Feds Anounce Details of Modification Program

"Making Home Affordable"
Details of Government Modification ProgramThe US Treasury has announced the details of the new program to standardize and incentivize loan modifications. All federally regulated banks and any institution receiving TARP funds must participate. Loans owned by Mortgages Backed Securities (MBS) are allowed but not required to participate (see the bankruptcy law below).

Loans will be modified by the servicing companies pursuant to the standard guidelines. Some of the key features for borrowers include:
No Cost to Borrower for Modification
Lender Must Waive Late Fees
Lender Must Not Require Lump Sum Payments
Payments Will Be Driven Down to 31% DTI (front)
Loan Balances Up To $729,750
First Mortgages Only
Owner Occupied Only
Loan Originated Before 1/1/2009
Borrowers Receive a Credit of $1,000 Per Year for On-Time Payments, Credit is Applied to Principal
Some key features for the lenders/servicers include:
Principal Reduction Is Not Required
Lenders will receive bonus payments and cost sharing from the government as incentives to complete the modifications.

Lenders will perform an NPV (Net Present Value) test to compare the cost of Modification versus a Foreclose. If the modification has a higher NPV then the lender must complete the modification. If lower then the modification is optional.

Payment reductions will be achieved by a structured "waterfall" approach to reach the 31% DTI. First rates will be dropped as low as 2%. If the payment is still too high then the term will be extended for up to 40 years. If the payment is still too high then the lender will forebear principal.

If you would like to learn more then join us for our Mortgage Market Update Seminar on Friday March 6th at 10AM.

More Information:
Program Guidelines
Program Fact Sheet