Posted on Monday, March 29, 2010
Details direct from Makinghomeaffordable.gov
Making Home Affordable Program Enhancements to Offer More Help for Homeowners
Today the Administration announced enhancements to the Home Affordable Modification Program (HAMP) to provide
additional resources for struggling homeowners. These changes will provide temporary mortgage assistance to some
unemployed homeowners, encourage servicers to write-down mortgage debt as part of a HAMP modification, allow more
borrowers to qualify for modification through HAMP, and help borrowers move to more affordable housing when
modification is not possible. The changes will be implemented in the coming months.
Unemployed borrowers meeting eligibility criteria will have an opportunity to have their mortgage payments temporarily
reduced to an affordable level for a minimum of 3 months, and up to six months for some borrowers, while they look for a
new job. If homeowners don’t find a job before the temporary assistance period is over or if they find a job with a
reduced income, they will be evaluated for a permanent HAMP modification or may be eligible for HAMP’s alternatives
to foreclosure program.
To expand the use of principal write-downs, servicers will be required to consider an alternative modification approach
that emphasizes principal relief. This alternative modification approach will include incentive payments for each dollar of
principal write-down by servicers and investors. The principal reduction and the incentives will be earned by the
borrower and lender based on a pay-for-success structure.
Other program enhancements are designed to help more borrowers complete a HAMP modification. Borrower outreach
and communications rules will be clarified and strengthened to protect responsible borrowers from unnecessary and costly
foreclosure actions and to expand modification opportunities for borrowers in bankruptcy. Servicers will receive
increased incentives, allowing them to expand borrower outreach and counseling efforts. With the introduction of FHAHAMP,
the HAMP pay-for-success incentives will be expanded to include borrowers with FHA loans.
For borrowers who continue to struggle and are unable to complete a modification, these program enhancements will help
homeowners move to more affordable housing. Relocation assistance payments to borrowers who use the foreclosure
alternatives program will be doubled and incentives will be increased for servicers and lenders to raise participation.
Improvements to the Home Affordable Modification Program – More Help for Homeowners
1. Temporary assistance for unemployed homeowners while they search for re-employment
• Mortgage payments reduced to affordable level for a minimum of three months, and up to 6
months for some borrowers, while eligible homeowner looks for new job
2. Requirement to consider alternative principal write-down approach and increased principal write-down
• All servicers required to consider alternative modification approach that emphasizes principal
write-down with incentives based on the dollar value of the principal reduced
• The principal reduction and the incentives will be earned by the borrower and investor based on a
3. Improvements to reach more borrowers with HAMP modifications
• Improvements to borrower solicitation requirements including clear performance timeframes for
both servicers and borrowers and a prohibition against initiation of a new foreclosure referral
when a borrower is cooperating with the servicer to obtain a modification
• Borrowers in active bankruptcy must be considered for HAMP upon request
• Increased incentives for servicers to provide permanent HAMP modifications
• Expansion of HAMP to include homeowners with FHA loans
4. Helping homeowners move to more affordable housing
• Relocation assistance payments to homeowners receiving foreclosure alternatives doubled
• Increased incentives to servicers and lenders, including increased incentives for extinguishment of
subordinate liens, to encourage more short sales and other alternatives to foreclosure
1. Temporary Assistance for Unemployed Homeowners While They Search for Re-Employment
• Mortgage payments reduced to an affordable level for a minimum of 3 months, and up to six months for some
borrowers, while eligible homeowner looks for new job.
o Payment set at 31 percent of monthly income or less while homeowner is unemployed via forbearance
o Temporary assistance plan offered for a minimum of 3 months, and up to six months for some borrowers,
subject to investor and regulator guidelines, ending when borrower becomes re-employed or scheduled
assistance period expires. Borrowers who become re-employed during the scheduled assistance period
and whose mortgage payment is greater than 31 percent of their new gross monthly income must be
considered for HAMP.
