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The Federal National Mortgage Association (FNMA, or Fannie Mae) is a private corporation formed under the auspicious of the United States Government to insure the availability of mortgage money throughout the U.S. No matter where, or with whom, the loan is originated it is probably owned, managed or under the influence of the delinquency and foreclosure prevention policies of Fannie Mae. Even if it is not, the servicing agent (bank or mortgage company receiving your payment) is likely to follow Fannie Mae's administrative guidelines for delinquency and foreclosure management. You will find the delinquency and foreclosure workout procedures for government loans administered under the auspicious of the VA and HUD to very similar, and in many instances more liberal.

Delinquency and foreclosure presents a serious risk to the financial assets of the FNMA, or any other lender. Therefore, Fannie Mae has established workout procedures for the purpose of circumventing potential lose to the corporation and and its servicing agents that are based on very flexible policies.

While the appropriate help is intended to reach those in need of prevention counseling, the overburdened and often poorly informed FNMA bureaucracy often fails to provide the needed guidance in time. This guide has been created to provide the borrower with  the information needed in order to take control of  their rights.

As an investor in the foreclosure market you can gain an extraordinary edge by understanding the foreclosure management policies of Fannie Mae.  The FORECLOSURE PREVENTION plans have been established to avoid foreclosure whenever possible and a offer a unique opportunity for the investor to create a market advantage using Fannie Mae's investor friendly policies to craft a workout with the property owner.  

