My question concerns the situation when a loan is current, but the borrower foresees a short-term hardship. For example, the borrower is leaving one job and has new job lined up, but will have a short period of time of unemployment between the two jobs. If the borrower requests a loan extension or payment deferral to get through the period of unemployment, do the Loss Mitigation rules kick in when the request is received, or since the loan is current can we proceed as we would with any other type of loan modification?

Good question, so there is no distinction, that I'm aware of, made between a Loss mitigation application made while the loan is current vs delinquent:

A loss mitigation application is a request for a loss mitigation option accompanied by any information required for evaluation for a loss mitigation option.

A loss mitigation option is an alternative to foreclosure offered by the owner or assignee of a mortgage loan that is made available through the servicer to the borrower.

So, it sounds like the borrower is making a pre-emptive effort to potentially avoid foreclosure, which I imagine could trigger the evaluation timing requirements. Although it seems a little more grey than black and white at this point. Also, I would check your loan servicing/loss mitigation policy and procedures to determine whether this type of scenario is addressed internally.

Just my interpretation, but I'd be interested to hear what others have to say on the matter.