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The REST platform’s Loan Disposition Analysis Report contains several alternatives outcomes that are more or less favorable to the investors of your loan than a foreclosure. Generally speaking, the servicer of your delinquent mortgage loan has been shown to be more profitable foreclosing than any other option. What you want to do is show the mortgage servicer that they have to do what’s in the best interest of the investor of your loan, if the REST Report shows that the alternatives to foreclosure are better than foreclosure sale.
The REST Report findings include the three following modification options as well as one short sale option, and one HAFA option. A homeowner may be eligible for more than one option from those below. It is up to the servicer to select the best alternative for the investor if more than one outcome is an eligible result.
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The Net Present Value Test (NPV)
A Net Present Value Test (“NPV”) is REQUIRED for each loan submitted for a loan modification, and the REST Report will show you whether you have passed the NPV test.
The NPV Test compares the Net Present Value of the cash flows expected from a modification to the net present value of cash flows expected in the absence of a modification.
If the NPV of the modified scenario is greater, the NPV result is deemed positive. In other words, the government will not require lenders to modify loans if doing so will cause the owner of the loan to be financially worse off than were the loan not to be modified.
The NPV Test applies to the outstanding loan balance and does not presume any principal forgiveness. However, the servicer may choose to forgive principal if the servicer determines that principal forgiveness improves the likelihood of loan performance and the value of the modification.
If the NPV Test generates a positive result, the servicer is required to offer a HAMP modification to the borrower. If the NPV Test generates a negative result, modification is optional, unless prohibited by the servicer contracts, known as Pooling & Servicing Agreements (PSAs).
The monthly payment reduction incentive is available for any HAMP loan modification, whether or not the NPV of the modification is positive, that meets the eligibility requirements and is performed according to HAMP’s standard “waterfall” testing.
If the NPV Test result is negative and a HAMP loan modification is not pursued, the lender/investor must seek other foreclosure prevention alternatives, including alternative modification programs, deed-in-lieu and short sale programs.
The NPV Test compares the Net Present Value of the cash flows expected from a modification to the net present value of cash flows expected in the absence of a modification.
If the NPV of the modified scenario is greater, the NPV result is deemed positive. In other words, the government will not require lenders to modify loans if doing so will cause the owner of the loan to be financially worse off than were the loan not to be modified.
The NPV Test applies to the outstanding loan balance and does not presume any principal forgiveness. However, the servicer may choose to forgive principal if the servicer determines that principal forgiveness improves the likelihood of loan performance and the value of the modification.
If the NPV Test generates a positive result, the servicer is required to offer a HAMP modification to the borrower. If the NPV Test generates a negative result, modification is optional, unless prohibited by the servicer contracts, known as Pooling & Servicing Agreements (PSAs).
The monthly payment reduction incentive is available for any HAMP loan modification, whether or not the NPV of the modification is positive, that meets the eligibility requirements and is performed according to HAMP’s standard “waterfall” testing.
If the NPV Test result is negative and a HAMP loan modification is not pursued, the lender/investor must seek other foreclosure prevention alternatives, including alternative modification programs, deed-in-lieu and short sale programs.
CAP Modification Outcome:
The CAP mod is short for a “Capitalization” Modification and is an alternative modification program that capitalizes the past due amount to the existing loan amount. This alternative program is best when the existing other programs fail because the home has equity or the homeowner has a payment that is affordable again after not being affordable for a period of time. This is one of the lesser known alternative modification programs out there. The parameters are a floor rate of 3%, a term of either 480 or 360 months, and if the existing mortgage payments (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) are already at or below 31%. The unpaid principal is generally not eligible for forbearance or reduction because the loan is worth less than the value of the home, but this is not always the case either.
FLEX Modification Outcome:
The Flex Mod Option (not a program name that a servicer would recognize) is designed to mirror
HAMP's basic rate / term/ NPV calculations while allowing for more flexible eligibility criteria. The Flex Mod Option follows the same basic waterfall, term and rate guidelines of the HAMP program:
HAMP's basic rate / term/ NPV calculations while allowing for more flexible eligibility criteria. The Flex Mod Option follows the same basic waterfall, term and rate guidelines of the HAMP program:
- The Current Interest Rate of the specified loan is first decreased in .125% increments to not less than 2% (while the existing remaining loan term remains unchanged)
- If needed, the term is extended to 480 months (or more if the existing loan term is already longer)
- The Unpaid Principal Balance (UPB) is reduced until the resulting ratio of the monthly mortgage payment to the borrower(s)’ gross income is equal to 31%.
