Announcement October 20, Retirement of the HomeSaver Forbearance and Conversion to the Payment Reduction Plan

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1 Announcement October 20, 2009 Amends these Guides: Servicing Retirement of the HomeSaver Forbearance and Conversion to the Payment Reduction Plan Introduction This Announcement introduces the Payment Reduction Plan (PRP). The PRP will replace the HomeSaver Forbearance (HSF) program in Fannie Mae s Workout Hierarchy. The goal of the PRP is to allow for additional time to identify a permanent foreclosure prevention solution for a borrower who has encountered a financial hardship while having the borrower maintain a payment stream. Purpose The purpose of a PRP is to provide a borrower with temporary payment relief while the servicer and the borrower work together to find the appropriate permanent foreclosure prevention solution. Under a PRP, the servicer can reduce a borrower s monthly principal and interest (P&I) payment by up to 30 percent for up to six months. Background On April 21, 2009, Fannie Mae announced the HSF in Announcement 09-05R, Reissuance of the Introduction of the Home Affordable Modification Program, HomeSaver Forbearance, and New Workout Hierarchy (Reposted May 15, 2009). HSF is a loss mitigation option available to delinquent borrowers (or borrowers facing imminent default) that do not qualify for the Home Affordable Modification Program (HAMP). Under the terms of HSF, up to 50 percent of the borrower s contractual monthly mortgage payment (principal, interest, taxes, insurance, and other escrow (PITIA)) can be reduced for up to six months while a permanent solution is explored. The program was designed to demonstrate borrower willingness to pay a reduced monthly payment while providing additional time to determine a more appropriate permanent solution. The HSF program will be retired effective October 31, Announcement Page 1

2 The primary differences between the HSF and PRP are summarized in the table below: Feature HSF Terms PRP Terms Payment Reduction Amount Payments can be reduced up to 50 percent of the PITIA at the time the forbearance is Payments can be reduced up to 30 percent of contractual monthly payments of P&I only Property Type Incentive Payment implemented Only owner-occupied properties are eligible for the program Includes non-owner occupied properties (investment properties and second homes) Paid upon entrance into HSF Paid upon mortgage loan being brought to a permanent foreclosure prevention solution This Announcement covers the following topics: The amount will be in addition to the fee paid for the permanent foreclosure prevention solution PRP Eligibility PRP Process Incentive Fee Use of Suspense Accounts and Application of Payments Existing Forbearance Plans Reporting Requirements Delinquency Status Reporting Mortgage Insurer Approval Revised Fannie Mae Workout Hierarchy Retirement of the HSF Program PRP Eligibility Servicing Guide, Part VII, Section 302: Special Forbearance; Announcement 08-31, Fannie Mae 2009 Single-Family Master Agreement, the Amended and Restated 2007 Single-Family Master Trust Agreement, and Certain Servicing Clarifications and Changes, Including Expanded Loss Mitigation Flexibility A mortgage loan is eligible for a PRP if it is a Fannie Mae portfolio mortgage loan or MBS pool mortgage loan guaranteed by Fannie Mae and all of the following criteria are met: Announcement Page 2

