MAKING HOME AFFORDABLE: PROGRAM LOSING STEAM

Overview

The government program established to assist homeowners in distress continues to lose steam. The Home Affordable Modification Program, known as Making Home Affordable Program, continues to lose steam. The monthly report for May 2010 provides sobering statistics.

• Number of permanent loan modifications: 346,816.
• Number of trial modifications canceled: 429,696.
• Number of "active trials": 467,672.
• Number of trial modifications started over the last eight months: 690,616. (As of May, there were 1,244,184 trials started, and as of last September there were 553,568. That gives 690,616 trials started over the last 8 months.)

The trial portion of the loan modification process is taking far longer than the three-month period it is designed to last. It appears that, more often than not, borrowers aren't surviving the trial modification stage.

In effect, the May Report shows the number of failed loan modifications trials is significantly greater than the number of successful ones.

Furthermore, a month-over-month comparative analysis indicates that the number of "All Trials Started" is decreasing steadily, along with the number of "All Permanent Modifications Started." For example, trials started in April over March were 47,160, and trials started in May over April were 30,099 - which is the slowest pace since the commencement of the HAMP program.

HAMP Activity

Debt to Income

The median front-end DTI before modification is 44.8% (which has remained in this range for several months), and the back-end DTI before modification is 79.8% (which has been in the range of 77.5% to 80.2% for several months). The back-end DTI discloses an inescapable fact: nearly 80% of the borrower’s income is going to servicing debt – and nearly 64% of income even after loan modification.

It’s no wonder that many borrowers never make it out of trial modification into permanent modification. Indeed, these are “median” characteristics – so many borrowers have even higher risk profiles!

On what basis can success be claimed for this program?

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Making Home Affordable Program

Servicer Report - May 2010

(06/21/10)

Fannie Mae: Alternative Modification™ Extended

Overview

On June 3, 2010, Fannie Mae issued Lender Letter LL-2010-07, the purpose of which is to extend the eligibility timeline provided in LL-2010-04 and clarify certain requirements for participation in the Alt Mod™ program. 

The Alternative Modification™ program (Alt Mod™), introduced on March 18, 2010 in LL-2010-04, is an alternative to the Home Affordable Modification Program (HAMP) for those borrowers who were eligible for and accepted into a HAMP trial period plan and completed all trial period payments, but who were subsequently not offered a HAMP permanent modification because of eligibility restrictions.

Highlights

Revised Eligibility Timeline

Eligible borrowers who failed to qualify for a permanent HAMP modification but successfully completed ALL of the trial period plan payments before LL-2010-04 was issued on March 18, 2010, must be sent an Alt Mod™ offer no later than June 18, 2010. Borrowers who are unable to submit ALL non-capitalized post-trial period payments will not be eligible for the Alt Mod™.

Timing of Borrower Solicitation and Follow Up

Borrowers who complete their trial period plan payments and who are determined to be ineligible for a permanent HAMP modification, but eligible for Alt Mod™, must be sent offers within 10 days of their completion of the HAMP trial period plan or within 10 days of the expiration of the 30-day HAMP Borrower Notice (Notice of Non-Approval).

Once the HAMP trial period has been completed, the service may send an Alt Mod™ Offer to an eligibility borrower subject to receipt of specified documentation, such as: first payment for the Alternative Modification; Hardship Affidavit (or similar document); any remaining documentation required to verify borrowers income; and, executed Loan Modification Agreement.

Servicer follow-ups, by mail and phone, are required for borrowers who do not respond to the Alt Mod™ offer in accordance with specified follow-up timelines.

Mortgage Insurer Approval

Until Fannie Mae obtains a delegated authority agreement from a mortgage insurer on behalf of all servicers, the servicer must obtain approval through either their delegations from each mortgage insurer or, if not available, on a case-by-case basis.

Borrowers Ineligible for Alt Mod™

Borrowers who are not eligible for Alt Mod™ may not be considered for any other permanent modification without the prior written consent of Fannie Mae. Instead, the servicer must attempt to structure a repayment plan to bring the mortgage loan current within 12 months or proceed with foreclosure prevention alternatives or, if necessary, foreclosure.

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Extension to Fannie Mae's Alternative Modification™ to the Home Affordable Modification Program

LL-2010-07, June 3, 2010