MHA program background

This page is about the key provisions of the Making Home Affordable program. Here the goal is to explain the main ways in which the program goes further than predecessors, and also to discuss any significant limitations in the rules.


13 Nov 2009.

Making Home Affordable (MHA) is the Obama administration's plan, administered by the Treasury, to reduce foreclosures. The key components are:

  • HAMP – Home Affordable Modification Plan. The primary goal of this plan is to reduce the payments of borrowers with proven hardship to at most 31% of income through a combination of interest rate reduction, term extension, and payment deferral.
  • HARP – Home Affordable Refinance Plan. This is a plan for Fannie Mae and Freddie Mac to refinance their existing loans at lower rates for borrowers who are current. The key provision is that underwater homeowners may qualify: LTV can be up to 125% and there is no limit on CLTV.
  • 2MP – Second Lien Modification Plan. In this plan Treasury will pay incentives and share costs, under certain conditions, for modifying second liens in connection with primary loan modifications. Alternatively, partial payoff for second lien extinguishment is offered.

MHA is a solid attempt to address shortcomings of earlier plans and make a significant difference in the foreclosure crisis. For borrowers, there are explicit goals to qualify underwater cases and reduce the monthly payment to an affordable level. For servicers and lenders, cost-sharing and cash incentives are provided. For second lienholders, incentives and cash-out provisions help motivate cooperation. And a standardized approach to the NPV of a modification may reduce securitization issues. Probably the single biggest caveat is that underwater borrowers will remain underwater, perhaps still leading to numerous defaults.

The plan introduces significant distortions in standard metrics that will make it difficult for some time to evaluate the outcome: during the application and trial periods for HAMP, the delinquency status of the loan is unchanged and any foreclosure actions are put on hold.


Clippings below covered through 5 Nov 2009

  • HASP, the Homeowner Affordability and Stability Plan. This is the Obama administration's overall strategic plan for helping the housing market. According to the original announcement from Treasury (who manage the plan), the 3 key components of the plan are:
    • A refinancing plan, later called HARP.
    • A “stability” plan, including the modification plan later called HAMP, as well as support for cramdown and other measures.
    • Further support for Fannie Mae and Freddie Mac, most importantly increasing the potential direct investment by Treasury.
  • MHA, Making Home Affordable. MHA includes HAMP and HARP, and is the name Treasury chose to emphasize after the early announcements (it is not clear whether MHA is a subset or a rebranding of HASP).
  • HAMP, Home Affordable Modification Program
    • The main goal is to reduce the payment to 31% of the homeowner's income or less. “Servicers are first directed to lower interest rates to as low 2 percent, then extend terms to as long as 40 years and then suspend payments on a portion of the debt until maturity.” (Bloomberg)
    • A complex set of cash incentives are available to borrowers, services, and lenders. HAMP includes $75bn to be used in payment reduction and incentives.
    • Loan modification guidelines: The government is providing uniform guidelines on how to calculate if NPV of modification is greater than the NPV of foreclosure. This may ease difficulties with multiple lender objections.
    • Borrowers must meet certain hardship criteria, but delinquency is immaterial and there is no LTV restriction.
    • The modification is only finalized after a trial period of three months (extended to five in some cases), during which additional paperwork must be completed and payments must remain current. All foreclosure actions are suspended during the application and trial periods.
  • Possible issues for HAMP
    • Foreclosures go against the lowest remaining tranches of CDOs, while modifications go against all tranches equally; this may give banks a reason to avoid loan modifications.
    • The modifications have no principle reduction. Thus underwater borrowers will probably remain underwater, so that the problems may just be delayed.
    • Large servicers can use their own redefault rates in the NPV calculation, and if their previous mods have been on the light side this would reduce the attractiveness of further modifications.
  • HARP, Home Affordable Refinancing Program
    • Refinancing of conforming mortgages owned or guaranteed by Fannie or Freddie, orginated with 80% LTV or less, and with current first-lien LTV up to 125%.
    • No new mortgage insurance is required.
    • There is no limitation on combined first and second mortgage LTV, but any second mortgage must remain subordinate and no new second mortgage is allowed.
    • Borrower must be current on payments to qualify.
  • 2MP: second lien program
    • Under certain conditions the Treasury will split the cost of second lien modification with the lender, and will pay incentives for successful modification.
    • Treasury requires the second mortgage to be modified when the first mortgage has been modified if the servicer for the second lien has signed up for the program.
    • Alternatively, Treasury will pay between 3 and 12 cents on the dollar to extinguish a second loan (with the payout depending on the borrower's debt to income ratio and the delinquency status of the loan).
  • Misc
    • Treasury also pays incentives for successful short_sales.
    • As of 22 Oct 2009, unemployment compensation could be used as qualifying income for a modification. Suggests a somewhat desperate optimism in Washington.
    • See 5 Nov 2009 for some slang from the servicer trenches, suggesting a certain disconnect between Treasury and the servicers.
    • HAMP includes some sort of insurance to lenders against further drops in property value (incompletely specified in public documents). This could be a significant long-term cost to the taxpayer.


