The end of 2016 heralded in extensive regulatory guidance on loan modification alternatives to the Home Affordable Mortgage Program (HAMP). Established by the US Department of the Treasury (DOT) in 2009 in an effort to standardize mortgage modifications, HAMP was retired on December 31, 2016 after providing nearly $10.5 million in consumer relief necessitated in response to the financial crisis.
The sunset of this first and largest loan modification program is an important landmark for the mortgage industry, but will place additional stress on already scrutinized servicer and investor loss mitigation processes.
In July of last year, the DOT, in collaboration with the US Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA), issued a white paper on guiding principles for the future of loss mitigation.
The Consumer Financial Protection Bureau (CFPB) subsequently issued a press release on the same subject. Offering an important lookback on the evolution of loss mitigation programs and creating a baseline for ongoing efforts without government assistance, this regulatory guidance was the subject of Clarifire’s September 2, 2016 blog, Welcome to Loss Mitigation Post HAMP.
Taking regulator guidance a step further, the Mortgage Bankers Association (MBA) published a “universal solution” just in time for their Annual Convention & Expo last October. An MBA Task Force evaluated lessons learned from the financial crisis to develop a proposed universal loan modification program, called “One Mod”.
This program incorporates the agencies’ white paper guiding principles of accessibility, affordability, sustainability and transparency. Building on these areas as themes, One Mod presents 10 Core Principles, a waterfall proposal and a toolkit that includes sample process flow. The Core Principles under One Mod augment the importance of providing default alternatives that cure delinquency the first time and have long-term effectiveness for the consumer, servicer and investor.
The waterfall proposed under One Mod expands on the three-step agency summary. As noted by the MBA Task Force this waterfall approach clearly offers “deep payment relief for customers and a positive economic outcome for investors.”
The summary and toolkit outline the waterfall in six steps, to include capitalizing arrearages, reducing interest rates to the lower of market rate or current note rate, extending terms and loan-to-value (LTV) limits, expansion of forbearance/forgiveness parameters on certain payments, as well as extending modification duration.
To round out the year, Fannie Mae and Freddie Mac collaborated at the direction of the FHFA to introduce their new mortgage loan modification program, “Flex Modification”. This program is designed to replace HAMP for the GSEs. It does not appear to draw from the MBA’s One Mod, albeit comparing the two programs is reminiscent of apples and oranges.
Adherence to the new Flex Modification program is not mandatory until October 1, 2017. In the interim, servicers and investors are instructed to follow existing Fannie Mae and Freddie Mac loss mitigation guidelines. This poses an interesting predicament for servicers. The DOT collaboration and CFPB issued guidance is non-binding and these agencies do not clearly hold statutory authority to replace HAMP, leaving questions in respect to enforcement, examination and data reporting unanswered.
The agencies denote in the white paper that with the sunset of HAMP, “there will no longer be a standard loss mitigation option that cuts across servicer and investor types.” And, “it is in this context that the Agencies look to continue their collaborative efforts and encourage stakeholders to design a framework for the future of loss mitigation.” Amongst guidelines for “One Mod” and “Flex Modification”, there lies the need for servicers to establish greater control of their loss mitigation modification processes.
Clearly there will be a lot of work at hand, irrespective of whether or not servicers stick to investor guidelines or opt to go a step further in expanding propriety loss mitigation processes. Implementing the right solutions will be instrumental in providing servicers the control and confidence they need to offer default alternatives in a client-centric environment. With servicers being prompted to develop proprietary solutions, the agency and MBA white papers offer a well-grounded framework. Couple this with established workflow solutions available today, servicers can confidently assimilate into the post HAMP world.
Jane Mason, Founder and CEO
Jane has applied her vast experience (over 25 years) operating process-driven businesses to successfully redefine client-focused service. Jane has worked with expert programmers to apply cutting-edge web-based technology to automate complex processes in industries such as Financial Services, Healthcare and enterprise workflow. Her vision confirms Clarifire's trajectory as a successful, scaling, Software-as-a-Service (SaaS) provider. A University of South Florida graduate, Jane has received many awards related to her entrepreneurial skills.