“MAKING HOME AFFORDABLE” GUIDELINES
Updated: June 4, 2018
The Making Home Affordable program has been revised numerous times.
It has also been renewed several times when it was due to expire. Currently it
is anticipated that it will expire for good this December 31, 2018. The program has assisted several million borrowers and have
perhaps frustrated just a many as it has experienced many criticisms over its
life period. The following is provided as insight for those wo might yet take advantage of the program this year
and to also provide a historical look at how the Government attempted to
resolve the problem of many borrowers following the 2008 recession.
Upon expiration, Fannie Mae is
rolling out a new 97% Loan-to-Value ratio product that is designed to help
equity strapped borrowers. We are awaiting the details of the new program.
Note: Some aspects of
the program are likely to have been modified or even no longer be available to
borrowers seeking assistance now.
Home Affordable Refinance Program (HARP)
language describing this program upon its initiation was “Designed for eligible
homeowners who are current on their mortgages but have been unable to take
advantage of today’s low interest rates because their homes lack sufficient
equity due to loss of value.” The objective is to help homeowners obtain more
stable and/or affordable loans.
this program is available to homeowners who have a solid payment history on an
existing Fannie Mae or Freddie Mac loan. The anticipation is that those
borrowers who have been prohibited from refinancing because their current
loan-to-value ratio exceeds 80% will now be eligible to refinance at today’s
lower rates. (If interest rates increase,
as some are predicting, this refinance option may become less desirable)
expectation is that because the lenders and servicer
already have the borrower’s information on file, less documentation will be
required in the new refinance transaction.
reduction in documentation along with the expectation that an appraisal will be
able to be waived is expected to make a refinance quicker and less costly for
lenders and borrowers.
plan relies upon the voluntary cooperation of the lenders and seems to
allow each lender the latitude to determine the credit worthiness of the
borrower and other aspects of each refinance request. Nor do we have a clear idea of the
evaluation process and there seems to be a lack of consistent interpretation of
the guidelines, adopted by all lenders.
(It may be reasonable to assume that many borrowers may be deemed
ineligible and thus we can expect that short sale transactions may continue.)
are the guidelines for eligibility.
originated on or before January 1, 2009 and currently owned or guaranteed by
Fannie Mae or Freddie Mac.
liens on owner occupied properties only whose current lien does not exceed 125%
of the current market value.
loan limits although the higher limits up to $729,750 in designated communities
documentation of income and assets required. The guidelines for qualification
seem to be left up to the lender performing the refinance. (Vague guidelines would seem to allow lender to make arbitrary
decisions that can not be easily refuted by consumers).
A homeowner obtaining a loan under the Home
Affordable Refinance Program (HARP) will be required to pay points and fees
similar to any refinance transaction. If the borrower has both a first and
second loan, the refinance will affect only the first mortgage. The second lien
holder must agree to remain in the junior lien position and the borrower is
only obligated to qualify for the first loan refinance. (Most feel that it is unlikely that junior lien holders will cooperate
in this arrangement).
Home Affordable Modification Program (HAMP)
set to expire December 31, 2012)
portion of the program has received the most attention and seems to have the
more developed guidelines. Designed to reach “at risk” borrowers and modify
loans into more affordable payment schedules. (It is also the portion of the program that has created the most
frustration for homeowners with the often extraordinarily long time frames for
accomplishing a modification. Too often, homeowners feel that they are strung
along for a long period of time only to be denied a modification.)
Following are the guidelines for eligibility.
originated on or before January 1, 2009
liens on owner occupied, one to four unit properties
loan limits although the higher limits up to $729,750 for single family homes
in designated communities are allowed
documentation of income and assets required accompanied by an
sufficient documentation of financial hardship is required. (While hardship can be identified as an
increasing payment or rate adjustment making the payment unaffordable, lenders
seem mostly to be looking for job loss or other reduction in income or medical
complications as the main reasons for the sudden hardship.)
Borrowers who have not missed payments but who are at imminent risk of
default are to be targeted. The borrower who is delinquent in payments seems
ineligible under the guidelines. (Unfortunately, many borrowers in the
beginning were previously instructed that they were ineligible for assistance
until they were delinquent. Then, those same borrowers were told that because
they stopped making payments, in an effort to qualify for help, that they were
no longer eligible. Better communication has hopefully resulted in less
· The monthly
payments, including PITI and any PMI, will be reduced to no more than 31% of
the borrower’s gross monthly income. (As
an incentive to participate,the
lender will be reimbursed by the government for the cost of the reductions in
monthly payments from 38% DTI to 31% DTI.)
· The modification sequence requires first the reduction of
interest rate with a floor of 2% and then extending the term to a maximum of 40
years. Then, if necessary, a principal forbearance could be initiated.
· Participating servicers are to use
reasonable effort to contact homeowners facing foreclosure and are not to refer
a loan for foreclosure until the borrower has been evaluated for HAMP.
· When deemed eligible for a modification, most homeowners are offered a
“trial” modification for three months, after which the modification may be made
permanent if the borrower has made all payments on time and the originally
provided income and expense documentation is determined to be accurate. (Some
homeowners have complained that in spite of their following all the guidelines
of the trial modification they have bee denied permanent modification.)
can be modified only once (this was in response to the criticism that
previous modifications were insufficient to provide real relief and were for
only a short period of time)
major concern already identified with the process has to do with the
requirement that servicers conduct a “net present
value” calculation. Translated, this means that the servicer
will compare the cost of a loan modification with a foreclosure and will
implement whichever option provides the lesser cost or loss to the lender. (The
net present value is non-transparent, meaning that the numbers used to make the
calculations are presently available only to the servicers.)
