Assist More Borrowers as a Result of Recent Changes in Workout and Relief Options
August 21, 2012
Are you up-to-date on the current servicing requirements for workout and relief options? Single- Family Seller/Servicer Guide (Guide) Bulletin 2012-16, issued on August 21, 2012, announced requirements related to the Freddie Mac Standard Short Sale. The Guide Bulletin also included changes that you need to know about as you evaluate borrowers and consider other workout and relief options. Here are the highlights, including key effective dates.
For All Workout and Certain Relief Options
There are simplified requirements for eligible hardship and borrower documentation, which we encourage you to use now, but must use for all new borrower evaluations for alternatives to foreclosure conducted on or after November 1, 2012. The changes include:
- Revisions to the list of eligible hardships. For example, we have combined the previous eligible hardships of "Underemployment" and "Income Reduction" under the name "Reduction in Income". We also more clearly defined the following eligible hardships:
- "Increase in Housing Expenses", which is defined as a hardship that has caused an increase in the borrower's housing expenses due to circumstances outside the borrower's control.
- "Other", which enables a borrower to identify and document a potential hardship that is not covered on the list of specific eligible hardships on the Form 710, Uniform Borrower Assistance Form.
- Revisions to the documentation requirements for certain hardships, including elimination of the requirement that borrowers provide a written explanation describing the details of an eligible hardship, except in certain cases.
- Clearer guidance on:
- Income documentation requirements for salaried or hourly wage earners.
- Calculating gross income when the borrower's income is non-taxable.
As a reminder, there are new borrower solicitation documents that became effective last October. You must use these documents and forms when sending a Borrower Solicitation Package and the same documents must be in the complete Borrower Response Package.
For Deeds in Lieu of Foreclosure
Effective November 1, 2012, if a borrower is 90 days or more delinquent and has a credit score less than 620, you can evaluate the borrower for a deed-in-lieu without:
- Obtaining or reviewing a Borrower Response Package
- Verifying an eligible hardship
- Requiring the borrower to make a cash and/or promissory note contribution toward the deficiency
Also effective November 1, you are authorized to offer payment of up to $6,000 in aggregate to subordinate lien holders in order of lien priority in exchange for releasing each subordinate lien, extinguishing the underlying debts, and waiving the right to pursue the deficiency.
For HAMP and HAFA
What do you need to know about the recently announced extension of the Home Affordable Modification program (HAMP)?
- If you receive a complete Borrower Response Package, or are missing only the hardship documentation, and the borrower mailed the Borrower Response Package on or before December 31, 2013, the borrower is eligible for HAMP review.
- The modification effective date must be on or before September 30, 2014, and the first payment due date must be the first of the month.
As a result of the new Standard Short Sale option announced in the Guide Bulletin 2012-16, the expiration date for the Home Affordable Foreclosure Alternatives (HAFA) initiative was revised. Freddie Mac's implementation of the HAFA initiative will expire on December 31, 2012, in accordance with the original program expiration date.
- This means that you need to receive a fully executed HAFA Short Sale Agreement or Deed-in-Lieu Agreement on or before December 31, 2012.
- If there is insufficient time to meet the HAFA requirements, you must consider borrowers for a short sale or deed-in-lieu in accordance with Guide Chapter B65, Workout Options.
For Service Members
Changes to our requirements announced in the August 21 Guide Bulletin give you increased authority to offer relief for service members struggling to avoid foreclosure, and are effective November 1, 2012.
- You now have delegated authority to offer a short sale to a service member, without requiring a cash contribution or promissory note, if they:
- Are seeking a short sale as a result of receipt of Permanent Change of Station orders.
- Are current or delinquent on their mortgage.
- Meet all eligibility requirements in the Guide, including service members occupying the property as their primary residence and having purchased it on or before June 30, 2012.
- Relief for surviving spouse: You cannot initiate or resume foreclosure if a surviving spouse of a service member, whose death was service related, is the owner, successor in interest, or otherwise has title to the mortgaged premises and resides in the mortgaged premises as his or her primary residence.
- Extension of the Servicemember's Civil Relief Act foreclosure protection period and expiration date for service members and surviving spouse: You cannot initiate or resume foreclosure for at least 12 months after service member is released from active duty or the date surviving spouse receives notice of service-related death when release or receipt of notice occurs on or before December 31, 2014.
Get More Information
As you look at the Standard Short Sale, deed in lieu of foreclosure, and other workout options, it is important that you review Guide Bulletin 2012-16 for more detailed information.
For additional information, visit the following Web pages: