Loan Mod Score Card

Figures released by the US Treasury Department show a wide disparity between mortgage servicers in the number of mortgage modifications begun in 2009 and those made permanent through the administration’s Home Affordable Modification Program, or HAMP. Overall by year’s end, 902,620 trial modifications were started with 66,465 made permanent. The Obama plan requires a six month payment trial to see if homeowners find the new lowered mortgage payments to be affordable before locking them in.

At the top of the list was Saxon Mortgage modifying half of its 72,709 eligible home loans. Of these 7.6% were made permanent with 9.1% washing out of the plan. Saxon was followed closely by CitiMortgage with 49% of a much bigger 119,907 mortgage portfolio converted. 7.3% were made permanent with 8.9% failing. At the bottom is Franklin Credit Services which had initiated no loan modifications at all last year after enrolling in the program late in the third quarter. Of note is the sluggish pace of the efforts made by the nation’s biggest mortgage servicer, Bank of America with 206,775 eligible home loans. Only 20% of these have been modified. Just 3.3% have been made permanent, although the default rate is similarly low, just 3.4%.

Servicers who follow the HAMP guidelines are paid up to $4,000 from the government for every mortgage successfully modified. Only conforming loans backed by Freddie Mac and Fannie Mae, where the mortgage is no more than 125% of value are eligible. The process can be as easy as writing down the interest on a subprime loan to 31% of a homeowner’s monthly income, through reducing the interest to as low as 2% then stretching out the term of the loan to 40 years if need be. At their discretion, servicers can also write down the loan’s principal, although that process is rarely employed.

One of the reasons why some servicers have been reluctant is an aspect of the HAMP guidelines that allows a servicer to deny a loan mod if it can get more from a foreclosure sale than allowing a change in the mortgage.

Late last year the Treasury insisted that servicers give detailed reasons for rejections of homeowner requested loan mods, although the actual formula used to asses a borrower’s eligibility remains a secret. The official guidelines have been kept confidential so that those who can pay, won’t game the system. Unfortunately, secrecy also means that there is no way to appeal a HAMP decision, even if only to check a servicer’s math.

The US Treasury has sought to streamline the process by soon requiring that all borrowers  fill out two standardized forms, a request for modification and affidavit as well as a form allowing loan servicers to pull a borrower’s tax return, IRS 4506-T  to document income. The Department will soon require servicers to acknowledge receipt of an applicant’s loan mod paperwork within 10 days, and a decision on a trial loan mod in 30 days.

When HAMP was first announced last year, US Treasury officials hoped that 4 million homes would be saved. In 2009, the US faced a record 2.8 million foreclosures. The foreclosure marketplace, Realty Trac predicts a new record of 3.5 million foreclosures this year.
The best way to prevent your own foreclosure is to act as soon as you face a sign of financial difficulty. Here’s our guide to initiating a loan mod yourself.  A key part of your application is the hardship that prompted you to request assistance. Use these guidelines.

Good luck in your efforts; be patient and persistent.

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