(LoanSafe.org) – As the presidential candidates campaigned across America in 2008, the foreclosure crisis was spreading like wildfire on Main Street. The candidates, McCain and Obama took note and made some foreclosure promises to down on their luck borrowers as they visited thier towns. It was during this campaign that the future president, Barack Obama promised the American people that as soon as he took office he would implement programs to help keep struggling homeowners in their homes.
Soon after Obama took the oval office, he made good on that promise as his administration immediately came out with the Making Home Affordable program and later the Home Affordable Modification Program (HAMP) to help homeowners during the worst housing crisis since the Great Depression. These programs were put in place to assist borrowers by implementing guidelines to help mortgage servicers and homeowners achieve affordable loan modifications to help prevent foreclosure and help Americans stay in their homes. Throughout 2012 the government hopes HAMP will be able to assist 3-4 million people across the nation.
This program is taxpayer funded through the Troubled Assets Relief Program (TARP) and is aimed to assist borrowers who are currently pursuing a loan workout. Over the last year HAMP has provided 295,348 borrowers a permanent modification to help lower their current monthly payments. Eligible homeowners will be offered assistance by lowering their current mortgage payment to equal 31% of their gross monthly income. For those who do not have a substantial amount of debt this percentage should work out perfect and leave breathing room for any emergencies that occur.
However, before a homeowner is able to receive a permanent modification they will first be required to go through a three month trial period. During these three months the borrower will make reduced monthly payments that equal 31% of their gross income until their servicer is ready to collect updated financials and review their account for permanent assistance. Most mortgage servicers have extended the trial period to about 6-10 months because of how overwhelmed they have become, and cannot process them within the three month period. After the trial period is complete the servicer will require updated pay-stubs and bank statements to ensure the borrowers situation has not changed from when they first applied for this program.
More than 1.2 million borrowers have begun the trial period since last year, and about 1.5 million trial periods have been extended.
Many problems have occurred when HAMP first came out because most servicers did not review the homeowners entire situation before qualifying them for the trial period. They would offer the trial period based off over-the-phone information which is many times not 100% accurate. This allowed a significant amount of people to enter the trial period immediately and because of this servicers quickly became overwhelmed with requests. While this allowed many to enter the trial period in a timely matter, there is now a major delay in progress because many of the homeowners did not meet the requirements to begin with. In our forum here on LoanSafe.org we have witnessed hundreds of homeowners enter the trial period only to be stuck in it for 6-10 months, and for some up to a year or more.
Effective yesterday June 1, 2010, the government has changed up the guidelines and is now requiring full verification of borrower eligibility prior to offering a trial period plan. All trial periods offered on or after this date will be based on verified income documentation in accordance with the Supplemental Directive 10-01. Servicers now can only evaluate a homeowner for the HAMP program after they have received the “Initial Package.” This package will include:
- Request for Modification and Affidavit (RMA) Form: The RMA form lists the borrowers and co-borrowers financial information and also the hardships that have caused their mortgage to become unaffordable. The hardship and financial information section of this form are required to be filled out by the borrower and, if applicable, the co-borrower. The RMA also includes a section for Government Monitored Data (GMD) which includes data related to the borrowers race, ethnicity, and gender. This part of the form is not required to be filled out and servicers cannot refuse to accept the RMA if the section is not filled out.
- IRS Form 4506-T or 4506T-EZ:All borrowers on the mortgage loan must sign and complete the IRS 4506-T/4506T-EZ (Request for Transcript of Tax Return). his will allow the servicer to obtain copies of the borrowers tax returns from the IRS.
- Proof of Income:The Initial Package must also include proof of income from all borrowers in the household. All income documentation cannot be anymore than 90 days old from the time the servicer receives the application. Below we will list what type of income is acceptable and what information must be provided to back this source.
Employment income; salary and hourly wages: To prove employment income the borrower must provide two recent pay-stubs that are not more than 90 days old from the time of submission.
Self-employment Income: A year-to-date, or the most recent quarterly profit and loss statement for any borrower who is self employed.
Other earned income: This type of income includes bonuses, overtime, commission, tips, or housing allowance. In order to prove these wages the borrower must provide reliable third party documentation which may include an employment contract or paperwork listing tip income.
Benefit Income: Disability, death benefits, pension, public assistance, adoption assistance, and social security benefits are listed under this category. One will need to provide documentation that outlines the amount they receive and frequency of the benefits. Bank statements may also be used to verify how much is being deposited each month.
Unemployment Benefits: Proof of these benefits will be required and the borrower must be receiving them for an additional nine months from the date of application.
Rental income: This source of income will be verified through the Schedule E for the most recent tax year. For rental income that comes form the borrowers primary residence only 75% of this income will be accounted for (the remaining 25% is vacancy loss and/or maintenance). Any rental income that comes from a second home will be calculated by 75% of the monthly gross income for the rental, reduced by the monthly debt service on the property. This includes principal, interest, taxes, insurance, including mortgage insurance, and association fees, if applicable.
Alimony, Separation Maintenance, and Child Support Income: This source of income is not required to be listed when applying for HAMP. However, if the borrower chooses to supply this income they will have to provide supporting documentation such as divorce decree and evidence the payment is being received.
20% Threshold for Passive and Non-Wage Income: Rental income, part-time employment, investment, benefits, or bonuses/tips do not have to be submitted under HAMP if the amount received is less than twenty percent of the homeowners total monthly income.
Non-Borrower Income: Non-borrower income should be included in the application if the income is used to help support the mortgage. This source of income must be verified as outlined above.
Help for the unemployed: The program will require services to provide a minimum of three months, and up to six months for some borrowers, of temporary forbearance for unemployed homeowners while they search for another job. During this forbearance period, payments will be reduced to no more than 31 percent of their monthly income/unemployment benefits.
To be eligible, the home must be owner-occupied, the loan balance must be below $729,000, and the borrower must request temporary assistance in the first 90 days of delinquency.
After the forbearance period, borrowers will be evaluated for a HAMP modification. If the forbearance period ends without re-employment, the homeowner may be considered for an alternative to foreclosure under the program, such as a short sale or deed-in-lieu.
These are some very important changes that have taken place and hopefully this will make the process much easier for homeowners in the near future. There are currently hundreds of thousands of homeowners stuck in the trial period and a portion of them were must likely approved without up-front eligibility verification.