FHA HAMPered by Modifications

FHA loans were excluded from the Helping Families Save Their Homes Act of 2009’s Home Affordable Modification Program. The U.S. Department of Housing and Urban Development instead would develop a stand-alone FHA program.

Today, HUD unveiled the FHA-Home Affordable Modification Program, according to Mortgagee Letter 2009-23. The program, which is effective on Aug. 15, excludes borrowers who qualify for current loss mitigation home retention options.

Borrowers will be required to successfully complete a three-month trial modification. The front-end debt-to-income ratio must be 31 percent, while the back-end DTI ratio is limited to 55 percent.

Under the new program, a partial claim of 30 percent is allowed on “the unpaid principal balance as of the date of default combined with a loan modification.” Claims include principal reduction, up to 12 past-due payments and legal and foreclosure fees and costs.

Mortgage bankers praised the new plan, which reportedly includes a second-mortgage feature.

“Allowing lenders to set aside up to 30 percent of the loan principal in an interest-free second mortgage will make it possible for lenders to reduce the monthly mortgage payment for thousands of troubled borrowers with FHA loans,” the Mortgage Bankers Association Chairman David G. Kittle stated in a news release. “We are excited to have another tool that lenders can use to help borrowers who have the ability and desire to stay in their homes, do so.”

Servicers can receive an incentive fee of as much as $1,250 — including $500 for the partial claim and $750 for the loan modification. Mortgagees can also claim up to $250 for reimbursement of recording and title search fees.

In order to receive FHA-HAMP incentive fees, mortgagees must file a claim for insurance benefits for the partial claim within a 60-day period.

HUD has hired C&L Service Corp. / Morris-Griffin Corp. as HUD’s secretary-held assets servicing contractor.