HAMP 2nd Lien Modification Program (2MP)

 

***UPDATE:  Click HERE to view a 30-minute self-guided tutorial that provides an overview of the Second Lien Modification Program (2MP) for servicers of non-Government Sponsored Entities (GSE) loans.***

Note: If you are having a problem accessing the tutorial, email me at lauren@lossmitigationmasters.com

Many homeowners may be struggling to make their monthly mortgage payments because they have a second lien.  Even when a first mortgage payment is affordable, the addition of a second lien can sometimes increase monthly payments beyond affordable levels.  Second liens often complicate or prevent modification or refinancing of a first mortgage.

The 2nd Lien Modification Program (2MP) offers homeowners a way to lower payments on their second mortgage.  2MP offers homeowners, their mortgage servicers, and investors an incentive for modifying a second lien.  Servicers and investors may also receive an incentive for extinguishing a second lien, forgiving all of the debt a homeowner owes.

Homeowners must provide consent to share their first lien mortgage modification information with their second lien mortgage servicer, if they are different. Since 2MP is meant to be complementary to the Home Affordable Modification Program (HAMP), a homeowner must have their first lien modified through HAMP before the second lien can be modified under 2MP.

Under 2MP, with their investor’s guidance, a mortgage servicer may:

• Reduce the interest rate to 1% for second liens that pay both principal and interest (amortizing)
• Reduce the interest rate to 1% amortizing or 2% interest-only for interest-only second liens
• Extend the term of the second lien to 40 years
• If the principal was deferred (through forbearance) or forgiven on the first lien, a servicer must forbear the same proportion on the second lien; although a servicer may, in its discretion, forgive any portion or all of the second lien and receive incentives for doing so

A second lien is eligible for 2MP if:

• the corresponding first lien has been modified under the Obama Administration’s HAMP and the second lien servicer is participating
• it was originated on or before January 1, 2009
• it does not have an unpaid principal balance (at consideration for the modification) of less than $5,000 or a pre-modification scheduled monthly payment of less than $100
• it has not yet been modified under 2MP
• it is not subordinate to a second lien or is not a home equity loan in first lien position
• it is not a second lien on which no interest is charged and no payments are due until the first lien is paid in full
• the second lien servicer is in possession of a fully executed 2MP modification agreement or trial period plan by December 31, 2012; or the second lien is not insured, guaranteed, or held by a Federal government agency (e.g. FHA, HUD, VA, and Rural Development)

Examples

Family A: Amortizing Second Mortgage

In 2006: Family A took out a 30-year closed-end second mortgage with a balance of $45,000 and an interest rate of 8.6%.

Today: Family A has an unpaid balance of almost $44,000 on their second mortgage.

Under the 2MP: The interest rate on Family A’s second mortgage will be reduced to 1% for 5 years. This will reduce their annual payments by over $2,300.

After those five years, Family A’s mortgage payment will rise again but to a more moderate level.

	Existing Mortgage	Loan Modification
Balance	$43,942	$43,942
Remaining Years	27	27
Interest Rate	8.6%	1.0%
Monthly Payment	$349.48	$154.81
Savings	$195 per month, $2,336 per year for five years

Family B: Interest-Only Second Mortgage

In 2006: Family B took out an interest-only second mortgage with a balance of $60,000, an interest rate of 4.4%, and a term of 15 years.

Today: Family B has $60,000 remaining on their interest-only second mortgage because none of the principal was paid down.

Under the 2MP: The interest rate on Family B’s interest-only second mortgage will be reduced to 2% for 5 years. This will reduce their annual interest payments by $1,440.

After those five years, Family B’s mortgage payment will adjust back up and the mortgage will amortize over a term equal to the longer of (i) the remaining term of the family’s modified first mortgage (e.g. 27 years if the first mortgage had a 30 year term at origination and was three years old at the time of modification) or (ii) the originally scheduled amortization term of the second mortgage.

	Existing Mortgage	Loan Modification
Balance	$60,000	$60,000
Remaining Years	12	27 (term reset to the remaining term of the modified first loan)
Interest Rate	4.4%	2.0%
Monthly Interest Payments	$220	$100
Savings	$120 per month, $1,440 per year for five years

List of Participating Servicers

• Bank of America (including Countrywide)
• Citi Mortgage, Inc.
• Chase (including EMC and WaMu)
• Wells Fargo (including Wachovia)
• BayView Loan Servicing, LLC
• Servis One dba BSI Financial Services
• iServe Servicing, Inc.

More servicers will be added in the near future as they join the program.

For more information, contact your mortgage servicer.

Bank of America NHRP Enhancements FAQs

 

Am I eligible for the National Homeownership Retention Program (NHRP)?

First, Bank of America (BOA) Home Loans will need to determine your financial situation and hardship. Once BOA has your current financial information, BOA will evaluate the your loan for all possible home retention options so that you can determine which option might be right for you.

