New FHA Making Home Affordable Loan Modification Guidelines

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
WASHINGTON - U.S. Department of Housing and Urban Development Secretary Shaun Donovan today announced the Federal Housing Administration (FHA) has implemented changes to its loan modification program to ensure consistency with the Obama Administration's Home Affordable Modification Program. By August 15, FHA borrowers will be able to significantly reduce their monthly mortgage payments by seeking a loan modification through their current mortgage company or loan servicer under the new FHA-Home Affordable Modification Program (FHA-HAMP).

"Today, we're bringing another important tool to the table to help struggling families who are desperate to keep their homes," said Donovan. "Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the Administration''s Making Home Affordable program. This is just the latest tool we are providing to help homeowners prevent foreclosures through the Making Home Affordable program. Earlier this month we announced an expansion of the Home Affordable Refinance Program to borrowers who are up to 125 percent underwater. Together, these actions will significantly increase the help available to homeowners."

The Helping Families Save Their Homes Act of 2009, signed into law on May 20, allows FHA to give qualified FHA-insured borrowers the opportunity to reduce their monthly mortgage payment by modifying the mortgage through FHA-HAMP. FHA released the program's implementation guidelines today. FHA expects all servicers to implement the changes by August 15. The program permanently reduces a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off.

FHA has used the partial claim option in the past, which allows a lender to advance funds on behalf of a borrower, to reinstate a delinquent loan that was up to 12 months delinquent. Now, this program will allow HUD to bring the borrower's payment down to an affordable level. This will be accomplished by bringing the mortgage current, buying down the loan by up to 30 percent of the unpaid principal balance and deferring these amounts in a partial claim.

FHA will pay an incentive to loan servicers for each FHA loan modified under this program. A Mortgagee Letter, along with detailed requirements for the FHA-Home Affordable Modification Program, was distributed to all FHA lenders today. The implementation of this program will further the Obama Administration's efforts to stabilize the housing market by helping homeowners to stay current on their mortgages and stay in their homes, therefore preventing the destructive impact of foreclosures on families and communities.

Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Obama Administration on February 18. More than 200,000 trial loan modifications are already underway, tens of thousands of refinancings have closed, and informational mailings about the program have been sent to more than one million borrowers who may be eligible.

FHA borrowers who are experiencing difficulty making their mortgage payments should contact their loan servicer or HUD's National Servicing Center at (888) 297-8685 to determine if they qualify for the FHA-Home Affordable Modification Program. The Mortgagee Letter, with detailed information about the program, is available on the HUD website. Non-FHA borrowers can find information about the Obama Administration's Making Home Affordable program at www.makinghomeaffordable.gov.

From: HUD News Release 09-137
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
New FHA Basic Program Guidelines

Basic Program Guidelines

The new FHA-HAMP authority will allow the use of a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification. The objective of FHA-HAMP is to assist FHA mortgagors who are in default to modify their mortgage to an affordable payment. According to Mortgagee Letter 2000-05 and subsequent guidance, disposition options (pre-foreclosure sales and deeds-in lieu of foreclosure) are available immediately upon default, if the cause of the default is incurable, i.e. the borrower has no realistic opportunity to replace the lost income or reduce expenses sufficiently to meet the mortgage obligation.

To confirm if the mortgagor is capable of making the new FHA-HAMP payment, the mortgagor must successfully complete a trial payment plan. The trial payment plan shall be for a three month period and the mortgagor must make each scheduled payment on time. The mortgagor’s monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment. The Mortgagee must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance. If the mortgagor does not successfully complete the trial payment plan by making the three payments on time, the mortgagor is no longer eligible for FHA-HAMP. Prior to proceeding to foreclosure, the Mortgagee must re-examine and re-evaluate the borrower’s financial condition and confirm that none of FHA’s other Loss Mitigation options could assist the mortgagor.

