June 2012 Updates on Home Affordable Modification Program (HAMP) and Home Affordable Avoidance Program (HAFA)

Posted by on Jul 10, 2012 in Memos | Comments Off on June 2012 Updates on Home Affordable Modification Program (HAMP) and Home Affordable Avoidance Program (HAFA)

1.      PROGRAM EXTENSIONS.

Supplemental Directive No. 12-02, issued on March 9, 2012 and becoming effective on June 1, 2012, extended the deadline for eligibility in Making Home Affordable (MHA) and all of its component programs through December 31, 2013.

 

A.    HAMP Extension.

In order for a loan to be eligible for modification under HAMP, an Intial Package must be submitted by the borrower on or before December 31, 2013.

 

B.     HAFA Extension.

In order for a loan to be eligible for HAFA, either: (i) a fully executed Short Sale Agreement (SSA) or Deed-in-Lieu Agreement (DILA) from the borrower; or (ii) a written request requesting consideration for a SSA, DILA or Alternative Request for Approval of Short Sale must be submitted by the borrower on or before December 31, 2013.

 

C.    Completion Date.

In addition to the new December 31, 2013 deadline, in order for any MHA loss mitigation option to be eligible for incentive compensation, the transaction must be completed on or before September 30, 2014 (e.g. a HAMP modification must have a modification effective date of September 30, 2014 or earlier and a HAFA short sale or deed-in-lieu must have a closing date of September 30, 2014 or earlier).

 

2.      ADDITIONAL CHANGES TO HAMP.

 

A.    Extended HAMP Eligibility.

Supplemental Directive 12-02 also expands eligibility for a HAMP modification to various borrowers previously ineligible for HAMP by establishing a second level of HAMP evaluation procedure (“HAMP Tier 2”).  A loan may be eligible for HAMP Tier 2 if the loan has not previously been modified under HAMP Tier 2 and the loan satisfies the HAMP basic eligibility criteria (origination date on or before January 1, 2009, documented hardship, one to four-unit property, unpaid principal, balance limitations and not condemned). In addition, one or more of the following may apply:

  • The borrower is evaluated for HAMP Tier 1 after June 1, 2012 but fails to satisfy the eligibility requirements (or underwriting requirements) for a HAMP Tier 1 modification.
  • The borrower was evaluated for, but not offered, a HAMP modification prior to June 1, 2012 (provided, however, the non-approval was not due to borrower fraud).
  • The borrower had a payment default on a HAMP Tier 1 trial period plan entered into before or after June 1, 2012.
  • The borrower lost good standing under a HAMP Tier 1 permanent modification entered into before or after June 1, 2012 and, at the time of evaluation for HAMP Tier 2, at least 12 months had passed since the HAMP Tier 1 modification effective date or the borrower had experienced a change of circumstance.
  • The mortgage is secured by a rental property and: (i) two or more mortgage payments are due and unpaid (rental properties are not eligible for imminent default consideration); (ii) borrower certifies that he or she does not own more than five single family properties; and (iii) all other rental property criteria are met (see Supplemental Directive 12-02).

NOTE ON HAMP ELIGIBILITY: Loans made to, or secured by properties owned by, corporations, partnerships, limited liability companies or other business entities are not eligible for assistance under MHA.  Also, servicers are not required to consider for HAMP mortgage loans secured by unhabitable property or which have been charged off (if the servicer has released the borrower from liability for the debt and provided copy of such release to borrower).

 

B. Limitation on Multiple HAMP Modifications.

A borrower may receive only one modification under HAMP Tier 1 and may not be reconsidered for HAMP Tier 1 with respect to the subject property or any other property after failing a HAMP Tier 1 trial period plan or losing good standing on a HAMP Tier 1 permanent modification.  However, a borrower who fails a HAMP Tier 1 trial period plan or loses good standing under a HAMP Tier 1 permanent modification may be considered for a HAMP Tier 2 modification of the same mortgage loan.  No mortgage loan may be modified more than once in either Tier 1 or Tier 2.

