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 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.