FORECLOSURE HANDBOOK

"Guide To Delinquency And Foreclosure Solutions" Copyright 2000. All rights reserved. Preface The Federal National Mortgage Association (FNMA, or Fannie Mae) is a private corporation formed under the auspicious of the United States Government to insure the availability of mortgage money throughout the U.S. No matter where, or with whom, your home loan was originated it is probably owned, managed or under the influence of the delinquency and foreclosure prevention policies of Fannie Mae. Even if it is not, the servicing agent (bank or mortgage company receiving your payment) is likely to follow Fannie Mae's administrative guidelines for delinquency and foreclosure management. You will find the delinquency and foreclosure workout procedures for government loans administered by the VA and HUD to very similar, and in many instances more liberal. We recommend that in preparation for using this Guide you read "how to avoid foreclosure" and "help for homeowners in a changing economy" @ www.hud.gov. Delinquency and foreclosure presents a serious risk to the financial assets of the FNMA, or any other lender. Therefore, Fannie Mae has established workout procedures for the purpose of circumventing potential lose to the corporation and its servicing agents that are based on very flexible policies. While the appropriate help is intended to reach those in need of prevention counseling the overburdened and often poorly trained lending bureaucracy often fails to provide the needed guidance in time. This guide has been created to provide you with the information you need in order to take control of your rights, and to identify the solution that meets your needs thereby giving you the means to save your home and most valuable asset. DELINQUENCY PREVENTION AND MANAGEMENTENT The Lender's Point of View Today's loss mitigation philosophy stresses the importance of working out problems whenever possible—a reasonable goal given that roughly half of mortgage loans sold to the GSE's that become seriously delinquent are worked out. With the proper tools, mortgage servicers can increase the frequency of their workouts and lower their foreclosure costs. Which is why the major secondary market players offer mortgage servicers a host of loss mitigation tools to use when they work with borrowers to prevent foreclosures. A major driver behind increased workout volume is technology. Starting as early as the first missed payment and continuing through loss mitigation and, when necessary, on to foreclosure, mortgage servicers will find that technology can help with workflow, decision- making, and process management. Workflow Assistance While many borrowers will be late with a payment, few are actually in serious trouble. Freddie Mac's Early indicator®, a Microsoft® Windows-based software application and Fannie Mae's Risk Profiler®, a Web-based system, help servicers distinguish between those who typically pay late and those who are likely in real trouble. Using statistical models, the programs predict the likelihood that a delinquent loan will be resolved, or that it will advance through to a loss-producing state and ultimately to real estate owned (REO). The systems score delinquent loans to help loan servicers prioritize collection calls and other loss mitigation work to focus on the borrowers at greatest risk. Once it is clear that a borrower has not merely forgotten to mail in a payment, other technology helps the servicer decide what to do next. The first step must always be to determine whether the borrower has both the ability and the willingness to continue making mortgage payments and retain the home. Has the borrower faced a temporary loss of income due to medical bills or a layoff? Has the problem arisen because of financial mismanagement or because the original loan was too big of a fiscal stretch? Borrowers capable of keeping a home are given different mitigation options than those who do not have the ability to continue making payments. Tools such as Freddie Mac's Workout Prospector® and Fannie Mae's Workout Profiler™, analyze the borrower's arrearage, financial situation, income and expenses and models a workout option that can be offered to the borrower (see sidebar Loss Mitigation Glossary). For instance, if the condition that caused the borrower's hardship is permanent and the borrower's income is fixed, Workout Prospector® might suggest lowering the note rate to keep the borrower in the house. But if the borrower cannot manage the payment even with loss mitigation assistance, the programs steer the servicer through the foreclosure process as quickly as possible, including suggesting programs, such as a deed- in- lieu of foreclosure, a short sale, or loan assumption. Extra Support Fannie Mae has built extra servicing support into its programs targeting firsttime homebuyers who have attended homeownership classes as a condition of receiving certain Fannie Mae mortgage products, such as a Fannie Mae MyCommunityMortgage™, Fannie 97®, Fannie 3/2™, or the Community Home Buyer's Program.