REOMAC Loss Mitigation Update Oct. 16, 2009

The information provided is general. Specific investors/lenders/servicers and PSA's may affect the use of one or more loss mitigation options. The criteria and conditions stated in the tables below may vary from company to another.

What are the loss mitigation options?

Here's a rundown of the workout options you may avail in order to avoid a foreclosure. Know when to select which option and how you'll benefit.

Options	How to benefit	Who qualifies	When to qualify	Property condition
Special Forbearance/ Repayment Plan	Repayment plan for the borrower to cover the dues and get current on loan until he can make usual payments through a structured payment plan or loan modification.	One who has suffered verified loss in income Living expenses have gone up but has enough to cover the dues and get current on the loan One should occupy the property as his primary residence	Delinquent for 3 months but not more than 12 months.	Property should not need repairs which may affect payment under forbearance.
Loan Modification	Permanent Change of terms of the loan - the dues are included into the loan balance and reamortized at a reduced rate of interest.	Suffered verified loss in income or increase in living expenses but have stable surplus income to help pay at the modified rate and terms Borrower should remain as the owner occupant and property should be his primary residence One having a loan at above market rates, lower loan-to-value ratio and mature terms (loan paid down for 10 years or more) One who isn't delinquent but may soon default on the loan	Behind on payments for 3 months or more and 1 year has passed since the loan has been offered.	Property should be in good physical condition; otherwise costs to complete repair work will drain out enough cash and borrower won't be able to make payments under the modification.
Short Sale/Pre-foreclosure Sale	Sell off property to pay off the debt, though property value has declined to less than the money owed. Avoids lengthy legal process of foreclosure. Typically less damaging to credit raying than foreclosure.	One having verified loss in income Having negative equity of not more than approx. 63% of the unpaid loan balance Occupies property as the primary residence Non-occupant may qualify but have to prove that the need to vacate is related to the cause of default	One who is already behind on payments Borrower likely to be in default soon	No serious damage to property. Even if damaged, cost of repair should not exceed 10% of the Repaired Appraised Value Property should have marketable title and even if there are junior liens, they can be resolved
Deed-in-lieu of Foreclosure	Borrower offers property to lender who sells it off to retrieve the unpaid balance.	One who's unable to continue payments at all Occupies property as the primary residence Non-occupant owner can qualify, but he has to prove that the need to vacate is related to the cause of default	The loan is in default (that is, the borrower has been through 30 days or more late payments and the cause of the default cannot be eliminated)	Property should have good and marketable title Property shouldn't have been used as rental property for more than a year
Partial Claim	Placing your past dues into a subordinate 2nd mortgage (not exceeding 12 months of PITI) payable to HUD (2nd loan payment to begin only after first mortgage is paid off; there's no interest for the 2nd loan)	Those having FHA loans and mortgages offered by Freddie Mac approved lenders Unable to qualify for forbearance Use property as the primary residence Can prove that financial hardship is over May qualify even after bankruptcy filing but court approval required	Delinquent for 4 months but not more than 12 months	Property should be in good physical condition

*NOTE: The criteria and conditions stated in the table above may vary from one lender/mortgage company to another.
Of all the loss mitigation options, special forbearance gets the highest priority. It may be combined with loan modification when there's doubt over the borrower's stability of income. When these options don't work, the lender may allow for a short sale prior to deed-in-lieu to help you avoid foreclosure. In any case, the lender documents the reasons as to why he has chosen a specific loss mitigation option.

LOAN MODIFICATION

A loan modification helps a borrower avoid foreclosure by providing them with alternatives to pay down their mortgage. It minimizes the lender's credit loss that may result from the borrower's inability to repay the loan.

Eligibility

Lender seasoning requirements, most likely 12 months.
The Homeowner must be 30 days delinquent (1 full payment due and unpaid) or more; unless an adjustable mortgage due to reset within 90 days or is Negatively Amortized. (case by case)
Default due to a verifiable loss of income or increase in living expenses.
Owner-occupant, committed to occupying the property as primary residence.
Stabilized surplus/deficit must fully reinstate the loan.

Procedures

Lender is required to assess the Homeowners financial condition.
Lender must verify the property has no adverse physical conditions.
Home repair costs may not be calculated into the loan Modification.
Lender must comply with state and federal disclosure laws or notice requirements, including whether recordation is necessary to maintain first lien requirements.
Loans reinstated using a Loan Modification within the past year require written justification prior to a subsequent modification.
Subsequent reason for default cannot be related to the previous reason for default.

