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IDAHO

NORTH IDAHO DIRECTORY.   AND VISITOR INFORMATION

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Short Sale Guidelines

Supplemental Directive 09-09 November 30, 2009

Supplemental Directive 09-09 November 30, 2009

Introduction of Home Affordable Foreclosure Alternatives – Short

Sale and Deed-in-Lieu of Foreclosure

Background

In Supplemental Directive 09-01, the Treasury Department (Treasury) announced the eligibility,

underwriting and servicing requirements for the Home Affordable Modification Program

(HAMP). Under HAMP, the servicers apply a uniform loan modification process to provide

eligible borrowers with sustainable monthly payments for their first lien mortgage loans. While

HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is

expected that servicers will encounter situations where they are unable to approve a HAMP

modification request, a HAMP modification is offered and not accepted by the borrower, or the

borrower falls out of a HAMP modification. In these instances, the borrower may benefit from

an alternative that helps the borrower transition to more affordable housing and avoid the stigma

of a foreclosure.

This Supplemental Directive provides guidance to servicers for adoption and implementation of

the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of HAMP and

provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu

to avoid a foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives

reduce the need for potentially lengthy and expensive foreclosure proceedings. The options help

preserve the condition and value of the property by minimizing the time a property is vacant and

subject to vandalism and deterioration. In addition, these options generally provide a

substantially better outcome than a foreclosure sale for borrowers, investors and communities.

This Supplemental Directive provides guidance to servicers for adoption and implementation of

HAFA for first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie

Mac (Non-GSE Mortgages). In order for a servicer to participate in HAFA for Non-GSE

Mortgages, the servicer must execute a servicer participation agreement and related documents

(SPA) with Fannie Mae in its capacity as financial agent for the United States (as designated by

Treasury) to participate in HAMP on or before December 31, 2009. In certain circumstances,

Supplemental Directive 09-01 requires participating servicers to consider borrowers for other

foreclosure prevention options, including short sale and deed-in-lieu programs. As a result,

servicers already participating in HAMP must follow the guidance set forth in this Supplemental

Directive, which provides servicers with the option to determine the extent to which short sales

or deeds-in-lieu will be offered under this program. Servicers of mortgage loans that are owned

or guaranteed by Fannie Mae or Freddie Mac should refer to the HAFA announcement issued by

Supplemental Directive 09-09 Page 2

the applicable GSE. A loan must be HAMP eligible and meet the other requirements stated

herein to be eligible for incentive compensation under HAFA.

The effective date of this Supplemental Directive is April 5, 2010. A servicer may elect to

implement HAFA prior to April 5, 2010, provided that the servicer is able to collect and report

all required information as described in the Reporting Requirements section of this Supplemental

Directive. Borrowers may be accepted into HAFA if a Short Sale Agreement or DIL Agreement,

as described in this Supplemental Directive, is fully-executed by the borrower and received by

the servicer on or before December 31, 2012.

To help servicers implement HAFA, this Supplemental Directive covers the following topics:

Foreclosure Alternatives

HAFA Consideration

Evaluation

Short Sale

Deed-in-Lieu

General Terms and Conditions

Incentive Compensation

Standard Form Documents

Reporting Requirements

Compliance

Foreclosure Alternatives

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the

understanding that the net proceeds from the sale may be less than the total amount due on the

mortgage. The short sale must be an arm’s length transaction with the net sale proceeds (after

deductions for reasonable and customary selling costs) being applied to a discounted (“short”)

mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full

satisfaction of the total amount due on the first mortgage.

In a deed-in-lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the

mortgaged property to the servicer in full satisfaction of the total amount due on the first

mortgage. The servicer’s willingness to approve and accept a DIL is contingent upon the

borrower’s ability to provide marketable title, free and clear of mortgages, liens and

encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the

property through a short sale before agreeing to accept the DIL. However, under circumstances

acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to

sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash

contribution or promissory note from the borrower and must forfeit the ability to pursue a

deficiency judgment against the borrower.

Short sales and DILs are complex transactions involving coordination and cooperation among a

number of parties including, but not limited to, servicers, appraisers, borrowers (sellers), buyers,

real estate brokers and agents, title agencies, and often mortgage insurance companies and

Supplemental Directive 09-09 Page 3

subordinate and other lien holders. The HAFA program simplifies and streamlines the use of

short sales and DIL options by incorporating the following unique features:

Complements HAMP by providing viable alternatives for borrowers who are HAMPeligible.