™ Post-purchase, if a borrower with one of Fannie Mae's community loan products is 10 days late, the servicer must offer early delinquency counseling (EDC). In EDC, the servicer helps the borrower identify why the mortgage payment was not on time and what can be done to resolve the problem. Unlike traditional mortgage collection efforts, EDC addresses broader financial issues, such as family budgeting. Freddie Mac has a similar requirement with its HomePossible™ Suite of affordable mortgage products, which also require pre- and post-purchase counseling. Can't Get Through While technology offers many solutions to the challenge servicers face in dealing with delinquencies, there is one problem that it cannot easily overcome: borrowers who are unwilling to communicate with the servicer. In at least half of all foreclosures, the borrower simply does not respond to calls or letters sent by a servicer. According to a 2005 Freddie Mac-sponsored survey, nearly two-thirds of the respondents were unaware of their workout options. In addition, a significant percentage declined to contact their lenders because of some combination of fear, embarrassment, or denial. Both Fannie Mae and Freddie Mac are tackling this issue with pilot programs that use trusted, reputable housing counseling groups to improve contact rates with borrowers. The hope is that borrowers who haven't responded to their servicer might respond when a nonprofit, third party organization contacts them. Freddie Mac is piloting separate efforts with counseling groups and PMI Mortgage Insurance Company (see sidebar below) to keep more borrowers in their homes. Under one of these initiatives, Freddie Mac last June began paying groups, such as the Consumer Credit Counseling Service of San Francisco, to contact borrowers who meet three qualifications: (1) they are 45 days late; (2) they meet U.S. Department of Housing and Urban Development (HUD) affordable housing qualifying goals; and (3) they have had no contact with their servicer. Freddie Mac plans to compare the success rate of housing counselors in contacting those borrowers and completing loan workouts to the success rate of a control group of loans handled only by the servicer using standard programs. As discussed elsewhere in this issue, both Citigroup and JP Morgan Chase have had success in using nonprofit housing counseling agencies to make similar connections between delinquent homeowners and the ir loan servicer. Fannie Mae is also working with nonprofits nationwide, including affiliates of ACORN, the National Council of La Raza, and NeighborWorks®. Tools available in Fannie Mae's free housing counseling application, Home Counselor Online™, offers counselors a variety of ways to assist borrowers pre- and post-purchase. A budgeting program helps counselors to assist borrowers to manage future finances. A loan analysis and amortization program can compare three different loan programs, including adjustable-rate loans, hybrids, and negatively amortizing loans and balloons. A third tool helps borrowers understand how long it will take to pay off current debts and makes suggestions about the order in which to pay off debt. Fannie Mae resources also include fact sheets on loss mitigation, private mortgage insurance cancellation, and home repairs. While these tools were designed for nonprofits, any Fannie Mae servicer can access them by signing up at the company's Web sitehttp://www.efanniemae.com/ and clicking on Housing Counselors. Fannie Mae's consumer resource center, which financial institutions can reach by calling (800)-7FANNIE, can help lenders find local nonprofits capable of assisting in contacting borrowers and doing loss mitigation work. Experts in Fannie Mae's 55 community business centers can also point servicers to local housing counselors. DELINQUENCY PREVENTION AND MANAGEMENT YOUR RIGHTS COLLECTION You Are Protected By The Law Most collection activities fall under the PRACTICE purview of two federal laws; the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. Any servicing agent, or a representative, must be in compliance with these laws. In general the law forbids any unusual, abusive or misleading practices such as: • • • • Contacting the borrower at unusual times or places Using abusive or threatening language or harassment. Speaking with a third party about your debt, or obligation. Using a false identity or third party to contact you. If you believe your rights have been violated ask to speak with the caller's supervisor immediately. Before The 60th Day If you are delinquent you can expect certain events to take place sometime during the first 60 days. • • • A credit