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Fannie Mae OKs Foreclosure Delays for Hardest Hit Fund Assistance

Fannie Mae has issued a notice to its servicers, instructing them to postpone foreclosure proceedings for unemployed homeowners who are receiving financial help through Hardest-Hit Fund programs run by state housing finance agencies.

According to the GSE’s newly released directive, if a housing finance agency (HFA) notifies a servicer that a borrower has been approved for assistance, the servicer must not refer the mortgage loan to foreclosure or conduct a scheduled foreclosure sale for 45 days.

If a notice of trustee or sheriff sale has already been recorded and then the servicer is notified of borrower approval by the HFA, the servicer may elect to postpone the foreclosure proceedings.

The notice was issued as an update to a directive issued by Fannie in October, which did not provide specific instructions on delaying foreclosure for Hardest-Hit Fund recipients, except in the case were a foreclosure sale was already scheduled. At that time, the GSE said servicers should not suspend foreclosure proceedings unless it had actually received funds from the HFA to cover the borrower’s mortgage payment.

The update gives servicers the option to postpone foreclosure even when an auction sale has been set. Fannie Mae says the clarification will allow servicers to continue to work closely with HFAs as they assist borrowers in states with Hardest-Hit Fund programs.

Last August, the administration awarded $600 million to states with local unemployment rates above 12 percent for their HFAs to establish their own mortgage assistance programs. A week later, federal officials earmarked another $1.5 billion to expand the assistance to more states.

The 19 states that are receiving HFA funds include: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, and Washington, D.C.

Fannie Mae says servicers that service mortgage loans in any of these 19 states must ensure they are ready to work with the HFAs to help distressed borrowers. After being approached by an HFA, the servicer must engage immediately to secure signed agreements with the HFA for program participation and take the steps necessary to achieve operational readiness to receive HFA funds, according to the GSE’s notice.

Fannie is encouraging servicers to adapt their processes to implement the HFA-Hardest Hit Fund policy immediately. Servicers must be ready to receive funds from an HFA within at least 60 days of the agency’s official (non-pilot) program launch and execution of the agreement with the HFA.

The GSE notes that some HFAs may also offer a reinstatement program, which provides funds to bring the borrower’s mortgage loan current or reduce the period of delinquency, and servicers must accept these funds to cure or reduce the delinquency. Reinstatement may occur either before or after the period of HFA unemployment assistance.

Fannie Mae also said if a mortgage loan has been permanently modified under the Home Affordable Modification Program (HAMP), a borrower who subsequently becomes unemployed may use a Hardest-Hit Fund unemployment assistance program to make their monthly mortgage payments.

Should a borrower remain unemployed upon completion of the unemployment program, the servicer must evaluate the borrower for one of Fannie Mae’s foreclosure prevention alternatives, including forbearance.

In addition, if the borrower was not in a permanent HAMP modification and has become re-employed, the servicer must consider the borrower for HAMP. An unemployed borrower who fails a permanent HAMP modification and becomes re-employed can only be evaluated for a Fannie Mae modification.

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