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Financially distressed homeowners with Freddie Mac mortgages will have a new option for loan modifications beginning next month.

The new option, called a Standard Modification, is designed for borrowers who are ineligible for a Home Affordable Modification Program (HAMP) loan modification or have previously defaulted on a HAMP or other loan mod. For those who are approved, the program reduces a borrower’s mortgage principle and monthly payment by at least 10 percent each, thereby making the payments more affordable.

To qualify, homeowners must be at least 60 days past due on their mortgage, that is, having missed at least two monthly payments. Those who are not at least 60 days past due can qualify by proving they are in imminent danger of default, through demonstrating an eligible hardship and providing verification of income.

Mortgages that are modified will have their interest rates set to 5 percent and the amortization period (time required to pay off the mortgage) extended to 40 years from the time of the modification. Lenders approving such modification will receive cash incentives of up to $1,600 per homeowner approved.

Borrowers approved for the program must undergo a three-month trial period during which they must keep up with their new payment schedule before the loan modification is finalized and made permanent, similar to HAMP. Lenders will have incentives to encourage them to finalize borrower’s status within two months of the end of the trial period.

Lenders may begin trial modifications for approved homeowners under the program as soon as Oct. 1, 2011. As of Jan. 1, 2011, all borrowers seeking a loan modification of any type on a Freddie Mac-supported mortgage must be evaluated for eligibility under the program.

The new Standard Modification replaces an existing type of Freddie Mac loan modification called a Debt Coverage Ratio, which now is being referred to as a Classic Modification. The government’s HAMP loan modification will continue to be available as well.

More info. here.

http://community.nasdaq.com/News/2011-09/freddie-offers-new-loan-mod-option.aspx?storyid=94347

Getting on-time borrowers with high loan-to-value ratios into refinanced mortgages is likely to be a key focus of any federalrefinancing plan to stave off defaults, according to analysts at Barclays Capital. Allowing borrowers with higher LTVs to refinance at lower rates is part of the government’s attempt to reduce credit risk for Fannie Mae and Freddie Mac, the analysts said. The Federal Housing Finance Agency (FHFA), which oversees the mortgage giants, is considering removing barriers for borrowers with LTVs past 125% to refinance. “If there are frictions associated with the origination of Home Affordable Refinance Program (HARP) loans that can be eased while still achieving the program’s intent of assisting borrowers and reducing credit risk for the enterprises, we will seek to do so,” said Edward DeMarco, acting director of the FHFA.

Barclays analysts said Demarco’s statement argues for improving the HARP program, not expanding it. “It seems that the FHFA is not looking to increase the amount of borrowers eligible for the HARP program by expanding the cut-off date, but is rather
looking to enhance the efficacy of the existing program for current HARP-eligible borrowers,” according to the BarCap analysts. Changes to the two-year old federal plan have some concerned about a possible wave of refinancings and what that would do to mortgage-backed securities. “There is also likely to be a renewed focus on refinancing high LTV borrowers with strong pay histories, in a shift from the current scenario, where it effectively became a streamlined refinancing vehicle for low LTV borrowers,” the analysts said.

With the number of foreclosures on the market at record highs, many troubled
homeowners are looking for other options to avoid the damage to their credit
and to simply get out from underneath their home loan as soon as possible.
They often have a better chance of qualifying for a new mortgage soon after
completing a short sale than if they were to go through a foreclosure. Banks too
sometimes prefer an owner to do a short sale because it saves them from the
expensive cost of a foreclosure.
As a result, there are more homeowners who are avoiding foreclosureby going
through a short sale. Last year, short sales accounted for about 10% of the
the second quarter of 2011, a 7% increase year-over-year. In Colorado, they
accounted for 17% of homes sold (also a 7% increase year over year). Bank of
America expects to complete at least 100,000 short sales this year, which is
twice as many as it completed in 2009. A Well Fargo senior vice president
number of homes on the market nationwide. That figure has increased by 2%
and short sales now account for about 12% of the homes on the market. In some
states –such as Georgia,Michigan, Nevada, California and Colorado – short sales
have become still more prevalent.
In California, for example, short sales accounted for about 25% of homes sold in
claims that short sales have increased recently because there are notas many
bank-owned homes on the market in some areas, leaving eager buyers to
actively seek out short sales.

The Federal Housing Administration (FHA) has released a notice to servicers outlining new guidelines pertaining to trial payment plans for FHA loss mitigation actions. The new rules go into effect October 1.

When offering permanent modifications or partial claims, servicers must implement trial payment plans for any borrowers who have missed at least two payments in the past year; have failed a HAMP trial payment plan; have a net surplus income of less than 20 percent of their total net income; or whose mortgage was originated fewer than 14 months ago.

Trial plans are also required when a borrower has been 90 or more days delinquent at any time in the previous 36 months; has defaulted within 90 days of a loss mitigation action in the past year; or in any case when a servicer feels a trial period is necessary.

