Fannie Mae has released Lender Letter 04-06 titled, Hurricane-Related Special Relief Measures.

Fannie Mae continues to encourage its servicers to use forbearance, repayment plans, mortgage modifications, and other loss mitigation options to help those borrowers that still may need more time, especially those who are eligible for Community Development Block Grant ("CDBG") funds under either the Mississippi or Louisiana state programs.

In prior communication to the servicers, Fannie Mae reminded them that its natural disaster relief provisions require servicers not to begin or continue any legal action until they can review any effect the disaster may have had on the condition of the property or the borrower's employment or income status. Those provisions also make it clear that foreclosure proceedings may begin (or continue) only when foreclosure is the only alternative.

This Lender Letter provides additional guidance regarding foreclosure approvals and insurance claims.

Foreclosure Moratorium

As discussed in Lender Letter 03-06, Fannie Mae updated its foreclosure moratorium guidance for specific counties or parishes in Alabama, Louisiana, Mississippi, and Texas.  Given that the moratorium will be expiring soon, Fannie Mae is updating its guidance to servicers on how they should proceed with foreclosure decisions.

Effective September 1, 2006, there will no longer be a foreclosure moratorium. However, Fannie Mae’s written approval is 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; and

Mississippi - Hancock, Harrison, and Jackson.

To view an Excel Spreadsheet of zip codes for these areas please click on the following.
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 Fannie Mae LL 04-06.xls

The aforementioned  requirement to obtain Fannie Mae written approval will extend until November 30, 2006. Thereafter, servicers should follow the foreclosure policy guidance in the Fannie Mae Servicing Guide.

It is no longer required to receive Fannie Mae approval for beginning or continuing a foreclosure action on a mortgage secured by a property outside the counties or parishes listed above. Servicers should follow established foreclosure policies.

Before a servicer concludes that pursuing a foreclosure is the appropriate course of action, the servicer should carefully evaluate the borrower’s ability to cure the default.

A servicer may find that continued forbearance, a repayment plan, or a loan modification may be used effectively to cure the default. For example, the continuation of a forbearance plan may be appropriate for a borrower who is eligible to receive CDBG funds and who requires additional time for the completion of the grant approval and distribution process. A repayment plan or a loan modification may be appropriate for a borrower who is eligible for the CDBG funds and intends to repair or rebuild the property.

When the use of forbearance, a repayment plan, or a loan modification is not feasible or productive, servicers should consider other Fannie Mae loss mitigation options – preforeclosure sale or deed-in-lieu of foreclosure.

A servicer must ensure that it has exhausted all of the foreclosure prevention alternatives before concluding that foreclosure is the appropriate course of action. If a servicer is in doubt about beginning or continuing a foreclosure action, the servicer should contact Fannie Mae. Additionally, a servicer must obtain Fannie Mae approval to pursue foreclosure when the servicer identifies a mortgage secured by a property that is not in one of the counties or parishes listed above and the servicer has been unable to contact the borrower, the property has sustained significant damage, or when the servicer is aware that the property is affected by environmental hazards.

For those mortgages requiring our approval to foreclose, servicers must submit requests via e-mail to hurricane_assistance@fanniemae.com.

Insurance Claims

In Lender Letter 03-06 Fannie Mae  reminded its servicers of the obligation to ensure that hazard and, if applicable, flood insurance claims are filed and settled promptly. With the upcoming anniversary of Hurricane Katrina, servicers must now ensure that all hazard and, if applicable, flood insurance claims are filed by August 28, 2006.

Questions regarding this Lender Letter should be directed to the Customer Account Manager, Portfolio Manager, Servicing Consultant or the 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 on the following link.

Fannie Mae LL04-06: Hurricane-Related Special Relief Measures