US Treasury Home Affordability & Stability Plan Program Guidelines
Sep 7, 2009
All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship. Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default. Modifications can start from now until December 31, 2012; loans can be modified only once under the program. Loan Modification Terms and Procedures: Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive - meaning that the net present value of expected cash flow is greater in the modification scenario - the servicer must modify absent fraud or a contract prohibition.
Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions. Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI). The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner's association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income. Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009. Payments to Servicers, Lenders, and Responsible Borrowers:
The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI. Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus "pay for success" fees on still-performing loans of $1,000 per year. Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years. program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
The program will include incentives for extinguishing second liens on loans modified under this program. No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury's financial agent. Similar incentives will be paid for Hope for Homeowner refinances. Transparency and Accountability:
Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program. Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation. Freddie Mac will audit compliance. GSE lenders and servicers already have much of the borrower's information on file, so documentation requirements are not likely to be burdensome.
In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.