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Loan Coverage Advisor Alternative Payment Plan FAQ

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  1. What is an alternative payment plan (APP)?

    When the servicer provides an approved alternative to the current payment schedule under the terms of business at loan funding, also known as a forbearance plan.

  2. What are the approved alternatives for APPs?

    Currently, only the disaster-related forbearance that is followed by the loan being brought current by one of the approved remedies.

  3. What is a disaster-related forbearance plan?

    A forbearance plan provided to an eligible borrower impacted by an eligible disaster that allows the borrower to pay a reduced or no monthly payment for a temporary period. The forbearance plan results in the borrower becoming delinquent and increasingly delinquent for the term of the plan (refer to Single-Family Seller/Servicer Guide (Guide) Bulletin 2017-28).

  4. What are the approved remedies for APPs?

    There are four approved remedies:

    • Full Reinstatement – The payment following the APP is current.
    • Loan Modification – Any fully executed and settled modification, including the new cap and extend modification, will end the APP and bring the loan current (this path can include trial periods).
    • Repayment Plan – Any successfully completed repayment plan that brings the loan back to “Full Reinstatement”.
    • Payment Deferral – Any successfully completed payment deferral plan that brings the loan back to “Full Reinstatement.”
  5. Which borrowers are eligible for disaster-related forbearance?

    Those borrowers whose properties or place of employment are in an “eligible disaster area” – an area subject to a “major disaster declaration” on or after August 25, 2017 with “individual assistance – dollars approved” made available by the Federal Emergency Management Agency (FEMA).

  6. Which servicers are impacted by disaster-related forbearance?

    All servicers that service loans for borrowers whose properties or place of employment are in eligible disaster areas.

  7. Which loans are eligible for disaster-related forbearance?

    Loans funded under the Selling R&W Framework funded after July 2014.

  8. How does an APP start?

    Several things must be in place for the APP to start:

    • It must be related to an eligible disaster that occurred on or after August 25, 2017. For example, an APP may include disaster-related forbearance plans implemented by servicers to assist borrowers impacted by Hurricane Florence and recent flooding.
    • The delinquencies must be reported as “Impacted by a Natural Disaster” (“034”).
    • The first impacted delinquency must be covered within the forbearance plan period.
    • Only a forbearance (NOTE: The first delinquency in the plan should be covered only by forbearance, and cannot be overlapped by any other remedy like trial period, repayment, payment deferral or loan modification.
  9. What are the possible outcomes from an APP?

    With continuous proper reporting by the servicer and an approved remedy, the APP is closed, the loan is brought current, and the early representation and warranty relief remains intact.

    However, if reporting requirements are not met or the loan is not brought current, the relief is pushed out to “life of loan.”

  10. What does continuous, proper reporting mean?

    Make sure the following occurs to ensure continuous, proper reporting:

    • Each delinquency under the plan must be reported with an “034.”
    • Coverage of the delinquencies must be continuous. 
    • Coverage of the delinquencies must make sense – a delinquent payment in November cannot be covered by both a repayment plan and a trial period or loan modification.
    • Coverage of the delinquencies must end – “Full Reinstatements” should be reported alone, ending coverage in the prior month, or else a loan modification is expected to end the plan.
  11. What is the impact of an APP on selling representation and warranty obligors?

    If the APP ends with one of the three approved remedies, the selling representation and warranty coverage will be eligible for relief (NOTE: if it already occurred, the relief date will be backdated). However, if the loan continues to be delinquent after end of APP, the related delinquency will make loan ineligible for relief.