Freddie to Servicers: Opt In to MS Program

Freddie Mac is "directing" servicers to participate in the Mississippi homeowners' assistance program even though the mortgage giant is annoyed that residents are not required to place their rebuilding grants in escrow accounts.State residents are already applying for the Community Development Block Grant funds, and they can receive up to $150,000 in grants to rebuild homes that were destroyed or damaged in Hurricane Katrina. By opting into the Mississippi program, servicers can help borrowers with closing documents that have to be filled out to receive the grants and they are assured that part of the proceeds will be used to bring the loan current and pay the taxes. However, there is no requirement that the homeowners repair or rebuild their homes. "[W]e are concerned about the lack of controls on the use of the grant proceeds," Freddie says in a letter to servicers. If the recipients use the funds for other purposes, the letter says, lenders could be forced to foreclose or charge off mortgages on uninhabitable and damaged homes. "In light of these risks, we urge servicers to encourage borrowers to voluntarily escrow their grant proceeds so the servicer can help them use the grants to repair damaged properties or to address outstanding mortgage obligations," Freddie says in the April 18 letter.