The attachment to this Mortgage Letter supplements program guidelines for FHA-HAMP, including a requirement that the servicer obtain an executed Hardship Affidavit (available at https://www.hmpadmin.com/portal/docs/hamp_borrower/hamphardshipaffidavit.pdf) from every mortgagor and co-mortgagor seeking an FHA-HAMP. FHA-HAMP is a permanent addition to HUD’s Loss Mitigation Program as of the date of this Mortgagee Letter.

Debt to Income Ratios

To be eligible under FHA-HAMP, the front end debt to income ratio must be as close as possible, but not less than, 31 percent. This ratio is defined as the total monthly mortgage payment (PITI) for the modified mortgage divided by the mortgagor’s gross monthly income (the “Front End Ratioâ€). The back end debt to income ratio must not exceed 55 percent and is defined as the total monthly mortgage payment plus all recurring monthly debt divided by the mortgagor’s gross monthly income (the “Back End Ratioâ€). Please refer to the sections in the Attachment regarding Underwriting – Front End and Back End Debt to Income Ratios.
Calculation of Maximum Partial Claim Amount under FHA-HAMP

The maximum partial claim amount under FHA-HAMP consists of the sum of (i) arrearages, (ii) legal fees and foreclosure costs related to a canceled foreclosure action and (iii) principal reduction. Arrearages that may be included in the partial claim shall not exceed 12 months of PITI. The maximum partial claim amount under FHA-HAMP is 30 percent of the outstanding principal balance as of the date of default. The principal deferment on the modified mortgage is determined by multiplying the outstanding principal balance by 30 percent and then reducing that amount by arrearages advanced to cure the default for up to 12 months PITI, and any foreclosure costs incurred to that point subject to the requirements provided in Mortgagee Letter 2008-21. The principal deferment amount for a specific case shall be limited to such an amount that will bring the mortgagor(s) total monthly mortgage payment to 31 percent of gross monthly income.

Example

Mortgagor had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the mortgagor’s gross monthly income is $3,500 and the total monthly other recurring debt payments are $800.

In order to fulfill the 31% Front End Ratio requirement, the mortgagor(s) total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the mortgagor’s Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation.

In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, mortgagor is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total Partial Claim of $22,729.

Requirements to Use FHA-HAMP

FHA-HAMP can be utilized only if the mortgagor(s) does not qualify for current loss mitigation home retention options (priority order FHA Special Forbearance, Loan Modification and Partial Claim) under existing guidelines (ML 2008-21, 2003-19, 2002-17, 2000-05). To qualify for the FHA-HAMP program, Mortgagees must evaluate the defaulted mortgage for loss mitigation actions using the aforementioned priority order. According to Mortgagee Letter 2000-05 and subsequent guidance, disposition options (pre-foreclosure sales and deeds-in lieu of foreclosure) are available immediately upon default, if the cause of the default is incurable, i.e. the borrower has no realistic opportunity to replace the lost income or reduce expenses sufficiently to meet the mortgage obligation.

If the mortgagor does not successfully execute the loan modification, the mortgagor is no longer eligible for FHA-HAMP. In such cases, per 24 CFR 203.355, the Mortgagee must re-evaluate the mortgagor’s eligibility for the other appropriate loss mitigation actions prior to commencing or continuing a foreclosure.

Mortgagee Incentives

Mortgagees that utilize FHA-HAMP are eligible to receive incentive payments. Mortgagees utilizing this initiative will be allowed to first file for a partial claim (to bring the loan current and defer principal where appropriate), followed by a loan modification claim (claim type 32). Under FHA-HAMP, the Mortgagee may receive an incentive fee of up to $1,250. This total includes $500 for the partial claim and $750 for the loan modification. Mortgagees may also claim up to $250 for reimbursement for a title search and/or recording fees.
 

calgirl21

LoanSafe Member
Moe,
My gross income is $7600
1st mortgage payment including tax and ins. $2597.14
2nd mortgage payment $978
How do I prepare financial worksheet? Debt ratio? Expenses?
Please help.
 
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