Enhancements to HAMP Modifications and FHA Refinance Options

Last Friday, the Administration announced adjustments to both the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. It is hoped that these adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own. These are two separate programs with two separate sets of enhancements to help consumers further avoid the possibility of foreclosure. (Sorry for the length…a lot of information!)

Home Affordable Modification Program Enhancements

The “Making Home Affordable Program” (MHA) is part of the Obama Administration's broad, comprehensive strategy to get the economy and the housing market back on track. The Making Home Affordable Program offers four options for homeowners:

(1) refinance through the Home Affordable Refinance Program (HARP),
(2) modification of first and second mortgage loans through the Home Affordable Modification Program (HAMP) or
(3) Second Lien Modification Program (2MP) and
(4) offer of alternatives to foreclosure through the Home Affordable Foreclosure Alternatives Program (HAFA).

These enhancements target those who qualify and demonstrate a financial hardship. The amendments to the program will provide temporary mortgage assistance to some unemployed homeowners, encourage mortgage 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. These enhancements are broken down as follows:

Temporary Assistance for Unemployed Homeowners While They Search for Re-Employment

• Mortgage payments can be reduced to an affordable level for a minimum of 3 months, and up to six months for some borrowers, while eligible homeowner looks for new job. (Monthly Payment set at 31 percent of monthly income or less while homeowner is unemployed via forbearance plan.)

• Temporary assistance plan offered for a minimum of 3 months, and up to six months for some borrowers, subject to investor and regulator guidelines, ending when borrower becomes re-employed or scheduled assistance period expires. (Borrowers who become re-employed during the scheduled assistance period and whose mortgage payment is greater than 31 percent of their new gross monthly income must be considered for HAMP.)

• Servicers participating in the Making Home Affordable Program are required to offer assistance to all unemployed borrowers who meet eligibility criteria:
1) house is owner-occupied
2) loan balance is below $729,750
3) loan was originated before January 1, 2009
4) Borrower submits evidence that they are receiving unemployment insurance (UI) benefits
5) Borrower requests temporary assistance in the first 90 days of delinquency

• At the end of the temporary assistance period, homeowners who have a mortgage payment greater than 31% of their monthly income MUST be considered for a permanent HAMP modification.

• To receive the permanent HAMP modification, homeowners must be current on assistance plan payments, must verify qualifying income with standard documentation, and must meet all other HAMP underwriting requirements including the net present value (NPV) evaluation.

• If the scheduled assistance period ends without re-employment, the homeowner may be considered for HAMP alternatives to foreclosure including short sales and deed-in-lieu of foreclosure.

Requirement for HAMP Participating Servicers to Consider Alternative Principal Write-down Approach

• Requirement for all “FNMA/FHLMC Owned” and other HAMP Participating Servicers to consider an additional modification approach including more principal write-down for HAMP-eligible borrowers that owe more than 115 percent of the current value of their home.  (To check to see if your servicers is participating in HAMP even if the loan is NOT owned by FNMA or FHLMC…see attached list of participating servicers)

• Alternative principal reduction allows some underwater homeowners to reduce principal balance of their stages in stages over three years, if they remain current on payments.

Under this approach:
1. Servicers assess the NPV of a modification that starts by forbearing principal balance as needed over 115 percent loan-to-value (LTV) to bring borrower payments to 31 percent of income;
2. If a 31 percent monthly payment is not reached by forbearing principal to 115 percent LTV, the servicer will then use standard steps of lowering rate, extending term, and forbearing additional principal.
3. Servicers will initially treat the write-down amount as forbearance and will forgive the forborne amount in three equal steps over three years, as long as the homeowner remains current on payments.

• For borrowers who have already received a permanent or are in trial modification, and are still current on payments at the time when the program is available (later in 2010), servicers will be required to retroactively consider extinguishing an amount of principal balance in the same amount that would have been forgiven under the new alternative approach.

Increased Principal Write-down Incentives

• To further encourage principal write-downs, the Treasury is also increasing the incentives that it provides for loans extinguished or partially extinguished in conjunction with the HAMP Second Lien Program.

• In exchange for all principal write-downs under HAMP at the time of a loan modification lenders will receive between 10-21 cents for every dollar of principal reduction.

Helping Homeowners Move to More Affordable Housing

• Increase of incentives to provide more homeowners with foreclosure alternatives

1. Increase payoffs to subordinate lien holders who agree to release borrowers from debt to facilitate greater use of foreclosure alternatives including short sales or deeds-in-lieu.
2. The new payoff schedule allows servicers to increase the maximum payoff to subordinate lien holders to 6 percent of the outstanding loan balance
3. doubles from $1,000 to $2,000 the incentive reimbursement that is available to investors for subordinate lien payoffs, subject to an overall cap of $6,000.
4. Increase servicer incentive payments from $1,000 to $1,500 to increase use of foreclosure alternatives
5. Encourage additional outreach to homeowners unable to complete a modification.
6. Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000 to help homeowners who use a short sale or deed-in-lieu to transition more quickly to housing they can afford.

FHA Program Adjustments to Support Refinances for Underwater Homeowners

The Administration also announced adjustments to Federal Housing Administration (FHA) programs that will permit lenders to provide additional refinancing options to homeowners who owe more than their home is worth because of large falls in home prices in their local markets. These adjustments will provide more opportunities for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the borrower is current on the mortgage AND the lender reduces the amount owed on the original loan by at least 10 percent.

FHA Refinance Option for Underwater Homeowners – Encouraging Responsible Refinance (*Please note that the program details are not yet available-thus not currently offered.)

• This is a voluntary option for both lenders and borrowers
• Encourages lenders and borrowers to work together when appropriate to restructure debts
• Qualifying first lien mortgage loans must have a minimum write-down of at least 10 percent and total mortgage loan to value on the home can be no greater than 115 percent after the refinancing
• Eligible underwater loans are refinanced into new FHA loans on FHA terms for full documentation, income ratios, and complete underwriting

Terms of FHA refinancing:

• The new FHA loan will be equal to no more than 97.75 percent of the value of the home
• Combined mortgage debt must be written down to a maximum of 115 percent of the current value of the home
• Standard FHA mortgage insurance premium structure will still apply
• Mandatory principal write-down by lender of at least 10 percent of unpaid principal balance as part of refinance
• Affordable monthly mortgage payments to facilitate affordable homeownership
• New monthly mortgage payment at current low FHA interest rate
• Total monthly mortgage payment, including for second mortgage, will not be greater than approximately 31 percent of income, and total debt service including all forms of household debt will not be greater than approximately 50 percent except for some borrowers with especially strong credit histories
• Existing lenders can retain second mortgages on the property, but only up to a combined 115 percent of the current value of the home
• If there is an existing mortgage that is not extinguished, holders must agree to re-subordinate and write off any amount over 115 percent of the current value of the home
• Homeowners must be current on their existing mortgage payment
• Homeowner must occupy the home as their primary residence and fully document their income
• Homeowners must qualify under standard FHA underwriting guidelines

Ha Ha
‘What kind of work do you do?' a woman passenger enquired of the man travelling in her train compartment.
'I'm a Naval surgeon,' he replies.
‘My word!' spluttered the woman, 'How you doctors specialize these days.'

I want to be the lender of choice for your customers so if I can be of assistance to you or your clients, please feel free to contact me at amy@amyswaney.com