Plenty of Loopholes in New HAMP Writedown Plan

Program Details

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

The Loopholes

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:

  1. Servicers will earn increased incentives for offering principal writedowns in conjunction with a HAMP modification.
  2. 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?

  1. The new Making Home Affordable Consumer FAQ
  2. The HAMP Improvement Fact Sheet
  3. The HAMP Improvement Example Sheet (very instructive and helpful!)
  4. Sign up for Truth in Foreclosure updates below
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4 Comments For This Post

  1. eddie Says:

    what about people that have fannie mae loans & its being serviced by other servicer will they get principal write down after modification was done?

    Todd Reply:

    If your modification is already complete, the answer is no. If it hasn’t completed yet, the answer is maybe…talk to your servicer. There are NO hard and fast rules and what I say is only a guess because ultimately, it’s all up to the servicer and investor.

  2. nathy heng Says:

    First I’d like to say Thank you!!,your updates information some is related to my case. I lost my job about 10 months ago,I and my wife currently have 2 mortgages ,The 1 house is renring ,that pays the mortgage.the 2 house, is our residence. About 3 weeks ago ,I contacted the Wells fargo bank for a forbearance and the lender asks my financial and expense ,I supplied them all, when i called a few day later, they said that , my mortgage is on time not late yet,so I have to wait.but this month April’s payment i did not pay yet. What ‘s your idea?.I’d like to hear your idea. and thank you very much. Nathy

    Todd Reply:

    If they say you need to be late before you can qualify for the program, I’d go ahead and miss the payment. Don’t spend the money, though…save it. If you’ve been without work for 10 months and you haven’t missed any payments yet, how have you been paying? As far as I know, you’re not required to miss payments to qualify…only be in imminent danger of default.

    You could check with a local HUD counselor too…although the waits can be long and the quality of advice quite hit or miss.

  3. jim renfrew Says:

    Remember that they may have agreements or contracts in place that forbid them from writing principle down. that’s says it all and most are just servicing your loan.and wont even give you a modification.so that’s not going to help a lot of us.

  4. Sonia Says:

    I am on my 4th month of my trail plan and paying on time. IndyMac keep telling that they are reviewing my case but at this point I am going month to month not knowing if i will have to move out of my. Now a litigator – after 8 months os sending documentation they requested – wants to speak to me regarding my finance. Nothing has changed at my end in relation to a new job or receiving income. I get money from family and from a room i rent in the house, what kind of income am i going to give the litigation department and would this be a reason for foreclosure?

    Todd Reply:

    Thanks for asking. Are you sure it was a ‘litigator’ and not a ‘loss mitigator’ that requested your information? Loss mitigators are the ones that work modifications. There’s really no reason for a litigator to ask for information…you’d normally just get a notice of default either in the mail or delivered by the sheriff. But since you’re not late, they have no legal reason to foreclose on you yet.

    Even if nothing has changed, they’ll need current financial information, bank statements, etc so they can see that nothing has changed. Because people’s financial lives can change very quickly, bank processes move so slowly, and program requirements change frequently, they have to have the most current information possible before they can process your final modification.

    I hope this helps. Please feel free to ask follow-up questions if you have them.

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