See also

Below are clippings used in constructing this page

The HASP announcement

18 Feb 2009. US Treasury press release.

“Homeowner Affordability and Stability Plan Executive Summary”

“The key components of the Homeowner Affordability and Stability Plan are:

1. Affordability [refinancing]: Provide Access to Low-Cost Refinancing for … conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions. …

2. Stability [loan modification]: Create A $75 Billion Homeowner Stability Initiative … helps those who commit to make reasonable monthly mortgage payments to stay in their homes …

  • … lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. …
  • “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
  • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
  • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
  • … Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
  • Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities …
  • Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
  • Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
  • Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac: …

  • Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each. …
  • Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.”

Comments on HASP

19 Feb 2009. Housing Wire.

“Homeowner Bailout Does Reflect Some Market Realities. By LINDA LOWELL”

”[on 'voluntary']

[regarding the HASP] modification plan. The press seems to doubt it can work because it’s voluntary. A little fact checking will discourage that point of view. … First of all, it will be required for recipients of FSP (the new name for TARP Capital Purchase Program). Those recipients include the largest U.S. and regional banks, who control at least 60 percent and more of outstanding mortgage servicing in the U.S. Secondly, the Administration intends federal financial services regulators to implement these guidelines among the institutions they regulate. There might be a delay drafting regulations and taking comments and all that, but it does not sound like it will be voluntary by any stretch of the imagination.

[on modifying securitized loans]

The universal application of standardized modification procedures may also resolve a couple of the real-life obstacles to modifying loans in securities. … This program sets a debt-to-income trigger for eligibility … Standardization speaks directly to the leading obstacle to modifying loans that have been securitized — fear of investor lawsuit. There is variation across documents, but in general the governing documents employ a general servicing standard (I’m relying here not on recollection, but on testimony of Stephen Kudenholdt, head of the structured finance practice at Thacher, Proffitt & Wood LLP delivered November 14, 2008 in a hearing held by the House Oversight and Government Reform Committee). Typically the servicer is required to follow the accepted servicing practices it would employ “in its good faith business judgment” and which are “normal and usual in its general mortgage servicing activities” or in servicing loans for its own account. These include loss mitigation activities. The Administration guidelines in effect become the normal and usual practice. Not a bulletproof defense against lawsuit, of course, but it should give comfort to servicers (they still can only modify when the NPV of the modification is greater than the NPV of a foreclosure). I could be wrong, but I think this is primarily why JPMorgan Chase CEO Jamie Dimon repeatedly asked for standardized modification practices during the House Financial Services Committee hearing last week on Tarp Accountability. (And, in fact, Mr. Dimon applauded this feature of the Plan to the Washington Post.) …

Editor’s note: Linda Lowell is a 20-year-plus veteran of MBS and ABS research at a handful of Wall Street firms. She is currently principal of OffStreet Research LLC.”

