The Making Home Affordable Program Deciphered, Part II

Why was the Making Home Affordable program created? The Making Home Affordable program was created by the Obama administration to protect taxpayers by providing clear and sound refinancing and modification guidelines. As of March 9, 2009, up to 9 million Americans may be eligible to refinance or modify their loans to a payment that is affordable now and in the future.

This communication deciphers some of the modification components of the Making Home Affordable program and points community bank lenders to additional resources for more information.

How does my bank participate in the Making Home Affordable modification program?

Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with Treasury’s financial agent, through which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program. 

As contracts are signed, a list of participating servicers will be available on the Making Home Affordable Web site.

Who is eligible for the Making Home Affordable modification option?

Homeowners whose:

• Loans were originated on or before January 1, 2009;
  
  
• Mortgage payments (including taxes, insurance, homeowners association dues) are more than 31 percent of their gross (pre-tax) monthly income, and;
  
  
• Mortgage payments are not affordable, perhaps because of a significant change in income or expenses.
  
  

Additional Requirements:

• First-lien loans on owner-occupied properties with unpaid principal balances up to $729,750 are eligible. Higher limits are allowed for owner-occupied properties with 2-4 units such as a condominium or cooperative.
  
  
• Home must be an owner-occupied, 1-4 unit property.
  
  
• All mortgage loans are eligible and do not need to be owned or securitized by Fannie Mae or Freddie Mac.
  
  
• Loans may only be modified once through this program.
  
  

Loan Modification Guidelines: The goal of the modification program is to bring down the borrower’s monthly mortgage payment. After the bank reduces the payment so it is no greater than 38 percent of the borrower’s income, the United States Treasury will then match further reductions in monthly payments dollar-for-dollar from 38 percent down to 31 percent.

• To reach a debt-to-income ratio of 31 percent, lenders may reduce interest payments to 2 percent. If, at 2 percent, the debt-to-income ratio is still greater than 31 percent, lenders may extend the term or amortization period up to 40 years and forbear principal at no interest until the payment is reduced to the 31 percent target.
  
  
• The modification payments will be kept in place for a period of five years. Beginning in year six, the interest rate may increase but at no more than 1 percent per year until it reaches a rate cap as set in the modification agreement. The rate cap is determined by the interest rate on the date the modification was finalized, as published by Freddie Mac based on a survey of its customers. Therefore, the interest rate on the loan can never be higher than the market rate on the day the loan modification was finalized.
  
  

Incentives for Borrowers: Borrowers will be eligible to accrue up to $1,000 annually in Pay-for-Performance Success Payments for up to five years. Accruals are based on on-time payment performance and will be directed to the servicer of the loan who will then apply the payment to the principal balance of the loan (but not more than $1,000 per year or $5,000 for five years).

Incentives for Servicers: Servicers will receive $1,000 for each eligible loan modification that meets Making Home Affordable guidelines. Servicers are eligible to receive additional monetary incentives. Please refer to the guidelines.

When Does the Program Expire? December 31, 2012.

Where Can I Find More Information? View the Home Affordable Modification Guidelines at the following Web sites:

• U.S. Department of the Treasury
  
  
• Making Home Affordable
  
  

We welcome your mortgage industry questions and feedback. Please e-mail us at Elizabeth.Deal@icba.org or call ICBA Mortgage Senior Vice President Elizabeth Deal at 1-(800) 253-5356. You can also visit us on the Web at www.icbamortgage.com.