3 The mortgage loan is a first lien conventional mortgage loan originated no less than six months prior to the PRP effective date, as reported by the servicer and upon receipt of first payment. The mortgage loan is in default or is at risk of imminent default according to the standards outlined in Announcement 09-05R. The mortgage loan is secured by a one- to four-unit property (including investment properties and second homes). The mortgage loan is currently not on a forbearance plan. The borrower is ineligible for HAMP. The borrower has the ability to make reduced monthly payments of at least 70 percent of their contractual monthly P&I payment and a more permanent foreclosure prevention option cannot be readily determined. The property securing the mortgage loan is not condemned. If the mortgage loan is in active foreclosure, the date of any scheduled foreclosure sale is more than 45 days after the PRP effective date. The mortgage loan is not covered by recourse or indemnification agreements. Mortgage loans with borrowers in active bankruptcy proceedings are eligible at the servicer s discretion. PRP Process The PRP is available to borrowers who do not qualify or are not eligible for HAMP and who are either in default or are at risk of imminent default (according to the standards outlined in Announcement 09-05R). If a borrower has the willingness and the ability to make reduced monthly payments of at least 70 percent of their contractual monthly P&I payment and a more permanent foreclosure prevention option cannot be readily determined, then a servicer should consider the borrower for the PRP. This program is not available for borrowers who are unable to make reduced monthly payments of at least 70 percent of their contractual monthly P&I payment. Those borrowers can be considered for a regular forbearance while the servicer evaluates a permanent foreclosure prevention solution; however, the servicer will not receive the PRP incentive under these circumstances. While the borrower is eligible for the PRP for a maximum of six months, the servicer must actively work towards finding a permanent foreclosure prevention solution during this timeframe. The servicer is encouraged to find a solution as early as possible during the six-month forbearance period, with the expectation that a solution will generally be identified in the first three months and then implemented during the latter part of the forbearance period, as borrowers will not be permitted to remain in a delinquent status with no action taken by the servicer upon completion of the PRP term. When a servicer offers a borrower a PRP, the terms of the PRP offer must indicate that the forbearance will end and foreclosure action will be resumed or commenced as soon as one of the following occurs: Announcement Page 3

4 the borrower fails to make any payment more than 15 days after it is due during the forbearance period, the servicer determines that a foreclosure prevention solution is not feasible - even if the borrower is making timely forbearance payments, or a foreclosure prevention solution has not been identified by the end of the six-month forbearance period. Servicers can enroll the borrower in a PRP while they are exploring other foreclosure prevention strategies provided the PRP does not exceed six months. However, a servicer must immediately resume or commence foreclosure proceedings, in accordance with applicable laws, when a borrower fails to make any payment more than 15 days after it is due during the forbearance period or as soon as the servicer determines that a foreclosure prevention solution is not feasible. Workflow The servicer must evaluate the borrower s financial circumstances to determine an affordable monthly amount that the borrower can contribute towards the mortgage obligation. If the amount of the borrower s contribution (minus any amounts required for monthly taxes, insurance, and other escrow payments for mortgage loans with escrow accounts) is at least 70 percent or more of the borrower s contractual P&I payment, then the borrower is eligible for PRP at an amount he or she can afford. The borrower must continue to make taxes, insurance, and other escrow payments during the PRP forbearance period. If the borrower cannot afford a payment that is at least 70 percent of their current monthly payment then alternative foreclosure prevention solutions must be considered in accordance with the new workout hierarchy (as described below). When a borrower has been approved for a PRP, the servicer will communicate the terms and conditions of the PRP to the borrower and, when feasible, offer the borrower the opportunity to make payments via Automated Clearing House (ACH); provided that the borrower must not be charged a fee for such ACH transactions. Servicers are required to report PRPs as HSFs through Delinquency Reporting via HomeSaver Solutions Network ( HSSN ) for the reporting month in which the first PRP payment was received and monthly thereafter to indicate whether the borrower is currently under a PRP plan. PRPs will be called HSFs in HSSN, and new cases, including all non-owner occupied loans, must be submitted under the PRP guidelines provided herein. After a servicer has placed a borrower in a PRP, the servicer must actively work towards finding a foreclosure prevention solution and is encouraged to find one as early as possible during the forbearance period. Borrowers will not be permitted to remain in a delinquent status with no action by the servicer upon completion of the PRP six-month forbearance period. If the borrower fails to make a payment more than 15 days after it is due during the forbearance period, the servicer determines that a foreclosure prevention solution is not feasible at any point during the forbearance, or a foreclosure prevention solution has not been identified by the end of the forbearance period, the servicer must immediately resume or commence foreclosure. Announcement Page 4

