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New Rules for Home Affordable Modifcation Program

The U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development (HUD) recently announced changes to its Home Affordable Modification Program (HAMP). The changes, designed to help improve the conversion from trial loan modifications to permanent modifications, take effect June 1, 2010. Mortgage servicers may elect to implement the changes sooner.

Current Loan Modification Process

Under previous guidelines, homeowners were not required to document their incomes prior to receiving a trial mortgage modification. The trial modifications typically lasted three months, during which time the servicer was supposed to collect documents to verify the homeowner’s income. If the borrower met the monthly obligations, and submitted the required paperwork, the modification was supposed to be made permanent. However, many homeowners failed to provide the necessary paperwork, or the loan servicer lost the paperwork, resulting in just 66,465 permanent modifications out of the nearly 1.2 million trial modifications.

New Loan Modification Process

The updated process requires that servicers collect 3 documents prior to granting a trial mortgage modification:

1.  Formal application, including a description of the hardship created by the mortgage
2.  Proof of income, such as two recent pay stubs or the most-recent profit and loss statement for self-employed borrowers
3.  Form authorizing the Internal Revenue Service to release tax data to the servicer.

If the borrower meets the modified payment requirements for three months, the modification automatically will be made permanent. The Treasury Dept. also said it will allow servicers some discretion in making loan modifications permanent only if minor paperwork is missing. This discretion will help address a large backlog of incomplete modifications.

Under the plan, servicers also will be required to respond within 10 days to an initial request for a modification. Once documents are provided, the servicer will have one month to let borrowers know whether they qualify for a trial modification.

Servicers also must calculate whether the lender or current owner of the loan will benefit from a mortgage modification, or if foreclosing on the property is in the loan owner’s best interest. If the loan owner will benefit from a modification, the servicer is required to grant the modification. Requiring borrowers to provide financial documents upfront will enable servicers to decide if a modification or foreclosure is the best option.


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New Rule Affects Homeowners in Foreclosure Avoidance Program