Servicing Guide

Published September 9, 2020

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What are the required steps to follow when performing the imminent default evaluation for a conventional mortgage loan modification?

For a borrower’s monthly payment to be considered in imminent default for the purpose of determining eligibility for a conventional mortgage loan modification, the borrower must satisfy

  • the initial eligibility criteria, and

  • either the credit or hardship eligibility criteria.

The servicer must take the steps in the following table to perform the imminent default evaluation. 

Step Servicer Action
1 Determine if all initial eligibility criteria are satisfied.
Initial Eligibility Criteria
  The mortgage loan is current or less than 60 days delinquent as of the evaluation date.
  The property securing the mortgage loan is occupied as a principal residence by at least one borrower.
  The borrower submits a complete BRP (see D2-2-05, Receiving a Borrower Response Package for additional information).
  The borrower’s non-retirement cash reserves are less than $25,000 based on information provided in the Mortgage Assistance Application (Form 710), or equivalent.
  The borrower has a hardship as documented in accordance with Form 710, or equivalent.

Note: An increased monthly P&I payment that has occurred as a result of an interest rate adjustment within the last 12 months for a previously modified mortgage loan with a step-rate feature is an acceptable hardship.

2 Determine if either the credit or hardship eligibility criteria is satisfied.
Review Eligibility Criteria
Credit A FICO credit score less than or equal to 620, and either
  • two or more 30-day delinquencies on the mortgage loan in the six months immediately preceding the month of the evaluation, or

    Note: The servicer must not consider a missed contractual payment that becomes 60 or more days delinquent as having two or more 30-day delinquencies in the six-month period immediately preceding the month of the evaluation.

  • a pre-modification housing expense-to-income ratio greater than 40% calculated in accordance with the procedures in Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Conventional Mortgage Loan Modification in F-1-12, Preparing to Implement a Workout Option.

Note: The FICO credit score must be no more than 90 days old as of the date of evaluation. If the servicer obtains multiple credit scores for a single borrower, it must select a representative credit score using the lower of two or the middle of three credit scores. If there are multiple borrowers, the servicer must determine the representative score for each borrower and use the lowest representative score as the credit score for the evaluation.

Hardship The borrower has one of the following hardships as documented in accordance with Form 710, or equivalent:
  • death of a borrower or death of either the primary or secondary wage earner in the household;

  • long-term or permanent disability, or serious illness of a borrower, co-borrower, or dependent family member;

  • divorce or legal separation;

  • separation of borrowers unrelated by marriage, civil union, or similar domestic partnership under applicable law; or

  • an increased monthly P&I payment occurred as result of an interest rate adjustment within the last 12 months for a mortgage loan previously modified with a step-rate feature.

For more information please see Servicing Guide D2-1-01, Determining if the Borrower's Mortgage Payment is in Imminent Default

 

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