- There is no restriction on when the loan was originated
- The property securing the loan does not have to be the borrower(s)’ primary residence and/or be currently occupied
- The Unpaid Principal Balance (UPB) of the loan can be more than the usual limit of $729,750 set for Single Family Residences
- The resulting Loan to Value (LTV) ratio of the new interest bearing balance compared to the new Estimated Market Value of the subject property can be lower than 100%.
HAMP Modification Outcome:
The Making Home Affordable Program (MHA) Home Affordable Modification Program (HAMP) is the most sophisticated loan modification program out there. HAMP stands for: Home Affordable Modification Program, a component of the government’s Making Home Affordable initiative, which is a part of the Economic Affordability & Stability Act of 2008.
Unfortunately, borrowers without the REST Report must rely on their mortgage servicer to tell them if they qualify or not. Before every applying, or while on a Trial Plan, you should take the time to purchase a REST Report from Rest Report Matters to see if it you even qualify for this program.
The program limitations include the fact that the loan must be attached to a primary residence, not a non-owner occupied rental property or Second Home. The loan amount plus past due must not be greater than $729,750. The current mortgage must have been originated before January 1st, 2010. Your monthly payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) must exceed 31% of your current gross monthly income.
Homeowners who may qualify for a HAMP loan modification are required to enter a “trial modification period”, during which they must make all monthly trial payments on time and as agreed.
HAMP guidelines state that the trial period is 3 months, however, it is not at all uncommon for trial periods to last much longer. Some borrowers have reported having to make trial payment for close to a year before learning whether or not they qualify for a permanent HAMP loan modification, or modification under a lender’s or servicer’s in-house program.
If you qualify for a HAMP loan modification, the federal government compensates participating lender’s and mortgage servicers as an inducement for modifying the terms of your loan.
Lenders are not currently required to reduce a borrower’s principal loan balance under HAMP, and as a practical matter, to-date most servicers have chosen not to reduce principal balances in conjunction with HAMP loan modifications.
However, HAMP guidelines do state that servicers may forgive principal to achieve the 31% target payment. Principal forgiveness can be used on a standalone basis or before any step in the Standard Waterfall.
However, if principal forgiveness is used, subsequent steps in the Standard Waterfall may not be skipped. If principal is forgiven and the rate is not reduced, the rate will be frozen at its existing level and treated as a modified rate for the purposes of the program’s Interest Rate Cap (see below).
Lenders are not currently required to forebear principal under the HAMP guidelines. However, should a lender agree to forebear principal, no interest will accrue on the amount of the forbearance, and the servicer shall forbear on collection the deferred portion of the Capitalized Balance until the earlier of the maturity of the modified loan, the sale of the property, or the pay-off or refinancing of the loan.
The modified interest rate must remain in place for 5 years, after which time the interest rate will increase by 1% per year, or such lesser amount as may be needed, until it reaches the IRC.
The Interest Rate Cap for a modified loan is the lesser of the fully indexed and fully amortizing original contract rate, OR the Freddie Mac Primary Mortgage Market Survey rate for 30-year fixed rate conforming mortgage loans, rounded to the nearest 0.125%, as of the date that the modification document is prepared.
If the modified rate exceeds the Freddie Mac Primary Mortgage Market Survey rate in effect on the date the modification document is prepared, the modified rate will be the new note rate for the remaining loan term.
Unfortunately, borrowers without the REST Report must rely on their mortgage servicer to tell them if they qualify or not. Before every applying, or while on a Trial Plan, you should take the time to purchase a REST Report from Rest Report Matters to see if it you even qualify for this program.
The program limitations include the fact that the loan must be attached to a primary residence, not a non-owner occupied rental property or Second Home. The loan amount plus past due must not be greater than $729,750. The current mortgage must have been originated before January 1st, 2010. Your monthly payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) must exceed 31% of your current gross monthly income.
Homeowners who may qualify for a HAMP loan modification are required to enter a “trial modification period”, during which they must make all monthly trial payments on time and as agreed.