Utilizes borrower financial and hardship information collected in conjunction with

HAMP, eliminating the need for additional eligibility analysis.

Allows the borrower to receive pre-approved short sale terms prior to the property listing.

Prohibits the servicer from requiring, as a condition of approving the short sale, a

reduction in the real estate commission agreed upon in the listing agreement.

Requires that borrowers be fully released from future liability for the debt.

Uses standard processes, documents and timeframes.

Provides financial incentives to borrowers, servicers and investors.

HAFA Consideration

Each participating servicer must develop a written policy, consistent with investor guidelines,

that describes the basis on which the servicer will offer the HAFA program to borrowers. This

policy may incorporate such factors as the severity of the loss involved, local market conditions,

the timing of pending foreclosure actions and borrower motivation and cooperation.

Servicers must evaluate a borrower for a HAMP modification prior to any consideration being

given to HAFA options in accordance with the provisions of Supplemental Directive 09-01 and

any supplemental HAMP guidance. Borrowers that meet the eligibility criteria for HAMP but

who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or

default on a HAMP modification should first be considered for other loan modification or

retention programs offered by the servicer prior to being evaluated for HAFA.

In accordance with the provisions of Supplemental Directive 09-01, a loan meets the basic

eligibility criteria if all of the following conditions are met:

The property is the borrower’s principal residence;

The mortgage loan is a first lien mortgage originated on or before January 1, 2009;

The mortgage is delinquent or default is reasonably foreseeable;

The current unpaid principal balance is equal to or less than $729,7501; and

The borrower’s total monthly mortgage payment (as defined in Supplemental Directive

09-01) exceeds 31 percent of the borrower’s gross income.

Pursuant to the servicer’s policy, every potentially eligible borrower must be considered for

HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending

1 This amount refers to 1 unit properties. Higher amounts apply to 2 to 4 unit dwellings. See Supplemental Directive

09-01.

Supplemental Directive 09-09 Page 4

foreclosure sale to be conducted. Servicers must consider possible HAMP eligible borrowers for

HAFA within 30 calendar days of the date the borrower:

Does not qualify for a Trial Period Plan;

Does not successfully complete a Trial Period Plan;

Is delinquent on a HAMP modification by missing at least two consecutive payments; or

Requests a short sale or DIL.

The date and outcome of the HAFA consideration must be documented in the servicer’s file.

Evaluation

If the servicer determines that a borrower is eligible for a HAFA offer based on its written policy

and this Supplemental Directive, the servicer must follow the steps below to determine if a short

sale or DIL offer will be extended to the borrower.

Borrower Solicitation and Response. If the servicer has not already discussed a short sale or

DIL with the borrower, the servicer must proactively notify the borrower in writing of the

availability of these options and allow the borrower 14 calendar days from the date of the

notification to contact the servicer by verbal or written communication and request consideration

under HAFA. If the borrower fails to contact the servicer within the timeframe or at any time

indicates that he or she is not interested in these options, the servicer has no further obligation to

extend a HAFA offer.

Expected Recovery through Foreclosure and Disposition. Though not a HAFA requirement,

it is expected that servicers will, in accordance with investor guidelines, perform a financial

analysis to determine if a short sale or DIL is in the best interest of the investor, guarantor and/or

mortgage insurer. The results of any analysis must be retained in the servicing file. The HAMP

base NPV model does not project investor cash flows from either a short sale or DIL and should

be used only to determine borrower eligibility for a HAMP modification.

Use of Borrower Financial Information. Verified borrower financial information obtained in

conjunction with HAMP may be relied upon to determine a borrower’s eligibility for HAFA. If

financial and hardship information is documented and verified, no additional financial or

hardship assessment is required by HAFA. However, in accordance with investor guidelines, the

servicer may request updated financial information to evaluate the borrower. If a borrower was

evaluated for HAMP based on verbal financial data, the servicer may send the borrower a Short

Sale Agreement (SSA) and must require the borrower to deliver the financial information

required under HAMP when the borrower returns the executed SSA. The servicer must verify a

borrower’s financial information through documentation and obtain a signed Hardship Affidavit

prior to approving a short sale or accepting a DIL under HAFA.

Property Valuation. The servicer must, independent of the borrower and any other parties to

the transaction, assess the current value of the property in accordance with the investor’s

guidelines. The servicer may not require the borrower to pay in advance for the valuation, but

Supplemental Directive 09-09 Page 5

may add the cost to the outstanding debt in accordance with the borrower’s mortgage documents

and applicable law in the event the short sale or DIL is not completed.

