Loan Refinancing Program Guidelines :
1). Borrowers must be current on their payments for the loan
2) Loans that are between 80% and up to 105% of the property's market value are eligible
3) Loans must be held by a federal agency such as Fannie Mae or Freddie Mac. Unfortunately, many home loans were syndicated into mortgage backed securities and sold to investors, so these loans would not be eligible for the Federal Program
4) Loans must be under $729,750 and originated before January 1, 2009 and the program ends June 2010
5) The loans must be for owner occupied homes
6) Borrowers must be able to document their income
7) Freddie Mac, the second-largest U.S. mortgage-finance company, will eliminate the upfront fees it typically charges lenders based on consumers' credit scores and home equity, but Fannie Mae, the largest, left similar fees "largely unchanged," according to a Barclays Capital report. Both will eliminate the requirement for Private Mortgage Insurance payments normally required.
Loan Modification Program Guidelines:
1). Borrowers may be delinquent or current on their payments for the loan, but at imminent risk of default
2) Loans will be modified so that payments are no more than 38% of a borrowers income, and the Federal Reserve will participate in limiting the payments to no more than 31% of the borrowers income. The first step will be to reduce the loan's interest rate to as low as 2 percent for five years. If that isn't enough to bring the payment down to 31 percent, the lender then will extend the term of the loan to 40 years. The new interest rate would then remain in place for five years, after which it will increase by 1 percentage point a year until it reaches either the original rate or the prevailing mortgage rate at the time of the modification, whichever is lower.
3) Borrowers would be required to demonstrate hardship to their loan servicers, such as a job loss, reduction in income or a looming payment increase that cannot be met
4) Under the new loan modification guidelines, the Treasury will offer mortgage-servicing companies upfront incentive payments of $1,000 for every loan they modify and additional payments of $1,000 a year for the first three years if the borrower remains current. The Treasury will also chip in $1,000 a year to directly reduce the borrower's loan amount, if the borrower stays up to date on payments.
5) The program requires that borrowers with high overall debt payments( total debt payments including mortgage payments, credit card payments, car payments, etc. over 55% of the borrowers income) to participate in credit counseling.
6) Loans must be first mortgages under $729,750 and originated before January 1, 2009 and the program ends December 31, 2012
7) One major concern regarding the loan modification program is that many of the potentially eligible loans are held by investors in mortgage backed securities, with those loans serviced by separate loan servicing companies. Many of these companies are concerned over their legal liability if they modify these loans without express authority to do so on behalf of their investors.
8) All government agencies such as Fannie Mae and Freddie Mac, as well as any bank receiving Government "bail-out" funds must participate in the program. If the benefits of loan modification outweigh those of foreclosure, the lender must participate in the program. absent a contractual prohibition from modifying the loan. Details of this calculation are still to be released.
9) Homeowners who are on time in making their payments on their modified loans will be eligible to receive up to $1,000 in principal reduction payments per year over the first 5 years.
10) The loans must be for owner occupied homes
11) Borrowers must be able to document their income
See below for modifications to this program announced on March 26, 2010
Home Affordable Program Foreclosure Alternatives - Short Sale and Deed-in-Lieu of Foreclosure
On March 26, 2010, , the Federal Reserve released Supplemental Directive 09-09 ( Revised ) announcing an expanded program offering distressed borrowers additional alternatives to a loan restructuring including short sales and deed-in-lieu called the Home Affordable Program Foreclosure Alternative ( "HAFA" ) .
Only those institutions that have applied to participate in this program are held to the program requirements, and they do not apply to loans owned by Fannie Mae or Freddie Mac, which account for over 50% of all loans outstanding. Fannie Mae and Freddie Mac are following several of the guidelines of this program such as the amount allowed to be paid to junior mortgage holders from the sales proceeds.
The HAFA program simplifies and streamlines the use of short sales by incorporating the following unique features:
- Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible. Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options .
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
- Requires that borrowers be fully released from future liability for the debt.
- Uses standard processes, documents and time frames.
- Provides financial incentives to borrowers, servicers and investors. Among the financial incentives are the following:
1) The servicer will be paid $1,500 to cover administrative and processing costs
2) The investor will be paid a maximum of $2,000 for allowing a total of up to $6,000 in short-sale proceeds to be distributed to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each three dollars an investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of reimbursement. To receive an incentive, subordinate lien holders must release their liens and waive all future claims against the borrower. Each lien holder, in order of priority, may be paid six percent (6%) of the unpaid principal balance of their loan, until the $6,000 aggregate cap is reached. Payments will be made at closing from the gross sale proceeds and must be reflected on the HUD-1 Settlement Statement.
