Federal Deposit Insurance Corporation (FDIC) official Loan Modification Guidelines.

FDIC “Loan Mod in a Box” additional Loan Modification Tools

Background

Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow (around 4 percent of seriously delinquent loans each month). It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.

Modifications should be provided using a systematic and sustainable process. The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of term, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases or specific incentives for every modification. The FDIC would be prepared to serve as contractor for Treasury and already has extensive experience in the IndyMac modification process.

Basic Structure and Scope of Proposal
This proposal is designed to promote wider adoption of such a systematic loan modification program:

1. by paying servicers $1,000 to cover expenses for each loan modified according to the required standards; and
2. sharing up to 50% of losses incurred if a modified loan should subsequently re-default

We envision that the program can be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we expect that about half can be modified, resulting in some 2.2 million loan modifications under the plan.

Details on Program Design

• Eligible Borrowers: The program will be limited to loans secured by owner-occupied properties.

• Exclusion for Early Payment Default: To promote sustainable mortgages, government loss sharing would be available only after the borrower has made six payments on the modified mortgage.

• Standard NPV Test: In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value (NPV) of modifying past due loans compared to the strategy of foreclosing on them will be applied. Under this NPV test, standard assumptions will be used to ensure that a consistent standard for affordability is provided based on a 31% borrower mortgage debt-to-income ratio.

• Systematic Loan Review by Participating Servicers: Participating servicers would be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard NPV test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.

• Reduced Loss Share Percentage for “Underwater Loans”: For LTVs above 100%, the government loss share will be progressively reduced from 50% to 20% as the current LTV rises.¹ If the LTV for the first lien exceeds 150%, no loss sharing would be provided.

• Simplified Loss Share Calculation: In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation would be based on the difference between the net present value of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale or REO sale, net of disposal costs as estimated according to industry standards. Interim modifications would be allowed.

• De minimis Test: To lower administrative costs, a de minimis test excludes from loss sharing any modification that did not lower the monthly payment at least 10 percent.

• Eight-year Limit on Loss Sharing Payments: The loss sharing guarantee ends eight years of the modification.

This is where things can get confusing: a loan remodification is doing the same as mentioned above after you have already successfully went through the process the first time. The problems begin when the modification is accepted just because it’s better than what someone may have now, but it’s not good enough long-term for that homeowners overall situation. Most banks don’t make it easy for homeowners to modify the first time around, that’s why so many people are turning to companies with experience, such as a non-profit or a law firm. The second time is even harder: a loan remodification means it didn’t work the first time. Why go through the effort again for no reason, can be the bank’s rationale.

This in my opinion is why a certifed representative working on your behalf, can be so valuable. If you are in a situation where you have already modified your loan and it doesn’t look like it’s going to work, contact your lender or someone who can work on your behalf with them. If you are going to have a chance in making your loan remodification work, the best bet is to do it before you become delinquent again.

The “Home Affordable Refinance” program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the “Home Affordable Refinance” program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the
banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines
that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded
and improved Hope for Homeowners program.

With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford
their payments. The detailed guidelines (separate document) provide information on the following:

Eligibility and Verification

• Loans originated on or before January 1, 2009.
• First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
• All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
• Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
• Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
• Modifications can start from now until December 31, 2012; loans can be modified only once under the program.

Loan Modification Terms and Procedures

• Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
• Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.
• Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.
• Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
• The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
• The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
• Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers

• The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
• Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.
• Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
• The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
• The program will include incentives for extinguishing second liens on loans modified under this program.
• No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.
• Similar incentives will be paid for Hope for Homeowner refinances.

Transparency and Accountability

• Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.
• Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
• Freddie Mac will audit compliance.

Of course we realize that this is a lot of information to digest. Feel free to give us a call at 1-866-236-8896 if you are unsure if the plan applies to you. Our dedicated staff will go over your personal scenario and will help figure out the best option to if you qualify for the loan modification or remodification.

Foreclosure is a very common problem, as many people go into the home buying process thinking that they will be fine, only to find out one they are actually in it that they have so many other bills or bought a house that was too expensive and they are simply unable to make their mortgage payments.  The problem is exaggerated further by the current economic crisis, plunging home values and rising unemployment rates.

Of course no one wants to have their home taken away from them, not only for sentimental reasons but also because you will be in a lot of financial trouble and have to go to the effort of finding a new home…so many problems, which is why it is important that you make sure you do not have foreclosure put onto you.

Tips

There are a few tips in particular that will help you avoid foreclosure on your home. For one, you always need to budget. It is best to write out the amount that you and your partner are making each month, as well as the total amount of all your bills.