You may be eligible for the enhancements to the NHRP if you meet the following program requirements:

• Have a Countrywide subprime mortgage, a Pay-Option adjustable rate mortgage (ARM) or a prime two-year hybrid ARM
• Originated your loan on or prior to January 1, 2009
• Are 60 days or more delinquent or in imminent danger of default and the current loan-to-value (LTV) ratio is 75% or higher (The LTV ratio is the ratio between the unpaid principal amount of your loan and the appraised value of the homeowner’s home)
• Have a subprime hybrid ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset, and the LTV ratio at the time of the modification is 75% or higher
• Have a Pay Option ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset or payment recast, and the LTV ratio at the time of the modification is 75% or higher
• Have a property that is a 1-to-4 unit owner-occupied residential property
• For the earned forgiveness program, be 60 days or more delinquent and the current LTV ratio is 120% or higher
• For the negative amortization principal reduction program, be 60 days or more delinquent or be current but reasonably likely to become 60 days or more delinquent (i.e. facing imminent default) and the current LTV ratio is above 95%.

***Note: You may go online and fill out the Financial Worksheet to update BOA on your current financial situation. BOA will compare this information to all available home loan assistance programs***

Exactly what will BOA offer to eligible borrowers?

BOA Home Loans offers a range of modification solutions for customers facing financial hardship. The NHRP is one of the programs that BOA offer for customers with subprime loans, Pay-Option ARM loans or prime two-year hybrid loans who meet program requirements. Other programs, such as the Home Affordable Modification program (HAMP), are also available and designed to provide more affordable mortgage payments to customers facing financial hardship. Modifications will provide more affordable payments using a combination of the following:

• Reducing interest rate
• Providing a term extension
• Providing principal forgiveness or principal forbearance

Once the enhancements are launched, BOA Home Loans will both mail and call all eligible customers to collect the necessary information and determine if they qualify for the NHRP.

How do I know if I have a Subprime loan, Pay-Option adjustable rate mortgage (ARM) loan, or a two-year hybrid ARM?

If you are not sure what type of loan you have with BOA Home Loans, please call them at 800.669.6607 and they can provide you with that information.

***Note: Prior to calling, please print out the Call Information Sheet and take note of your account number and any questions you may have. You’ll be given a lot of information during your conversations. It’s a good idea to take notes for future reference***

How do I find out if I am eligible?

Click here to determine if you are eligible through the online questionnaire

How do I apply?

Please call BOA Home Loans Customer Service at 800.669.6607.

BOA Home Loans will also be contacting eligible customers to see if they are interested in applying for the program.

When will the program start or go into effect?

The program launched in 2008, and was enhanced in mid-May.

How will the NHRP use principal forgiveness to make my mortgage payment more affordable?

The NHRP looks at each customer’s situation and determines how they can provide you with an affordable mortgage payment. Depending on your situation, the NHRP may use principal forgiveness to do this. The NHRP may offer principal forbearance with an opportunity to earn principal forgiveness.

Principal forbearance provides temporary relief during a time of hardship. This means after demonstrating a hardship, BOA Home Loans will defer or postpone your mortgage payment for a period of time. For purposes of NHRP and the HAMP, BOA Home Loans offers interest-free forbearance to qualifying borrowers for the life of the loan. At the end of the loan term or at the time the loan is paid off through sale or refinancing, any remaining forborne amount must be paid by the borrower.

You may also qualify for earned principal forgiveness where a portion of the debt or loan amount is waived and you are no longer responsible to pay back that amount. However, you must remain in good standing on your payments or you will not receive forgiveness. The principal forgiveness occurs over 5 years. The amount of principal forgiveness that you can earn remains the same for the first 3 years. In the 4th and 5th years, the amount of forgiveness may be less, if an increase in the property value since the modification was made would result in your principal balance dropping below the current value of the property.

***Note: There may be tax implications. You may want to consult a tax professional regarding your individual tax situation***

I wanted principal forgiveness when I was reviewed for a modification and I didn’t get it. How do I get it now?

All BOA Home Loans modification solutions are designed to bring a loan payment to an affordable and reasonable amount that borrowers are able to sustain over time. If you have completed a loan modification or are currently in a trial period for a modification, your loan likely received a rate forgiveness and/or term extension in order to achieve an affordable and reasonable payment. Principal forgiveness is another tool to achieve this same result. In addition, under the federal government’s HAMP, you can only qualify for one modification, so if you are in a trial period plan or a permanent modification, you would not qualify for another modification.

However, BOA will consider the application of the principal reduction enhancements to potentially eligible trial and permanent modifications, and will notify eligible borrowers accordingly.

I am in my Trial Period and have not received my final modification yet. How do I get a principal forgiveness too?

If you are currently in a trial modification, a solution to bring your mortgage to an affordable and reasonable payment has been achieved and no additional tools (including principal forgiveness) would be necessary. BOA encourages you to continue making timely payments and to return all required, completed documents to ensure your trial will convert to a permanent modification, as you cannot be considered for another HAMP modification if you do not fulfill your trial modification requirements.

Two months ago this would have helped me but now my house is on the market for a short sale. How do I get a principal forgiveness and a modification now?

Even though you have started the short sale process, you can still be evaluated for a loan modification unless you have already been in a modification trial period or have received a permanent modification. If your financial situation has changed, BOA can collect your new financial information and reevaluate your loan for this program and other foreclosure prevention options. Please call BOA at 800.669.6607 to learn how to provide this new information.

