Tuesday, February 2, 2010
by Broderick Perkins
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Deadline Newsroom - The latest spin on government-sponsored mortgage modifications, demands that home owners provide an initial package of documents before the first phase of a modification can begin.
The newest plan for the ever-evolving Obama Administration's Home Affordable Modification Program (HAMP) also requires lenders (or servicers) to review the documentation and respond with an approval or rejection within 30 days.
The new guidance also details how lenders must convert a trial modification to a permanent one.
Effective June 1, 2010, the new provisions are designed to speed up the process of getting struggling home owners into mortgage modifications they can afford. It doesn't really change the documents required, just the process.
As of December, only about 100,000 of a potential 4 million eligible home owners were enjoying permanent mortgage modifications with average mortgage payment reductions of $500 a month, according to the U.S. Treasury. Another 750,000 home owners have trial modifications with the same average mortgage payment reduction.
A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, lenders lower the interest rate, extend the loan term, reduce the principal or use any combination of those approaches. Reducing the principal is rare, but there is a push afoot to encourage more principal reductions.
While a modification might stain your credit, it's considered a better deal than losing your home and your credit standing to a foreclosure or short sale.
Home owners who sign up for HAMP mortgage modifications begin with a trial modification period of at least three months. Previously, some home owners entered the trial modification with less documentation than is now required.
Now, before obtaining a trial modification, home owners who believe they are qualified must supply three types of documentation:
A completed "Request for Modification and Affidavit" (RMA) form, which provides information about the property and the home owner's financial situation.
IRS Form 4506T-EZ, "Short Form Request for Individual Tax Return Transcript" allows the lender to look at a home owner's tax return and not rely upon "stated incomes" -- the bane of many failed mortgages.
Proof of income. A checklist is available to tell home owners what documents they need for proof if they are a wage earner, self-employed, or receive retirement or receiving other income.
Within 10 days of receiving a home owner's information, the lender must, in writing, acknowledge receipt of the paperwork and describe, with a timeline, the next phase -- the evaluation process.
Within 30 days of receipt of the application, the lender must evaluate the application and request additional information if the application is incomplete. Also within 30 days, if the home owner's information is complete and otherwise meets modification eligibility requirements, and the lender grants a modification, the lender must send the home owner a trial modification plan notice.
If the requirements aren't met, the lender must notify the home owner that he or she is not eligible for a HAMP modification.
For home owners who are not eligible for a HAMP deal, the lender is required to consider the home owner for other loss mitigation options, including refinance, forbearance, non-HAMP modifications, and ultimately short sales or deeds in lieu of foreclosure.
During the 30 days, in order to review the application, the lender has a right to get a copy of a home owner's credit report and to verify the property is the home owner's principal residence.
The lender can also determine the property's value using an onsite appraisal, automated valuation model (AVM) or a real estate broker's price opinion (BPO).
Home owners who achieve a trial modification must make all payments on time to move to a permanent modification. A "permanent" modification isn't necessarily so. Years down the road, the lender can determine to continue or end the modification and revert to the original terms of the mortgage or take other steps.
Throughout the ordeal, lenders must track and maintain records of the process including phoned, written and emailed contacts with the home owner.
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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
National Offbeat News Examiner
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