Details on HUD Emergency Homeowners Loan Program

October 14, 2010


On October 5, 2010, HUD released details about the $1 Billion Emergency Homeowners Loan Program (EHLP) authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

EHLP will offer declining balance, deferred payment “bridge loan” (non-recourse, subordinate loans with 0% interest rate) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Borrowers living in the following jurisdictions are eligible to receive funds through the EHLP:

TX Texas $ 135,418,959
NY New York $ 111,649,112
PA Pennsylvania $ 105,804,905
MA Massachusetts $  61,036,001
WA Washington $  56,272,599
MN Minnesota $  55,848,137
WI Wisconsin $   51,540,638
MO Missouri $   49,001,729
VA Virginia $   46,627,889
CO Colorado $   41,286,747
MD Maryland $   39,962,270
CT Connecticut $   32,946,864
KS Kansas $   17,748,782
AR Arkansas $   17,736,991
IA Iowa $   17,379,343
LA Louisiana $   16,691,558
UT Utah $   16,577,582
OK Oklahoma $   15,575,381
PR Puerto Rico $   14,714,668
ID Idaho $   13,284,075
NH New Hampshire $   12,655,243
NM New Mexico $   10,725,515
ME Maine $   10,379,657
WV West Virginia $     8,339,884
NE Nebraska $     8,304,512
HI Hawaii $     6,292,250
DE Delaware $     6,048,577
MT Montana $     5,710,580
VT Vermont $     4,830,215
AK Alaska $     3,890,898
WY Wyoming $     2,346,329
SD South Dakota $     2,051,563
ND North Dakota $     1,320,547
Total: $ 1,000,000,000

Program Administration

Delegated Approach: Borrowers who are listed in one of the above 32 states or Puerto Rico will meet with non-profit housing counselors who are part of the National Foreclosure Mitigation Counseling Program administered by NeighborWorks® America to receive funding.

The non-profit housing counselors will provide intake and outreach services including:

  • (i) developing and disseminating program marketing materials, (ii) providing an overview of the program and eligibility requirements, (iii) conducting initial eligibility screening (including verifying income), (iv) counseling  potential applicants, providing information concerning available employment and training resources,  (v) collecting and assembling homeowner documentation, (vi) submitting homeowner application, and (vii) providing transition counseling to explore with the homeowner other loss mitigation options, including loan modification, short sale, deed-in-lieu of foreclosure, or traditional sale of home.
  • The counselors shall also be encouraged to conduct outreach to entities in local communities to provide information on assistance available to unemployed homeowners through this program and shall publicize the list of entities approved to assist potential applicants with applying to the program

State Law Approach: Borrowers or state HFAs that operate loan assistance programs that are determined by HUD to be substantially similar to the EHRF program will receive allocations to fund emergency loans for borrowers in the states below:

Alabama $60,672,471
California $476,257,070
Florida $238,864,755
Georgia $126,650,987
Illinois $166,352,726
Indiana $82,762,859
Kentucky $55,588,050
Michigan $128,461,559
Mississippi $38,036,950
Nevada $34,056,581
New Jersey $112,200,638
North Carolina $120,874,221
Ohio $148,728,864
Oregon $49,294,215
Rhode Island $13,570,770
South Carolina $58,772,347
Tennessee $81,128,260
Washington, DC $7,726,678

Allocation of Program Funds

Recipient Geography: HUD will assist borrowers living in Puerto Rico and the 32 states otherwise not funded by Treasury’s Innovation Fund for Hardest Hit Housing Markets (Hardest Hit Fund) program.

Allocation Amount: The total amount reserved will be based on the state’s approximate share of unemployed homeowners with a mortgage relative to all unemployed homeowners with a mortgage

Targeting Funds to Local Geographies: HUD will provide information that identifies pockets within each of the designated states that have suffered the most from recent spikes in unemployment and/or mortgage delinquencies.  HUD will encourage the use of program dollars in these hardest-hit areas.

Homeowner Eligibility and Program Operation

Income Thresholds: Has a total pre-event household income equal to, or less than, 120% of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: Has a current gross income (income before taxes) that is at least 15% lower than the pre-event income.

  • “Pre-event income”: the income prior to the onset of unemployment, underemployment, or medical emergency
  • “Current income”: the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: Must be at least 3 months delinquent on payments and have received notification of an intention to foreclose.  This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least 3 months of missed payments and the mortgagee’s intent to foreclose.  In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least 3 months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by:

Back-end DTI ratio:

Total Monthly Debt Expenses ÷ Total Gross Monthly Income

  • Total monthly debt expenses = mortgage principal, interest, taxes, insurance, & revolving and fixed installment debt

***Note: For this calculation, gross income will be measured at the “pre-event” level***

Principal Residence: Must reside in the mortgaged property and be your  principal residence.  The mortgaged property must also be a single family residence (1 – 4 unit structure or condominium unit).

