If you’re more than 15% underwater on your mortgage and are eligible for HAMP, you could benefit from changes that will hopefully motivate lenders to writedown more principal in more cases. The changes will require all servicers to consider an alternative modification approach which includes writedown of some principal for loans that are over 115 percent of the current value of the property (LTV).
The program is scheduled to roll out in May, but The Treasury doesn’t expect lenders to have finalized programs in place until the Fall. Just like the original HAMP, it will take them time to investigate exactly what the requirements are and how to comply with them
Participation is Not Required
They added and changed a lot of stuff in HAMP last week (as we reported a couple weeks ago), butone thing they haven’t changed is the program is still optional for lenders. If your lender doesn’t participate, there’s not much you can do about it, but most of the country’s largest lenders, servicers, and investors have signed on.
Principle Writedrown is Not Required
There are increased financial incentives for servicers so you can hope that when a principal write-down yields a greater economic benefit, based on the net present value (NPV) test comparison (the same test everyone loves so much now!), lenders will choose to pursue the principal writedown option when they are legally permitted to do so. Remember that they may have agreements or contracts in place that forbid them from writing principle down.
It’s Up to the Servicers to Contact You
According to the Treasury Department release, it’s up to the servicers to contact you if you’re eligible for the writedown program. They’ve been so good about staying in contact with borrowers so far, I’m sure this will work just fine! That’s sarcasm, by the way…
I’d recommend contacting your lender if you think you’re eligible. Presumably, they want you to wait so you don’t clog up the phone lines before they have the answers. But I wouldn’t hold my breath waiting on them to contact you. Give them several weeks or a month and then call.
They Don’t Have to Review Previously Approved HAMP mods
If your mortgage has already been modified by HAMP, the lender doesn’t have to review your loan again under the new program. The guidance says they can review it and are eligible for the new incentives if they do, but they’re not required to.
Incentives that Make Sense
There’s finally been some thought put into decent incentives to motivate both borrowers and servicers/investors to comply with the program. For example:
- Servicers will earn increased incentives for offering principal writedowns in conjunction with a HAMP modification.
- The alternative payment reduction option will allow homeowners to regain lost equity in their homes just by remaining current on their modified payments.
Servicers will initially forbear some or all of the principal balance over 115 percent LTV as needed to bring your payment to 31 percent of your income. Then, servicers will forgive this forborne amount in three equal amounts over 3 years, as long as you remain current.
Where Can I Get More Information?
- The new Making Home Affordable Consumer FAQ
- The HAMP Improvement Fact Sheet
- The HAMP Improvement Example Sheet (very instructive and helpful!)
- Sign up for Truth in Foreclosure updates below