Federal Home Loan Bank of Chicago MPF Mortgage Partnership Finance Servicing Guide Chapter 107 Mortgage loan delinquency

Chapter 107: Mortgage Loan Delinquency (09/02/14)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107

This chapter primarily explains the Servicer's responsibilities with respect to delinquent Conventional Loans, as well as the requirements for Conventional Loan Foreclosures and REOs.

The requirements set forth in this chapter are the minimum guidelines and procedures for servicing delinquent Mortgage Loans. The Servicer must use collection procedures that meet or exceed these guidelines. The MPF Provider and the Master Servicer retain the right to require the Servicer to perform additional procedures that either the MPF Provider or the Master Servicer deem necessary to realize the objectives set forth in this Servicing Guide and the PFI Agreement.

For Mortgages that are thirty (30) or more days delinquent as of the last day of the preceding month, the Servicer must submit a Delinquent Mortgage Report reporting all Delinquent Mortgage Loans’ status as required in Servicing Guide Chapter 105.8.2. This includes the Delinquency Status Code and the Delinquency Reason Code (See the Delinquent Mortgage Report - Standard File Layout, Servicing Guide Exhibit B).

Reporting timely and accurate Delinquency status and reason codes are a crucial part of a Servicer’s loss mitigation process. The codes provide the investor (the MPF Bank or Fannie Mae) and the Master Servicer with information on the most current delinquent loan loss mitigation activities and status and help them coordinate and determine a timely course of action with the Servicer. It is critical for the Servicer that its records, and those of the investor and the Master Servicer, reflect the most up-to-date Mortgage Delinquency status and loss mitigation efforts of the Servicer. This reporting helps document and support that the Servicer’s actions on the delinquent Mortgages are proceeding as required by the investor.

For delinquent Government Loans, the Servicer must comply with applicable Government Agency requirements and must be able to provide to the MPF Bank any required documentation to support all loss mitigation action(s) taken by the Servicer.

107.1.1: Delinquency Servicing Objectives (11/13/13)

The purpose of any collection effort is to cure a Delinquency in the shortest possible time. The Servicer's collection staff must be sufficiently skilled in financial counseling and mortgage servicing techniques to assist a Borrower in bringing the Mortgage Loan current and to protect the Borrower's equity and credit rating, while at the same time protecting the interest of the MPF Bank.

The Servicer should pay particular attention to a Delinquency which occurs during the first twelve (12) months after a Mortgage Loan is originated. The Servicer should make contact with a new Borrower between the fifth (5th) and fifteenth (15th) day of Delinquency to determine the cause of the Delinquency and to emphasize to the Borrower the importance of making payments on or before the due date.

107.1.2: Delinquency Servicing Procedures (12/18/12)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.1.2

The Servicer should treat each Delinquency individually. Collection techniques should be varied to fit individual circumstances, avoiding a fixed collection pattern, which may be ineffective in dealing with particular Borrowers.

The Servicer should use notices, letters, telephone calls, face-to-face contact and other responsible collection techniques consistent with the Applicable Standards. The Servicer should recognize the importance of telephone and face-to-face contact in any collection program. Discussions with the Borrower must cover the cause of Delinquency and the time frame in which the Delinquency will be cured. As part of its collection procedures, the Servicer must closely monitor all newly originated Mortgage Loans. (see Servicing Guide Chapter 107.1.2.1 for information on Early Payment Default (EPD) loans). Subject to the Applicable Standards, the Servicer must, at a minimum, adhere to the following collection procedures:

• Late Notice: Mail a late notice to the Borrower by the eighteenth (18th) day of Delinquency.
• Telephone Contact: Use best efforts to make telephone contact with the Borrower by the 20th day of Delinquency.
• Notice of Default: Mail notification of default to the Borrower by the thirty-first (31st) day of Delinquency.
• Notice to MI Companies: Provide notice of Delinquency to applicable primary and/or supplemental mortgage insurer, within the time frames and using the methods required by the insurer. The Servicer must comply with any additional applicable reporting and other requirements of the primary and any supplemental mortgage insurer.
• Borrower Interview: Use best efforts to conduct a face-to-face interview with the Borrower between the 45th day and the 60th day of Delinquency if satisfactory arrangements to cure the Delinquency have not been made.
• Foreclosure Notice (Breach Letter): Send a breach letter to each Borrower for a Mortgage within ten (10) days of the Mortgage becoming sixty (60) days delinquent.
• Property Inspection: Inspect the related Mortgaged Property no later than the sixtieth (60th) day of the Delinquency provided that no satisfactory arrangements have been made to cure the Delinquency. The inspection should determine the physical condition and occupancy status of the Mortgaged Property. The Servicer is required to inspect the Mortgaged Property monthly after the 60th day of Delinquency until the Delinquency is cured or the related Mortgage Loan is liquidated. The results of any inspection should be considered in determining whether Foreclosure or Deed-in-Lieu-of Foreclosure is necessary. The Servicer must retain all Property Inspection Reports (Form SG331) and forward copies to the Master Servicer promptly upon request. All required property inspections are at the Servicer's expense. In addition, the Servicer must comply with all applicable mortgage insurer requirements concerning property inspections.
• Escrow Account: The Servicer is responsible for the collection and maintenance of Escrow Funds for all Mortgage Loans with an escrow requirement. The Servicer must ensure that all bills and other escrow items are paid on a timely basis. According to Applicable Standards, if the balance in the Borrower's Escrow Account is insufficient to pay the escrow items and the Servicer is unable to procure the needed funds from the Borrower by the time the escrow payment is due, the Servicer must advance its own funds in accordance with Servicing Guide Chapter 105.4.3. to ensure timely payment. If the Servicer chooses to waive the escrow requirement for a Mortgage Loan, the Servicer is required to provide proof of payment of all taxes, ground rents, assessments, insurance, and other items normally escrowed in accordance with Servicing Guide Chapter 105.4.4
• Collection Records: Maintain all collection records for the period of time required by Applicable Law.
• Continuing Contacts: If satisfactory arrangements are not made with the Borrower to cure the Delinquency by the 60th day, continue to contact the Borrower until either the related Mortgage Loan is brought current or the Servicer provides written notice to the Master Servicer stating that the Servicer intends to begin Foreclosure on the related Mortgaged Property.
• Credit Reporting: Provide a "full file" credit status report to each of the four credit repositories each month (Innovis Data Solutions, Equifax, Experian and TransUnion). Full file credit reporting includes Mortgages recently originated, current and delinquent, and liquidated through Mortgage workout options, Foreclosure and charge offs. (See Origination Guide Chapter 2.6.7).
• Homeowner association (HOA) Assessment Liens: For properties located in states that provide for homeowner association (HOA) assessment lien priority over a previously recorded Mortgage document, the Servicer must take steps to protect the priority lien of the Mortgage lien. See Servicing Guide Chapter 107.4.5. for the necessary steps the Servicer must take.

107.1.2.1: Early Payment Default (EPD) Mortgages (12/17/07)

An Early Payment Default (EPD) is a Conventional Mortgage that becomes delinquent within the first twelve (12) months of the Borrower's first payment due date as specified in the Note and subsequently becomes ninety (90) days past due. Under the MPF Program this definition only includes Conventional Mortgages that become ninety (90) days past due within the first fourteen (14) months from the first payment due date. A quality control review by the Servicing PFI is required for each Mortgage that becomes an EPD. SeeOrigination Guide Chapter 28.4.1 for the quality control review requirements of EPD mortgages.

107.1.2.2: Repurchase of Delinquent Government Loans (09/02/14)

The Servicer or its designee, with the Master Servicer's approval, may repurchase any Government Loan where no payment is made for three (3) consecutive months for an amount equal to one-hundred percent (100%) of the Mortgage's then current scheduled Principal Balance plus interest in accordance with Servicing Guide Chapter 105.7.6, without limiting or waiving the Servicer's obligation to advance principal and interest as follows:

• For all loans with a scheduled/scheduled remittance options, Principal and Interest Payments must be advanced until the Principal Balance is reduced to zero.
• For all loans with actual/actual or actual/actual single remittance option, Principal and Interest Payments are not advanced monthly, but the Servicer must liquidate the Mortgage Loan with interest to the date of Liquidation upon disposition.

The principal amount of the repurchased Mortgage must be reported to the Master Servicer for the reporting month of the repurchase, and remitted by the remittance date of the subsequent month (see Servicing Guide Chapter 105.5.1). Refer to Servicing Guide Chapter 107.5.3 for servicing and liquidation requirements of Government Loans not repurchased prior to reaching REO status.

For Mortgaged Properties located in federally designated disaster areas, the MPF Bank may authorize the Servicer to repurchase Government Loans secured by properties that have been directly damaged by the disaster. Such Mortgages do not have to be delinquent before they can be repurchased except for Government MBS Mortgages. Repurchases will be for an amount equal to one-hundred percent (100%) of the Mortgage's then current outstanding scheduled Principal Balance. If the MPF Bank does issue such an authorization, the Servicer must request written permission from the Master Servicer to purchase such Mortgages. Requests to repurchase must be made within six (6) months from the date the MPF Bank issues its authorization to repurchase.

