All servicers approved by Fannie Mae (FNM)
must now consider an “Alternative Modification” for all mortgages that did not qualify for a permanent conversion under the Home Affordable Modification Program (HAMP), according to a letter to lenders.
The US Treasury Department
launched HAMP in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. Through February, the 113 servicers provided 170,000 permanent modifications
and placed more than 1m borrowers into the three-month trial modification. Though, Treasury officials admit the program is not for everyone
At the outset of the program, servicers brought borrowers into HAMP to collect the documentation during the three-month trial. However, for the larger servicers like Bank of America (BAC)
, that practice allegedly created a backlog
of missing paperwork and a lower pull-through rate for borrowers into permanent modifications. In November, BofA registered 98 permanent modifications
, sparking a shift in focus and new guidelines from the Treasury.
To catch other borrowers who fail to qualify for HAMP, the Treasury will launch
the Home Affordable Foreclosure Alternatives (HAFA) program in April, which will provide incentives to servicers for the use of short sales and deeds-in-lieu of foreclosures.
Now, Fannie provided another safety net for borrowers who cannot obtain a HAMP modification. A borrower that entered into a trial period plan prior to March 1, 2010 will be considered for the Alt Mod program as long as the servicer submits the case for approval by August 31, 2010.
In order for a borrower to qualify, the three-month trial period payments under HAMP must be paid including subsequent payments to the servicer. The Alt Mod will also be considered if the monthly mortgage payment ratio based on verified income is less than 31% and could not be reached through the HAMP servicing waterfall, which include an interest rate reduction, a term extension, then principal forbearance.
An Alt Mod will also be considered if the borrower failed to provide all the necessary documentation for HAMP, but when submitted qualifies for the Fannie modification guidelines.
Servicers must notify qualified borrowers for the Alt Mod program within 10 days of completion of the HAMP trial period and expiration of the 30-day HAMP borrower notice.
Write to Jon Prior