Freddie Mac is delegating authority for its mortgage servicers to approve deeds in lieu of foreclosure. The program includes relocation assistance for eligible borrowers and increased incentive payments for servicers.
As part of the Servicing Alignment Initiative created under the supervision of the Federal Housing Finance Agency, Freddie has developed the Standard Deed-in-Lieu of Foreclosure.
The McLean, Va.-based company listed a number of revisions and additions to its servicing guide in connection with the delegated authority.
The updates were outlined Thursday in Bulletin No. 2012-27.
Borrowers who don’t qualify for a foreclosure alternative or a short sale are the target of the deed-in-lieu program.
An eligible hardship is required to utilize the deed-in-lieu program. Borrowers need the ability to transfer marketable title to Freddie.
At least one borrower must occupy the property when a loan is current or delinquent no more than 30 days. In addition, the debt payment-to-income ratio must exceed 55 percent.
Servicers are given delegated authority to a approve a deed in lieu in with the requirements of Freddie Mac Guide Chapter B65, Workout Options. The authority covers borrowers whose loans are at least 90 days past due. Loans can be less than 90 days if the borrower or a primary wage earner dies, or if there is a long-term or permanent disability.
The delegation authority extends to borrowers whose debts were previously discharged in a Chapter 7 bankruptcy.
Servicers are required to adhere to Freddie’s distressed-loan evaluation hierarchy.
If the deed in lieu is outside the servicer’s authority, the servicer can still recommend that Freddie provide approval for a deed in lieu.
Borrowers who are not required to make a financial contribution toward the deficiency balance might be eligible to receive as much as $3,000 in relocation assistance as long as they occupied the subject property as their primary residence. Freddie will reduce its payment by the amount of any relocation payments made by an employer. Servicers are free to contribute beyond Freddie’s $3,000. Costs to clean up or repair the property will be deducted from Freddie’s payment.
A mortgage servicer has 30 calendar days after receiving a borrower response package to send an evaluation notice. Borrowers must be sent an evaluation notice no more than five calendar days after a decision.
Borrowers have 14 days from the evaluation notice date to accept an offer to pursue a deed in lieu.
Clear title needs to be obtained within 60 days of the borrower’s agreeing to the deed in lieu. If this deadline isn’t met, then servicers must continue working with the borrower for up to 30 additional days and provide weekly status updates to the borrower. The deal expires if a deed isn’t executed 90 days from the date the borrower agreed.
Servicers have 48 hours from the date the executed deed is received to inspect the property and 30 days to disburse the relocation assistance. Inspections will be reimbursed up to $20 by Freddie.
Servicers need to continue with foreclosure proceedings during the deed-in-lieu process except when delay for motion of judgment is provided for mortgages subject to judicial proceedings. The foreclosure can only be suspended once the executed deed-in-lieu documentation has been received. Servicers need to receive the documentation at least 30 days before the foreclosure sale date.
Borrowers will be required to sign a waiver of ownership of remaining personal property.
The change impacts deed-in-lieu of foreclosure evaluations conducted on or after March 1, 2013.
Servicers will be paid $1,500 for completing deeds in lieu. The amount was raised from just $275.
Freddie additionally said that it revised its policy so that servicers don’t need to obtain written approval to postpone any foreclosure sale as long as doing so will protect Freddie’s interests.