The MHA announcement

4 Mar 2009. US Treasury press release. (not a permalink)

“Relief for Responsible Homeowners: Treasury Announces Requirements for the Making Home Affordable Program”

“On March 4th, The Obama Administration announced new U.S. Department of the Treasury guidelines to enable servicers to begin modifications of eligible mortgages under the Administration's Homeowner Affordability and Stability Plan � announced by President Barack Obama just two weeks ago. The release of detailed requirements for the “Making Home Affordable” program facilitates implementation of the critical provisions that will help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure such as lower housing prices, increased crime and higher taxes.

Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosures on families, communities and the national economy.

The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today's lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

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.

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.

With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford their payments.”

Reuters summary of MHA

4 Mar 2009.

“FACTBOX-U.S. mortgage modification plan eligibility. by Mark Felsenthal and David Lawder; Editing by Leslie Adler”

“The Obama administration on Wednesday gave lenders a green light to begin modifying home mortgages under a new $75 billion program aimed primarily at people facing imminent financial hardship.

The $75 billion mortgage modification plan is part of a larger Obama administration effort announced on Feb. 18 to support the U.S. housing market and distressed homeowners. For details see [ID:nN04447661], and for a factbox on overall plan see [ID:N041831].

Eligibility requirements for the mortgage modification program include the following:


  • Borrowers must represent that they do not have sufficient liquid assets to make their monthly mortgage payments. These assets will not include retirement accounts.
  • Every borrower who seeks a modification must be screened for financial hardship. Borrowers must demonstrate a change in circumstances that causes hardship, such as a drop in income or an imminent payment increase.
  • Delinquency is not a requirement, and households that are at imminent risk of default are eligible.
  • Borrowers with high total debt may qualify but only after they enter government-certified debt counseling.
  • The mortgage to be modified must have been originated on or before Jan. 1, 2009, and homes must be owner-occupied, 1-4 unit family dwellings that are primary residences.
  • Loans must have unpaid principal balance up to $729,750 for a single-family home, $934,200 for a two-unit home, $1.129 million for a three-unit home, and $1.403 million for a four-unit home.
  • New applications for the program will be accepted until Dec. 31, 2012. There is no borrower cost to obtain a modification.
  • There is no minimum or maximum loan-to-value ratio.
  • Borrowers in bankruptcy are not automatically eliminated from consideration for modification, and borrowers in litigation regarding their mortgage can qualify for a modification without waiving their legal rights.
  • Foreclosure actions are temporarily suspended while borrowers are considered for foreclosure prevention options. Loans can only be modified once under the program.
  • Eligibility for the program will sunset at the end of three years.


  • The U.S. Treasury will share with lenders and mortgage servicers part of the cost of reducing monthly payments.
  • The lender is responsible for reducing payments to 38 percent of the borrower's monthly income through interest-rate reductions or other means. The Treasury will match dollar-for-dollar further reductions that bring payments down to 31 percent of the borrower's monthly income.
  • Loan servicers that modify loans according to the program guidelines will receive a $1,000 up-front fee for each modification and a $1,000 annual fee for each still-performing loan.
  • Home owners who make modified payments on time will receive a $1,000 reduction in their loan principal each year, up to $5,000.
  • Lenders and investors will receive a one-time bonus of $1,500 for each loan modified before borrowers miss any payments. Servicers will receive a $500 bonus on these loans.
  • The U.S. Treasury is developing additional incentives to encourage extinguishing second-lien home equity loans to reduce a borrower's overall indebtedness.
  • The program sets an interest rate floor of 2 percent on modified loans. The modified rate must remain in place for five years.
  • After five years, the rate increases 1 percent per year up to a cap that is intended to reflect market rates at the time the loan was modified.


