Category Archives for "Loan Modification"
News and information relating to Loan Modifications
News and information relating to Loan Modifications
Bailout watchdogs on Wednesday raised a red flag over the Obama administration’s program for helping homeowners avoid foreclosure, saying the multibillion-dollar fund is not working and the Treasury Department refuses to fix it.
Warning that the inefficiencies could hold the economy back, the officials told a Senate panel that changes should be made and that Treasury needs to come clean. One official called the program “one of the greatest failures in transparency and accountability” in the $700 billion bailout.
A $50 billion fund was carved out of the Wall Street bailout for the mortgage program. The housing market being a root cause of the 2008 economic crisis, the money was pitched as a way to help millions of homeowners avoid foreclosure and get the economy back on track.
But a fraction of that money, $248 million, has been spent.
Elizabeth Warren, chairwoman of the congressional TARP Oversight Panel, said that for every one family that wins a permanent mortgage modification, “10 more have been moved out through foreclosure.”
“This is a program that’s just — it’s behind the curve,” she told the panel on Wednesday.
Special inspector general for the financial bailouts Neil Barofsky said the program has not “put an appreciable dent in foreclosure filings” during the Senate Finance Committee hearing on the $700 billion bank bailout. He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program. A Treasury official said Wednesday that the bailout program has had “a major effect on the ability of people to stay in their homes.” The official argued that before the program was launched, it was not designed to prevent all foreclosures and not designed to help investors or speculators — or those with vacation homes or million-dollar homes.
More foreclosures could force down home prices and further hurt the ailing housing industry.
Part of the problem with the Home Affordable Modification Program has been that plenty of homeowners are being accepted into a trial period, but relatively few are having their loan changes made permanent. Warren said just 165,000 have moved into permanent modifications with help from the TARP program, though more than that have advanced through a similar program administered by Fannie Mae and Freddie Mac.
Barofsky said Treasury is giving mortgage companies too much leeway to decide which homeowners will qualify for a program to reduce the principal balance of their mortgages.
The program relies on voluntary cooperation from mortgage companies, Warren said. She said many of the mortgage debt collectors make more money when they foreclose than they do when helping homeowners.
“We can’t have a program in which, in effect, we put incentives on the table paid for by the taxpayers to say, ‘Please do the right thing here,'” she said. “We have a crisis, and the consequences of not having cooperation from the servicers … (is) felt by this entire economy . We need a program with far more urgency and some real teeth in it.”
Article contributed by Fox News
Helpful video to find out if you are eligible for help from President Obama’s mortgage plan. Some key take-aways from the video include:
1) Home Affordability Refinance Option – If your current mortgage is equal to the current value of your home, you may be eligible to refinance.
2) Home Mortgage Modification Program – Refinance if your housing payment (including taxes and insurance) exceeds 31% of current monthly gross income.
It’s been a year since the government’s Home Affordable Modification Program (HAMP) was implemented and only 170,207 troubled homeowners have received permanent loan restructurings. The number of modifications in thepermanent column did increase 45 percent from 116,297 in January, but it’s still a mere drop in the bucket when you consider the Treasury’s own estimate that there are currently 1.8 million borrowers who are behind on their payments and eligible for the program.
According to the administration’s February HAMP report card released Friday, more than 1.3 million homeowners have received offers for trial modifications, and the Treasury says this represents 34 to 45 percent of the administration’s goal of 3 to 4 million offers extended by the end of 2012. But the sticking point still seems to be in converting trials to permanent status.
The colorful debate continues over whether the blame for this lies with the servicers or the homeowners themselves. DS News is still hearing homeowner horror stories of servicing staff losing paperwork, misplacing files, or being so unfamiliar with the program procedures that homeowners and their counselors are given erroneous information when they finally reach someone for follow-up.
On the other hand, though, servicers say the delay in many cases is on the part of the borrower. And the Treasury’s February report does show that there are another 91,843 permanent modifications pending, that have been approved by servicers and are just waiting on the borrower’s signature.
During the conversion process, servicers have repeatedly faulted borrowers for not providing the correct required documentation to finalize the modification. The Treasury is expecting to circumvent this blip in the program, though, by requiring that all the necessary paperwork be submitted prior to the trial phase commencing.
Throughout the first 10 months of HAMP, servicers were allowed to initiate a trial mod based on stated, not verified, income. The verification came later, after the borrower successfully completed their trial payments but before the mod was converted to permanent status. The new upfront requirement applies to all new HAMP modifications that become effective after June 1, and the Treasury says this policy change should significantly expedite servicers’ conversion rates.
As of the end of February, the Treasury says more than one million borrowers were receiving a median savings of $500 each month – a 36 percent median monthly payment decrease. In aggregate, the administration calculates that homeowners have saved over $2.7 billion through trial and permanent modifications. Upon completing one year of on-time payments per HAMP guidelines, borrowers are eligible to earn up to $1,000 to be applied to their outstanding mortgage balance.
Of modifications that have converted to permanent status, the Treasury reports that 0.9 percent have been canceled, due to the borrower’s failure to fulfill the payment obligations. Of all modifications started, 8.2 percent have been canceled.
Looking at the largest servicers’ numbers, Wells Fargo has completed 24,975 permanent modifications, putting it out in front of the pack yet again. Bank of America has permanently modified 20,666 of its troubled mortgages, but has another 22,000 pending.
Recent legislation encourages loan modification in an effort to decrease the number of foreclosures. If you are meeting with homeowners, see if one of their goals is to keep their home.
The new rules on loan modification provide relief for people who have had financial difficulty, but remained current on their payments. There are also some new programs for those in imminent danger of foreclosure, and those who are already up to 60 days late on their payments.
