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Statement on Working with Mortgage Borrowers
The federal financial institutions regulatory agencies1 encourage financial institutions to work
constructively with residential borrowers who are financially unable to make their contractual
payment obligations on their home loans. Prudent workout arrangements that are consistent with
safe and sound lending practices are generally in the long-term best interest of both the financial
institution and the borrower.
Many residential borrowers may face significant payment increases when their adjustable rate
mortgage (ARM) loans reset in the coming months. These borrowers may not have sufficient
financial capacity to service a higher debt load, especially if they were qualified based on a low
introductory payment. The agencies have long encouraged borrowers who are unable to meet
their contractual obligations to contact their lender or servicer to discuss possible payment
alternatives at the earliest indication of such problems.
The agencies encourage financial institutions to consider prudent workout arrangements that
increase the potential for financially stressed residential borrowers to keep their homes.
However, there may be instances when workout arrangements are not economically feasible or
Financial institutions should follow prudent underwriting practices in determining whether to
consider a workout arrangement. Such arrangements can vary widely based on the borrower’s
financial capacity. For example, an institution might consider modifying loan terms, including
converting loans with variable rates into fixed-rate products to provide financially stressed
borrowers with predictable payment requirements.
The agencies will continue to examine and supervise financial institutions according to existing
standards. The agencies will not penalize financial institutions that pursue reasonable workout
arrangements with borrowers who have encountered financial problems. Further, existing
supervisory guidance and applicable accounting standards do not require institutions to
immediately foreclose on the collateral underlying a loan when the borrower exhibits repayment
difficulties. Institutions should identify and report credit risk, maintain an adequate allowance
for loan losses, and recognize credit losses in a timely manner.
Financial institutions may receive favorable Community Reinvestment Act (CRA) consideration
for programs that transition low and moderate income borrowers from higher cost loans to lower
cost loans, provided the loans are made in a safe and sound manner.2 Financial institutions,
working alone or in conjunction with reputable organizations such as the Center for Foreclosure
Solutions sponsored by NeighborWorks, can assist borrowers in avoiding foreclosure through
credit counseling.3 Such programs also help financially stressed borrowers avoid predatory
foreclosure rescue scams.
Under the Homeownership Counseling Act, financial institutions should inform certain
borrowers who are delinquent on their mortgage loans (home loans secured by a single family
dwelling that is the borrower’s principal residence) about the availability of homeownership
counseling. The Department of Housing and Urban Development (HUD) maintains a list of
approved counselors.4

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If a service member defaults on a mortgage, the Servicemembers Civil Relief Act (SCRA)
prohibits the sale, foreclosure, or seizure of service member property secured by the mortgage
during the period of military service, or within 90 days thereafter. Institutions are required to
notify service members of their rights under the SCRA.5 While the SCRA requirements apply
only to obligations that were originated prior to the service member’s military service, the
agencies encourage institutions to work with service members and their families who are unable
to meet any of their contractual mortgage obligations.


The federal financial institutions regulatory agencies consist of the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision (collectively, the agencies).


Consideration as a CRA flexible lending practice may be granted in instances where such action helps to meet the
credit needs of low- and moderate-income individuals or geographies within the institution’s assessment area, and
is consistent with safe and sound lending practices. Also see Q&A § __.22(a)– 1 (2001 Interagency Questions
and Answers Regarding Community Reinvestment). Federal credit unions are not subject to CRA requirements.


Consideration as a CRA community development service may be granted in instances where such activities help
to meet the credit needs of low- and moderate-income individuals or geographies within the institution’s
assessment area. Also see Q&A § __.12(j)– 3 (2001 Interagency Questions and Answers Regarding Community
Reinvestment). Federal credit unions are not subject to CRA requirements.


Information on HUD’s counseling services is available at or
(800) 569-4287.


HUD’s service member notice is available at

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