HAMP guidelines state that the trial period is 3 months, however, it is not at all uncommon for trial periods to last much longer. Some borrowers have reported having to make trial payment for close to a year before learning whether or not they qualify for a permanent HAMP loan modification, or modification under a lender’s or servicer’s in-house program.
If you qualify for a HAMP loan modification, the federal government compensates participating lender’s and mortgage servicers as an inducement for modifying the terms of your loan.
Lenders are not currently required to reduce a borrower’s principal loan balance under HAMP, and as a practical matter, to-date most servicers have chosen not to reduce principal balances in conjunction with HAMP loan modifications.
However, HAMP guidelines do state that servicers may forgive principal to achieve the 31% target payment. Principal forgiveness can be used on a standalone basis or before any step in the Standard Waterfall.
However, if principal forgiveness is used, subsequent steps in the Standard Waterfall may not be skipped. If principal is forgiven and the rate is not reduced, the rate will be frozen at its existing level and treated as a modified rate for the purposes of the program’s Interest Rate Cap (see below).
Lenders are not currently required to forebear principal under the HAMP guidelines. However, should a lender agree to forebear principal, no interest will accrue on the amount of the forbearance, and the servicer shall forbear on collection the deferred portion of the Capitalized Balance until the earlier of the maturity of the modified loan, the sale of the property, or the pay-off or refinancing of the loan.
The modified interest rate must remain in place for 5 years, after which time the interest rate will increase by 1% per year, or such lesser amount as may be needed, until it reaches the IRC.
The Interest Rate Cap for a modified loan is the lesser of the fully indexed and fully amortizing original contract rate, OR the Freddie Mac Primary Mortgage Market Survey rate for 30-year fixed rate conforming mortgage loans, rounded to the nearest 0.125%, as of the date that the modification document is prepared.
If the modified rate exceeds the Freddie Mac Primary Mortgage Market Survey rate in effect on the date the modification document is prepared, the modified rate will be the new note rate for the remaining loan term.
HOME AFFORDABLE FORECLOSURE ALTERNATIVE (HAFA) SHORT SALE - PROGRAM HIGHLIGHTS
Eligibility/Consideration for the HAFA Short Sale Program
Under the Government’s Home Affordable Modification Program, servicers must consider eligible borrowers for a HAFA Short Sale within 30 calendar days of the date the borrower:
In the event that a borrower has an executed sales contract and requests the servicer to approve a short sale, the servicer ‘must’ evaluate the borrower for HAFA . The borrower needs to submit the request to the servicer in the form of an Alternative Request for Approval of Short Sale (Alternative RASS). Upon receipt of the Alternative RASS, the servicer must determine the basic eligibility of the borrower. If the servicer approves the short sale, then the loan qualifies for the HAFA program. If the borrower appears to be eligible and was not previously considered for a Trial Period Plan, the servicer must also notify the borrower verbally or in writing of the availability of a HAMP loan modification and allow the borrower up to 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for a HAMP modification.
The servicer must release its first mortgage lien within ten business days (or earlier if required by state or local laws) after receipt of sale proceeds from a short sale. Additionally, the investor must waive all rights to seek a deficiency judgment and may not require the borrower to sign a promissory note for the deficiency.
It is the responsibility of the borrower to deliver clear marketable title to the purchaser or investor and to work with the listing broker, settlement agent and/or lien holders to clear title impediments. The servicer may, but is not required to, negotiate with subordinate lien holders on behalf of the borrower. The servicer, on behalf of the investor, can authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and full release of borrower liability.
At the servicer’s discretion, the servicer may still initiate foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but may not complete a foreclosure sale:
Servicers may not charge the borrower any administrative processing fees in connection with HAFA. The servicer must pay all out-of-pocket expenses, including but not limited to notary fees, recordation fees, release fees, title costs, property valuation fees, credit Supplemental Directive, report fees or other allowable and documented expenses. (The servicer may add these costs to the outstanding debt in accordance with borrower’s mortgage documents and applicable laws in the event the short sale is not completed.)
