Underwater on your home?

On March 1, 2013 the revised guidelines of the deed-in-lieu (DIL) of foreclosure will go into effect.  There will be 3 changes: 1) The change will allow some homeowners who cannot obtain a loan modification or short sale to relinquish their home to the owner of the mortgage and cancel their debt. 2) The servicer incentive for completing a DIL of foreclosure will increase from $275 to $1500. 3) Servicers no longer need written approval to postpone a foreclosure sale for mortgages that are more than 12 months delinquent. #2 and #3 are pretty self-explanatory so let’s concentrate on the requirements for #1.

Homeowners who are 90 days or more delinquent on their loan must be experiencing one of 10 hardships listed below:

    • Unemployment
    • Reduction in income: Hardship that has caused a decrease in income due to circumstances outside the borrower’s control (for example, elimination of overtime, reduction in regular working hours, a reduction in base pay)
    • Increase in housing expenses: Hardship that has caused an increase in housing expenses due to circumstances outside the borrower’s control
    • Divorce or legal separation; Separation of borrowers unrelated by marriage, civil union, or similar domestic partnership under applicable law
    • Death of a borrower or death of either the primary or secondary wage earner in the household
    • Long-term or permanent disability; Serious illness of a borrower/co-borrower or dependent, family member
    • Disaster (natural or man-made) adversely impacting the property or borrower’s place of employment
    • Distant employment transfer/relocation
    • Business Failure
    • Other hardship that is not covered above

Homeowners who are less than 90 days delinquent must meet one of two hardships:

    • Death of a borrower or co-borrower
    • Long-term or permanent illness or disability of a borrower or co-borrower or dependent family member

Homeowners who are current or less than 31 days delinquent must have a total monthly debt-to-income ratio of greater than 55%. To calculate this ratio you take your monthly expenses (mortgage, taxes, insurance, equity loan, etc.) and divide it by your monthly gross income.

Homeowners who are eligible for DIL can receive up to $3,000 in relocation assistance. Loan servicers must conduct a property inspection and if the home is not in good condition, the relocation assistance will be reduced by the cost of cleaning and repair. By encouraging homeowners to leave the home in a good condition, the selling price of the home will remain stable and the amount of time to sell will be reduced. Keeping the home price stable will ensure neighborhoods won’t be negatively impacted. These new rules will help stimulate the economy and are a great way to help homeowners that are truly underwater.

For more information, please visit Fannie Mae’s site: https://www.fanniemae.com/content/announcement/svc1225.pdf