Supplemental Directive 10-18 December 28, 2010
Home Affordable Foreclosure Alternatives Program – Policy Update
In February 2009, the Obama Administration introduced the Making Home Affordable (MHA) Program to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure. In March 2009, the Treasury Department (Treasury) issued uniform guidance for loan modifications by participants in MHA across the mortgage industry and subsequently updated and expanded that guidance to include the Home Affordable Foreclosure Alternatives Program (HAFA) to provide borrowers with an alternative to foreclosure through a short sale or deed-in-lieu (DIL) of foreclosure when a loan modification is not available. In December 2010, Treasury issued version 3.0 of the Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages (Handbook), a consolidated resource for guidance related to the MHA Program for mortgage loans that are not owned or guaranteed by Fannie Mae and Freddie Mac (Non-GSE Mortgages).
This Supplemental Directive provides policy enhancements to HAFA and amends and supersedes the notated portions of the Handbook. This Supplemental Directive is effective February 1, 2011; however, servicers may begin to implement the changes outlined in this Supplemental Directive immediately. By February 1, 2011, servicers must make appropriate updates, consistent with investor guidelines, describing the basis on which the servicer will offer HAFA to borrowers (HAFA Policy) and ensure that all potentially eligible borrowers are evaluated and treated consistently.
Servicers that have executed a servicer participation agreement and related documents (SPA) must follow the guidance set forth in this Supplemental Directive. This guidance does not apply to first lien mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency, such as the Federal Housing Administration, Veterans Administration or the Department of Agriculture’s Rural Housing Service.
This Supplemental Directive covers the following topics:
- Monthly Gross Income
- Vacant Property
- Release of Subordinate Liens
- Timing for Issuance of Short Sale Agreement
- Timing for Response to Alternative Request for Approval of Short Sale
- Real Estate Brokerage Commissions
- Alternative Deed-in-Lieu Programs
- Borrower Notices
- Retroactivity
- Reporting
- Compliance
- Monthly Gross Income
With respect to HAFA eligibility, servicers are no longer required to verify a borrower’s financial information or to determine if the borrower’s total monthly mortgage payment (as defined in Section 6.1.2 of Chapter II of the Handbook) exceeds 31 percent of the borrower’s monthly gross income as currently set forth in Section 2 of Chapter IV of the Handbook. Servicers must continue to verify the borrower’s hardship by obtaining a signed Hardship Affidavit or Request for Modification and Affidavit (RMA). Notwithstanding the foregoing, each servicer may include a requirement in its HAFA Policy that borrowers provide updated financial information to evaluate the borrower.
Vacant Property
To be considered for HAFA, the property currently must be or recently must have been the borrower’s principal residence. A property that has been vacant or rented to a non-borrower for not more than 12 months prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative RASS) or DIL agreement (DIL Agreement) is eligible for HAFA, so long as the borrower provides documentation that the property was such borrower’s principal residence prior to relocation and such borrower has not purchased a one- to four-unit property during the 12-month period prior to the date of the SSA, Alternative RASS or DIL Agreement. The borrower’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. Servicers are not required to verify the number of miles the borrower moved from the property.
Release of Subordinate Liens
Subordinate mortgage/lien holders will continue to be paid in order of priority as set forth in Section 6.2.4.2 of Chapter IV of the Handbook. However, servicers are no longer limited by the six percent cap with respect to payments to each subordinate mortgage/lien holder. The servicer, on behalf of the investor, shall determine the amount or percentage of the unpaid principal balance of the lien that will be paid to each subordinate mortgage/lien holder until the $6,000 aggregate cap is reached. Each servicer must include in its HAFA Policy how subordinate mortgage/lien holders will be paid. Investors continue to be eligible for incentive reimbursement for up to one-third of the cost to extinguish subordinate liens as described in Section 12.3 of Chapter IV of the Handbook.
Timing for Issuance of Short Sale Agreement
The servicer must complete and send to the borrower an SSA no later than 30 calendar days from the date the borrower responds to the servicer’s HAFA solicitation as set forth in Section 4 of Chapter IV of the Handbook. If an unsolicited borrower requests consideration under HAFA, the servicer must evaluate the borrower’s eligibility and, if eligible, complete and send the borrower an SSA no later than 30 calendar days from the date of the borrower’s request.
