Home retention is the umbrella term mortgage servicers use for any arrangement that lets you keep your house after falling behind on payments. Instead of losing the property to foreclosure, you and your servicer agree to new loan terms, a temporary pause, or a structured catch-up plan that brings the account current. Federal rules bar your servicer from starting foreclosure proceedings until you are at least 120 days delinquent, so there is a real window to act before the situation turns into a legal fight.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures The earlier you call, the more options are still available to you.
The Four Main Retention Options
Each tool solves a different problem. A modification rewrites the loan for the long term. Forbearance buys time during a short crisis. A repayment plan lets you catch up gradually. A partial claim moves missed payments to the back of the line. Your servicer picks what fits based on your loan type, how deep the hardship goes, and what you can realistically pay going forward.
Loan Modification
A loan modification permanently changes your mortgage contract. The servicer can lower the interest rate, extend the repayment period, or fold past-due amounts into the new balance. For FHA-backed loans, the term can stretch to 40 years when combined with a partial claim, with a target of reducing your monthly principal-and-interest payment by 25 percent.2U.S. Department of Housing and Urban Development. FHA Adds 40-Year Loan Modification With Partial Claim to Its COVID-19 Recovery Loss Mitigation Options Fannie Mae’s Flex Modification must produce a fixed-rate loan with a lower monthly payment than you had before.3Fannie Mae. Fannie Mae Flex Modification
Many modifications include a principal forbearance component, where part of what you owe is set aside as a non-interest-bearing balance that sits quietly until the loan matures, you sell, or you refinance. That deferred chunk keeps your monthly payment lower without the servicer actually writing off the debt. A modification is not a refinance. You don’t apply for a new loan, pay closing costs, or go through underwriting again. The existing contract is simply rewritten.
Forbearance
Forbearance lets you reduce or pause payments for a set period while you recover from a short-term hardship such as a medical event, temporary job loss, or natural disaster. For most federally backed loans, forbearance can last up to 360 days.4Consumer Financial Protection Bureau. Mortgage Forbearance Ending – Time to Take the Next Step
It is a pause, not forgiveness. Every skipped dollar still has to be dealt with when the pause ends. The good news is that for government-backed mortgages, your servicer cannot demand a lump-sum payoff the moment forbearance ends. Fannie Mae, Freddie Mac, FHA, VA, and USDA loans all prohibit servicers from requiring a single balloon repayment.5Consumer Financial Protection Bureau. Exit Your Forbearance Carefully The missed amount can be handled through a repayment plan, a deferral that pushes it to the end of the loan, or a full modification.
Repayment Plan
A repayment plan works when you’re only a few months behind and your finances have already stabilized. You make your regular monthly payment plus an extra amount that chips away at the past-due balance over a fixed number of months.6Consumer Financial Protection Bureau. What Is a Repayment Plan on a Mortgage Once the plan is complete, your loan is current with no permanent changes to the original terms. Servicers tend to offer this first for minor delinquencies because it is the simplest fix for both sides.
Partial Claim
If you have an FHA loan, a standalone partial claim takes whatever you owe in missed payments and converts it into a separate, interest-free lien on the property. You make no payments on that lien until you sell, refinance, pay off the mortgage, or transfer the title.7U.S. Department of Housing and Urban Development. FHA Loss Mitigation Program Because the partial claim carries no interest and no monthly payment, it brings your primary mortgage current without raising your monthly cost. VA and USDA loans have their own payment deferrals that work similarly.
Starting the Process
Contact your servicer as soon as you realize a payment will be difficult. You don’t need to wait until you’ve already missed one. Servicers have loss mitigation departments specifically for these conversations, and reaching out early gives you access to the widest set of options.8Consumer Financial Protection Bureau. How Long Will It Take Before Ill Face Foreclosure if I Cant Make My Mortgage Payments
On that first call, the servicer sends an initial request-for-assistance package. It usually includes a questionnaire and instructions for a hardship letter, which is a short, factual narrative explaining what changed financially and whether the hardship is temporary or permanent. Dates and dollar amounts matter more than tone.
A HUD-approved housing counseling agency is worth calling in parallel. These counselors work with homeowners for free, know the specific rules for each loan program, and can help you complete the application and talk to your servicer on your behalf. HUD’s counseling referral line is 800-569-4287.9U.S. Department of Housing and Urban Development. Housing Counseling
What You’ll Need to Submit
The formal application is called a Request for Mortgage Assistance. A complete, accurate submission is the single most important thing you can do to avoid delays, because servicers reject incomplete packages constantly and every rejection resets the clock.
