Home Affordable Modification Program
Home Affordable Modification Program became effective in 2009. It is a program intended to provide homeowners an opportunity to modify their mortgages. For information on HAMP see: www.makinghomeaffordable.gov. Loan servicers / mortgage holders may opt into the program. The incentive for the loan servicer is that they receive $1,000 for each successful modification. However, not all loans will qualify for a HAMP modification.
- It must be a first mortgage that originated prior to January 1, 2009.
- It must be the borrower’s principal residence (it can include real property with up to 4 units or a manufactured home).
- There can be no previous HAMP modifications.
- The mortgage debt must be less than $729,750.
- The loan must be delinquent or a default is reasonably foreseeable.
- The borrower must document financial hardship.
- The borrower must have a monthly mortgage payment ratio of greater than 31%.
- The servicer holder cannot require the borrower to waive any legal rights as a condition for a HAMP modification.
- The borrower can be in a bankruptcy proceeding.
- The borrower must agree that taxes and insurance will be escrowed.
The servicers are required to “proactively solicit” borrowers whose mortgage loans are potentially eligible for HAMP if the borrower is 2 or more payments delinquent. The servicers are cannot refer a mortgage to foreclosure until the borrower has been eValuated for HAMP and the borrower is ineligible or the solicitation attempts have failed.
This requirement of solicitation became effective March 24, 2010. For a debtor in a bankruptcy proceeding the servicer must consider the debtor for a HAMP modification if the request is made from the debtor, debtor’s counselor a bankruptcy trustee.
STEPS IF THE BORROWERI DEBTOR IW INTERESTED IN PURSUING HAMP
The borrower must provide proof of income (the specifics depends on the servicer).
Effective June 1, 2010 the income must be verified.
Once the servicer has the required information the servicer will review the documents, inform the borrower if more documentation is required, pull a credit report, obtain a value of the real estate, and prepare a “waterfall” calculation.
The servicer must acknowledge receipt of the initial package within 10 business days of receipt.
The servicer must advise the borrower of eligibility for HAMP within 30 days.
WHAT IS A WATERFALL CALCULATION AND THE NET PRESENT VALUE TEST?
This is the term used for the calculation that is done until the proposed modified mortgage payment is less than 31% of the borrower’s income. A waterfall calculation will consider the following:Capitalize accrued interest and escrow advances, Reduce the interest rate by .125% increments to a floor of 2%,Extend the terms of the mortgage up to 480 months from the effective date of the modification,Reduce the principal debt.
When the calculation has been completed the result is compared to the Net Present Value Test (“NPV”). The NPV is the calculation using the value of the property, the FICO score, the BPO (broker’s price opinion) and other factors. The purpose of this test is to determine the value of the property if there was a foreclosure today.
If the amount under the waterfall calculation pays more than the NPV the loan qualifies for a modification. If the investor would receive less than the NPV the loan does not qualify for a Modification.
HAMP TRIAL PERIODS
If a borrower is eligible for a HAMP modification the borrower will execute a HAMP Trial Period Plan. The borrower must make 3 months of timely payments and must be current at the end of the trial period to receive a permanent loan modification. Even if the borrower makes timely payments during the trial period this is not a guarantee that the modification will be approved. After the trial period the servicer will re-evaluate the loan to include taxes and insurance for the future payment. The servicer will advise the borrower if the HAMP modification has been approved.
HAMP AND CHAPTER 13
If the borrower, counsel, or the trustee makes a request to the servicers for a HAMP modification the servicer must consider the request. The servicer is not required to solicit modifications from borrowers who are in a bankruptcy proceeding. If the borrower is in a trial period and then files bankruptcy the HAMP modification cannot be denied solely on the basis of the bankruptcy.
The servicer, borrower and counsel will need to work together to obtain any necessary approval of the court and / or trustee. Some Districts have established local rules and procedures for HAMP modifications. A servicer can extend the trial period by up to 2 months (i.e. a 5 month trial period) to accommodate delays that occur as a result of the bankruptcy.
If a borrower has made the trial period payments timely, a servicer cannot object to confirmation, file a motion for relief from stay, or a motion to dismiss on the basis that the borrower made only the payments required by the trial period and not the original mortgage payment.
If the trial period occurs post petition:
The agreement can be by an agreed order approved by the trustee, creditor’s counsel
and debtor’s counsel;
The trustee can make the payments to the servicer during the trial period or the
borrower can make the payment directly (remember that the trustee will have accurate
records as to when the payment was made);
Once the trial period is completed and the servicer notifies the borrower the modification is approved a motion to modify plan can be filed.
Effective March 24, 2010 pursuant to HAMP regulations if a borrower has a pending Chapter 13 bankruptcy proceeding, it is within the discretion of the servicer to waive the trial period and be offered a permanent modification if:
The borrower is eligible for a HAMP modification.
The borrower has made all post petition payments due prior to the effective date of the HAMP agreement.
The modification has been approved by the Court, if required.
And the investor allows the modification.
HAMP participation is mandatory for Government Sponsored Enterprises such as, Fannie Mae, Freddie Mac, and FmHA. This does not mean that the HAMP modification is mandatory only the requirement to participate.
HAMP participation is voluntary for non-GSE loans.