Timing for Response to Alternative Request for Approval of Short Sale
No later than 30 calendar days from the date of receipt from the borrower of an executed sales contract, Alternative RASS, and a signed Hardship Affidavit or RMA, the servicer must communicate approval or disapproval of the sale or provide a counter offer on the Alternative RASS.
Real Estate Brokerage Commissions
With respect to SSA transactions, the real estate commission that may be paid shall be the amount indicated in the listing agreement between the borrower and the listing broker, provided that such commission shall not exceed six percent of the contract sales price. When the servicer has retained a contractor to assist the listing broker with the transaction, the servicer must include a statement in the SSA that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.
With respect to Alternative RASS transactions, when the servicer has retained a contractor to assist the listing broker with completion of the transaction, the servicer must include a statement in the Alternative RASS form that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.
The model RASS and Alternative RASS forms have been updated to reflect these changes and are available on www.HMPadmin.com.
Alternative Deed-in-Lieu Programs
DIL Agreements between servicers and borrowers that provide an option for the borrower to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for the borrower 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. At the discretion of the servicer in accordance with investor guidelines, the borrower relocation incentive may be paid either upon the successful closing of the DIL or at a future time when the borrower vacates or repurchases the property. Servicers offering programs of this type must include program descriptions and conditions in their HAFA Policy.
Conditional DIL agreements that allow a borrower to reinstate the original loan following some period of rental occupancy are not eligible for HAFA incentives unless and until the DIL is final and the borrower no longer has the option of reinstating or modifying the original first mortgage lien.
Borrower Notices
Under Chapter 4 of Section IV of the Handbook, when a borrower who was not previously evaluated for HAMP requests a short sale or DIL, and the servicer determines that the borrower meets the HAMP eligibility requirements and will be solicited for HAFA, the servicer must notify the borrower verbally or in writing of the availability of HAMP and allow the borrower 14
calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for HAMP. This Supplemental Directive clarifies that this notification may be given simultaneously with the servicer’s consideration of the borrower for HAFA.
Retroactivity
Servicers are not required to implement the terms of this Supplemental Directive as to any loan that has been reported via the HAMP Reporting Tool or for any loan as to which a borrower has been determined to be ineligible for HAFA. Notwithstanding the foregoing, servicers may re-evaluate borrowers previously determined to be ineligible for HAFA using the guidance in this Supplemental Directive. Each servicer’s HAFA Policy must contain a written policy that describes the basis on which the servicer will re-evaluate such borrowers under HAFA.
Reporting
Under HAFA, servicers are required to provide periodic loan level data to the Program Administrator. Updated HAFA reporting and payment processes implementing the terms of this Supplemental Directive are currently under development by the Program Administrator. Subsequent guidance on such processes will be provided on www.HMPadmin.com. Servicers of loans with SSAs or DIL Agreements entered into under HAFA after the date of this Supplemental Directive will not be required to report updated HAFA data using the HAMP Reporting Tool until the reporting processes are in place, but in this interim period servicers must collect and store information on all such HAFA transactions so that the necessary data can be reported when the updated processes become available. The policy guidance set forth in this Supplemental Directive will not require the collection of any additional data beyond the data servicers were required to collect prior to the issuance of this Supplemental Directive. When the updated reporting processes become available, servicers will be provided instruction on how to report the "Front Ratio before Modification” (DD77 in the HAFA Data Dictionary) and potentially other existing fields affected by this Supplemental Directive. Finally, HAFA incentives for such loans will not be paid until the updated reporting and payment processes through the HAMP Reporting Tool are in place; borrowers, servicers and investors will be reimbursed for all incentives relating to such HAFA transactions closed prior to the updated reporting and payment processes becoming available.
Compliance
In addition to the requirements of Section 2.2.3 of Chapter I of the Handbook, servicers are required to retain all documents and information received during the process of determining borrower eligibility, including evidence of receipt of required documents such as the Hardship Affidavit or RMA, RASS or Alternative RASS, as well as the evidence used to determine if the property was vacant. Servicers are also required to retain all documents and information related to the terms of the SSA or approval of the Alternative RASS.