Fact sheet: Helping borrowers avoid foreclosure
Borrowers who are experiencing a permanent or long-term hardship and can no longer afford to make regular monthly mortgage payments, may need to leave their home. When staying in their home is no longer an option, servicers can offer options that help borrowers leave the home while avoiding foreclosure.
Selling the home
The best option to avoid foreclosure is for the borrower to sell the property. If the home is worth more than the amount owed on the mortgage and other debts secured by the home, the borrower may be able to sell the property and keep the remaining proceeds after the loan is paid off.
Proactively taking action to sell the property can help limit the negative impact to the borrower's credit and/or help preserve available equity.
A short sale is the sale of the home for less than the balance remaining on the mortgage. In a short sale, the borrower sells their property at market value and Fannie Mae agrees to accept the proceeds to satisfy the mortgage debt. Depending on the situation, the borrower may qualify for relocation assistance, or be required to make a financial contribution toward the balance. However, once the short sale is complete, the borrower is relieved of responsibility for paying any remaining balance.
Distinction: A short sale is paying less than the amount owed but IS NOT paying less than the value of the property.
D2-3.3-01: Fannie Mae Short Sale
Also known as a deed-in-lieu of foreclosure, a Mortgage Release™ allows the borrower to voluntarily transfer ownership of the property to Fannie Mae. The borrower may be eligible for relocation assistance of up to $3,000 and/or choose from one of the three graceful exit options:
- Immediate move
- A three-month transition period with no rent payments required
- A twelve month lease at market rent payment
Supporting activities a servicer must complete
Establishing Qualified Right Party Contact (QRPC) is key in working with the borrower to determine the best solution for resolving the mortgage delinquency.
The purpose of establishing QRPC is to:
- Determine the reason for the delinquency and whether the borrower is experiencing a temporary or permanent hardship
- Determine if the borrower occupies the property
- Determine if the borrower can resolve the delinquency through a repayment plan
- Educate the borrower on the available workout options, as appropriate
- Obtain a commitment from the borrower to resolve the delinquency
Inspecting Properties in Delinquency
The servicer must ensure the collateral is protected typically by inspecting properties to determine occupancy status and condition. D2-2-10: Requirements for Performing Property Inspections
Share a short video with borrowers to help them learn about avoiding foreclosure.
Borrowers facing the recognition that they may have to leave their homes may benefit from housing counseling. A HUD-approved housing counselor is an experienced, trained professional who can advise consumers on preventing foreclosure, finding alternative housing, protecting their credit, and other issues. The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country and counseling is available in many languages.
Thank you for all you do to support borrowers attempting to avoid foreclosure.