20.2 LOSS CLAIM COVERAGE (06/22/16)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

1. Loan Guarantee Limits The maximum that a servicer may collect from the Agency under the SFHGLP is the lesser of:

• Ninety percent of the original principal amount actually advanced to the borrower; or
• 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.

For example, if the original principal amount (OPA) guaranteed on a loan was $50,000, the maximum loss payment would be $45,000, or the lesser of:

1. Ninety percent of principal

• OPA is $50,000.
• 90 percent of OPA is $45,000.

1. One hundred percent of 35 percent and 85 percent of 65 percent

• OPA is $50,000.
• 35 percent of OPA is $17,500.
• 65 percent of OPA is $32,500.
• 85 percent of 65 percent of OPA is $27,625.
• Payment amount is 100 percent of 35 percent of OPA ($17,500) plus 85 percent of 65 percent of OPA ($27,625). This equals $45,125.

The Agency's exposure would be limited to $45,000, which is the lesser of the two loss payment amounts.

1. Losses Covered by the Guarantee Losses that are covered by the loan guarantee include the following:

• Principal and interest owed on the loan;
• Additional interest accrued up to 90 days from the settlement date through the date the loss claim is paid;
• Principal and interest indebtedness on protective advances provided by the servicer to protect the security property; and
• Liquidation and disposition costs as outlined in Chapter 18 and 19 of this Handbook.

1. Reasonable and Customary To be considered reasonable and customary for the area, liquidation and disposition costs should be similar to costs the servicer incurs when liquidating non-guaranteed loans. Refer to Chapters 19 for further guidance on customary costs related to the acquisition and management of REO. Allowable costs could include:

• Appraisal-related costs;
• Securing the property;
• Payment of real estate commissions to sell the REO 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. Incentives require Agency concurrence; or
• Acquisition and management costs associated with property disposition.

Costs associated with servicer in-house expenses (e.g. employee salaries, in-house legal fees, travel, REO management fees and other company expenses) are not allowed.

Allowable liquidation and disposition costs differ for properties sold within the nine-month marketing time frame from those that remain in the servicer's inventory at payment of the loss claim.

1. Sold Properties Sold to a Third Party: If the property is sold to a third-party at the foreclosure sale or by an approved preforeclosure sale (short sale), 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 foreclosure sale date or the date the proceeds were disbursed by the court, whichever is later. The servicer should file the loss claim within 45 days of funds disbursement or in the case of a short sale, the settlement date, otherwise the claim may be rejected or reduced. Documentation of expenses associated with a loss claim request must be retained in the servicer’s permanent file. Acquired by the Servicer at a Foreclosure Sale or by Deed-in-Lieu: For REO property sold within the nine month marketing period from servicer acquisition, the servicer may seek reimbursement for the actual costs associated with acceleration, foreclosure, maintenance costs (including preparation for sale), and sales costs as outlined in Chapters 18 and 19. The servicer should file the loss claim within 45 days of the REO sale date or the claim may be rejected or reduced. Documentation of expenses associated with a loss claim request must be retained in the servicer’s permanent file.
2. Unsold REO Properties The Agency allows the servicer a nine month marketing period from legal acquisition (when the servicer acquires title to the property) of REO property. For properties located on American Indian restricted land, the Agency allows a 12 month marketing period from foreclosure, or the from the expiration of a redemption period, whichever is later. If the property remains unsold at the expiration of the marketing period, the servicer will obtain a liquidation value appraisal. The Agency will reimburse the servicer for actual liquidation expenses. In order to estimate disposition costs, a standard acquisition and management resale factor of 15.95 percent as established by the Department of Veteran Affairs (VA) of the liquidation appraised value is used. Loss claims for unsold REO should be filed by the servicer within 30 days of the marketing period ending; loss claims filed beyond this period of time will be rejected by the Agency.