“A trial payment plan is an important tool for confirming a mortgagor’s readiness and ability to make regular monthly mortgage payments and avoid re-default,” theFHA stated in its letter to servicers.

All trial payment periods must last for at least three months.

For any FHA loan modifications, the FHA prohibits servicers from including any provisions which would require a borrower to relinquish his or her right to loss mitigation options.

Under a new state law, any lender who agrees to a short sale, which by definition will yield insufficient funds to cover the
outstanding loans on a property, must accept it as payment in full for all loan balances. That is a good thing for upside-down
homeowners who need to sell, says the California Association of Realtors.  ”The signing of this bill is a victory for California
homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale
closes, and demand an additional payment to subsidize the difference,” said association President Beth L. Peerce.  ”SB 458
brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale
payment on a property, all lien holders — those in first position and in junior positions — will consider the outstanding
balance as paid in full and the homeowner will not be held responsible for any additional payments on the property,” she
added.

DS News

The nation’s leading mortgage lenders are extending extras for short sale transactions employed as an alternative to foreclosure – both in the form of monetary incentives for borrowers and streamlined procedures for real estate agents.

Wells Fargo says it has been making “enhanced financial relocation assistance offers” that can be as much as $10,000 or $20,000 to certain borrowers who choose to go through with a short sale or transfer the title back to Wells via a deed-in-lieu.

This extra incentive is being offered to distressed borrowers in Florida and other states where the foreclosure process is lengthening, a spokesperson for Wells Fargo explained. The exact amount of the relocation funds provided to individual borrowers varies based on a number of factors, the company says.

Wells Fargo noted that this type of additional relocation assistance is only available on first-lien loans that the company itself owns – which represent only about 20 percent of the loans Wells Fargo services. The company must follow investor guidelines for the remaining loans it services.

JPMorgan Chase is also offering a range of incentives to borrowers that agree to a pre-foreclosure sale “because if we can’t work out a modification, a short sale is a better result for the borrower, the servicer, the investor, and the neighborhood than a foreclosure,” the company said in a statement.

Chase says the amount of the offer “depends on a number of factors” but declined to share specific details on how much money it’s been providing to short sellers. One agent in Florida confirms that he has indeed received a letter from Chase offering $20,000 to a borrower he’s representing in a short sale transaction.

Citi has confirmed that its average incentive offer is currently $12,000 for borrowers in cases where Citi owns the loan.

“Incentives are offered to customers experiencing financial hardship who need funds to proceed with the short sale,” a spokesman for the lender explained.

The amount, which is agreed upon upfront, varies according to the borrower’s individual circumstances and loan characteristics, Citi said. It is disbursed to the homeowner when the short sale is completed.

Bank of America says it is “committed to improving the short sale process” and has made procedural changes to cut some of the red tape for agents working with the bank on pre-foreclosure sales.

The lender now allows real estate agents to submit a backup offer on a transaction if the original buyer has walked away from the sale.

This means that agents no longer have to initiate a new short sale if the buyer changes, Bank of America explained. Instead, agents can move ahead with the original transaction in the Equator system, BofA’s short sale technology platform of choice, and continue to work with the same short sale specialist.

Bank of America says this policy change will save its agents time by not having to repeat a number of process steps.

According to officials administering the initiative, the Treasury Department is considering more changes to the Home Affordable
Foreclosure Alternatives (HAFA) program in order to boost short sales and deeds-in-lieu of foreclosure.  In May, the Treasury
hosted a HAFA summit with representatives from the mortgage industry. They included mortgage servicers, investors, real
estate professionals and insurers – the direct stakeholders in a short sale decision.  A Treasury spokesperson said they are
looking at making “modest changes and clarifications to program guidance,” but no details could immediately be given.

HAFA launched in April 2010 to provide servicers an incentive to boost short sales and DILs for loans that fell out of the larger
Home Affordable Modification Program. Through May, participating servicers started 17,781 agreements under HAFA and completed
8,541.  JPMorgan Chase started nearly one-third of the agreements already in the process.  In January, the Treasury eliminated some
HAFA rules that constricted eligibility. For instance, servicers are no longer required to verify a borrower’s financial
information or determine if the borrower’s total monthly mortgage payment exceeds a 31% debt-to-income ratio.  But through April,
the top-10 servicers provided more than 113,000 short sales and DILs through their own private programs. That’s nearly 10 times
the amount of HAFA.

A wider HAFA program could cut into the 2.1 million trial modifications the top-10 servicers denied or canceled due to
insufficient documentation, redefault or the borrower was deemed ineligible through April. Roughly 646,000 of these loans received
an alternative modification, but servicers started another 307,000 and completed 136,000 foreclosures through April,
according to the Treasury.

