The Future of Loan Modifications
With the expiration of the federal loan modification programs Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) expiring at the end of 2016, how will loan modifications be approved in the future? I had the chance to discuss this topic on 1150am KKNW which you can listen to below.
The HAMP and HARP home loan modification programs were instituted by the federal government beginning in 2009 as a way for distressed homeowners to retain their properties after the great recession and housing collapse. These home loan modification programs set out specific guidelines for lenders to use in order to approve home loan modifications. As part of these programs borrowers could lower their mortgage payments to no more than 31% of their gross income and also reduce high interest rates on the mortgage and also put any arrears on the end of the loan.
Even with these programs available most banks have their own in house programs in which they review borrowers for home loan modifications. With that said, as many borrowers have experienced, getting approved for a loan modification is easier said than done. Most borrowers have to resend many of the forms and financial information multiple times, clarify information repeatedly and are denied anyways for allegedly not providing all of the required documentation.
Now that the HAMP and HARP programs are coming to an end, how will lenders review distressed homeowners for loan modifications? The Consumer Financial Protection Bureau (CFPB) came up with 4 principles that they would like to see bank utilize when reviewing applications for home loan modifications. They are accessibility, affordability, sustainability and transparency. These factors will also be utilized to look at options to surrender a home such as short sales and deeds-in-lieu for foreclosure. The CFPB did state that there may be other guidelines for those who have a loan obtained through the Federal Housing Administration or Veterans’ Affairs, or Rural Housing Service. Here are the factors in more detail below and you can read the full article on the ABA website HERE.
Accessibility to Loan Modification Options
• Consumers can easily obtain and use information about loss mitigation options and application procedures from their servicers.
• Consumers can submit a request for loss mitigation using a common and readily available form of application in order to expedite consideration and to better enable housing counselors and others to support consumers in the loss mitigation process.
• Consumers are asked to submit only documentation necessary to enable consideration for available options, and servicers make appropriate efforts to obtain and verify information within the servicer’s control.
• Consumers have ready access to individuals, including housing counselors and others, who can help them seek loss mitigation and understand the effect of the terms they are being offered.
• Consumers’ requests for loss mitigation assistance are responded to timely and effectively by servicers.
• Consumers have access to clear and effective escalation options.
• Consumers are considered for appropriate loss mitigation options from imminent default through late stages of delinquency.
• Consumers who are similarly situated receive fair and equal consideration for loss mitigation options within similar timeframes.
• Servicers should generally be aware of and consider how they will meet the needs of those with limited English proficiency.
Affordability of Loan Modifications
• When repayment plans and modifications are offered, they are generally designed to produce a payment and loan structure that is affordable for consumers.
• Modifications for consumers with hardships provide a meaningful payment reduction.
• Loss mitigation options are flexible enough to assist special populations (e.g., pre-crisis subprime loans) or unique circumstances (e.g., disasters).
• Consumers are not required to pay upfront costs or fees to obtain a loss mitigation option from their servicer.
Sustainability of Loan Modifications
• The loss mitigation option offered is designed to resolve the delinquency.
• Deficiency balances are not imposed on consumers experiencing hardship as a condition of a short sale or deed-in-lieu on their principal residence.
• When modification options are used, they are designed to provide affordability throughout the remaining or extended loan term.
• Where trial modifications are used, successful trials are converted to permanent modifications timely and efficiently.
• Servicers and investors should consider modification options that reduce principal when doing so may benefit the investor, unless prohibited by statute.
• Loss mitigation options are defined and made available for consumers who decline a loan modification offer.
• Loss mitigation options are available for borrowers who re-default.
• Loss mitigation outcomes are monitored by servicers and investors to determine their impact on re-default rates, and program terms are adjusted to achieve effective outcomes and respond to economic conditions.
Transparency of Loan Modifications
• All terms (e.g., deferred interest, future rate or term changes, and repayment of forbearance amounts) are clearly described in a manner consumers can understand. Plain language should be used to the extent reasonably feasible.
• Key loss mitigation vocabulary, e.g., hardship, imminent default, streamlined modification, etc., and data standards are defined and used consistently by mortgage servicers and investors.
• Consumers get clear, concise information and rationales about loss mitigation decisions.
• Consumers are not required to sign broad waivers of rights as a condition of receiving loss mitigation assistance.
• Key loss mitigation data is reported publicly on a regular basis to ensure that loss mitigation programs are effectively meeting consumer and market needs.
As you can see obtaining a loan modification can be difficult but you must know your options. If you live in Washington state and have additional questions about home loan modifications or utilizing the Washington foreclosure fairness mediation program to obtain a loan modification give Symmes Law Group a call at 206-682-7975 to learn about your options.