FORECLOSURE PREVENTION

ALTERNATIVES TO FORECLOSURE	Fannie Mae Philosophy  /FAnnie Mae's loss policy  is derived from the philosophy that diligent management of delinquent mortgages is fundamental to foreclosure prevention.  When the best efforts are insufficient to bring mortgages current, and when significant losses would occur if delinquency ended in foreclosure, aggressive workout solutions become the means of protecting the profit objective of the FNMA.  Fannie Mae has, therefore, created five specific Foreclosure Prevention plans.  Repayment Plan   A structured arrangement in which the borrower repays delinquent installments or advances and thus brings the mortgage current. Fannie Mae's formal repayment plans include Special Forbearance. Modification  One or more of the terms are changed to bring the delinquent mortgage current Assumption   An enforceable "due-on-sale" clause is waived to allow a qualified buyer to assume the mortgage of a delinquent borrower. Preforeclosure Sale   The proceeds of a sale are accepted as full satisfaction for the mortgage obligation even  if it is less than the mortgage balance. Deed-In-Lieu Of  Foreclosure   The borrower voluntarily deeds the property to the lender to avoid foreclosure.   Each of these workout solutions will be covered in more detail.  You are reminded again that while these solutions possess standardized features, Fannie Mae will not object to any reasonable plan provided it does not compromise the lien position or come into conflict with any other policy or commitment. Fannie Mae Management Goals    Fannie Mae continues to support the goal of offering borrowers the opportunity to keep their property, and loss mitigation remains the highest priority. In addition to improving the quality and availability of counseling services, Fannie Mae continues attempts to improve the approval process and turnaround time.    When Is A Workout Plan Offered   Foreclosure workout is considered when a borrower's financial condition has been severely or permanently impaired and: All collection efforts have failed Temporary Simple Cures and Relief Provisions have not been successful, or are considered impractical Delinquency cannot be resolved under existing terms Foreclosure would result in a loss
BUILDING YOUR CASE FILE	First Contact   From the time of first contacted by the servicing agent the borrower should begin to establish a relationship based on honesty and  credibility.   Gain the servicing agents confidence. Answer all questions honestly. Completely disclose the reason for delinquency, or default. Be honest about the extent of  the hardship and how long it is expected to continue. If  the borrower believes a foreclosure workout  is needed, provide specific guidance for the counselor as to the plan and terms. The borrower knows  the situation far better than they do.  Fannie Mae considers the following reasons for delinquency as qualifying hardship. Death of a borrower Unemployment Reduction in the number of working hours Loss of overtime or a second job Increase in expenses resulting from unemployment Salary reduction Decline in earnings if self-employed Business failure Disability Health related expenses Involuntary employment relocation Divorce Bankruptcy Incarceration Catastrophe or natural disaster The foreclosure prevention counselor will probably attempt to qualify any of these reason in more detail.  Insure  to offer complete a explanation, and be prepared with important related details.
	Properly Preparing For Financial Disclosure   To receive consideration for a workout plan the borrowers income and assets will be carefully evaluated. Analysis of financial information is intended to determine if  the borrower has  assets which can be applied to the delinquent balance, and the extent to which the debt and expenses are appropriate for to the borrower's particular personal, business, professional or corporate situation.  Be prepared to provide the following information: Employed Federal tax returns for the last two years, including W-2s The last two months pay stubs Most recent bank statements A written statement describing the nature of your financial hardship Sole Proprietorship Most recent federal tax return with all schedules Year-to-date profit and loss statement Partnership Most recent federal tax return with all schedules Form 1065, U.S. Partnership Return of Income Schedule K-1 as applicable Year-to-date profit and loss statement Corporation Most recent federal tax return with all schedules W-2 forms Form 1120, U.S. Corporate Income Tax Return Form 2106, Employee Business Expense files with the U.S. Corporate Income Tax Return if applicable Year-to-date profit and loss statement, if applicable S-Corporation Most recent federal tax return with all schedules Form 1120-S, U.S. Income Tax Return For S-Corporations Year-to-date profit and loss statement, if applicable
	Establishing The Highest Property Value   Property equity is the key determinant of whether Fannie Mae will sustain a loss in foreclosure, and influences the type of workout solution considered to be appropriate. Broker Price Opinion (BPO)    An opinion of the market value of  the property is prepared by an approved real estate broker or an appraiser to determine the condition of the property, general marketing conditions in the area and an opinion of "as is" and "repaired" value. The BPO asks the broker to supply information regarding: General Marketing Conditions   Provides for a description of the general area and information about the neighborhood, property location and local employment Marketability  Establishes the relative marketability of the property based on lot size, design, square feet of improvements and amenities. Listings And Sales   The BPO form  provides for the relative location of current listings and closed sales. Market Strategy  Establishes repair and deferred maintenance needs, determines  the most likely buyer (owner-occupant, or investor) and recommends financing options Competitive Closed Sales  A complete property description and sales data for all properties considered to be comparable in condition, location and size that have recorded closed sales within the last four to six months. Probable Value   The brokers opinion of the final selling price. Recorded Liens  A title search will be done to determine al liens of record.  Be sure that your are aware of  the liens against your property, and the reason for their existence. A Local Agent    The services of a local real estate agent are available at no charge with the understanding the agent will receive the listing if  the borrower makes the decision to sell. Your agent can be a very valuable asset, supplying important local knowledge that can add value to the BPO report and giving you added financial strength when fashioning a workout solution. Obtain a copy of the current FNMA approved BPO Form. Become familiar with the format and, with the agent, offer whatever assistance you can when the designated broker or appraiser arrives. CHOOSING YOUR WORKOUT PLAN The Basic Plans
