Default Changes Are Here—HASP and the Home Affordable Modification Program

David J. Miller
April 27, 2009 | COMMENTS

On March 4, 2009, U.S. Treasury Secretary Timothy Geithner stated, “It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets. This plan will help those members in default and foreclosure, as well as members on the verge of default.”
 
We all know of the problem. No single action will stabilize the economy, yet on this one point there is no disagreement: housing's downward spiral has to be arrested. Mortgage loan servicers have been struggling to keep up with the onslaught of customer calls, the increasing number of defaulted loans, and the ever-changing plethora of regulatory, investor and insurer requirements. And, we have been hiring origination experts—underwriters, processors and legal staff—to lend assistance to the overwhelming pressure that we, as servicers, are facing.  
 
And, if you are like us, you are receiving calls daily from members who are looking for help and looking for answers. Everyone seems to know a little about HASP, but no one knows a lot. It's time we all study up. Quickly, get your smartest and best people focused on the Obama Administration's Homeowner Affordability and Stability Plan (HASP). This program is mandatory for Fannie Mae and Freddie Mac loans but is optional for your portfolio loans. For more information on the HASP program you can use the following link to the government website: www.financialstability.gov. Our understanding is that you will need to sign a contract with the U.S. Treasury Department's agent in order to participate in HASP for your non-agency loans. The U.S. Treasury Department has selected Fannie Mae to act as their agent for these transactions.  
 
There's plenty of reading to do. Here are several sources we've found helpful:

• Fannie Mae Announcement 09-04: Home Affordable Refinance – New Refinance Options for Existing Fannie Mae Loans (03/04/09)
• Fannie Mae's Home Affordable Refinance FAQs dated March 4, 2009
• Freddie Mac Bulletin 2009-5 dated March 4, 2009
• Fannie Mae Announcement 09-05: Introduction of the Home Affordable Modification Program, HomeSaver Forbearance, and New Workout Hierarchy (03/04/09)

Here is some basic information about the Home Affordable Modification Program that will get you started.

• Servicers can immediately begin to modify eligible mortgages under The Home Affordable Modification Program. New members will be accepted into the program until December 31, 2012. Program payments will be made up to five years after the date of entry into the Program with continuous monitoring throughout the identified modification plan. The Treasury Department expects that these guidelines will become industry standard practice. Additionally, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidelines. Fannie Mae and Freddie Mac will use these guidelines, and the U.S. Treasury will work with regulators and other federal and state agencies to implement the guidelines across the entire mortgage market.
• To be eligible, the loans must have originated on or before January 1, 2009.  It must be a verified first lien, owner-occupied, with an unpaid principal balance up to $729,750 for single family homes, tiered up to $1,403,400 for four unit properties. The home may not be investor-owned, and may not be vacant or condemned. Bankruptcies are not automatically eliminated from consideration for a modification, and members in active litigation regarding their mortgage loan can qualify for a modification without waiving their legal rights. Any foreclosure action will be temporarily suspended during the trial period or during the time that they are considered for alternative foreclosure prevention options.  Loans can only be modified once under The Home Affordable Modification Program. There is no minimum or maximum loan-to-value ratio for eligibility.
• The member's payments will have to be first reduced to no greater than 38% Front-End Debt-to-Income (DTI) ratio. The Treasury will further match reductions in monthly payments with the lender/investor down to a 31% DTI ratio. If the Back-End DTI is 55% or higher, the servicer must send a letter to the member stating that counseling is required in the modification plan; the member, in turn, must acknowledge in writing that counseling will be obtained.
• Servicers will receive a Servicer Incentive Payment of $1,000 for each eligible modification; the servicer will then receive Pay-for-Success payments as long the member stays in the program, up to $1,000 each year for up to three years.
• The members are eligible to receive a Pay-for-Success Payment that goes towards reducing the principal balance as long as the loan is current; members can receive $1,000 each year for up to five years.
• The qualification for both servicer and member incentives require that full monthly payments, including escrows, must be reduced by a minimum of 6%. The servicer will receive the lesser of $1,000 or half the reduction of the annualized monthly payment on Pay-for-Success incentives.
• Interest rates are floored at 2% and must remain in place for five years. The interest rate will then gradually increase by the less of 100 basis points per year or an amount needed to reach the Interest Rate Cap. The Cap is the lesser of the fully indexed and fully amortizing original rate or the Freddie Mac Primary Mortgage Market Survey rate for 30-year fixed rate conforming mortgage loans. No interest will accrue on the forbearance amount if the servicer chooses to forebear principal.
• There are no modification fees charged to the member. Any fees charged for this service, such as notary fees or appraisal fees, will be reimbursed by the investor. Unpaid late fees to the member will be waived. Assumable mortgages will be cancelled with this program.
• It is critical for servicers to maintain records of key data points for verification and compliance reviews. Servicers should refer to Fannie Mae and Freddie Mac guidelines for descriptions of auditing for fraud prevention and detection.
   
  The U.S. Treasury will also provide details of the required data elements for reporting, such as member profiles, property information, underwriting analyses and loan modification terms.

The Obama Administration estimates up to 5 million homeowners could be helped by these programs. With approximately 30% of the population belonging to credit unions, there may be up to 500,000 members we can help. Taking part in HASP is another way credit unions will further build their mortgage lending brand and establish our industry as the lenders that always put our members' best interests first.
 
David J. Miller Jr. is president of Prime Alliance Loan Servicing. Contact him at 609-883-3900 ext 540 4 or dmiller@cenlar.com.