On March 4, 2009 President Obama released guidelines for the Homeowner Affordability and Stability Plan. The guidelines are referred to as Making Home Affordable (MHA). These guidelines have been revised (Revised Guidelines) to include second mortgages and more clearly delineate the method of achieving a required loan modification, which may save eligible homeowners from a deed in lieu of foreclosure scenario. The Revised Guidelines require lenders to temporarily reduce payments for those borrowers eligible for modification and deemed to be in actual foreclosure or risk imminent default as defined by the guidelines. The Revised Guidelines also more clearly delineate the Net Present Value test ("NPV"), an initial hurdle toward modification. In this article I will talk about eligibility for the program and offering an immediate trial period of a modified mortgage to the borrower.
If a borrower wants to take advantage of the MHA program they must first qualify for the program. MHA lists thirteen rules necessary for qualification, as opposed to the original four qualifying rules. The thirteen qualifying factors ("Qualifying Factors") are:
Upon receipt of the borrower's application for modification the servicer is given the option to either rely on the borrower's verbal representation of eligibility or demand written proof of eligibility. Please note that this election only applies to eligibility into the program, as opposed to qualifying for a modification.
Both the original and revised Guidelines require the borrower to undergo a trial period under a proposed modification. However, the Revised Guidelines allow the servicer to use the information provided in the eligibility phase to allow the trial period to begin almost immediately. Alternatively, the servicer may require full documentation of eligibility for entry into the program and meeting the requirements for modification prior to offering the trial period.
Upon first blush one might wonder why a servicer would ever proceed to offer the trial period of modification upon the verbal representation of the borrower. However, once one understands the intricacies of the program one does wonder why a servicer would not offer an immediate trial period for the borrower.
The Revised Guidelines state that the servicer "should not proceed with a foreclosure sale until the borrower has been evaluated for the program, and, if eligible, an offer to participate in the HMP has been made." Therefore, a servicer who offers an immediate trial period has two benefits:
In other words, the tender of an offer of an immediate trial period generates immediate cash for the servicer and if the borrower fails during the trial period, speeds up the foreclosure process.
I will discuss the requirements that must be met for modification in a separate article.