With no sustained pickup in the job market, over six million Americans have been unemployed for longer than 27 weeks. Such extended periods of joblessness remain the predominant force behind the industry’s high volume of seriously past-due mortgages.

With these realities weighing on an already fragile market, the federal government said Thursday that it will extend mortgage relief for unemployed homeowners to a year under the Federal Housing Administration (FHA) and Making Home Affordable (MHA) programs.

For those with an FHA loan, the administration is requiring servicers to extend the forbearance period for unemployed homeowners from four to 12 months. The agency says it will also remove upfront hurdles to make it easier for borrowers who’ve lost their jobs to qualify for FHA’s special forbearance program.

All FHA-approved servicers must participate in the agency’s loss mitigation program, which includes the special forbearance program. FHA also reemphasized its requirement that servicers conduct a review at the end of the forbearance period to evaluate the borrower for all applicable foreclosure assistance programs and notify the borrower in writing whether or not they qualify for additional help.

The administration also intends to require servicers participating in MHA to extend the minimum forbearance period offered under the Home Affordable Unemployment Program (UP) from three to 12 months wherever possible under regulator and investor guidelines. Additionally, forbearance under UP will become available to borrowers who are seriously delinquent.

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Wells Fargo completed or started trials on roughly 585,000 mortgage modifications through its private programs since the beginning of 2009, more than five times the 101,000 initiated through the Home Affordable Modification Program (HAMP). HAMP launched in March 2009 but almost immediately drew criticism. Treasury officials admit the more than 3 million modifications initially promised was over estimated. Through May, servicers started roughly 731,000 permanent loan modifications and have been averaging between 25,000 and 30,000 per month this year. According to a recent poll of housing counselors, only 9% of borrowers who entered the program described it as a “positive” experience. Homeowners continually blame servicers for mishandling documentation. Overwhelmed servicers point out many borrowers are simply out of reach. “Avoiding foreclosure is a top priority for us and when customers work with us, we can help seven of every 10 to stay out of foreclosure,” said Teri Schrettenbrunner, senior vice president, Wells Fargo Home Mortgage. The Treasury points out most of the private programs built since the foreclosure crisis use HAMP as a model. But since mishandled foreclosure and modification processes came to light late last year, new standards were put in place, including a single point of contact that servicers are required to provide throughout the loss-mitigation process. The Treasury began to clamp down on poorly performing servicers — at least to the extent their contracts with these firms allow. In June, the Treasury announced it was withholding HAMP payments from Bank of America, JPMorgan Chase and Wells. Schrettenbrunner said the bank continues to build on its primary contact model it established last summer, and the bank has met with 58,000 borrowers at 31 home preservation workshops. Half of those received a decision on the spot or shortly after the event. Schrettenbrunner said the department continues to “aggressively reach out” to borrowers behind on payments to bridge the communication gap as quickly as possible. “We also continue to aggressively reach out to customers 60 or more days behind on their home loans via mail and telephone in an effort to engage them,” Schrettenbrunner said.

Fannie Mae and Freddie Mac servicers provided 86,201
modifications in the first quarter, down 28% from the previous
quarter, according to the Federal Housing Finance Agency.  The
drop comes after modifications fell 18% in the fourth quarter.
Combined with repayment and forbearance plans, servicers retained
nearly 144,000 homes in the period. Servicers also started
260,000 foreclosures, and although that is down from 310,000 from
the previous quarter, it’s nearly double the amount of homes
retained.  Servicers provided 26,000 permanent workouts under the
Home Affordable Modification Program, up from 17,000 in the
previous three months. Another 64,000 loans were put into active
HAMP trials, meaning the majority of the modification activity
for Fannie and Freddie mortgages went through HAMP.

Since the Treasury Department launched HAMP in March 2009, Fannie
and Freddie servicers permanently modified more than 320,000
mortgages, according to FHFA data.  Short sales and deeds-in-lieu
of foreclosure remained nearly unchanged from the previous period
at roughly 27,500.  Roughly 44% of the borrowers said their
reason for delinquency was a curtailment of income, compared to
14% who said they had too many obligations and 4% who pointed
their continued unemployment.  Refinancing through the Home
Affordable Refinancing Program totaled 130,204 in the first
quarter, down 8% from the previous quarter. However, more than
16,000 of the refinancings were done on loans with a
loan-to-value ratio of 105% or higher in the first quarter.

The amount of delinquent loans on Fannie and Freddie balance
sheets declined.  Mortgages between 30- and 60-days delinquent
totaled 553,000 in the first quarter, down 16%. There were 1.3
million loans more than 60-days delinquent, which dropped 7% from
the previous period. And loans in serious delinquent or in the
foreclosure process dropped to 1.19 million, down 5% from the
previous period.  Seriously delinquent loans dropped to 4.02% in
the first quarter, down more than 20 basis points from the
previous period.