This is something I asked for months ago, and now I am in foreclosure. What are you going to do for me now?

If your financial situation has changed since your loan was last evaluated for a modification, BOA can collect your new financial information and reevaluate the loan for this and other foreclosure prevention options.

What happens if I can’t qualify for a modification or a principal forgiveness?

Your loan will be considered for all modification programs available to you to help you achieve an affordable monthly mortgage payment. If you are not eligible for a loan modification, BOA can discuss other options.

What do I do if my state is not mentioned or included in this agreement?

Your state does not have to participate in the program for you to be eligible or considered for a modification. If you are a BOA Home Loans customer, BOA can discuss your situation and see if you qualify for NHRP or other modification options to assist you. Please call BOA Home Loans Customer Service at 800.669.6607.

I have a rental/vacation/investment property. Does that qualify?

No. This program is only for owner-occupied properties.

I have a Home Equity Line of Credit (HELOC) or second mortgage. Does the NHRP apply to that loan?

No, the NHRP does not cover HELOCs or second mortgages. If you have a HELOC or second mortgage with BOA Home Loans, BOA will review it when they review your first mortgage. If your HELOC or second mortgage is with another lender, you will need to discuss your options with that lender.

If your first lien is held by an investor other than BOA or one of its subsidiaries and you have a second lien on the property, BOA is unable to consider your first lien for modification under the new programs, but they will review your eligibility for another solution using HAMP or their proprietary modification programs.

Do I have to pay a fee to participate, or are there closing costs related to this program?

There are no fees assessed for participating in any modification program with BOA Home Loans.

What if I’m already in the foreclosure process?

You may still be reviewed for a modification. If you are eligible for one of BOA’s programs, your foreclosure sale may be placed on hold while BOA works to qualify you for the program and work through the modification process.  Please call BOA at 800.669.6607.

What if I’m current on my loan, but would like to be considered for this program?

Customers current on their loans may qualify for this program if they can demonstrate in good faith that they are reasonably likely to become 60 days or more delinquent as a result of a rate reset on a subprime loan or a Pay-Option ARM loan or prime two-year hybrid ARM, or a payment recast based on negative amortization on a Pay-Option ARM loan, and their LTV ratio is 75% or higher. You will be asked to provide financial documentation demonstrating financial hardship to qualify for the program. With respect to the recently announced principal reduction enhancements to the program, the negative amortization write-down solution is being offered to certain Pay Option ARM borrowers who are current on their payments but facing imminent default.

I’m current on my mortgage, but I owe more than my home is worth. Can I qualify for principal forgiveness?

If you are current on your loan, BOA will first evaluate you for the Home Affordable Refinance Program (HARP), which BOA is required to do under the government guidelines. If you do not qualify for a refinance, BOA will then evaluate your loan for the HAMP under Imminent Default if you have a financial hardship and will not be able to afford your current mortgage payment in the immediate future.

How long will BOA Home Loans offer this program?

BOA has expanded the program until December 31, 2012, six months longer than the original program date.

Bank of America Begins Implementation of NHRP Enhancements

 

 

Bank of America (BOA) has begun implementing the National Homeownership Retention Program (NHRP) enhancements, announced in late March 2010, to modify the mortgages of qualified homeowners who are experiencing financial hardship.

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What is the National Homeownership Retention Program (NHRP)?

NHRP, launched in October 2008, is a loan modification program that emerged from an agreement with several state attorneys general to provide assistance to former Countrywide borrowers with Sub-prime and Pay-Option adjustable rate mortgage (ARM) loans.

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BOA found that many homeowners who owe considerably more than their home is worth are reluctant to accept a solution that does not address a reduction in the principal balance due. In BOA’s outreach to date, about 30% of underwater and delinquent customers who had not responded to offers of modifications without a principal reduction component did respond when offered a significant reduction in principal.

Expanding NHRP will enable BOA to more effectively help customers, especially those who are severely underwater. Enhancements to the mortgage modification program include:

• Earned Principal Forgiveness – A first look at principal forgiveness coupled with an innovative solution to help delinquent borrowers who owe more than 120% of their property’s current market value.
• Principal Reduction for Negative-Amortization Loans – Also a first look in the HAMP sequence of solutions for certain qualifying loans. On delinquent and imminent default Pay-Option ARM loans with negative amortization, Bank of America will lower the principal balance to the extent of the negative amortization incurred to as low as 95% loan-to-value (LTV).
• Program Expansions – Now covers prime two-year hybrid ARM loans and the entire program will be extended 6 months through the end of 2012. In addition, qualifying mortgages eligible for NHRP will be expanded to include those originated on or before Jan. 1, 2009. Eligible relocation payments will have a floor of $2,000 per loan, and this benefit will be extended to tenants as well as borrowers.

Earned Principal Forgiveness

For NHRP-qualifying mortgages with current loan-to-value (LTV) ratios of 120% or higher, BOA will take a first look at offering an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over 5 years, provided the homeowner remains in good standing on payments.

This “earned principal forgiveness” can result up to a maximum 30% decrease in the principal balance, with forgiveness of principal in installments over 5 years to as low as 100% LTV.

If the forbearance is not enough to meet the HAMP payment target of 31% of the homeowner’s income, an interest rate reduction and other steps in the standard sequence of solutions will be employed.

For each of the first 5 years that the homeowner’s payment record remains in good standing, the borrower may earn forgiveness of up to one-fifth of the forborne principal amount. The amount is set at 20% in the first 3 years. In the 4th and 5th years, the amount of forgiveness will take into account any increase in the property value over the period of the modification such that the then-current LTV will not be reduced to below 100% through principal forgiveness – helping strike a critical balance between customer and investor interests.

Principal Reduction for Negative-Amortization Loans

BOA has begun offering two other affordable and sustainable payment solutions on certain Pay-Option ARMs.

• If the principal balance on the loan has grown because the borrower selected an option to make payments that did not cover the interest due and this payment difference was added to principal – known as negative amortization – the bank will consider offering a HAMP modification eliminating the negative amortization feature and forgiving all or part of the negative amortization amount to reduce the principal to as low as 95% LTV.
• If a pending recast of a Pay-Option ARM will increase the customer’s monthly payments, a preemptive modification that eliminates the negative amortization feature of the mortgage and converts it to a fully amortizing market rate loan may be offered.

With implementation of these enhancements, BOA will make principal reduction the initial consideration toward reaching the HAMP’s target for an affordable payment equal to 31% of household income when modifying qualifying Sub-prime, Pay-Option ARM and Prime 2-year hybrid ARM loans that are also eligible for NHRP. An interest rate reduction and other steps would then be considered, if additional savings are necessary to reach the targeted payment.

Bank of America Short Sale Process Presentation

 

 On April 8, 2010, Bank of America (BOA) executives held a webinar presentation for over 10,000 Realtors to discuss BOA’s short sale process.

Tip: Refer to the Equator Agent/Homeowner Guide for step-by-step instructions 

Summary

10 Tips to Avoid Delays in Processing Time

1. Review all documents and images for accuracy prior to uploading in Equator
2. Ensure that property is listed in the MLS
3. Negotiate external party fees prior to submission of HUD-1
4. Supply HUD-1 that is valid for at least 60 days
5. Ensure that agent and customer tasks are completed as timely as possible in Equator (i.e. accepting short sale assignment, submitting short sale offer, and uploading offer documents within 7 days)
6. Only submit fully executed purchase offers with all appropriate addendums signed by both buyer and homeowner
7. Work to get purchase offer representing the best possible fair market value and highest net proceeds for the lender
8. Set appropriate expectations with buyers/sellers so they understand the complexity and resulting length of time a short sale can take
9. Work to get a release on outside liens as early as possible
10. The following situations will cause delays: (1) Change in buyer or agent at any time during the process; (2) Customer files bankruptcy; (3) Deal change after the approval letter is issued

Steps Already Taken to Improve the Short Sale Process

• Increased staffing and updated training
• Dedicated Short Sale Call Center:  1-866-880-1232
• Hours of Operation: 8 AM – 9PM (EST), Monday -Friday
• Extended Saturday hours – Coming Soon!
• Equator – primary tool for initiating the short sale
• Changed procedures to improve associate responsiveness
• Enhanced the procedure to proactively provide loan status

Steps Underway to Enhance Programs

Home Affordable Foreclosure Alternatives (HAFA):

• Implemented on April 5, 2010 and are following the HAFA guidelines 
• HAFA is first in short sale waterfall of options for a homeowner
• Remember: Some investors (Fannie Mae and Freddie Mac) are not participating; offering a cooperative or traditional short sale
• Proactive outreach to homeowners
• Offering a pre-approved short sale solicitation 
• After offer is submitted, approval within 14 days
• Promissory Note – Not required with HAFA 
• Homeowner required to clear second liens
• Homeowner leaves the home – no deficiency and no contribution

Cooperative Short Sales:

• Similar in approach to HAFA but wider in scope
• Includes homeowners who are not eligible for HAFA – non-owner occupied, jumbo loans, Fannie, Freddie
• Currently in pilot stages with rollout expected 2^nd Quarter of 2010

Steps Underway to Educate Agents

Education Materials:

• Overview of the process so agents can lead process
• Step-by-Step Guidelines for working through the system as an agent and homeowner
• Tips to avoid common problems

Outreach Events to Distribute Materials

• Large Realtor Events
• Webinars
• Participation with Short Sale Certification Programs

Want Agents’ Input

• Developing mechanisms for on-going feedback on process, systems, materials
• Will act on feedback with continuous improvements

Introduction to Equator

• 24/7 access to the short sale system
• Status tracking
• Direct communication with the Short Sale Negotiator
• Documents are uploaded directly to Equator instead of faxing
• Streamlined approval process
• Historical view of offers and counter offers

Coming Soon in Equator:

• There are a few specific loan investor types (i.e., FHA/VA) that are not on the Equator system and will be added at a later date
• Agent feedback, homeowner feedback, and internal data is being leveraged to identify system and/or enhancements for future process rollouts and educational material improvements

