Most new abuses through the expanded Home Affordable Modification Program will come from real estate investors requesting consideration for the workout, according to Amherst Securities Group analyst Laurie Goodman.
The Treasury Department expanded HAMP earlier in the year to allow investors to modify mortgages on rental properties under the program. The Special Inspector General for the Troubled Asset Relief Program recommended a signed lease should be provided in order to qualify.
According to guidelines released in March, the investor is only required to document income or loss from the rental property and certify in writing intent to rent the home. Treasury also limited the amount of homes an eligible investor could own to five.
SIGTARP also recommended getting the investor to certify under penalty of perjury an intent to rent. Goodman said she would take it a step further and require an independent renter, not someone such as a family member paying little or no rent.
"Rental properties leave a road map of substantially more room for gaming the system," Goodman said.
Forbearance as part of the modification "can be quite sizable" under these modifications because the underlying property is usually appraised lower and will thus sell at a lower percentage of market value.
In private-label securities, the average loan size for a non-owner occupied home – usually owned by an investor – is $162,000, compared to $251,000 for owner-occupied properties. Nearly two-thirds of investor-owned homes are worth less than $100,000, according to Amherst.
"On a rental property, servicers are not required to solicit borrowers who are two payments behind. However the servicer must comply if a borrower requests consideration," Goodman said. "We expect most abuses to come through borrowers "requesting" a HAMP 2.0 modification."