Government MBS Mortgage Modifications

If a Government Mortgage is subject to a trial modification period a Servicer shall be permitted to repurchase the Mortgage if the Borrower is approved for a trial modification and the Mortgage is in a continuous period of default for ninety (90) days or more. Until the Mortgage is repurchased, however, the Servicer remains obligated to make timely full monthly payments of principal and interest to the MPF Provider.

While PFIs are prohibited from modifying the terms of loans held in Ginnie Mae pools that affect the amount or duration of loan payments, certain loss mitigation strategies, such as Special Forbearance and Partial Claim options described in FHA loss mitigation guidance do not alter the terms of the loan. These loss mitigation strategies may be accomplished without repurchasing the delinquent loan from the pool.

107.1.3: Automated Loss Mitigation Systems (02/04/10)

In lieu of the standards of Servicing Guide Chapter 107.1.2, the Servicer may use Early Indicator® as its loss mitigation standard, provided that the Servicer consistently follows the actions required by this system.

107.1.4: Collection Expenses (04/19/02)

All expenses related to servicing and collection of the Mortgage Loans shall be borne solely by the Servicer and shall not be recoverable by the Servicer from the MPF Bank or from Liquidation Proceeds, Insurance Proceeds, payments on the Mortgage Loan or any other source relating to the Mortgage Loan or the related Mortgaged Property. The Servicer may, subject to the Applicable Standards, recover such expenses from the Borrower.

107.1.5: Obligation to Advance on Scheduled/Scheduled Loans during Delinquency (04/19/02)

In the event of Delinquency of a scheduled/scheduled Mortgage, the Servicer agrees to advance from its own funds the full amount of scheduled monthly payments through Liquidation. The Servicer must advance funds even if forbearance has been granted. Foreclosure advances and recoveries will be made in accordance with Servicing Guide Chapter 105.6.2.

107.1.6: Primary and Supplemental Mortgage Insurance Compliance (03/22/13)

The Servicer must be familiar with and satisfy all requirements of applicable primary and supplemental mortgage insurance policies with respect to a Delinquency. The Servicer must file all required notices with the applicable primary and supplemental mortgage insurer on a timely basis. The Servicer must prepare and file on a timely basis all appropriate claims with respect to the applicable mortgage insurance policy, and must prepare and deliver to the Master Servicer copies of all notices, mortgage insurance explanation of benefits forms, claims forms and other papers received from or presented to any mortgage insurer, unless the Servicer is otherwise instructed by the Master Servicer.

See Servicing Guide Chapters 105.7.7, 106.2.4 and 107.5.1 for the requirements when a mortgage has primary or supplement mortgage insurance coverage, including the submission of the Calculation of Realized Loss (Form SG332).

107.1.7: Servicemember's Civil Relief Act (SCRA) (12/03/08)

Under the SCRA, a Borrower, or the Borrower and his or her spouse jointly, who was a civilian when he or she became obligated under the Mortgage and who subsequently is called up to, or enlists in, active military service must have the Note Rate reduced to six percent (6%) during the term of his or her active duty status. Any interest, as described under SCRA, in excess of six percent (6%) per year during the interest rate limitation period that would otherwise have been owed shall be forgiven and the amount of any periodic payment during the period of interest rate limitation shall be reduced to reflect the revised Note Rate.

In order to take advantage of this interest rate limitation, a servicemember must, no later than 180 days after the date of the servicemember's termination or release from active military service, provide the Servicer with written notice, including a copy of the military orders calling the servicemember to active military service and any orders further extending such service. Upon receipt of such notice, the Servicer must treat the debt in accordance with the above-referenced cap on interest rates, effective as of the date when the servicemember is called into active military service.

107.1.7.1: Conventional Loans (03/11/05)

For Conventional Loans, the Servicer may request reimbursement for the interest difference as indicated below. Resulting interest shortfalls will be deemed a Realized Loss subject to the terms of the related Master Commitment and the SCRA. Those interest expenses may be recoverable as a Realized Loss through performance CE Fees.

• Submit the Borrower's orders to report to active military service to the MPF Provider for approval.
• Upon receiving MPF Provider approval, adjust the Borrower's interest rate to six percent (6%) for the scheduled payments due during the interest rate limitation period.
• For actual/actual and actual/actual single remittance Mortgage Loans, the PFI will report and remit based on the interest rate adjustment to six percent (6%) and no request for reimbursement needs to be submitted.
• For scheduled/scheduled remittance Mortgage Loans, the PFI continues to report and remit at the original Note terms. The PFI can then submit a request for reimbursement for the interest difference to the MPF Provider either monthly or quarterly.
• If the Mortgage is delinquent when the service member is told to report for duty, the past-due payments will bear interest at the rate applicable on the date they became due, and any payments coming due after the service member's entry into active military service will bear interest at six percent (6%).
• The Servicer may not take Foreclosure action against the Borrower during or within the protection period described under SCRA, unless there is a court order, or if the servicemember has waived his or her rights.

107.1.7.2: Government Loans (02/01/07)

For Government Loans, the MPF Bank, at its option, may grant interest shortfall assistance to the Servicer. If interest shortfall assistance is granted, the Servicer will follow the procedure identified in Servicing Guide Chapter 107.1.7.1 to request reimbursement.

107.1.8: Servicer Delinquency Rates (01/20/15)

A Servicer must maintain Delinquency rates that are acceptable as determined by the Servicer’s MPF Bank. A Servicer may be disqualified or suspended if the Servicer’s 30-, 60-, or 90-day Delinquency rate or REO rate for MPF Mortgages is more than 50% higher than the average 30-, 60-, or 90-day Delinquency rate or REO rate for all Mortgage Loans owned by MPF Banks or delivered under the MPF program nationally or which are secured by Mortgaged Properties located in the same geographic area (which may include Standard Metropolitan Statistical Area, county, or state) as the loans being serviced by the Servicer and with similar mortgage and Borrower characteristics (for example, origination year, loan to value ratio, documentation type, etc.). If a Servicer fails to maintain the above referenced Delinquency rates, the MPF Bank will evaluate and monitor the servicing provided by the Servicer to determine if the Servicer remains eligible to service Mortgages sold under the MPF Program.

107.2: Plans for Curing Delinquencies

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.2

107.2.1: Servicing Objectives (09/04/09)

The Servicer must be readily available to Borrowers to offer skilled financial counsel and advice, and should make personal contact with delinquent Borrowers as often as necessary to bring a delinquent Mortgage Loan current as soon as possible. The Servicer shall have reasonable discretion to extend appropriate relief to Borrowers who encounter hardship and who are cooperative and demonstrate proper regard for their obligations. Relief may be granted only to those Borrowers who the Servicer reasonably expects will bring the related Mortgage Loans current within twelve (12) months. Under special circumstances additional relief, which is not explicitly allowed in the Guides, may be granted only with the Master Servicer's approval.

Prior to granting relief as herein provided, the Servicer must inspect the Mortgaged Property and ascertain that the condition of the Mortgaged Property and the reasons for the default and the attitude and circumstances of the Borrower justify the relief to be granted. The Servicer shall satisfy, and retain evidence of satisfaction of, all applicable requirements under each mortgage insurance policy with respect to the relief granted. Any relief requiring prior approval of the Master Servicer shall be adequately documented by the Servicer using the Workout Worksheet (Form SG354). The Servicer is responsible for collection from the Borrower of any recording or similar costs incidental to the granting of relief.

For any Mortgage Loan covered under primary or supplemental mortgage insurance, the Servicer is expected to contact the mortgage insurer directly for information regarding any forms of relief available. For Mortgage Loans not covered under a mortgage insurance policy, the Master Servicer will consider the forms of relief contained in this chapter of the Servicing Guide.

107.2.2: Forbearance Plan (09/04/09)

Where relief is appropriate, the Servicer should arrange a "Forbearance Plan" giving the Borrower a definite period, commencing immediately, during which the Borrower may reinstate the Mortgage Loan by making payments in excess of the regular monthly payments. Any forbearance plan must comply with all applicable mortgage insurance requirements. If the earliest unpaid payment on a Mortgage is more than sixty (60) days past due, the forbearance plan must be set forth in a written letter agreement executed by both Borrower and Servicer. The forbearance plan must provide that the total delinquent amount owed, including costs and expenses, will be repaid within the shortest period practicable, but in no event more than twelve (12) months after the due date of the earliest unpaid installment, unless the Master Servicer and where applicable the primary and/or supplemental mortgage insurer, consent to a longer period of time. The Servicer must ensure that the priority of the lien represented by the Mortgage Loan remains in effect and is not adversely affected, and that the applicable primary and/or supplemental mortgage insurance policy remains in full force and effect.

If the Mortgage Loan is not covered by mortgage insurance and the Servicer anticipates that the total arrearage will be cured within three months from the due date of the first unpaid installment, the Master Servicer's approval of the forbearance plan is not required. If the Delinquency will not be cured within three (3) months and the Mortgage Loan is not covered by mortgage insurance, the Servicer must obtain the Master Servicer's prior approval. After approval by the Master Servicer, the Servicer must set forth the terms of the forbearance plan in the form of a written letter agreement which must be executed by the Borrower and the Servicer. The Servicer must report the terms of any forbearance plan to the Master Servicer, but is not required to provide the Master Servicer with a copy of the plan.