Review of Title. The servicer must review readily available information provided by the

borrower, the borrower’s credit report, the loan file or other sources to identify subordinate liens

and other claims on title to determine if the borrower will be able to deliver clear, marketable

title to a prospective purchaser or the investor. Although not required by HAFA, the servicer

may order a title search or preliminary title report. The servicer may not charge the borrower in

advance for any cost incurred in the title review, but may add the cost to the outstanding debt in

accordance with the borrower’s mortgage documents and applicable law in the event the short

sale or DIL is not completed.

Borrower Notice. When a HAFA short sale or DIL is not available, the servicer must

communicate this decision in writing to any borrower that requested consideration. The notice

must explain why a short sale or DIL under HAFA cannot be offered, provide a toll free

telephone number that the customer may call to discuss the decision and otherwise comply with

the notice requirements of Supplemental Directive 09-08, Borrower Notices.

Short Sale

The HAFA short sale process employs standard form documents and defined performance

timeframes to facilitate clear communication between the parties to the listing and sale

transaction. Servicers must adhere to the following guidelines in connection with the issuance of

an SSA.

Minimum Acceptable Net Proceeds. Prior to approving a borrower to participate in a HAFA

short sale, the servicer must determine the minimum acceptable net proceeds (minimum net) that

the investor will accept from the transaction. Each servicer must develop a written policy,

consistent with investor guidelines, that describes the basis on which the minimum net will be

determined. This policy may incorporate such factors as local market conditions, customary

transactional costs of such sales, and the amounts that may be required to release any subordinate

liens on the property. A servicer’s policy for determining the minimum net must be consistently

applied for all loans serviced for that investor. The minimum net may be expressed as a fixed

dollar amount, as a percentage of the current market value of the property, or as a percentage of

the list price as approved by the servicer. Once determined, the servicer must document the

minimum net in the servicing file for each property subject to HAFA. After signing an SSA, the

servicer may not increase the minimum net requirement until the initial SSA termination date is

reached (not less than 120 calendar days). Subsequent changes to the minimum net when the

SSA is extended must be documented.

Allowable Transaction Costs. In determining the minimum net, the servicer must consider

reasonable and customary real estate transaction costs for the community in which the property is

located and determine which of these costs the servicer or investor is willing to pay from sale

proceeds. The servicer must describe the costs that may be deducted from the gross sale

proceeds in the SSA.

Supplemental Directive 09-09 Page 6

Short Sale Agreement. The HAFA SSA,  outlines the roles and

responsibilities of the servicer and borrower in the short sale listing process and provides key

marketing terms, such as a list price or acceptable sale proceeds and the duration of the SSA. The

HAFA Request for Approval of a Short Sale (RASS), which must accompany the SSA, is

attached as Exhibit A1. The RASS is submitted to the servicer when an offer is received to

provide the terms and conditions of the short sale and together with the sales contract, provides

settlement instructions to the settlement agent. Either proactively, or at the request of an eligible

borrower, the servicer will prepare and send an SSA to the borrower after determining that the

proposed sale is in the best interest of the investor. The servicer will also provide the borrower a

RASS, pre-populated with contact information for the servicer, the property address and the loan

number.

In the event that a borrower has an executed sales contract and requests the servicer to approve a

short sale under HAFA before an SSA has been executed, the servicer must evaluate the

borrower for HAFA as described in this Supplemental Directive and must utilize the Alternative

Request for Approval of a Short Sale (Alternative RASS).

While servicers may amend the terms of the SSA in accordance with investor requirements,

applicable laws or local real estate practice, at a minimum the SSA must include the following:

A fixed termination date not less than 120 calendar days from the effective date of the

SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the

SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of

the servicer up to a total term of 12 months, in accordance with the requirements of the

investor.

A requirement that the property be listed with a licensed real estate professional who is

regularly doing business in the community where the property is located.

Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a

net amount after subtracting allowable costs that the servicer will accept from the

transaction.

The amount of closing costs or other expenses the servicer will permit to be deducted

from the gross sale proceeds expressed as a dollar amount, a percentage of the list price

or a list by category of reasonable closing costs and other expenses that the servicer will

permit to be deducted from the gross sale proceeds.

