HAMP Update: Documentation Collection Process

January 30, 2010

On January 28, 2010, the Treasury Department and Department of Housing and Urban Development (HUD)  released updated guidance for the mortgage servicers who initiate the modifications and monitor the trial periods.  The guidance refines the documentation requirements and other procedures in order to expedite conversions of current trial modifications to permanent ones.

Phyllis Caldwell, Chief of Treasury’s Homeownership Preservation Office states that the “guidance represents our commitment to more efficiently move qualified homeowners into permanent modifications.”

“Increasing the number of borrowers receiving permanent modifications under HAMP is critical to our efforts to preserve affordable and sustainable homeownership,” said HUD Senior Advisor for Housing Finance William Apgar. “While we continue to meet our goals to provide immediate assistance, the updates announced today should enable servicers to transition borrowers more quickly and easily from trial to permanent modification.

Guidance Details

Supplemental Directive 10-01 provides guidance on two major issues:

  1. New Requirements that Documentation be Provided Before Trial Modification Begins

A simple, standard package of documents will be required prior to the servicer’s evaluation of the borrower for a trial modification.  This process will be required for all new HAMP modifications that became effective after June 1, 2010, although mortgage servicers may implement it sooner.  The following documents, referred to as the “Initial Package” must include:

Step 1 – Complete the RMA Form

The RMA Form provides the servicer with borrower and co-borrower financial information including the cause of the borrower’s hardship. The financial information and hardship sections of the RMA must be completed and executed by the borrower and, if applicable, the co-borrower. The RMA also solicits data related to the race, ethnicity and gender of the borrower and co-borrower, referred to as Government Monitoring Data (GMD). The borrower and co-borrower are not required to provide GMD. Servicers may not refuse to accept an RMA because the borrower or co-borrower did not complete this section. Click here for instructions for completing the form.

Servicers may require use of the RMA by all borrowers requesting consideration for HAMP or may continue to use other proprietary financial information forms that are substantially similar in content to the RMA. When provided by or on behalf of the borrower, the RMA form must be accepted by servicers in lieu of any servicer specific form(s). When the RMA is not used, servicers must obtain an executed MHA Hardship Affidavit.

Step 2 – Complete the IRS Form 4506-T or 4506T-EZ

The IRS Form 4506-T or 4506T-EZ gives permission to your mortgage servicer to request a copy of your most recent tax return you have filed with the Internal Revenue Service (IRS). After you have completed the form, print two copies – one for your records and one to send to your mortgage servicer. Only one taxpayer is required to sign to Tax Form. Click here for instructions for completing the form.

Step 3 – Gather Evidence of Income

Your mortgage servicer is required to verify your income to ensure that the modified mortgage payments will be affordable for you.  The type of documentation you need to provide depends on the source of your income. The simple Proof of Income Checklist will tell you what documents you need to collect if you are a wage earner, self-employed, or receive retirement income.  Be sure to make copies of your income documentation and keep the originals for your records.

***Note: The income evidence and financial information provided by the borrower may not be more than 90 days old as of the date the Initial Package is received by the mortgage servicer.***

Step 4 – Send the Documentation to your Servicer

After you complete, print, and sign the RMA and Tax Form, send these documents, along with your proof of income, to your mortgage servicer.  You will find the correct mailing address and fax number at Contact Your Mortgage Servicer.

***Note: For all documents required by Treasury (other than the Tax Form), electronic submission and signatures are acceptable.***


BREAKING NEWS: FHA Suspends 90-Day Anti-Flipping Rule for 1 Year

January 19, 2010

Effective February 1, 2010, the Federal Housing Administration (FHA) will place a one-year moratorium on its 90-day anti-flipping rule under waiver of  requirements of 24 CFR 203.37a(b)(2). , unless otherwise extended or withdrawn by the Commissioner. This will allow buyers with FHA-backed loans to buy homes that have been held for less than 90 days.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties, ” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver is limited to those sales meeting the following conditions:

  1. All transactions must be arms-length, with no interest between the seller and the buyer or any other parties involved in the sales transaction.
  2. The seller holds title to the property.
  3. LLCs, corporations, or trusts that are serving as sellers were established and operated in accordance with state and Federal laws.
  4. No pattern of previous flipping exists for the property, as shown by multiple title transfers within the last 12 months.
  5. The property was marketed openly and fairly.
  6. Assignment of a contract for sale will trigger a red flag.

