Fannie Mae and Freddie Mac Have The Same Short Sale Rules and Policies

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1 Fannie Mae and Freddie Mac Have The Same Short Sale Rules and Policies Effective September 1, 2011 There are approximately 3.3 million Americans who are in or close to foreclosure. Fannie Mae and Freddie Mac hold roughly 30 million mortgages. The FHFA (Federal Housing Finance Administration) will now require that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee. The stated purpose of the new mandate is to create an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, from loan modifications to short sales. The director of FHFA Edward J. DeMarco stated that once fully implemented, the enterprises newly aligned policies will require earlier contact with homeowners, more frequent communication and that prompt decisions be made. Fannie and Freddie are required to publish the new guidelines for their servicers before September 30, Fannie Mae and Freddie Mac new standards for mortgage servicers regarding default prevention, managing delinquent loans and foreclosure time frames. The new rules are supposed to help with problems in mortgage servicing. Servicers will be held accountable and fined if they fail to comply. Known as the Quality Right Party Contact standard, both GSEs want servicers to builder build stronger customer service relationships, educate homeowners on foreclosure prevention options and: Will use the same package for homeowners to submit to be considered for modifications and short sales. When the homeowner's package is received by the servicer, there must be a simultaneous evaluation of the homeowners for both the HAMP and HAFA short sale programs There be a uniform process for case escalation which mandates an acknowledgement within three business days of an escalation request Servicers will be limited to a maximum of 30 days to resolve escalated cases During the first 120 days of delinquency, homeowners will be contacted both verbally and in writing to complete a mortgage modification or other solution to remain in the home, or enter into an arrangement to exit the home without a foreclosure, such as a short sale Including a 60-second window for answering inbound inquiries to call centers 48 hours to respond to homeowner's s, as well as specific timelines for property inspections depending on loan status Both agencies will look at a 90% net proceeds based on a fair market value appraisal or BPO. If the mortgage has MI, then calculate 91% of the fair market value. Keep in mind that the investor(s) owning the loan will have the final say in approval.

2 Home Affordable Foreclosure Alternative Program (HAFA) Loans that are not owned or guaranteed by Fannie Mae and Freddie Mac or guaranteed by a federal agency, such as the Federal Housing Administration, Veterans Administration or the Department of Agriculture's Rural Service HAFA, the Home Affordable Foreclosures Alternative program, is a program from the US Treasury Department that went into effect April 5, The HAMP and HAFA program has been extended through HAFA simplifies and streamlines the use of short sale and deed-in-lieu options for homeowners who can t keep their homes through the Home Affordable Modification Program (HAMP). By selling your house in a HAFA short sale, as opposed to the traditional short sale process, you get a number of benefits. HAFA is not a home-saving program. It is more of a foreclosure avoidance and credit rescue program, and the main way it helps is by providing powerful financial incentives for both banks and homeowners to instead choose the path of a short sale or deed-in-lieu. Through HAFA, homeowners can avoid the lasting damage of a foreclosure on their credit score. Homeowner Benefits $3,000 for relocation assistance Decisions are made faster and upfront Foreclosure process is temporarily halted Deficiency waver guaranteed by the servicer HAFA has less negative effect on your credit report HAFA Features The HAFA program simplifies and streamlines the use of short sale and deed-in-lieu options by incorporating the following features: NOT all lenders have to comply. The program is a volunteer program. The HAFA program does not apply to Fannie Mae and Freddie Mac loans HAFA is only a set of guidelines that servicers can ELECT to follow. The program is not law or even really a set of rules or policies. The program is merely a set of suggestions. Servicers can choose to abide by the suggested program or bend them to meet their needs. Utilizes homeowner's financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis Allows the homeowner to receive pre-approved short sale terms and acceptable net proceeds prior to the property listing Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement Requires that homeowners be fully released from future liability for the debt Provides financial incentives to homeowners, servicers and investors HAFA also requires the buyer to hold the property for at least 90 days after closing Servicers are not required to evaluate the mortgage loan using the NPV test Real estate commissions are not to exceed 6% of the contract sales price