• Servicers participating in the Making Home Affordable Program are required to offer assistance to all
unemployed borrowers who meet eligibility criteria:
o Homeowner’s mortgage meets HAMP eligibility requirements, including 1) house is owner-occupied 2)
loan balance is below $729,750 and 3) loan was originated before January 1, 2009.
o Borrower submits evidence that they are receiving unemployment insurance (UI) benefits.
o Borrower requests temporary assistance in the first 90 days of delinquency.
• At the end of the temporary assistance period, homeowners who have a mortgage payment greater than 31 percent
of their monthly income must be considered for a permanent HAMP modification.
o To receive the permanent HAMP modification, homeowners must be current on assistance plan
payments, must verify qualifying income with standard documentation, and must meet all other HAMP
underwriting requirements including the net present value (NPV) evaluation.
o Unemployment insurance will not be counted as income when homeowner is evaluated for HAMP.
o If the scheduled assistance period ends without re-employment, the homeowner may be considered for
HAMP alternatives to foreclosure including short sales and deed-in-lieu of foreclosure.
• No cost to government or taxpayers from the forbearance plans.
2. Requirement to Consider Alternative Principal Write-down Approach and Increased Principal Write-down
• Requirement for all servicers to consider an alternative modification approach including more principal writedown
for HAMP-eligible borrowers that owe more than 115 percent of the current value of their home.
o Servicers will be required to run the standard NPV and an alternative NPV that includes incentives for
principal write-down and compare the results.
o If NPV is higher under alternative approach, servicer will have option to use it.
• Alternative principal reduction allows some underwater homeowners to reduce principal balance of their
mortgage in steps over three years, if they remain current on payments.
o Under alternative approach, servicers assess the NPV of a modification that starts by forbearing principal
balance as needed over 115 percent loan-to-value (LTV) to bring borrower payments to 31 percent of
income; if a 31 percent monthly payment is not reached by forbearing principal to 115 percent LTV, the
servicer will then use standard steps of lowering rate, extending term, and forbearing additional principal.
o Servicers will initially treat the write-down amount as forbearance and will forgive the forborne amount
in three equal steps over three years, as long as the homeowner remains current on payments.
o Additional guidance will address the treatment of second liens where applicable, which must also agree to
first extinguish principal in conjunction with any principal reduction on the first lien.
• For borrowers who have already received a permanent modification, or who are in a trial modification, and are
still current on payments at the time the alternative modification approach is operational (later in 2010), servicers
will be required to retroactively consider extinguishing an amount of principal balance in the same amount that
would have been forgiven under the new alternative approach.
o To further encourage principal write-downs, Treasury is also increasing the incentives that it provides for
loans extinguished or partially extinguished in conjunction with the HAMP Second Lien Program.
o The following schedule will be available to lenders in exchange for all principal write-downs under
HAMP at the time of a loan modification.
Table: Extinguishment Price Schedule: Per Dollar of Unpaid Principal Balance (UPB) in Loan-to-Value (LTV)
<115 115 to 140 > 140
0.21 0.15 0.10
All second liens that are greater than 6 months delinquent, regardless of LTV, will be paid at the rate of
3. Improvements to Reach More Borrowers with HAMP Modifications
• Improve borrower solicitation and communication and expand opportunities for borrowers in bankruptcy
o Clarifies borrower solicitation requirements and defines “reasonable effort” on the part of the servicer to
outreach to borrowers.
? Encourages early intervention by requiring pro-active solicitation of all borrowers who meet the
HAMP eligibility profile and have missed two or more payments.
? Establishes minimum solicitation requirements that include both phone and mail attempts.
o Prohibits referral to foreclosure until a borrower is evaluated and found ineligible for HAMP or
reasonable contact efforts have failed, protecting responsible borrowers from unnecessary foreclosure
actions and costs.
o Requires servicers to stop foreclosure actions after a borrower enters into a trial plan based on verified
o Requires written certification that a borrower is not HAMP eligible before an attorney or trustee can
conduct a foreclosure sale.
o Establishes a 30-day borrower response period from the date of a non-approval notice during which
foreclosure sale is prohibited.
o Requires servicers to consider borrowers in bankruptcy for HAMP and removes barriers to HAMP
? Allows use of bankruptcy documents to verify income.
? Allows waiver of the trial period in some cases were a borrower is already performing under a
• Increase incentives for servicers to provide permanent modifications to homeowners
o Upfront servicer incentive payments increased for permanent modification to allow servicers to increase
outreach and counseling efforts and to cover costs of implementing the updated program elements.
• Implement FHA-HAMP, expansion of HAMP to include homeowners with FHA loans.
o TARP funded incentives will be available to borrowers and servicers whose loans are modified under the
FHA-HAMP guidelines. The incentives are comparable to the incentive structure of HAMP.
o FHA-HAMP provides FHA insured borrowers with modified mortgage payments set at 31 percent of
gross monthly income, similar to a HAMP modification.
o To be eligible for FHA-HAMP incentives, servicers must sign an agreement with Treasury.
4. Helping Homeowners Move to More Affordable Housing
• Increase incentives to provide more homeowners with foreclosure alternatives
o Increase payoffs to subordinate lien holders who agree to release borrowers from debt to facilitate greater
use of foreclosure alternatives including short sales or deeds-in-lieu.
? The new payoff schedule allows servicers to increase the maximum payoff to subordinate lien
holders to 6 percent of the outstanding loan balance and doubles from $1,000 to $2,000 the
incentive reimbursement that is available to investors for subordinate lien payoffs, subject to an
overall cap of $6,000.
o Increase servicer incentive payments from $1,000 to $1,500 to increase use of foreclosure alternatives and
encourage additional outreach to homeowners unable to complete a modification.
• Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000
o Help homeowners who use a short sale or deed-in-lieu to transition more quickly to housing they can
FHA Program Adjustments to Support Refinancings for Underwater Homeowners
Today the Administration announced adjustments to Federal Housing Administration (FHA) programs that will
permit lenders to provide additional refinancing options to homeowners who owe more than their home is worth
because of large falls in home prices in their local markets. These adjustments will provide more opportunities
for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the
borrower is current on the mortgage and the lender reduces the amount owed on the original loan by at least 10
percent. This option should be available by the fall.
The new FHA loan must have a balance less than the current value of the home, and total mortgage debt for the
borrower after the refinancing, including both first and any other mortgages, cannot be greater than 115 percent of
the current value of the home – giving homeowners a path to regain equity in their homes and an affordable
monthly payment. This refinancing will help homeowners by setting monthly payments at affordable levels and
decreasing the mortgage burden for families owing significantly more than their homes are worth. Keeping more
responsible families in their homes should support the continued recovery of the housing market.
FHA Refinance Option
1. FHA Refinance Option for Underwater Loans –Encouraging Responsible Restructuring and
• Voluntary option encourages lenders and borrowers to work together, when appropriate, to
restructure underwater mortgages. Because it is voluntary for lenders, not all underwater borrowers
who meet criteria below will receive an FHA refinance loan.
• Enables refinancing into more sustainable loans that are no higher compared to the value of the home
than the standard FHA refinance loan (97.75 percent).
• Lenders write down principal of the original first mortgage at least 10 percent to reduce the debt
burden on borrowers, though we expect the average principal write-down to be significantly more
• Enables refinancing to a reduced monthly payment at current low interest rates to facilitate
• Homeowner Eligibility
o Homeowners must be current on their existing mortgage. They must occupy the home as
their primary residence, fully document their income and have a qualifying credit score.
o As with any loan forgiveness, this short refinancing should be reflected as a negative feature
on a borrower’s credit score.
o Option is available to homeowners with mortgages not currently insured by the FHA.
2. Incentives for Principal Write-downs on Second Liens
• All mortgage debt including second liens must be written down to a maximum of 115 percent of the
current value of the home to qualify for the refinance.
3. Transparency on Impact of These Refinancings
• FHA will publish data on number of loans, average percentage written down and quantity of
principal reduced quarterly.
