Home Affordable modification Program(HAMP)

Making Home Affordable (MHA)

William Tanner & Patrick Ulibarri

History

• On March 8th 2009, The Home Affordable Modification Program (HAMP) also known as Making Home Affordable (MHA) was announced and was designed to help 3 to 4 million homeowners avoid foreclosure.

• The program was set up to provide clear and consistent loan modification guidelines that the entire mortgage industry could use.

• HAMP required, that If a servicer took part in TARP II bailout funds, they had in fact, pre-agreed to sign on to this program.

Define: Servicer/investor

• Servicer: Chase, BofA, Citi, Wells Fargo, Ocwen, Aurora, etc

• Investor: Fannie Mae, Freddie Mac, WFMBS 2007-AR6 (REMIC)

• Most of the time a servicer is not the investor

Non-GSE PSA

• Pool

• Pooling and servicing agreement (PSA)

• Trustee of Pool

• Modification provisions

Servicer/investor incentives

• Loss sharing between 38% and 31% of a reduced payment

• Paid for every modification completed

• Paid for every year homeowner pays on-time

Qualifying• 1) Borrower is delinquent on their mortgage or faces

imminent risk of default resent in 120 days, less than 3 months PITI resrves (GSE: loss of job, Divorce, death of a spouse, fraud)

• 2) Property is occupied as borrower's primary residence

• 3) Mortgage was originated on or before Jan. 1, 2009

• 4) Unpaid principal balance must be no greater than $729,750 (one-unit) & $934,200 (two-unit) properties.

• If 1 through 4 meet terms, the next step is to see if the loan is modified, will it lower the payment?

PITIA

• 1st mortgage principal and interest

• Monthly Property Tax Proration

• Monthly Property Hazard Insurance Proration

• Home Owners Association Dues/Assessment

31% lower or higher?• Present situation has a PITIA of $2,000 (A)

• Household Gross Income is $5,000.00 (B)

• 31% of $5,000.00 is $1,550.00 (C)

• If (A) is greater than (C) the homeowner passes the first test

• In this case the home owners PITIA payment would need to be reduced to a target $1,550.00. $450.00 per month savings.

• Servicer has three tools to reduce the the payment to 31%

Income Calculation• All household sources of income can be used, if they can be documented

• Types: Pay-stubs, Profit & Loss, Award Letters, boarder rents, leases, non-mortgagee contribution (spouse, child, etc), child/spousal support

• Non-taxable income will be grossed up 125% ($100 = $125 after gross up)

• Rental/Boarder income will be calculated at 75% ($100 = $75 after calculation)

• Rents/Boarder income will need to have been on tax return previous year

• Self-Employment should be 18 months min duration

• Pay-stubs with overtime will be averaged YTD

• Unemployment (discussed later)

New unpaid principal balance

• It is important to know the loan’s present principal balance and the amount of past due interest and impounds, if any. (late fees are waived)

• By combining these amounts you will get the loan’s new “unpaid” principal balance

Waterfall• The servicer will take the UPB and subject it to the following

“waterfall” test.

• First, reduce the interest rate by .125% to as low as 2%,

• Next, if necessary, extend the loan term to 40 years,

• Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

• Note: Servicers may elect to forgive principal under HAMP on a stand-alone basis or before any modification step in order to achieve the target monthly mortgage payment.

Net Present Value (NPV)

• If the waterfall reaches the target 31% PITIA payment, a NPV test will be run.

• NPV is a proprietary tool created by the US Treasury Dept. to determine if the investor will make more money by foreclosing (FAILD NPV) or if the investor will make more money by modifying the loan (PASS NPV) under the HAMP guidelines.

• If there is a failed NPV test the servicer must send a non-approval notice to the homeowner within 5 days of the NPV Fail, providing the 33 inputs used on the NPV test. There is a 30 day window to dispute any inaccurate inputs. The servicer cannot foreclosure during this dispute period.

The Process• Call in financials and servicer will see if you pass the initial

guidelines * SEND IN RMA ANYWAY from HAMP website

• If it passes, the servicer sends out a HAMP package incl an RMA form, 4506-T and a list of documents to support income, prove occupancy and hardship

• Once the servicer receives the documents they will check to make sure all items necessary to process the package were submitted

• If more documents are needed a 30 day letter will be sent and then a 15 day letter

• Once all documents are received the file is sent to a negotiator (single point)

• Escrow info is obtained internally to get updated UPB

The Process (cont)• Now a formal NPV test is run with verified info

• If it passes, a 3 month trial plan will be sent

• If it fails, a non-approval letter must be sent within 3 days and the homeowner will have 30 days to dispute any of the 33 inputs used. If the home value is questioned, it can be disputed for a upfront fee for an appraisal (around $200).

• Once in a trail plan the only reason for denial should be if the homeowner does not make the plan payment on time.

• After the trail is complete, a final offer is sent to be signed and sent back.

• After 1st finalized payment is made the fully executed mod is sent back to homeowner for records.

Protections• The foreclosure process should be suspended while in review.

Every servicer has a different definition of what “review” means.

• No foreclosure sale until the HAMP review and in-house mod review are completed

• Can apply up to 5 days before a trustee sale

• Notices must be sent to homeowner: 30 day, 15 day, non-approval 30 day

4(.5*) types of HAMP/MHA

• Non-GSE

• Fannie Mae

• Freddie Mac

• FHA/VA

• Unemployment HAMP/MHA*

On the Web

• HAMP: https://www.hmpadmin.com/portal/index.jsp

• NPV Test: https://checkmynpv.com/

• Servicer List: http://www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx