Thursday, January 28, 2010

Treasury Releases new Guidance for HAMP

by Bill McBride on 1/28/2010 02:11:00 PM

There are two key components:
1) New Requirements that Documentation be Provided Before Trial Modification Begins.
2) and guidance on Converting Borrowers in the Temporary Review Period to Permanent Modifications

From Treasury: Administration Updates Documentation Collection Process and Releases Guidance to Expedite Permanent Modifications. And the Special Directive.

1) On beginning trial modifications: The original plan allowed servicer discretion on when to place borrowers in HAMP trial modification programs. Some servicers required documentation and a first payment before putting the borrower in a trial program, others just accepted a verbal agreement over the phone. The new rules include:

Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer may evaluate a borrower for HAMP only after the servicer receives the following documents, subsequently referred to as the “Initial Package”. The Initial Package includes:
  • Request for Modification and Affidavit (RMA) Form,
  • IRS Form 4506-T or 4506T-EZ, and
  • Evidence of Income
  • The trial period will start after the initial documents are received, a trial plan is sent to the borrower, and the borrower makes the initial payment.

    The Treasury was initially trumpeting the number of trial modifications, but that was a poor metric of success since some servicers were just putting anyone who answered the phone in a trial modification.

    2) The second key component of the directive is how to handle all the current trial modifications. For the borrowers who have not made all of their payments, the directive requires the HAMP trial program to be canceled. For borrowers who have made payments, but are missing documentation, Treasury provides some additional guidelines.

    This suggests a surge of trial cancellations in February.

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