A Loan Modification is a permanent change in one or more of the terms of a Borrower's loan, allows the loan to be reinstated, and results in a payment the Borrower can afford.
Question 1: How many Loan Modifications may a Borrower receive?
Answer: Borrowers are permitted to receive a Loan Modification or FHA-HAMP only once within a 24-month period. See ML 2012-22.
Question 2: How does a lender determine a borrower’s eligibility for a Loan Modification?
Answer: Lenders are to use specific financial analysis criteria when determining a borrower's eligibility for the Loan Modification Option: 1) The borrower's surplus income is at least the greater of $300 and 15% of net monthly income, 2) 85% of the borrower's surplus income is insufficient to cure arrearages within 6 months, and 3) The borrower's monthly principal, interest, taxes, and insurance (PITI) mortgage payment can be reduced by the greater of 10% of the original monthly mortgage payment amount or $100, as a result of the lender setting the interest rate at the Market Rate and amortizing the new loan over 30 years. See Mortgagee Letter 2012-22, Attachment A.
Question 3: When utilizing the Loan Modification option, may the lender include all fees and corporate advances?
Answer: Yes. Legal fees and related foreclosure costs for work actually completed for the current default episode may be capitalized into the modified principal balance. See ML 2008-21.
Question 4: May a lender perform an interior inspection of the property if they have concerns about property condition?
Answer: Yes. The lender may conduct any review it deems necessary to verify that the property has no physical conditions adversely impacting the borrower's continued ability to support the modified mortgage payment. See ML 2005-05.
Question 5: May a Lender include late charges in the Loan Modification?
Answer: The lender is expected to waive all accrued late fees. See ML 2008-21.
Question 6: When completing the Loan Modification Option, what interest rate should the lender use?
Answer: The lender should modify the interest rate to the current Market Rate, defined as a rate that is no more than 25 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30 year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date a Trial Payment Plan is offered to a borrower. See ML 2013-17.
Question 7: Are Lenders required to re-amortize the total amount due over a 360 month period?
Answer: Yes, the Lender must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage. See ML 2009-35.
Question 8: What date is utilized when determining the interest rate for a Loan Modification?
Answer: The interest rate for the Loan Modification note is based on the current Market Rate as of the date the permanent modification is executed. See ML 2012-22.
Question 9: Are lenders required to perform an escrow analysis when completing a Loan Modification?
Answer: Yes, Lenders are to perform a retroactive escrow analysis at the time of the Loan Modification to ensure that the capitalized delinquent payments reflect the actual escrow requirements required for those months capitalized. See ML 2008-21.
Question 10: Can a lender qualify an asset for the Loan Modification option when the borrower is unemployed, the spouse is employed, but the spouse’s name is not on the mortgage?
Answer: Based upon this scenario, the lender should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the lender should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage. See ML 2000-05.