SINGLE FAMILY HOUSING GUARANTEED LOAN PROGRAM: HB REVISIONS Effective Date: July 1, 2018

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1 SINGLE FAMILY HOUSING GUARANTEED LOAN PROGRAM: HB REVISIONS Effective Date: July 1, 2018 Chapter 18: Servicing Non-Performing Loans Accounts with Repayment Problems 18.3: Minimum Requirements B. Notify Credit Repository Clarified: The servicer must maintain accurate and complete records in order to support their actions to service the loan. 18.3: Minimum Requirements D. Inspect the Property NEW: This section of the handbook was revised to include three distinct topics: Occupancy, Abandoned property, and Inspections. Clarified: Servicers must use reasonable judgement to determine if a property is vacant or abandoned. 18.3: Minimum Requirements D. Inspect the Property Clarified: Abandoned property has been consolidated into one paragraph. Information provided in the second bullet paragraph has been included in this section. Deleted: Second paragraph has been reduced to custodial property handbook reference. 1

2 18.3: Minimum Requirements D. Inspect the Property Clarified: Inspection requirements have been condensed into one paragraph. 18.3: Minimum Requirements D. Inspect the Property Deleted: These two paragraphs were deleted and incorporated in the Inspection bullet. 18.3: Minimum Requirements E. Proceed with Liquidation Revised: G was corrected to section E. Clarified: Liquidation may be pursued when all listed conditions have been met. 18.5: Loss Mitigation Options Clarified: Lender responsibilities to review borrower ability to pay, review loss mitigation options, etc. in order to protect the government s interest are reviewed. 18.5: Loss Mitigation Options Deleted: Loss Mitigation Guide sentence was deleted and included in the next paragraph. Clarified: The paragraph was revised for greater clarification and includes the reference to the Loss Mitigation Guide, Attachment 18-A. 2

3 18.5: Loss Mitigation Options Deleted: All approved servicers were delegated to select and implement eligible loss mitigation options without USDA concurrence in August : Loss Mitigation Options Clarified: Electronic submission of loss mitigation is required as of August 1, Clarified: Interest assistance guidance is revised. 18.6: Acceleration Clarified: Demand letter is tied to third consecutive payment. Deleted: Bullet regarding date foreclosure. Deleted: Loss claim reduction statement. 18.7: The Foreclosure Process A. Initiation of Foreclosure-Referral Deleted: Guidance regarding servicer encouraging borrower to voluntarily pursue options. Clarified: Title of Attachment 18-B added. 3

4 Deleted: Servicers must select the eligible loss mitigation options as directed by the 7 CFR 3555 and the technical handbook, therefore selections should be in the best interest of the government. 18.7: The Foreclosure Process B. The Foreclosure Sale Revised: This entire section has been revised into individual sections for ease of review. NEW: Total Debt paragraph. NEW: Security Value paragraph. 18.7: The Foreclosure Process B. The Foreclosure Sale NEW: Recovery Potential paragraph. NEW: Foreclosure Bid paragraph. 18.7: The Foreclosure Process B. The Foreclosure Sale NEW: Auction Services paragraph. 4

5 18.7: The Foreclosure Process B. The Foreclosure Sale Deleted: These paragraphs were deleted as they were revised and included in the new paragraphs introduced to this section. 18.7: The Foreclosure Process B. The Foreclosure Sale Deleted: These paragraphs were deleted as they were revised and included in the new paragraphs introduced to this section. 5

6 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes Clarified: Foreclosure timeframe begins with the first legal action required by law. It ends on the foreclosure sale date. Postsale and redemption dates do not change that date. NEW: Redemption Period paragraph. NEW: Processing Delays paragraph. 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes NEW: Chapter 7 Bankruptcy paragraph. NEW: Chapter 13 Bankruptcy paragraph. 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes NEW: Prompt Referral paragraph. 6

7 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes Deleted: These paragraphs were deleted as they were revised and included in the new paragraphs introduced to this section. 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes Deleted: These paragraphs were deleted as they were revised and included in the new paragraphs introduced to this section. 18.8: Managing the Foreclosure Process A. Acceptable Foreclosure Timeframes Deleted: These paragraphs were deleted as they were revised and included in the new paragraphs introduced to this section : Special Relief Measures Clarified: Foreclosure actions must be suspended and effective 90 days from the date of the declaration. 7

