Sacramento Certified Pre-Foreclosure Specialist Report: Fannie Mae’s Alternative Modification
Fannie Mae Institutes Alternative Modification for those who don't qualify for HAMP
Servicers are working faster and more diligently to convert trial modifications to permanent status under the administration’s Home Affordable Modification Program (HAMP
). In February, the number of mods in thepermanent column increased 45 percent compared to January. But the bitter truth is that some homeowners won’t qualify for long-term relief even after successfully making their trial payments – whether it’s because of insufficient documentation during the final application process or because once income is verified, their debt-to-income ratio pushes them out of the qualifying bracket.
To offer these homeowners another option, Fannie Mae
is instituting the “Alternative Modification” (Alt Mod) and requiring all its servicers to evaluate a borrower for the new solution before proceeding with foreclosure.
In a letter to lenders
Thursday, Fannie explained that the Alt Mod is “an alternative to the HAMP modification
for those borrowers who were eligible for and accepted into a HAMP trial period
plan but were subsequently not offered a permanent HAMP
modification because of eligibility restrictions.”
For mortgage loans in active HAMP
trials initiated prior to March 1, 2010, all Fannie Mae-approved servicers must consider the Alt Mod prior to the initiation of foreclosure for all eligible borrowers who were not offered a permanent HAMP
modification after making all required trial payments.
As outlined in the Alt Mod FAQ
, in addition to HAMP
evaluation and fulfillment of trial payments, one of the following is required for eligibility:
- The monthly mortgage payment ratio based on verified income was less than 31 percent.
- The target monthly mortgage payment ratio of 31 percent based on verified income could not be reached using the standard HAMP modification waterfall.
- The borrower failed to provide all income documentation required for a HAMP modification but meets the streamlined income documentation requirements outlined by Fannie.
Fannie Mae noted within the program documentation that in all cases a signed hardship affidavit is required, and the Alt Mod mortgage payment may not be reduced below 20 percent of the borrower’s verified monthly gross income. The GSE also stressed that a principal write-down or principal forgiveness is prohibited on Fannie Mae mortgage loans.
For qualified borrowers who are already identified as ineligible for a permanent HAMP modification, Alt Mod offers must be sent to them within the next 30 days. Going forward, for other borrowers who entered into a trial plan prior to March 1, 2010 but are denied a permanent HAMP mod, offers must be sent within 10 days of completion of the trial period and expiration of the 30-day HAMP borrower notice.
A servicer will receive compensation of $800 for each completed Alt Mod. Unlike HAMP, there are no borrower incentive payments available under the alternative program.
The GSE is also seeking blanket delegations of authority from mortgage insurers so that servicers can more efficiently process Alt Mods without having to obtain mortgage insurer approval on individual loans.
Fannie Mae noted that the Alt Mod is a temporary servicing policy change, with a sunset date of August 31, 2010