GSEs Instruct Servicers to Help Unemployed Through State Programs

Mon, Nov 1, 2010


Fannie Mae and Freddie Mac have both issued notices to servicers that they must work closely with state housing finance agencies to provide mortgage assistance to homeowners who’ve lost their jobs.

The Treasury Department has awarded $7.6 billion for housing agencies in certain states to develop programs that provide temporary relief to unemployed homeowners.

Effective immediately, GSE servicers are instructed to accept all monthly mortgage payments from housing finance agencies (HFAs) on behalf of borrowers enrolled in state-specific programs for unemployment mortgage assistance or mortgage reinstatement plans.

The directive applies to mortgage loans held in the GSEs’ own portfolio, in a mortgage-backed securities (MBS) pool with the special servicing option, or a shared-risk MBS pool for which the GSEs market the acquired property.

Specific program details vary by HFA, but the assistance provided generally falls under one of two types. An unemployment mortgage assistance program pays portion of or the full monthly mortgage payment amount for qualifying borrowers so that they may seek employment or obtain job training without fear of losing their homes. A mortgage reinstatement program provides a one-time lump sum payment to assist in restoring a delinquent mortgage to current status.

A borrower participating in an HFA program may not simultaneously receive assistance through another loss mitigation program, including the federal government’s Home Affordable Modification Program (HAMP).

Servicers have been instructed that they may not determine borrower eligibility or communicate qualification for a state HFA program to a borrower. Servicers can, however, refer potentially eligible borrowers to the HFA in accordance with relevant state requirements.

The GSEs’ stressed, though, that servicers must not deny or delay consideration of a borrower for a relief or workout option pending approval for HFA mortgage assistance and must not require a borrower to first request financial assistance from an HFA as a condition of consideration for a relief or workout option.

Regarding protocol for foreclosures related to loans that qualify for an HFA program, Servicers are not required to accept mortgage assistance payments if a notice of trustee/sheriff sale has been recorded and is scheduled less than seven days from the date the servicer is notified of borrower approval by the HFA.

If the notice of borrower approval from the HFA is received seven or more days in advance of a scheduled foreclosure sale, Fannie says a servicer still should not suspend the foreclosure proceedings unless it has actually received funds from the HFA to cover the borrower’s mortgage payment.

Freddie stressed that if servicers suspend foreclosure proceedings, they must ensure that appropriate action is taken to re-commence foreclosure proceedings should the borrower’s mortgage payment not be received from the HFA in the month in which it is due.

Fannie Mae noted that it has elected not to participate in any principal reduction options that may be offered by some HFAs. Freddie Mac did not specify in its notice whether principal reduction was an approved means of assistance

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