INTRODUCING: Freddie Mac’s New HAMP Backup Modification Plan

Freddie Mac describes its new HAMP Backup Modification, as:

An alternative solution to support Borrowers who were initially eligible for a Home Affordable Modification Program (HAMP) Trial Period Plan based on stated income, but have been determined to be ineligible for a HAMP modification, subject to the requirements of this Bulletin.

And after that simple little summary, there’s just page after page of conditions and terms, and “if this, then that, but only when is, but then isn’t, unless…” kind of stuff.  You can find the whole kit and caboodle in Freddie Mac’s Single-Family Seller/Servicer Guide Bulletin, Number 2010-11, Dated May 17th, 2010.

So, it would seem that the HAMP Backup Modification is an option for homeowners who were in a HAMP trial modification based on having stated their income, but then were turned down because they lacked documentation or failed other underwriting requirements.

Now, Freddie Mac says the HAMP Backup Modification option is only available on a temporary basis and only applies to stated income HAMP Trial Period Plans with a Trial Period Plan Effective Date on or before April 1, 2010, so obviously it’s an effort to save some of those who were lured into a trial plan without the need to document their income… who would otherwise now be at risk of losing their homes.

And it also says: Freddie Mac Servicers MUST evaluate each Borrower for a HAMP Backup Modification once the Servicer determines the Borrower is ineligible for HAMP.  So, there’s that “MUST” word.  I don’t know how the Servicers will feel about that, but it does say: “MUST”.

First modified payment due dates for HAMP Backup Modifications must be on or before August 1, 2010, and Servicers must submit them to Freddie Mac no later than the fourth business day of the month in which the first modified payment is due… unless the moon is in the seventh house, or Jupiter aligns with Mars.  (Okay, I made that last part up; you’ve got to do something to get through this stuff.)

But wait… there’s more!  For those that don’t qualify for that “Backup” plan, Freddie now offers a new BACKUP to the Backup plan… the Cap-to-Reinstate program:

Servicers may determine that a mortgage is not eligible for a Backup Modification because the post-modification LTV ratio (found under the section of the Guide titled “Eligibility requirements”) would be less than 80%, and the Borrower’s monthly housing expense-to-income ratio based on the proposed modified payment terms, calculated using the borrower’s verified income, is less than 20%,

Once a Servicer has determined that a mortgage is not Backup eligible, the Servicer may choose to reinstate the mortgage by modifying the unpaid balance ONLY to capitalize allowable amounts, and the Cap-to-Reinstate modification is apparently described in Section C65.6, unless:

A. The Servicer determines that the borrower can’t afford the modified payment based on the documentation, assuming any was provided by the borrower during the Trial Period. The Servicer should not solicit additional documentation; or

B. The borrower indicates that he or she can’t afford the modified payment or otherwise rejects the offer of a Cap-to-Reinstate modification; or

C. The borrower did not submit income documentation that meets the requirements of the section titled “Documentation requirements”.

And, of course, there are just a few conditions that apply to the Cap-to-Reinstate modification:

1. The Servicer is not allowed to reduce the interest rate, extend the term, or forbear principal on these Mortgages.  The capitalization WILL result in a higher post-modification mortgage payment than the HAMP Trial Period Plan payment.

2. The Servicer may offer the borrower the Cap-to-Reinstate modification as soon as it is determined that the borrower is ineligible for a HAMP Backup Modification, but is eligible for a Cap-to-Reinstate modification and the borrower is NOT required to pay a minimum of three payments equivalent to the Trial Period payment.

3. And just as is the case in the Backup Modification, first modified payment due dates for Cap-to-Reinstate modifications must be on or before August 1, 2010, and Servicers must submit them to Freddie Mac no later than the fourth business day of the month in which the first modified payment is due… unless… I don’t know… someone forgets.  (Sorry, kidding again.)

And then, Freddie Says…

If a Cap-to-Reinstate modification is not offered or accepted, the borrower should be considered for other foreclosure alternative options under the Guide.

And by following the treasure map that is found throughout the Guide, lucky borrowers may come across opportunities for travel discounts and health club membership savings coupons.  Borrowers who successfully navigate through the entire guide without managing to qualify for a single program, will be automatically entered into a drawing to win a free house in either Arizona, Florida, Nevada, or some areas of California.  (Okay, everything after “And by following,” was merely a suggestion.  Just me thinking out loud over here.  So, sue me for trying to make the whole thing a little more fun.)

Look, I don’t think this is such a bad thing, even though I would venture to guess that few homeowners will take be able to take advantage of the whole Cap-to-Reinstate thing… although some may.  Maybe they fell behind due to being laid off and now are… never mind, they’re probably still unemployed.  But you know what I mean, right.

What I do like about this dance is that at least the government seems to be stepping forward with a helping hand… to some degree… for the homeowners who were allowed to enter a trial modification without being cleared properly in terms of income verification.

I’m wondering if it should lead me to believe that perhaps someone in Washington is starting to think that perhaps someone besides the homeowner has some responsibility here, or if that’s not it, then maybe their just getting so freaked out by the growing numbers of foreclosures… or maybe it’s the strategic defaults that Freddie’s EVP, and my good friend, Don “Social Policy” Bisenius does not like one bit… that they’re actually working harder to stop them.  Who knows how these people think?  Their a model of transparency, really.

Either way, it’s more than I thought they’d do for the hundreds of thousands of homeowners getting unceremoniously tossed out of their HAMP Trial Modification plan.  Until I saw this, my guess was that all they were going to get were “lovely parting gifts,” like the losers on “Let’s Make a Deal,” back before you were born: Rice-a-Roni, the San Francisco Treat, and Lee Press-On Nails… For those Long Luxurious Nails that Last and Last.

So, thanks Freddie!  If it saves some of the homeowners, I’m proud of you.  Keep the ideas coming, okay?  And tell Donny B. Mandelman says hi!

Oh, one more thing… people… PLEASE READ THE ACTUAL BULLETIN!  I provided links to it all over the place.  I am not responsible for anyone who actually does anything based on what I’ve written here.  I’m not wrong about my facts… ever.  But I may have missed some small print… Lord knows there’s enough of it in these program bulletins, and I’m not responsible for you not checking things twice.  Okay?  Thanks.

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