The amount of the real estate commission that may be paid, not to exceed 6% of the

contract sales price, and notification if any portion of the commission must be paid to a

contractor of the servicer that has been retained to assist the listing broker with the

transaction.

A statement by the borrower authorizing the servicer to communicate the borrower’s

personal financial information to other parties (including Treasury and its agents) as

necessary to complete the transaction.

Cancellation and contingency clauses that must be included in listing and sale agreements

notifying prospective purchasers that the sale is subject to approval by the servicer and/or

third parties.

Supplemental Directive 09-09 Page 7

Notice that the sale must represent an arm’s length transaction and that the purchaser may

not sell the property within 90 calendar days of closing, including certification language

regarding the arm’s length transaction that must be included in the sales contract.

An agreement that upon successful closing of a short sale acceptable to the servicer, the

borrower will be released from all liability for repayment of the first mortgage debt.

An agreement that upon successful closing of a short sale acceptable to the servicer the

borrower will be entitled to a relocation incentive of $1,500, which will be deducted from

the gross sale proceeds at closing.

Notice that the servicer will allow a portion of gross sale proceeds to be paid to

subordinate lien holders in exchange for release and full satisfaction of their liens.

Notice that a short sale may have income tax consequences and/or may have a derogatory

impact on the borrower’s credit score and a recommendation that the borrower seek

professional advice regarding these matters.

The amount of the monthly mortgage payment, if any, that the borrower will be required

to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s

gross monthly income.

An agreement that so long as the borrower performs in accordance with the terms of the

SSA, the servicer will not complete a foreclosure sale.

Terms under which the SSA can be terminated.

Borrower Obligations. The borrower must sign and return the SSA within 14 calendar days

from its Effective Date along with a copy of the real estate broker listing agreement and

information regarding any subordinate liens. In returning and signing the SSA the borrower

agrees to:

Provide all information and sign documents required to verify program eligibility.

Cooperate with the listing broker to actively market the property and respond to servicer

inquiries.

Maintain the interior and exterior of the property in a manner that facilitates

marketability.

Work to clear any liens or other impediments to title that would prevent conveyance.

Make the monthly payment stipulated in the SSA, if applicable.

Monitoring Marketing Activity / Cause for Termination. During the term of the SSA, the

servicer may terminate the SSA before its expiration due to any of the following events:

The borrower’s financial situation improves significantly, the borrower qualifies for a

modification, or the borrower brings the account current or pays the mortgage in full.

The borrower or the listing broker fails to act in good faith in listing, marketing and/or

closing the sale, or otherwise fails to abide by the terms of the SSA.

A significant change occurs to the property condition and/or value.

There is evidence of fraud or misrepresentation.

The borrower files for bankruptcy and the Bankruptcy Court declines to approve the

SSA.

Supplemental Directive 09-09 Page 8

Litigation is initiated or threatened that could affect title to the property or interfere with

a valid conveyance.

The borrower fails to make the monthly payment stipulated in the SSA, if applicable.

Request for Approval of Short Sale. Within three business days following receipt of an

executed purchase offer, the borrower or the listing broker must deliver to the servicer a

completed RASS describing the terms of the sale transaction. With the RASS, the borrower

must submit to the servicer:

A copy of the executed sales contract and all addenda.

Buyer’s documentation of funds or buyer’s pre-approval or commitment letter on

letterhead from a lender.

All information regarding the status of subordinate liens and/or negotiations with

subordinate lien holders.

Approval or Disapproval of Sale. Within ten business days of receipt of the RASS and all

required attachments, the servicer must indicate its approval or disapproval of the proposed sale

by signing the appropriate section of the RASS and mailing it to the borrower.

The servicer must approve a RASS if the net sale proceeds available for payment to the servicer

equal or exceed the minimum net determined by the servicer prior to the execution or extension

of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the

servicer may not require, as a condition of approving a short sale, a reduction in the real estate

commission below the commission stated in the SSA.

The servicer may require that the sale closing take place within a reasonable period following

acceptance of the RASS, but in no event may the servicer require that a transaction close in less

than 45 calendar days from the date of the sales contract without the consent of the borrower.

Alternative Request for Approval of Short Sale. If the borrower has an executed sales

contract and requests the servicer to approve a short sale under HAFA before an SSA has been

executed, then the borrower must submit the request to the servicer in the form of the Alternative

Request for Approval of Short Sale (Alternative RASS), attached as Exhibit B. Upon receipt of

the Alternative RASS, the servicer must determine the basic eligibility of the borrower as

described in the HAFA Consideration section of this Supplemental Directive. If the borrower

appears to be eligible and was not previously considered for a Trial Period Plan, the servicer

must notify the borrower verbally or in writing of the availability of a HAMP modification and

allow the borrower 14 calendar days from the date of the notification to contact the servicer by

verbal or written communication and request consideration for a HAMP modification. In

addition, the servicer must verify the borrower’s financial information through documentation

and obtain a signed Hardship Affidavit from the borrower prior to approving the short sale.

If the borrower does not wish to be considered for a modification, the servicer may consider the

Alternative RASS in accordance with this Supplemental Directive without first having to enter

into an SSA with the borrower. If the servicer approves the short sale, then the loan will qualify

for the HAFA program. A borrower may not participate in a HAMP Trial Period Plan and agree

Supplemental Directive 09-09 Page 9

to a HAFA SSA simultaneously. In addition, the servicer must collect and report the information

required under Supplemental Directive 09-06 prior to reporting any HAFA information required

by this Supplemental Directive.

Deed-in-Lieu

In accordance with investor requirements, servicers have the discretion to accept a HAFA DIL,

which requires a full release of the debt and waiver of all claims against the borrower. The

borrower must agree to vacate the property by a date certain, leave the property in broom clean

condition and deliver clear, marketable title.

Typically, servicers require that the borrower make a good faith effort to list and market the

property before the servicer will agree to accept a DIL. Under circumstances acceptable to the

investor, servicers may agree to accept a DIL without requiring a marketing period. In either

circumstance, the transaction will be eligible for incentives as described in the Incentive

Compensation section of this Supplemental Directive if the borrower meets the HAFA eligibility

criteria.

SSA. The SSA contains optional DIL language that may be included or deleted by the servicer

prior to execution of the SSA. If the DIL language is included, the investor is obligated to accept

a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting

in a sale of the property. If the servicer offers the DIL option separately from the SSA or without

a marketing period, the servicer must provide the Deed-in-Lieu Agreement form (“DIL

Agreement”), attached as Exhibit C.

DIL Terms. The following terms apply to a HAFA DIL:

Marketable Title. The borrower must be able to convey clear, marketable title to the

servicer or investor. The requirements for extinguishment of subordinate liens as

described in the Release of Subordinate Liens section of this Supplemental Directive

apply to DIL transactions.

Written Agreement. The conditions for acceptance of a DIL must be in writing and

signed by both the servicer and borrower. They may be set forth in the SSA if approved

with the short sale, or in the DIL Agreement.

Vacancy Date. The SSA or DIL Agreement must specify the date by which the borrower

must vacate the property, which in no event shall be less than 30 calendar days from the

date of the termination date of the SSA or the date of a separate DIL Agreement, unless

the borrower voluntarily agrees to an earlier date.

Relocation Assistance. Borrowers who participate in a HAFA DIL transaction are

eligible for $1,500 in relocation assistance as described in the Incentive Compensation

section of this Supplemental Directive.

Supplemental Directive 09-09 Page 10

General Terms and Conditions

Suspension of Foreclosure Sales. At the servicer’s discretion, the servicer may initiate

foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but

may not complete a foreclosure sale:

While determining the borrower’s eligibility and qualification for HAMP or HAFA.

While awaiting the timely return of a fully executed SSA.

During the term of a fully executed SSA.

Pending transfer of property ownership based on an approved sales contract per the

RASS or Alternative RASS.

Pending transfer of property ownership via a DIL by the date specified in the SSA or DIL

Agreement.

Payment Forbearance. The servicer will identify in the SSA, Alternative RASS or DIL

Agreement the amount of the monthly mortgage payment, if any, that the borrower is required to

make during the term of the applicable agreement and pending transfer of property ownership, as

applicable. In no event may the amount of the borrower’s monthly payment exceed the

equivalent of 31% of the borrower’s gross monthly income. Servicers must develop a written

policy in accordance with investor requirements that identifies the circumstances under which

they will require monthly payments and how that payment will be determined. Any requirement

for the borrower to make monthly payments must be in accordance with applicable laws, rules

and regulations.

Release of Subordinate Liens. It is the responsibility of the borrower to deliver clear

marketable title to the purchaser or investor and to work with the listing broker, settlement agent

and/or lien holders to clear title impediments. The servicer may, but is not required to, negotiate

with subordinate lien holders on behalf of the borrower. The servicer, on behalf of the investor,

will authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale

proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and

full release of borrower liability. Each lien holder, in order of priority, may be paid three percent

(3%) of the unpaid principal balance of their loan, until the $3,000 aggregate cap is reached.

Payments will be made at closing from the gross sale proceeds and must be reflected on the

HUD-1 Settlement Statement. Investors are eligible for incentive reimbursement for up to onethird

of the cost to extinguish subordinate liens as described in the Incentive Compensation

section of this Supplemental Directive.

Release of First Mortgage Lien. The servicer must release its first mortgage lien within ten

business days (or earlier if required by state or local laws) after receipt of sale proceeds from a

short sale or delivery of the deed and property in a DIL transaction. Additionally, the investor

must waive all rights to seek a deficiency judgment and may not require the borrower to sign a

promissory note for the deficiency.

Borrower Fees. Servicers may not charge the borrower any administrative processing fees in

connection with HAFA. The servicer must pay all out-of-pocket expenses, including but not

limited to notary fees, recordation fees, release fees, title costs, property valuation fees, credit

Supplemental Directive 09-09 Page 11

report fees, or other allowable and documented expenses, but the servicer may add these costs to

the outstanding debt in accordance with borrower’s mortgage documents and applicable laws in

the event the short sale or DIL is not completed. Servicers may require borrowers to waive

reimbursement of any remaining escrow, buy down funds or prepaid items, and assign any

insurance proceeds to the investor, if applicable. Those funds will not be applied to reduce the

total net proceeds from the sale.

Mortgage Insurer Approval. For loans that have mortgage insurance coverage, the

servicer/investor must obtain mortgage insurer approval for HAFA foreclosure alternatives. A

mortgage loan does not qualify for HAFA unless the mortgage insurer waives any right to collect

additional sums (cash contribution or a promissory note) from the borrower.

Incentive Compensation

Treasury will provide reimbursements and incentives as set forth below. However, no incentives

will be paid to the borrower, servicer or investor if the net proceeds from a sale exceed the total

amount due on the first mortgage when title is transferred. The amount of any contribution paid

by a mortgage insurer or other provider of credit enhancement shall not be considered in

determining whether the mortgage was paid in full and whether servicers are eligible for such

incentive compensation.

Borrowers, servicers and investors will be eligible for HAFA incentives upon successful

completion of the short sale or DIL if an SSA, Alternative RASS or DIL Agreement, as

applicable, was executed on or before December 31, 2012. Servicers will be reimbursed by

Treasury upon reporting the completed HAFA transaction as described in the Reporting

Requirements section of this Supplemental Directive. For a short sale or DIL, incentives will be

paid as follows:

Borrower Relocation Assistance. Following the successful closing of a short sale or DIL, the

borrower shall be entitled to an incentive payment of $1,500 to assist with relocation expenses.

In a short sale transaction, the servicer must instruct the settlement agent to pay the borrower

from sale proceeds at the same time that all other payments, including the payoff to the servicer,

are disbursed by the settlement agent. The amount paid to the borrower must appear on the

HUD-1 Settlement Statement.

If the servicer conducts a formal closing for a DIL transaction and the borrower has vacated the

property, the borrower relocation incentive of $1,500 must be paid at closing and reflected on the

HUD-1 Settlement Statement. If at the time of closing the borrower has not vacated the

property, the servicer must mail a check to the borrower within five business days of the

borrower’s vacancy and delivery of keys to the servicer or the servicer’s agent. Similarly, if the

DIL transaction is not conducted as a formal closing, the servicer must mail a check to the

borrower within five business days from the later of the borrower’s execution of the deed or the

borrower’s vacancy and delivery of keys to the servicer or servicer’s agent.

Supplemental Directive 09-09 Page 12

Servicers will be reimbursed for the full amount of this incentive payment after the HAFA

transaction is reported as described in Reporting Requirements section of this Supplemental

Directive.

Servicer Incentive. The servicer will be paid $1,000 to cover administrative and processing

costs for a short sale or DIL completed in accordance with the requirements of HAFA and the

applicable documents. Investors may elect to pay additional incentive compensation to servicers

which will not affect the HAFA servicer incentive.

Investor Reimbursement for Subordinate Lien Releases. The investor will be paid a

maximum of $1,000 for allowing a total of up to $3,000 in short-sale proceeds to be distributed

to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders.

