Behind the Flames: What FHA’s Waiver Means for Lenders and Borrowers

In the wake of the devastating wildfires that tore through Los Angeles County in January 2025, the Federal Housing Administration (FHA) has taken decisive action to support both mortgage lenders and affected borrowers. By waiving certain quality control (QC) review requirements, the FHA is offering practical relief during a time of widespread financial and emotional hardship.

What’s Changing—and Why It Matters

Normally, lenders are required to conduct QC reviews on FHA-insured mortgages that become 60 days delinquent within the first six months after closing—known as early payment defaults (EPDs). These reviews are crucial for detecting potential flaws in loan origination, underwriting, or borrower misrepresentation. However, when disaster strikes, the causes of delinquency often lie far beyond the lender’s or borrower’s control.

Recognizing this, the FHA has waived the QC review requirement for loans affected by the January 2025 wildfires—an essential move for easing the burden on both borrowers and servicers.

Who Qualifies for the Waiver?

This waiver is narrowly tailored to assist those directly impacted by the disaster. Specifically, it applies to:

a) FHA-insured mortgages located in Los Angeles County, which was declared a Presidentially Declared Major Disaster Area (PDMDA).

b) Loans that were closed prior to January 7, 2025, the official disaster start date.

c) Loans that became 60 days delinquent between February 1 and July 31, 2025.

The FHA’s intent is clear: to shield both borrowers and lenders from undue penalties or scrutiny when delinquencies are a direct result of catastrophic events—not financial missteps or procedural errors.

Foreclosure Relief Extended

Adding another layer of support, HUD has extended the foreclosure moratorium for affected areas by an additional 90 days. Originally set to expire on April 7, the moratorium now runs through July 7, 2025. During this time, mortgage servicers are prohibited from initiating or completing foreclosure actions on affected FHA-insured single-family mortgages.

This extension gives homeowners vital breathing room to recover, rebuild, and stabilize their finances.

What Lenders and Servicers Still Need to Do

Despite the waiver, mortgage professionals must remain vigilant. Lenders are still expected to:

a) Report all delinquencies to the Single Family Default Monitoring System (SFDMS).

b) Offer appropriate loss mitigation options to affected borrowers.

c) Remain compliant with all other FHA servicing guidelines.

The waiver does not absolve lenders of their broader responsibilities—it simply acknowledges the exceptional nature of the current situation.

A Measured but Compassionate Response

The FHA’s waiver is a prime example of regulatory flexibility used wisely. It offers relief without compromising the integrity of the mortgage system. For borrowers, it’s a compassionate gesture. For lenders, it’s a practical adjustment. For the mortgage ecosystem at large, it’s a reminder that even behind the flames, resilience is possible—with the right support.