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Description of Changes to HAMP Program - Jan-10

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In a bid to streamline procedures within the Home Affordable Modification Program (HAMP), the Obama administration announced on January 28th, 2010 that certain changes will be made to the program. Effective June 1, 2010, a borrower must prove upfront that they qualify for a trial modification period plan. Specifically, before a borrower can enter a trial modification, a borrower has to provide documentation to the servicer to prove their income. The changes to HAMP, published in a directive from the Treasury department, also provide immediate guidance as to what income sources and documentation servicers should consider, as well as changes to the forbearance of principal rules.

See Supplemental Directive 10-01 explaining changes to HAMP.

The changes communicated in the directive are intended to ease the amount of paperwork and utilize the resources of servicers more efficiently. One of the chief criticisms of the HAMP program (from both servicers and borrowers) has been the fact that servicers have had difficulty in dealing with the amount of paperwork involved. It is also hoped that the changes will result in more homeowners converting from the trial modification stage to have a permanently modified (and lower) mortgage payment.

What is a Trial Modification Period?

HAMP guidelines require borrowers (who have passed the initial qualification screening process) to enter a trial modification period. The primary purpose of the trial period is to evaluate a borrower's commitment and ability towards making the monthly modified mortgage payment. Three timely monthly payments are required to make permanent the borrower's modified payment. In addition to the three monthly payment qualification test, the trial period also requires the borrower to provide the mortgage servicer with certain pieces of documentation. An earlier HAMP directive, seeking to increase the number of loan modifications, gave servicers the option of enrolling a borrower in a trial modification period based solely on financial information supplied verbally by the borrower. The servicer would then, in the trial period, have to obtain from the borrower the necessary income verification documents. As stated above, income verification must now be conducted upfront.

Changes Spelled Out in Directive 10-01

Request of Consideration for ModificationStarting June 1st, 2010, borrowers must supply documentation upfront in order to enter the trial modification period. Specifically, three pieces of information are required:

  1. Verification of income (example: two recent pay stubs)
  2. IRS Form 4506-T (allows servicer to access borrower's tax returns)
  3. Application to modify mortgage payment - including hardship reasons and statement

The new directive states that the servicer must acknowledge receipt of the borrower's documentation within 10 business days of receiving the borrowers initial request package. The servicer must also provide the borrower with an explanation of the process and estimated timelines. Upon receiving the initial request package from the borrower, the servicer has 30 calendar days to review the provided documentation. If the servicer deems the documentation incomplete, they must send the borrower an Incomplete Information Notice, which specifies the documentation needed, and the period of time in which it must be provided. If, on the other hand, the initial documentation package is complete, the servicer must do one of two things:

  • Send borrower the Trial Plan Notice. (This must go out within 30 calendar days of receiving the initial request package.
  • Determine that the borrower is not eligible for a modification, and communicate this decision to the borrower.

Income Documentation and VerificationEffective January 28th, 2010, guidance has been strengthened on what sources of income can be considered for eligibility into the program.

Principal Forbearance LimitationServicers are no longer required to forebear (i.e., forgive) "the greater of (i) 30 percent of the unpaid principal balance of the mortgage...or (ii) an amount resulting in a modified interest-bearing balance that would create a current mark-to-market loan-to-value ratio equal to 100 percent."

If the borrower's monthly mortgage payment cannot be reduced to the target monthly mortgage payment then the servicer may consider the borrower ineligible for a HAMP modification. The servicer does, however, have the option to forbear the principal to bring a borrower in line with the target monthly payment if they so choose.