107.2.2.1: Special Forbearance Plan (11/13/13)

A "Special Forbearance Plan" is an agreement between the Servicer and a cooperative Borrower to reduce, not suspend, monthly payments for a period not to exceed twelve (12) months. The Servicer must reasonably ascertain, based on the Borrower's specific circumstance and supporting financial documentation, that the granting of a Special Forbearance Plan will likely assist the Borrower to eventually improve their financial situation and bring all the Scheduled Principal and Interest payments current. At the end of the special forbearance period, the Borrower must cure the Delinquency through full reinstatement or payoff of the Mortgage Loan in full. The reinstatement may be accomplished by converting the special forbearance plan to a forbearance plan described in Servicing Guide Chapter 107.2.2, not to exceed 12 months from the date the special forbearance period ends.

A special forbearance plan may be appropriate in cases where the Mortgaged Property has been rendered temporarily uninhabitable, the Borrower is deceased and the estate is in probate, the Borrower is experiencing a medical emergency or may have the property listed for sale. The Borrower's reason(s) for inability to make payments must be involuntary.

The following requirements must be met prior to granting a Special Forbearance Plan:

• The Servicer must request approval from any applicable primary and/or supplemental mortgage insurer. If the Special Forbearance Plan exceeds three (3) months, the Servicer must also request approval from the Master Servicer. Supporting documentation to be submitted include, but are not limited to:
  • Workout Worksheet (Form SG354)
  • Copy of the proposed Special Forbearance Plan
  • If the Special Forbearance Plan exceeds three (3) months, a broker's price opinion (BPO) to support that value has not declined from the original value described in Underwriting Guide Chapter 2.2.1.
  • Copy of the Borrower's hardship letter and any supporting documentation detailing the cause of the involuntary inability to pay.
• The Special Forbearance Plan must be in a written agreement signed by both the Servicer and Borrower before the plan begins; and
• If the Special Forbearance Plan exceeds three (3) months, the written agreement must include the following statement: "Failure to abide by the terms of the agreement will result in the termination of the Special Forbearance Plan and commencement of Foreclosure".

107.2.3: Preforeclosure Sale (09/04/09)

Occasionally, when none of the Servicer's efforts to cure a Delinquency are successful, the use of relief provisions may not be feasible, and a preforeclosure sale may be appropriate. A preforeclosure sale is a sale of Mortgaged Property prior to Foreclosure, where the sale may result in insufficient proceeds to pay the total indebtedness. A preforeclosure sale should be considered if the sale would reduce the loss that would otherwise be incurred from foreclosing on the Mortgaged Property.

If the proceeds from the pre-Foreclosure sale and the primary mortgage insurance settlement are greater than or equal to the total indebtedness, the Servicer may negotiate and complete the pre-Foreclosure sale without pre-approval. However, the Servicer must obtain the Master Servicer's approval if the pre-Foreclosure sale and the primary mortgage insurance settlement proceeds will be less than the total indebtedness. The Servicer must not withhold the proceeds from the disposition of an REO until the completion of a supplemental mortgage insurance claim (see Servicing Guide Chapter 105.7.6 for Prepayments in Full and Liquidations).

If the Mortgage Loan is covered by primary and/or supplemental mortgage insurance, the Servicer must obtain the mortgage insurers' prior approval.

As required in Servicing Guide Chapter 105.2.1, all proceeds from sale of the Mortgaged Property must be deposited into the related P&I Custodial Account within one (1) Business Day following receipt by the Servicer. Within two (2) Business Days the Servicer must submit to the Master Servicer copies of the buyer and seller's settlement statements, closing statements or escrow instructions, and an estimate of total advances made to date.

107.2.4: Borrower Assistance Program (BAP) (09/04/09)

A Borrower Assistance Program (BAP) is intended to provide qualified, deserving Borrowers with financial assistance in making their Mortgage payments, and ultimately curing the Delinquency. A Borrower whose Mortgage Loan is not covered by mortgage insurance is not eligible for a BAP. If the Mortgage Loan is covered by primary mortgage insurance, the Servicer must contact the respective mortgage insurer for information regarding the availability and specific terms of any BAP the mortgage insurer may offer. A maximum of six (6) delinquent monthly payments may be advanced under a BAP. Any funds advanced over and above the amount of the six (6) delinquent monthly payments will be deducted from any future final claim. The Master Servicer must approve any BAP prior to its implementation.

If the Borrower fails to satisfy the terms of the BAP, the Servicer must notify the mortgage insurer of the Borrower's breach of the BAP and recommend a new relief agreement, Foreclosure or Deed-in-Lieu of Foreclosure as provided in Servicing Guide Chapter 107.4.

107.2.5: Accommodation Limitations (09/04/09)

Except with the written permission of the Master Servicer and except for a forbearance plan, a Modification Plan (as defined in Servicing Guide Chapter 107.6), or BAP permitted in this Servicing Guide, no modification, recast, extension or capitalization of delinquent payments of a Mortgage Loan is permitted. Where applicable, the Servicer must satisfy all requirements under the applicable primary and/or supplemental mortgage insurance regarding the relief granted with respect to a delinquent Mortgage Loan, including, without limitation:

• Securing the prior written consent of the mortgage insurer regarding any change in any term of the Mortgage Loan;
• The release of the Borrower from any liability related to the Mortgage Loan; or
• The release of any portion of, or interest in, the Mortgaged Property from the lien of the related Security Instrument.

107.2.6: Relief Costs (09/04/09)

The Servicer is responsible for collection from the Borrower of any legal expenses, recording or similar costs or expenses incidental to the granting of relief with respect to a delinquent Mortgage Loan.

107.2.7: Certain Assumptions Permitted (09/04/09)

The Servicer is authorized, notwithstanding the other provisions of this Guide and the PFI Agreement, to permit the Assumption of a defaulted Mortgage Loan rather than to foreclose or accept a Deed-in-Lieu of Foreclosure if: (1) in the Servicer's judgment, the default is unlikely to be cured; (2) the assuming Borrower meets the underwriting guidelines that originally applied to the Mortgage Loan; and (3) any applicable mortgage insurer has approved such Assumption. For Government Loans, Assumptions are permitted in accordance with the applicable Government Agency requirements.

107.3: Borrower Bankruptcy

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.3

107.3.1: Notice of Bankruptcy (09/04/09)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.3.1

Promptly after the Servicer receives notice of the bankruptcy of any Borrower, the Servicer will provide written notice thereof to the Master Servicer and, from time-to-time, will provide such information as the Master Servicer reasonably requests relating to such bankruptcy proceeding and the actions of the Servicer taken in connection therewith.

107.3.2: Challenge Bankruptcy Reductions (09/04/09)

If the bankruptcy debtor or trustee should propose to:

• Reduce the unpaid Principal Balance of a Note;
• Reduce the related Note Rate;
• Extend the final maturity of such Mortgage Note;
• Bifurcate of the claim into "secured" and "unsecured" portions (with the "unsecured" portion equal to the difference between the unpaid Principal Balance and the value of the Mortgaged Property); or
• Reduce the level of any monthly payment on such Mortgage Note

The Servicer shall:

• Challenge any such modification on a timely basis
• Refer the case to a bankruptcy attorney competent to handle such cases
• Notify the Master Servicer immediately, and
• Follow the Master Servicer's instructions regarding the bankruptcy proceedings, and in the absence of explicit instructions, exercise reasonable judgment to protect the interests of the owner of such Mortgage Loan

If a bankruptcy court confirms a reorganization plan that provides for a "Cramdown" of the Mortgage debt for a Conventional Loan, the Servicer must provide the Master Servicer with a copy of the bankruptcy court "Cramdown" order. See Servicing Guide Chapter 107.3.3for additional requirements

107.3.3: Bankruptcy Adjustments (09/04/09)

If the action of any court results in a deficient valuation or debt service reduction, the Servicer will calculate the effects of such modification and will notify the Master Servicer of the new unpaid principal balance, mortgage interest rate, new final maturity, or monthly payment, as the case may be, of such Mortgage Loan. With respect to each Mortgage Loan that is the subject of a deficient valuation or a debt service reduction, the Servicer shall verify that payments are being made in accordance with the plan approved in the related bankruptcy proceedings.

107.3.3.1: "Cramdowns" for Government Loans (09/04/09)

"Cramdowns" for MPF Government Loans are not covered by Government Agency insurance or guaranty, and become part of the Servicer's Unreimbursed Servicing Expenses.

107.4: Foreclosure Administration

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4

107.4.1: Foreclosure/Alternative to Foreclosure Initiation (10/15/14)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4
When a Mortgage Loan reaches the 120th day of Delinquency and the Servicer has exhausted all reasonable means of curing the Delinquency, the Servicer must either begin the Foreclosure process the following day, unless greater timeframe is required by Applicable Law (see Servicing Guide Chapter 107.1.7 for information on foreclosure initiation concerning a Borrower in active military service) or an alternative to Foreclosure in accordance with the Applicable Standards. In conjunction with the Servicer's decision to begin Foreclosure or an alternative to Foreclosure, the Servicer must provide written notification to the Master Servicer and applicable primary and supplemental mortgage insurers no later than ten (10) days after the start of the Foreclosure proceedings or the alternative to Foreclosure. Notwithstanding anything to the contrary in Servicing Guide Chapter 107.4.1, the Master Servicer may direct the Servicer to stop the Foreclosure action or to modify any alternative to Foreclosure. It will be the Servicer's responsibility to prepare all necessary documentation to initiate the Foreclosure proceedings in a timely manner.