These programs are only for a family’s principal residence. It does not apply to second homes or investor owned properties. Loans that were originated before January 1, 2009 are eligible for modification.
Loan servicers will follow a series of steps specified in the programs to reduce the homeowners’ monthly payments in order to first bring the amount of the payments down to 38 percent of gross monthly income. As a second step, the government will share in the obligation to lower the payments even further to 31 percent of borrowers’ income. The first step in the process involves reducing the interest rate down to as low as two percent. Next, the term of the loan can be extended to up to 40 years. As a last resort, the principal of the loan can be reduced. The homeowner’s monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association dues and/or condominium fees.
There is a payment to the loan servicer from the government to encourage the completion of this process. Also, if the borrower makes the mortgage payments on time for three years, there is a principal reduction payment by the government to the lender as a reward to the borrower for staying current on the financing.
To qualify, the borrower must still be employed and show the ability to make the payments after the adjustment. The loan can be well over the 80% of the value of the home that is required for refinancing. In fact the loan can be over 100% of the value of the home, so that people who want to keep their homes, even if it is worth less than the amount of the loan, can get their payments in line and stay in their home. The borrower gets only one loan modification, so it better be right the first time, because there will be no second time.
Loan servicers will use a net present value (NPV) test as a standard to judge each loan that is at risk of imminent default or is at least 60 days delinquent. The NPV test compares the net present value of cash flows with and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater with a modification – the servicer must modify the loan. If the NPV test returns a negative result, loan modification is optional.
To see the Guidelines issued by the US Treasury, click here. For details on the Making Home Affordable Plan with all of its modification opportunities, click here. For all the details on the Financial Stability Plan that is part of this initiative, click here. Executives from Housing and Urban Development emphasized that access to the loan modification program is free and they warned homeowners to beware of rescue scams that claim to charge a fee for a government modification
For owners who have lost their jobs, this program will not work. If the owner needs to sell the home to move to another area, or if there are other personal issues such as divorce, these programs will not change the choice of pursuing a short sale. But for families who want to refinance out of a bad loan but have been prevented from doing so because the value of the home has fallen or the loan qualification requirements have become too severe, this new program should work well. In the next few weeks the loan servicers should be set up to review applications for loan modification.
For people who want to stay in their homes, this could be a godsend, if they qualify. There is no moving, no tax consequences, no effect on credit scores and no emotional trauma. For those who have to move, the short sale, deed in lieu of foreclosure or foreclosure itself are still the choices.
WASHINGTON – As part of the Administration’s ongoing housing market stabilization plan, the U.S. Department of the Treasury and the Department of Housing and Urban Development (HUD) today released updated guidance for servicers participating in the Administration’s mortgage modification program. This guidance refines the documentation requirements in order to expedite conversions of current trial modifications to permanent ones.
“With more than 850,000 homeowners in trial and permanent modifications, we are providing immediate relief to struggling homeowners,” said Phyllis Caldwell, Chief of Treasury’s Homeownership Preservation Office. “Today’s guidance represents our commitment to more efficiently move qualified homeowners into permanent modifications.”
“Increasing the number of borrowers receiving permanent modifications under HAMP is critical to our efforts to preserve affordable and sustainable homeownership,” said HUD Senior Advisor for Housing Finance William Apgar. “While we continue to meet our goals to provide immediate assistance, the updates announced today should enable servicers to transition borrowers more quickly and easily from trial to permanent modification.”
On December 23, 2009, the Administration required most trial modifications to be placed in a temporary review period to ensure that all borrowers are being fairly evaluated for the program. During this temporary review period, servicers were not permitted to cancel an active HAMP trial modification for any reason other than failure to meet the HAMP property eligibility requirements. This allowed servicers to convert a significant number of trial modifications to permanent ones. In fact, the total number of conversions more than doubled in December. Guidance released today will help improve this conversion process for the future.
The updated process requires that key documents, including proof of income, be obtained from the borrower before a borrower evaluation can begin. This more robust requirement of upfront documentation will make it easier and quicker to convert trial modifications to permanent modifications and enable servicers to use their resources more effectively.
Supplemental Directive 10-01 provides guidance on two major issues:
1) New Requirements that Documentation be Provided Before Trial Modification Begins
Today’s guidance refines the documentation process and makes it easier for eligible borrowers in trial modifications to get permanent modifications quickly. Under this guidance:
A simple, standard package of documents will be required prior to the servicer’s evaluation of the borrower for a trial modification. This process will be required for all new HAMP modifications that became effective after June 1, although mortgage servicers may implement it sooner.
2) Converting Borrowers in the Temporary Review Period to Permanent Modifications
In December, Treasury implemented a review period through January 31 to provide servicers additional time to collect and submit missing documentation for borrowers in trial modifications, to require that borrowers be notified of any missing documents, and to give borrowers an opportunity to dispute and correct any erroneous information in their applications. Today’s guidance clarifies for servicers the proper procedures for conversion of those borrowers who are current on their monthly payments to permanent modifications.
The Home Affordable Modification Program aims to help responsible American homeowners maintain a sustainable monthly mortgage payment through a pay-for-success framework that aligns incentives of borrowers, lenders and servicers. Over 900,000 Americans have begun trial modifications since the program’s inception and over 110,000 have been approved for permanent modifications as of December 31, 2009. The median monthly savings for individual homeowners is more than $500 per month. Over 100 servicers have signed up to participate in HAMP, covering more than 89% of mortgage debt outstanding in the country.
January 28, 2010
Supplemental Directive 10-01 is available at https://www.hmpadmin.com/portal/docs/hamp_servicer/sd1001.pdf