Current Development in Loan Modification Programs
by Suzanne Familo Cieslica, Esq.
With foreclosures at record highs, many borrowers are examining ways in which to remain in their homes, avoid foreclosure, and receive financial relief. In order to buttress the housing market and return it to stability, the Obama Administration instituted the Making Home Affordable Program. It offers several options for Homeowners, including: (1) the Home Affordable Refinance Program (HARP) for those wishing to refinance mortgages; (2) the Home Affordable Modification Program (HAMP), which modifies first and second mortgage loans; (3) the Home Affordable Unemployment Program (UP), which provides temporary assistance to unemployed homeowners; and (4) a program which offers other alternatives to foreclosure through the Home Affordable Foreclosure Alternatives Program (HAFA). The following is a brief explanation of each program:
HARP: Home Affordable Refinance Program
If a borrower cannot pay their mortgage on time and cannot refinance because the value of their home has decreased, the HARP program might be the choice for them. A borrower must meet the following guidelines to participate:
1. The borrower must own a one- to four-family home which is also the primary residence;
2. The borrower’s mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac;
3. The borrower must be current on the mortgage payments and must not have been more than 30 days late on a payment in the last twelve months;
4. The borrower’s first mortgage must not be greater than 125% of the home’s current market value;
5. The borrower must have adequate income to cover the new mortgage payments; and
6. The new loan will improve the affordability of the loan or its stability.
To find out if a loan is held by Fannie Mae or Freddie Mac, a borrower can call the following numbers and/or go to the following websites:
Fannie Mae: www.fanniemae.com/loanlookup or call 1-800-7FANNIE Monday through Friday, 8AM to 8PM EST
Freddie Mac: www.freddiemac.com/mymortgage or call 1-800-FREDDIE Monday through Friday 8AM to 8PM EST
HAMP: Home Affordable Modification Program
A borrower’s “servicer” is the financial institution that obtains the mortgage payment and is responsible for the management and accounting of the loan. If that servicer services loans owned or guaranteed by Freddie Mac and/or Fannie Mae that institution is required to participate in HAMP. Other servicers are encouraged to participate.
A borrower can check if their servicer is a required participant by going to:
www.MakingHomeAffordable.com/contact_servicer.html.
A borrower may be eligible for a HAMP refinance if the following requirements are met:
1. The borrower must own a one- to four-family home- which is also the primary residence;
2. The borrower received the mortgage in question on or before January 1, 2009;
3. The borrower’s mortgage payment is more than 31% of the borrower’s pre-tax monthly income, including principal, interest, taxes, insurance, and homeowners association dues; and
4. The borrower must owe an amount that is less than or equal to $729,750 on a one-unit property. The two- to four-units have higher limits.
Once a borrower qualifies for the HAMP program, the borrower must complete a trial period of three to four months. This will show the servicer that they will be able to make the reduced payments on time should their loan be permanently modified. The servicer administers the following process for a borrower:
1. Reduce the rate to as low as 2.0%;
2. Extend the mortgage term to a period of up to 40 years; and
3. Defer the principal or institute a principal forbearance.
4. As an additional option, the servicer can also forgive a portion of the principal.
Once a servicer modifies the interest rate, it will be fixed for a period of a minimum of five (5) years as specified in the agreement. Then, in the sixth year, the rate may increase by no greater than point a year until it reaches the Freddie Mac Primary Mortgage Market Survey rate. Besides allowing the borrower to stay current on their mortgage and in their home, the borrower can accrue an incentive of $1,000 each year to reduce their principal, in an amount up to $5,000, for every month the payment on their permanent modification is made on time.
UP: Unemployment Program
One new program the Obama Administration started to help unemployed borrowers is “UP”. If a servicer is participating in the Making Home Affordable Program as of August 1, 2010, those servicers will provide eligible homeowners a period of forbearance. During this time period, the borrower’s monthly mortgage payments are either reduced to no more than 31% if the gross monthly income, or suspended, in which case the borrower can seek re-employment. The forbearance period will be for a minimum of three months and a servicer can extend this.
In order to qualify for UP, an unemployed borrower must be:
1. Receiving or be eligible for unemployment (and a servicer may also require you have been receiving unemployment benefits for three months);
2. The borrower must own a one- to four-family home which is also the primary residence;
3. The mortgage is a first lien originated on or before January 1, 2009;
4. The borrower must owe an amount that is less than or equal to $729,750 on a one-unit property (The two- to four-units have higher limits);
5. The mortgage loan is delinquent or reasonably foreseeable about to default;
6. The mortgage loan has not been previously modified under HAMP, nor has the Borrower previously received an UP forbearance period; and
7. The borrower must request the servicer consider UP before three full mortgage payments are due and unpaid.
To find out if a servicer is an UP participant, a borrower can visit:
www.MakingHomeAffordable.com/contact_servicer.html.
HAFA: Home Affordable Foreclosure Alternatives Program
In order to avoid foreclosure, borrowers may be eligible for one of the two primary HAFA options, Short Sale or Deed-in-Lieu of Foreclosure.
In order to qualify for the HAFA options, a borrower must be evaluated for the program within thirty days of the following:
1. Not qualifying for HAMP;
2. Not successfully completing a HAMP trial period;
3. Being delinquent on a HAMP modification;
4. Requesting a Short Sale or Deed-in-lieu of foreclosure.
With a short sale, the servicer approves the short sale terms prior to the listing of the property, and will accept the sale as payoff, usually less than what is the full mortgage amount, as full satisfaction on the mortgage. When the borrower chooses the deed-in-lieu of foreclosure, the borrower voluntarily transfers ownership of the home to the servicer, in full satisfaction of the amount due. The borrower must provide the servicer with marketable title. Please note, before considering the borrower for HAFA, the servicer must consider every other modification program that they offer. Also, before a borrower’s loan is referred to foreclosure, and before a servicer can allow a pending foreclosure sale to continue, a participating servicer MUST consider if a borrower is eligible for HAFA. This is in addition to the servicer’s other policies.
Mortgage Market Uncertainty Attracts Scam Artists
Borrowers should investigate the Making Home Affordable programs if they are having problems making their mortgage payments to see if they are eligible to participate. However, borrowers should also beware of scam artists trying to take advantage of desperate borrowers. If a person or company is seeking an upfront fee to counsel a borrower or modify a loan, a borrower should walk away. Also, borrowers should not sign over their property to people requesting it as part of “saving the home”. Borrowers should also make sure they continue paying their mortgage servicer and not a third party.
If a borrower would like to learn more about loan modification or foreclosure rescue scams, they can visit:
www.LoanScamAlert.org
www.ftc.gov/MoneyMatters
www.PreventLoanScams.org
In order to contact a FREE HUD-approved housing counselor, borrowers can call 1-888-995-HOPE (4673).
Finally, to file a complaint, a borrower can call the Homeowner’s Hope Hotline at 1-888-995-HOPE (4673) or the Federal Trade Commission at www.ftc.gov/consumerprotection or 1-877-FTC-HELP (4357).
Suzanne is a Staff Attorney and Compliance Specialist at Bankers Advisory. She is a graduate of St. Bonaventure University and received her Juris Doctor from California Western School of Law. She holds Bar Admissions in Massachusetts, New York and California (pending).
For more information on how Bankers Advisory can provide assistance in the area of loan servicing compliance, contact Suzanne at 617-489-2008 or email suzanne@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
Thanks for the info!