letter. Face-to-face interview Property inspection After 90 days • Breach Letter The Breach Letter is the precursor to the foreclosure action. If a Loss Mitigation Agreement (foreclosure workout) has not been completed within approximately 45 days of this letter the case is generally referred to an attorney for filing. This example is taken directly form Fannie Mae's Delinquency Prevention And Management Manual. Date Borrower Name Address City, State, Zip Re: Loan # Property address Dear Borrower: You have fallen behind on your mortgage payments. You must bring the mortgage current within 30days of the date of this letter by sending the amount shown below to [company name} in the form of a money order or certified check. The total amount due as of date is $ . You must also include any payments or late charges that become due during this 30-day period along with the amount shown above to bring your account current. Acceptance of less than the total amount includes, but is not limited to, the principal, interest and all other outstanding charges and costs. Acceptance of less does not waive our right to demand the entire balance due under the terms of your mortgage. If you do not bring your current within 30 days of the date of this letter, [name of company} will demand the entire balance outstanding under the terms of your mortgage. This amount includes, but is not limited to, the principal, interest, and all other outstanding charges and costs. [Name of company] will start legal action to foreclose on the mortgage, which will result in the sale of the property. We may also have the right to seek a judgment against you for any deficiency. You have the right to bring your loan current after legal action has begun. You also have the right to assert in the foreclosure proceeding the nonexistence of the default or any other defense to our legal action and sale of the property. We want to work with you to resolve the problem and help you bring your account into good standing once again. We urge you to contact [name] at [telephone number] who will work with you to try to solve your current difficulty. Sincerely, the first missed payment. However, there remains plenty of time to complete a Loss Mitigation Agreement with the lender. The table below shows the average time between attorney referral and the foreclosure sale in the individual states and territories. Taken from Fannie Mae's "Delinquency Prevention And Management Manual" STATE ALABAMA ALASKA ARKANSAS ARIZONA CALIFORNIA COLORADO CONNECTICUT DELAWARE DISTRICT OF COLUMBIA FLORIDA GEORGIA GUAM HAWAII IDAHO ILLINOIS INDIANA IOWA KANSAS KENTUCKY LOUISIANA MAINE MONTHS 3 4 3 3 4 5 6 7 4 7 3 11 7 9 10 9 7 4 7 6 10 STATE MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW YORK NEW JERSEY NORTH DAKOTA OHIO OKLAHOMA OREGON PENNSYLVANIA PUERTO RICO RHODE ISLAND SOUTH CAROLINA SOUTH DAKOTA TENNESSEE TEXAS UTAH VERMONT MONTHS 6 4 4 3 10 5 10 10 4 8 7 5 9 12 3 6 4 3 2 5 10 MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI 5 5 3 4 4 3 VIRGINIA VIRGIN ISLANDS WASHINGTON WEST VIRGINIA WISCONSIN WYOMING 4 10 5 4 10 3 • • Other Lienholders If other liens have been recorded against the property those lienholders will be contacted by the lender in order to determine the condition of those loans. Once contacted junior lienholders may initiate separate foreclosure action to protect a security interest pursuant to terms and conditions contained in the mortgage, or deed of trust. Separate action by junior lienholders usually will not effect the ability to complete a Loss Mitigation Agreement with Fannie Mae, or any other lender. In fact, these lienholders may agree to participate in the workout solution. More about that under Foreclosure Prevention. RESOLVING Evaluating Individual Circumstances The lender's policy is to evaluate DELINQUENCY individual circumstances as soon as possible. Individual cases are evaluated based on the following conditions: • • • The reason for default. The borrower's attitude towards the debt. Is the delinquency considered temporary or permanent. It is very important that you attempt to open communication with the support counselors before the situation becomes more serious. Be honest and forthcoming about your situation. If you agree to a delinquency cure be sure you can comply, and be faithful to your commitment. If there is a change in your circumstances contact the lender immediately. If your situation is expected to be long term it would be useless and in bad faith to negotiate a delinquency cure. Request, instead, a Relief Provision or a Foreclosure Prevention option covered later. Counseling Services Fannie Mae offers home ownership counseling services to assist delinquent borrowers in managing debt. For the home-buyer education specialist in your area call 1-800-7FANNIE. For a nearby HUD approved counseling agency call 1-800-569-4287. These numbers may be subject to change. Measures For Curing Delinquency Fannie Mae's management policy offers some simple solutions for temporary hardships. Most other loan administration programs will follow similar policy. • • Late Charges Late charges that have been imposed may deferred to a later date, or waived altogether in cases of extreme hardship. Partial Payments Most lenders do not encourage acceptance of partial payments as a matter of practice. However, the VA and HUD require acceptance under certain conditions. Fannie Mae will accept partial payments as a means of curing delinquency if the borrower: 1. Respects the mortgage obligation. 