded the fair market value of all your assets immediately before the debt was canceled, and you can exclude the forgiven amount up to the dollar amount by which your debts exceeded your assets.¹⁵ To claim it, attach IRS Form 982 to your federal return, check the insolvency box, and reduce certain tax attributes as required.¹⁶ A separate exclusion applies if the debt was discharged in a Title 11 bankruptcy case. Because the treatment shifted for 2026, talk to a tax professional before agreeing to any principal reduction or short sale.

How Relief Affects Your Credit

The impact depends on the type of relief and whether you keep to the agreed terms. If you enter forbearance and comply with its conditions, your account should generally continue to be reported as current, though servicers can note that the account is in forbearance, and other creditors may consider that when you apply for new credit. Loan modifications, short sales, and deeds in lieu typically show a more visible impact because they reflect changed terms or a settlement for less than owed. All of them are less damaging than a completed foreclosure. Interest continues to accrue during forbearance, which can raise your balance and your reported debt levels temporarily.

Avoiding Mortgage Relief Scams

Scammers target homeowners in distress by posing as mortgage relief specialists, housing counselors, or government representatives. Federal law prohibits any mortgage assistance relief provider from charging you a fee before your lender has given you a written modification offer that you’ve signed.¹⁷ Anyone demanding payment upfront is breaking the law.

Warning signs to watch for:¹⁸

Guaranteed results. No legitimate professional can promise a modification or a specific outcome.
Instructions to stop contacting your lender. Any company that tells you to cut off communication with your servicer is violating the law.
Requests for your deed. Never transfer ownership of your home to a third party offering to save it.
Directing your payments away from your lender. Payments should always go to your servicer, not a third-party company.
Unusual payment methods. Demands for wire transfers, cashier’s checks, or mobile payment apps make recovery nearly impossible.

If you want help walking through the process, use a HUD-approved housing counselor. The service is free, and you can find one through the CFPB at consumerfinance.gov/find-a-housing-counselor or by calling 1-855-411-2372.¹¹

1
Consumer Financial Protection Bureau. What Is Mortgage Forbearance?
2
Fannie Mae. Servicing: Elevated Forbearance
3
Federal Register. Increased Forty-Year Term for Loan Modifications
4
Fannie Mae. Flex Modification
5
Fannie Mae. Repayment Plan
6
U.S. Department of Housing and Urban Development. FHA Loss Mitigation Guidance
7
Federal Housing Finance Agency. Loss Mitigation
8
U.S. Department of Veterans Affairs. VASP Servicer FAQs
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U.S. Department of Agriculture. CARES Act Forbearance Fact Sheet for Borrowers
10
Internal Revenue Service. Form 4506-C IVES Request for Transcript of Tax Return
11
Consumer Financial Protection Bureau. Find a Housing Counselor
12
Consumer Financial Protection Bureau. 1024.41 Loss Mitigation Procedures
13
eCFR. 12 CFR 1024.41 Loss Mitigation Procedures
14
Internal Revenue Service. Publication 530, Tax Information for Homeowners
15
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
16
Internal Revenue Service. Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments
17
eCFR. 12 CFR Part 1015 Mortgage Assistance Relief Services (Regulation O)
18
Federal Trade Commission. Mortgage Relief Scams