Set your bills in order of priority, making your mortgage one of the most important of course, so that you can see where your money is going and make sure that it is getting to the right places first. For instance you may have bills that you are paying which could be held off for a bit or even eliminated altogether.

Your mortgage is crucial and you need to make sure that you make all of your payments in a timely manner, in order to avoid having your home taken away from you.

Don’t ignore the problem. If you do end up getting letters saying that you are in trouble you should not just throw them out thinking that you can avoid it for a while.  Some homeowners, for instance, may even able to contact their lender directly and in certain (though rare) cases negotiate their way out of the situation.  Currently a number of government mortgage relief programs are being implemented to help homeowners in trouble.  It is important to find a right company to help you navigate among these programs and negotiate a mortgage relief on your behalf.  In some instances you may be able to lower your mortgage payments to an affordable level while adjusting your mortgage to be on par with the current home value.

Many of homeowners have questions regarding the President Barack Obama’s Housing Plan. A lot of Americans are in various stages of foreclosure and the help can not come soon enough. So who is eligible?

The program is expected to help those who are in danger of not making their monthly payments. The applicants do not have to be behind, but may be asked to demonstrate that they may be short on making their monthly payments. The program’s eligibility is determined by whether the monthly mortgage payment is above 31% of applicant’s gross income. Jumbo loans (the loans over $417,000) are not eligible and neither are second mortgages.

The lenders and loan servicers are encouraged to participate in the program by receiving subsidies and various incentives from the government but are not otherwise required to participate. Servicers receive $1000 per loan modification and will continue receiving $1000 each year for three years if the borrower continues being current on the loan.

Watch an interview with Early Show’s financial adviser Ray Martin, who answers some of the questions.

Housing Plan HASP

WASHINGTON — When it comes to homeownership, Hispanics in New Jersey, single parents in California and senior citizens in Rhode Island all have something in common: More than a third have an unaffordable mortgage.

Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data.

While minorities have made significant gains in wealth and home ownership since 1990, “things are going into reverse gear,” and now the homeownership rate for blacks and Hispanics is falling, said Edward Wolff, a New York University economist who studies income and wealth distribution.

Nearly 9.5 million households, or nearly one out of every five of the nearly 52 million homeowners with a mortgage, spend 38 percent or more of their pretax income on their mortgage payment, property taxes and insurance, the AP’s analysis found. That’s the new threshold to qualify for the loan assistance program launched last month by Fannie Mae and Freddie Mac, the mortgage finance companies now under government control.

Not surprisingly, the most financially burdened are in California, Florida, Nevada and the Northeast, areas hardest hit by soaring home prices and now foreclosures.

Yet in every state, there are many pockets of homeowners who are just one unexpected medical bill or car repair from falling behind on their mortgages and setting the foreclosure clock ticking.

The AP’s analysis reveals the enormous scope of the U.S. housing market bust and how unevenly the burdens are spread, both geographically and demographically. And the situation is worsening — a record 10 percent of U.S. homeowners with a mortgage are at least one payment behind or were in foreclosure as of last fall, compared with 7.5 percent a year earlier and just under 6 percent in 2006.

The burden is clearly more arduous among minority households, the AP analysis found.

Just under a third of Hispanic homeowners spend at least 38 percent of their income on housing expenses, compared with about a quarter of Asian and black households and nearly 16 percent of white households.

In much of the country, the trend is more pronounced. For example, included among those who spent at least 38 percent of their income on housing are:

About 40 percent of black borrowers in California, Nevada, Oregon and Massachusetts.

More than 30 percent of of Asian borrowers in California and Florida.

Nearly half of Hispanic homeowners in Rhode Island and at least 40 percent in Alaska, California, Florida, Hawaii, Maryland, New Jersey and New York.

Many Latino families wound up with expensive subprime mortgages because they often have cash income and no bank account, said Janis Bowdler, associate director for wealth building at National Council of La Raza in Washington.

It is common for Latino families to have stable incomes, but limited credit histories — and hence lower credit scores, which lenders use to gauge risk. Many have multiple sources of income, some of it in cash.

During the housing boom, consumer advocates say it was both faster and more profitable for mortgage brokers and loan officers to put Hispanic families in loans that didn’t require proof of income, but charged higher interest rates.

“They had them out the door in a fraction of the time,” Bowdler said. “They were definitely getting more expensive loans.”