In cases where the sales price is 20% or more over and above the seller’s acquisition cost, the waiver will only apply if the lender:

  1. Justifies the increase in value by retaining supporting documentation and/or a second appraisal which verifies the seller has completed legitimate renovation, repair, and rehabilitation to substantiate  the increase in value, or in cases where no work is performed, the appraiser provides sufficient explanation of the increase in value.
  2. Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge the borrower for this inspection. The use of FHA-approved inspectors is not required.
  3. At a minimum, the inspection must include: the property structure, including: the foundation, floor, ceiling, walls and roof. The exterior, including: the siding, doors, windows, decks, balconies, walkways, and driveways. All interiors and all insulation and ventilation systems, fireplaces, and fuel-burning appliances.
  4. The waiver is limited to forward mortgages and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program.

Findings

FHA finds that eliminating the 90-day resale restriction for buyers will permit buyers to use FHA-insured funding to purchase other bank-owned properties, or properties sold through private resale, which will allow homes to resell as quickly as possible.


Credit After a Short Sale vs. Foreclosure

December 7, 2009

 

One of the most commonly asked questions about a short sale is how it will impact credit and the ability to purchase a home in the future. Whether you are a buyer, seller or investor, it’s imperative to educate yourself on this all important aspect of credit to become fully informed before making a final decision or in order to assist sellers in determining the right course of action for their financial future.

Here to help sort through the confusion is a quick primer on credit after a short sale vs. foreclosure. Remember, every situation is distinctive so these estimates represent the average experience of most individuals.

Note: Depending on the situation, circumstances may vary.

Average Time to Rebuild Credit to Purchase a Home

  • After a foreclosure: 5 – 7 years
  • After a foreclosure with extenuating circumstances such as, but not limited to: disability, death of a spouse, etc: 3 – 7 years
  • After a Deed in Lieu (DIL) of foreclosure: 4 – 7 years
  • After a Short Sale: 0 – 2 years

Other Alternatives

The above averages represent typical buying patterns for those using regular lenders to obtain a conventional loan or government backed loans; private investors are still viable options that enable many people to purchase another home immediately after any type of financial fiasco, including foreclosure. However, mortgage rates tend to be less favorable and requirements more stringent than ever. Just a few years ago it was quite easy to obtain a sub-prime mortgage for a relatively low rate above the preferred status, but today, much of that has changed. While it is still possible to obtain the equivalent of a sub-prime mortgage, be prepared to come up with a much larger down payment and higher overall rates.

Short Sales Win Hands Down

Sellers wishing to minimize damage to their financial future clearly come out ahead when using a short sale but it’s still possible to further decrease the downside by avoiding a 60-day late payment, working closely with the lender to achieve a quick price agreement, and setting aside as much funds as possible for a new loan. In fact, homeowners that maintain a solid payment history and work-out an agreeable short sale deal early may find it desirable to downsize to a new home by setting aside additional funds equal to 20% down. With Private Mortgage Insurance (PMI) and a reduced debt-to-income (DTI) ratio, sellers are finding it possible to take advantage of lowered property values to immediately purchase another home for a fraction of the cost (and debt burden). 

Conclusion: It’s a win-win for all involved but, only if you understand the benefits and work aggressively to seal the deal.

*This post has been adapted from Real Estate News & Commentary by Chris McLaughlin


Fannie Mae Implements Deed for Lease (D4L) Program

November 8, 2009

giving back keys

In Announcement 09-33, Fannie Mae introduces the Deed for Lease Program (D4L) under which qualifying homeowners (or their tenants) facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender (DIL).

“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Vice President of Fannie Mae. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under D4L, borrowers transfer their property to the lender by completing a DIL, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A D4L property that is subsequently sold includes an assignment of the lease to the buyer.

Summary

  • With the D4L program, servicers should follow their regular process – in accordance with Fannie Mae’s workout hierarchy – in considering a borrower for a DIL.
  • If a borrower is eligible for a DIL (as determined by the servicer), the servicer should notify Fannie Mae if the borrower may also be eligible for the D4L program based on an initial screen of predetermined eligibility criteria.
  • Fannie Mae, or its designee, will take the steps necessary to further verify the property and borrower eligibility, determine the rental rate, and, if appropriate, execute the lease agreement.
  • To qualify for D4L, the occupant of the property must have the ability to pay market rent (not to exceed 31% of his or her monthly gross income).
  • The D4L agreement will be contingent on successful completion of the DIL.

