Updated guidelines for federal loan modifications have been issued, while bank regulators have adopted a new rule about how to risk weight modified loans. A change this month is expected to improve credit scores for borrowers whose loans are modified.
In Announcement 09-31, Fannie Mae reviewed updates to the Home Affordable Mortgage Program. Among the updates were new standard HAMP documents that must be implemented by March 1, 2010. Other changes included the implementation of the net present value evaluation as of Dec. 1. If the NPV is positive, servicers do not need to forebear more than 30 percent of the mortgage balance or a mark-to-market that would push the loan-to-value below 100 percent — whichever is greater.
Fannie clarified that the age of income verification cannot exceed 90 days on the NPV date. Servicers must obtain the most recently filed tax returns when borrowers are in imminent default, and they no longer need to determine how long benefit income, alimony or child support will continue. Non-taxable income should be grossed up 25 percent, and net rental income must equal 75 percent of gross rent. Passive and non-wage income that doesn’t exceed one-quarter of the borrower’s gross income needs only to be declared by the borrower — unless the borrower is in imminent default.
Non-borrower income that is regularly contributed to the household can be considered without considering the non-borrower’s debt, Fannie said. Occupancy can be verified on the credit report.
Former Fannie executive Ed Pinto issued a statement indicating a new unemployment benefit estimation tool was developed by Fannie in collaboration with Freddie Mac, the U.S. Department of the Treasury, the U.S. Department of Labor and the Federal Reserve. The HOPE NOW alliance also helped with the development of the tool, which is used in determining modification approvals.
The Office of the Comptroller of the Currency, Department of the Treasury; Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of Thrift Supervision adopted a final rule that allows banks, savings associations and bank-holding companies to risk weight — for purposes of the agencies capital guidelines — mortgages modified under the HAMP using the same risk weight assigned to the loan prior to the modification. In order to qualify, the loan must continue to meet other applicable prudential criteria.
The final rule is effective 30 days after it is published in the Federal Register.
Florida Attorney General Bill McCollum sent a Nov. 17 letter to executives at Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. calling for a more fair and efficient loan modification process. He also seeks a meeting with the executives.
“I have heard from hundreds of homeowners across our state who are desperately trying to save their homes by reducing their monthly payments or modifying the terms of their mortgage,” McCollum said in the announcement. “Homeowners who experienced excellent customer service from their banks at the time they originated their loans are now frustrated and disillusioned by the lack of response and cooperation they have received from their banks.”
Credit scores can be impacted by as much as 100 points from a loan modification, according to a recent statement form Linda Schneider at Wilson & Associates, PLLC. The reason is because loan modification payments are reported as partial payments.
But beginning this month, Schneider said a new classification code will be used by lenders to report modification payments to credit bureaus. The code will identify the payments as HAMP payments and cause less damage to borrower credit scores.
