The Home Affordable Modification Program aimed at keeping struggling borrowers from losing their homes, has recently announced some changes and I want to let you know what they are and how they may affect you.
On March 26th the Obama administration announced changes to HAMP the hope is to give responsible homeowners a chance to stay in their home and also to reduce costly foreclosures for lenders. They anticipate that it will take time to get some of this up and running but they state some of the changes will begin in the coming weeks and others by fall of 2010.
The HUD press release is not exactly clear on what the changes are.
Here is the translation offered by the Consumer Federation of America (IN BOLD) mixed with excerpts I have provided from the HAMP guidance (marked with the *italics)
· Requiring participating servicers under HAMP to offer at least 3 months’ forbearance of mortgage debt for unemployed borrowers, and encouraging such assistance for up to 6 months.
*The program will require services to provide a minimum of 3 months, and up to six months for some borrowers, of temporary forbearance for eligible unemployed borrowers, during which their payments will be reduced to no more than 31 percent of their monthly income.
Borrower must request temporary assistance in the first 90 days of delinquency.
After the forbearance period, borrowers will be evaluated for a HAMP modification if they have a mortgage payment greater than 31 percent of their monthly income and meet other income documentation and property eligibility requirements. The temporary assistance will enable unemployed homeowners to remain in their homes as they continue to seek employment. If the forbearance period ends without re-employment, the homeowner may be considered for a HAMP program supporting alternatives to foreclosure including short-sales.
WHAT HAPPENS AFTER:
At the end of the temporary assistance period, homeowners who have a mortgage payment greater than 31 percent of their monthly income must be considered for a permanent HAMP modification. To receive the permanent HAMP modification, homeowners must verify qualifying income with standard documentation and must be current on forbearance plan payments, and the modified loan must pass the standard net present value (NPV) test. It is important to note that unemployment insurance will not be counted as income when a homeowner is evaluated for HAMP at the end of the forbearance plan. Not all unemployed homeowners will receive a HAMP modification at the end of the temporary assistance period. ***PLEASE NOTE: I am not sure why the guideline is stating that it will not consider unemployment income after this special forbearance plan is over – when it is counted during the regular HAMP process*
After the forbearance period, if the borrower cannot qualify for a HAMP modification their lender will be required to consider them for an alternative to foreclosure, such as a short sale or deed-in-lieu of foreclosure as part of the Home Affordable Foreclosure Alternatives Program (HAFA).
· Requiring participating servicers to use principal reduction as a primary means of reducing borrowers’ payments where loans are more than 115 percent of the current home value.
***Principal writedown will not be required*** However, we are providing increased financial incentives and expect that where principal write-down yields a greater economic benefit, based on the net present value (NPV) test comparison, lenders will generally choose to pursue the principal writedown option when they are legally permitted to do so. PLEASE NOTE: the Consumer Federation notes that it is required but the ACTUAL HAMP GUIDANCE SAYS IT DOES NOT REQUIRE*** there are other details about the principal write down coming soon.
If your property is worth at least 15 percent less than the amount of your first mortgage you may be eligible, but not every underwater borrower will benefit from principal reduction through the HAMP program. Your servicer or investor will contact you if you are eligible.
Homeowners who are significantly underwater and who are eligible for the HAMP program will benefit from changes that will motivate lenders to writedown more principal. This will help homeowners regain some of the equity lost due to severe home price declines in many regions of the country. The changes will require all servicers to consider an alternative modification approach which includes writedown of some principal for loans that are over 115 percent of the current value of the property (LTV). Servicers will earn increased incentives for offering principal writedowns in conjunction with a HAMP modification. The alternative payment reduction option will allow homeowners to regain lost equity in their homes just by remaining current on their modified payments. Servicers will initially forbear some or all of the principal balance over 115 percent LTV as needed to bring the borrower’s payment to 31 percent of income. Then, servicers will forgive this forborne amount in three equal amounts over 3 years, as long as homeowner remains current on payments.
***FHA-insured loan are not eligible for this principal forgiveness.
*FHA-insured borrowers are currently eligible for extensive loss mitigation assistance to prevent foreclosure and make mortgage payments more affordable. FHA is currently prohibited by statute from offering explicit principal forgiveness to FHA-insured loans.
· Offering borrowers that are current on their mortgages but with debts greater than their home’s current value the opportunity to refinance into a lower cost, long-term fixed rate mortgage insured through the FHA if the current lender will agree to reduce principal owed by at least 10 percent and the total combined debt including any second liens would be no greater than 115 percent after the refinancing.
*The Federal Housing Administration (FHA) is making some changes to its existing refinancing program guidelines that will allow more lenders to perform mortgage principal write-down for underwater homeowners in mortgages not currently insured by FHA. These adjustments will provide more opportunities for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the borrower is current on the mortgage and the lender or investor writes down the unpaid principal balance of their mortgage by at least 10 percent of the original first lien of the borrower. A second lien write-down program will be paired with these changes to encourage further write-down of second liens such that total mortgage debt (first and second liens) is no greater than 115 percent of the current value of the home.
This is a voluntary refinancing and lenders must agree to the writedown. However, the new FHA refinance option is only available to responsible homeowners who are current on an existing mortgage that is not insured by FHA. Eligible borrowers must occupy the home as the primary residence and will also have to meet FHA standard documentation and other underwriting requirements. In addition, to participate in the program, all homes will be appraised to determine current market value. The LTV loan for the new FHA loan must be no greater than 97.75 percent of the appraised value of the home.
FHA will move to implement this as quickly as possible and expect that lenders can begin making decisions by the fall. Specific guidelines will be posted in a FHA Mortgagee Letter in the near future.
*Because this program is voluntary for lenders, not all underwater borrowers who meet the eligibility standards will receive an FHA refinance loan. You will be notified by your lender if you have been selected to participate in the program.
· Requiring HAMP servicers to work with borrowers in bankruptcy on mortgage modifications, and waive the trial period for such modifications if consumers have been successfully performing under bankruptcy settlements.
*As a result of the new guidance, servicers are required to consider a borrower in bankruptcy for HAMP if the borrower or the borrower’s bankruptcy counsel asks for help. The guidance also includes new features to facilitate the process for them.
· Increasing the incentives to get second lien holders to reduce their claims to facilitate modifications.
*Many borrowers whose first mortgages are permanently modified under HAMP may now be eligible for payment relief on their second lien if their servicer is participating in the Second Lien Modification Program (2MP). We have increased incentives in this program to encourage servicers and investors to either forgive all or a portion of qualifying second liens.
· Clarifying that HAMP servicers must suspend all foreclosure actions and notices for borrowers that have sought modifications or are in trial modification periods, and requiring a written certification that a borrower is not HAMP eligible before an attorney or trustee can conduct a foreclosure sale.
*New and clarifying guidance provides protection for responsible borrowers against initiation of costly and unnecessary foreclosures while the borrower is being considered for HAMP. The guidance clarifies the solicitation requirements for borrower eligible for HAMP, including mail and phone outreach. In addition, the guidance provides improvements in communication about the foreclosure process to reduce confusion for borrowers who are simultaneously in foreclosure and either being evaluated for HAMP or in a trial payment plan. Also, the guidance requires written certification that a borrower is not HAMP eligible before an attorney or trustee can conduct a foreclosure sale.
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