Treasury Changes Guidelines for Getting Borrowers into HAMP
The U.S. Treasury Department and the Department of Housing and Urban Development (HUD) changed guidelines on how servicers introduce borrowers into the Home Affordable Modification Program (HAMP) to go into effect June 1, 2010. Under HAMP, the Treasury (pictured above) provides capped incentives to participating servicers for the modification of loans on the verge of foreclosure. Through December 2009, the servicers provided more than 66,000 permanent modifications and placed more than 850,000 borrowers into active three-month trial modifications. The often-reiterated goal of the program is to reach 3-to-4m homeowners. Servicers began ramping up efforts to gather more documents after the November HAMP numbers revealed a little more than 31,000 permanent modifications. Herb Allison, the assistant secretary for the Treasury said that at the program’s outset, the goal was to reach as many people as possible and obtain documentation during the trial period. Critics of the program point to the lack of permanent modifications since the program launched in March 2009, its inability to provide principal forbearance and that it does not provide solutions for borrowers with negative equity as signs of its failure. Allison pointed that principal forbearance is an option for servicers to get a borrower's debt-to-income ratio down to 31%, but that it is seldom used. He added that the Administration remains open to a program that tackles the negative equity issue. In addition, a second-lien program under HAMP attracted the first servicer, Bank of America (BAC) to sign. After the ramp-up and doubling the amount of converted permanent modifications in December, the Treasury released new requirements for upfront documents and guidance on permanent modification conversion. Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer can only evaluate a borrower for HAMP after receiving an initial package that includes a request for modification and affidavit (RMA) form; the Internal Revenue Service (IRS) 4506T-EZ form, which gives servicers the ability to pull the borrower’s tax return; and two pay stubs from the borrower for proof of income. After 10 days of receiving the initial package, the servicer must acknowledge the request. Borrowers can send the package through e-mail and receive confirmation electronically. The servicer has 30 calendar days to review the documentation and either send the borrower a trial modification notice or inform the borrower of a decline. “We’re making it as easy as possible for homeowners to provide the documents. A lot of the problem of converting the trial mods to permanent mods has been time delay between the verbal communication about their eligibility to actually getting the documents and sending them in,” Allison said. Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office added that GMAC (GJM) and Ocwen Financial Corporation (OCN) were examples of servicers who required documentation upfront in the process. As a result, the pull-through rate or the ratio of permanent modifications to amount of active trials for GMAC is 47.7%, and Ocwen is at 71.7%, according to the December report. “We want this program to be about payment relief and affordability for homeowners, not about chasing documents back and forth,” Caldwell said. Write to Jon Prior.