The Federal Housing Finance Agency (FHFA) has announced new requirements for Freddie Mac and Fannie Mae’s sales of non-performing loans (NPLs). These new requirements, announced on April 14, 2016, further enhance the FHFA’s prior NPL requirements announced on March 2, 2015.
The new requirements enhance the modification requirements in two main ways. Prior to the new requirements, NPL buyers were required to evaluate all pre-2009 borrowers (other than those whose foreclosure sale date is imminent or whose property is vacant) for the U.S. Department of Treasury’s Making Home Affordable programs, including the Home Affordable Modification Program (HAMP), and were required to evaluate all post-January 1, 2009 borrowers (other than those with an imminent foreclosure sale date or vacant property) for a proprietary modification. While these requirements still apply, the new requirements establish more specific standards for proprietary loan modifications, including that such modifications must not include an upfront fee or require prepayment of any amount of mortgage debt, must provide a benefit to the borrower with the potential for a sustainable modification, and must either be fixed rate for the term of the modification or offer an initial period of reduced payments (which must last for at least 5 years) with limits on subsequent increases consistent with HAMP requirements (interest rate increases may not exceed 1 percent per year after the initial period’s expiration). The new requirements additionally provide that NPL buyers must now evaluate borrowers whose mark-to-market loan-to-value (MTMLTV) ratio exceeds 115 percent for modifications that include principal reduction and/or arrearage forgiveness.
The new requirements also create a prohibition relating to a NPL buyer’s ability to abandon liens and walk away from properties. Under the new requirements, if a property securing a loan is vacant, NPL buyers are now prohibited from unilaterally releasing the lien and “walking away” from the property. Instead, if a foreclosure alternative is not possible, the NPL buyer must complete a foreclosure or must sell or donate the loan, including to a government or non-profit entity.
The Enhanced NPL Sale Guidelines may be viewed here: http://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/NPL-Fact-Sheet_04-14-16.pdf.