HOPE NOW Guidelines
President Bush announced details of the Hope Now initiative that Secretary Treasurer Henry Paulson has been diligently working on since August. The plan was part of deal with lenders, servicers and investors to come to some sort of “happy medium” to fast track as many loan modifications as possible.
Bush said, “The holidays are fast approaching and unfortunately this will be a time of anxiety for Americans worried about their mortgages and their homes,” Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson stood diligently by his side. Calling on Congress to do its part in providing some immediate relief, Bush said the steps were needed “so we can keep the economy healthy and the American dream alive.”
The devil is in the details. So, let’s explore those devilish details
- The plan would apply to subprime adjustable mortgages taken out between January 2005 and July 2007, with rates to rise between January of 2008 and July of 2010.
- It would apply only to borrowers who had less than 3 per cent equity in their homes and were either current on their payments or no more than 60 days behind.
- The rate freeze would not include borrowers able to handle higher payments or those unable to make payments even under their current lower rate.
- Under the plan, mortgage servicers would agree to the five-year rate freeze voluntarily.
- Mr Bush’s proposal would identify borrowers eligible for refinancing and fast-track them into new loans offered by the Federal Housing Association and private lenders.
Moe reports; (homeowner called 995-HOPE and this is what Neighborhood Works says)
- The principle aim of the Bush plan is to streamline the modification process, allowing them to get fast help. Lenders will examine readily available loan criteria, such as loan-to-value ratios, loan amount, credit scores and payment history, to make a quick determination of qualifications.
- But the freeze is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
- Borrowers who can’t afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers. Those borrowers will have to work with servicers on a case-by-case basis to determine if their homes can be saved.
American Securitization Forum, which represents companies that issue mortgage backed securities, as well as investors, loan servicers and rating agencies, issued a 34 page document outlining guidelines for servicers to follow in streamlining refinancing or loan modifications on adjustable rate mortgages that are scheduled to adjust in the next 2 1/2 years.
- Loans cannot have already reset
- You must have *less* than 3% equity in your home
- You can not have ANY late payments 60 days or more for the past 12 months
- You have to PROVE that you will not be able to make the payments once the loan resets
- You can’t have a credit score above 650
- Must be your primary residence
- No investment properties
- No negative amortization loans
ASF Executive Director George Miller said the agreement provides a common framework to evaluate borrowers’ situations, and expedites processes for loan servicers to pursue refinancing and loan modification options on a more systematic basis.
Let’s go over some of these details which now seem to be set in stone;
Borrowers will be divided into 3 segments;
- Applies to first mortgages only
- Adjustable rate mortgages fixed for 3 years or less (ie: 2/28 & 3/27 ARM’s etc.)
- Only loans originated between January 1, 2005 and July 31, 2007
- Have initial reset rate between January 1, 2008 and July 31, 2010
- The streamlined loan modification approach would be begin before the initial reset and typically should begin 120 days prior to the reset of the borrowers rate
- If loan to value (LTV) or cash loan to value (CLTV) is below 97%, servicer may obtain an updated value via desk top appraisal (AVM) or broker price opinion (BPO)
- All servicers of 2nd liens “should” cooperate fully (should does not mean mandatory and can be a HUGE issue)
Borrowers in Segment 1 - Refinance
- Refinance - Borrowers who are likely to be able to refinance
- Loan Modification - Borrowers unlikely to refinance
- Loss Mitigation - Borrower is not current and demonstrating a difficulty in meeting the introductory rate
Borrowers in Segment 2 Loan Modification
- Current - Means the loan must not be more than 30 days delinquent and must not have been delinquent 1×60 days in the last 12 months.
- Loan to Value Test (LTV) - All current loans with an LTV (based on 1st lien only) greater than 97% are deemed not eligible and will be placed in segment 2.
- Not FHA Secure Eligible - All current loans that otherwise do not satisfy FHA Securerequirements, including delinquency history, debt to income ratios at origination and loan amount standards are within segment 2
Devilish Detail - For borrowers that are eligible for a fast track modification, the fast track option is non-exclusive and DOES NOT preclude a servicer from using an alternate analysisto determine if a borrower is eligible for a loan modification, as well as the terms of the modification.
- Occupancy - Borrower currently occupies the property as a primary residence
- FICO Score Test - If the current FICO score is less than 660 and is less than a score higher than the FICO score at origination, the borrowers is considered to have met the “FICO test”
- Rate Adjustment Test - The servicer determines that, at the upcoming reset, the payment amount would go up by more than 10%
- Can’t Meet the FICO Test?- The servicer will use an alternate analysis to determine if he borrower is eligible for a loan modification as well as the terms of the loan modification. This would be done on a case by case basis with a full analysis of the borrowers debt to income
To put this in homeowner terms -Lenders and servicers DO NOT have to fast track loan modifications and if they chose not to and they can do whatever the hell they want.
Borrowers in Segment 3 - Loss Mitigation
- Moe Alert - Borrowers in segment 3 will be stuck in the never ending grinding wheels of the servicers loss mitigation department and will most likely have (if they are lucky) a 1 in 100 chance of working some kind of loan workout or loan modification with their lender. In other words, much of the same ol, same ol.