  • Program targets 4 million to 5 million borrowers with solid payment histories on mortgages owned or guaranteed by Fannie Mae (FNM.N) or Freddie Mac (FRE.N) that were originated with a loan-to-value ratio of 80 percent or less.
  • Lenders can refinance these loans with guarantees by Fannie Mae or Freddie Mac even if the loan-to-value ratio has risen to up to 105 percent. No additional credit enhancement is needed.
  • Borrowers are responsible for paying lender fees, points and other closing costs.
  • Interest rates are prevailing market rates for 15-year and 30-year fixed-rate mortgages.”

Major obstacles for part II of Making Home Affordable

5 Mar 2009. Naked Capitalism.

“The Treasury Mortgage Mod Program: Should We Hope It Doesn't Work? Yves Smith”

“there is a very big complication with this “gee, there is a win-win space here, so why is no one making mods?” view. The big one is the difference in treatment of a mod (well, at least the principal reduction kind) versus a foreclosure. For a foreclosure, the losses go against the lowest tranches first, and then proceed to higher tranches. However, with a principal reduction, all tranches, including the AAA (or more accurately, what was once AAA) layer. In many cases, the bank that is running the servicer holds some of that paper and would have to mark it down. …

And the fine print has another doozy of a provision: 'To encourage the modification of more mortgages and enable more families to keep their homes, the Administration – together with the FDIC – has developed an innovative payment that provides compensation that can partially offset losses from failed modification when home prices decline, but is structured as a simple cash payment on every eligible loan. The Treasury Department will make payments totaling up to $10 billion to discourage lenders, servicers and investors from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. This initiative provides servicers with the security to undertake more mortgage modifications by assuring that if home price declines continue to occur or worsen, investor losses are partially offset. Holders of mortgages modified under the program would be provided with an additional payment on each modified loan, linked to declines in the home price index.'

In other words, if the program succeeds, we may not be so happy with where we wind up in a few years.

But I have my doubts that it will work. First, despite the bribes to servicers, I don't see strong reasons for them to play ball. These mods will be costly, I am not certain the comp is adequate, and mortgage securities holders may sue. …

The possible real effect of the program may be revealed here:

'Servicers will receive incentives to take alternatives to foreclosures, like short sales or taking of deeds in lieu of foreclosure. For those borrowers unable to maintain homeownership, even under the affordable terms offered, the plan will provide incentives to encourage families and servicers to avoid the costly foreclosure process and minimize the damage that foreclosure imposes on financial institutions, borrowers and communities alike. Servicers will be eligible for a payment of $500 and can make reimbursable payments up to $1000 to extinguish other liens, and borrowers are eligible for a payment of $1500 in relocation expenses in order to effectuate short sales and deeds-in-lieu of foreclosure.'”

Servicers can use own redefault rate in NPV calculation for mortgage mod decision

5 Mar 2009. FTUSA p14.

“Mortgage modifications”

“The key is to modify the “right” loans. The Treasury is putting great weight on calculating whether the net present value of expected cash flows on loans would be higher when modified or when left alone. That could weed out hopeless cases, while requiring a signed affidavit of financial hardship might deter chancers. But the assumptions used are crucial. A cap on the discount rate prevents servicers from using a high rate to make modification appear uneconomic. But servicers with books over $40bn - which includes the top 15 with about 75 per cent of the market, according to National Mortgage News - can base redefault rates on their own portfolios. More than 40 per cent of loans modified in the second quarter of 2008 were 30-days delinquent again after three months, so that input could justifiably be high.”

Second lien mod cost sharing or extinguishment payout

28 Apr 2009. US Treasury Second Lien Fact Sheet

“Making Home Affordable Program Update”

“Shared Efforts with Lenders to Reduce Second Mortgage Payments: Making Home Affordable will share the cost with lenders of reducing payments for homeowners on second mortgages.

  • For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:
    • Reduce the interest rate to 1 percent;
    • Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage;
    • Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;
    • After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;
    • The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and
    • Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.
  • For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:
    • Reduce the interest rate to 2 percent;
    • Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;
    • After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;
    • The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract;
    • Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor.