REPAYMENT PLAN	Special Forbearance  This  provides for the suspension of payments for a specified period of time, and usually for no longer than 18 months from the date of the first payment under this agreement.   This plan is used to assist borrowers experiencing a temporary loss, or reduction, in income that is expected to be restored at a later date. Fannie Mae's policy allows Special Forbearance in any situation for which there is documentation and relief is warranted. Long Term Special Forbearance   In certain situations Special Forbearance can be extended up to 24 months.   When  A Repayment Plan  is considered when teh delinquency is the result of: The death of a contributor to the monthly mortgage payment. This does not necessarily have to be a person on the mortgage Illness, catastrophe or natural disaster for which the borrower is not insured, or Any other similar or contributing factors. Keep in mind that Forbearance provisions may be customized to fit most any need or solution, however, Special Forbearance cannot not exceed 24 months.
MODIFICATION	What Is A Modification  This option involves changing the terms of a mortgage in order to remove delinquency and avoid foreclosure and is completed with the execution of a replacement mortgage.  Fannie Mae will consider modification that includes, but is not limited to, reducing the interest rate, extending the term of the mortgage, negative amortization, replacing an adjustable rate with a fixed rate and capitalizing the delinquent payments. When Is Modification Appropriate   This option will be considered only when the potential for a Repayment Plan has been illuminated due to the probability of a permanent or long term reduction in income.  Lienholders having a recorded interest in the property must agree to subordinate their interest to the new loan. If there is sufficient equity in the property Fannie Mae might consider including the pay-off of junior liens in the new loan. This would be a particularly attractive workout solution  if the resulting monthly mortgage obligation is less than the combined payments preceding the workout.     Eligibility   This option is normally available to borrowers experiencing permanent or severe financial hardship. The obligation-to-income ratio should not exceed 36-38%. (Divide the total debt with a remaining term of more than six months by your total income for an approximation).  This plan is not likely to be approved if the ratio is greater than 50%.
ASSUMPTION	What Is An Assumption  This option involves transferring the ownership to a buyer willing to assume full responsibility for the mortgage obligation.  While some loans, including most adjustable rate mortgages (ARM) are assumable without prior approval or  buyer qualification, many others contain a "due-on-sale" clause allowing Fannie Mae to accelerate the loan balance thereby requiring the full amount to be paid in the event of an unauthorized transfer of ownership.Fannie Mae will waive existing, enforceable "due-on-sale" clauses on conventional mortgages ("fixed rate"" and fully amortized) in order to complete a sale and avoid foreclosure.
	When Is Assumption Appropriate   While Fannie Mae will probably consider any assumption agreement leading to a desirable outcome, it is an excellent workout solution if the mortgage balance exceeds the BPO estimate of probable value (final selling price), and particularly attractive if the property is in need of maintenance, or repair. In certain situations Fannie Mae will accept the cost of  removing deferred maintenance and repair needs for the right buyer. Eligibility   The borrower must be willing to assign the property to Fannie Mae's agent, and the property must be free of liens.  When removing liens Fannie Mae may: Require the borrower to pay-off the lien, or negotiate subordination Offer junior lienholders a nominal pay-off based how close the unpaid mortgage balance is to the "as-is" value.
PREFORECLOSURE SALE	What Is Preforeclosure  This option provides for the sale of property in which fannie Mae and the borrower agree to accept the proceeds of the sale to satisfy a defaulted mortgage, where the proceeds may be less than the mortgage balance, to avoid foreclosure.
	When Is Preforeclosure Appropriate  This is option is also used when the mortgage balance exceeds the BPO estimate of probable value (final selling price).   Eligibility  The borrower must be experiencing financial hardship that is the result of involuntary reduction in income and an unavoidable increase in expenses to the extent that expenses exceed income.   Causes would include such things as: Lay-off Loss of job Disability, or prolonged illness Death of a mortgage contributor Business set-back for a self employed borrower In the event of an approved  Preforeclosure Sale the borrower will have to accept the following conditions: Listing the property for sale will not delay initiating or continuing a foreclosure action, but the terms of the agreement will be honored pursuant to a sale before the foreclosure date The borrower agrees to properly maintain the property The borrower may be required to off-set Fannie Mae's losses.(Negotiable) The borrower may have a tax liability if any of the debt is forgiven The property is free of liens.  When other liens exist Fannie Mae agree to workout pursuant to the Eligibility requirement  for an ASSUMPTION Fannie Mae, or a designated representative, negotiates the and approves the transaction
DEED-IN-LIEU OF FORECLOSURE	What Is Deed-In-Lieu Of Foreclosure    This option permits the borrower to voluntarily surrender the property by deeding the property to Fannie Mae'as satisfaction for the debt, thereby avoiding foreclosure.  This is the least desirable outcome for Fannie Mae.  When Is Deed-In-Lieu Appropriate   When the property has been on the market as a Preforeclosure Sale for three months or more. There are legal obstructions to foreclosure action Deed-in-lieu allows Fannie Mae to take possession of the property sooner than would be possible through foreclosure. Eligibility   In accordance with the aforementioned hardship situations and pursuant to removing junior liens based on the procedures discussed earlier
SPECIAL CIRCUMSTANCES	Natural Disaster And Bankruptcy  Natural Disaster   Fannie Mae policy makes every effort to avoid foreclose on properties effected by catastrophe or natural disaster. These properties almost always protected by insurance or government policy. Bankruptcy  Foreclosure can be delayed by filing a bankruptcy petition, but not avoided. If your are contemplating bankruptcy be sure that you are conferring witch an experienced attorney or paralegal when determining foreclosure strategy
CONTACT DIRECTORY	Fannie Mae Regional Offices
"AGGRESSIVE STRATEGIES"	While many of these techniques may not seem to offer hope immediately you will find as you  work through  these techniques there will be a perfect fit for the situation.  With an open mind and some creative application of these ideas you can make a good thing out of a bad situation.