What is Fannie Mae’s Alternative Modification™ (Alt Mod™)?
The Alt Mod is an alternative to the Home Affordable Modification Program (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.
Are servicers required to offer the Alt Mod?
Yes, for mortgage loans in active HAMP trials 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 all required payments under a HAMP trial period plan. All borrowers must meet the eligibility criteria outlined below.
What are the benefits of an Alt Mod?
An Alt Mod offers you a permanent long-term solution to make your mortgage more affordable.
If I didn’t qualify for a permanent modification under HAMP, will I qualify for an Alt Mod?
The requirements for an Alt Mod have been designed specifically to assist borrowers, who were unable to qualify for a permanent modification through HAMP. If borrowers made their HAMP Trial Period Plan payments and have completed the HAMP Trial Period Plan, borrowers are likely a candidate for an Alt Mod. Once the servicer has the borrower’s required information, the servicer will review to see if the borrowers are eligible.
How do I qualify for Alt Mod/What do I need to do to get approved?
To begin the qualification process, review the Alt Mod Loan Modification Agreement and the Hardship Affidavit and return back to the servicer by the specified date.
Why do I need to sign another Loan Modification Agreement…I already did this for HAMP?
Alt Mod is a new loan modification option offered by Fannie Mae (the owner of your loan). It is not a part of the government’s loan modification program, HAMP. The Alt Mod was created for borrowers who were not approved for HAMP. The borrowers’ terms and payment amount should be the same as that of HAMP. All eligible borrowers who want to accept the terms of an Alt Mod, must read, agree, and sign a new Loan Modification Agreement.
I am currently paying the trial period payment that was specified under HAMP. Do I keep paying this same amount? Will my payment change if I get an Alternative Modification?
Yes, keep paying the same payment amount you were paying during the HAMP Trial Period. If you are eligible for an Alternative Modification, your payment should stay the same. The Alt Mod Loan Modification Agreement will specify your payment amount and when your payments are due.
When are my payments due?
If you are eligible for an Alternative Modification, you will sign an Alt Mod Loan Modification Agreement which specifies your payment amount and the day each month that your payment is due.
Is there a trial period I have to complete?
No. There is no trial period for Alt Mod. If you are eligible for an Alt Mod, once approved and the Loan Modification Agreement completed, your loan will be permanently modified.
Will I still receive the incentive compensation offered through the HAMP program?
No. An Alt Mod does not offer an incentive compensation for borrowers. The borrower incentive compensation is only available to borrowers who were eligible/qualified for a permanent modification under HAMP.
Is the Alt Mod a temporary servicing policy change?
Yes, Alt Mod cases must be submitted through the HomeSaver Solutions® Network (HSSN) prior to the final date of the program offering, August 31, 2010.
Which Fannie Mae loans are eligible for an Alt Mod?
All conventional mortgage loans held in Fannie Mae’s portfolio and mortgage loans that are part of an MBS pool that has the special servicing option or a shared-risk MBS pool for which Fannie Mae markets the acquired property.
Who qualifies are an Alt Mod?
To be eligible for the Alt Mod:
- The loan must have been evaluated and considered eligible for HAMP
- The HAMP trial period must have been initiated prior to March 1, 2010
- The loan must be secured by a 1- 4 unit owner-occupied property
- 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
Additionally, one of the following is required for Alt Mod eligibility:
- 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
- The borrower failed to provide all income documentation required for a HAMP modification but meets the streamlined income documentation requirements for the Alt Mod as described below
What are the underwriting guidelines for an Alt Mod?
A servicer must have a property valuation as required for HAMP in Announcement 09-05R. The servicer must use that valuation to underwrite the Alt Mod.
For loans with a current mark-to-market loan-to-value (LTV) of 80% or greater (LTV ratio based upon the HAMP valuation), the payment calculated for HAMP using the standard modification waterfall should be used for the Alt Mod, and verification of income documentation (as described below) is not necessary.
For loans with a current mark-to-market LTV ratio of less than 80%, the payment calculated for HAMP using the standard modification waterfall should be used for the Alt Mod and income verification is required (as described 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.
What are the Alt Mod income verification requirements for loans with current mark-to-market LTV ratios less than 80%?
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 (IRS) 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 9 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 cancelled rent checks.
- If the borrower has rental income from a 1 – 4 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.
Is a hardship affidavit required for Alt Mod?
Yes, in all cases a signed hardship affidavit is required. For borrowers that did not provide one under HAMP, a hardship affidavit may be included in the Alt Mod offer package for signature along with the Loan Modification Agreement (Form 3179).
How should servicers treat loans with mortgage insurance?
Fannie Mae is seeking blanket delegations of authority from mortgage insurers so that servicers can more efficiently process Alt Mods without having to obtain mortgage insurer approval on individual loans. Servicers must obtain approval on a case-by-case basis from mortgage insurers that have not provided delegated authority agreements.
Servicers must include the mortgage insurance premium in the borrower’s modified payment and must ensure that any existing mortgage insurance is maintained. Servicers must maintain their mortgage insurance processes and comply with all reporting required by the mortgage insurer for Alt Mod loans.
What are the escrow requirements for Alt Mod?
All of the borrower’s trial period payments under HAMP as well as the payments due under the Alt Mod must include a monthly escrow amount unless prohibited by applicable law.
What are the messaging requirements for the Alt Mod offer from servicers to borrowers?
- 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
- Provide the borrower with a simplified Summary of the Loan Modification Agreement
- Inform the borrower that, in the event of re-default, the servicer will pursue liquidation options
- Remind the borrower of the consequences of material misstatements when submitting documentation in connection with a request for a loan modification
What are the timing expectations for Alt Mod offers?
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 Lender Letter LL-2010-04. Going forward, for other borrowers who: 1) entered into a trial period plan prior to March 1, 2010, 2) fail to qualify for a permanent HAMP modification, and 3) are determined to be eligible for Alt Mod, offers should be sent within 10 days of completion of the trial periods 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 to the Alt Mod offer, servicers must conduct follow-up:
- Between the fifth and the 15th days after the offer is mailed, servicers must attempt at least 3 phone calls.
- On the 15th day after the offer is mailed, servicers must mail a follow-up letter by either mail or a direct contact, door-knocking campaign.
- Between the 15th and 30th day, after the offer is mailed, servicers must attempt to contact the borrower a minimum of 3 additional times regarding the offer by either phone calls and/or use of field servicers (door knockers).
What are the incentive fees for Alt Mod?
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 HSSN. 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.
Unlike HAMP, there are no borrower incentive payments available with Alt Mod.
How should servicers handle a borrower who re-defaults after receiving an Alt Mod?
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 pursue either a pre-foreclosure sale (short sale), deed-in-lieu (DIL) 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.