This reimbursement will be earned on a one-for-three matching basis. For each three dollars an

investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of

reimbursement. To receive an incentive, subordinate lien holders must release their liens and

waive all future claims against the borrower. The servicer is not responsible for any future

actions or claims against the borrower by such subordinate lien holders or creditors.

Standard Form Documents

Servicers are required to use the HAFA documents attached to this Supplemental Directive

substantially the form provided, except that the servicer may amend the terms of the SSA or DIL

Agreement in accordance with investor requirements, applicable laws or local real estate practice

and may customize the forms with servicer specific logos.

Document Retention. Servicers must retain all documents and information received during the

process of determining borrower eligibility and qualification for HAFA.

For a period of seven years from the date of the document collection, servicers must retain

detailed records of borrower solicitations or borrower-initiated inquiries regarding HAFA, the

outcome of the evaluation for foreclosure alternatives under HAFA and specific justification

with supporting details if foreclosure alternatives were denied. Records must also be retained to

document the reasons for termination of the SSA or expiration of HAFA transactions without a

completed short sale or acceptance of a DIL.

Signatures and Electronic Documents. All HAFA documentation must be signed by an

authorized representative of the servicer and reflect the actual date of signature by the servicer’s

representative.

Unless a borrower or co-borrower is deceased or a borrower and a co-borrower are divorced, all

parties who signed the original loan documents or their duly authorized representatives must

execute the HAFA documents. If a borrower and a co-borrower are divorced and the property

has been transferred to one spouse in the divorce decree, the spouse who no longer has an

interest in the property is not required to execute the HAFA documents. Servicers may evaluate

requests on a case-by-case basis when the borrower is unable to sign due to circumstances such

as mental incapacity or military deployment.

Supplemental Directive 09-09 Page 13

Any party to a document utilized in HAFA may, subject to applicable law and any investor

requirements or restrictions, prepare, sign and send the document through electronic means

provided: (a) appropriate technology is used to store an authentic record of the executed

document and the technology otherwise ensures the security, confidentiality and privacy of the

transaction, (b) the document is enforceable under applicable law, (c) the servicer obtains the

borrower’s consent to use electronic means to enter into the document, (d) the servicer ensures

that the borrower is able to retain a copy of the document and provides a copy to the borrower

that the borrower may download, store and print, and (e) the borrower, at any time, may elect to

enter into the document through paper means or to receive a paper copy of the document.

Reporting Requirements

As a condition to receiving the incentive payments offered through HAFA, servicers are required

to provide periodic HAFA loan level data to Fannie Mae, in its capacity as program

administrator. The data submitted must be accurate, complete, timely, and agree with the

servicer’s records. Data will be reported by a servicer at key milestones in the transaction:

Notification – when the SSA or DIL Agreement is signed and executed, or updated

following an extension of the marketing terms;

Short Sale/DIL Loan Set Up – at the transfer of property ownership (closing of a short

sale or acceptance of DIL); and/or

Termination – when the SSA or DIL Agreement expires or when the SSA or DIL

Agreement is terminated by the servicer.

Each milestone is a separate data transmission and must be reported no later than the fourth

business day of the month following the event. The required data elements are attached to this

Supplemental Directive as Exhibit D. In addition, HAFA reporting requirements will be posted

on the servicer web portal at www.hmpadmin.com. Note also that the reporting information

required under Schedule I and Schedule IV of Supplemental Directive 09-06 must be provided

by the servicer for all HAFA transactions, including those that occur prior to April 5, 2010.

The HAFA reporting and payment processes are currently under development by Fannie Mae, in

its capacity as program administrator. Subsequent guidance will be provided describing when

the HAFA reporting and processes will be available. Servicers will not be required to report

HAFA data until the reporting process is in place, but in this interim period servicers must

collect and store information on all HAFA transactions so that the necessary data can be reported

when the processes become available. In addition, HAFA incentives will not be paid until the

payment process is available; borrowers, servicers and investors will be reimbursed for all

incentives relating to HAFA transactions closed prior to the reporting and payment processes

becoming available.