A borrower who fails a HAMP Tier 2 trial period plan, or loses good standing under a HAMP Tier 2 permanent modification (whether on a principal residence or a rental property), is not eligible to receive another HAMP Tier 2 modification or a HAMP Tier 1 modification on the same mortgage loan.  A borrower is eligible to receive up to a total of three permanent modifications of three different mortgages under HAMP Tier 2.

A borrower that rejects a modification offer for a mortgage loan under either HAMP Tier 1 or HAMP Tier 2 is not eligible for future consideration under HAMP Tier 1 or HAMP Tier 2 for such mortgage loan unless the borrower experiences a change in circumstance. Borrowers who reject a HAMP modification offer must be considered for other available loss mitigation options, including HAFA.

 

C. Borrower Solicitation.

a.      Pre-Screening.

Servicers must pre-screen all first lien mortgage loans (including borrowers who are potentially eligible for HAMP based on the expanded eligibility criteria for HAMP Tier 2) where two or more payments are due and unpaid after June 1, 2012 to determine if they meet the following basic criteria for consideration under HAMP: (i) One-to-four unit residential property; (ii) Not condemned; (iii) Loan originated on or before January 1, 2009; (iv) UPB does not exceed HAMP limits; and (v) Not previously modified under HAMP.

 

b.      Solicitation Exceptions.

Servicers must proactively solicit for HAMP any borrower whose loan passes the pre-screen unless the servicer has documented that the investor is not willing to participate in HAMP.  However, servicers are not required to solicit borrowers who, prior to June 1, 2012: (i) were two or more payments delinquent and did not occupy the mortgaged property as a principal residence; (ii) were two or more payments delinquent and were already solicited in accordance with the reasonable effort requirement; (iii) were evaluated and determined to be ineligible for HAMP; or (iv) had a payment default on a trial period plan or lost good standing on a permanent HAMP modification.

Though proactive solicitation is not required, all of these classes of borrowers may request consideration for HAMP after June 1, 2012, and, upon submission of an Initial Package, must be evaluated for the appropriate Tier based on their eligibility. In addition, in the event any of these borrowers cure the original delinquency but subsequently re-default, servicers must rescreen them, as appropriate.

 

c.       Modification Offers.

If the borrower is not offered a HAMP Tier 1 trial period plan and is NPV (Net Present Value Model) positive under the HAMP Tier 2 standard modification test, the borrower must be offered a HAMP Tier 2 trial period plan.  If the borrower is NPV negative for the HAMP Tier 2 standard modification test, the servicer may, based on investor guidance, offer a HAMP Tier 2 trial period plan or must consider the borrower for other available loss mitigation options, including HAFA.  Note that a borrower evaluated, but determined to be ineligible for HAMP Tier 2, must be sent a Non-Approval Notice.

NOTE: If investor guidelines or applicable law restricts or prohibits a step in either the HAMP Tier 1 or Tier 2 standard modification test and the servicer therefore partially performs it or skips it, the modification may still qualify for HAMP.

 

3.      ADDITIONAL CHANGES TO HAFA.

Supplemental Directive 12-02 also amends certain provisions of HAFA.  In addition to the extension to December 31, 2013, HAFA has been modified as follows:

  • There are no longer any occupancy requirements for HAFA eligibility.
  • Servicer may now accept a full payment, if the borrower requests to make a full contractual payment in order to stay current on the loan.
  • Servicers may now authorize escrow to pay $8,500 ($6,000 was the previous maximum) from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability.
  • Borrower relocation incentives will be limited to HAFA short sale or deed-in-lieu transactions where the property is occupied by a borrower or a tenant at the time an agreement is executed and who will be required to vacate the property as a result of the short sale or deed-in-lieu.

The following articles are published for informational purposes and not for the purposes of providing legal advice. Please contact Galvin Realty Law Group at 425.248.2163 for a consultation about your specific needs and circumstances.