The package has four parts. Income documentation covers your two most recent pay stubs and your last two W-2s, or two full years of federal tax returns if you’re self-employed. Bank statements for the most recent 60 days on every checking, savings, and investment account let the servicer assess your liquid assets. A list of monthly debts (car payments, credit cards, student loans) lets them calculate your debt-to-income ratio. Finally, a signed hardship affidavit ties the financial documents to the event that caused the default. Sign exactly as your name appears on the deed, and make sure every page is included. A missing signature or a dropped tax schedule is enough to send the whole package back.
What Happens After You Apply
Once the servicer receives your application, federal regulations require written acknowledgment within five business days telling you whether it is complete or what is still missing.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures If the application is complete and arrived more than 37 days before any scheduled foreclosure sale, the servicer must evaluate you for every available loss mitigation option and give you a written decision within 30 days.10eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
Dual Tracking Is Blocked
Submitting a complete application triggers what may be the most important protection in the entire process. Your servicer cannot file the first legal paperwork to start foreclosure while your application is under review. If foreclosure proceedings have already begun, the servicer cannot move forward with a judgment, order of sale, or actual foreclosure sale while the evaluation is pending.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
The Trial Period Plan
If you’re approved for a modification, the servicer typically doesn’t jump straight to permanent terms. You’ll receive a Trial Period Plan requiring you to make the proposed new payment amount for at least three consecutive months.11U.S. Department of Housing and Urban Development. Mortgagee Letter 2011-28 – Trial Payment Plan for Loan Modifications and Partial Claims A single missed or late trial payment can void the entire offer. Make every one on time and in full. Once the trial is complete, the servicer sends a permanent modification agreement to sign and return within the stated deadline.
If You’re Denied
A denial must come with a written explanation. If you disagree, you have 14 days to appeal, and the appeal has to be reviewed by different personnel than the team that made the original denial.1eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures The servicer then has 30 days to respond. The dual tracking protection stays in place during the appeal.10eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures This appeal right applies specifically to loan modification denials when the complete application was received at least 90 days before any foreclosure sale.
A denied appeal doesn’t necessarily end things. A HUD counselor can help you spot errors in the servicer’s evaluation, and a material change in your circumstances can let you submit a new application.
How Retention Affects Your Credit
The credit impact depends on which tool you use and your status when it begins. If your loan was current when you entered a forbearance agreement under the CARES Act, your servicer was required to keep reporting the account as current throughout. If you were already delinquent, the status stayed where it was and could not be made worse during the forbearance.12U.S. Department of Agriculture. CARES Act Forbearance Fact Sheet for Borrowers
A permanent modification is different. Some servicers report the modified loan as a settlement or note the changed terms, which can lower your score. The missed payments that led to the modification will generally stay on your credit report for seven years from the date of the first missed payment. A modification is far less damaging than a completed foreclosure, and your score will begin recovering as soon as you build a track record under the new terms.
A successful repayment plan leaves the least credit damage. Once complete, the loan shows as current with no permanent notation of modified terms. If you can swing a repayment plan rather than a full modification, the credit upside is real.
Tax Consequences of Forgiven Mortgage Debt
If your modification actually forgives principal, the IRS generally treats the forgiven amount as taxable income. The servicer reports it on a Form 1099-C, and you’re responsible for including it on your return for the year the cancellation occurred, whether or not you actually receive the form.13Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not
The Mortgage Forgiveness Debt Relief Act shielded homeowners from this tax hit on their primary residence for years. That exclusion expired at the end of 2025 and, as of early 2026, has not been renewed. Congress has extended it at the last minute before, so it’s worth watching, but you cannot count on it for forgiveness that occurs in 2026.
Even without that exclusion, the insolvency exception may still apply. If your total liabilities exceed the fair market value of your total assets immediately before the debt is cancelled, you can exclude forgiven amounts from income up to the amount by which you are insolvent.14Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Many homeowners going through a modification are, in fact, insolvent, so this matters more than people realize. Talk to a tax professional before your modification is finalized.
Modifications that only defer principal or capitalize arrears into the new balance without actually forgiving any debt do not trigger a taxable event. The debt still exists; it has just been restructured. Most modifications defer rather than forgive, so the tax issue only comes up in a narrower set of cases than people often fear.
If You Inherited the Home or Got It in a Divorce
You can apply for loss mitigation even if you haven’t formally assumed the loan. Federal rules require the servicer to preserve your application and supporting documents while your ownership status is confirmed. Once confirmed, the servicer must evaluate your application as if it were received on the date your status was verified, and if any documents have gone stale, the servicer must tell you exactly which ones need updating.15Consumer Financial Protection Bureau. Regulation X – 1024.41 Loss Mitigation Procedures Don’t accept a servicer telling you that you can’t apply because you’re not on the mortgage. That’s a common error, and the regulation addresses it directly.