New HAMP Changes to Slow Foreclosures

March 25, 2010 No Comments »

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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.

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