|Fannie Mae and Freddie Mac have released details on the recently unveiled streamline modification program for conforming borrowers.
Fannie outlined guidelines for streamlined modifications on Friday in Announcement 08-33. All approved servicers are eligible for the streamlined program.
The streamlined program was originally announced last month by the Federal Housing Finance Agency, which regulates the two secondary lenders and the Federal Home Loan Banks.
The modifications temporarily run for three months on a trial basis then become permanent if the payments are kept current during the trial period. Form 3169, a proposed Multistate Streamlined Modification Program Loan Workout Plan and Modification Agreement, is signed at the outset of the trial detailing the modification terms. A hardship affidavit is also required.
The form must be returned within 14 calendar days. Servicers should treat loans in the trial period as they would a loan in forebearance. When an interest rate adjustment is scheduled during the trial period, servicers should offer a three-month forebearance.
Borrowers who were previously discharged from Chapter 7 bankruptcy must sign a statement that acknowledges he or she will not have personal responsibility under the new agreement.
Except for the foreclosure sale, servicers should continue the foreclosure process during the trial period if it has already been initiated. In some cases, the modification must be recorded once it becomes permanent.
Qualified borrowers cannot be in litigation, in bankruptcy or on an existing workout plan and must be at least three months delinquent or in foreclosure on their owner-occupied first mortgages -- including jumbo loans. FHA and VA loans are ineligible. Only 1-unit properties are eligible, and the loan-to-value on a mark-to-market basis must be at least 90 percent. Broker price opinions are acceptable for determining the current value, though automated valuation models are unacceptable.
In its own servicer bulletin, Freddie noted that subordinate liens may be left outstanding and cannot be considered in the LTV calculation.
Fannie said escrow accounts must be established, and the servicer must fund any shortages. Borrowers have 60 days to repay escrow account shortages. The lender cannot require up-front cash contributions except for the first modified payment. Late fees and penalties must be waived.
Streamlined modifications require a recent paystub and verbal income verification to determine that the proposed payment, including escrow, doesn't exceed 38 percent of gross monthly income. Self-employed borrowers must provide their most recent tax returns.
Under the plan, accrued interest, out-of-pocket escrow advances and costs must be capitalized. If this causes the payment ratio to exceed 38 percent, then the lender can extend the term of the loan to 480 months.
If the ratio still exceeds 38 percent, then the interest rate can be reduced in 0.125 percent increments until the 38 percent ratio is reached. The lowest acceptable rate is 3.0 percent. Rates reduced to below the current market rate as reported in Freddie's Weekly Primary Mortgage Market Survey will only be in effect for five years then increased one percent annually until the market rate as of the modification date has been reached.
If the extended term and lowered rate fail to reduce the payment ratio to 38 percent, then principal forebearance can be used to bring down the ratio. The deferred principal is interest free and due in full either at the loan's maturity or the property's sale. Principal write-downs and principal forgiveness are prohibited.
While mortgage insurer approval is currently required on each deal, Fannie said it is working on a blanket delegation for all servicers from each mortgage insurance company.
Freddie said the program was effective yesterday for mortgage originated on or before Jan. 1, 2008.
Borrowers must be promptly notified in writing if they are denied for a streamlined modification. Servicers should seek another foreclosure alternative in these cases.
|Streamlined Mods for Conforming Loans
Seriously delinquent mortgages under the management of Fannie Mae or Freddie Mac may qualify for modifications to the interest rate, remaining term or principal balance under a program unveiled today by federal regulators.