If MERS is the Mortgagee of record, the Servicer must prepare a mortgage assignment from MERS to the Servicer, and then bring the foreclosure in its own name, unless directed otherwise by the MPF Provider. The assignment from MERS to the Servicer must be recordedbefore the foreclosure begins. The Servicer will not be reimbursed for any expense incurred in preparing or recording an assignment of the Mortgage Loan from MERS to the Servicer. The Servicer should consult its foreclosure attorney (for the MPF Xtra product, the attorney must be Fannie Mae approved) to determine if any other legal requirements apply when conducting foreclosures of Mortgage Loans in which MERS is the prior Mortgagee of record.

107.4.2: Foreclosure Expenses (09/04/09)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4.2
All Foreclosure fees and expenses shall be consistent with mortgage industry standards and shall not exceed those permitted under the applicable primary mortgage insurance policy. Foreclosure advances shall be reimbursable as provided in Servicing Guide Chapter 105.6.2. Fees in excess of the amount customary for routine cases and fees for extraordinary legal services must be approved in writing in advance by the Master Servicer and applicable mortgage insurer(s). The billing by a Foreclosure attorney must demonstrate the appropriateness of any extraordinary fees for the services required. In cases of full or partial reinstatement of a Mortgage Loan, the fees shall be reasonable and in proportion to the authorized fee for services rendered for a completed Foreclosure. Unless otherwise expressly agreed in writing, neither the Master Servicer, any of its affiliates, their respective officers, directors, employees, agents, successors or assigns, nor the MPF Bank or MPF Provider shall be liable for any attorneys' fees, trustees' fees, witness fees, title search fees, court costs or other expenses incurred by the Servicer with respect to any Foreclosure or Deed-in-Lieu of Foreclosure, except to the extent that such fees, costs and expenses are fully reimbursable under any applicable primary mortgage insurance policy and in fact are reimbursed.

107.4.3: Hazardous Wastes (09/04/09)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4.3

If the Servicer has reason to believe that the Mortgaged Property for any Mortgage Loan being considered for Foreclosure or a Deed-in-Lieu of Foreclosure contains hazardous or regulated substances which may impose liability (for damages, remediation or otherwise) upon the owner of the Mortgaged Property pursuant to federal, state or local law, the Servicer shall not undertake or continue the process of Foreclosure with respect to such Mortgaged Property, except with the express prior written approval of the Master Servicer, and only if such approval makes specific reference to the presence of such hazardous or regulated substances.

If the Servicer violates this requirement and acquires the Mortgaged Property by Foreclosure or Deed-in-Lieu of Foreclosure, such acquisition shall be for the Servicer's own account and the Servicer shall remit to the MPF Bank the unpaid Principal Balance of such Mortgage Loan, together with all accrued but unpaid interest. In such case, the Servicer's actions shall be its own, and not as agent for the Master Servicer, the MPF Bank or MPF Provider.

107.4.4: Deed-in-Lieu of Foreclosure (07/02/12)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4.4

The Servicer may accept a Deed-in-Lieu of Foreclosure if the Master Servicer and the applicable primary and/or Supplemental Mortgage insurer have approved the Liquidation of a Mortgage Loan in such manner and all applicable requirements of the mortgage insurers are complied with, subject to the following conditions:

• Marketable title, as evidenced by an acceptable title insurance policy, can be conveyed to and acquired by:
  • The PFI or its approved designee for REO for all Conventional Loans and all RHS Section 502 Loans;
  • The Secretary of HUD for FHA Loans and HUD Section 184 Loans;
  • The Secretary of the VA for VA Loans;
• The transaction complies with all the requirements of the applicable primary and/or supplemental mortgage insurer and does not and will not violate or contravene any restriction or prohibition of the applicable mortgage insurance policies or otherwise result in any loss of benefits, or reduction in the coverage under either such policy;
• No cash consideration is paid to the related Borrower;
• The Mortgaged Property is vacant at the time of the Borrower's conveyance thereof, unless occupancy has been approved in writing by the Master Servicer and, where applicable, by the applicable primary and/or supplemental mortgage insurer;
• The Borrower's inability to pay is justified by a full financial disclosure verifying such inability;
• The Mortgaged Property is either owner-occupied or, if not owner-occupied, an assignment of rents is provided; and
• The Servicer has obtained a written acknowledgment from the Borrower that the deed is being accepted as an accommodation to the Borrower and on the condition that the Mortgaged Property will be transferred to the appropriate party free and clear of all claims, liens, encumbrances, attachments, reservations or restrictions except for those to which the Mortgaged Property was subject at the time it became subject to the lien of the Security Instrument.

Upon acquisition of such Mortgaged Property, the Servicer shall promptly notify the Master Servicer and applicable primary and/or supplemental mortgage insurer, indicating the details of the transaction and reasons for the conveyance and providing the other information required for a Property Inspection Report (Form SG331) (or similar form containing the same information) to the Master Servicer and applicable primary and/or supplemental mortgage insurer. Title shall be conveyed directly from the Borrower to the Person designated by the Master Servicer.
See Servicing Guide Chapter 103.3.5 for vacant or abandoned property requirements.

107.4.5: Foreclosure Proceedings (12/18/12)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.4.5
The Servicer shall initiate Foreclosure actions in accordance with the Applicable Standards. If a Mortgaged Property has been abandoned or vacated and the Borrower has evidenced no intention of honoring the obligations under the related Mortgage Loan, absent any Servicer process deficiencies, the Foreclosure process shall be expedited to the fullest extent permitted by law (seeServicing Guide Chapter 103.3.5 for vacant or abandoned property requirements). The following procedures and requirements shall apply to all Foreclosures:

A) Foreclosure Notices (Breach Letter): Subject to the Applicable Standards, the Servicer must send the Borrower a letter not less than 30 days before the commencement of Foreclosure proceedings, setting out:

• The nature of the default;
• The steps that must be taken by the Borrower to cure the default; and
• The date when Foreclosure proceedings will begin.

If the Servicer has reason to believe that the Mortgaged Property has been abandoned or if the Borrower has displayed an obvious disregard for his obligations under the Mortgage Loan, the foregoing notice shall be sent at the earliest possible date following the Borrower's default;

B) Foreclosure Expenses: While a Mortgaged Property is being foreclosed, any remaining Escrow Funds and any rent receipts shall be used to pay all taxes and insurance premiums that become due with respect to such Mortgaged Property to the extent permitted by law. Except where other arrangements have been made with the applicable primary mortgage insurer, from the commencement of Foreclosure proceedings, the Servicer shall advance payment of attorneys' fees, trustees' fees and other Foreclosure costs;

C) Notice of Foreclosure: The Servicer shall give prompt notice to the Master Servicer and the applicable primary and/or supplemental mortgage insurer, prior to a proposed Foreclosure sale. The notice must include the date, location and time of the Foreclosure sale.Foreclosure Bidding Instructions:If the Mortgage is a Government Mortgage, the PFI must follow the applicable Government Agency's guidelines for bidding instructions.For Conventional insured and uninsured Mortgages, the Servicer must obtain approved bidding instructions as follows:

• Conventional uninsured Mortgage: Bidding instructions must be obtained from the Master Servicer.
• Conventional insured Mortgage: Bidding instructions must be obtained from the primary (PMI) and/or supplemental (SMI) insurer. If the PMI and/or SMI insurer issues specific instructions to enter a bid of less than one-hundred percent (100%) of the total mortgage indebtedness, the Servicer must obtain the Master Servicer's approval prior to submission to the Foreclosure Attorney.

The PFI must submit the following information to the Master Servicer in order to obtain approved bidding instructions:

• The Brokers Price Opinion (BPO) or the estimated market value from the appraisal report if an Appraisal is required by Applicable Law;
• The amount of the total indebtedness; and
• If the Mortgage is covered by a primary and/or supplemental mortgage insurance policy, the bid amount approved by the primary and/or supplemental mortgage insurer.

See Servicing Guide Chapter 107.4.5.1 for loans determined to be High Level Concern (HLC) Mortgages at REO acquisition.

D) Buydown Funds Use: Unless permitted under the Applicable Standards, the Servicer may not use Buydown Funds to cure a Delinquency. Any Buydown Funds remaining in the related Buydown Custodial Account must be disposed of in accordance with the Applicable Standards;

E) Property Inspections: The Servicer shall make monthly inspections of each Mortgaged Property during the Foreclosure process to assure that the property is not damaged by vandals or the elements. The Servicer shall promptly prepare and retain a Property Inspection Report (Form SG331) (or similar form containing the same information), and shall forward Property Inspection Reports to the Master Servicer on request; andSee Servicing Guide Chapter 103.3.5 for vacant or abandoned property requirements.

F) Marketable Title: Marketable title for REO shall be conveyed to and acquired by:

• The PFI or its approved designee for REO for all Conventional Loans and all RHS Section 502 Loans;
• The Secretary of HUD for FHA Loans and HUD Section 184 Loans;
• The Secretary of the VA for VA Loans.In addition, for REO Properties that are located in states that provide for homeowner association (HOA) assessment lien priority over a previously recorded Mortgage document, the Servicer must take steps to protect the priority lien of the Mortgage lien. Necessary steps the Servicer must take include, but is not limited to:
• Payment of the amount due, generally the lowest of:
  • The actual delinquent assessment balance and allowed costs; or
  • The maximum amount due from the foreclosing first Mortgage entity based on the provisions in the project’s declarations; or
  • The maximum amount due from a foreclosing first mortgage entity under the relevant state statute.
• Clear the priority lien within thirty (30) days after the foreclosure sale date or acceptance of a deed in lieu of foreclosure.

G) Referral of Suspicious or Fraudulent Foreclosure Activity: Servicers must refer suspicious or fraudulent foreclosure activity in accordance with the requirements of the Servicer’s applicable regulatory agency.

107.4.5.1: High Level Concern (HLC) Mortgages (03/22/13)

A High Level Concern (HLC) Mortgage is a Conventional Mortgage defined as:

• An Early Payment Default (EPD) Mortgage with an estimated Realized Loss, including accrued interest, of $5,000 or more (seeServicing Guide Chapter 107.1.2.1 for the definition of an EPD Mortgage and Chapter 105.7.7 for the computation of a Realized Loss); or
• Any other defaulted Conventional Mortgage with an estimated Realized Loss, including accrued interest, of the greater of $10,000 or ten percent (10%) of the original property value.

The Servicing PFI (including any Servicer that has acquired Servicing Rights from another PFI) is required to determine if a Mortgage is an HLC Mortgage.

The initial determination that a Mortgage is an HLC Mortgage should be made as early in the process as possible however, it must be made no later than the date of submission of the preliminary Calculation of Realized Loss (Form SG332) or equivalent required to be submitted upon REO acquisition (or determination not to foreclose due to contamination of the Mortgaged Property or similar condition). The Servicer must submit the Calculation of Realized Loss (Form SG332) or its equivalent in accordance with the requirements of Servicing Guide Chapter 105.7.7.

If the estimated Realized Loss as of the REO acquisition date is less than the dollar amounts stated above, and subsequently the estimated Realized Loss exceeds the HLC threshold amount during the REO administration period, the Servicing PFI must then classify the REO as an HLC Mortgage that is subject to the requirements of this chapter.

If a Mortgage is determined to be an HLC Mortgage as of the REO acquisition date, the Servicing PFI must complete a quality control review of the HLC Mortgage and submit it to the MPF Provider's quality control department within ninety (90) calendar days of the REO acquisition date (see Origination Guide Chapter 28.4.2 for the quality control review requirements of HLC Mortgages). If an REO becomes an HLC Mortgage during the REO administration period, the Servicing PFI must complete and forward the quality control review to the MPF Provider prior to the submission of the final Calculation of Realized Loss (Form SG332) or equivalent.
A loss claim of the greater of $10,000 or ten percent (10%) of the original property value (or $5,000 or more for an EPD), based on the Calculation of Realized Loss (Form SG332) or equivalent, will not be settled until the completion of an analysis of the Servicing PFI's quality control review of the HLC Mortgage by the MPF Provider (see Servicing Guide Chapter 105.7.7 for information on loss claim filings). Subject to the provisions of Chapter 108.2.3, the Servicing PFI's failure to submit a quality control review of an HLC Mortgage to the MPF Provider will result in the PFI forfeiting its right to file a claim under the terms of the PFI Agreement and Servicing Guide Chapter 105.7.7. The MPF Bank reserves the right to defer any future payment of credit enhancement fees to preserve its right of recovery for any HLC loans with expected losses greater than $10,000 that have been purchased at foreclosure sale by the Servicer and are in the process of REO marketing for the purpose of filing a Calculation of Realized Loss (Form SG332), or equivalent claim for a loss.

107.4.6: Mortgage Loan Reinstatement (12/01/10)

During the Foreclosure process, the Servicer shall accept an offer by the Borrower to reinstate the Mortgage Loan, if the Borrower agrees to pay the following costs and fees related to a Mortgage Loan:

• All payments required to bring the Mortgage Loan current
• Attorneys' fees incurred
• Trustees' fees incurred
• Any additional legal costs incurred
• All applicable late fees; and
• Any other expenditures or advances made by the Servicer during the Foreclosure process.

Except as otherwise required by the Applicable Standards, the Servicer may not accept less than this full amount from a Borrower without the prior written approval from the Master Servicer and applicable mortgage insurer(s). Upon accepting the reinstatement, the Servicer must immediately notify the appropriate Foreclosure attorney or trustee to avoid incurring additional costs or fees. Upon receipt of reinstatement funds from a Borrower, the Servicer must:

• Notify the Master Servicer and, if applicable, the primary and/or secondary mortgage insurer of the reinstatement;
• Return the Note and other related Mortgage Loan documents to the Custodian to be returned to the Collateral File; and
• Immediately apply the reinstatement funds to pay the expenses enumerated above.

If an Assignment has been recorded from MERS to the Servicer and the Borrower reinstates the Mortgage Loan prior to completion of the foreclosure proceedings, the Servicer need not re-assign the Mortgage to MERS and re-register it with MERS and any such action will be at the discretion and expense of the Servicer.

107.5.1: Post Possession Responsibilities (03/22/13)

After the Servicer takes possession of a Mortgaged Property, now know as REO, whether through Foreclosure or a Deed-in-Lieu of Foreclosure, or otherwise, the Servicer shall be responsible for the management of the REO. The Servicer shall remain responsible until possession has been assumed by the applicable mortgage insurer or until the REO is otherwise disposed of. The Servicer shall take such action as is necessary to protect the MPF Bank's security or ownership interest in the REO. Such action shall include, without limitation:

• Management of the REO;
• Maintenance of the REO;
• If the REO is vacant, protection of the REO against vandals and the elements (see Servicing Guide Chapter 103.3.5 for vacant or abandoned property requirements); and
• If the mortgage insurance company is settling its primary and/or supplemental mortgage insurance claims with Insurance Proceeds that are a combination of an upfront cash payment and a deferred payment obligation, the Servicer must notify the primary mortgage insurance company, and supplemental mortgage insurance company if applicable, which MPF Bank is the investor/owner of the Mortgage. See Underwriting Guide Chapter 7.2.3 and Servicing Guide Chapters 105.7.7 and 106.2.4.

107.5.2: Conveyance Documents (09/04/09)

Where applicable, any conveyance of a REO by a Servicer to the applicable mortgage insurer shall be made by the form of deed commonly used in the particular jurisdiction where such property is located. The Servicer shall prepare the necessary documents no later than two weeks prior to the expected date of sale at Foreclosure or confirmation of sale, if applicable, and shall forward the documents to the Master Servicer for approval. After approval by the Master Servicer, the conveyance documents will be returned to the Servicer for execution and recordation.

Where applicable, any conveyance of a REO by a Servicer to the applicable mortgage insurer shall be made by the form of deed commonly used in the particular jurisdiction where such property is located.

The conveyance documents must not transfer the Mortgaged Property to the MPF Provider, the MPF Bank or the Master Servicer unless the Servicer is explicitly instructed to do so by the MPF Provider, the MPF Bank or the Master Servicer. If the Mortgaged Property is transferred to the MPF Provider, the MPF Bank or the Master Servicer by the Servicer without explicit instructions to do so, the Servicer will be charged a one-hundred dollar ($100.00) fee for completion of an assignment, quitclaim deed or other conveyance document to transfer the property back to the Servicer or to any other party.

107.5.3: REO Action Plan (03/22/13)

The Servicer must notify the Master Servicer in writing as soon as an REO is acquired.

For all Mortgages serviced under the scheduled/scheduled remittance option, Principal and Interest Payments must be advanced until the Principal Balance is reduced to zero.

For all Mortgages serviced under either actual/actual remittance option, Principal and Interest Payments are not advanced monthly, but the Servicer must liquidate the Mortgage Loan with interest to the date of Liquidation upon disposition.

For Conventional Loans:

• The Servicer must dispose of the REO and liquidate the Mortgage Loan (see Servicing Guide Chapter 105.7.6 for Prepayments in Full and Liquidations); and
• A preliminary Calculation of Realized Loss (Form SG332) must be submitted to the MPF Provider within two (2) Business Days of REO acquisition. This is in addition to the final Calculation of Realized Loss (Form SG332) upon REO disposition that must be submitted no later than the fifth (5th) Business Day of the month following the reporting month. (See Servicing Guide Chapter 105.7.7, Realized Losses (Gains) and Chapter 107.4.5.1 of for information on High Level Concern (HLC) Mortgages).

For Government Loans, the Servicer must either:

• Pay down the Mortgage balance to zero upon completion of the Foreclosure sale within the accounting period in which the sale was completed;
• Pay down the Mortgage balance to zero upon receipt of the initial claim payment within the accounting period in which the initial payment was received; or
• Pass through the initial claim payment as a Curtailment and pay down the Mortgage balance to zero upon receipt of the final claim payment within the accounting period in which the final claim payment was received.

For Government Loans, the Servicer must remit from its own funds an amount which will reduce any remaining balance of the Mortgage or asset to zero as required in Servicing Guide Chapter 105.5.1.1.