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SPECIAL FORBEARANCE/Repayment Plan OPTION

The special Forbearance is a written agreement between the Homeowner and the Lender that consists of a plan enabling the Homeowner to reinstate their loan.

Facts

Leads to reinstatement of the loan.
Lender sets maximum duration.
Must be in writing and state the previously missed mortgage payments.
Provides failure options.

Special Forbearance Type I

Special Forbearance installment must be based on the homeowners ability to pay.
May allow reasonable foreclosure costs and late fees accrued prior to execution of the agreement.
Minimum duration of 2 months with a lender specified maximum length of time to repay the arrearage when required payments are increased.
Allow the Homeowner to pre-pay the delinquency at any time.

Cause of Default is Unemployment

Homeowner has good payment history and stable employment history.
Based on Homeowners ability to pay, Lender may require a partial payment; such as monthly escrow requirement amount.
Homeowner agrees to actively seek employment during term of Special Forbearance.
Homeowner immediately notifies the Lender when employment status changes.

Special Forbearance Type II

A Special Forbearance Type II combines a short term Special Forbearance with a Loan Modification or Partial Claim as a single Loss Mitigation option.

Loan must be due and unpaid three (3) months, maximum is lender specific of months unpaid delinquent.
Requires monthly payments of minimum of three (3) installments before completing the Loan Modification or Partial Claim.
Must have verifiable reduction in income or increase in living expenses, but has or will have sufficient monthly income to correct the delinquency and reinstate the loan within the duration of the plan.

Failure Options

The following provide the definition of Special Forbearance Option failure. These options must be listed within the written Special Forbearance Agreement.

The Homeowner abandons the property.
The Homeowner advises the Lender that he/she will not follow through and fulfill the terms of the Special Forbearance Agreement.
The Homeowner allows two installments to become due and unpaid without any advisement to the Lender of any problems that rendered the Homeowner unable to stay current under the terms of the Forbearance.

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PREFORECLOSURE SALES PROGRAM (SHORT SALE)

The Preforeclosure Sale Program allows a Homeowner in default to sell his or her home and use the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed.

Facts

Outright sales to a third party. It must be an "arms length" transaction.
Lenders may allow any reasonable cost of the sale including up to 6% sales commission, local/state transfer tax stamp and other customary closing costs such as the cost for a title search, appraisal and title insurances.
The appraised value must be at least 55% of the outstanding mortgage. Mortgage indebtedness=principle and interest only.
Net sales proceeds must be at least 65% of the property's "as is" appraised value, defined as selling price minus sales commission and consideration paid to seller, amount to discharge any lien (not to exceed $1,000), and customary sellers closing costs.

Eligibility

The property must be owner occupied, no "walk-a-ways" or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
The Homeowner must be 31 days delinquent or more at the time of the Preforeclosure sale closing.
The Homeowner must provide documentation of a reduction in income or an increase in living expense, and documentation that verifies the Homeowners need to vacate the property.

Procedures

The Homeowner agrees to show good faith in attempting to market and sell the property.
The Homeowner must perform all normal property maintenance and repairs until closing of the pre-foreclosure sale.
The Homeowner must list the property with a licensed Real Estate Broker, unrelated to the Homeowner. The listing agreement must include a specific cancellation clause in the event the terms of the sales are not acceptable to the lender.

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DEED-IN-LIEU OF FORECLOSURE OPTION

The Deed-In-Lieu of Foreclosure allows a Homeowner in default, who does not qualify for any other Loss Mitigation option, to sign the house back over to the mortgage company.

Facts

Homeowners proceeds must be applied to any lien(s) placed on the mortgage property.
Homeowner must agree to "written" agreement of property conditions.
Lenders may determine that a "current" Homeowner is eligible for the Deed-in-lieu of foreclosure option

Eligibility

The property must be owner occupied, no "walk-a-ways", or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
The Homeowner must be 31 days delinquent or more at the time of the Deed-In-Lieu Warranty Special Deed is executed.
The Homeowner must provide documentation of a reduction in income or an increase in living expense, and documentation, which verifies the borrowers need to vacate the property.
The Lender will develop a written Deed-In-Lieu of Foreclosure Agreement, which is to be signed by both the Homeowner and the Lender, which contain all of the conditions under which the Deed-In-Lieu will be accepted.

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