by Ralph Roberts
The Treasury Department recently released its Home Affordable Modification Program Guidelines (part of its Making Home Affordable initiative), which include eligibility requirements to determine which homeowners qualify for relief under the plan. Following are the eligibility requirements as specified in the guidelines:
- Mortgage must have originated on or before January 1, 2009.
- Home must be an owner-occupied primary residence (verified with tax return, credit report, and other documentation such as a utility bill) – this program is not designed for investor-owned properties.
- Home must be a single family 1-4 unit property (including condominium, cooperative, and manufactured home affixed to a foundation and treated as real property under state law).
- Home may not be vacant or condemned.
- Borrowers in bankruptcy are not automatically excluded from consideration.
- Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.
- First lien loans must have an unpaid principal balance (prior to capitalization of arrearages) equal to or less than:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Foreclosure actions are suspended (not cancelled) during the trial period or while borrowers are considered for alternative foreclosure prevention options. If homeowners fail to qualify, foreclosure proceedings may resume.
- No minimum or maximum LTV ratio for eligibility purposes.
- Loans are eligible for only one loan modification under the program.
- Subordinate liens (such as second mortgages or home equity loans or lines of credit) are not included in the Front-End DTI calculation, but they are included in the Back-End DTI calculation. Back-End DTI is used to determine whether the borrower will be required to undergo credit counseling as a condition to modification.
- Servicers should follow any existing express contractual restrictions with respect to solicitation of borrowers for modifications. Applicants will be accepted into the program only until December 31, 2012 (the program expiration date), but incentive payments will continue up to five years after the date of entry into the Home Affordable Modification Program. Monitoring will continue through the life of the program.
When discussing this program with homeowners in your area, it’s a good idea to point out the following:
- Eligibility requirements are simply government guidelines. Guidelines may change, and lenders make exceptions, if it is in their best interest to do so. In other words, homeowners should not count themselves out. If they are having trouble making their house payment, they should explore the loan modification option. Sometimes, the only way to determine whether you qualify is to apply.
- Not all servicers, lenders, or investors are required to participate in the program at this time. The program is designed for Fannie Mae and Freddie Mac mortgages, but the plan’s incentives may encourage servicers, lenders, and investors to modify other types of mortgages, as well.
- The individual servicers that agree to participate in the program are required to sign a contract agreeing to abide by the program guidelines. If the servicer does not contract under the program, they are not eligible for incentive payments.
- Homeowners should consult a specialist who works with lenders on a daily basis to review their situation and determine whether the homeowners are likely to qualify for whatever workout options are available through the lender. Sometimes the only way to determine whether a homeowner qualifies is to submit an application.
During this unprecedented crisis in the housing industry, you can play a valuable role in keeping homeowners in your area well-informed of the programs available to help them keep their homes. I encourage you to do your part to preserve the American Dream of Homeownership and stabilize your corner of the housing market.