The Department of Housing and Urban Development (HUD) is seeking expanded loss mitigation authority allowing the principal amount of an Federal Housing Administration (FHA)-insured mortgage to be reduced by up to 30% to help homeowners avoid defaults.

The FHA would pay a partial claim to the servicer/investor to cover the writedown and make the mortgage current. Eventually, though, the borrower would have to repay the forgiven principal — but without interest.

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