Mortgage Servicers Kick Around HAMP Mod Options
Three weeks after a senior Treasury official said that the government mortgage-bailout effort, Home Affordable Modification Program (HAMP), is not for every borrower, servicers of distressed loans are pooling together to look at alternatives. Today at the Mortgage Bankers Association (MBA) National Mortgage Servicing Conference 2010, going on this week in San Diego, a session called "Loss Mitigation - When HAMP is Not an Option" proved to be extremely popular. The shift away from the government plan marks a shift in the strategy of servicers as 2009 "was all about HAMP" in terms of allocating time and resources, according to Alanna Brown, director of government programs and new initiatives at Fannie Mae (FNM) National Servicing Organization. Increasingly, permanent HAMP mods are helping borrowers with loss of income, she said, noting 57% of most recent permanent HAMPs reported to the Treasury Department are income loss-related. Brown noted many borrowers either current on payments or on the brink of delinquency are voluntarily seeking information on HAMP. Although many are not HAMP-eligible, it's a sign the borrower mentality is shifting to wanting some sort of workout earlier in the time line. Another panelist, Jill Rein, partner at Pierce & Associates, noted that establishing contact with the borrower is key to finding an optimal workout, whether HAMP or non-HAMP. Rein said: "It's not always easy to get these people to realize they need to do something. We're often the ones to shake them into doing it." Among retention solutions being kicked around are forbearance, repayment, refinance, payment reduction and modification plans. She noted foreclosure alternatives including rental strategies, pre-foreclosure sale, deeds-in-lieu (DIL) of foreclosure, Deed-for-leas (D4L), and the Home Affordable Foreclosure Alternative (HAFA) program that facilitates short sales. Foreclosure is also a non-HAMP option. Another participant at the conference, Rich Rollins, CEO of Infusion Technologies, said servicers are seeing increasing potential in short sales and leaseback options. He agreed with a general mentality at the conference that 2010 — and even 2011 — looks to be the "year of the short sale," which he said gives investors "immediate positive cash flow" as a non-retention strategy. "HAFA gave [the short sale] credibility," he told HousingWire. Brown said more banks are moving into the short sale arena, as DILs also attract a significant focus. "As much as we talk about short sales and DILs, the average consumer doesn't know what that means or how to get one," she said. "That's something we as an industry need to remember." Another program not widely understood, the Fannie D4L program, executes a DIL transaction with option to rent the property back and keep the former owner in the home for 12 months or more. She said borrower education is key to reaching the population of people to whom home ownership is no longer a sustainable option. Servicers can identify that population at early stages by looking at the "inverse" of HAMP eligibility, according to Scott Holzmeister, senior vice president in loss mitigation at Wells Fargo Home Mortgage. For example, he recommended loss mitigation teams identify newly originated loans, loans previously modified under HAMP, loans on properties other than principal residences and current loans with a "reasonably foreseeable" likelihood of default. A servicer must also consider the reasons for HAMP ineligibility, to identify an appropriate non-HAMP option, Holzmeister said. Documentation errors or lack of documentation might prove an easier obstacle to overcome in terms of facilitating HAMP, he said, opposed to non-principal residences, loans that exceed conforming balance limits, and employment and income issues. In fact, a key challenge facing servicers is the degree of un- or under-employment among borrowers. He recommended suspending foreclosure for a period of time. In these cases, he said, it's important to remember the delinquency will continue to age. The servicer must determine when or for how long to extend a period of suspension, Holzmeister noted, adding that "the climate today is extend, extend, extend." "At some time, it's got to end," he said. "The borrower must either get re-employed or move into more affordable housing." Write to Diana Golobay. Disclosure: The author holds no relevant investment positions.