Under the Government’s Home Affordable Modification Program, servicers must consider eligible borrowers for a HAFA Short Sale within 30 calendar days of the date the borrower:
- Does not qualify for a HAMP Trial Period Plan
- Does not successfully complete a Trial Period Plan
- Is delinquent on a HAMP modification by missing at least two consecutive payments, or
- Requests a Short Sale
In the event that a borrower has an executed sales contract and requests the servicer to approve a short sale, the servicer ‘must’ evaluate the borrower for HAFA . The borrower needs to submit the request to the servicer in the form of an Alternative Request for Approval of Short Sale (Alternative RASS). Upon receipt of the Alternative RASS, the servicer must determine the basic eligibility of the borrower. If the servicer approves the short sale, then the loan qualifies for the HAFA program. If the borrower appears to be eligible and was not previously considered for a Trial Period Plan, the servicer must also notify the borrower verbally or in writing of the availability of a HAMP loan modification and allow the borrower up to 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for a HAMP modification.
The servicer must release its first mortgage lien within ten business days (or earlier if required by state or local laws) after receipt of sale proceeds from a short sale. Additionally, the investor must waive all rights to seek a deficiency judgment and may not require the borrower to sign a promissory note for the deficiency.
It is the responsibility of the borrower to deliver clear marketable title to the purchaser or investor and to work with the listing broker, settlement agent and/or lien holders to clear title impediments. The servicer may, but is not required to, negotiate with subordinate lien holders on behalf of the borrower. The servicer, on behalf of the investor, can authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and full release of borrower liability.
At the servicer’s discretion, the servicer may still initiate foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but may not complete a foreclosure sale:
- While determining the borrower’s eligibility and qualification for HAMP or HAFA
- While awaiting the timely return of a fully executed Short Sale Agreement (SSA)
- During the term of a fully executed Short Sale Agreement (SSA)
- Pending transfer of property ownership based on an approved sales contract per the RASS or ARASS
Servicers may not charge the borrower any administrative processing fees in connection with HAFA. The servicer must pay all out-of-pocket expenses, including but not limited to notary fees, recordation fees, release fees, title costs, property valuation fees, credit Supplemental Directive, report fees or other allowable and documented expenses. (The servicer may add these costs to the outstanding debt in accordance with borrower’s mortgage documents and applicable laws in the event the short sale is not completed.)
PROPOSED SHORT SALE AGREEMENT/TERMS
Short Sale Terms and Conditions will vary from Servicer to Servicer. In their final form, they will be more comprehensive and detailed than the ones outlined below, but based on the submitted information, the following Short Sale Terms would be compliant with current HAFA Short Sale Guidelines and/or are indicative of Short Sale Agreements commonly executed in the industry today: The closing/funding date should be no less than 120 calendar days from the Short Sale Agreement effective date.
Within 24 hours (one business day) after closing, the closing agent/attorney are to forward to the servicer:
o A copy of the fully executed sales contract.
o A copy of the fully executed HUD-1 Settlement.
Upon successful closing of an acceptable Short Sale, the borrower would be entitled to a relocation
incentive of $1,500
A monthly mortgage payment may be required from the borrower during the term of the Short Sale Agreement. The monthly mortgage payment, if any, is negotiable but may never exceed 31% of the borrower’s gross monthly income ( is 31% of the submitted $5,383.00 gross monthly income).
Within 24 hours (one business day) after closing, the closing agent/attorney are to forward to the servicer:
o A copy of the fully executed sales contract.
o A copy of the fully executed HUD-1 Settlement.
Upon successful closing of an acceptable Short Sale, the borrower would be entitled to a relocation
incentive of $1,500
A monthly mortgage payment may be required from the borrower during the term of the Short Sale Agreement. The monthly mortgage payment, if any, is negotiable but may never exceed 31% of the borrower’s gross monthly income ( is 31% of the submitted $5,383.00 gross monthly income).
INFORMATION ABOUT THE AUTOMATED VALUE MODELING (AVM) USED FOR THE ANALYSIS
NREIS conducts nationwide tests of all the AVMs that they offer in order to determine which AVMs perform best in each geographic area. They then use a geographically based cascading approach. Geographic cascading means that there are many cascades set up behind the scenes. Which cascade is utilized is based on the geographic location of the property being evaluated. For example, in California the orders may cascade through VeroValue, then ValueSure, then CASA until a report is returned. In Ohio, the order may be completely different (perhaps a ValueSure, ValuePoint4 or i-Val property evaluation). The best performing AVM in each geographic area is ordered first. If it cannot return a valuation on the property with a high enough confidence score, the second best model in the area is ordered, and so on.
