Making Home Affordable
National Conference call – 3 p.m. March 4
Fannie Mae
Refi Plus is specific to Fannie Mae borrowers. Will allow 105% LTV financing, no limit on CLTV if second is subordinated. MI requirements will mirror requirements of original LTV. No minimum of FICO. Verbal verification of employment. Relying on payment history of the borrower. Fixed rate products or ARMS with 5 years or greater fixed. Available to servicers who have the loan currently, and wider availability later. More detail at efanniemae.com.
Freddie Mac
Relief Refinance. Same LTV and MI as Fannie. Require servicer to be same going forward. If borrowers payment doesn’t increase by more than 20% no FICO required. If mortgage increases more than 20% there will be a modest underwrite with 620 credit score and DTI of 45%. Streamlined valuation through automated system. All property types covered. Borrower must have 12 months 0x30 or since note date of mortgage.
Refi must reduce the interest rate; replace an ARM, IO or balloon reset; or reduce amortization term of the mortgage. 15, 20 or 30 yrs fixed rate as well as 5/1 and 7/1 ARMs. Second homes and investor loans also allowed. Will allow financing of closing costs limited to $2500. Secondary financing may remain; no new subordinate financing.
Treasury
Home Affordable
All documents are on www.financialstability.com. The website will be expanded with borrower information.
Loan Modifications for owner occupied, principal residence below mortgage limits, originated before 1/1/2009 and mortgage payment must be more than 31% of borrowers gross monthly income. If current on payment borrowers must have experienced a change in financial circumstance.
Servicer will obtain information to determine front end DTI (PITI+). Then capitalize accrued interest etc. into the loan amount. Then determine how much interest rate reduction is needed to get to 31% DTI. If greater than 2%, servicer will implement trial modification for 90 days. If trial modification performs for 90 days, it will be fixed.
If can’t achieve 31% DTI can’t be achieved at greater than 2%, servicer will extend amortization period up to 40 years; or if that does not work, reduce principal and add to end of loan as balloon. At any time servicer may forgive principal, but it is not required.
Lender expected to reduce payment to 38% DTI to start. Treasury will pay a 50% of the cost to reduce payment to 31% DTI.
Every month the borrower pays on time, the government will reduce principal up to $1,000 per year for five years. Servicers will be paid for loans that perform after modification. Treasury will contract with Fannie Mae to administer the programs, making payments to servicers and borrowers. Freddie Mac will provide oversight and monitoring of the program.
Counseling requirement. Any borrower who has a back end ratio of 50% or more must go through a HUD approved counseling program.
Foreclosure process must stop when the borrower requests or servicer is evaluating the feasibility for loan modification. If over 60 days delinquent, servicer must evaluate all loans and may not proceed with foreclosure
Servicer participation is voluntary, but Treasury expects that the financial incentives will be sufficient that they will participate. One step is the Net Present Value calculation that will determine what is the best execution for the loan. Servicers will have to sign a contract with Fannie Mae, and must agree to evaluate any delinquent loan or any loan where borrower contacts the servicer. Applies to Private Label Securities unless the servicer can point to a specific restriction in the security agreement. Treasury encourages servicers to start the process now, even before signing a contract, by doing trial modifications. Treasury will honor the payment incentives in this case.
What happens if borrower fails to make payments during the trial mod, they will not get a modification and will never be eligible for the incentives. Servicer should look at all other options, including short sale and deed in lieu, and there are some incentives for this.
Q&A
Q. Are there any servicers that we know now will participate?
A. There will be several and they will be posted. This has been vetted with servicers, investors and American Securities Forum
Q. Are the servicers required to share the NPV analysis?
A. No.
Q. If fees can’t be included in the capitalization, how will they be treated.
A. Servicers must waive late fees and “garbage” fees, but expenses paid to third parties will be capitalized onto the mortgage amount.
