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Foreclosure Forbearance at Freddie ordered by FHFA

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Mortgage Daily

                                                 January 6, 2012

Unemployed borrowers whose loans are owned or guaranteed by the Federal Home Loan Mortgage Corp. will soon be eligible for as much as one year of forbearance. The move is likely the result of stepped up pressure on the secondary lender’s regulator by the Obama administration.

Mortgage servicers are being given authority to provide six months’ forbearance to unemployed borrowers without Freddie Mac’s prior approval. Payments will be suspended or reduced during this period.

In addition, another six months’ forbearance is available with the secondary lender’s prior approval. However, the term cannot extend to a month that would make the loan more than 12 months’ past due.

The revisions were outlined Friday in Bulletin No. 2012-2.

Freddie noted that 10 percent of its delinquency is tied to unemployment.

The expanded options go into effect on Feb. 1, though “servicers may begin implementing the unemployment forbearance relief options earlier for all new requests for assistance in which an eligible borrower’s hardship is unemployment.”

The short-term forbearance relief must the first option considered by the servicer before pursuing other foreclosure alternatives.

Freddie had already given servicers the authority to grant up to three months’ forbearance with no payments and up to six months with prior approval and partial payments. Those borrowers will be considered for a longer term under the new policy.

The McLean, Va.-based company said that it was making the move at the direction of its regulator, the Federal Housing Finance Agency.

FHFA Acting Director Edward J. DeMarco has rigidly stood by the regulator’s mandate for Freddie and its government-controlled cousin Fannie Mae by not allowing the two agencies to be used as a tool for the U.S. economy. So the action by Freddie, which will potentially be followed by a similar move by Fannie, suggests that DeMarco is softening in his stance.

One Beltway insider noted that it was the second time that DeMarco has recently been more accommodative to the Obama administration in relation to these short-term expenses.

The first time was with the launch of HARP 2.0 in October and the elimination of representations and warranties on the transactions.

The insider, who asked not to be named, said that DeMarco’s actions are likely the result of stepped-up pressure from the FHFA’s office of inspector general. He explained that the administration has staffed up the inspector general’s operation, giving it around a four-to-one ratio in terms of FHFA employees to inspector general employees — a ratio he says is “unheard of” among government agencies.

The HARP 2.0 changes “did happen, coincidently, at the same time that the IG was really ramping up its audit and its enforcement action,” the source said — adding that the move could be seen as a stark change in FHFA policy.

In today’s bulletin, Freddie said that borrowers who were in a HAMP trial period plan before entering an unemployment forbearance agreement can be re-evaluated for a new HAMP modification after the plan is done.

Mortgage servicers can’t reach out to HAMP borrowers to participate in the forbearance program but can only respond to an incoming inquiry.

Servicers are required to terminate the forbearance upon learning that a borrower has found a job, and the borrower must cure the delinquency through a full reinstatement, payoff or a repayment plan or with another workout option.

Eligible borrowers who reject an unemployment forbearance plan cannot utilize other short-term forbearance plans.

Requests for extended forbearance require the completion of the new Guide Form 1206 and must be accompanied by a complete borrower response package, a credit report and a tax transcript.

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