Fannie Mae released Lender Letter 06-06 titled, "Extension of Requirement to Obtain Fannie Mae Approval Prior to Foreclosure in Certain Areas and Louisiana Redevelopment Authority’s – The Road Home Program."

As discussed in Lender Letter 04-06, from September 1, 2006 until November 30, 2006, written approval from Fannie Mae was required before beginning or continuing a foreclosure action with respect to a mortgage secured by a property in the following counties or parishes:

Louisiana - Orleans, St. Bernard, and St. Tammany.
Mississippi - Hancock, Harrison, and Jackson.

With this Lender Letter Fannie Mae is extending the requirement to obtain written approval before beginning or continuing a foreclosure action on a mortgage secured by a property in the above counties or parishes until March 31, 2007. Thereafter, servicers should follow the foreclosure policy guidance contained in the Fannie Mae Servicing Guide.

Fannie Mae's loss mitigation and workout team based in the New Orleans area has identified properties outside of these counties and parishes with unique circumstances that require specialized action. Servicers with these mortgages will be contacted on or before December 1, 2006, to discuss actions to be taken.

Louisiana Redevelopment Authority’s The Road Home Program

The Louisiana Recovery Authority ("LRA") recently finalized The Road Home program to provide financial assistance to Louisiana residents whose primary residence sustained damage as a result of Hurricanes Katrina and/or Rita.

Under the terms of The Road Home program, eligible homeowners may receive a grant payment of up to $150,000 to (1) repair and rebuild their current property, (2) relocate within Louisiana, or (3) sell their property to the State.
When a homeowner decides to relocate and sell the property to the State, the LRA requires that the homeowner obtain approval from its lender. When a homeowner contacts its servicer to obtain such an approval, the servicer should contact Fannie Mae. Accordingly, this Lender Letter only addresses the option of repairing and rebuilding the homeowner’s property.

As a condition of receiving grant funds, any homeowner who elects to repair or rebuild his or her property must agree to a Covenant that is enforceable by municipal, state, or federal authorities. The Covenant requires that (1) the homeowner obtain flood insurance coverage, (2) property repairs comply with building or manufactured housing codes, including (in some cases) elevation requirements, and (3) the current and future property owners comply with a three-year residency requirement. The Road Home program, however, does not require the homeowner to use the grant funds to bring his or her mortgage loan current.

The Road Home program will help many Louisiana homeowners rebuild their homes and their neighborhoods; therefore, Fannie Mae is providing the following guidance to servicers when working with homeowners who have applied for The Road Home program grant funds.

Memorandum of Understanding

The State of Louisiana has prepared a Memorandum of Understanding for execution by servicers of loans secured by properties eligible for The Road Home program. That document contains the terms and conditions for The Road Home program, the Covenant requirements, and the guidelines for disbursing grant funds. 

Fannie Mae encourage servicers to promptly execute the Memorandum of Understanding.

Subordination Agreement

The Road Home program requires the mortgage lien holder to execute a subordination agreement in order to subordinate the mortgage lien to the Covenant.

Fannie Mae consents to the subordination of our mortgage lien to the required Covenant, and acknowledges that servicers will have no liability to Fannie Mae for the consequences of such subordination. 

Disbursement Agreement

The Road Home program has developed a model Grant Disbursement Agreement that provides the terms and conditions for disbursing grant funds. If the homeowner elects to repair and restore the damaged property, The Road Home program closing agent will disburse grant funds to the servicer and homeowner jointly for deposit into the disbursement account held by the servicer.

In general, the grant funds will be administered by the servicer similar to insurance proceeds for the repair and restoration of the damaged property; therefore, Fannie Mae encourages servicers to promptly execute The Road Home program Grant Disbursement Agreement, if requested, in order to meet The Road Home program grant requirements.

Fannie Mae expects the servicer to review with the homeowner the feasibility of completing property repairs with funds from insurance proceeds, grants, and other sources. The servicer should encourage the borrower to allocate all funds for the repairs, and should be diligent in pursuing funds from all sources, including all insurance proceeds. When a servicer determines that grant funds and funds from all other available sources are only sufficient to complete the repairs to the property but not to bring the loan current, the servicer should develop a reasonable loan modification plan to effectively cure the default.

Servicers should remind borrowers that acceptance of The Road Home program grant does not relieve them of their mortgage loan obligations.

Any questions or comments regarding this Lender Letter should be submitted to their Servicing Consultant, Portfolio Manager, or Fannie Mae National Servicing Organization's Customer Care Center at 1-888-326-6438 (enter special code 7222 for Hurricane-related questions).

To view the Lender Letter in its entirety, please click here.