New guidelines for the government’s increasingly criticized mortgage reduction effort prohibits taking foreclosure action until after a borrower has been evaluated and rejected for the program, and those who are in “active bankruptcy” must be given the opportunity to apply for assistance.
The new borrower protections during eligibility take effect June 1.
Borrowers cannot be referred to foreclosure until either an evaluation for mortgage help has been completed and the borrower deemed ineligible, or “reasonable solicitation efforts” have failed.
And borrowers in bankruptcy must be considered for the program if a request is received by the borrower, borrower’s counsel or bankruptcy trustee.
For several months, consumer advocates have urged the government to clarify that those borrowers in bankruptcy, or those already in some stage of foreclosure, can apply for reduced mortgage payments under the Obama Administration’s one-year-old Home Affordable Modification Program, HAMP.
“This Supplemental Directive represents an ongoing effort to improve program effectiveness by amending policies and procedures related to borrower outreach and communication,” said a statement by HAMP administrators.
The new guidelines posted by administrators on their website for servicers also state that if a borrower already in the foreclosure process is being evaluated for eligibility in HAMP, a “foreclosure sale cannot be conducted” until after the evaluation is complete and a borrower found ineligible.
In addition, borrowers will have 30 days to respond to certain HAMP non-approval notices before a foreclosure sale takes place. A mortgage servicer also needs to provide a “written certification” to the foreclosure attorney stating a borrower has not qualified for HAMP before going through with the sale.
Administrators have provided sample letters to send borrowers already in foreclosure.
“Your loan has been previously referred to foreclosure and we will continue the foreclosure process while we evaluate your loan for HAMP. However, no foreclosure sale will be conducted and you will not lose your home during the HAMP evaluation,” states one sample.
However, the same later cautions the borrower that he or she may see steps taken to proceed with the foreclosure process and receive eviction notices.
“While you will not lose your home during the HAMP evaluation, to protect your rights under applicable foreclosure law, you may need to respond to these foreclosure notices or take other actions,” the sample letter states.
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