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A. Loan Guarantee Limits
The maximum payment that a servicer may collect from the Agency under the Single Family Housing Guaranteed Loan Program (SFHGLP) is the lesser of:
x Ninety percent of the original principal amount advanced to the borrower; or
x One hundred percent of any loss equal to or less than 35 percent of the original
principal advanced, plus 85 percent of any remaining loss up to 65 percent of the principal advanced.
When calculating the maximum loss claim amount, any previously reimbursed Mortgage Recovery Advance (MRA) provided for the loan should be included in the loss.
For example, if the original principal amount (OPA) guaranteed on a loan was $100,000, the maximum loss payment would be $90,000, which is the lesser of:
1. Ninety percent of principal
x OPA is $100,000.
x 90 percent of OPA is $90,000.
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2. One hundred percent of 35 percent and 85 percent of 65 percent
x OPA is $100,000.
x 35 percent of OPA is $35,000.
x 65 percent of OPA is $65,000.
x 85 percent of 65 percent of OPA is $55,250.
x Payment amount is 100 percent of 35 percent of OPA ($35,000) plus 85
percent of 65 percent of OPA ($55,250). This equals $90,250.
The Agency’s exposure would be limited to $90,000, which is the lesser of the two loss payment amounts.
If the Agency had previously reimbursed the servicer for a MRA in the amount of $30,000, The maximum exposure on the final loss claim would be $60,000 which is the lesser amount minus the MRA already paid.
B. Losses Covered by the Guarantee
Losses that are covered by the loan guarantee include the following:
x Principal and interest owed on the loan.
x Additional interest accrued up to 60 days from the settlement date through the
date the loss claim is paid.
x Principal and interest indebtedness on protective advances provided by the
servicer to protect the security property.
x Liquidation and disposition costs as outlined in Chapter’s 18 and 19 of this
Handbook.
C. Reasonable and Customary
Liquidation and disposition costs should be similar to costs the servicer incurs when servicing non-guaranteed loans. Refer to Chapter 18 for further guidance on customary
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costs related to the management and liquidation of acquired properties. Allowable costs could include:
x Appraisal-related costs excluding management fees. Reasonable and customary
costs are determined by the Department of Veteran Affairs appraisal fee schedule.
x Securing the property.
x Payment of real estate commissions to sell the property at a maximum of six
percent of the sales price unless incentives can be justified or a minimum of $2,000 commission for low value sales.
Costs associated with servicer in-house expenses (e.g. employee salaries, in-house legal fees, travel, Real Estate Owned (REO) management fees and other company expenses) are not allowed.
Allowable liquidation and disposition costs differ for properties sold to a third party from those that remain in the servicer’s inventory at payment of the loss claim.
1. Third Party Foreclosure or Pre-Foreclosure Sale.
If the property is sold to a third-party at the foreclosure sale or by a pre- foreclosure sale (PFS), the loss claim will be calculated on the actual sales price. The Agency will reimburse the servicer for actual liquidation expenses plus additional interest for up to 45 days from the PFS closing date or foreclosure sale date. The servicer should file the loss claim within 45 days of funds receipt or in the case of a PFS, the settlement date, otherwise the loss claim may be denied or reduced. Documentation of expenses associated with a loss claim request must be retained in the servicer’s permanent file.
2. Acquired by the Servicer at a Foreclosure Sale or by Deed-in-Lieu.
For property acquired by the servicer at the foreclosure sale or by deed-in-lieu, the servicer will order a market value appraisal that is compliant with Uniform Standards of Professional Appraisal Practice (USPAP) standards. If the servicer utilized a qualified appraisal during liquidation and it is dated within six months of the loss claim date, the servicer may reuse the existing appraisal. To estimate holding and disposition costs, a standard acquisition and management resale factor of 15.95% (aka VA Net Value Factor) as established by the Department of Veteran Affairs (VA) of
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the estimated sales price is used. Loss claims for acquired property should be filed by the servicer within 60 days of the foreclosure sale date, acquisition date, or possession of the security property. Loss claims filed beyond this period may be reduced or denied by the Agency.
The servicer can negotiate a “cash for keys” option with the former borrower for a maximum of up to $2,500. The property must be left in broom swept condition with all personal property removed before the borrower can be eligible to receive this incentive. A written agreement must be signed by the borrower and retained in the servicing file.