Recent Changes to the Home Affordable Modification Program

1. Together, we do the community justice. Recent Changes to the Home Affordable Modification Program Daniel Bahls, Esq. Andrew D. Neuhauser, Esq.

2. Basic Overview of HAMP • Modifies a mortgage loan to 31% of the borrower’s monthly gross income if the loan fits certain qualifications: • First lien (there’s a separate program for second liens) with less than $729,750 to pay (for one unit) • No previous HAMP modification • Delinquent or imminent default resulting from financial hardship • Owner occupied 1- to 4-family unit • Loan from before Jan. 1, 2009 • Current payment is > 31% of gross monthly income

3. Basic Overview of HAMP (cont.) • Servicer must be a HAMP participant (makinghomeaffordable.gov/contact_servicer.html) • Borrower must pass the Net Present Value test (NPV), which determines whether a modification is in the best financial interest for the servicer. • After income is verified, borrower makes three Trial Period Plan payments. If borrower makes three payments and situation does not substantially change, servicer must offer a permanent loan modification. • Governed by “sub-regulatory” rules periodically issued by Treasury • Currently, Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages v.3.0 & various similar Fannie Mae/Freddie Mac rules

4. February 1, 2011 Changes • Certain portions of the MHA Handbook v.3.0 • Escalations of borrower inquiries • Non-Approval Notices: disclosure of NPV Data Input Fields and Values • Borrowers can submit written evidence when NPV negative • Supplemental Directive 10-16 • Clarification of Initial Package requirements • Pending ARM resets • Prohibitions on modifications that increase principal and interest • UP policy enhancements Note: Both are available at hmpadmin.com

5. Escalation of Borrower Inquiries • MHA Handbook v.3.0, Chapter 1, Section 3 • All servicers are required to have written procedures and personnel in place to provide timely and appropriate responses to borrower inquiries and disputes that rise to the level of an “Escalated Case,” which includes, but is not limited to: • Allegations that the servicer did not assess the borrower HAMP according to program guidelines; • Inquiries regarding inappropriate program denials or the content of a Non-Approval Notice; or • Initiation or continuance of foreclosure actions in violation of Section 3 of Chapter II (“Protections Against Unnecessary Foreclosure”).

6. Escalation of Borrower Inquiries (continued) • An Escalated Case is considered to be resolved when the inquiry has been reviewed in accordance with the applicable MHA program guidelines and the servicer: • Determines that there is no change in the initial determination is necessary; • Documents the proposed resolution in the servicing system and/or mortgage file including a date the resolution was reached; • Within 10 business days of identifying the proposed resolution, communicates in writing to the Requestor and, as applicable, the borrower, the proposed resolution and next steps; and • Takes the first action to implement the resolution.

7. Escalation of Borrower Inquiries (continued) • Chapter 1, Section 3.3.3 lists the “Resolution Categories.” • Chapter 1, Section 3.3.4 permits servicers to not review a case when it is “substantially similar” to another case previously determined. • The servicer must document in the servicing system and/or mortgage file the decision not to review a substantially similar case. • If the servicer uses this excuse, always ask for this documentation.

8. Non-Approval Notices • If the servicer has performed an NPV evaluation, the Non-Approval Notice must list thirty-three NPV Data Input Fields and Values used in the NPV evaluation. • The purpose of providing this information is to allow a borrower who is ineligible because the transaction is NPV negative the opportunity to correct values that may impact the analysis of the borrower’s eligibility. • All Non-Approval Notices must include an e-mail address and mailing address for communicating with the servicer if the borrower wishes to dispute the reasons for a non-approval determination and to submit written evidence.

9. Submitting Written Evidence when NPV Negative • When the borrower is not approved for a permanent modification because the transaction is NPV negative, the borrower will have 30 calendar days from the date of the Non-Approval Notice to submit written evidence to the servicer that one or more of the NPV input values is inaccurate. • If the borrower wishes to dispute more than one NPV input, the written evidence for each input being disputed must be provided to the servicer at the same time. If the borrower identifies material inaccuracies in the NPV input values, the servicer may not conduct a foreclosure sale until the inaccuracies are reconciled.

10. Submitting Written Evidence when NPV Negative (continued) • If the evidence submitted by the borrower is valid and material to the NPV outcome, the servicer must perform the NPV calculation with the corrected input values. Following the re-evaluation, the servicer must provide the updated NPV outcome and input values to the borrower. • Alternatively, the borrower may request assistance from MHA Help prior to contacting the servicer to evaluate whether the borrower’s disputed NPV inputs would change the NPV outcome from negative to positive.

11. Clarification of Initial Package Requirements • A servicer does not have to send an “Initial Package” if, as a result of discussions with the homeowner or based on information in the servicer’s possession, the borrower’s monthly mortgage obligation is less than 26% of the borrower’s monthly gross income.

12. Pending ARM Resets • IF: a borrower has an ARM loan with a rate reset scheduled within 120 days after the date of the evaluation for HAMP, • THEN: the monthly mortgage payment used to determine HAMP eligibility should be the monthly mortgage payment after rate adjusts, using the index value as of the date of the evaluation.

13. Prohibitions on Modifications that Increase Principal and Interest • A post-modification principal and interest payment that is greater than the pre-modification principal and interest payment is prohibited. • If the post-modification principal and interest payment is higher than the pre-modification principal and interest payment, servicers must redo the calculations while keeping the principal and interest payment the same pre- and post-modification.

14. UP Policy Enhancements • UP = Home Affordable Unemployment Program, discussed in Chapter 3 of the MHA Handbook • Upon receiving a borrower request for consideration for UP, a servicer must send the borrower a notice of all required documentation for UP consideration, including unemployment benefit information. • The due date for the required documentation may not be less than 15 calendar days from the date of the notice. • Servicers should complete the evaluation of a borrower for UP within 30 calendar days of receiving all necessary documentation from the borrower.

15. Questions?Andrew Neuhauseraneuhauser@ablelaw.org Daniel Bahlsdbahls@ablelaw.org(419) 255-0814(800) 837-0814