Agent Communication within Equator

• Throughout the process you will receive notifications of the status of the short sale. The system automatically tracks the agent, customer, and bank tasks and will alert you after key milestones have been achieved and to let you know the next steps.
• For specific questions/concerns you have, the negotiator assigned to the short sale is your primary contact.
• Please ensure when sending a message in Equator you only select “Negotiator”.
• We request that you only send messages via Equator and not directly through email. This enables our associates to effectively manage the case load and respond to agent inquires in a timely manner.
• If you have submitted a request to the Negotiator via Equator AND there has been no response after 2 business days: You should escalate to a “Team Lead” by selecting this role in your message drop down menu.
• In the event of an urgent issue, such as, a foreclosure sale date within 48 hours: You should immediately escalate to the “Team Lead” and “Manager”; and also call the Short Sale support team at 1-866-880-1232. 

Bank of America’s Mortgage Modification Lottery

 

Bank of America (BOA) announced last week that it would begin cutting loan balances for distressed mortgage borrowers, and in the process created a lottery – if you’re lucky enough to be in its portfolio and smart enough not to pay your mortgage, you win.

Until now, big lenders and servicers, such as BOA, have only given principal reductions to a microscopic number of borrowers — and only then as a last resort.

But they’re now having to play catch up to a new kind of mortgage servicer — a so-called “specialty servicer” — that is seeing success in avoiding foreclosures.

They handle the worst-of-the-worst, loans at least 90 days late, and one of the tactics they have used is offering principle reductions.

Of course, few mortgages end up in the hands of these speciality servicers, and whether yours lands with one is really just the luck of the draw. But now BoA is taking the practice mainstream, and not surprisingly more loans are going 90 days late.

What are Servicers?

Unlike the person who owns your mortgage, either the bank (rarely) or a group of investors (more common), mortgage servicers are the companies that handle the day-to-day administration of mortgages. They collect payments, maintain escrow accounts and confront borrowers about late payments. They also initiate the foreclosure process when borrowers default.

Most servicer operations were set up in better times, when nearly everyone paid their loans regularly. But when the foreclosure crisis hit, they had to scramble to keep up with the added workload of managing non-performing (bad) loans.

As a result, dozens of specialty services have sprung up to take on these difficult jobs. They mostly deal with loans 3 payments or more late, which is about 5% of all mortgages, according to the Mortgage Bankers Association (MBA).

“Some lenders are so large they can’t handle delinquencies efficiently,” said Rick Smith, CEO of Marix, a specialty servicer. “They’re reaching out to [firms] that specialize in non-performing  (bad) loans.”

Plus, he added, companies don’t want to staff up for what is hopefully a temporary problem. “If you hire 500 people to handle it and then the economy improves, then you’re overstaffed by 500,” Smith said. 

When can they cut the principal?

Sometimes investors purchase whole portfolios of bad loans. These hedge funds and other groups don’t service the loans themselves and their chief aim is to get the mortgages to pay off again. So they hire one of the specialty servicing firms and give them a lot of leeway to get the loans back on track.

One of their main solutions is cutting the principal balance so that homeowners no longer owe more than their houses are worth.

“Our clients would rather do a principal-reduction than an interest-reduction workout,” said Gagan Sharma, CEO of BSI Financial. “Many bought the loans at discount so they’re happy to pass the savings down to consumers.”

This encourages people to keep paying loans rather than walking away. If property values increase, the owners can turn a profit when they sell.

Conventional servicers have been loathe to cut principal because the investors who actually own the loans don’t want to accept immediate losses and lenders don’t want to encourage more people to press for reductions.

In fact, less than 2% of trial loan modifications under President Obama’s foreclosure-prevention plan, Home Affordable Modification Program (HAMP), have cut the balance owned.

Loan Balance cut in half

It doesn’t always work out so smoothly, however, because borrowers are hesitant to return phone calls or answer letters; sometimes they think the servicers are a scam.

“We have a hard time getting people to respond,” said Vicki Lester, president of Mortgage Servicing at RoundPoint. “Borrowers are still in denial.”

To get to people they start with a call campaign and then they mail out welcome letters and information packets. “Where all else fails, we send out people to knock on doors,” Lester said.

So, the servicers remind, if you’re lucky enough to win the modification lottery, please answer the phone. Talking to someone could mean cutting your loan balance and saving your home.

Making money on a short sale?

Not every home can be saved and specialty servicers employ strategies other than principal reduction. For example, short sales — often with a twist.

Some specialty servicers have a short-sale program in which it pays borrowers a percentage of any price they sell the house for over a “quick sale value.”

For example, if they determine that a normal market value for a house is $200,000 but to sell it quickly the price would have to be $180,000, they give the borrower 3 months to sell the house for whatever he or she can get.

The servicers share with the borrowers anything over the quick sale price. Borrowers may keep 30%, even 40%, of the overage.

Summary

Now that BoA has made the practice widely known, we can expect a lot more lottery winners. So it seems that BOA is implying that if you don’t like the terms of your mortgage,  just stop paying!

