Revised rules for mortgage modifications

Thursday, January 28, 2010

The U.S. Treasury Department has revised its rules to help simplify and improve the process of obtaining a mortgage loan modification under the government’s Home Affordable Modification Program (HAMP) program.

HAMP loan modifications allow eligible homeowners to avoid foreclosure by reducing a borrower’s monthly mortgage payment to 31% of his income. When eligible, a homeowner is placed in a “trial” mortgage modification. After three months of on-time payments, he can qualify for a “permanent” modification, which lasts five years then rates will slowly rise. 

Here are the key requirements under the new rules:

1. Eligibility for a trial loan modification:
  Homeowners must supply these documents to servicers:    (Servicers are the lenders that service your loan, i.e. accept your monthly payment,  but do not own the mortgage)
  - Request for modification application form (RMA)
  - Signed tax form ( 4506 - T or EZ)
  - Two recent pay stubs ( with year-to-date earnings)

2. Servicers have 10 days to acknowledge receipt of the the application.
  Within 30 days servicers must notify homeowners :
  - they are eligible for a trial modification
  - more documents are needed
  - the application has been denied                                  

If a trial modification is granted servicers are required to send a notice explaining the payment amount and due dates

3. NO foreclosure sale may proceed without first determining someone’s eligibility for a loan modification
  NO foreclosure may begin during the trial modification period

4. Some homeowners will not be eligible for a HAMP loan modification because of a failed ‘net present value’  (NPV) test .
  That means that the servicer has calculated that the cost to modify the mortgage is greater than the cost to foreclose.

5. If a homeowner is denied a trial modification, the servicer is required to consider the homeowner for other options such as:
  -  refinancing the loan
  -  forbearance ( temporarily forgiving a portion of the loan)
  -  a non-HAMP loan modification
  -  short sale ( selling the home for less than what is owed and forgiving the balance)

6. Converting to a permanent modification
  - If all trial payments were made timely and any other modification requirements were satisfied the Treasury Dept. says the homeowner will get a permanent modification.
  - If a borrower hasn’t made payments or submitted income documents the trial modification will be canceled and foreclosure prevention alternatives (such as in #5) must be considered.

Freddie Mac is the agent hired to check to ensure that servicers are complying with HAMP requirements.

For more information on the Making Home Affordable/HAMP program click makinghomeaffordable.gov

For no cost help applying for a loan modification contact a local housing counselor (certified by the federal Department of Housing and Urban Development) at http://nhl.gov/offices/hsg/sfh/hcc/hcs.cfm