Press Release: July 30,2009
HUD SECRETARY DONOVAN ANNOUNCES NEW FHA-MAKING HOME AFFORDABLE LOAN MODIFICATION GUIDELINES
New FHA guidelines projected to help thousands avoid foreclosure per year.
WASHINGTON – U.S. Department of Housing and Urban Development Secretary Shaun Donovan today announced the Federal Housing Administration (FHA) has implemented changes to its loan modification program to ensure consistency with the Obama Administration’s Home Affordable Modification Program. By August 15, FHA borrowers will be able to significantly reduce their monthly mortgage payments by seeking a loan modification through their current mortgage company or loan servicer under the new FHA-Home Affordable Modification Program (FHA-HAMP).
“Today, we’re bringing another important tool to the table to help struggling families who are desperate to keep their homes,” said Donovan. “Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the Administration’’s Making Home Affordable program. This is just the latest tool we are providing to help homeowners prevent foreclosures through the Making Home Affordable program. Earlier this month we announced an expansion of the Home Affordable Refinance Program to borrowers who are up to 125 percent underwater. Together, these actions will significantly increase the help available to homeowners.”
The Helping Families Save Their Homes Act of 2009, signed into law on May 20, allows FHA to give qualified FHA-insured borrowers the opportunity to reduce their monthly mortgage payment by modifying the mortgage through FHA-HAMP. FHA released the program’s implementation guidelines today. FHA expects all servicers to implement the changes by August 15. The program permanently reduces a family’s monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off.
FHA has used the partial claim option in the past, which allows a lender to advance funds on behalf of a borrower, to reinstate a delinquent loan that was up to 12 months delinquent. Now, this program will allow HUD to bring the borrower’s payment down to an affordable level. This will be accomplished by bringing the mortgage current, buying down the loan by up to 30 percent of the unpaid principal balance and deferring these amounts in a partial claim.
FHA will pay an incentive to loan servicers for each FHA loan modified under this program. A Mortgagee Letter, along with detailed requirements for the FHA-Home Affordable Modification Program, was distributed to all FHA lenders today. The implementation of this program will further the Obama Administration’s efforts to stabilize the housing market by helping homeowners to stay current on their mortgages and stay in their homes, therefore preventing the destructive impact of foreclosures on families and communities.
Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Obama Administration on February 18. More than 200,000 trial loan modifications are already underway, tens of thousands of refinancings have closed, and informational mailings about the program have been sent to more than one million borrowers who may be eligible.
FHA borrowers who are experiencing difficulty making their mortgage payments should contact their loan servicer or HUD’s National Servicing Center at (888) 297-8685 to determine if they qualify for the FHA-Home Affordable Modification Program.
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HUD is the nation’s housing agency committed to sustaining homeownership; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.
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Mortgagee Letter:
| Guidance | FHA-Home Affordable Modification Program |
| Eligibility – Mortgagee | The Servicer of the modified FHA-HAMP mortgage must be FHA-Approved. |
| Eligibility – Mortgagors |
The current mortgagor(s) on the existing FHA-insured single family mortgage must be identical to the mortgagor(s) on the HAMP mortgage, except as provided below. All changes in ownership due to death or divorce of the current owners must be supported by legal documentation. The existing FHA-insured mortgage is in default, but is not more than 12 full mortgage payments past due. A default is defined as 1 payment past due more than 30 days. For default calculation purposes, all months are determined to have 30 days. For example, a mortgage due for the July payment is in default on August 1st.