2. Is not habitually delinquent. 3. Does not have a history of returned checks for insufficient funds. 4. Balance can be paid in 30 days Reapplying Principal Payments If you have previously made principal reduction payments to reduce your mortgage balance you may request to have these payments reapplied to the delinquent balance provided: 1. The request is in writing. 2. The result is not a higher loan balance than the amortized schedule. 3. An additional amount will be paid, as needed, to cure the total delinquency. Assignment of Rents If the property is being rented (income property) most lenders will seek to secure the rents under the following conditions. 1. The mortgage has an assignment of rents clause. 2. The decision is not in conflict with local laws 3. The decision does not confer additional rights to the tenant, or those in possession, pursuant to foreclosure. Listing The Property Listing the property for sale or rent is a delinquency option, however a Preforeclosure Option under Foreclosure Prevention may be a better alternative. • • • GRANTING RELIEF PROVISIONS Special Relief Provisions Fannie Mae makes available special relief provisions in an attempt to span periods of financial hardship that cannot be resolved by delinquency counseling, or with simple a simple cure. While the following relief provisions possess standardized features, Fannie Mae will not object to any reasonable plan provided it does not compromise the lien position or come into conflict with any other policy or commitment. When Is A Relief Provision Offered When it is determined that a delinquency is the result of a temporary condition, such as illness, unexpected expenses, or military service, and there is a reasonable chance the borrower can bring the mortgage current. During the term of a Relief Provision the property will be subject to scheduled inspections. Methods For Relief • Temporary Indulgence This is a grace period, usually 30 to 60 days that may be granted to being the mortgage current. If requested the borrower will have to demonstrate evidence to comply, and is considered to be appropriate in the following situations. 1. A contract for the sale of the property has been ratified pursuant to tenant occupancy or a closing date. 2. An insurance settlement. 3. Pending receipt of approved funding. 4. Pursuant to the completion of an approved Relief Provision. Liquidating Plan This is an option which allows additional proceeds to be added to the the regular monthly payment after the hardship has passed and the borrower can resume regularly scheduled payments. Fannie Mae, HUD and VA policy allows most any creative solution agreed to under a Liquidating Plan that will remove the delinquency in the shortest amount of time. Special Forbearance This provides for the suspension of payments for a specified period of time, and usually for no longer than 18 months (for Fannie Mae) from the date of the first payment under this agreement. At the end of the suspended period the borrower may be expected to resume payment under a Liquidating Plan. This plan is used to assist borrowers experiencing a temporary loss, or reduction, in income that is expected to be restored at a later date. Most lenders provide Special Forbearance in any situation for which there is documentation and relief is warranted. Long Term Special Forbearance In certain situations Special Forbearance can be extended. (up to 24 months for Fannie Mae) Military Indulgence A civilian borrower who later enters the military is entitled to Military Indulgence granted under the terms of the Soldiers' and Sailors' Civil Relief Act. There are Two components of this provision: 1. Interest Rate Reduction Fannie Mae policy requires a reduction in the interest rate from the time the borrower begins active duty to the date of release at the current rate of 6%. This benefit is retroactive should the borrower notify the servicing agent sometime after beginning active duty. 2. Additional Forbearance In certain cases related to the financial hardship usually associated with the loss of greater civilian pay the veteran may request special consideration in the form of a reduction in the monthly mortgage