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The U.S. Department of the Treasury and the Department of Housing and Urban Development (HUD) announced this past Thursday an updated guideline for servicers participating in the Administration’s mortgage modification program commonly known as H.A.M.P.
The rule change is intended to speed conversions of trial modifications to permanent ones by requiring documentation upfront. “The updated process requires that key documents, including proof of income, be obtained from the borrower before a borrower evaluation can begin. This more robust requirement of upfront documentation will make it easier and quicker to convert trial modifications to permanent modifications and enable servicers to use their resources more effectively.” https://www.treasury.gov/press-center/press-releases/Pages/tg516.aspxhttp://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-021.
Before the new requirements, a trial period plan could be based on verbal financial information obtained from the borrower, subject to later verification during the trial period. Now 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: (1) Request for Modification and Affidavit (RMA) Form; (2) IRS Form 4506-T or 4506T-EZ; and (3) Evidence of Income.
We previously pointed out that the lack of permanent loan modification conversions might be more the result of homeowners resisting a program that leaves them in yet another exotic mortgage. Not just a paperwork-processing problem as the Administration suggests.
Regardless, homeowners will be better off with the “more robust requirement” because the homeowner will be less likely to make several mortgage payments under a trial modification only to be denied permanency due to disqualification caused by the documentation. In other words, it will be less likely that the homeowner will throw good money after bad on a mortgage that does not qualify for a modification.
Ostensibly, under the new requirements, the homeowner’s qualifications can be better assessed before any modified mortgage payments are made in good faith by the homeowner during the trial period. Whether the new documentation requirements really make it easier and quicker to convert trial modifications remains to be seen. An argument can be made that the new requirements don’t simplify the documentary complexities associated with H.A.M.P. but merely push the problem forward in the loan modification timeline so that the ultimate number of permanent loan modifications achieved will not change. But if nothing else, in many cases the homeowner and the servicer should know sooner if the sought-after loan modification is destined for failure and that makes good sense.