Credit Bureau Reporting. The servicer should continue to report a “full file” status to the

major credit repositories for each loan under the HAFA program in accordance with the Fair

Credit Reporting Act and the Consumer Data Industry Association’s (“CDIA’s”) Metro 2 Format

credit bureau requirements. “Full file” reporting means that the servicer must describe the exact

Supplemental Directive 09-09 Page 14

status of each mortgage it is servicing as of the last business day of each month. The Payment

Rating code should be the code that properly identifies whether the account is current or past due

within the activity period being reported – prior to completion of the HAFA transaction. Because

CDIA’s Metro 2 format does not provide an Account Status Code allowable value for a short

sale, a short sale should identified with the reporting of Special Comment Code “AU”. The

information below is consistent with “CDIA Mortgage and Home Equity Reporting Guidelines

in Response to Current Financial Conditions” (May 2009).

Reporting should be as follows:

Short Sales

Account Status Code = 13 (paid or closed/zero balance)

Payment Rating = 0, 1, 2, 3, 4, 5, or 6

Special Comment Code = AU (account paid in full for less than the full balance)

Current Balance = $0

Amount Past Due = $0

Date Closed = MMDDYYYY

Date of Last Payment = MMDDYYYY

Deed-in-Lieu

Account Status Code = 89 (deed-in-lieu of foreclosure on a defaulted loan)

Payment Rating = 0, 1, 2, 3, 4, 5, or 6

Current Balance = $0

Amount Past Due = $0

Date Closed = MMDDYYYY

Date of Last Payment = MMDDYYYY

Compliance

Servicers must comply with the HAFA short sale and DIL requirements specified in this

Supplemental Directive and any subsequent policy guidance. Servicers must have adequate

staffing and resources for responding to borrower requests for participation, for receiving and

processing HAFA documents in accordance with program guidelines and for ensuring that

inquiries and complaints about HAFA receive fair consideration, along with timely and

appropriate response and resolution.

Treasury has selected Freddie Mac to serve as its compliance agent for HAFA. In its role as

compliance agent, Freddie Mac will utilize Freddie Mac employees and contractors to conduct

independent compliance assessments. The scope of the assessments will include, among other

things, an evaluation of documented evidence to confirm adherence (e.g., accuracy and

timeliness) to HAFA requirements with respect to the following:

Assessment of the process for evaluating and approving borrowers for a HAFA short sale

or DIL.

Supplemental Directive 09-09 Page 15

Adherence to the standard policies and guidelines for completing HAFA short sales and

DIL and consistent application of same.

Determining fair market value, recommended list price, approved sale proceeds and

approved minimum net proceeds, as applicable.

Guidelines for allowable payoffs to junior lien holders.

Use of standard documents and document retention.

Completion of borrower, servicer and investor incentive payments.

The review will also confirm the existence and evaluate the effectiveness of the servicer’s quality

assurance program; such evaluation will include, without limitation, the timing and size of the

sample selection, the scope of the quality assurance reviews, and the reporting and remediation

process.

There will be two types of compliance assessments: on-site and remote. Both on-site and remote

reviews will include the following activities (among others): notification, scheduling, selfassessments,

documentation submission, interviews, file reviews, and reporting.

For on-site reviews, Freddie Mac will strive to provide the servicer with (i) a 30-day advance

notification of a pending review and (ii) subsequent confirmation of the dates of the review;

however, Freddie Mac reserves the right to arrive at the servicer’s site unannounced. Freddie

Mac will request the servicer to make available documentation, including, without limitation,

policies and procedures, management reports, loan files and a risk control self assessment ready

for review. Moreover, Freddie Mac may request additional loan files during the review.

Interviews will usually be conducted in-person.

During the review window, Freddie Mac will review loan files and other requested

documentation to evaluate compliance with HAFA terms. Upon the completion of the review,

Freddie Mac will conduct an exit interview with the servicer to discuss preliminary assessment

results.

For remote reviews, Freddie Mac will request the servicer to send documentation, including,

without limitation, policies and procedures, management reports, loan files and a risk control self

assessment within 30 calendar days of the request. In addition, time will be scheduled for phone

interviews, including a results summary call after the compliance review is completed to discuss

preliminary results.

The targeted time frame for publishing the servicer assessment report is 30 calendar days after

the completion of the review. Treasury will receive a copy of the report five business days prior

to the release of the report to the servicer. There will be an issue/resolution appeal process for

servicer assessments. Servicers will be able to submit concerns or disputes to an independent

quality assurance team within Freddie Mac.

A draft rating and implication methodology for the compliance assessments will be published in

a subsequent Supplemental Directive and servicer feedback will be solicited prior to the

finalization of the methodology.






Contact Rain Silverhawk

KELLER WILLIAMS
SANDPOINT REALTY

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