Pay-for-Success Incentives for Servicers and Borrowers:

  • The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, aligning incentives to reduce homeowner payments in a way most cost effective for taxpayers.
    • Servicers can be paid $500 up-front for a successful modification and then success payments of $250 per year for three years, as long as the modified first loan remains current.
    • Borrowers can receive success payments of up to $250 per year for as many as five years. These payments will be applied to pay down principal on the first mortgage, helping to build the borrower's equity in the home.

Payment Schedule to Compensate Lenders for Extinguishing a Second Mortgage:

  • As an alternative to modifying the second lien, lenders/investors will have the option to extinguish second liens in exchange for larger payments under a pre-set formula. This will allow second lien holders to target principal extinguishment to the borrowers where extinguishment is most appropriate.
    • For loans that are more than 180 days past due at the time of the modification, the lender/investor will be paid three cents per dollar of UPB extinguished.”

Making Home Affordable adds incentive for short sales

15 May 2009. WSJEE pA2.

“U.S. News: Housing-Rescue Plan Adds 'Short Sales'. Ruth Simon”

“The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or “deeds in lieu” transactions. It will also spend up to $1,000 to help defray the cost of getting holders of second mortgages to release their liens so these transactions can be completed.

Short sales have accounted for 15% to 20% of sales of existing homes this year, according to the National Association of Realtors.”

A clear description of HARP

25 May 2009. Harold Goodman.

“Playing the HARP – How to Benefit from a Federally Subsidized Mortgage Refinance. Harold Goodman”

“Part 1 – The Fannie Mae DU Refi Plus …

There are two separate programs, one which you may qualify for if Fannie Mae holds your current mortgage, and the other if Freddie Mac holds your mortgage. …

I believe that well over 25% of the mortgages in the USA are eligible for refinancing under the HARP programs, and many homeowners that do not qualify for a conventional refinance will be able to benefit greatly from the refinance opportunity provided by these programs.

Today I will cover the Fannie Mae DU Refi Plus program, and tomorrow in Part 2, I will cover the Freddie Mac Relief Refinance Program. Since Fannie Mae holds about three quarters of the conforming mortgages in the USA, far more people may be eligible for the benefits of refinancing under the Fannie Mae DU Refi Plus program, but there are certain unique benefits and advantages of the Freddie Mac Relief Refinance that could save certain lucky borrowers a lot more money than the Fannie Mae program and allow them to qualify more easily. …

Here are the major benefits of the Fannie Mae DU Refi Plus program:

1. Refinance from 80% up to 105% LTV, with no limit on CLTV

2. No new mortgage insurance required

3. No limit on financed closing costs

4. Appraisal might be waived

5. No reserves required

6. No maximum debt ratio (with DU approval)

7. Your loan may be placed with any Fannie Mae approved lender

8. No limit on number of financed properties

9. Mortgage payment can increase if borrower is realizing other benefits

10. The subject property may be currently listed for sale

Here are the major restrictions on the Fannie Mae DU Refi Plus program:

1. No cash out is allowed (borrower cannot receive more than $250 at closing)

2. New loan amount can go up to conforming maximum of $417K on a single family residence in certain areas. Program guidelines allow for up to $729,500 in some areas, but individual lenders will probably not allow you to exceed $417K. Check with your mortgage broker to confirm maximum loan amount in your area.

3. New loan must benefit borrower, either by lowering the monthly principal and interest payment, shortening the loan term, or changing to a fixed rate

4. Borrower must qualify under conventional guidelines (must be approved by DU and provide all documentation required by DU)

5. No new secondary financing is allowed, and existing secondary financing must be subordinated (kept in place), or paid off with borrower’s own funds. Second mortgage cannot be paid off with the new first.

