On October 24th, 2011 President Obama announced a new plan to help homeowners who owe more on their mortgage than their house is worth. The President announced his plan while visiting us here in Las Vegas, which is the “most fun city in the world” and “foreclosure capital” of the world at the same time. The plan would help owners of these so-called “underwater mortgages” through a combination of various techniques:
- The Administration announced it was extending the minimum forbearance period that unemployed borrowers could receive on their mortgages to a full year.
- The Treasury Department provided guidance requiring the 20 largest servicers participating in HAMP to provide a single point of contact for homeowners.
- In the event a homeowner is not eligible for a modification, HAMP requires servicers to notify the homeowner of this decision in writing using commonly understandable language, and to give homeowners 30 days to dispute the decision before a foreclosure sale can take place. This is a vast improvement over the previous system, in which servicers could deny a homeowner HAMP and there was no method or government agency available to protest or appeal the denial.
- If a homeowner has been denied due to a negative net present value (NPV) result, servicers must disclose all of the variables that went into the NPV calculation. Under previous practice, servicers rarely disclosed their calculation methods.
- To help encourage servicers to move quickly to modify distressed borrowers’ loans, the Treasury adjusted the incentive structure of HAMP payments to servicers from a flat fee of $1,000 to $1,600 for modifications before 4 months of delinquency, $1,200 for 4-7 months, and $400 afterwards.
Together, Fannie Mae, Freddie Mac and FHA own about half of the REO properties across the country. The Obama Administration is soliciting comments in order to determine a method to convert these government agency-owned properties into affordable rentals.
Carlos L. McDade, Esq.