trial loan modification

Apache is functioning normally

The Treasury today announced details of the so-called “Second Lien Program,” which will work in tandem with the existing Home Affordable Modification Program to ensure more borrowers receive the assistance they need.

“Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien,” the Treasury said in a statement.

“Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol.”

Alternatively, loan servicers can extinguish the second mortgage in return for a lump sum payment under a pre-set formula determined by the Treasury, which could be as little as three cents on the dollar.

For fully amortizing loans, Treasury will share the cost of reducing the mortgage rate on the second mortgage to one percent (down to 2 percent for interest-only loans) and extend the term to match the modified first mortgage.

Participating servicers will also forbear principal in the same proportion as any principal forbearance on the first mortgage, and after five years, the interest rate on the second mortgage will rise to the rate on the modified first.

The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, offering $500 in upfront payments to servicers, and $250 per year for three years if borrowers stay current.

Borrowers will also receive “success payments” of up to $250 per year for as many as five years, which will go towards the principal balance on the first mortgage so long as they stay on top of payments.

In an effort to help more underwater borrowers, the Hope for Homeowners program will now be included in the Making Home Affordable Program.

Loan servicers will be required to evaluate if a borrower qualifies for a Hope for Homeowners refinance and must extend the option at the same time a borrower is offered a trial loan modification.

In return, servicers can receive up to $2,500 as an upfront incentive payment for a successful refinance and $1,000 per year for up to three years if the loan remains current.

The Hope for Homeowners program has allegedly only helped a single borrower to date, prompting officials to make big changes to entice servicers to get onboard.

(photo: rightee)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

A number of changes are expected to be announced regarding the Home Affordable Modification Program (HAMP), which should slow the pace of foreclosures, for better or worse.

Herbert M. Allison, Assistant Secretary for Financial Stability, testified before the House Committee on Oversight and Government Reform today, detailing the added “borrower protections.”

The guidance will force loan servicers to consider borrowers in active bankruptcy if a request for a loan modification under HAMP is received.

Additionally, servicers will be prohibited from referring a mortgage to foreclosure unless the borrower does not respond to solicitation, was not approved for HAMP, or failed to make trial modification payments.

Servicers will also be required to provide homeowners with clear, written communication regarding the foreclosure/modification processes and state that a foreclosure sale will not take place during a trial loan modification period.

Even if a borrower turns out to be ineligible for a loan modification under HAMP, a foreclosure sale cannot be scheduled sooner than 30 days after the date of the Non-Approval Notice so borrowers have a chance to respond.

Loan servicers must also certify to their foreclosure attorneys that a homeowner is not eligible for a HAMP modification before a sale may be executed.

Of the roughly 5.6 million homeowners that are 60-days or more delinquent, about 1.7 million are eligible for HAMP.

As of last month, 170,000 homeowners received permanent loan modifications and an additional 91,800 permanent modifications have been approved by servicers, pending only borrower acceptance.

A number of changes have been made to the program since its inception – for all HAMP trial period plans with effective dates on or after June 1, borrowers will have to provide income documentation upfront in order to take part, which should ideally reduce the number of failed trial mods.

Update: HAMP will now offer temporary assistance to unemployed homeowners looking for new jobs. Mortgage payments will be reduced for a minimum of three months and up to six months for others.

Additionally, loan servicers will have to consider an alternative principal write-down approach for borrowers who owe more than 115 percent of the current value of their home, and will be incentivized to do so.

Similar to Bank of America’s earned principal forgiveness, the principal will be forgiven over the course of three years so long as the borrower keeps up on payments.

Finally, incentive payments will be increased for servicers who facilitate short sales and deeds-in-lieu of foreclosure, while relocation assistance payments for borrowers will be doubled to $3,000.

The big question remains whether HAMP is actually providing any value or simply delaying the inevitable.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Just prior to the mortgage crisis, stated income loans ran rampant, and once home prices took a turn for the worse, many of these loans defaulted at a fast clip.

Over time, it became clear that stated income was not the best way to measure a borrower’s ability to repay their obligations, especially when guaranteed home price appreciation was no longer around to pick up the slack.

The same seems to be true of loan modification performance, as evidenced by the conversion rate of mods under the Making Home Affordable program.

Loan servicers who have required income documentation prior to starting trial loan modifications have seen much greater success than those who haven’t asked for income documents upfront.

For example, subprime servicer Ocwen Financial Corp. (who required verified documentation) has seen an 83 percent success rate in converting trial loan modifications to permanent ones, while others accepting stated income have seen success rates as low as six percent.

In fact, juggernaut mortgage lenders like Bank of America, Wells Fargo, and Chase are seeing conversion rates at the low-end of the spectrum, at or around 25 percent, thanks in part to accepting stated income to get things going.

This seemingly haphazard approach (similar to the ways things were run prior to the crisis) may explain why 277,640 of the 1,214,085 trial loan modifications have already been canceled.

Fortunately, all loan servicers will be required to use verified income prior to starting a trial loan modification with an effective date on or after June 1.

That should result in a much better conversion rate for all loan servicers going forward, especially the big guys that don’t seem to be getting the job done.

Source: thetruthaboutmortgage.com

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