4. TARP Funded Support to Expand Impact of Refinance Option
• TARP funds will be made available up to a total of $14 billion to provide incentives to support writedowns
of second liens and encourage participation by servicers, and to provide additional coverage
for a share of potential losses on these loans.
The following information provides a brief overview of the key features of the refinance option. Detailed
guidelines will be announced by FHA Mortgagee Letter.
1. FHA Refinance Option for Underwater Homeowners – Encouraging Responsible Refinancings
• Voluntary option for lenders and borrowers
• Encourages lenders and borrowers to work together, when appropriate, to restructure debts
o Qualifying first lien mortgage loans must have a minimum write-down of at least 10 percent and
total mortgage loan to value on the home can be no greater than 115 percent after the refinancing
• Eligible underwater loans are refinanced into new FHA loans on FHA terms for full documentation,
income ratios, and complete underwriting
• Terms of FHA refinancing:
o FHA loan will be equal to no more than 97.75 percent of the value of the home
o Combined mortgage debt must be written down to a maximum of 115 percent of the current value
of the home
o Standard FHA mortgage insurance premium structure will apply
• Mandatory principal write-down as part of refinance
o Minimum write-down by lender of 10 percent of the unpaid balance of the original loan
• Affordable monthly mortgage payments to facilitate affordable homeownership
o New monthly mortgage payment at current low FHA interest rate
o Total monthly mortgage payment, including for second mortgage, will not be greater than
approximately 31 percent of income, and total debt service including all forms of household debt
will not be greater than approximately 50 percent except for some borrowers with especially
strong credit histories
• Existing lenders can retain second mortgages on the property, but only up to a combined 115 percent of
the current value of the home
o If there is an existing mortgage that is not extinguished, holders must agree to resubordinate and
write off any amount over 115 percent of the current value of the home
o The existing first mortgage is refinanced into a fully documented FHA insured mortgage at no
greater than 97.75 percent of the value of the home
• Homeowner Eligibility
o Homeowners must be current on their existing mortgage payment
o Homeowner must occupy the home as their primary residence and fully document their income
o Homeowners must qualify under standard FHA underwriting guidelines
o Homeowners must have a FICO credit score of at least 500
o Existing lenders/investors holding the first lien must agree to the principal write-down
requirement. Thus, not all homeowners who meet above criteria will receive an FHA refinanced
o As with any loan forgiveness, the short refinancing should be reflected on borrowers’ credit score
• Performance of these refinanced loans will not count against lenders for their Credit Watch scores, if the
above parameters are met
2. Incentives for Principal Write-downs on Second Liens
• Incentives for immediate write-down of underwater second liens by lenders will be offered to encourage
write-downs in connection with the FHA refinance.
• An extinguishment schedule will be implemented based on the below taking into account the likely
distribution of the second lien lenders that will agree to immediate write-downs
Table: Extinguishment Price Schedule: Per Dollar of Unpaid Principal Balance (UPB) in Combined Loanto-
Value (CLTV) Range
Second Lien CLTV Range
Combined LTV 105 to 115 115 to 140 > 140
Projected Schedule 0.21 0.15 0.10
3. Transparency on Impact of These Refinancings
• FHA will publish data on numbers of loans refinanced in this way including average percentage written
down and quantity of principal reduced quarterly
4. Up to a total of $14 billion in TARP funds to expand impact of refinance option
• TARP funds will be made available for incentives to support write-downs of second liens and encourage
participation by servicers as well as the provision of coverage for some share of potential losses on loans.
Total support provided through these three mechanisms will not exceed $14 billion.
• TARP funds will be used to provide coverage for a share of losses on loans up to a specified amount. The
FHA will provide remaining loss coverage up to the maximum insurance coverage. Thus, the new lender
will have a loan that is backed by the United States for up to 97.75 percent of the home value, as with
other FHA refinance loans.
• TARP will purchase a letter of credit that will provide this loss coverage.