The following documents must be submitted by the Servicer to the Master Servicer and the mortgage insurer(s), if applicable, within ten (10) Business Days after acquiring title to any REO:

• Evidence of title to the REO in the name of the Servicer or Servicer's designee;
• Estimated time required to dispose of the REO;
• Refurbishing bids as necessary to make the REO marketable;
• Copies of all correspondence with the applicable mortgage insurer, the Foreclosure attorney and the Master Servicer;
• A recommendation for the most effective manner to dispose of the REO (the REO action plan) based on a market analysis and Appraisal which is not more than 60 days old; and
• Income and expense documents, if not already sent to the Master Servicer. The documents may include:
  • Any Details of any force placed hazard insurance and, if applicable, flood insurance
  • Real estate tax bills
  • Special assessments
  • Maintenance contracts
  • Owner's association dues
  • Utility bills
  • Details of steps taken to secure the REO
  • An updated title insurance policy showing changes following the Foreclosure; and
  • Plat map or house location survey.

The Servicer must promptly submit copies of each action plan to the Master Servicer and applicable primary and/or supplemental mortgage insurer. Unless otherwise directed by the Master Servicer, the Servicer shall implement each plan in an expeditious manner. The Master Servicer may direct the Servicer to modify any action plan. The Servicer shall, upon request, provide the Master Servicer with written monthly progress reports regarding each action plan detailing the status of the related REO and the progress achieved in implementing the plan.

In addition, the Servicer shall prepare and file all reports regarding Foreclosure and abandonment which are required under the Internal Revenue Code or the regulations of the Internal Revenue Service.

107.5.4: REO Servicing (01/20/12)

For loans originated under the MPF Xtra Product, see the MPF Xtra Manual, Chapter 107.5.4

The Servicer must service each REO from acquisition through disposition. In addition to any other obligations set forth herein, upon acquisition of each REO, the Servicer shall be responsible for:

• Managing, maintaining and securing the REO until it is conveyed or sold;
• Inspecting the REO at least once every 30 days and sending the Master Servicer the updated Property Inspection Report (Form SG331);
• Paying all taxes, insurance (including adequate hazard and liability insurance), maintenance, management and Foreclosure costs relating to the REO;
• Submitting recommendations for listing and soliciting offers on the REO (see Servicing Guide Chapter 107.5.7 for Primary and Supplemental Insurance Considerations);
• Marketing the REO under the direction of the applicable mortgage insurer and the Master Servicer, if applicable (see Servicing Guide Chapter 107.5.5 for REO Marketing);
• Completing the sale of the REO under the direction of the applicable mortgage insurer and the Master Servicer, if applicable (seeServicing Guide Chapter 107.5.5 for REO Marketing);
• Depositing sales proceeds from the REO into the appropriate P&I Custodial Account for remittance to the MPF Bank (see Servicing Guide Chapter 105.7.6 for Prepayments in Full and Liquidations);
• Where applicable, satisfying all of the applicable mortgage insurer's procedural requirements and filing all required forms and claim;
• Where applicable, depositing Insurance Proceeds relating to the REO into the applicable P&I Custodial Account for remittance to the MPF Bank (see Servicing Guide Chapter 105.7.6 for Prepayments in Full and Liquidations);
• Conveying the REO to the primary and/or supplemental mortgage insurer, where applicable; and
• Reporting all changes in the status of the REO and all material expenses relating to the REO, to the Master Servicer on a monthly basis (see Servicing Guide Chapter 105.8.2 for reporting format requirements).

The Servicer must service the REO through disposition and must ensure that the Master Servicer has relieved the Servicer of its responsibilities with respect to REO by written notification.

107.5.5: REO Marketing (09/04/09)

The Servicer shall begin efforts to market an REO as soon as marketable title is acquired. The Servicer shall obtain the best market price while disposing of the REO in a timely and efficient manner. See Servicing Guide Chapter 107.5.7 for Primary and Supplemental Mortgage Insurance Considerations.

Unless otherwise directed by the Master Servicer, the Servicer shall dispose of such REO within eighteen (18) months after its acquisition. Unless otherwise directed by the Master Servicer, if the Servicer is unable to sell the REO the Servicer shall auction the REO to the highest bidder in an auction reasonably designed to bring a fair price before the end of the eighteen (18) month period following the acquisition of the REO. The Servicer shall consult with the Master Servicer prior to holding such auction.

107.5.6: REO Rehabilitation (09/04/09)

The Servicer must ensure that any rehabilitation work necessary is done efficiently and properly. If a Mortgaged Property has become REO and the related Mortgage Loan is covered by primary (PMI) and/or supplemental (SMI) mortgage insurance, the Servicer is expected to notify the applicable primary and/or supplemental mortgage insurers of such rehabilitation plans and obtain approval before the completion of the mortgage insurance claim(s) to ensure reimbursement from the primary and/or supplemental mortgage insurers.

The Servicer must obtain the Master Servicer's approval for rehabilitation work according to the following schedule:

• Expenses totaling up to $2,500; The Master Servicer's approval is not required;
• Expenses totaling $2,500 - $5,000: The Master Servicer's prior approval and one independent bid are required
• Expenses totaling $5,000 or more: The Master Servicer's prior approval and two independent bids are required

107.5.7: Primary and Supplemental Mortgage Insurance Considerations (09/04/09)

The Servicer must ensure that any action taken with respect to the sale of an REO does not jeopardize the maximum benefits available under any applicable primary and/or supplemental mortgage insurance policy. The Servicer must inform the primary and/or supplemental mortgage insurers of any listing agreements or purchase offers that are received before the primary and/or supplemental mortgage insurer has finalized the disposition of the claim. If an REO is covered by a primary and/or supplemental mortgage insurance policy that will not provide coverage up to one-hundred percent (100%) of losses, the Master Servicer must approve the listing of the REO property and REO marketing plan (see Servicing Guide Chapter 107.5.5 for REO Marketing). In any event, instructions to the Servicer from the Master Servicer regarding the marketing and sale of an REO, either with respect to a specific property or generally, shall govern the Servicer's actions, notwithstanding any contrary instructions by either the primary and/or the supplemental mortgage insurer. SeeServicing Guide Chapter 105.7.6 for Prepayments in Full and Liquidations.

107.5.8: REO Documents and Reports (09/04/09)

The Servicer must retain in its files copies of all documents, reports and invoices described in this chapter. Upon request, the Servicer shall send copies to the Master Servicer and applicable primary and/or supplemental mortgage insurer, of the following documents relating to each REO:

• Any maintenance contracts;
• Any contractor bids relating to the rehabilitation of the REO pursuant hereto;
• An updated title insurance policy that reflects the occurrence of Foreclosure; and
• A plat map or house location survey, if already available.

In addition, the Servicer shall prepare and file reports for Foreclosure and abandonment in accordance with Section 6050J of the Internal Revenue Code.

The Servicer shall retain any income relating to expenses incurred in administering each REO in its records and shall, upon request, produce any such invoices for inspection or at its own expense, provide copies of any such invoices to the Master Servicer and applicable primary and/or supplemental mortgage insurer, as directed.

See Servicing Guide Chapter 105.7.7 for reporting and remittance requirements with respect to disposition of REO.

107.5.9: REO Administration Failure (09/04/09)

• Any force placed hazard insurance policy or flood insurance policy, if applicable;

In the event that the Servicer's actions or omissions result in damage to an REO or a failure to sell an REO within a reasonable time, the Master Servicer may remove the Servicing of the REO from the Servicer and assume or transfer responsibility for management, control, maintenance, security, rehabilitation and disposition of the REO. With respect to the REO, the Servicer will nevertheless remain responsible to:

• Pay when due all insurance premiums, property taxes and assessments and other amounts that would constitute escrow;
• File when due all claims for benefits under all applicable insurance policies; and
• Fulfill any other related responsibilities required by the Master Servicer or MPF Provider.

Whether or not a Servicer is removed from Servicing with respect to a particular REO, the Servicer must compensate the MPF Bank or MPF Provider for any damages caused as a result of the Servicer's breach of its obligation to properly service each REO. The Servicer acknowledges that any damages suffered as a result of the Servicer's errors in managing an REO may not be quantified in advance of the Master Servicer assuming or transferring responsibility for such REO.

107.5.10: Notice of Litigation and Regulatory Actions (09/04/09)

The Servicer must forward to the MPF Provider Service Center, within five (5) Business Days after receipt by the Servicer, copies of any of the following which are received by the Servicer:

• A petition or complaint in a lawsuit naming the Servicer as defendant which involves the origination or servicing of any MPF Mortgage, orwhich alleges that the Servicer has failed to comply with any Applicable Laws in its mortgage origination or servicing activities;
• A petition or complaint in a lawsuit attempting to establish the existence of a class of plaintiffs that includes mortgagors whose loans are being serviced by the Servicer or mortgagors whose loans were originated by the Servicer;
• Correspondence involving a Mortgage that threatens legal action or alleges violation by the Servicer or any other person of any Applicable Laws with respect to a Mortgage; or
• Correspondence from a state or federal regulator involving the alleged violation by the Servicer of any Applicable Laws in its mortgage origination or servicing activities.

In addition, the Servicer must forward to the MPF Provider Service Center, within two (2) Business Days after receipt by the Servicer, copies of any of the following which are received by the Servicer:

• A petition or complaint in a lawsuit naming the MPF Provider, any MPF Bank or the Master Servicer as a party to the lawsuit; or
• A petition or application for temporary injunction or other temporary equitable relief which involves the mortgage servicing activities of the Servicer.

