HAMP Guidelines Updated to Improve Loan Modification Conversion Rate
ThernTreasury Department and the Department of Housing and Urban Development havernannounced another attempt to streamline procedures under their Home OwnershiprnMade Affordable Program (HAMP.)
Thernprogram has enrolled over 850,000 homeowners who are seriously delinquent inrntheir mortgage payments in a trial modification period but has encountered significantrnproblems in converting those trials into permanent loan modifications. Today the two departments released updatedrnguidance for the mortgage servicers who initiate the modifications and monitorrnthe trial periods. The guidance refinesrnthe documentation requirements and other procedures in order to expedite conversionsrnof current trial modifications to permanent ones.
Earlierrnreports on the progress of HAMP have indicated that many of the conversionrnproblems result from missing documentation. rnServicers have reported that borrowers are not providing the requestedrninformation while borrowers and consumer advocates have maintained that thernservicers are mishandling or losing the paperwork.
Thernguidance issued today is in the form of a Supplemental Directive (Number 10-01)for servicers. In an attempt to mitigaternthe missing documentation problems, the directive makes a series of significantrnchanges to that part of the process.
Beginning June 1, a borrower's eligibility for a modification must bernfully verified before the borrower enters the trial period. An earlier directiverngave servicers the option of placing a borrower into a trial period based onrnverbal financial information supplied by the borrower which was subject tornverification during the trial period. rnNew applicants will now have to supply an Initial Package which willrninclude a request for modification including a hardship statement and optionalrndemographic information; acceptable evidence of income, and IRS Form 4506-T, Requestrnfor Transcript of Tax Form. The servicers must send written confirmation ofrnreceipt of these documents within 10 business days along with a description ofrnthe evaluation process and a projected time line, and must maintain evidence ofrnthe date the Initial Package was received in its records. The servicer then hasrn30 days to review the package and notify the borrower of any missing data. The directive also establishes deadlines forrnthe borrower to supply the missing information before being dropped from considerationrnby the program. If the package isrncomplete, the servicer must then either send the borrower a Trial Period PlanrnNotice or determine that the borrower is not eligible for HAMP and notify himrnof that ineligibility and of any other mitigation possibilities.
Anotherrnfrequent complaint about the program from borrowers has been that rules arernunevenly or even unfairly applied. Lastrnmonth the Obama Administration required most trial modifications be placed in arntemporary review period to ensure that borrowers were being fairly evaluated. Servicers were temporarily banned fromrncanceling an active trial modification during this review period for any reasonrnother than the eligibility of the property. During the review period the totalrnnumber of conversions more than doubled. The new directive sets out firmrnconditions to be met to establish eligibility such as acceptable forms ofrnincome verification and application of rental income. It is hoped that thisrnchange as well as the upfront documentation will make it easier and quicker tornmove trial modifications to permanent status and use resources morerneffectively.
Anotherrnchange under the new directive is that servicers are not required to forbearrnmore than the greater of either 30 percent of the unpaid principal balance ofrnthe mortgage loan or an amount resulting in a modified interest bearing balancernthat would create a current mark-to-market loan-to-value ratio equal to 100rnpercent. If the borrower's monthlyrnmortgage payment cannot be reduced to the target monthly mortgage payment underrneither of these options, the servicer may consider the borrower ineligible forrna modification. This does not, however,rnbar servicers from exceeding those amounts in order to achieve the target 31rnpercent ratios for both NPV-positive and NPV-negative loans. The directive alsornclarifies the way in which Net Present Value is to be determined in order tornhave consistent results at both the beginning and end of the trial period
Once thernborrower is deemed eligible for the program there will be a two-step processrnfor modifications. In step one, the servicer will send out a Trial Period PlanrnNotice to the borrower describing all terms and payment due dates. The firstrnpayment by the borrower will be deemed as evidence of acceptance of the plan. If the borrower is, in the servicer's judgment,rncurrent at the end of the three month period then Step 2 is the permanent modificationrnof the loan. The directive also sets outrnfirm guidelines for current trial participants who were admitted to thernprograms before their eligibility was determined in order to compensate forrnthis and move them to conversion.
PhyllisrnCaldwell, Chief of Treasury's Homeownership Preservation Office said,rn”With more than 850,000 homeowners in trial and permanent modifications,rnwe are providing immediate relief to struggling homeowners. Today's guidance represents our commitment tornmore efficiently move qualified homeowners into permanent modifications.”
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