5 Incentive Fee Servicers will receive a $200 incentive fee for a PRP upon the successful completion of a permanent foreclosure prevention alternative. Use of Suspense Accounts and Application of Payments In accordance with the Servicing Guide, Part III, Section : Pending Modifications, Announcement 07-03R2, Introduction of the Fannie Mae Single-Family MBS Master Trust Agreement (Revised 8/17/07) and, if permitted by the applicable loan documents, servicers may accept and hold as "unapplied funds" (held in a tax and insurance custodial account) amounts received that do not constitute a full monthly contractual PITI payment. However, when the total of the reduced payments held as unapplied funds is equal to a full PITI payment, the servicer is required to apply all full payments to the mortgage loan. The servicer must not impose any late charges, penalties, stop payment fees, or similar fees on the mortgage loan during the PRP. Existing Forbearance Plans Servicers are not allowed to terminate existing forbearance plans and then offer a PRP. Additionally, servicers are reminded that they can only offer forbearance for a maximum term of up to six months on any mortgage loan pooled under the Amended and Restated 2007 Single- Family Master Trust Agreement and that the terms of any forbearance granted must comply with the forbearance terms as outlined in Announcement and Announcement 07-03R2. For all mortgage loans (including those pooled under the Amended and Restated 2007 Single- Family Master Trust Agreement) that are currently in forbearance, Fannie Mae expects that after forbearance, the mortgage loan must have become current or the servicer must report a delinquency status code in HSSN to indicate that the loan status has appropriately changed during or at the end of the forbearance period. For example, one of the following codes may apply: Code 12 - a repayment plan, Code 31 - in probate, Code 32 - under military indulgence under the provisions of the Servicemembers Civil Relief Act or applicable state law, Code 43 - referred to foreclosure, or Codes 59, 65, 66, or 67 - in bankruptcy. If the servicer is working with the borrower on a loss mitigation relief option, one of the following codes must be reported: Code 17 - preforeclosure sale, Code 26 - refinance, Announcement Page 5

6 Code 27 - assumption, Code 28 - mortgage modification, Code 44 - awaiting the completion of a deed-in-lieu, or Code 42 - delinquent no action (the servicer has commenced or resumed collection activities leading to foreclosure proceedings after the forbearance). Reporting Requirements Servicers will continue to submit PRPs as HSFs through Delinquency Reporting via HSSN as outlined in Announcement 09-27, Miscellaneous Servicing Policy Changes, until further notification. This will serve to facilitate the program transition and reporting requirements. As stated earlier, PRPs will still be called HSFs in HSSN, and all new cases must be submitted under the PRP guidelines. All HSF agreements offered on or before October 31, 2009 will be honored. However, all outstanding offers must be closed and entered into HSSN prior to December 10, After December 10, 2009, only offers that meet the PRP guidelines will be allowed into the system. Delinquency Status Reporting Servicing Guide, Part VII, Chapter 6, Exhibit 1: Delinquency Status Codes The servicer must report Delinquency Status Code 09 - Forbearance during the PRP while evaluating the borrower for a permanent foreclosure prevention solution. Mortgage Insurer Approval 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. Fannie Mae has posted and will maintain on efanniemae.com a list of the mortgage insurers from which it receives a delegated authority agreement for the PRP. Servicers must continue to obtain mortgage insurer approval on a case-by-case basis from any mortgage insurer for which Fannie Mae has not yet received a delegated authority agreement. Servicers should consult their mortgage insurance providers for specific processes related to the reporting of forbearance terms, payment of premiums, payment of claims, and other operational matters in connection with forbearances granted under the PRP. Revised Fannie Mae Workout Hierarchy 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 Announcement Page 6

7 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. Other Forbearance A temporary reduction or suspension of payments (subject to the limits of the governing MBS trust document under which that mortgage loan was pooled), which will culminate in 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 Announcement Page 7

8 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. Retirement of the HSF Program Effective November 1, 2009, servicers can no longer offer the HSF to borrowers who are in default or to those who are at risk of imminent default. All HSF agreements offered on or before October 31, 2009 will be honored for a period of not more than 30 days. Accordingly, all offers made on or before October 31, 2009 must be closed and entered into HSSN prior to December 10, ***** Servicers should contact their Servicing Consultant, Portfolio Manager, or the National Servicing Organization's Servicer Support Center at FANNIE5 ( ) if they have any questions about this Announcement. Marianne E. Sullivan Senior Vice President Single-Family Risk Officer Announcement Page 8