8 18.11: Special Relief Measures Clarified: Servicers may reduce or suspend the borrower s monthly payments for up to 12 months : Special Relief Measures NEW: Servicers not actively engaged in workout options with a borrower, but a 90 day extension is warranted, the servicer must document their actions. Failure to do so may impact loss claim payments. Clarified: Loss mitigation was added to workout options : Special Relief Measures NEW: Special Relief Measures may be offered to borrowers without financial evaluation when the listed requirements are met. NEW: Special Relief Measures must be considered in the stated order. 8

9 18.11: Special Relief Measures 18.11: Special Relief Measures Deleted: The following portions were deleted. Loss Mitigation Guide 1: Servicing Early Delinquency Loans (Less than 90 Days Past Due) D. Informal Repayment Plans Revised: The title of this section was revised. Forbearance was replaced with repayment. 1: Servicing Early Delinquency Loans (Less than 90 Days Past Due) E. Borrowers Ability (Capacity) to Cure Revised: Forbearance has been replaced with payment. 9

10 1: General A: Owner Occupancy Deleted: Retention was removed. 1: General A: Other Eligibility Factors Deleted: Chapter 13 was removed. 1: General F: Non-Curable Default Clarified: When the borrower is not committed to remaining in the home, the lender is delegated to select the appropriate disposition option. 1: General G: Option Priority Revised: Forbearance is changed to repayment plan. NEW: Servicers should consider all eligible options for a borrower, and then select the highest level of the waterfall. Retention options are prioritized. Failed retention attempts within 12 months remain eligible for pre-foreclosure options without additional income review. 1: General I: Evaluating The Borrowers Financial Condition Clarified: Servicers must determine income and review monthly obligations. 10

11 Clarified: Language was revised. Clarified: Repayment was changed to retention option. 1: General J: Income Verification Clarified: 30 days of paystubs is changed to 4 weeks. NEW: W-2 s may be waived if 6 months of income with a YTD figure can be documented through paystubs. 1: General J: Income Verification Clarified: Income may not be grossed up more than 25 percent. NEW: Current income and asset documentation must be dated within 90 days of receipt. 1: General K: Non Borrower Income Clarified: Servicers must review household obligations and income. 1: General N: Combined Option Clarified: Servicers may user trial plans with loan modifications. 11

12 1: General R: Extension Requests NEW: Servicers do not require USDA approval in order to grant extensions. Clarified: Servicers document their file with their analysis. NEW: Servicers approve extensions. 1: General S: Option Failure Revised: Section T is now S. Clarified: Language was revised. 1: General T: Documentation Revised: Section U is now T. 1: General U: Servicing Plan Revised: Section V is now U. NEW: Servicing plans must be submitted to USDA before implementing action. 1: General V: Delegated Loss Mitigation Revised: Section W is now V. Revised: Section X is now W. 2: Special Forbearance Clarified: Language was revised. 12

13 Deleted: Information forbearance 3 month language was removed. Clarified: Hardship may include many acceptable situations. Deleted: Trial period language was removed. 2: Special Forbearance B: Property Eligibility Deleted: Surplus as removed. 2: Special Forbearance D: Financial Analysis Revised: The borrower must support modified monthly payments. Deleted: Surplus monthly income language. 13

14 3: Loan Modification Clarified: The focus of a loan modification is to reduce the payment. Deleted: These sections were removed. 3: Loan Modification B: Property Eligibility Revised: Special forbearance is changed to loan modification. Clarified: Language has been revised. 14

15 3: Loan Modification C: Borrower Eligibility NEW: Borrower s must remain identical on modified mortgages. NEW: Imminent default guidance is included. NEW: Servicers should not require borrower cash contributions. 3: Loan Modification D: Financial Analysis NEW: Guidance regarding financial information requirements, documentation, and use of credit reports is included. 15

16 3: Loan Modification D: Financial Analysis Deleted: These sections were removed. 3: Loan Modification D: Financial Analysis 1. Underwriting Gross Monthly Income NEW: Underwriting Gross Monthly Income provides more detailed guidance. 3: Loan Modification D: Financial Analysis 2. Underwriting Back End Total Debt to Income NEW: Underwriting Back End Total Debt to Income provides more detailed guidance. 3: Loan Modification E: Foreclosure 16

17 NEW: Servicers should not proceed with foreclosure actions until all loss mitigation options have been considered. 3: Loan Modification F: Modification Purpose NEW: Modified PITI s must be lower than current PITI s. 3: Loan Modification G: Lien Priority NEW: Servicers must follow all applicable laws/regulations to protect first lien status. 3: Loan Modification H: Escrows NEW: Escrow guidance section. 3: Loan Modification E: Combining Options Deleted: This section was removed. 17

18 3: Loan Modification I: Traditional Modification Waterfall Revised: This section was F and now it is I. Its new title is Traditional Modification Waterfall. NEW: Traditional Modification guidance is provided. 18

19 3: Loan Modification I: Traditional Modification Waterfall Deleted: These sections were removed. 3: Loan Modification G: Lien Status Deleted: This section was deleted and relocated. 19

20 3: Loan Modification J: Special Servicing Options NEW: The Special Servicing Options section provides specific guidance. 3: Loan Modification K: Mortgage Recovery Advance NEW: The Mortgage Recovery Advance section provides specific guidance. 20

21 3: Loan Modification K: Mortgage Recovery Advance 1: MRA Guidelines NEW: The MRA Guidelines section provides specific guidance. 3: Loan Modification L: Trial Payment Requirements NEW: The Trial Payment Requirements section provides specific guidance. 21

22 3: Loan Modification M: Documentation N: Disclosures O: Failure P: Subsequent User Revised: These sections were reorganized by numeral order. 3: Loan Modifications The following sections were edited Q: Loan Note Guarantee R: Servicer EDI Reporting S: Agency Action Revised: These sections were reorganized by numeral order. 22

23 6: Special Loan Servicing The following sections are DELETED: O: Servicer Eligibility P: Loan Eligibility Q: Eligibility Maximum Mortgage Amount R: Property Eligibility S: Borrower Eligibility T: Financial Analysis U: Underwriting Gross Monthly Income V: Underwriting Back End Total Debt to Income W: Underwriting Subordinate Financing X: Mortgage Modification Waterfall Y: Loan Note Guarantee Z: Interest Rate Modified Mortgage AA: Loan Purpose BB: Lien Priority CC: Credit History DD: Property Valuation EE: Trial Modification FF: Mortgage Recovery Advance (MRS) GG: In Foreclosure Process HH: Escrows II: Unpaid Late Fees JJ: Credit Report KK: Borrower Cash Contribution LL: Disclosure and Data Collection MM: Data Reporting 7: Pre-Foreclosure Sale B: Borrower Eligibility NEW: PFS is eligible for those that are not eligible for additional retention options or have failed on an option. 7: Pre-Foreclosure Sale E: Property Condition NEW: PFS may not be considered until insurance claims are resolved. 23

24 7: Pre-Foreclosure Sale G: Financial /Property Analysis NEW: New financial documentation may not be required if a previous mitigation offer was reviewed within the last 12 months. 7: Pre-Foreclosure Sale I: Duration of the PFS Period Clarified: DIL option added. 7: Pre-Foreclosure Sale L: Failure NEW: Evaluate borrowers for DIL prior to foreclosure action. 7: Pre-Foreclosure Sale N: Net Sales Proceeds Revised: This section is not Net Sales Proceeds. Clarified: Listing price is added. 7: Pre-Foreclosure Sale N: Net Sales Proceeds NEW: Guidance for contract reviews for PFS options. 24

25 8: Deed In Lieu of Foreclosure (DIL) C: Financial and Property Analysis Deleted: Surplus was removed. 8: Deed In Lieu of Foreclosure (DIL) C: Financial and Property Analysis NEW: New financial documentation may not be required if a previous mitigation offer was reviewed within the last 12 months. Disclaimer: Every effort has been made to ensure this job aid is accurate. Online resources: 7 CFR Part 3555: HB : USDA LINC Training and Resource Library: GovDelivery: To receive USDA Single Family Housing Guaranteed Loan Program announcements, sign up: 25