, which administers the Home Affordable Modification Program for the Treasury Department
, released guidance for servicers participating in the Second Lien Modification Program (2MP).
Fannie requires servicers to implement 2MP by Jan. 1, 2011. Fannie released the guidance Tuesday in a letter to servicers. All Fannie servicers are required to join the program, and the top-four banks have committed
Under 2MP, only second liens originated on or before Jan. 1, 2009 will be eligible for a modification if its corresponding first lien has been modified under the HAMP. Through August, more than 468,000 distressed loans have been given a permanent modification.
The second lien can be either current or delinquent, but it must hold an unpaid principal balance of more than $5,000.
Second liens with no interest charged are not eligible. Servicers cannot extinguish full or partial principal options, and they cannot defer or waive accrued interest. Borrowers must have a fully executed 2MP modification agreement before Dec. 31, 2012.
Lender Processing Services
will maintain a database of second liens that could be eligible for 2MP to better inform servicers of the corresponding first-liens moving through HAMP.
The terms of the first-lien HAMP modification will be used for the second-lien mod. Therefore, because a loan is required to be in delinquency before it enters HAMP, servicers will conclude that the second-lien would be delinquent as well.
The servicing waterfall for second liens through the program starts with a capitalization of accrued interest and servicing advances, moves to a reduction of interest rates, term extension, and principal forbearance.
The modification of the second lien will not become effective until the first-lien is modified through HAMP and the borrower has made all required 2MP trial period payments.
Servicers participating in the program must offer a 2MP trial period within 120 calendar days after receiving the first and second-lien matching information from LPS.
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