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Fannie Follows Freddie in Foreclosure Forbearance

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Less than a week after Freddie Mac announced a forbearance program for unemployed borrowers, the Federal National Mortgage Association has followed suit.

Freddie announced last Friday that it would provide mortgage servicers with the authority to provide six months’ forbearance to unemployed borrowers without its prior approval. During the forbearance period, payments will be suspended or reduced.

In addition, another six months’ forbearance is available if Freddie provides approval.

On Wednesday, Fannie Mae outlined a similar program in Servicing Guide Announcement SVC-2012-01.

Both secondary lenders were required by their regulator, the Federal Housing Finance Agency, to roll out the programs.

Approved Fannie servicers are required to implement the program by March 1, though immediate implementation is encouraged.

Fannie’s forbearance program is similar in most respects to Freddie’s.

As is the case with Freddie’s program, Fannie is requiring that the forbearance is terminated if the borrower secures employment. Borrowers who remain unemployed after a full year need to be considered for foreclosure prevention alternatives.

Fannie requires that the borrower be delinquent or likely to default in order to qualify. Only owner-occupied loans are eligible, and the borrower cannot have cash reserves that exceed 12 months’ housing expense.

Borrowers whose forbearance plans require a monthly payment will be terminated from the plan if they miss a payment.

Fannie servicers need to establish written policies and procedures about how to determine qualifying factors for borrowers under the plan.

Servicers need to contact borrowers between 120 days and 135 days after the forbearance begins to confirm whether the borrower is still not employed. If an extended plan is approved by Fannie, then the borrower needs to be contacted monthly to determine employment status.

While late charges can accrue during while eligibility is being determined, no late charges can be assessed during the forbearance period.

“The servicer should continue to report a ‘full-file’ status report to the four major credit repositories for each mortgage loan in an unemployment forbearance plan in accordance with the Fair Credit Reporting Act and credit bureau requirements as provided by the Consumer Data Industry Association,” the notice state. “Full–file reporting must continue if the unemployment forbearance arrangement is extended and must continue to the end of the unemployment forbearance plan.”

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