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Mortgage Servicing and Loan Modifications: 12.2.2.4 Mortgage Forbearance

The servicer is authorized to evaluate the borrower for a forbearance plan without receiving a complete Borrower Response Package.123 The borrower’s monthly payment must be reduced or suspended during the forbearance plan term.124 The property securing the mortgage loan may be a principal residence, a second home, or an investment property. The property must not be condemned or abandoned, but it may be vacant.125

Mortgage Servicing and Loan Modifications: 12.2.2.7 Evaluating or Soliciting a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification

Borrowers who cannot afford the current payment, do not accept a Disaster Payment Deferral, or are otherwise ineligible to receive the deferral should be evaluated for a Fannie Mae Flex Modification. The Flex Modification seeks to provide payment relief to borrowers, and the method for calculating the financial terms of a Fannie Mae Flex Modification is discussed in § 7.3.1, supra.

Mortgage Servicing and Loan Modifications: 12.2.2.8 Distribution of Insurance Proceeds After Disaster

Fannie Mae’s rules for the distribution of insurance proceeds after a disaster are outlined at section B-5-01 of the Servicing Guide.143 Fannie Mae occasionally makes temporary revisions to its requirements to assist borrowers who need upfront insurance proceeds to repair or rebuild their homes. What follows are the generally applicable requirements for disbursing loss proceeds after a natural disaster.

Mortgage Servicing and Loan Modifications: 12.2.3.1 Sources of Information

The major sources for information regarding Freddie Mac relief are Freddie Mac’s Single-Family Seller/Servicer Guide (Seller/Servicer Guide), chapter 8404, which is entitled “Servicing Mortgages Impacted by a Disaster,”145 chapter 9203.26 regarding the Disaster Payment Deferral, and the Freddie Mac Disaster Relief Reference Guide.146 Another resource is the Freddie Mac website’s disaster relief page.147 In addition, Fredd

Mortgage Servicing and Loan Modifications: 12.2.3.3 Late Charge Suspension

Freddie Mac’s Seller/Servicer Guide mandates the suspension of the assessment of late charges by servicers if borrowers are on a forbearance plan or paying as agreed on a repayment plan.153 The Freddie Mac Disaster Relief Reference Guide reiterates that late charges may not be assessed while the borrower is on a forbearance plan or paying as agreed on a repayment plan, but it provides that late charges may accrue during a trial period plan subject to the requirements of the Seller/Servicer Guide at section 9102.2.

Mortgage Servicing and Loan Modifications: 12.2.3.4 Mortgage Forbearance

The Seller/Servicer Guide outlines certain activities that a servicer is required to take “to appropriately manage the Borrower’s Delinquency if the Servicer believes the disaster resulted in a hardship for the Borrower and the disaster is an Eligible Disaster.”155 One of these activities is the consideration of a mortgage forbearance plan that includes either reduced or no monthly payments for a specific time period.

Mortgage Servicing and Loan Modifications: 12.2.3.6 Freddie Mac Disaster Payment Deferral

The Freddie Mac Disaster Payment Deferral replaces the former loss mitigation options known as the Extend Modification and the Disaster Relief Modification. It was introduced in detail on July 15, 2020 in Freddie Mac Bulletin 2020-28.173 The Disaster Payment Deferral became effective as of October 1, 2020 and evaluation for this option was mandatory as of that date.174 The Disaster Payment Deferral is described at section 9203.26 of the Seller/Servicer Guide.

Mortgage Servicing and Loan Modifications: 12.2.3.7 Freddie Mac Flex Modification

Borrowers who cannot afford the current payment, do not accept a Disaster Payment Deferral, or are otherwise ineligible to receive the deferral should be evaluated for a Freddie Mac Flex Modification. The Flex Modification seeks to provide payment relief to borrowers, and the method for calculating the financial terms of a Freddie Mac Flex Modification is discussed in § 7.3.1, supra.

Mortgage Servicing and Loan Modifications: 12.2.3.8 Disbursement of Insurance Proceeds After Disaster

Freddie Mac’s rules for the distribution of insurance proceeds after a disaster are outlined at section 8202.11 of the Seller/Servicer Guide (insurance loss settlements).187 Freddie Mac occasionally makes temporary revisions to its requirements to assist borrowers who need upfront insurance proceeds to repair or rebuild their homes. What follows are the generally applicable requirements for disbursing loss proceeds after a natural disaster.

Mortgage Servicing and Loan Modifications: 12.2.4.1 Sources of Information

The major sources of information regarding Federal Housing Administration (FHA) disaster relief are Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1)190 and the Department of Housing and Urban Development (HUD) website’s “Disaster Relief Options for FHA Homeowners” webpage.191 Another useful resource is the FHA National Servicing Center’s guide, Servicing and Loss Mitigation for FHA-Insured Mortgages in Presidentially-Declared Major Disaster Areas

Mortgage Servicing and Loan Modifications: 12.2.4.4 Home Retention Options

In Mortgagee Letter 2023-03, HUD amended the loss mitigation waterfall available for borrowers transitioning from a disaster-related forbearance through October 30, 2024. Under Mortgagee Letter 2023-03, HUD directs servicers to evaluate borrowers for COVID-19 loss mitigation options regardless of whether the borrower’s hardship resulted from the pandemic.208

Mortgage Servicing and Loan Modifications: 12.2.4.6 Section 203(h) Mortgage Insurance for Disaster Victims

Section 203(h) of the National Housing Act authorizes the FHA to insure mortgages for victims of a disaster for the purchase or reconstruction of a single-family property.215 This program allows FHA-approved lenders to provide financing for homeowners (or renters) whose residences were destroyed or damaged to such an extent that reconstruction or replacement is necessary, and it provides 100% financing for the purchase or reconstruction of a home.

Mortgage Servicing and Loan Modifications: 12.2.5.2 Foreclosure Moratorium and Eviction Suspension

The Servicer Handbook states that “[a]lthough the loan servicer is ultimately responsible for determining when to initiate foreclosure, and complete a termination action, VA requests that servicers establish a 90-day moratorium from the date of a disaster on initiating new referrals to foreclosure on affected loans.”223 However, under certain circumstances, the VA may require servicers to suspend foreclosure sales and evictions for a prescribed time period.

Mortgage Servicing and Loan Modifications: 12.2.5.3 Mortgage Forbearance, Credit Reporting, and Late Fee Suspension

The VA Guidance on Natural Disasters states that the VA “encourages servicers of guaranteed loans in disaster areas to extend all possible forbearance to borrowers in distress.”224 When members of the National Guard are called to active duty as part of recovery efforts, the VA “encourages servicers to extend special forbearance to National Guard members who experience financial difficulties as a result of their service.”225 The Servicer Handbook also urges suspension of credit reporting

Mortgage Servicing and Loan Modifications: 12.2.5.4 Home Retention Options

The Servicer Handbook states that there are two modification options for borrowers who have been impacted by a disaster: the VA Disaster Loan Modification and the Disaster Extend Modification. These modifications do not require the borrower to submit a complete loss mitigation application.227 The Servicer Handbook also advises servicers to refer to 38 C.F.R.

Mortgage Servicing and Loan Modifications: 12.2.6.1 Sources of Information

An important source of information about the United States Department of Agriculture (USDA) direct loan program240 and disaster assistance is Appendix 10 of the HB-1-3550 Direct Single Family Housing Loans and Grants Field Office Handbook (HB-1-3550 Handbook), which is entitled “Single Family Housing Fiel