The mortgagor(s) must be an owner occupant, have sufficient resources to make the payment on the HAMP mortgage and continue to occupy the home. A new mortgagor may be added to the HAMP mortgage, provided at least one existing mortgagor(s) is retained. The mortgagor must not have intentionally defaulted on their existing mortgage. (Note: Intentionally defaulted means the mortgagor had available funds that could pay their mortgage and other debts without hardship, but failed to pay). |
| Eligibility –Existing Mortgage | Must be a FHA-insured single family mortgage (1-4 units). Mortgages previously modified under HAMP are ineligible. There is no net present value (NPV) test for eligibility. |
| Eligibility –Maximum Mortgage
Amounts |
Not applicable. |
| Eligibility –Modified Mortgage | The existing FHA-insured mortgage must be re-amortized to a 30-year fixed rate mortgage, and must be modified in compliance with all FHA Mortgage Modification requirements, except those specifically modified under the FHA-HAMP program. |
| Property Eligibility | The property securing the FHA-insured property must be the mortgagor’s primary and only residence; and only single family (1 to 4 unit) properties are eligible. |
| Interest Rate – Modified New Mortgage | The interest rate must be fixed and meet the guidelines in Mortgagee Letter 2008-21. |
| Current Loan to Value Requirements Mortgage | None. |
| Loan Purpose |
FHA-HAMP mortgages are required to have a lower monthly principal and interest payment than the unmodified FHA-insured mortgage and are made without an appraisal.All existing subordinate financing must be subordinated to maintain the first lien priority of the HAMP mortgage. For more information, please see ML 2003-19. |
| Credit History | No minimum credit score required. (Credit report is only used to verify recurring debts.) |
| Seasoning Requirements on the Existing Mortgage | The first payment due date must be at least 12 months in the past, and at least 4 full mortgage payments must have been paid. |
| Property Valuation | No appraisal required. |
| Trial Modification | The Mortgagee must place the mortgagor(s) under a trial modification payment plan for the modified mortgage payment prior to completing the FHA-HAMP. The mortgagor(s) must have made the first three consecutive trial monthly mortgage payments on time before the FHA-HAMP can be completed, and a partial claim filed. |
| Documentation Requirements | The Mortgagee must obtain the following additional documentation: To be considered for any of the loss mitigation options, the mortgagor must provide detailed financial information to the Mortgagee. Every borrower and co-borrower must sign a hardship affidavit attesting to and describing the hardship. The document to be used is available for download at: https://www.hmpadmin.com/portal/docs/hamp_borrower/hamphardshipaffidavit.pdf The Department has no objection to situations where a cooperative mortgagor provides complete financial information either written or during a telephone interview. Regardless of how the mortgagor’s financial information was secured, the Mortgagee must independently verify the financial information by obtaining a credit report (the credit report is not used for credit qualification but Mortgagees are to use for determining indebtedness), and any other forms of verification the Mortgagee deems appropriate. |
| Underwriting Requirements – General | No Credit Alert Interactive Voice Response System (CAIVRS) review is required, but HUD’s Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists are still required checks for all mortgagors. FHA-HAMP processing and underwriting instructions are described below.
The mortgagor may not be charged any additional costs for receiving this loss mitigation workout option. On a cancelled foreclosure, Mortgagees are reminded that all such costs must reflect work actually completed to the date of the foreclosure cancellation and the attorney fees may not be in excess of the fees that HUD has identified as customary and reasonable for claim purposes. The financial analysis, Hardship Affidavit, and documentation supporting the decision to provide partial claim relief must be maintained in the mortgagee’s claim review file. |
| Loss Mitigation – Priority Order | FHA-HAMP can only be utilized if the mortgagor(s) does not qualify for current loss mitigation home retention options (FHA Special Forbearance, Loan Modification and Partial Claim) under existing guidelines (ML 2008-21, 2003-19, 2002-17, 2000-05). To qualify for the FHA-HAMP, Mortgagees must utilize its loss mitigation actions using the aforementioned priority order. |
| Underwriting – Monthly Gross Income |
The mortgagor’s Monthly Gross Income amount before any payroll deductions includes wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, other compensation for personal services, Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support, annuities, insurance policies, retirement funds, pensions, disability or death benefits, unemployment benefits, rental income and other income. |
| Underwriting – Front End Debt to Income Ratio |
Front-End ratio is the ratio of PITI to Monthly Gross Income. PITI is defined as principal, interest, taxes and insurance. The Front-End ratio must be as close as possible to, but not less than, 31%. |
| Underwriting -
Back End Debt to Income Ratio |
The Back-End ratio is the ratio of the mortgagor’s total recurring monthly debts (such as Front-End PITI, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income from all investment properties owned, and monthly mortgage payments for second homes) to the mortgagor’s Monthly Gross Income. This ratio must not exceed 55%. The Mortgagee must validate monthly installment, revolving debt and secondary mortgage debt by pulling a credit report for each mortgagor or a joint report for a married couple. The Mortgagee must also consider information obtained from the mortgagor orally or in writing concerning incremental monthly obligations. |
| Underwriting – Subordinate Financing | Subordinate liens are not included in the Front-End ratio, but they are included in the Back-End ratio. |