obligation. The difference between the scheduled payment and the reduced payment is referred to as arrearage by Fannie Mae. Upon release from active duty the borrower is responsible for bringing the arrearage current. Most lenders probably will not foreclose on a delinquent borrower that has been granted Military Indulgence. Currently it is Fannie Mae's policy to offer the borrower Additional • • • • Forbearance in this situation. If payments cannot be made the borrower should seek a court order granting a stay in enforcement of the mortgage obligation until released from active duty. Most all lenders observe Fannie Mae's broad range of short and long term relief options for the management of delinquent mortgages. It is particularly important that you understand your rights, and that your servicing agent has been given a liberal mandate in most situations to provide any reasonable solution. FORECLOSURE PREVENTION PREVENTING Fannie Mae Philosophy FAnnie Mae's loss policy is derived from the FORECLOSURE philosophy that diligent management of delinquent mortgages is fundamental to foreclosure prevention. When the best efforts are insufficient to bring mortgages current, and when significant losses would occur if delinquency ended in foreclosure, aggressive workout solutions become the means of protecting the profit objective of the FNMA. Fannie Mae has, therefore, created five specific Foreclosure Prevention plans. Each of these plans is administered, more or less, by all institutional lenders, and are excellent models for workout in the private market as well. Work carefully through this Guide. Select the plan that you think will work for you. Then complete the Workout Request Package and submit it to the loan mitigation representative for your lender. Follow the guidelines for submission, and be complete. It is extremely important that you formalize your request in this manner. • • • • • Repayment Plan A structured arrangement in which the borrower repays delinquent installments or advances and thus brings the mortgage current. Fannie Mae's formal repayment plans include Special Forbearance. Modification One or more of the terms are changed to bring the delinquent mortgage current Assumption An enforceable "due-on-sale" clause is waived to allow a qualified buyer to assume the mortgage of a delinquent borrower. Preforeclosure Sale The proceeds of a sale are accepted as full satisfaction for the mortgage obligation eve n if it is less than the mortgage balance. Deed-In-Lieu Of Foreclosure The borrower voluntarily deeds the property to the lender to avoid foreclosure. Each of these workout solutions will be covered in more detail. You are reminded again that while these solutions possess standardized features, Most lenders will not object to any reasonable plan provided it does not compromise the lien position or come into conflict with any other policy or commitment. Fannie Mae Management Goals Fannie Mae continues to support the goal of offering borrowers the opportunity to keep their property, and loss mitigation remains the highest priority. In addition to improving the quality and availability of counseling services, Fannie Mae continues attempts to improve the approval process and turnaround time. When Is A Workout Plan Offered Foreclosure workout is considered when a borrower's financial condition has been severely or permanently impaired and: • • • • All collection efforts have failed. Temporary Simple Cures and Relief Provisions have not been successful, or are considered impractical. Delinquency cannot be resolved under existing terms. Foreclosure would result in a loss. BUILDING A First Contact WINNING respond to the CASE FILE Your success will be measured by the manner in which you first contact. From the time you are first contacted by the servicing agent, or the agent's attorney, you should begin to establish a relationship based on honesty and credibility. The first question you should ask is, "What workout solutions are you authorized and required to offer", and "Who is the loan mitigation authority for the lender". You are entitled to this information. It is absolutely essential that you communicate with the right person. Speak only to an individual with the authorization to enter into an agreement. Use an attorney to enforce this request if necessary. Ask for a Workout Request Package. If it is not offered submit your own. Make it clear that your are prepared to offer complete cooperation and that you will comply with a workout agreement. Do the following: • • • • • Gain the servicing agents confidence. Answer all questions honestly. Completely disclose the reason for delinquency, or default. Be honest about the extent of your hardship and how long it is expected to continue. If you believe you require a foreclosure workout provide specific guidance for the counselor as to the plan and terms. Keep in mind that you know your situation far better than they do. The following reasons for delinquency generally qualify as hardship. 