In order to stabilize the housing market and the overall economy in general the Obama Administration rolled out its centerpiece program to be effective as of January 1, 2010.  The program, overall known as “MAKING HOME AFFORDABLE” encourages lenders & their servicers along with the borrowers to explore all possible home retention options and essentially delineates these options in descending order.

When this program was initially rolled out earlier this year, it was only applicable to non-Fannie Mae/Freddie Mac loans or as they’re more commonly known, Non GSE (Government-Sponsored Entity) loans.  These include non-conforming and the “Sub Prime” loans that were popular for much of the 2000 decade.  As of June 1, both GSE’s (Fannie Mae & Freddie Mac) are now participating in the “MAKING HOME AFFORDABLE” program with some minor differences.  FHA and VA are currently working out the details of a similar program for borrowers on those loans but they are currently not available.

The “MAKING HOME AFFORDABLE” program has four components that represent three major options for the homeowner and lender/servicer in descending order.  These include:

• HOME AFFORDABLE REFINANCE PROGRAM (H.A.R.P.).
• HOME AFFORDABLE MODIFICATION PROGRAM (H.A.M.P.) along with a “2MP” option for second liens.
• HOME AFFORDABLE FORECLOSURE ALTERNATIVE PROGRAM.

One of the most important aspects of the non-GSE program is that lenders who have opted to participate must participate in all components of the program.  Partial participation is not allowed.  At last count, there were nearly 140 lenders participating in this program.

Many of these lenders are signing up for this program because of the incentives being offered to them from the Treasury for their participation.

As of June 1, 2010, any lender/servicer on a Fannie Mae or Freddie Mac loan must participate in their version of the MAKING HOME AFFORDABLE program.  If you want to determine if a specific loan is eligible, you can go the following links respectively:

www.fanniemae.com/loanlookup

www.freddiemac.com/mymortgage

As we indicated earlier, both FHA and VA are working on the details of their own version of this program.

As it stands here are the facts about the three layers of the “MAKING HOME AFFORDABLE” program:

HOME AFFORDABLE REFINANCE PROGRAM (H.A.R.P.):  This program entails doing a refinancing of an existing loan under the following conditions:

1. Property is owner/occupied with one to four units.
2. Loan can be a non-GSE loan or can now be guaranteed by Fannie Mae or Freddie Mac.
3. The borrower must be current on the loan being refinanced or not more than 30 days late on the payments.
4. The existing loan does not exceed 125% of the market value of the property.
5. The borrower must have the reasonable ability to pay the new loan.
6. It must be demonstrated that the refinancing of the loan will improve the long-term affordability of the loan for the borrower.
7. The program will sunset on December 31, 2012.
   
   

It is important to note that a borrower seeking to participate in this program does NOT have to be behind on their payments which had been a problem previously for borrowers seeking to refinance a loan on which they were anticipating having problems.  Also, keep in mind that a refinance is technically a new loan that usually will have different terms and conditions and even a new loan amount at less than the current amount. 

If a borrower cannot qualify for the HARP program, the next best option is to go with the HOME AFFORDABLE MODIFICATION PROGRAM (a.k.a. HAMP).

HOME AFFORDABLE MODIFICATION PROGRAM (H.A.M.P.):

1.    The property must be the borrower’s principal residence.

2.    The loan on the property must be equal to or less than $729,750 if it is a single-family home, $934,200 if the property is a duplex, $1,129,250 if it is a triplex and $1,403,400 if the property is a four-plex.

3.    The borrower must be having difficulty making the loan payments and must explain the reasons.

4.    The loan must have been originated prior to January 1, 2009.

5.    A property with either one or two loans on it can be eligible but the payment on the first loan (P.I.T.I.) must not exceed 31% of the gross monthly income of the borrower.

6.    The borrower is still allowed to have their property on the market as a short sale while their application for H.A.M.P. is in process.  These programs can run parallel to each other.

7.    The borrower is entered into a trial period for sixty to ninety days to determine their ability to keep their new commitment.

If it is determined that this is not an option for the borrower, then the next step would be for the borrower to go with the HOME AFFORDABLE FORECLOSURE ALTERNATIVE program (H.A.F.A.).  In that event the borrower will be eligible to receive up to $3,000 in relocation expenses.  Also, if the home is currently no occupied, the borrower cannot have been out of the home more than ninety days prior to their application.

HOME AFFORDABLE FORECLOSURE ALTERNATIVE PROGRAM (H.A.F.A.):

In the event that the HAMP option is not feasible for the borrower, the next step would be for the borrower to market their property as a “short sale” under the HAFA program.  The conditions that apply to this program would include:

1. All home retention options must be offered to the borrower.
2. Any loan servicer participating in HAMP must also implement HAFA.
3. If the HAMP loan modification program does not work, the borrower agrees to a HAFA short sale.
4. The mandated HAFA process will apply to the short sale.
5. The program will also expire on December 31, 2012.

If there is a second lien on the property, the SECOND LIEN MODIFICATION PROGRAM (2MP) would apply under the HAMP program.  For a second loan to be eligible, the following conditions must apply:

1. The HAMP program must be applied to the first loan.
2. The second lien must be a “Purchase Money” second loan. (CANNOT BE A REFINANCE!).
3. The second loan must have been originated prior to January 1, 2009.
4. The total amount of the lien cannot be less than $5,000 and the payment on the loan must exceed $100.00.
5. The loan cannot have been already modified under the 2MP program.
6. The loan cannot be a subordinate loan in first position or a HELOC (Home Equity Line Of Credit) in first position.  There must a loan that has priority over it.
7. The loan cannot be insured or guaranteed by FHA, HUD, or VA.