| Underwriting –Upfront Mortgage Insurance Premium | Not applicable. |
| Underwriting –Annual Premium | Remains the same. |
| Underwriting – Calculation of Maximum Partial Claim Amount |
The maximum one-time only principal reduction on the modification is determined by multiplying the outstanding principal balance of the existing mortgage as of the date of default by 30 percent reduced by (i) arrearage amounts advanced to cure the default for up to 12 months PITI and (ii) allowable foreclosure costs. However, the actual principal reduction amount for a specific case shall be limited to such amount that will bring the mortgagor(s) PITI to an amount not to exceed 31 percent of gross monthly income. Whether or not there are previous Partial Claims for a given case number, the arrearage component of this and any previous Partial Claims cannot exceed the equivalent of 12 months PITI and allowable foreclosure costs. This 12 month PITI maximum is NOT affected by any payments that may have been made to reduce the partial claim mortgage balance. |
| Partial Claim Guidelines | No interest will accrue on the partial claim. The payment of the partial claim is not due until (i) the maturity of the HAMP mortgage, (ii) a sale of the property, or (iii) a pay-off or refinancing of the HAMP mortgage. |
| In Foreclosure Process | To ensure that a mortgagor currently in the process of foreclosure has the opportunity to apply, Mortgagees shall not proceed with the foreclosure sale until the mortgagor has been evaluated for the program and, if eligible, an offer to participate in the FHA-HAMP has been made. In the event that the mortgagor does not participate in FHA-HAMP, the Mortgagee must consider the priority order, outlined in “Requirements to Use FHA-HAMP” section of this Mortgagee Letter, prior to proceeding to foreclosure. |
| 90 days Past Due | Ninety day past due mortgages must have been considered for all loss mitigation programs prior to being referred to foreclosure. |
| Escrows | Mortgagees are required to escrow for mortgagors’ real estate taxes and mortgage-related insurance payments. |
| Unpaid Late Fees Waived | The Mortgagee will waive all late fees. |
| Credit Report | The Mortgagee will cover the cost of the credit report. |
| Mortgagee Incentives | Under FHA-HAMP, the Mortgagee may receive an incentive fee of up to $1,250. This total includes $500 for the partial claim and $750 for the loan modification. To receive the incentive payments, the Partial Claim and Loan Modification must meet the requirements of Mortgagee Letters 2008-21, 2003-19, 2002-17, 2000-05, and comply with instructions and requirements in this Mortgagee Letter and Attachment. Mortgagees may also claim up to $250 for reimbursement of title search and/or recording fees. |
| Mortgagor Cash Contribution | The Mortgagee may not require the mortgagor to contribute cash. |
| Disclosure | When promoting or describing FHA mortgage options Mortgagees should provide mortgagors with information designed to help them understand the mortgage terms that are being offered. Mortgagees also must provide mortgagors with clear and understandable written information about the terms, costs, and risks of the mortgage in a timely manner to enable mortgagors to make informed decisions. FHA requires Mortgagees to comply with any disclosure or notice requirements applicable under FHA regulations and state or federal law. |
| Fair Lending | Mortgagees under this program must comply with the Equal Credit Opportunity Act and the Fair Housing Act, which prohibit discrimination on a prohibited basis in connection with mortgage transactions. FHA mortgage programs are subject to the fair lending laws, and Mortgagees should ensure that they do not treat a mortgagor less favorably than other mortgagors on grounds such as race, religion, national origin, sex, marital or familial status (i.e., families with children under age 18 and pregnant women), age, disability, or receipt of public assistance income in connection with any loan modification. These laws also prohibit redlining. |
| Consumer Inquiries and Complaints | Mortgagees should have procedures and systems in place to be able to respond to inquiries and complaints relating to loan modifications. Mortgagees should ensure that such inquiries and complaints are provided fair consideration, and timely and appropriate responses and resolution. |
| Case/Mortgage Documentation | Mortgagees will be required to maintain records of key data points for verification/compliance reviews, in accordance with Handbook 4000.2 Rev-3, Paragraph 5-8and Handbook 4155.2, Paragraph 8.B.7.c. Servicing files must be retained for a minimum of the life of the mortgage plus three years, per Handbook 4330.1 Rev-5, paragraph 1-3 E. These documents may include, but are not limited to, mortgagor eligibility, Hardship Affidavit, and qualification and underwriting. Mortgagors will be required to provide declarations under penalty of perjury attesting to the truth of the information that they have provided to the Mortgagee to allow the Mortgagee to determine the mortgagor’s eligibility for entry into the FHA–HAMP program. |
| Anti-Fraud Measures | Measures to prevent and detect fraud, such as documentation and audit requirements are described in Handbook 4060.1, Rev-2. Participating Mortgagees and Mortgagees/investors are not required to modify the mortgage if there is reasonable evidence indicating the mortgagor submitted false or misleading information or otherwise engaged in fraud in connection with the modification. Mortgagees should employ reasonable policies and/or procedures to identify fraud in the modification process. |
| Data Collection | Mortgagees will continue to be required to collect and transmit mortgagor and property data in order to ensure compliance with the program as well as to measure its effectiveness. Data elements may include data needed to perform underwriting analysis and mortgage terms, and loan level data in order to establish loans for processing during the trial period, to record modification details, and monthly loan activity reports. |
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