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: As stated within Mortgagee Letter 2012-22, a Borrower may only receive "one" Loan Modification or FHA-HAMP Option within a 24 month period.
Question 2: When determining if the Borrower is eligible for the Loan Modification Option, is the Lender to use specific financial analysis criteria?
Answer: Yes, Lender 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 PITI mortgage payment can be reduced by the greater of 10% of the original monthly mortgage payment amount and $100, as a result of the Lender setting the interest rate at the Market Rate and amortizing the new loan over 30 years. Please see Mortgagee Letter 2012-22, Attachment A.
Question 3: In utilizing the Loan Modification Option to bring an asset current, can the Lender include all fees and corporate advances?
Answer: Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified Principal Balance.
Question 4: Based on Mortgagee Letter 2012-22, the Borrower must have successfully completed a 3-month Trial Payment Plan prior to executing their Loan Modification documents.
Answer: This is correct; the Trial Payment Plan must be successful and established at the mortgage payment amount which the Borrower's Loan Modification will be finalized.
Question 5: Can a Lender include late charges in the Loan Modification?
Answer: Mortgagee Letter 2008-21 states that the goal in providing the Borrower a Loan Modification is to bring the delinquent mortgage current and give the Borrower a new start; therefore, the Lender should waive all accrued late fees.
Question 6: When utilizing the Loan Modification Option, can a Lender capitalize an escrow advance for Homeowner's Association fees?
Answer: HUD Handbook 4330.1 REV-5 (Paragraph 2-1, Section B, Escrow Obligations) states: Lenders must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.
Question 7: Are Lenders required to re-amortize the total amount due over a 360 month period?
Answer: Yes, per Mortgagee Letter 2009-35, 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.
Question 8: If a Borrower's financials reflect that they can afford their Mortgage Payment with a "lesser" loan term than 360 months, may the Lender shorten the loan term accordingly?
Answer: If the Borrower's financials reflect they can afford their Mortgage Payment with a "lesser" loan term and the Lender can document the servicing file that the Borrower is "in agreement" with the lesser loan term, the Lender should submit a Variance to NSC via the EVARS system for approval and/or denial.
Question 9: What date is utilized when determining the correct interest rate for a Loan Modification?
Answer: The date the Lender approves the Loan Modification (all verification completed and servicing notes documented, reported to SFDMS) is the date that Lenders are to use in determining the interest rate.
Question 10: Are Lenders required to perform an escrow analysis when completing a Loan Modification?
Answer: Lenders must analyze the Borrower's escrow to avoid another payment increase. All or a portion of the arrearages that includes Principal, Interest, Taxes and Insurance may be capitalized and calculated in the outstanding mortgage balance.