has been confusion regarding because some loans were deemed unavailable for
modification because the servicer was unable to proceed. The problem resulted
from the original bundling of loans into Mortgage Backed Securities and
globally sold to investors. The servicer in most cases does not “own” the loan
but must acquire permission to proceed with any action with or against the
borrower. Most contracts allow servicers to proceed as long as the modification
provides a better financial outcome for the lender or investor than the status
quo. In some cases, it was difficult to determine the servicer’s authorization
and delays occurred while determining if the servicer could actually offer a
are several additional conditions accompanying loan modifications:
all modifications must include an impound account for
taxes and insurance - if
mortgage insurance was required in the original loan, it will be continued - the interest rate on the modified
loan will be fixed for life unless your initial modified rate is below the current market
rate. In such a case, the rate will be fixed for 5 years after which it is
subject to an annual increase of 1% until it reaches the market rate that
prevailed on the day of the original agreement, at which time it will be fixed
many homeowners are severely “under water” (the principal owed exceeds the
current value of the home), lenders have been reluctant to offer a principal
forbearance (where the amount owed is put off until the future). Should such a
forbearance occur, the amount owed will be ultimately owed and will likely
result in a balloon payment at some time in the future. (Many homeowners, depending upon how much
over the current home’s value is owed, may never recapture the lost value. In
such cases, the borrower may remain under water when they attempt to liquidate
their home in the future. If home
values have not rebounded significantly during that same 5 year period, home
owners may have found that they only postponed a problem rather than having
found a solution. It is possible that they will merely be renting their
homes and still encounter no way to avoid a short sale
in the future with its resulting negative impact to their credit, etc. It is
easy to see why some homeowners are abandoning their homes now to foreclosure
or short sale with the conclusion that they will be able to join the homeowner
ranks again in four years when their credit has recovered from the current
Unemployment Program (UP)
of the main additions to the Home Affordable Programs is the introduction of an
option for those homeowners who are unemployed. This new option provides
a temporary time (forbearance) during which the regular monthly payment is
reduced or suspended. The eligibility requirements remain mostly the same as
for the HARP and HAMP programs. The additional eligibility requirements
· The borrower must request consideration for UP before three
full mortage payments are due or unpaid.
· The borrower must be unemployed and able to document the s/he
will receive unemployment benefits in the month in which the forbearance period
· Some servicers are requiring that the borrower receive
unemployment benefits for up to three months prior to the forbearance period
forbearance period is described as being available “for at least three months”
but can be extended, depending upon the servicer and their specific guidelines.
The expectation is that during the forbearance period, the monthly payment will
be reduced to no more than 31% of the gross monthly household income although
the payment could be reduced more or suspended entirely. The UP program
anticipates that at some time, the borrower will be re-evaluated regarding
his/her eligibility for HAMP. (Is it
reasonable to assume that with rare exception, one who remains unemployed is
unlikely to be able to meet the HAMP guidelines?With
the average unemployment time frame now stretching many months, a possible
three month limitation for the UP assistance may be ineffectual. While the
program calls for the assistance to last “at least” three months, the process
for re-evaluation and extension do not seem well defined.)
Foreclosure Alternates Program (HAFA)
part of the program deals with the Foreclosure, Short Sale and Deed-In-Lieu
options offered by lenders. The frustrations accompanying all of these options
are well documented. Interestingly, in spite of all of the emphasis on the
above options, it is predicted that 1.4 million foreclosures will occur in 2011.
(It would seem that something isn’t working with all of these offered
alternatives. In spite of the relatively poor results achieved by the above
efforts in the past, government seems to be promoting the same programs while
predicting failure for 1.4 million homeowners . . . the classic definition of
insanity where one continues doing the same thing but hoping for a different
Judicial Modification at Bankruptcy
initially introduced an option for homeowners seek a debt payment plan via bankruptcy.
With evidence that the borrower had tried unsuccessfully to obtain an
affordable loan modification, a bankruptcy judge would be enabled to reduce the
outstanding principal balance to the current fair market value to facilitate
the borrower’s retention of his/her owner occupied home. Known as a “cram down”
provision, lenders were understandably opposed to the ruling. Their resistance
was based on the supposition that the number of bankruptcies will increase
dramatically. Proponents, pointed out that bankruptcy
was a last choice situation and would encourage lenders to work with borrowers
in seeking loan modifications. The banks won and this provision, while
still be discussed, has not been adopted as a potential final resolution for
desperate home owners.
must a homeowner wait until s/he is in imminent danger of losing a home before
s/he can seek assistance? How many homeowners would be helped today if their
current lender would allow a refinance up to 125% LTV of the current value?
Taking advantage of lower rates to reduce monthly payments might reduce the
number of homeowners who are ultimately forced to seek more drastic help via
the above options. Clearly there are considerations, among them the concern
that refinancing homes so far under water in value might still be merely
postponing a problem when the owner seeks to liquidate the home in the future.
But, for homeowners anticipating long term tenancy, being able to reduce their
payments to a more affordable level could be the thing that keeps them in their
homes. Just an idea!
total legislation is lengthy and has other provisions included. There are
elements to strengthen FHA, Fannie Mae and Freddie Mac in their ability to
intervene with at risk borrowers. There are outlined provisions for borrowers
with high total debt ratios who can seek HUD certified consumer counseling and
a debt reconstruction program along with their loan modification.
Incentives for lenders and servicers are spelled out
in the legislation along with expectations regarding how PMI companies will
assist in the modification process. While a very ambitious program, we continue
to wait to see if it will actually help many troubled homeowners.
A good start
spite of the limitations to the programs noted above, there was anticipation
that the refinance and modification programs set out above would help millions
of projected borrowers. Keeping home owners in their homes was a big step
towards establishing some stability to the housing segment of the economy.
(Note: In spite of the constant tweaking of the regulations, the number of
homeowners assisted remains a disappointing minimum number)
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