Further, the Servicer must forward to the Master Servicer, within three (3) Business Days after receipt by the Servicer, a copy of any motion or pleading of any type in a Foreclosure or bankruptcy action which asserts a counterclaim or alleges the right to recover damages from the Servicer, an MPF Bank or the MPF Provider.

107.6: Temporary Loan Payment Modification Plan for Loss Mitigation (11/13/13)

Under certain circumstances, where a Borrower is in default or faces imminent default, a temporary loan payment modification plan (the “Modification Plan”) may be an appropriate loss mitigation option. Servicers should consider a Modification Plan only after all other loss mitigation options provided in Servicing Guide Chapter 107.2 have been exhausted or determined to be ineffective given the Borrower’s circumstances.
Borrowers are eligible for a Modification Plan if the Loan Workout Plan (Form SG400), Temporary Loan Payment Modification Agreement (Form SG401) and all required disclosures are issued to the Borrowers on or before December 31, 2015, unless further extended by a published PFI Notice.

107.6.1: Loans Eligible for a Modification Plan (12/13/11)

The Servicer must verify the following conditions exist prior to processing any requests for a Modification Plan:

• All other loss mitigation options provided in Servicing Guide Chapter 107.2 have been exhausted or determined to be ineffective given the Borrower’s circumstances;
• The Mortgage is a Conventional Loan;
• The Mortgage is not serviced under one of the following:
  • the MPF Xtra® product;
  • One Mortgage Partners, LLC Mortgage Pass-Through Certificates MPF Shared Funding™ Program Series 2003-1 Trust; or
  • One Mortgage Partners, LLC Mortgage Pass-Through Certificates MPF Shared Funding Program Series 2003-2 Trust;
• The Mortgage is in default or in imminent danger of default because the Borrower’s income has involuntarily declined and/or expenses have unexpectedly increased;
  • If the Mortgage is an Early Payment Default (EPD) Mortgage as defined in Servicing Guide Chapter 107.1.2.1 the Servicer must complete the required quality control review of the EPD Mortgage;
    • If the determination was that the Mortgage was eligible for sale under the MPF Program and was of Investment Quality, the Servicer must submit the quality control review report to its MPF Bank for approval to pursue a Modification Plan;
    • If the EPD quality control review determines that the Mortgage was found to be ineligible for sale under the MPF Program the Servicer must notify the MPF Provider (See Servicing Guide Chapter 107.1.2.1 and Origination Guide Chapter 28.4.1);
• The Mortgaged Property is a Primary Residence (second homes are ineligible);
• The Mortgaged Property has not been condemned;
• The Mortgage was not previously modified except for modifications allowed in accordance with Servicing Guide Chapter 105.7.5.3;
• The Borrower is the same Borrower that signed the Mortgage Note, unless transfer of the Mortgaged Property was exempt from the Due-On-Sale Clause in accordance with Servicing Guide Chapter 103.3.2; and
• All other temporary loss mitigation options provided in Servicing Guide Chapter 107.2 must have been either exhausted or determined by the Servicer and Master Servicer to be ineffective given the Borrower’s circumstances.

107.6.2: Loan Modification Processing (12/13/11)

If the Mortgage is eligible for a Modification Plan as described in Servicing Guide Chapter 107.6.1, the Servicer must collect necessary documentation to determine Borrower eligibility. These documents include, but are not limited to:

• Workout Worksheet (Form SG354);
• Borrower Hardship Certificate (Form SG402) which describes the Borrower’s reason(s) for the modification request;
• Income verification in accordance with the minimum income documentation requirements described in Underwriting Guide Chapter 4.6(except for child support or alimony received, which is not required to be disclosed unless the Borrower wishes such income to be considered for the modification request);
• IRS Form 4506-T executed by the Borrower, which the Servicer must use to obtain the Borrower’s tax return transcripts from the IRS;
• Asset documentation in accordance with Underwriting Guide Chapter 4.7.2 and any other documentation that may be necessary to fully document the Borrower’s financial situation;
• A new credit report in accordance with Underwriting Guide Chapter 4.5.2.1;
• The approval from MPF Bank that allows the Servicer to pursue a Modification Plan for a Borrower whose Mortgage is an EPD; and
• Any other documentation necessary to process and evaluate the loan modification request, including but not limited to documentation for the causes of a Borrower’s hardship, such as medical bills, divorce decree, etc.

In addition to the above acquired documentation, the Servicer is required to complete a property inspection to validate the occupancy status of the Mortgaged Property within ninety (90) days of the modification request. All documentation, including the property inspection must be permanently retained in the Servicing File.

107.6.3: Underwriting the Loan Modification Request (11/13/13)

The Servicer is required to analyze the modification request from a Borrower to determine whether a modification is necessary and whether it is financially feasible for the Borrower to cure or avoid the Delinquency if a modification were granted. The goal of the modification is to provide a payment, which under the Borrower’s current circumstances, is affordable and sustainable. Therefore, the Borrower’s monthly housing expense ratio should not exceed 31%, including any subordinate financing payments (see Underwriting Guide Chapter 4.4.1 for housing expense ratio calculation).
In situations where a modification does not meet the requirements under the Modification Plan of Servicing Guide Chapter 107.6, Servicers should typically deny the Borrower’s modification request (See Servicing Guide Chapter 107.6.5 for information about adverse action on a modification request). However, if the Servicer feels special consideration is warranted, the Servicer may submit a proposed alternative to their MPF Bank, clearly indicating that the proposal is outside the requirements of the Modification Plan and indicate specific terms the Servicer proposes (refer to Servicing Guide Chapter 111.2 for a directory of the MPF Banks).

Where the Borrower’s current housing expense ratio exceeds 31%, the loan is in default or facing imminent default and a loan modification appears feasible to cure or avoid the Delinquency, Servicers will need to consider several modification terms in order to achieve a target housing ratio of 31% under the modification plan, cumulatively if necessary, in the following order:

1. If financially feasible, the Borrower makes a cash contribution toward reducing the Delinquency. Any such contribution, must be applied first toward non-interest expenses (excluding late fees) and then towards reducing the Delinquency ;

2. 

a. Capitalization of the delinquent interest by adding the delinquent interest to the unpaid Principal Balance, not to exceed the original Principal Balance funded by the MPF Bank (any costs, fees or escrow items should not be capitalized);OR

b. If capitalization of all delinquent interest is not possible because the original Principal Balance funded by the MPF Bank would be exceeded, all the delinquent interest should be written off. The Servicer must submit a Calculation of Realized Loss (Form SG332) to request reimbursement of any delinquent interest write offs, which will be allocated in accordance with the terms of the Master Commitment based on the requirements of the applicable MPF Mortgage Product. (any costs, fees or escrow items should not be capitalized or included in the Calculation of Realized Loss (Form SG332);

3. If necessary, reduce for up to thirty-six (36) months the Principal and Interest payments based on an amortization schedule up to 40 years (480 months) from the original Note date. The Servicer will be required to determine the amortization period necessary to reduce the monthly Principal and Interest payments until the target 31% housing expense ratio is met, or consider further modification described in step #4. At the end of the thirty-six (36) month term, the original Principal and Interest payments stated in the Note are re-instated, unless another Modification Plan is approved. The full Principal Balance of the Mortgage, including any capitalized interest, will be due and payable on the original loan maturity date. Please note that the scheduled payments do not fully amortize the modified Mortgage and will result in a balloon payment being due at maturity;

4. If necessary, reduce for up to thirty-six (36) months the interest rate in 0.125% increments below the original Note Rate, to a floor rate of 3.00%, resulting in reduced Principal and Interest Payments, until the target 31% housing expense ratio is met.

• If the Borrower has any subordinate loans that are owned by the Originating PFI, Servicer or their respective affiliate, the subordinate loan must also be modified to an equivalent of the terms of the Modification Plan, until the target 31% housing expense ratio is met.

The Servicer must verify, via a title search:

• That the Mortgage remains in first lien position;
• Property taxes and assessments due have been paid. If any property taxes or assessments are due, these items must be paid in accordance with the procedures described in Servicing Guide Chapter 105.4.3 ; and
• The Borrower has not incurred any recent subordinate liens. If the Borrower recently obtained a subordinate mortgage, the Servicer must determine the purpose of the subordinate mortgage, the status of the mortgage proceeds and whether the proceeds may be used to cure or reduce the Delinquency on the Mortgage.

Servicers must submit their recommendations for any Modification Plan to the Master Servicer for review and approval. The Master Servicer will approve, deny, or work with the Servicer to revise the modification request.

Mortgage Insurance: If the Mortgage is covered by either or both primary or supplemental mortgage insurance (MI), the Servicer is also required to notify the MI company of the loan modification in accordance with MI company requirements/obtain the approval of the MI company to the modification. The Servicer must ensure the MI is maintained and pay any MI premiums based on the unpaid Principal Balance.

Credit Counseling: The Servicer must provide credit counseling for the Borrower via an agency approved by the Department of Housing and Urban Development (HUD) to provide such counseling services in all cases where the Borrower’s total expense ratio (as calculated according to Underwriting Guide Chapter 4.4.2) exceeds 50% after the loan modification.

