Fannie Mae Clarifies Unique Hardships and Special Relief Policies

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MBS News and Announcements

Fannie Mae Clarifies Unique Hardships and Special Relief Policies

Fannie Mae recently announced our Unique Hardships and Special Relief Policies relating to single-family mortgage loans. For borrowers who experience economic hardship either due to injuries sustained while on active duty as a U.S. service member or due to the death of a U.S. service member, who have problem drywall in their homes, or whose properties or income are negatively impacted by the Gulf oil spill, servicers may suspend or reduce mortgage payments as described more fully below. For clarification, we are providing additional information about these policies and the effect of forbearance generally on our practice of purchasing delinquent loans from our single-family MBS trusts.

  • Service Member Hardships and Problem Drywall under our Unique Hardships Policy. On August 16, 2010, Fannie Mae instituted a policy for qualified homeowners facing 'unique hardships" as a result of temporary, unforeseen events or conditions that are unlikely to reoccur.

    Under this policy, Fannie Mae has directed servicers to grant forbearances, based on a case-by-case analysis of each affected borrower's needs, for the following conditions:

    • Where the borrower is a U.S. service member and is unable to continue making his or her mortgage loan payment due to an injury sustained while on active duty.
    • Where the borrower is unable to continue making his or her mortgage loan payment due to the death of a U.S. service member who was either (i) a borrower or (ii) a family member of the borrower who significantly contributed to the mortgage loan payment. The service member must have died while on active duty.
    • Where the property secured by the mortgage has problem drywall that was new when installed between 2001 and 2008, and the borrower has suffered financial hardship due to additional housing expenses and remediation.
    Once identified, servicers may provide qualifying borrowers up to six months of forbearance on their mortgage loan payments, subject to certain requirements, including verification of the borrower's income and finalization of the terms of the forbearance in writing.
  • Gulf Oil Spill and our Special Relief Policy. On June 16, 2010, Fannie Mae announced that under our Special Relief Policy, servicers may immediately suspend or reduce mortgage payments for borrowers whose properties or income are negatively impacted by the Gulf oil spill. Fannie Mae's Special Relief Policy allows a servicer to suspend or reduce a borrower's payments for up to 90 days when a payment default by the borrower is reasonably foreseeable and is the result of a temporary condition from which the borrower has a reasonable chance of recovering and later bringing the mortgage loan current.

    In general, our Special Relief Policy can apply to borrowers affected by natural disasters, terrorist attacks, and other catastrophes caused by nature or a person other than the borrower, where the related servicer reasonably believes the event will adversely affect the mortgaged property or the borrower's ability to make payments on the loan. At the conclusion of the initial forbearance period, the servicer has additional flexibility to evaluate other appropriate loss mitigation alternatives on a case-by-case basis. Alternatives may include an additional three months of forbearance, a loan modification or other customized solutions.
  • Forbearance and Purchases of Delinquent Loans from Single-Family MBS Trusts. Under our single-family MBS trust documents, Fannie Mae has the option to purchase from our MBS trusts loans that are delinquent as to four or more consecutive monthly payments. On February 10, 2010, Fannie Mae announced that we intend to purchase nearly all of these delinquent loans from our MBS trusts, and provided additional information about our selection criteria in connection with these purchases on March 1, 2010 and March 18, 2010.

    Because our right to purchase these delinquent loans is optional, Fannie Mae may from time to time reassess and revise our delinquent loan purchase policy due to economic, market, operational, and regulatory constraints, and may choose to alter our selection criteria for the delinquent loans we purchase from our MBS trusts. Previously, loans in a period of forbearance have generally been included in our purchases of delinquent loans. Fannie Mae has now determined that when delinquent loans are in forbearance, including forbearances granted under our Unique Hardships or Special Relief Policies, we will not exercise our option to purchase those loans from MBS trusts during the forbearance period, unless the purchase is necessary to effect some other loss mitigation effort (such as a permanent modification) that is not permitted while the loan remains in the MBS trust. Following the end of a forbearance period for a mortgage loan, Fannie Mae intends to exercise the option to purchase it from the related MBS trust if that mortgage loan is delinquent as to four or more consecutive monthly payments (including any delinquencies existing during the forbearance period).

    At present, Fannie Mae expects that this revision to our delinquent loan purchase policy will not have a significant impact on the number of delinquent loans that we purchase from our MBS trusts; however, the timing of when a loan is removed from an MBS trust may be impacted. Thus, under our new policy a loan may not be removed if it is in forbearance, but it may be removed if the borrower continues to be delinquent following the forbearance period. Because Fannie Mae's removal of a delinquent loan from an MBS trust has the same effect on the timing of certificate principal repayment as a borrower prepayment in full, by not exercising our option to purchase delinquent loans in forbearance, the timing of principal repayments on your certificates could be delayed. Please consult our June 1, 2009 MBS Prospectus for additional information regarding our trust agreement provisions and servicing practices regarding troubled loans, including purchases of delinquent loans from our single-family MBS trusts.

Investors may contact our Fixed-Income Securities Helpline at 1-888-BOND HLP (1-888-266-3457) if they have additional questions.

Certain statements in this announcement may be considered forward-looking statements within the meaning of the federal securities laws, including statements about the impact of our forbearance policies on the number of delinquent loans that we expect to purchase from MBS trusts. Factors that may cause actual results to differ materially from the expectations in these and other forward-looking statements include the number of U.S. service members injured or killed while on active duty, the number of borrowers affected by problem drywall or the Gulf oil spill, and the occurrence of other "unique hardships," natural disasters, terrorist attacks, and other catastrophes, as well as those factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 and our reports on Form 10-Q and Form 8-K, filed with the SEC and available through the Investors page of our Web site at www.fanniemae.com and the SEC's Web site at www.sec.gov.

 

Originally published: 08/16/10