6. No 60 day late mortgage payments allowed during the previous 12 months

7. None of the original borrowers may be removed from the new loan

8. All loans delivered to Fannie Mae after February 28, 2009, FHA, VA, second mortgages, and reverse mortgages are ineligible, and some lenders may not refinance subprime, ALT-A, Expanded Approval, and other loan types under this program

9. Loan term may not be lengthened

10. Standard add-ons to the fee apply to condos over 75% LTV

11. Standard add-ons to the fee apply to 2 to 4 unit properties

12. Add-ons to the price for non-owner occupied properties make the program unattractive for refinances above 75% LTV. Standard add-ons still apply at or below 75% LTV

13. Add-ons to the fee apply to LTV’s over 95%

The primary benefit for most borrowers is being able to refinance a property that has declined in value up to an LTV of 105%, which may not be able to meet conventional refinance guidelines. Current interest rates are near 50 year lows, and a large percentage of homeowners who purchased or pulled cash out in the last five years might be unable to refinance otherwise. …

Since there is no limitation on combined (total) LTV, the borrower can refinance his first mortgage up to 105% of current property value, regardless of the size of any current second mortgage, but the second mortgage must be subordinated (kept in place) or paid off from the borrower’s own funds. (The new lender may require the existing second to meet standard guidelines, so not every existing second will qualify for subordination and may be required to be paid off, a deal killer for most homeowners.)

No new or replacement secondary financing is allowed. …

This enables homeowners that are not pushing the maximum program LTV to buy their interest rate down to the low 4% range, without paying anything out of pocket.

The reality of current lending programs makes only the 15 year fixed, 20 year fixed and 30 year fixed rate loan programs practical and desirable under the Fannie DU Refi Plus program. Balloon and interest only programs are not allowed and adjustable rates are priced worse than fixed rates.

Here is one point that may not be obvious to most consumers: there is no cash out allowed on this program. What that means is:

1. Any amount of closing costs can be financed in and not be considered a cash out loan.

2. The borrower can receive a maximum of $250 in cash at closing and not be considered a cash out loan.

3. Even if the borrower is receiving no cash at the closing and paying all closing costs out of pocket, the new loan is ineligible for the program, and considered a cash out loan, if any new second mortgage has been taken out in the past twelve months before the new loan closes,


An advance has been made from any existing equity line of credit on the property within the last twelve months before the new loan closes.”

[Fannie's web page on HARP:]

Home Affordable now allows 125% LTV

1 Jul 2009. HUD press release.


“Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration's Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less. Today's announcement will allow more homeowners to become eligible for the program, by increasing the eligibility to 125 percent.”

Treasury says even with HAMP there will be millions of foreclosures

9 Sep 2009. Treasury press release.

“Stabilizing the Housing Market. Assistant Secretary for Financial Institutions Michael S. Barr Written Testimony on Stabilizing the Housing Market before the House Financial Services Committee”

“even if HAMP is a total success, we should still expect millions of foreclosures … Some of these foreclosures will result from … borrowers who bought homes well beyond what they could afford and so would be unable to make the monthly payment even on a modified loan.”

FHFA FPM 10 overview of MHA

2 Oct 2009. FHFA report to congress.

“Federal Housing Finance Agency Federal Property Managers Report No.10”

“Home Affordable Refinance Program (HARP) - Announced March 4, 2009.

  • Allows existing Enterprise borrowers with current payment histories to refinance and reduce their monthly mortgage payments at loan-to-value ratios up to 125 percent without new mortgage insurance.
  • The Enterprises refinanced 93,070 HARP loans through August 2009.
  • Fannie Mae began accepting deliveries of refinanced whole loans with LTVs over 105 up to 125 percent on September I and began taking deliveries for MBS for these loans on October 1. Freddie Mac began accepting deliveries of these loans on October 1.

Home Affordable Modification Program (HAMP) - Announced March 4, 2009.

