New rules For Non-Performing Loan Buyers
More Rules? Read the full article!
New Rules for Non-Performing Loan Buyers
Announcing a widespread principal reduction plan wasn’t the only big move that the Federal Housing Finance Agency made on Thursday.
In addition to releasing its plans to cut the mortgage balances on as many as 33,000 borrowers, the FHFA also announced new rules for the investors that buy non-performing loans from Fannie Mae and Freddie Mac.
Under the new rules, buyers that purchase non-performing loans from Fannie or Freddie must now evaluate certain underwater borrowers for modifications that include principal and/or arrearage forgiveness.
Buyers are also forbidden from “walking away” from vacant homes, and the new rules establish more specific proprietary loan modification standards for NPL buyers.
According to the FHFA, these new rules are designed to minimize foreclosures, help mitigate the potential for neighborhood blight and decay, and help improve loan modification success rates.
Overall these rules are in line with the Note Assistance Programs current way of life. We bind our clients to attempting to keep borrowers in the home when possible. We agree that policies like these can improve turnaround times for blighted neighborhoods looking to undergo gentrification or simply planning to participate in the recovery. Of course we have concerns that more rules mean additional cost on our end, so ultimately we prefer to work this out on our own.
Under the new guidelines, NPL buyers must evaluate borrowers whose mark-to-market loan-to-value ratio exceeds 115% for modifications that include principal reduction and/or arrearage forgiveness.
If a foreclosure alternative is not possible, servicers for NPL buyers must complete either a foreclosure or a loan donation or sale, which may be to a nonprofit or government entity, the FHFA said. NPL buyers will, therefore, be prohibited from abandoning any vacant property secured by a loan sold in an NPL pool.
According to the FHFA, the vast majority of NPL buyers currently offer fixed-rate proprietary modifications with no possibility of payment increases over the life of the loan.
This industry is becoming increasingly regulated, and that can only mean higher cost and more time for smaller lenders. While the FHFA does acknowledge the good we perform in the overall recovery of the market, they are cracking down on our exit strategies one by one. We look forward to keeping our clients and readers in the know.
Written By: Jasmine Willois
Revised for Medium: Deidra Martinez