3) Following the successful closing of a short sale or DIL, the borrower shall be entitled to an incentive payment of $3,000 to assist with relocation expenses.
A loan meets the basic eligibility criteria if all of the following conditions are met:
- The property is the borrower's principal residence;
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,7501; and
- The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.
Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:
- Does not qualify for a Trial Period Plan;
- Does not successfully complete a Trial Period Plan;
- Is delinquent on a HAMP modification by missing at least two consecutive payments; or
- Requests a short sale
The program offers borrowers the opportunity to get their short sale parameters preapproved by the lender through a Short Sale Agreement ( " SSA" ) . This SSA must include the following:
- A fixed termination date not less than 120 calendar days from the effective date of the SSA ("Effective Date").
- A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
- Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
- The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
- The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
- A statement by the borrower authorizing the servicer to communicate the borrower´s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
- Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
- Notice that the sale must represent an arm´s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm´s length transaction that must be included in the sales contract.
- An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
- An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $3,000, which will be deducted from the gross sale proceeds at closing.
- Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
- Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower´s credit score and a recommendation that the borrower seek professional advice regarding these matters.
- The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower´s gross monthly income.
- An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure
Upon negotiating a purchase contract, the borrower would submit a Request for Approval of Short Sale ("RASS") to the lender. The lender must approve the RASS within 10 business days. The lender must approve a RASS if the net sale proceeds available for payment to the lender equal or exceed the minimum net determined by the lender prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the lender may not require, as a condition of approving a short sale, a reduction in the real estate commission below the commission stated in the SSA. The servicer may require that the sale closing take place within a reasonable period following acceptance of the RASS, but in no event may the servicer require that a transaction close in less than 45 calendar days from the date of the sales contract without the consent of the borrower.
Borrowers who have pursued a short sale without applying for a loan modification under HAMP or requested preapproval through an SSA may still request approval from their participating lender through an Alternative Request for Approval of Short Sale (Alternative RASS). The servicer must verify the borrower's financial information through documentation and obtain a signed Hardship Affidavit from the borrower prior to approving the short sale. If the borrower does not wish to be considered for a modification, the servicer may consider the Alternative RASS without first having to enter into an SSA with the borrower. If the servicer approves the short sale, then the loan will qualify for the HAFA program.
The Program Enhancements Described below have modified some of the details of the HAMP and HAFA programs:
On March 26, 2010, the Administration announced enhancements to the Home Affordable Modification Program (HAMP)to provide additional resources for struggling homeowners. These changes will provide temporary mortgage assistance to some unemployed homeowners, encourage servicers to write-down mortgage debt as part of a HAMP modification, allow more borrowers to qualify for modification through HAMP, and help borrowers move to more affordable housing when modification is not possible.
This program enhancement will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP). It will take time to get these new program enhancements up and running. Some pieces, such as increased payments for alternatives to foreclosures, will be put in place in the coming weeks. The Government anticipates the full set of programs to be available by the fall of 2010. Keep in mind that many of these guidelines are voluntary, and it is hoped that the govbernment incentives will lead to most banks following the initiative guidelines.
This new HAMP program enhancements include the following features:
1. Temporary assistance for unemployed homeowners while they search for re-employment
Mortgage payments reduced to affordable level for a minimum of three months, and up to 6 months for some borrowers, while eligible homeowner looks for new job
2. Requirement to consider alternative principal write-down approach and increased principal write-down incentives
All servicers required to consider alternative modification approach that emphasizes principal write-down with incentives based on the dollar value of the principal reduced
The principal reduction and the incentives will be earned by the borrower and investor based on a pay-for-success structure
3. Improvements to reach more borrowers with HAMP modifications
Improvements to borrower solicitation requirements including clear performance time-frames for both servicers and borrowers and a prohibition against initiation of a new foreclosure referral when a borrower is cooperating with the servicer to obtain a modification
Borrowers in active bankruptcy must be considered for HAMP upon request
Increased incentives for servicers to provide permanent HAMP modifications
Expansion of HAMP to include homeowners with FHA loans
4. Helping homeowners move to more affordable housing
Relocation assistance payments to homeowners receiving foreclosure alternatives doubled
Increased incentives to servicers and lenders, including increased incentives for extinguishment of subordinate liens, to encourage more short sales and other alternatives to foreclosure
For details of the enhancements described above, see my web blog entry Making Home Affordable Program Enhancements to Offer More Help for Homeowners