Creation of HUD Note:  After the first assistance payment is made on behalf of the homeowner, the fiscal agent will create an open-ended “HUD note” and a mortgage to be  in the name of the Secretary HUD of sufficient size to accommodate the expected amount of assistance to be provided to homeowner.

Ongoing Qualification of Homeowner

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

  • The maximum loan ($50,000) amount has been reached;
  • The homeowner fails to report changes in unemployment status or income;
  • The homeowner’s income regains 85% or more of its pre-event level;
  • The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
  • The homeowner defaults on their portion of the current first lien mortgage loan payments

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any)

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31% of gross income at the time of application, but in no instance will it be less than $25 per month

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a 2 month period.  In any event, assistance with monthly payments may not continue beyond 24 months

Repayment Terms

Transition Counseling:   The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner  to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deed-in-lieu of foreclosure, or traditional sale of home

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance.  The note and mortgage will be in the form of a 5 year declining balance, 0% interest, non-recourse loan, and the mortgage shall be in the form of a secured junior lien on the property

Terms for Declining Balance Feature:  No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan.  If the homeowner meets these two conditions, the balance due shall decline by 20% annually, until the note is extinguished and the junior loan is terminated

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor,  if, at any time during the 5 year repayment period, any of the following events occur:

  • The homeowner no longer resides in the mortgaged property as a principal residence, but maintains ownership;
  • The homeowner defaults on its portion of  the current mortgage; or
  • The homeowner receives net proceeds from selling or refinancing debt on the home.

***Note: Net proceeds — after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold — will go towards paying down the HUD note.  In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released***

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives), which will not trigger repayment of the HUD note

  • Underwater homeowners = homeowners with mortgage debt in excess of the market value of their home

Program Start Date

HUD intends for EHLP to begin taking applications by the end of 2010

Advertisements

$3 billion additional assistance for jobless homeowners

August 17, 2010

On August 11, 2010, the Obama Administration announced additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs.

Through the existing Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund), the U.S. Department of the Treasury will make $2 billion of additional assistance available for HFA programs for homeowners struggling to make their mortgage payments due to unemployment. Additionally, the U.S. Department of Housing and Urban Development (HUD) will soon launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance – for up to 24 months – to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition.

“HUD’s new Emergency Homeowner Loan Program will build on Treasury’s Hardest Hit initiative by targeting assistance to struggling unemployed homeowners in other hard hit areas to help them avoid preventable foreclosures,” said Bill Apgar, HUD Senior Advisor for Mortgage Finance. Together, these initiatives represent a combined $3 billion investment that will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the Administration’s efforts to stabilize housing markets and communities across the country.”

Hardest Hit Fund

President Obama first announced the HFA Hardest Hit Fund in February 2010 to allow states hit hard by the economic downturn flexibility in determining how to design and implement programs to meet the local challenges homeowners in their state are facing.

Under the additional assistance announced, states eligible to receive support have all experienced an unemployment rate at or above the national average over the past 12 months. Each state will use the funds for targeted unemployment programs that provide temporary assistance to eligible homeowners to help them pay their mortgage while they seek re-employment, additional employment or undertake job training.

States that have already benefited from previously announced assistance under the HFA Hardest Hit Fund may use these additional resources to support the unemployment programs previously approved by Treasury or they may opt to implement a new unemployment program. States that do not currently have HFA Hardest Hit Fund unemployment programs must submit proposals to Treasury by September 1, 2010 that, within established guidelines, meet the distinct needs of their state.

The states eligible to receive funds through this additional assistance, along with allocations based on their population sizes, are as follows:

Alabama $60,672,471
California $476,257,070
Florida $238,864,755
Georgia $126,650,987
Illinois $166,352,726
Indiana $82,762,859
Kentucky $55,588,050
Michigan $128,461,559
Mississippi $38,036,950
Nevada $34,056,581
New Jersey $112,200,638
North Carolina $120,874,221
Ohio $148,728,864
Oregon $49,294,215
Rhode Island $13,570,770
South Carolina $58,772,347
Tennessee $81,128,260
Washington, DC $7,726,678

HUD Emergency Homeowners Loan Program

This new program will complement Treasury’s HFA Hardest Hit Fund by providing assistance to homeowners in hard hit local areas that may not be included in the hardest hit target states. Those areas are still being determined.

The program will work through a variety of state and non-profit entities and will offer:

  • a declining balance
  • deferred payment “bridge loan” (0% interest, non-recourse, subordinate loan) for up to $50,000 on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months.

Under the program, eligible borrowers must:

  • Be at least 3 months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within 2 years;
  • Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home;
  • Demonstrate a good payment record prior to the event that produced the reduction of income.

HUD will announce additional details, including the targeted communities and other program specifics when the program is officially launched in the coming weeks.


HAMP 2nd Lien Modification Program (2MP)

June 16, 2010

 

***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.





Fannie Mae Introduces Alternative HAMP Modification

March 29, 2010

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.


%d bloggers like this: