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Fannie Mae Mortgage Modifications Now Require Proof of Financial Hardship

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After announcing this week that it intends to crack down on strategic defaulters, Fannie Mae (FNM) issued a servicing guide (download here) Friday implementing another new policy — requiring servicers to verify income, liabilities, and monthly expenses for all borrowers prior to granting a permanent standard Fannie Mae mortgage modification. Previously, servicers were allowed to evaluate borrowers for standard mortgage modifications using stated information from the borrower. Now, the servicer must not agree to change the terms of a mortgage until it verifies the borrower has a hardship, determines that a permanent standard Fannie Mae mortgage modification is the appropriate foreclosure prevention alternative and obtains Fannie Mae’s prior written approval, the guideline said. Items that must be verified include salary and other income with paystubs or benefits checks, bills and a credit report. If a borrower that receives a Fannie Mae modification becomes 60 or more days delinquent within the first year after the effective date of the modification, the new policy requires servicers to "immediately" work with the borrower to pursue either a preforeclosure sale or deed-in-lieu of foreclosure, or commence foreclosure proceedings, in accordance with applicable state law. If the servicer determines another modification is appropriate for the borrower, the servicer must first obtain Fannie Mae's prior written approval. With as many as 1/3 of all mortgage defaults occurring by borrowers strategically deciding to walk away, Fannie Mae announced a plan to crack down on strategic defaulters with a policy announced Wednesday that prevents strategic defaulters from getting another Fannie Mae-backed mortgage for seven years. Fannie Mae will also take legal action against borrowers who strategically default in order to recoup mortgage debt. These would be limited to locations that allow deficiency judgments. Write to Austin Kilgore. The author held no relevant investments.

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