Broadened Servicer Authority to Grant Deeds-in-Lieu and Postpone Foreclosures Coming March 1
Freddie Mac and Fannie Mae have written a new escape
clause into servicing regulations for homeowners who are both underwater and
struggling to meet their mortgage payments.
The new rule, which will go into effect on March 1, delegates authority
to servicers to approve a deed-in-lieu of foreclosure for borrowers for whom
neither a loan modification nor a short sale is a workable solution.
The program is available to all borrowers regardless of
their delinquency status, but appears specifically targeted at those who, by
virtue of being current or less than 90 days late on their mortgage, do not
qualify for the existing deed-in-lieu option available under the Home
Affordable Foreclosure Alternative (HAFA) program.
Freddie Mac also announced it has
revised its foreclosure sale
so that servicers no longer have to obtain written approval to postpone
a foreclosure sale for mortgages that are more
than 12 months delinquent. Servicers
now have delegated authority to postpone any foreclosure sale if they have determined
that doing so
will protect Freddie Mac's interests.
Under the new rules a servicer can approve a deed-in-lieu
if they have completed the evaluation required for all foreclosure
alternatives. The servicer must offer
the borrower a home retention option such as a loan modification or forbearance
and must encourage a short sale prior to offering the deed-in-lieu
The borrower must be able to document an acceptable
financial hardship, and convey a clear and marketable title to the
property. A servicer is not permitted to
approve a deed-in-lieu from a borrower who is less than 90 days delinquent
unless the documented hardship is either the death of a borrower or death of the primary or secondary wage
earner or long-term or permanent disability; serious illness
borrower or co-borrower or dependent
Servicers can also approve a deed-in-lieu if the borrower was previously discharged
from a Chapter 7 bankruptcy.
If these qualifications are not met and the servicer still feels a
deed-in-lieu is the best alternative they can submit a recommendation to the
GSE for approval.
If the borrower is current or less than 31
then at least one of the borrowers must occupy the mortgaged premises as a
principal residence and must have a debt payment to income ratio greater than
servicer is now required to conduct an interior property inspection no more
than 48 hours before final execution of the deed to make sure the property is
vacant, undamaged, and left in broom clean condition and all personal property
offer up to $3,000 in relocation assistance to the borrower and may at its discretion
offer additional assistance from its own funds.
If the interior inspection reveals that the property is damaged,
unclean, or personal property is left behind, the costs of cleaning or repair
must be deducted from any relocation assistance.
If a mortgage is already in foreclosure prior to initiation of a
deed-in-lieu, the servicer is required to continue with the foreclosure
proceedings and must ensure there is sufficient time to complete the processing
of the deed-in-lieu so that an executed deed can be received no later than 30
days before the scheduled foreclosure sale.
The incentive for servicers to complete a deed-in-lieu has been increased
with this notice from $275 to $1,500.