Process

  • D4L includes certain responsibilities and requirements for servicers, borrowers, Fannie Mae and property managers (as designated by Fannie Mae). These are detailed in Announcement 09-33. Servicers should also refer to the Interim Instructions for Servicers document. Once automated system enhancements are in place, the automated process will replace the Interim Instructions for Servicers. Fannie Mae will notify servicers when these enhancements are available.

Documentation

Servicers must use the following documents when participating in the D4L program:


Freddie Mac Door Knocking Delinquents

October 4, 2009

knocking_at_the_door

Freddie Mac has contracted Titanium Solutions, a third-party servicer, to go to the homes of delinquent borrowers to get the missing information and documentation necessary to start three-month long trial repayments under the  Home Affordable Modification Program (HAMP).

“By meeting with our borrowers, one on one, Titanium Solutions can help them overcome the roadblocks keeping them from starting their Home Affordable Modification trial periods,” said Ingrid Beckles, Freddie Mac senior vice president, default asset management.  As a fraud prevention measure, Titanium representatives will not be allowed to accept mortgage payments or any other money from borrowers, Freddie Mac said. Representatives will also carry a copy of the solicitation letter the borrower initially received from their servicer, which contains unique information about the borrower’s loan.

In addition to the door-to-door campaign, Freddie Mac sends representatives to foreclosure mediation events put on by the Treasury Department and has hired Home Retention Services, a subsidiary of Stewart Lender Services, to process the backlog of modification applications from distressed borrowers with Freddie Mac mortgages. Home Retention Services will assess the eligibility of delinquent borrowers with Freddie Mac-owned mortgages for Home Affordable Modifications or other possible workouts and process borrower financial information for the servicers’ review and approval. While the new initiative will supplement the capacity of participating servicers to process loan modifications, Beckles emphasized that “borrowers should continue to call their servicers first to determine the best solution for their situation.”

Potentially eligible borrowers identified by a participating Freddie Mac servicer will receive a letter from Freddie Mac asking them to call Home Retention Services using a proprietary toll-free number. The letters will be specially formatted and include unique borrower PIN numbers to protect borrowers from counterfeits produced by fraud artists.

Home Retention Services will work with the borrower, assess their eligibility for a Home Affordable Modification, complete the documentation and income gathering processes, and advise the borrower of their proposed modified payment. Home Retention Services will forward the completed package to the servicer for final approval. The borrower’s Home Affordable Modification trial period begins once the servicer approves the modification and receives the borrower’s check for the new monthly mortgage amount.

Home Retention Services will also advise borrowers of other Freddie Mac workout options if they don’t qualify for Making Home Affordable.


eModifyMyLoan Offers Affordable Help

September 20, 2009

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eModifyMyLoan gives you the tools you need to handle the loan modification process directly with your lender from the comfort of your home, without hiring an expensive modification company. Simply fill out the online form and then e-mail, fax, or print out and deliver your eModifyMyLoan package to your lender for consideration.

Why Pay a Loan Modification Company Thousands of Dollars When You Can Do it Yourself?

Struggling to make your mortgage payment? Then negotiate a lower payment with your lender. With eModifyMyLoan, you can create a complete loan modification package for your lender in less than an hour. YOU DON’T PAY UNLESS YOU ARE 100% SATISFIED. IF YOU’RE NOT COMPLETELY SATISFIED, THEN IT’S FREE.

Why Choose eModifyMyLoan

If you are looking for a way to lower your monthly mortgage payments or avoid foreclosure through a short sale negotiation, you have three basic options:

  1. Pay a professional
  2. Research and submit the information yourself
  3. Use eModifyMyLoan to generate the required paperwork

Which Solution is Right for You?

Some consumers turn to attorneys or loan modification companies to help them through the process. On average, you can expect a $3,000 fee to process your paperwork, which will include creating the documents and representing you with the lender. There is no guarantee of success and many lenders do not treat the paperwork submitted by these organizations with any more priority than they do the documents submitted by individual homeowners.

Some consumers have opted to attempt the process on their own and have quickly become frustrated and overwhelmed. Because many lenders are swamped with phone calls regarding loan modifications and short sales, they often do not return calls from borrowers, even though they may be on the brink of falling behind on their payments. Some banks have limited days and hours of when you can call and request loan modification companies, while others prioritize their responses to only homeowners that are seriously delinquent or verging on foreclosure. As a result, if you are struggling financially but have not yet fallen behind on payments, you may never receive a return call.

The third option is to use eModifyMyLoan. With the online solution, you are guided through a series of questions to easily create the proper loan modification package and calculate the mortgage payment that you can afford. By supplying the lender with the complete eModifyMyLoan package with all of the necessary paperwork, including your personal finance statement and hardship letter, you increase your chances of more quickly achieving your goal of easing financial pressure. Cost to purchase is $129. Plus, it is backed by a 120-day guarantee.

Choose eModifyMyLoan today for an affordable way to undertake the otherwise daunting task of improving your financial situation with a loan modification or short sale.


Home Affordable Modification FAQs

June 8, 2009

LoanModificationOptions

Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac?

Yes. Making Home Affordable offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage servicers with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?

No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default, for example, because their mortgage payment has recently increased to a level that is not affordable. If you have had or anticipate a significant increase in your mortgage payment or you have had a significant reduction in income or have experienced some other hardship that makes you unable to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.

I have a second mortgage. Am I still eligible?

Yes, but only the first mortgage is eligible for a modification.

How do I know if my servicer is participating? Are all servicers required to participate?

Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with Treasury’s financial agent, through which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program.

What happens after five years?

If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years as specified in your modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in your modification agreement. The cap is equal to the prevailing market interest rate on the date the modification is finalized as published by Freddie Mac based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified. If the modified rate is at or above the prevailing market rate, as defined above, the modified rate will be fixed for the life of the loan.

Will the modified loan include property taxes and homeowners insurance?

Yes. The modification payment will include a monthly amount to be set aside (escrowed) to pay taxes and insurance when they become due. This escrow is required even if your prior loan did not include an escrow.

How low can my interest rate go?

Treasury is providing incentives to your investor to write the interest down to as low as 2%, if necessary to get to a payment that you can afford based on your income.

What happens if that is not enough to get to an affordable payment?

If a 2% interest rate does not result in a payment that is affordable (no more than 31% of your gross monthly income), your servicer will:

  • First try to extend your payment term. At the servicer’s option your payments could be extended out to 40 years.
  • If that is still not sufficient your servicer may defer repayment on a portion of the amount you owe until a later time. This is called a principal forbearance.
  • A portion of the debt could be also be forgiven. This is optional on the part of the investor. There is no requirement for principal forgiveness.

Could I end up with a balloon payment?

Yes. If your servicer determines that a principal forbearance is required to get your monthly payment to an affordable level, the amount of the forbearance, say for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe the money. You would have a $20,000 balloon payment that had no interest and was not due until you paid off your loan, refinanced or sold your house.

What happens if I am unable to make payments during the trial period?

Borrowers who are unable to make three payments by the end of the trial period are not eligible for a Home Affordable Modification. However, you may be eligible for other foreclosure prevention options offered by your servicer.

How much will a modification cost me?

Borrowers who are behind on payments or at risk of imminent default often do not have cash to pay for the expenses of a loan modification. Borrowers who qualify for a Home Affordable Modification will never be required to pay a modification fee or pay past due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage or paying some or all of the expenses in advance. Paying these expenses in advance will reduce your new monthly payment and save interest costs over the life of your loan.

If you would like assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a counseling fee. Borrowers should beware of any organization that attempts to charge an upfront fee for housing counseling or modification of a delinquent loan, or any organization that claims to guarantee success.

Is housing counseling required under this program?

Borrowers, especially delinquent borrowers, are strongly encouraged to contact a HUD-approved housing counselor to help them understand all of their financial options and to create a workable budget plan. These services are free. However, housing counseling is only required for borrowers whose total monthly debts are very high in relation their incomes. It is voluntary for other applicants.

When you apply for a Home Affordable Modification, your servicer will analyze your monthly debts, including the amount you will owe on the new mortgage payment after it is modified, as well as payments on a second mortgage, car loans, credit cards or child support. If the sum of all of these recurring monthly expenses is equal to or more than 55% of your gross monthly income, you must agree to participate in housing counseling provided by a HUD-approved housing counselor as a condition of getting the modification.

I heard the government was providing a financial incentive to borrowers. Is that true?

