The Treasury Department and the Department of Housing and Urban Development have announced another attempt to streamline procedures under their Home Ownership Made Affordable Program (HAMP.)
The program has enrolled over 850,000 homeowners who are seriously delinquent in their mortgage payments in a trial modification period but has encountered significant problems in converting those trials into permanent loan modifications. Today the two departments 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.
Earlier reports on the progress of HAMP have indicated that many of the conversion problems result from missing documentation. Servicers have reported that borrowers are not providing the requested information while borrowers and consumer advocates have maintained that the servicers are mishandling or losing the paperwork.
The guidance issued today is in the form of a Supplemental Directive (Number 10-01) for servicers. In an attempt to mitigate the missing documentation problems, the directive makes a series of significant changes to that part of the process.
Beginning June 1, a borrower’s eligibility for a modification must be fully verified before the borrower enters the trial period. An earlier directive gave servicers the option of placing a borrower into a trial period based on verbal financial information supplied by the borrower which was subject to verification during the trial period. New applicants will now have to supply an Initial Package which will include a request for modification including a hardship statement and optional demographic information; acceptable evidence of income, and IRS Form 4506-T, Request for Transcript of Tax Form. The servicers must send written confirmation of receipt of these documents within 10 business days along with a description of the evaluation process and a projected time line, and must maintain evidence of the date the Initial Package was received in its records. The servicer then has 30 days to review the package and notify the borrower of any missing data. The directive also establishes deadlines for the borrower to supply the missing information before being dropped from consideration by the program. If the package is complete, the servicer must then either send the borrower a Trial Period Plan Notice or determine that the borrower is not eligible for HAMP and notify him of that ineligibility and of any other mitigation possibilities.
Another frequent complaint about the program from borrowers has been that rules are unevenly or even unfairly applied. Last month the Obama Administration required most trial modifications be placed in a temporary review period to ensure that borrowers were being fairly evaluated. Servicers were temporarily banned from canceling an active trial modification during this review period for any reason other than the eligibility of the property. During the review period the total number of conversions more than doubled. The new directive sets out firm conditions to be met to establish eligibility such as acceptable forms of income verification and application of rental income. It is hoped that this change as well as the upfront documentation will make it easier and quicker to move trial modifications to permanent status and use resources more effectively.
Another change under the new directive is that servicers are not required to forbear more than the greater of either 30 percent of the unpaid principal balance of the mortgage loan or an amount resulting in a modified interest bearing balance that would create a current mark-to-market loan-to-value ratio equal to 100 percent. If the borrower’s monthly mortgage payment cannot be reduced to the target monthly mortgage payment under either of these options, the servicer may consider the borrower ineligible for a modification. This does not, however, bar servicers from exceeding those amounts in order to achieve the target 31 percent ratios for both NPV-positive and NPV-negative loans. The directive also clarifies the way in which Net Present Value is to be determined in order to have consistent results at both the beginning and end of the trial period
Once the borrower is deemed eligible for the program there will be a two-step process for modifications. In step one, the servicer will send out a Trial Period Plan Notice to the borrower describing all terms and payment due dates. The first payment by the borrower will be deemed as evidence of acceptance of the plan. If the borrower is, in the servicer’s judgment, current at the end of the three month period then Step 2 is the permanent modification of the loan. The directive also sets out firm guidelines for current trial participants who were admitted to the programs before their eligibility was determined in order to compensate for this and move them to conversion.
Phyllis Caldwell, Chief of Treasury’s Homeownership Preservation Office said, “With more than 850,000 homeowners in trial and permanent modifications, we are providing immediate relief to struggling homeowners. Today’s guidance represents our commitment to more efficiently move qualified homeowners into permanent modifications.”
