Officials Offer Clarification on Federal Mods

Representatives from the U.S. Treasury, Fannie Mae, and Freddie Mac took part in a conference call on Tuesday, hosted by the Mortgage Bankers Association and the HOPE NOW Alliance to answer a growing list of servicers' questions (said to be six pages, single-spaced) regarding the administration's ""Home Affordable Modification"":http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf program.
As servicers of non-GSE loans wait to receive their program packets with servicer contracts, standard forms, and detailed guidelines - an issue date for which has yet to be determined as the material is still ""being worked out,"" a Treasury official said - the majority of their queries seem to center around eligibility and how servicers are expected to participate, as well as incentive payments for workouts and success rates.
In order to get paid for their efforts, each individual servicer will have to sign a servicer contract to participate in the federal program. The Treasury said it does not anticipate entering into any investor contracts, but that servicers own agreements with their investors may sometimes preclude them from participating in the government program. The program's servicer contracts apply to non-GSE loans, meaning the servicer's own portfolio or those that it services for third parties.
By signing a contract to participate in the program, the servicer agrees to evaluate every loan in its portfolio that is 60+ days delinquent to determine if it meets the minimum qualifications for a modification. The servicer then agrees to reach out to each of those borrowers that satisfy the minimum requirements to determine true eligibility. If the borrower is deemed eligible (with a passing grade on the net present value, or NPV, test) the servicer must offer a loan modification under the program. If the borrower is not eligible because of an NPV-fail, the servicer can still choose to offer a mod to keep the borrower in their home.
For those at-risk homeowners who are not yet delinquent, participating servicers agree to evaluate all borrowers who contact them expressing risk of ""imminent default"" to determine modification eligibility under the standard NPV test.
All mortgages owned or guaranteed by ""Fannie Mae"":https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0905.pdf or ""Freddie Mac"":http://www.freddiemac.com/sell/guide/bulletins/pdf/bll096.pdf should be considered for the federal program. Loans 31+ days delinquent should be evaluated for eligibility, and any at-risk borrower who contacts the servicer should also be evaluated. Principal forbearance on GSE loans cannot bring the amount below 100 percent of the loan-to-value (LTV) ratio. And the Home Affordable Modification program is the first workout option for all Fannie and Freddie loans, replacing the GSEs' streamlined modification program (SMP). Just because a servicer takes part in the program for the GSE loans it services, does not mean it must also participate for loans within its own portfolio.
Servicer payments will be made only for loans modified to 31 percent of the borrowers gross income, and incentives will be paid for all modifications that meet this debt-to-income requirement, even if the loan failed the NPV test but the servicer opted to follow through with a mod anyway. Compensation is retrospective for mods made now, although servicer contracts are not yet in place. But if a borrower becomes 90 days delinquent after a modification is made, they are terminated from the program, and any related incentives not already awarded to the servicer are lost.
Officials stressed that information on the required NPV tests, as well as the use of automated valuation models (AVMs) under the program, will be forthcoming.