Fannie Mae Introduces Alternative HAMP Modification

In Lender Letter LL-2010-04, Fannie Mae introduces the Alternative Modification™ (Alt Mod™),  an alternative to the HAMP modification for those borrowers who were eligible for and accepted into a HAMP trial period plan but were subsequently not offered a HAMP permanent modification because of eligibility restrictions.

For mortgage loans in active HAMP trial period plans initiated prior to March 1, 2010, all Fannie Mae-approved servicers must consider the Alt Mod prior to the initiation of foreclosure for all eligible borrowers who were not offered a permanent HAMP modification after making payments under a HAMP trial period plan. All borrowers must meet the eligibility criteria outlined below.

A borrower that entered into a trial period plan prior to March 1, 2010 will be considered eligible for the Alt Mod as long as the case is submitted through the HomeSaver Solutions® Network (HSSN) prior to the final date of the program offering, August 31, 2010.

Eligibility

To be eligible for the Alt Mod, the mortgage loan must first have been evaluated and considered eligible for HAMP as described in Announcement 09-05R,  including confirmation that the mortgage loan is secured by a 1 – 4 unit owner-occupied property. The HAMP trial period must have been initiated prior to March 1, 2010. The borrower must have made all required payments in accordance with a HAMP trial period plan, including subsequent payments that may have been due while the servicer attempted to convert the trial period to a permanent modification. Any subsequent trial period payment(s) due from the borrower must be submitted prior to executing a permanent modification agreement.

The Alt Mod may be considered if:

• the monthly mortgage payment ratio based on verified income was less than 31%,
• the target monthly mortgage payment ratio of 31% based on verified income could not be reached using the standard HAMP modification waterfall, or
• the borrower failed to provide all income documentation required for a HAMP modification but the income documentation meets the streamlined income documentation for the Alt Mod (described in the Underwriting section below).

When a borrower is considered eligible for the Alt Mod, the servicer must:

• document the borrower’s file to evidence compliance with the requirements for resolving active trial modifications in accordance with Announcement SVC-2010-03,
• cancel the HAMP modification in HSSN and the Treasury Department’s system of record, and
• send the borrower the appropriate Borrower Notice as outlined in Announcement 09-36. The servicer must include the Alt Mod offer and Loan Modification Agreement (Form 3179) with the HAMP Borrower Notice when possible.

The Alt Mod offer must clearly indicate that, while the Alt Mod contains the same payment terms as the HAMP modification, the borrower did not meet the requirements of HAMP and as a result, the Alt Mod does not include borrower incentive payments that are otherwise payable under HAMP.

Before any permanent modification can become effective, the servicer must:

• provide the borrower with a simplified summary of the Loan Modification Agreement (Instructions for Form 3179),
• inform the borrower that in the event of re-default the servicer will pursue liquidation options, and
• remind the borrower of the consequences of material misstatements when submitting documentation in connection with a request for a modification.

Timing of Borrower Solicitation & Follow-Up

For qualified borrowers who are already identified as ineligible for a permanent HAMP modification, Alt Mod offers should be sent no later than 30 days from the date of this Lender Letter.

Going forward, for other borrowers who entered into a trial period plan prior to March 1, 2010 and failed to qualify for a permanent HAMP modification, but are determined to be eligible for Alt Mod, offers should be sent within 10 days of completion of the HAMP trial period and expiration of the 30-day HAMP Borrower Notice. All Alt Mod offers should also include an expiration date of 30 days from the date of the offer.

For borrowers who do not respond after the Alt Mod offer has been sent, servicers must conduct follow-up:

• between the 5th and the 15th day after the offer is mailed, servicers must attempt at least 3 phone calls;
• on the 15th day after the offer is mailed, servicers must deliver a follow-up letter, by either mail or a direct contact, door-knocking campaign; and
• between the 15th and 30th day after the offer is mailed, servicers must attempt to contact the borrower a minimum of three additional times by either phone calls or the use of field services (door knockers).

Failure to comply with these guidelines could result in forfeiture of incentive payments to the servicer.

Underwriting

A servicer must have obtained a property valuation as required under the HAMP modification as described in Announcement 09-05R. The servicer must use that valuation to underwrite the Alt Mod.

Mark-to-Market LTV 80 Percent or Greater

If the current mark-to-market loan-to-value (LTV) ratio (current LTV based upon the new valuation) is 80% or greater, the payment calculated for HAMP using the standard modification waterfall should be utilized for the Alt Mod and verification of income documentation as described below is not necessary.

Mark-to-Market LTV Less than 80%

When the current mark-to-market LTV ratio is less than 80%, the payment calculated for HAMP using the standard modification waterfall should be utilized for the Alt Mod, and income verification is required (as described in the Streamlined Income Documentation section below). However, the Alt Mod mortgage payment may not be reduced below 20% of the borrower’s verified monthly gross income.

• If the borrower did not qualify for a HAMP modification because the borrower failed to provide all required income documentation but the income documentation meets the streamlined income documentation requirements for the Alt Mod, the servicer may use the payment previously calculated for the HAMP trial period for the Alt Mod provided that the payment meets the criteria outlined above.