  • Allows a bonower's payment to be reduced to an affordable amount through an interest rate reduction (down to 2 percent), a term extension (up to 480 months), or principal forbearance. lncentives are being offered to borrowers, servicers, and investors for program participation and a successful payment history. [A Freddie Mac guide makes clear that “forbearance” means deferral, not forgiveness: “Mortgages with a partial principal forbearance (deferred principal)”; see]
  • The Enterprises reported 202,200 trial modifications in progress through August 2009.
  • Treasury set a goal of 500,000 trial modifications by November 1, 2009 for both GSE owned and Non-GSE owned loans.
  • First incentive payments were made to servicers and investors in August 2009.

Second Lien Modification Program (2MP) - Announced April 28, 2009.

  • Requires the second mortgage to be modified when the first mortgage has been modified if the servicer for the second lien has signed up for the program.
  • Launched the program in August 2009. No volumes reported to date.

Short Sale/Deed in Lieu Program - Announced May 14,2009.

  • Allows a borrower who fails to qualify for an affordable modified payment to avoid foreclosure by selling his/her home or deeding the property to the servicer prior to a com pleted foreclosure sale. …

Loan modifications under HAMP require servicers to reduce a borrower's monthly payment to 31 percent of gross income through a combination of methods. After capitalizing missed payments, servicers reduce moftgage payments by first reducing mortgage interest rates (down to 2 percent), then extencling the term of the mortgage (up to 480 rnonths) and finally through principal forbearance.”

Optimistic income projections for unemployed borrowers

22 Oct 2009. Housing Wire.

“HOPE NOW Pushes HAMP for Unemployed Homeowners. By JON PRIOR”

“The HOPE NOW Unemployment Committee collaborated with the Obama Administration to develop a new tool to help identify the eligibility of unemployed homeowners to for the Home Affordable Modification Program (HAMP).

The US Treasury Department allocates capped incentives to servicers participating in HAMP to modify loans on the verge of foreclosure. Servicers lower the debt-to-income ratio of a qualified borrower to 31% with a HAMP modification.

With the new tool, homeowners with nine months of unemployment benefits may use their unemployment income in determining HAMP qualification, according to a statement from Faith Schwartz, executive director of HOPE NOW, the private sector alliance of mortgage servicers, investors, insurers and non-profit counselors..

The web-based unemployment verification tool informs mortgage companies, housing counselors and homeowners of the correct amount of unemployment income and the duration of the payments.

“This is a highly useful tool for all parties as it really streamlines the process for unemployed borrowers to a faster resolution,” Schwartz said.”

HAMP where the rubber meets the road

5 Nov 2009. Credit Slips.

“Subprime, Exotic or “Crap?” Mortgage Industry Lingo. by Katie Porter”

“Former Credit Slips guestblogger Max Gardner … had an employee at a now-deceased mortgage servicer share an insider’s perspective on default mortgage servicing. …

The explanation for why homeowners can’t get reliable answers on loan modifications is that the default servicing technicians are “cab drivers,” when successful HAMP and other loss mitigation programs would require “cup drivers” in NASCAR parlance. The servicing industry doesn’t care much for “CRAMP,” their term for Hope Now and HAMP, which the former employee described as a vehicle designed for an 8-lane Interstate running on a two-lane country road. And those qualified written requests that consumers can use to get information on their mortgage loans? Those QWRS are “Quite a lot of Written Regurgitated S**t””

[This contributes to a very strong impression that Treasury is really quite of touch with people in the trenches.]


30 Nov 2009. US Treasury Supplemental Directive 09-09

“Introduction of Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure”

“While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve a HAMP modification request, a HAMP modification is offered and not accepted by the borrower, or the borrower falls out of a HAMP modification. In these instances, the borrower may benefit from an alternative that helps the borrower transition to more affordable housing and avoid the stigma of a foreclosure.

This Supplemental Directive provides guidance to servicers for adoption and implementation of the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of HAMP and provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives reduce the need for potentially lengthy and expensive foreclosure proceedings. The options help preserve the condition and value of the property by minimizing the time a property is vacant and subject to vandalism and deterioration. In addition, these options generally provide a substantially better outcome than a foreclosure sale for borrowers, investors and communities.

