Truth in Foreclosure

Part four of a multi-part post. Click the Fannie Mae tag to see the rest.

The Payment Reduction Plan (PRP) replaced the HomeSaver Forbearance (HSF) program in Fannie Mae’s Workout Hierarchy as of 31 Oct 09. The goal of the PRP is to allow additional time to identify a permanent foreclosure prevention solution.

**Note: this only affects homeowners with loans backed by Fannie Mae.

If you don’t know whether your loan is backed by Fannie Mae or not, you can check here.

PRP Limitations and Notes

1. The servicer must not impose any late charges, penalties, stop payment fees, or similar fees on the mortgage loan during the PRP.
2. Servicers are not allowed to terminate existing forbearance plans and then offer a PRP.
3. All HSF agreements offered on or before October 31, 2009 will be honored.
4. Granting forbearance is contingent on the servicer’s ability to ensure the continuation of mortgage insurance coverage. Fannie Mae will pursue blanket delegations of authority from most mortgage insurers so that servicers can grant PRPs without having to obtain mortgage insurer approval on individual mortgage loans to extend the delinquency beyond the date that foreclosure proceedings would otherwise be required to begin.
5. A servicer should first evaluate a borrower to determine if they are eligible for HAMP, and if not, the servicer should then determine whether the borrower is eligible for an alternative foreclosure prevention option based on whether the borrower is experiencing a temporary or permanent financial hardship.

Temporary Hardship
For a borrower who is expected to overcome a temporary financial hardship and be able to make future scheduled payments in addition to an amount to cure any outstanding arrearage over time, the following foreclosure prevention alternatives should be considered in the following preferred order. Notwithstanding the options below, in the event a borrower requires a particular workout that the servicer deems to be in both Fannie Mae’s and the borrower’s best interest, the servicer is strongly encouraged to submit the workout case to Fannie Mae for review and approval.

• Forbearance – A temporary reduction or suspension of payments which must be immediately followed by an arrangement to cure the delinquency.
• Repayment Plan – An arrangement in which a borrower agrees to pay down past due amounts while still making regularly scheduled payments.
• HomeSaver Advance – A monetary advance to cure a delinquent loan resulting in a separate unsecured loan for the arrearage amount.

Permanent Hardship
For a borrower who has experienced a permanent or long-term/enduring financial hardship, foreclosure prevention alternatives should be considered in the following preferred order:

• PRP – For a borrower who is not eligible for, or who does not meet the terms of the HAMP but has the willingness and ability to make reduced monthly payments of at least 70 percent of the borrower’s contractual monthly P&I payment and for whom a more permanent foreclosure prevention solution cannot be readily determined, a servicer should consider the borrower for a PRP.

If a borrower is not capable of making the level of payments required under the PRP, then the servicer should consider the borrower for a more permanent foreclosure prevention alternative.

Once a borrower has a PRP or other forbearance, the following options, along with any new programs that may become available, should be considered in the following preferred order.

• Modification – For mortgage loans that are ineligible for or have failed the HAMP Trial Period Plan or the HAMP modification, and by changing any of the permanent terms of the mortgage loan (including changes to the interest rate, interest and expense capitalization, or changes to the loan term) the borrower would cure the present delinquency, avoid disposition of the property, or prevent future delinquencies.
• Pre-Foreclosure Sale – For delinquent mortgage loans, the acceptance of a sales contract prior to a foreclosure sale resulting in a payoff of less than the total amount owed on the mortgage loan and release of the mortgage lien.
• Deed-in-Lieu of Foreclosure – For delinquent mortgage loans, the voluntary transfer of title from a borrower to the servicer to satisfy the mortgage loan and avoid foreclosure (also called a “voluntary conveyance”).

A servicer must immediately resume or commence foreclosure proceedings as soon as it determines that the above foreclosure prevention solutions are not feasible.

Part four of a multi-part post. Click the Fannie Mae tag to see the rest.

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