Yes. Borrowers who make timely payments on their modified loans will receive success incentives. For every month you make a payment on time, Treasury will pay an incentive that reduces the principal balance on your loan. The incentive will be applied directly to your loan balance annually and over five years the total principal reduction could add up to $5,000. This contribution by the Treasury will help you build equity faster.

I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for a Home Affordable Modification?

No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage servicer will check to see if the dwelling is your primary residence. Misrepresenting your occupancy in order to qualify for this program is a violation of Federal law and may have serious consequences.

I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on two, three and four unit properties are eligible as long as you live in one unit as your primary residence.

I owe more than my house is worth. Will a Home Affordable Modification reduce what I owe?

The primary objective of the Making Home Affordable Program is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Investors may, but are not required to, offer principal reductions. It is more likely that your servicer will use interest rate reductions in order to make your payment affordable.

I have an FHA loan. Can it be modified under the making Home Affordable Program? Are all loans eligible?

Most conventional loans including prime, subprime and adjustable loans, loans owned by Fannie Mae, Freddie Mac and private lenders and most loans in mortgage backed securities are eligible for a Home Affordable Modification. The Administration is working with the Congress to enact legislation that will allow FHA and VA to offer modifications consistent with Making Home Affordable in the near future. Currently loans insured or guaranteed by these agencies are being modified under other programs that also enable borrowers to retain homeownership.

How do I apply for a modification under the Making Home Affordable Plan?

If you meet the general eligibility criteria for the program, you should gather the financial documentation that your servicer will need to determine if you qualify. Once you have this information, you should call your mortgage servicer and ask to be considered for a Home Affordable Modification. The number is on your monthly mortgage bill or coupon book.

If your loan is current, please be patient as it may take some time before servicers are able to process all applications. However, servicers immediately can begin reviewing the eligibility of borrowers.

If you would like to speak to a housing counselor you can call 1-888-995-HOPE (4673). HUD-approved housing counselors can help you evaluate your income and expenses and understand your options. This counseling is FREE.

If you have already missed one or more mortgage payments and have not yet spoken to your servicer call them immediately.


How long will the Home Affordable Modification Program be available?

The program expires on December 31, 2012. Your trial modification must be in place by that date.

My loan is scheduled for foreclosure soon. What should I do?

Many servicers have made a commitment to postpone foreclosure sales on all mortgages that meet the minimum eligibility criteria for a Home Affordable Modification until those loans can be fully evaluated.

However, borrowers whose loans have been scheduled for foreclosure or any borrower that has missed one or more mortgage payments and has not yet spoken to their servicer should contact the servicer immediately. Borrowers may also contact a HUD-approved housing counselor by calling 1-888-995-HOPE (4673).

Who is my “loan servicer? Is that the same as my lender or investor?

Your loan servicer is the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan. Your servicer may also be your lender, which means they own your loan, however, many loans are owned by groups of investors.

Traditionally, banks used money deposited in customers’ savings accounts to make loans. They held the loans, earning the interest as borrowers repaid over time. Banks were thus limited in the number of loans they could make because they had to wait to make new ones until savings deposits grew or existing borrowers repaid their loans. Many families who wanted to own a home were unable to do so because there was not a steady supply of money to lend.

Over time, banks started to turn loans into cash by pooling large groups of loans together to create mortgage backed securities that could be sold to investors such as pension funds and hedge funds. The investors get the right to collect future payments and the bank gets cash that it can use to make more loans. Investors hire loan servicers to collect payments and interact with customers.

If you have questions about your loan or you are behind on your payments you should call your loan servicer at the number on your payment coupon or monthly mortgage statement.

Why does my loan servicer have to ask the investor if they can do a loan modification?

If the organization that services your loan does not own it, your servicer may need to get permission from the owner or investor before they can change any of the terms of your loan. Generally, there is a contract between the servicer and the investor that states what kind of actions the servicer is allowed to take. Most of these contracts, called pooling and servicing agreements (PSAs), give the servicer a lot of leeway to make modification decisions, so long as the modification provides a better financial outcome for the investor than not modifying the loan.

What should I do if my servicer tells me that the investor is not participating in Making Home Affordable?

Borrowers should check first to see if their servicer is listed. If so, you should call your servicer back and ask to speak to a supervisor or you may contact a HUD-approved housing counselor for assistance. If your servicer or investor is not participating in the program, you should ask your servicer or a housing counselor about other workout options that may be available.

 


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