This Supplemental Directive provides guidance to servicers for adoption and implementation of HAFA for first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (Non-GSE Mortgages …

A loan must be HAMP eligible and meet the other requirements stated herein to be eligible for incentive compensation under HAFA.

The effective date of this Supplemental Directive is April 5, 2010. A servicer may elect to implement HAFA prior to April 5, 2010, provided that the servicer is able to collect and report all required information as described in the Reporting Requirements section of this Supplemental Directive. Borrowers may be accepted into HAFA if a Short Sale Agreement or DIL Agreement, as described in this Supplemental Directive, is fully-executed by the borrower and received by the servicer on or before December 31, 2012. …

In a deed-in-lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the mortgaged property to the servicer in full satisfaction of the total amount due on the first mortgage. The servicer’s willingness to approve and accept a DIL is contingent upon the borrower’s ability to provide marketable title, free and clear of mortgages, liens and encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the property through a short sale before agreeing to accept the DIL. …

Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options in accordance with the provisions of Supplemental Directive 09-01 and any supplemental HAMP guidance. Borrowers that meet the eligibility criteria for HAMP but who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or default on a HAMP modification should first be considered for other loan modification or retention programs offered by the servicer prior to being evaluated for HAFA. …

Pursuant to the servicer’s policy, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:

  • Does not qualify for a Trial Period Plan;
  • Does not successfully complete a Trial Period Plan;
  • Is delinquent on a HAMP modification by missing at least two consecutive payments; or
  • Requests a short sale or DIL. …

Suspension of Foreclosure Sales. At the servicer’s discretion, the servicer may initiate foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but may not complete a foreclosure sale:

  • While determining the borrower’s eligibility and qualification for HAMP or HAFA.
  • While awaiting the timely return of a fully executed SSA.
  • During the term of a fully executed SSA.
  • Pending transfer of property ownership based on an approved sales contract per the RASS or Alternative RASS.
  • Pending transfer of property ownership via a DIL by the date specified in the SSA or DIL Agreement. …

Borrower Relocation Assistance. Following the successful closing of a short sale or DIL, the borrower shall be entitled to an incentive payment of $1,500 to assist with relocation expenses. …

Servicer Incentive. The servicer will be paid $1,000 to cover administrative and processing costs for a short sale or DIL completed in accordance with the requirements of HAFA and the applicable documents. …

Investor Reimbursement for Subordinate Lien Releases. The investor will be paid a maximum of $1,000 for allowing a total of up to $3,000 in short-sale proceeds to be distributed to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each three dollars an investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of reimbursement.”

Disadvantages of being in a HAMP trial mod

14 Jan 2010. ProPublica.

“Homeowners Say Banks Not Following Rules for Loan Modifications. by Paul Kiel”

“There are a number of adverse consequences of a trial period’s dragging on, said the consumer law center’s Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most importantly, says Thompson [Diane Thompson of the National Consumer Law Center], the homeowner isn’t saving money in case the modification fails and the home is foreclosed. “Keeping someone in a trial modification really does not do them a favor,” she said.”

HAFA unlikely to make a big difference

10 Mar 2010. Calculated Risk.

“More: Short Sales and 2nd liens. by CalculatedRisk”

“on a $50,000 2nd lien, the holder of the lien will be offered up to $1,500 to sign off on the deal and release the borrower from personal liability. The HAFA program will reimburse the 1st lien holder one third of that amount, or up to $500. …

I expect that most 1st lien holders will be willing to pay this amount to the 2nd lien holder. But would a $50,000 2nd lien holder be willing to sign off for only $1,500?

It really depends on the financial situation of the borrower, and probably on the likelihood of personal bankruptcy. In most cases the 2nd lien holder can probably do much better by selling the lien to a collection agency.

Although I think the HAFA program will help with short sales (and deed-in-lieu transactions), this will not solve the 2nd lien problem. Foreclosure may still be the servicers' option of choice for borrowers with subordinate liens.”