1. Death of a borrower 2. Unemployment 3. Reduction in the number of working hours 4. Loss of overtime or a second job 5. Increase in expenses resulting from unemployment 6. Salary reduction 7. Decline in earnings if self-employed 8. Business failure 9. Disability 10. Health related expenses 11. Involuntary employment relocation 12. Divorce 13. Bankruptcy 14. Incarceration 15. Catastrophe or natural disaster The foreclosure preve ntion counselor will probably attempt to qualify any of these reason in more detail. Insure you offer a complete explanation, and be prepared with important related details. The basic foreclosure plans are described below. It is absolutely ESSENTIAL that you select a plan that you can comply with. You will WIN or LOSE, right here. If you select, or create, a plan intended to allow you to remain in the property you must be prepared to satisfy the loan mitigation authority that you can, and will, comply with an established agreement. The lender will have to be satisfied that your plan will not only bring the loan current, but that you will continue to make all future payments as agreed. Prepare a letter which outlines you plan, and the means by which you are prepared to effect success. Be completely honest and sincere If you are employed, ask your employer to prepare a support letter which assures the lender of your continued employment. The letter should include any pay increases, bonuses or additional benefits you can expect to receive as well as any additional information which supports your employment history and credibility. If you are self employed you will need to do more than promise to pay. You will need to offer a plan that will fulfill the lender's expectation for compliance. Finally, be sure the Workout Request Package is neatly prepared and complete as to all details. If you have questions call our counselors at 916..408.0493. Properly Preparing For Financial Disclosure To receive consideration for a workout plan your income and assets will be carefully evaluated. Analysis of your financial information is intended to determine if you have assets which can be applied to the delinquent balance, and the extent to which your debt and expenses are appropriate for your particular personal, business, professional or corporate situation. Be prepared to provide the following information: Employed • • • • Federal tax returns for the last two years, including W-2s The last two months pay stubs Most recent bank statements A written statement describing the nature of your financial hardship Sole Proprietorship • • Most recent federal tax return with all schedules Year-to-date profit and loss statement Partnership • • • • • Most recent federal tax return with all schedules Form 1065, U.S. Partnership Return of Income Schedule K-1 as applicable Year-to-date profit and loss statement Corporation • • • • • Most recent federal tax return with all schedules W-2 forms Form 1120, U.S. Corporate Income Tax Return Form 2106, Employee Business Expense files with the U.S. Corporate Income Tax Return if applicable Year-to-date profit and loss statement, if applicable S-Corporation • • • Most recent federal tax return with all schedules Form 1120-S, U.S. Income Tax Return For S-Corporations Year-to-date profit and loss statement, if applicable Establishing The Highest Property Value Your equity is the key determinant of whether The lender will sustain a loss in foreclosure, and influences the type of workout solution considered to be appropriate. • Broker Price Opinion (BPO) An opinion of the market value of your property is prepared by an approved real estate broker or an appraiser to determine the condition of the property, general marketing conditions in the area and an opinion of "as is" and "repaired" value. The BPO asks the broker to supply information regarding: 1. General Marketing Conditions Provides for a description of the general area and information about the neighborhood, property location and local employment 2. Marketability Establishes the relative marketability of the property based on lot size, design, square feet of improvements and amenities. 3. Listings And Sales The BPO form provides for the relative location of current listings and closed sales. 4. Market Strategy Establishes repair and deferred maintenance needs, determines the most likely buyer (owner-occupant, or investor) and recommends financing options 5. Competitive Closed Sales A complete property description and sales data for all properties cons idered to be comparable in condition, location and size that have recorded closed sales within the last four to six months. 6. Probable Value The broker's opinion of the final selling price. 