107.6.4: Implementation of the Modification Plan (11/13/13)

Prior to implementing any Modification Plan, the Servicer is required to complete the terms of the modification on the following documents:

• A Loan Workout Plan (Form SG400), which implements an interim three (3) month trial period;
• A Temporary Loan Payment Modification Agreement (Form SG401); and
• All required disclosures described in Servicing Guide Chapter 107.6.5.

The Servicer must then submit a file, which shall include the completed Forms SG400, SG401 and SG354 along with all documents described in Servicing Guide Chapter 107.6.2 to the Master Servicer for review and approval prior to sending to the Borrower for signature. Once approved, the Servicer should provide the Borrowers with two originals each of the completed (but unsigned) Forms SG400 and SG401 and instruct the Borrowers to sign all the documents. The Servicer should sign the Form SG400 and provide one duplicate original to the Borrowers.
The signed forms should not be recorded (though Form SG401 should be in recordable form) except in the following circumstances where Form SG401 should be recorded if:

• State or local law requires the modification to be recorded to be enforceable;
• The property is located in the state of New York or in Cuyahoga County, Ohio; or
• The amount capitalized is greater than $20,000. If the form is recorded for this purpose, the Servicer must obtain a title endorsement or similar title insurance product to insure first lien protection for the modified mortgage.

Form SG401 is provided in a Microsoft® Word® format to facilitate the Servicer’s compliance with Applicable Law’s recording requirements. Accordingly, the Servicer is authorized to modify Form SG401, but only to the extent required to comply with Applicable Law for recording Form SG401, such as, adding additional pages for acknowledgements or exhibit for legal description of the property. If additional pages are required to be added they must be paginated in accordance with pagination format of Form SG401. Other than as authorized herein, the Servicer is not authorized to make any changes to form or substance of the agreements, representations, covenants and conditions of Form SG401. In the event that compliance with Applicable Law requires making substantive changes to Form SG401, the Servicer must not implement the Modification Plan.

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The Servicer must also obtain any subordination agreements when recordation is required if necessary to maintain first lien position. If the Servicer is unable to obtain any necessary subordination agreements or title policy endorsement, the Servicer must not implement the Modification Plan.

The Servicer must collect Escrow Funds. If the Borrower does not have an Escrow Account, the Borrower is required to establish an Escrow Account and begin making Escrow Payments in accordance with Servicing Guide Chapter 105.4.1, 105.4.3 and 105.4.5. Until such time the collection of Escrow Funds is prohibited by Applicable Law, the Servicer shall continue to collect Escrow Funds for the remaining life of the Loan (see Servicing Guide Chapter 107.6.5 regarding escrow statement requirements).
Borrowers will be given a trial period of three (3) months, during which their new modified payments must be made on time as described in the Loan Workout Plan (Form SG400). During this trial period, the Servicer must hold the modified payments, in suspense status as unapplied funds in the T&I Custodial Account, until all three payments are made as agreed.
If the Borrower fails to make the new modified payments on time during the trial period as described in the Loan Workout Plan (Form SG400), the Modification Plan will be terminated and the P&I payment, interest rate and amortization schedule shall revert to the original Note Rate and terms, which includes cancellation of the proposed capitalization or write-off of delinquent interest. The Servicer must report the termination and follow the Servicing requirements described in Servicing Guide Chapter 107.6.4.1.
If the Borrower meets all the requirements of the trial period as stipulated in the Loan Workout Plan (Form SG400), the Servicer can modify the loan for the next thirty-three (33) months by signing both duplicate originals of the Temporary Loan Payment Modification Agreement (Form SG401), sending one duplicate original and, if applicable, disclosures in accordance with Servicing Guide Chapter 107.6.5 to the Borrowers, and retaining the other duplicate original Form SG401 in the Servicing File. The three payments held in suspense during the trial period may then be applied in accordance with the Temporary Loan Payment Modification Agreement (Form SG401) terms, which if applicable, include the new unpaid Principal Balance, the revised loan amortization and lower interest rate.

After thirty-six (36) months cumulative, the temporarily reduced Principal and Interest Payments under the Modification Plan expire.

Prior to the expiration of the 33-month Temporary Loan Payment Modification period, the Servicer must analyze the loan history and the Borrower’s current circumstances to determine if (i) the Mortgage will be returned to the original interest rate provided on the original Note as required in the Temporary Loan Payment Modification Agreement (Form SG401), (ii) the Borrower should be recommended for an additional 36 month Modification Plan or (iii) any other loss mitigation or loan modification plan is warranted.

The Servicer should contact the Borrower and begin the analysis no later that six (6) months prior to the expiration of the 33-month Temporary Loan Payment Modification period. The analysis must be completed sufficiently prior to the expiration of the 33-month Temporary Loan Payment Modification period to allow to the Borrower to transition from the expiring Modification Plan to the next appropriate loan payment plan without undue harm to the Borrower’s credit reputation.

If the Borrower is to be recommended for an additional 36 month Modification Plan, the Servicer must submit a file updated with the Borrower’s current information, which shall include completed Forms SG400, SG401 and SG354 along with all documents described inServicing Guide Chapter 107.6.2 to the Master Servicer for review and approval prior to sending to the Borrower for signature.
If the Master Service does not receive and approve a recommendation for an additional 36 month Modification Plan, the Servicer must return the Mortgage to original interest rate provided on the original Note as required in the Temporary Loan Payment Modification Agreement (Form SG401).

The Servicer is responsible for any costs they may incur for processing and implementing a Modification Plan. Additionally, all late charges due prior to the loan modification must be waived.

107.6.4.1: Reporting the Modification Plan to the Master Servicer (09/04/09)

When the Modification Plan is implemented, the Servicer must notify the Master Servicer within one (1) Business Day following execution by all parties, of either the Loan Workout Plan (Form SG400) or the Temporary Loan Payment Modification Agreement (Form SG401).

During the period that the Modification Plan is in effect, the Servicer must electronically report an Action Code of ‘12’ in their Monthly Accounting Reports to the Master Servicer.

If the Modification Plan is terminated, the Servicer must notify the Master Servicer within one (1) Business Day of the termination and continue to service the Mortgage in accordance with the requirements of Servicing Guide Chapter 107 and all Applicable Standards. The Servicer must remove the Action Code of ‘12’ and report an appropriate Action Code or null in their Monthly Accounting Reports to the Master Servicer.

107.6.4.2: Credit Reporting (11/13/13)

Servicers must continue credit reporting in accordance with Servicing Guide Chapter 107.1.2. Due to the special circumstances of this Modification Plan, we are providing the following clarification to assist Servicers with accurate reporting:

• If the Borrower is current when the Loan Workout Plan (Form SG400) is executed, the Servicer should report the Borrower current but on a modified payment provided the Borrower makes timely payments for each trial month;
• If the Borrower is delinquent when the Loan Workout Plan (Form SG400) is executed, the Servicer should report in a manner to accurately report the Delinquency and the workout status according to usual and customary reporting standards as well as report the modification when completed;
• If at any time the Borrower becomes delinquent under the Modification Plan, the Servicer should accurately report the Delinquency and the termination of the workout or modification status as applicable.

107.6.5: Disclosures, Notices and IRS reporting for Loan Modifications (11/13/13)

Because the MPF Program Modification Plan does not result in satisfaction or extinguishment and replacement of the original debt, no new TILA disclosure under Regulation Z would need to be provided to Borrowers under a loan modification permitted under Servicing Guide Chapter 107.6. However, federal law may require the Servicer to provide disclosures to the Borrower for any loan modifications that are outside the scope of those permitted under Servicing Guide Chapter 107.6.
Refer to Origination Guide Chapter 2.11.2 for required compliance for all other Origination Obligations or Servicing functions.

PFIs need to be aware that responses to Borrower requests for loan modifications will trigger federal consumer compliance requirements, such as:

• For Borrowers who are not delinquent or in default, an adverse action, counter-offer, and approval notice in accordance with the Equal Credit Opportunity Act (ECOA);
• If the decision not to modify the Mortgage is based wholly or partly on information contained in a consumer credit report, an adverse action notice in accordance with the Fair Credit Reporting Act (FCRA) for all Borrowers who do not qualify for a loan modification;
• A notice to the home loan applicant (credit score disclosure) in accordance with FCRA to all Borrowers where the Servicer acquires a consumer credit report for the Borrower;

If an escrow account is established after the original closing of the Mortgage, an escrow account statement in accordance with the Real Estate Settlement Procedures Act (RESPA) must be provided.

The Servicer may need to comply with the Fair Debt Collection Practices Act (FDCPA) if the following conditions exist:

• The Servicer does not service loans under its own name; or
• The Servicer acquired the Servicing after the Mortgage was originated and after the Borrower’s Delinquency or default;

No referral fees, as defined by RESPA, are allowed in connection with this Modification Plan. In addition, the Servicer must ascertain whether any additional disclosures are required under state and/or local law in the jurisdiction where the Mortgaged Property is located.

107.6.5.1: Tax Reporting (09/04/09)

The Servicer will be responsible for completing certain forms or other information under the IRS “Code”, described in Servicing Guide Chapter 103.3.3, and/or by state authorities for temporary loan modifications. If at any time, any debt, as defined by the “Code” or state authorities, is canceled, the Servicer shall forward to each Borrower and the IRS, such forms and information within the control of the Servicer as are required by the Applicable Standards.