If, after applying the modification waterfall steps based on verified income documentation, the borrower’s monthly mortgage payment cannot be reduced without going below a 20% monthly mortgage payment ratio, the servicer may not perform the modification without the express written consent of Fannie Mae. A principal write-down or principal forgiveness is prohibited on Fannie Mae mortgage loans.

Streamlined Income Documentation

A servicer may use the verified income documentation required under HAMP to calculate the payment for the Alt Mod. If the borrower is ineligible for a HAMP modification because of failure to provide the required income documentation, the servicer may rely upon the following streamlined documentation requirements for the Alt Mod.

If the borrower is employed:

• a copy of the most recent paystub indicating year-to-date earnings or, if year-to-date earnings are not available, copies of paystubs for the last two months.

If the borrower elects to use other earned income such as bonus, commission, fee, housing allowance, tips, overtime:

• reliable third party documentation describing the nature of the income (for example, an employment contract or printouts documenting tip income).

If the borrower is self-employed:

• a signed copy of the most recent federal income tax return, including all schedules and forms, if available, or signed Internal Revenue Service Request for Transcript of Tax Return (Form 4506-T); and
• copies of bank statements for the business account for the last two months to document continuation of business activity.

If the borrower elects to use alimony or child support income to qualify, acceptable documentation includes:

• photocopies of the divorce decree, separation agreement or other type of legal written agreement or court decree that provides for the payment of alimony or child support and states the amount of the award and the period of time over which it will be received; and
• documents supplying reasonably reliable evidence of full, regular, and timely payments, such as bank deposit slips or bank statements for the last two months.

If the borrower has other income such as Social Security, disability or death benefits, a pension, public assistance or adoption assistance:

• acceptable documentation includes letters, exhibits, a disability policy or benefits statement from the provider that states the amount, frequency and duration of the benefit; and
• the servicer must obtain copies of the most recent bank statement showing these deposits.

If the borrower receives unemployment:

• acceptable documentation includes letters, exhibits or a benefits statement from the provider that states the amount, frequency, and duration of the benefit. The servicer must have determined that the income will continue for at least nine months from the date of the HAMP eligibility determination.

If the borrower has rental income, acceptable documentation includes:

• copies of all pages from the borrower’s signed federal income tax return and Schedule E – Supplemental Income and Loss, for the most recent tax year.
• When Schedule E is not available because the property was not previously rented, servicers may accept a current lease agreement and bank statements or canceled rent checks.
• If the borrower has rental income from a one- to four-unit property that is also the borrower’s principal residence, the monthly net rental income to be calculated for HAMP purposes must equal 75% of the gross rent, with the remaining 25% being considered vacancy loss and maintenance expense.
• If the borrower has rental income from a property that is other than the borrower’s primary residence, the income should be 75% of the monthly gross rental income, reduced by the monthly debt service on the property (i.e., principal, interest, taxes, insurance, including mortgage insurance and association fees, if applicable).

Income documentation previously obtained during the HAMP evaluation may be relied upon for the purposes of verifying income for the Alt Mod. All other income documentation must not be more than 90 days old from the date of the Alt Mod evaluation.

Executing the Modification Agreement

The servicer must prepare a Loan Modification Agreement to document the agreed-upon terms of the modification. Servicers must revise the Loan Modification Agreement by amending the existing paragraph No. 5 (d) in such agreement to reflect that the borrower will not be charged for administrative and processing costs as described in the Administrative Costs section below.

Unless a borrower or co-borrower is deceased or a borrower and co-borrower are divorced, all parties who signed the original note or security instrument, or their duly authorized representative(s), must provide income documentation and execute the modification agreement. If a borrower and a co-borrower are divorced and the property has been transferred to one borrower in the divorce decree, the borrower who no longer has an interest in the property is not required to execute the modification agreement. In cases where a borrower and co-borrower are unmarried and either the borrower or co-borrower relinquish all rights to the property securing the mortgage loan through a recorded quitclaim deed or other document sufficient under applicable state law to transfer title, the non-occupying borrower who has relinquished property rights is not required to provide income documentation or sign the modification agreement.

Servicers are reminded that modification agreements must be signed by an authorized representative of the servicer and must reflect the actual date of signature by the servicer’s representative.

Recording the Modification

For all mortgage loans that are modified pursuant to an Alt Mod, the servicer must ensure that the modified mortgage loan retains its first lien position and is fully enforceable. The modification agreement must be executed by the borrower(s) and, in the following circumstances, must be in recordable form:

• if state or local law requires a modification agreement be recorded to be enforceable;
• if the property is located in the state of New York or Cuyahoga County, Ohio;
• if the amount capitalized is greater than $50,000 (aggregate capitalized amount of all modifications of the mortgage loan completed under Fannie Mae’s mortgage modification alternatives);
• if the final interest rate on the modified mortgage loan is greater than the pre-modified interest rate in effect on the mortgage loan;
• if the remaining term on the mortgage loan is less than or equal to ten years and the servicer is extending the term of the mortgage loan more than ten years beyond the original maturity date; or
• if the servicer’s practice for modifying mortgage loans in the servicer’s portfolio is to create modification agreements in recordable form.