7. Recorded Liens A title search will be done to determine al liens of record. Be sure that your are aware of the liens against your property, and the reason for their existence. A Local Agent The services of a local real estate agent are available at no charge with the understanding the agent will receive your listing if you make the decision to sell. Your agent can be a very valuable asset, supplying important local knowledge that can add value to the BPO giving you added financial strength when fashioning a workout • solution. Obtain a copy of the current FNMA approved BPO Form. Become familiar with the format and, with the your agent, offer whatever assistance you can when the designated broker or appraiser arrives. CHOOSING YOUR WORKOUT PLAN The Basic Plans REPAYMENT PLAN Forbearance The formal Repayment Plan is based on the Special Forbearance provision discussed under DELINQUENCY PREVENTION AND MANAGEMENT section , and is Fannie Mae's preferred workout option because it is the least costly workout alternative. When A Repayment Plan is considered when the delinquency is the result of: • • • The death of a contributor to the monthly mortgage payment. This does not necessarily have to be a person on the mortgage Illness, catastrophe or natural disaster for which the borrower is not insured, or Any other similar or contributing factors. Keep in mind that Forbearance provisions may be customized to fit most any need or solution, however, Special Forbearance (under Fannie Mae guidelines) cannot not exceed 24 months. PARTIAL What Is A Modification Partial Mortgage Insurance Advance Claim MORTGAGE Payment: This approach might be used if a mortgage insurer is involved INSURANCE (either the Federal Housing Administration or a private mortgage insurer). ADVANCE CLAIM Under this approach, a one-time payment is made by the mortgage insurer to the lender to cover all or a portion of the default. In these cases the borrower is required to sign an interest free note for the amount of the advance claim payment payable to the insurer of the mortgage. The repayment of the note is scheduled to coincide with the borrower's ability to pay when they get back on their feet and structured to the individual's circumstance. At the latest, the note is usually due on the sale or transfer of the property. PMI's Homeowner Assistance Program Over the past year, PMI Mortgage Insurance Company has been working through nonprofit housing counseling organizations to connect borrowers who were more than 90 days late on their mortgage payments with lenders in order to develop a workout plan. Through PMI's "Homeownership Assistance Program," these nonprofit organizations have enabled borrowers to develop workouts with their lender in 40 percent of the cases they have been assigned When Is An Advance Claim Appropriate This option is available to all government and privately insured loans. Eligibility The details on this program may vary among mortgage insurers. MODIFICATION What Is A Modification This option involves changing the terms of a mortgage in order to remove delinquency and avoid foreclosure and is completed with the execution of a replacement mortgage. Fannie Mae will consider modification that includes, but is not limited to, reducing the interest rate, extending the term of the mortgage, negative amortization, replacing an adjustable rate with a fixed rate and capitalizing the delinquent payments. When Is Modification Appropriate This option will be considered only when the potential for a Repayment Plan has been illuminated due to the probability of a permanent or long term reduction in income. Lienholders having a recorded interest in your property must agree to subordinate their interest to the new loan. If there is sufficient equity in the property Fannie Mae might consider including the pay-off of junior liens in the new loan. This would be a particularly attractive workout solution if the resulting monthly mortgage obligation is less than the combined payments preceding the workout. Eligibility This option is normally available to borrowers experiencing permanent or severe financial hardship. Your obligation-to-income ratio should not exceed 36-38%. (Divide your total debt with a remaining term of more than six months by your total income for an approximation). This plan is not likely to be approved if the ratio is greater than 50%. ASSUMPTION What Is An Assumption This option involves transferring the ownership to a buyer willing to assume full responsibility for the mortgage obligation. While some loans, including most adjustable rate mortgages (ARM) are assumable without prior approval or buyer qualification, many others contain a "due-onsale" clause allowing the lender to accelerate the loan balance thereby requiring the full amount to be paid in the event of an unauthorized transfer of ownership. Fannie Mae policy