January 21, 2011 (Jeff Alan)

Fannie Mae announced that it is directing its mortgage servicers to delay scheduled foreclosure sales for 45 days. The moratorium applies to borrowers that been approved assistance through the Hardest Hit Fund. The Hardest Hit Fund was part of a series of housing programs announced in February 2010 to help families hardest hit by the housing crisis.

The purpose of the Hardest-Hit Fund is to support new and innovative foreclosure prevention initiatives in the areas hardest hit by housing price declines and high unemployment rates and originally included Nevada, California, Florida, Arizona, and Michigan. Each state created a Housing Finance Agency (HFA) to administer $1.5 billion in government funds, originally distributed in June of 2010.

The Obama Administration approved the participation of five additional states in March 2010 with aid totaling $600 million. The five states are North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. The funding for these states took place in August 2010.

However, lenders were really quite slow to begin issuing loan modifications. This was due to several factors, including inadequate manpower. Some states were also slow in starting their programs, like California, who just recently started taking applications.

The initiatives range from providing options for struggling, unemployed borrowers, as well as programs to address first and second liens, facilitate short sales and deeds-in-lieu of foreclosure, and assist in past-due payments.

Fannie Mae released guidance Wednesday detailing how its mortgage servicers should handle those loans that qualify for the state assistance, and notified them that they should be ready to receive funds from the HFAs within 60 days after a program is launched. Also addressed was how the Hardest Hit Fund would affect loans permanently modified under the Home Affordable Modification Program.

“If a mortgage loan has been permanently modified under HAMP, a borrower who subsequently becomes unemployed may use an HHF Unemployment Program to make monthly mortgage payments,” Fannie said in its guidance.

Borrowers can receive unemployment assistance through one of the state level HFAs to help make their mortgage payments. Mortgage servicers are required to accept funds through a reinstatement program, if a HFA has one, which provides aid to borrowers for bringing the mortgage current or reduce the period of delinquency.

If the borrower remains unemployed after leaving the program, mortgage servicers must determine if the borrower can qualify for another one of Fannie’s foreclosure prevention alternatives such as forbearance.

If the borrower was not in a permanent HAMP modification and found a job, the mortgage servicers were directed to consider the borrower for HAMP. But if a borrower re-defaults out of a HAMP modification while unemployed, Fannie told its mortgage servicers to only evaluate them for Fannie’s own program if the borrower finds a job.

Tags: fannie mae, hsa, loan modification, unemployed, mortgage servicers, short sales, foreclosures, HAMP, mortgage borrowers