Earlier this year, the federal government announced changes to its Making Home Affordable (MHA) program to help more borrowers qualify for relief. The changes, which went into effect on June 1, 2012, primarily affect the Home Affordable Modification Program (HAMP), the Home Affordable Foreclosure Alternatives Program (HAFA), the Home Affordable Unemployment Program (UP), and the Second Lien Modification Program (2MP). However, the following changes apply to all MHA programs:
- The deadline to apply for any of the MHA programs is extended to December 31, 2013.
- The definition of “owner occupied single family property” is expanded to include property owned by a borrower who was displaced (for example, a borrower who moved out of town for a job or was deployed by the military), occupied by the borrower as a principal residence immediately prior to the displacement, that the borrower intends to re-occupy as a principal residence after the displacement, and that is not currently occupied by a tenant.
The Home Affordable Modification Program (HAMP)
A second level was added to the Home Affordable Modification Program (HAMP), known as “HAMP Tier 2,” to expand HAMP eligibility to help more borrowers modify their mortgages. The eligibility requirements for HAMP Tier 2 are as follows:
- The loan must meet the basic eligibility requirements for HAMP:
- The borrower obtained the loan on or before January 1, 2009.
- The borrower owes up to $729,750 on a one-unit property, $934,200 on a two-unit property, $1,129,250 on a three-unit property, or $1,403,400 on a four-unit property.
- The borrower is suffering a documented financial hardship and is or is in danger of becoming delinquent.
- The property securing the loan is a one- to four-unit property.
- The property has not been condemned.
- The borrower can afford a modified mortgage payment.
- The borrower hasn’t been convicted within the last ten years of felony larceny, theft, fraud or forgery, money laundering, or tax evasion in connection with a mortgage or real estate transaction.
- The borrower may qualify for HAMP Tier 2 even if the borrower was evaluated for HAMP Tier 1, is not eligible for HAMP Tier 1, had a payment default on a HAMP Tier 1 trial period plan, or defaulted under a HAMP Tier 1 permanent modification (12 months must pass since the HAMP Tier 1 modification effective date or the borrower must experience a change of circumstance).
- The borrower must be a natural person (for example, the borrower may not be a corporation, partnership, or limited liability company).
- The mortgage may now be secured by a rental property if the following requirements are met:
- The borrower has missed two or more mortgage payments.
- The borrower does not own more than five single-family properties.
- The rental property is occupied by a tenant as a principal residence or is vacant. (The tenant may be a legal dependent, parent, or grandparent of the borrower, even if the borrower is not receiving any rent.)
- The borrower certifies in writing that he or she intends to rent the property to a tenant and will not use the property as a secondary residence for at least five years following the effective date of any permanent HAMP Tier 2 modification.
A loan can’t be modified more than once under either HAMP Tier 1 or Tier 2. A borrower may receive up to three permanent modifications of three different mortgages under HAMP Tier 2.
The Home Affordable Foreclosure Alternatives Program (HAFA)
Changes to the Home Affordable Foreclosure Alternatives Program (HAFA), which covers short sales and deeds in lieu of foreclosure, include the following:
- Previously, to be considered for HAFA, the borrower must have lived in the home within the last 12 months. This is no longer required. However, only borrowers who currently live in the home will receive the $3,000 in relocation assistance.
- The borrower may be eligible for HAFA even while remaining current on the loan.
- Mortgage servicers are now authorized to pay $8,500 (up from $6,000) to junior lienholders. Junior lienholders, in return, must release their lien on the home and release the borrower from liability under the mortgage.
- A HAFA short sale or deed in lieu of foreclosure will have less of a negative impact on the borrower’s credit history compared to a traditional short sale or deed in lieu of foreclosure.
The Home Affordable Unemployment Program (UP)
Unemployed borrowers who qualify for the Home Affordable Unemployment Program (UP) may receive up to 12 months of forbearance assistance from their lender. Once the borrower regains employment or the 12-month forbearance period ends, the lender must evaluate whether the borrower qualifies for relief under HAMP.
The changes to UP eligibility requirements include:
- Borrowers with loans secured by a vacant or tenant-occupied property, as well as owner-occupied properties, may now be considered for UP.
- Mortgage servicers may no longer use the borrower’s monthly mortgage payment ratio as one of the criteria to evaluate the borrower for UP eligibility.
- Borrowers who defaulted on a HAMP trial period plan or permanent modification are no longer automatically barred from consideration for relief under UP.
The Second Lien Modification Program (2MP)
The goal of the Second Lien Modification Program (2MP) is to modify a borrower’s second mortgage after the borrower’s first mortgage is permanently modified under HAMP. 2MP is now expanded to include mortgages modified under both HAMP Tier 1 and Tier 2.
Effective date: June 27, 2012