will waive existing, enforceable "due-on-sale" clauses on conventional mortgages ("fixed rate"" and fully amortized) in order to complete a sale and avoid foreclosure. When Is Assumption Appropriate While Most lenders will probably consider any assumption agreement leading to a desirable outcome, it is an excellent workout solution if the mortgage balance exceeds the BPO estimate of probable value (final selling price), and particularly attractive if the property is in need of maintenance, or repair. In certain situations Fannie Mae will accept the cost of removing deferred maintenance and repair needs for the right buyer. Eligibility The borrower is usually required to assign the property to the lender's servicing agent, and the property must be free of liens. When removing liens Fannie Mae may: • • Require the borrower to pay-off the lien, or negotiate subordination Offer junior lienholders a nominal pay-off based on how close the unpaid mortgage balance is to the "as- is" value. PREFORECLOSURE What Is Preforeclosure This option provides for the sale of property in which SALE the lender and borrower agree to accept the proceeds of the sale to satisfy a defaulted mortgage, where the proceeds may be less than the mortgage balance and to avoid foreclosure. When Is Preforeclosure Appropriate This option is also used when the mortgage balance exceeds the BPO estimate of probable value (final selling price). Eligibility The borrower must be experiencing financial hardship that is the result of involuntary reduction in income and an unavoidable increase in expenses to the extent that expenses exceed income. Causes would include such things as: • • • • • Lay-off Loss of job Disability, or prolonged illness Death of a mortgage contributor Business set-back for a self employed borrower In the event of an approved Preforeclosure Sale the borrower will have to accept the following conditions: • • • • • Listing the property for sale will not delay initiating or continuing a foreclosure action, but the terms of the agreement will be honored pursuant to a sale before the foreclosure date The borrower agrees to properly maintain the property The borrower may be required to off-set Fannie Mae's losses.(Negotiable) The borrower may have a tax liability if any of the debt is forgiven. The property is free of liens. When other liens exist Fannie Mae policy agrees to workout pursuant to the Eligibility requirement for an ASSUMPTION • Fannie Mae policy retains the right to negotiate and approve the transaction. to DEED-IN-LIEU OF What Is Deed-In-Lieu Of Foreclosure This option permits the borrower FORECLOSURE voluntarily surrender the property by deeding the property to the lender as satisfaction for the debt, thereby avoiding foreclosure. This is usually considered to be the least desirable outcome for the lender. When Is Deed-In-Lieu Appropriate • • • When the property has been on the market as a Preforeclosure Sale for three months or more. There are legal obstructions to foreclosure action Deed- in-lieu allows the lender to take possession of the property sooner than would be possible through foreclosure. Eligibility In accordance with the aforementioned hardship situations and pursuant to removing junior liens based on the procedures discussed earlier. SPECIAL CIRCUMSTANCES Natural Disaster And Bankruptcy • • Natural Disaster Fannie Mae policy makes every effort to avoid foreclose on properties effected by catastrophe or natural disaster. These properties almost always protected by insurance or government policy. Bankruptcy Foreclosure can be delayed by filing a bankruptcy petition, but not avoided. If your are contemplating bankruptcy be sure that you are conferring witch an experienced attorney or paralegal when determining foreclosure options and strategy. CONTACT Fannie Mae Regional Offices The contact information shown in this DIRECTORY directory is subject to change. Should that occur contact your HUD office SPECIAL "Making Foreclosure Profitable" If you have become the SUPPLEMENT foreclosure action you will almost immediately be contacted subject of a by real estate agents, mortgage brokers, foreclosure consultants and investors who work the foreclosure market aggressively. If you view this an opportunity rather than an insult you may have the opportunity to create benefits you had not considered. This Special "Aggressive Strategies" Supplement offers a broad array of financing techniques that can add value to your property and create a dependable income stream even if you decide on a sale. While many of these techniques may not seem to offer hope immediately you will find as you talk to those who contact you that one or more of these techniques will be a perfect fit for your situation. With an open mind and some creative application of these ideas you can make a good thing out of a bad situation.