Fannie Mae has introduced another strategy to increase the effectiveness of the government foreclosure initiatives: The Alternative Modification Program

HAMP has been widely criticized for what has so far been a poor record of converting home mortgages entered into a required three month trial phase into permanent modifications.  As of the end of February HAMP (which also includes non-Fannie Mae and Freddie Mac mortgages) had finalized modifications on only 168,701 loans out of the 1.354 million who had been extended invitations to participate in the program.

Effective for mortgage loans in active HAMP trials initiated prior to March 1, 2010, servicers are now required to consider the Alternative Modification™ (Alt Mod™) prior to initiating foreclosure proceedings for those borrowers who were eligible for and accepted into a Home Affordable Modification Program (HAMP) trial period plan but were subsequently denied a permanent modification because of eligibility restrictions or failure to submit proper documentation. Servicers have maintained that borrowers were delaying or failing to provide the required documentation while borrowers and community groups have accused servicers of losing or mishandling the information. 

Alt Mod eligibility criteria includes:

  • The loan must have been evaluated and considered eligible for HAMP
  • The HAMP trial period must have been initiated prior to March 1, 2010
  • The loan must be secured by a one- to four-unit owner-occupied property
  • The borrower must have made all required payments in accordance with a HAMP trial period plan, including subsequent payments that may have been due while the servicer attempted to convert the trial period to a permanent modification
  • Any subsequent trial period payment(s) due from the borrower must be submitted prior to executing a permanent modification agreement

Saying that contacting borrowers in a timely manner is key to the success of the Alt Mod program, the letter sets forth a schedule for contact and follow up which includes mail, phone and direct contact and a door-knocking campaign.  Servicers who fail to comply with the guidelines could lose their own incentive payments.

Fannie Mae also said that it is attempting to obtain a delegation of authority from private mortgage insurance companies which will free servicers from the need to obtained individual loan approvals from the companies and will soon post the names of those companies from whom such delegated authority has been received.  It cautioned servicers to be sure to include PMI premiums in calculating mortgage payments and to make sure that those premiums are paid.  It also stressed the importance of establishing escrow accounts for those loans which do not have them, and to properly service them to ensure that taxes, insurance, and homeowner's association fees are paid.  Servicers were also reminded about the importance of ensuring that the modified loan retains its first lien position and that the position is fully enforceable.

Lastly, in regard to fees that servicers may charge, here is another excerpt from the lender letter:

Servicers may not charge the borrower to cover the administrative processing costs incurred in connection with an Alt Mod. The servicer must pay any actual out-of-pocket expenses such as any required notary fees, recordation fees, title costs, property valuation fees, or other allowable and documented expenses. Fannie Mae will reimburse the servicer for allowable out-of-pocket expenses, with the exception of credit report fees, which will not be reimbursed...A servicer will receive compensation of $800 for each completed modification. Incentive fee payments on eligible mortgage loans will be sent to servicers upon receipt of a closed case

HERE is Lender Letter LL-2010-04.

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