Under these conditions the loan servicer has the following options:

1. Lender/servicer can forgive the debt.
2. Reduce the interest rate by 1% on a loan on which both principal and interest are being paid. 
3. Reduce the rate by 2% on interest only loans.
4. Can reamortize the loan by up to 40 years.
5. The lender/servicer is forbidden from asking for a forbearance agreement where the amount is not forgiven but deferred.
6. This program will also expire on December 31, 2012.

Once it is determined that the best option for the borrower is to go with the HAFA program the process would proceed as follows:

1. If the borrower misses two consecutive payments under the HAMP program, they automatically agree to proceed with the HAFA option which is a short sale process.
2. Also, any borrower who does not qualify for HAMP at the outset would go with this option or who does not complete the HAMP trial period for any other reason.
3. The lender must, again, must consider all home retention options for the borrower.
4. The lender must stop any pending foreclosure proceedings if the homeowner applies for the HAFA short sale or deed-in-lieu-of program.
5. The borrower must fill out a Request for Modification application (RMA).  To be eligible, the borrower must apply and the lender/servicer must respond.
6. The property can be vacant for up to ninety days up until they apply for the program.
7. If the borrower does not wish to consider modification, this action would not trigger disapproval.
8. If the borrower is in the process of bankruptcy, they must still be considered for eligibility for this program but the request must be made by the bankruptcy trustee.
9. While there are mandated boilerplate forms offered by HUD for this process, lenders may still use their own proprietary forms.
10. A property valuation, either an appraisal or a BPO, must be procured to determine eligibility.
11. The lender/servicer cannot require the borrower to pay any part of the principal balance either as a cash contribution or a promissory note.

Once the process is in play, the steps that must taken depend on whether the property will be marketed as a short sale or if there is an offer for the property that has been submitted.

If the borrower/seller wishes to offer their property as a “short sale-approved” property, the following steps must take place:

REQUEST FOR APPROVED SHORT SALE (R.A.S.S.):

• The borrower must use the approved RASS form.
• The agent must submit the listing within three business of the listing contract.
• There is an alternative RASS form if the owner already as a Purchase & Sale (P&S) on their home.
• In that event, they must submit both the alternative RASS and a copy of the P&S.
• The short sale must follow the lender’s outlined processes.
• The lender has 30 days (calendar days) to respond to the RASS.
• The borrower can receive a pre-approved short sale.
• The lender can require a minimum net proceeds amount.
• The commission can be for no more than six percent.
• There must be a cancellation clause where the seller would be allowed to cancel the listing agreement with no obligation to pay a commission if the property is conveyed to the mortgage insurer.
• There must be contingency clause in the listing agreement making any sale subject to the approval of all sales terms by the loan holder.

If there is a purchase and sale (P&S) on the property, the following process will apply:

1. Within 3 business days of the P&S of an accepted P&S the following must be submitted to the lender/servicer:
• Copy of P&S and all addenda to the lender.
• Any buyer qualification documents (i.e. pre-approval document form buyer’s lender).
• All information on subordinated liens which would include the loan number and the name of the lender.

2. The lender/servicer must approve or deny the P&S within 10 business days.
3. The lender/servicer can request a reasonable closing date but can be no earlier than 45 days after lender approval unless the borrower and buyer approve of the shortened period.
4. The lender/servicer must waive rights to seek any deficiency judgments against the borrower and cannot request a promissory note.
5. The lender/servicer may ask for commission reductions but still must pay up to 6% commission to the real estate broker.
6. Neither a buyer nor a seller can earn a commission on this transaction if they are acting as an agent.
7. This must be an “arms length” transaction only.

GENERAL TIPS:

Be sure to advise the borrower to include the following when applying for this program regardless of which level they will be inserted into:

• 2 years tax returns
• 2 years w-2’s and/or 1099 forms
• Last thirty days check stubs
• Last 90 days bank statements
• Balances and monthly payments on any credit card accounts
• Balances and monthly payments on any other debt (auto, student loans, etc.)
• Letter detailing the borrower’s personal financial circumstances

If you have any questions on the Fannie Mae or Freddie Mac versions of the HOME AFFORDABLE programs, you can check the following links respectively:

FNMA:  http://www.housingwire.com/2010/06/01/fannie-mae-announces-its-own-foreclosure-prevention-plan-under-hafa

FHMLC:  http://www.housingwire.com/2010/06/02/freddie-mac-details-hafa-initiative-for-distressed-homeowners

David Compton is a professional speaker/trainer, author consultant in the real estate industry. He is also a partner in Practical Resources with George Smith; a company that specializes in delivering quality educational programs to real estate and mortgage professionals.   He has spent over 36 years in real estate in residential and commercial sales, site selector for a fast food restaurant chain, branch manager, director of education for one of the largest real estate brokerages in the nation, and for the last 25 years as a speaker/trainer.  He has developed over 200 real estate courses and has authored over 150 articles for real estate print and online publications.