Fannie Mae servicers to evaluate more borrowers for imminent default
Fannie Mae notified its mortgage servicers this week to begin evaluating borrowers for imminent default not just for the Home Affordable Modification Program but for any initiative. Borrowers who do not qualify for HAMP and are less than 60-days delinquent on their mortgage must be evaluated for imminent default if they request a modification. If the servicer determines the borrower has less than $25,000 in cash reserves, the servicer must submit the loan to Freddie Mac's imminent default indicator, which evaluates the borrower's financial characteristics, such as credit score and property valuation, to determine if a default is likely. If the test comes back negative, the borrower must provide documentation showing a specific hardship such as the death of a borrower or co-borrower, a prolonged illness or a divorce. Both Fannie and Freddie completed 119,000 modifications in the fourth quarter, according to the latest report from their regulator, the Federal Housing Finance Agency. Roughly 20% of those were HAMP permanent modifications. Expanding the evaluation for imminent default to this larger percentage of non-HAMP workouts could boost numbers, as total modifications on Fannie and Freddie loans dropped 18% from the previous quarter. When modification options failed, Fannie and Freddie conducted roughly 27,000 short sales and deeds-in-lieu of foreclosure in the fourth quarter. A recent study from CoreLogic (CLGX) showed the risk of losses from these transactions due to fraud. Fannie released new guidance for servicers to mitigate some of the same risks highlighted in the report. Fannie will require servicers to obtain either a broker price opinion or an appraisal from an approved network of providers before completing a short sale or deed-in-lieu of foreclosure. According to the new guidance, servicers have until July 15 to comply. The list of providers, much like Fannie's attorney network, will be updated from time to time. Servicers cannot request more than 75% of its BPOs or appraisals from one provider, and it must wait at least 120 days after the original order for gathering an updated value. Write to Jon Prior. Follow him on Twitter @JonAPrior.