Mortgage servicers to implement second-lien HAMP mods in 2011
Fannie Mae, 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, too.
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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