In addition, to retain the first lien position, servicers must:

• Ensure all real estate taxes and assessments that could become a first lien are current especially those for manufactured homes taxed as personal property, personal property taxes, condominium/HOA fees, utility assessments (such as water bills), ground rent and other assessments.
• Obtain a title endorsement or similar title insurance product issued by a title insurance company if
• the amount capitalized is greater than $50,000 (aggregate capitalized amount of all modifications of the mortgage loan completed under Fannie Mae’s mortgage modification alternatives), or
• the final interest rate on the modified mortgage loan is greater than the pre-modified interest rate in effect on the mortgage loan.

Record the executed modification agreement if:

• state or local law requires the modification agreement be recorded to be enforceable,
• the property is located in Cuyahoga County, Ohio,
• the amount capitalized is greater than $50,000 (aggregate capitalized amount of all modifications of the mortgage loan completed under our modification alternatives),
• the remaining term on the mortgage loan is less than or equal to ten years and the servicer is extending the term of the mortgage loan more than ten years beyond the original maturity date, or
• the final interest rate on the modified mortgage loan is greater than the pre-modified interest rate in effect on the mortgage loan.

Redefault

If a borrower becomes 60 days delinquent on the Alt Mod within the first 12 months after the effective date of the modification, then the servicer must immediately work with the borrower to pursue either a preforeclosure sale, deed-in-lieu of foreclosure or commence foreclosure proceedings, in accordance with applicable state law. Should a servicer determine that another modification is appropriate for the borrower; the servicer must submit the loan information as a non-delegated case into HSSN for Fannie Mae’s prior approval.

Late Fees

All late charges, penalties, stop payment fees or similar fees must be waived upon conversion to an Alt Mod.

Administrative Costs

Servicers may not charge the borrower to cover the administrative processing costs incurred in connection with an Alt Mod. The servicer must pay any actual out-of-pocket expenses such as any required notary fees, recordation fees, title costs, property valuation fees, or other allowable and documented expenses. Fannie Mae will reimburse the servicer for allowable out-of-pocket expenses, with the exception of credit report fees, which will not be reimbursed.

Servicer Incentive Compensation

A servicer will receive compensation of $800 for each completed modification. Incentive fee payments on eligible mortgage loans will be sent to servicers upon receipt of a closed case entered into the HSSN. Fannie Mae will review eligibility for the modification incentive fee and make the final determination based on information provided by the servicer; therefore, servicers need not submit requests for payment of modification incentive fees. Modification incentive fees on eligible mortgages will be sent to servicers on a monthly basis.

Citi’s Deed-In-Lieu of Foreclosure Offers Borrowers 6 Months Free Rent

On February 11, 2010, Citigroup announced plans to introduce a pilot program that would let homeowners on the verge of foreclosure stay in their homes for six months, provided that they turn over the deed to the property; otherwise, known as a deed-in-lieu (DIL) of foreclosure.

Citi will begin the program, called Foreclosure Alternatives, this week in some states that have been particularly hard-hit by foreclosures: Florida, Illinois, Michigan, New Jersey, Ohio and Texas. About 1,000 homeowners are expected to participate.

For homeowners in financial trouble, there are a few benefits to the program:

• You get to stay in your home for an extra six months. While you still have to leave, getting the extra six months can help your kids finish their school year and give you time to pack and plan for your next move.
• Mortgage payment not required. Citigroup won’t require you to make a mortgage payment while you live in the home. That should give you six months to sock away savings – cash you’ll need to pay moving expenses and perhaps to put down a security deposit on a new place to live.
• A deed-in-lieu of foreclosure will hurt your credit history and credit score less than a straight out foreclosure. While your credit score will drop, it might not drop as much.
• Citi will pay at least $1,000 in relocation costs and will consider helping with other expenses. It also will offer relocation counseling.

Borrowers in Citi’s program must still pay utility bills. Borrowers will be required to “maintain the property in its current condition,” the bank said.

Something formally needs to be done in addition to the modifications,” said Sanjiv Das, chief executive of CitiMortgage. “We are in a different stage of the housing cycle. Restructuring  mortgage payments was part one of the cycle, making sure that foreclosure glut doesn’t hit the industry is part two of the cycle. Citi is trying to stay ahead of it.”

Sanjiv also said the program is “less painful for our borrowers as well as for us.”

What’s More Damaging To Your Credit: A Short Sale Or A Foreclosure?

According to Gerri Willis, Money magazine contributing writer and host of CNN’s “Your Bottom Line,” a short sale in which you negotiate with the bank to sell your home for less than you owe on your mortgage, will have a dramatically negative affect on your credit.

That said, if you’re underwater on your mortgage and you need to move, a short sale is a better option than foreclosure. Going through foreclosure will make it very difficult for you to get a loan for at least three to five years; if you’ve done a short sale, you may be able to qualify for a new mortgage within two years.

BOTTOM LINE:  Choosing a short sale over foreclosure is difficult. Both take a bite out of your credit rating. But one is easier to recover from.