Fannie Mae will require mortgage servicers to install a new program providing forbearance relief to unemployed borrowers beginning March 1, according to guidance released Wednesday.
Servicers will be able to provide up to six months of relief without getting approval from the government-sponsored enterprise. Special consideration can be given to borrowers who require up to 12 months of forbearance.
According to the GSE, the program “simplifies and streamlines the use of forbearance options” by providing specific guidelines.
Freddie Mac will begin offering 12-month forbearance plans on Feb. 1. GSE servicers provided more than 7,000 forbearance plans in the third quarter, down from 8,000 the prior three months, according to the Federal Housing Finance Agency. Forbearance offers peaked in the second quarter of 2010 at around 20,000.
Delinquent borrowers and others on the verge of default are eligible for the program, however second homes and investment properties will not be considered. Servicers must determine that a borrower has less than 12 months worth of mortgage payments in reserves and has monthly housing expenses above 31% of their income before extending a forbearance plan.
For loans pooled into mortgage-backed securities, Fannie said the forbearance plan cannot extend past the last scheduled payment. For MBS pools issued between June 1, 2007 and Dec. 1, 2008, servicers can offer forbearance plans of up to six months. Longer plans can be granted for MBS issued before May 1, 2007 and after Jan. 1, 2009, according to the guidance.
Fannie requires servicers to evaluate borrowers deemed ineligible for the forbearance program to find other alternatives to foreclosure.
Servicers can make decision based on verbal information provided to them by the borrower, however the company must document it reasons in the loan file. For a borrower to receive an extension, he or she must submit a documentation package before the first forbearance plan runs out.
The servicer must determine the status of the borrower’s employment between days 120 and 135 of the forbearance plan. The firm must also contact the borrower every month during an extended forbearance plan and redetermine the borrower’s eligibility.
Fannie will require servicers to keep any prior mortgage insurance intact, and must get consent from the MI company before taking action if the policy requires it.
Also, servicers are not allowed to accrue late charges to the borrower during the forbearance program. If the borrower receives a modification through the Home Affordable Modification Program or another Fannie initiative, all unpaid late charges must be waived, according to the guidelines.
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