Now, Hispanic households like the Cazares family of Visalia, Calif are caught up in the mortgage crisis. Out of work for more than a year after contracting a rare disease caused by an airborne fungus, Joel, 36, brings in $550 a week in disability payments. His wife Maria, 34, makes about that much money weekly by working as a hair stylist.

They haven’t made their $2,500 home loan payment in four months. The couple, who have three kids, have been waiting since October for a loan modification from IndyMac Bank, which was seized by the federal government last July. They hope it will bring their payment down to a more manageable level of around of $1,500.

In the meantime, they buy supersized bags of generic cereal to make ends meet. They’ve canceled their Internet service and are only using one of their two cars, a pickup truck, because it gets better gas mileage.

Our money’s like a piece of gum,” Joel Cazares said. “We’re making it stretch as far and as long as we can.”

The AP’s analysis also found that education level is highly correlated with income and mortgage expenses. Nearly one in three of those without a high school or college diploma spend at least 38 percent of their income on housing, compared with only 12 percent of those with advanced degrees, the AP analysis found.

In addition, seniors spent a far higher share of their income on housing than any other age group.

While about half of seniors own their homes outright, the other half often face financial challenges and diminished earning potential.

Among seniors with a mortgage, nearly three in 10 spend at least 38 percent of their income on housing, according to the AP analysis. The stress is most severe in nine states: California, Washington D.C., Florida, Massachusetts, Nevada, New Jersey, New York, Rhode Island and Vermont.

As the pain from the mortgage crisis spreads, Washington is abuzz with talk of new efforts to stabilize the housing market and stop the freefall in home prices. President-elect Barack Obama has pledged to direct up to $100 billion in financial bailout money toward a sweeping effort to prevent foreclosures.

Frustrated housing counselors around the country say that if the Bush administration had grasped the severity of the foreclosure crisis earlier and enacted more ambitious programs long ago, the pain for American families and the economy might not be so severe.

“So far, we haven’t seen the mortgage products or resources that we really need to help people who are at risk of losing their homes,” said Brenda Clement, executive director of the Housing Action Coalition of Rhode Island.

To be sure, housing counselors acknowledge that some borrowers only have themselves to blame. They clearly got in over their heads and many knowingly took out risky loans. But they also say that mortgage brokers and lenders took advantage of the elderly, immigrants and the unsophisticated.

For decades, the government and most lenders considered homeowners who spent 30 percent or more of their income on housing to be financially strapped.

But that rule of thumb got thrown out the window during the housing boom. When prices were soaring, many Americans could only afford to buy a home by taking out ever-riskier home loans. Lenders were happy to cooperate, because if the homeowner defaulted, the property could still be sold for enough money to cover the loan.

House-rich and giddy, American attitudes about debt and the risks that go with it changed dramatically.

“The average American is in hock up to his eyeballs,” said David Wyss, chief economist at Standard & Poor’s in New York.

That’s especially true now that prices are falling and around 13 million households, or about one in four with a mortgage, owes more to the bank than their properties are worth, according to Mark Zandi, chief economist at economic forecasting firm Moody’s Economy.com

One of those “underwater” borrowers is Heather Noble, 36, who lives outside Detroit and can see five foreclosures from her front porch. A single mother, she struggled to make her mortgage payment since being laid off from her job in October 2007.

Late last summer, she started a $17-an-hour job handling billing for a doctor’s office, but making her home loan payment of around $1,000 a month was a stretch because her take-home pay is at most $1,600 a month, depending on the amount of time she works.

Starting last spring, she spent hour after hour on the phone talking to what she describes as “every human being and division possible” at JPMorgan Chase & Co., before obtaining approval for a loan modification.

Noble’s modification had been held up until the fall, and she was actually blocked from making her monthly payment until the Associated Press made an inquiry into her case. “In the large volumes that we’re handling, we occasionally will miss something,” spokesman Tom Kelly said.

Her two home loans have now been modified. Effective Feb 1., her new monthly payment will be a much more affordable $683 a month.

“That I can pay,” she said. “Now I can pay my bills and stay current and not worry about losing my house.”

Among single parents like Noble, more than a quarter in Michigan and about 27 percent nationwide spend at least 38 percent of their income on housing. And in California the strain is far worse: About four in 10 single parents meet that threshold.

And what worries Avis Holmes, director of Detroit Non-Profit Housing Corp. in Detroit, is that much of the government’s financial aid isn’t targeted at those who are in the greatest danger of losing their homes.

So far, Holmes said, “there are no rescue funds for the homeowners.”

reported by FoxNews.com on Thursday, February 19th 2009

mortgage modification program