YouTube: ForeclosureFreedomNetworkShow#1:Home Affordability & Stability Plan

Foreclosure Freedom Network Show #2:
Homeowner Affordability and Stability Plan
March 4, 2009
Just March 4th 2009 the President’s Homeowner Affordability and Stability Plan was released along with Lender guidelines.  Let’s take a look at what this means for the average Joe.
1.  Loans must be originated on or before January 1, 2009.

2.   First-lien loans on owner-occupied properties with unpaid principal
3.  Balance up to 729,750 or higher if owner occupied property has 2-4 units on it.
4.  All borrowers must fully document income, including most recent pay stubs,                                                                                     tax return, and signed affidavit of financial hardship.
5.  Property owner occupancy must be verified through credit report and other documentation.
6.  Incentives are now offered to lenders and servicer to modify ‘at risk’ borrowers who haven’t missed payments but risk of default is imminent. Modifications can start from 3/4/2009 through 12/31/2012 and can only be modified once under the program.
7.  NPV (Net Present Value) test must be required to be used on each loan that is at risk of imminent default or 60 days delinquent.    This will compare NPV of cash flows with modification and without modification and the best deal for the investor is what is recommended. 

If the test is positive, meaning that the NPV of expected cash flow is greater in the modification scenario the servicer must modify unless fraud was or is a factor on the part of the home owner or a servicer contract prohibits this.   I’ll go into servicer contracts that could prohibit this later!

Parameters of the NPV test includes use of property valuation including getting a Current Market Analysis and taking a look at the overall trend of housing.  
8. Last year 54% of all loan modifications failed because they weren’t sustainable! It’s stated clearly in this Stability Plan to be mandatory that lenders evaluate the sustainability of the modifications they propose and approve on behalf of Fannie and Freddie now.
9.  From this you can see that sooner is better than later on getting your Loan Modification Application in. Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI). 

[This is called the front end debt to income ratio and is calculated by taking the sum of your mortgage payment interest and principal, property taxes, and homeowners insurance, and dividing that total by your gross monthly income and the homeowner must end up no more than 31% of loan amount.]

10.  The sequence of modifying is to first reduce the interest rate (to a floor rate of 2%).
11.  Then if necessary extend the term or amortization of the loan up to a maximum of 40 years,
12.  Then forbear principal (as needed have principal either forgiven or paid on a gradient or in a tail end balloon note or Hope for Homeowners is acceptable). The monthly payment includes principal, interest, taxes and insurance, including flood and homeowners and HOA or COA fees.  Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions and all other forms of income. Servicers must enter into the program agreement with Treasury’s financial agent on or before December 31, 2009.
Payments to Servicers, Lenders and Responsible Borrowers:
13.  The program will share with lender cost of reducing monthly payments from 38% to 31% DTI.
14.  Servicers that modify loans according to the guidelines will receive an up-front fee of 1K plus “pay for success” fees on still-performing loans of $1,000 per year.3 yr
If Homeowners make their payments on time they are eligible for up to 1K principal reduction payments each year for up to 5 years.
15.  The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while borrower is still current on mortgage payments.
The program will include incentives for extinguishing second liens on loans modified under this program.
No payments will be made under the program to the lender/investor, servicer or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.

Similar incentives will be paid for Hope for Homeowner refinances - and we’ll talk about that in a later show.
Transparency and Accountability Measures to prevent and detect fraud, such as documentation and audit requirements.

16.  Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification and other documentation.
Freddie will audit compliance.
Connie Saunders

Added Info:

This program was set up for Freddie Mac and Fannie Mae or VA, FHA loans, however loans with Fannie/Freddie backed Securitizations also apply and others as well, so long as the Lender/Servicers sign an agreement with Treasury to follow these and other guidelines.  About 13 lenders are signed up as of this date, more to come.  Most of the biggest lenders are aboard on this for at least some of their portfolio, we hope!!

Connie Saunders