The Home Affordable Modification Program (HAMP) has been less than a stellar success. Very few of those who have been through the modification process have been getting permanent modifications. Often times, they go through a very lengthy application process and trial period plan only to find out that they don't qualify and are then even further behind in their payments. Now, there is hope for many of them. The Alt Mod program may finally spur the number of modification that was originally anticipated by HAMP.
As of April, lenders had initiated approximately 1.2 million HAMP trial period plans. There were 277,640 canceled plans, which is nearly as many as those that were successfully modified - 300,000. Trial period plans are generally canceled because of missed payments or the servicer determines ineligibility once all of the documents are submitted.
As one might expect, the red-tape involved in navigating through a HAMP modification is horrendous. Although the trial period plans are supposed to be three-month plans, they are often extended as the servicer continues to ask for more and more information. Unfortunately, while the trial period plan is on-going, the borrower continues to get further behind because the plan requires payments that are less that the full principal and interest due under the loan.
I am currently working with a client in foreclosure that went through a HAMP trial period plan (before he came to see me). Though he successfully made all of this required plan payments for 7 months, the servicer determined that he did not qualify because his monthly payments (including principal, interest, taxes and insurance), was less than 31% of this verified income. Why it took 7 months for them to determine that he ineligible for this modification, I can't figure out.
But there is still hope, thanks to a new program. On March 18, 2010 Fannie Mae issued Lender Letter LL-2010-04. Accordingly, for mortgage loans in active HAMP trial period plans initiated prior to March 1, 2010, all Fannie Mae-approved servicers must consider the Alternative Modification ("Alt Mod") prior to initiation of foreclosure for all eligible borrowers who were not offered a permanent HAMP modification after making payments under a HAMP trial period plan. Further, if a borrower completed all their trial period plan payments before LL-2010-4 was issued but failed to qualify for a permanent HAMP modification, the servicer must send an Alt Mod offer by June 18, 2010.
So, who qualifies for an Alt Mod? To be eligible for the Alt Mod:
- The loan must have been evaluated and considered eligible for HAMP
- The borrower must have been sent an initial HAMP offer, or started a HAMP trial period plan, prior to May 17, 2010 and whose first trial period plan payment was scheduled for June 2010 or before
- The loan must be secured by a one-to four-unit owner-occupied property
- The borrower must have made all required payments in accordance with the HAMP trial period plan but is ineligible to convert to a permanent HAMP modification
- Any subsequent post trial period payment(s) due from the borrower must be submitted prior to executing a permanent modification agreement
Additionally, one of the following is required for Alt Mod eligibility:
- The monthly mortgage payment ratio based on verified income was less than 31 percent
- The target monthly mortgage payment ratio of 31 percent based on verified income could not be reached using the standard HAMP modification waterfall
- The borrower failed to provide all income documentation required for a HAMP modification but meets the streamlined income documentation requirements for the Alt Mod
Clearly Fannie Mae recognized a problem with HAMP in that it wasn't providing enough help to homeowners. The Alt Mod program allows for a modification if the borrower met his obligations under the trial period plan and otherwise qualified, but failed to meet certain eligibility guidelines. I suspect that the Alt Mod program will provide relief to many of those who were turned down for permanent modifications.
My latest concern is whether or not the servicers are all "up to speed" on the Alt Mod program. In the case I am currently working on, my client has not received an Alt Mod offer. I took the initiative to send the Lender Letter to the lender's attorney who is involved in the modification process and I pointed out why I believe that my client qualifies. I'm looking forward to discussing the issue with him very soon.
Where there is a borrower who wants to keep his home and he would be able to if it can be modified, it doesn't make sense to foreclose. The trick is getting the lender, servicer, and foreclosure attorneys all on the same page and looking at the same information. The banks got their bailouts and there is clearly an emphasis on modification where it is possible. It is important to know about the various modification programs to ensure that they are doing all they can to get borrowers qualified.