Q. What kind of turn around time will be looking at? Currently it can take 3-6 months.
A. We don’t know. But there will be a significant role for counselors and this will be clarified. This is not a streamlined modification. Borrower circumstance, income and expenses must be verified. Counselors can play a vital role.
Q. Is this a requirement for TARP recipients?
A. It will be on a going forward basis. Expect that prior recipients will voluntarily choose to join the program.
Q. What happens if during the full modification the borrower makes a late payment?
A. Borrower will lose the incentive for the month for which they are late. If they go 90 days past due, they will lose all payments from the incentive, payments to the servicer will end as well.
Q. Will Fannie Mae accept unemployment benefits as income?
A. On the refinance, if they are making their payments currently, income verification is not required unless the payment increases more than 20%. For the modification program, the answer has not been determined. Check back on the Q&A.
Q. Servicers are requiring counselors to provide their personal social security numbers before they will work with the counselor.
A. This will be investigated.
Q. What happens with modification if there is a second mortgage in place?
A. Treasury will provide up to $1,000 to servicer to help extinguish junior liens. More to come on this. Subordinate lien holders should like this plan because it improves their position. There was consideration to requiring subordinate lien holders to take a haircut, but it was determined to be too big a stumbling block.
Q. Will it be possible to reopen modifications if the borrower’s circumstances change?
A. Nothing in the guidelines would prohibit this. Even though the loan is no longer eligible for subsidies, servicers still have the same tools to rework a loan. The government will only pay incentives once.
Q. If someone already has a mod in progress, but they could get a better deal how would it work? What about clients in bankruptcy? If someone is two days away from auction, who’s responsible for making sure the process starts.
A. Counselors should tell borrowers about both programs and help them decide which is the most advantageous. Loans where borrower is in bankruptcy (13) would be eligible subject to permission of the bankruptcy court. Once the servicer signs an agreement with Treasury, all loans 60 or more days delinquent must be considered even if foreclosure is only two days away. Many of the big lenders have committed to suspend foreclosures and allow time to evaluate the borrower. But if the borrower would not qualify, they will still proceed with the foreclosure.
Q. What type of counseling will be required for people over 55% DTI?
A. There will be a clear protocol posted to www.financialstability.gov.
Q. Will counseling be given a value in the secondary market?
A. HUD Grant will cover eligible counseling expenses up to the amount of the grant. There are no new funds made available for counseling under this program. Agencies will be operating under HUD and NFMC grants. Will possibly create a new Level 4 counseling for work on modifications under this program.
Q. Will all modifications be managed by servicers, not by brokers or other third parties.
A. There are no incentives for a broker to be involved in the modification.
Q. What programs will be available for non-owner occupied housing who have some late pays?
A. The refinance is not intended for delinquent borrowers. On Modification, the intent of the Treasury program is to keep homes occupied. Investor owned properties may not be occupied, and there is no public sentiment for helping investors.
Q. What is the redefault rate you are using on the Net Present Value?
A. Answer not available right now. There’s no requirement to deal with the second mortgages.
Q. If a borrower meets the minimum requirement for the product, but their lender does not agree to participate in the program, can the borrower go to another lender to get the benefit of the program?
A. If the lender wants to do the Fannie/Freddie refi, the lender must agree to do the modifications as well. But if the lender decides not to join the program, the borrower can’t get it through another lender.
Q. What about non-borrower household income?
A. This answer will be posted on the website.
Q. Will there be any penalty for borrowers who sell before the 5 year period is critical?
A. No restrictions. But some borrowers may have a balloon payment to consider.
Q. What about borrowers who don’t have social security numbers.
A. This answer will be posted on the website.
Q. Some borrowers are in step-up modifications that return to adjustable in five years, would they be able to get a new modification?
A. If a servicer signs a contract with Treasury, they must evaluate all delinquent borrowers and anyone who requests it. The last modification in this program will be done in December, 2012. At that point the borrower may be able to demonstrate they are at imminent risk of default.