3 The homeowner's reason for relocation does not need to be connected to re-employment or transfer of employment. Also, there is no longer a minimum distance requirement. The servicer must complete and send to the homeowner an SSA no later than 30 calendar days from the date the homeowner responds to the servicer s HAFA solicitation If an unsolicited homeowner requests consideration under HAFA, the servicer must evaluate the homeowner's eligibility and, if eligible, the SSA must be sent no later than 30 calendar days from the date of the homeowner s request DIL Agreements will provide an option for the homeowner to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for the homeowner to repurchase the property at some future time are also eligible for financial incentives under HAFA, so long as all other program requirements are met The model RASS and Alternative RASS forms have been updated to reflect these changes and are available on HAFA Short Sale Agreement The SSA must give the homeowner an initial 120 period to sell the home Extensions may be granted up to 12 months total Within 30 days after servicer received the RASS and all required attachments, the services must approve or deny the request and advise the homeowner The servicer may require the closing to take place within a reasonable period after it approves the RASS, but not sooner than 45 days HAFA Deed-in-Lieu of Foreclosure DIL is contingent upon the homeowner s ability to provide a marketable title, free and clear of mortgages, liens and encumbrances. Generally, servicers require the homeowner to make a good faith effort to sell the property through a short sale before agreeing to accept the DIL. However, under circumstances acceptable to the investor, the servicer may accept a DIL without the homeowner first attempting to sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the homeowner and must forfeit the ability to pursue a deficiency judgment against the homeowner. Revised HAFA Guidelines Friday, March 9th 2012, the Obama Administration announced major updates to the Home Affordable Foreclosure Alternative (HAFA) program. Created in 2009, HAFA is a government-sponsored (US Treasury) initiative assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure through the short sales process & deed-in-lieu program. HAFA allows you to transition from a home you can no longer afford. One option under HAFA is being able to do a short sale on your home without having to pay the deficiency balance after you sell it. These new HAFA updates will be effective as of June 1, 2012, and will allow more distressed homeowners to seek assistance. Most importantly, the deadline for submitting for HAFA eligibility will be extended a full year, to December 31, 2013.

4 Updates to the HAFA program include: The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months. $3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale. Mortgage payments will be allowed to exceed 31% of the homeowner s gross monthly income. This update will allow a homeowner to stay current on her mortgage and still qualify, minimizing the overall impact to her credit. Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously. And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full/a foreclosure was started), as applicable. With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit! Servicers can now accept a full payment, if the borrower requests to make a full contractual payment in order to stay current on the loan. Freddie Mac HAFA Update Call 800-FREDDIE Servicers must verify that the borrower is occupying the property as a primary residence, and it is not abandoned, condemned, or vacant (without an applicable exception) Borrowers must meet the basic eligibility criteria for HAMP, but not qualify for or complete a HAMP modification or other Freddie Mac home retention solutions Borrowers must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment Borrowers who may be in foreclosure, in pending litigation involving the mortgage, or who are in active bankruptcy may be eligible for this initiative Borrowers must be able to convey a clear, marketable title to the mortgaged property Fannie Mae HAFA Update A homeowner is eligible for HAFA if all the following requirements have been met in the listed order: The homeowner has qualified for a HAMP modification*, based on verified income, but: was not offered a trial modification due to inability to meet HAMP qualifications (for example, did not pass the NPV test or meet the target monthly mortgage payment ratio) Failed to complete the trial period successfully Became 2 consecutive payments (31 or more days) delinquent on the modified loan; or Requests a short sale or DIL One exception to the HAMP eligibility criteria regarding property occupancy allows a homeowner to be eligible for HAFA if evidence is provided that he/she had to relocate to a new job or was transferred by an existing employer more than 100 miles from the property AND has not purchased a one- to four-unit property within 90 days prior to the date of a HAFA Agreement The homeowner has been considered for all other home retention options as per Fannie Mae s loan workout guidelines

5 The homeowner has completed an evaluation of their financial condition and has determined that the homeowner does not have an ability to contribute meaningfully to reducing the potential loss on the mortgage loan Evaluation of the Homeowner's Financial Condition The servicer must evaluate the homeowner's financial condition for the Fannie Mae HAFA program using the guidelines noted below, to determine whether the homeowner has an ability to contribute meaningfully to reducing the potential loss on the mortgage loan. The servicer must determine if the homeowner has: The ability to continue making the mortgage payments but chooses not to do so Substantial unencumbered assets or significant cash reserves equal to or exceeding three times the homeowner's total monthly mortgage payment (including tax and insurance payments) or $5,000, whichever is greater High surplus income If the homeowner actively markets the property, but is unable to sell it within the agreed-upon marketing period or the HAFA Short Sale Agreement is terminated prior to its expiration as provided below, a servicer must then immediately consider a DIL. With a DIL, the homeowner voluntarily transfers the property to Fannie Mae in full satisfaction of the entire first lien mortgage debt, provided that the homeowner can deliver clear and marketable title. Fannie Mae will also take legal action to recoup the outstanding mortgage debt from homeowners who strategically default on their loans in jurisdictions that allow for deficiency judgments. HAFA Related Servicer Support FHA National Servicing Center - hsg-lossmit@hud.gov, Non-GSE HAMP - Support - support@hmpadmin.com, Fannie Mae HAMP - servicing_solutions@fanniemae.com, Fannie Mae - KnowYourOptions.com Freddie Mac HAMP - homeowner_outreach@freddiemac.com, Veterans Administration, Making Home Affordable Options Include Visit: Home Affordable Modification Program SM (HAMPSM) Principal Reduction Alternative SM (PRA) Second Lien Modification Program (2MP) FHA Home Affordable Modification Program (FHA-HAMP) USDA s Special Loan Servicing Veteran s Affairs Home Affordable Modification (VA-HAMP) Home Affordable Foreclosure Alternatives Program (HAFA) Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP) Home Affordable Modification Program for Rural Development Loans (RD-HAMP)

6 Home Affordable Refinance Program (HARP) FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance) Home Affordable Unemployment Program (UP) Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF)