HAMP Update Principal Reduction Alternative
June 8th, 2010
The U.S. Department of the Treasury released a HAMP Update announcing the HAMP Principal Reduction Alternative.
Announcing HAMP Principal Reduction Alternative
Yesterday, June 3, 2010, Supplemental Directive 10-05: Modification of Loans with Principal Reduction Alternative, was issued offering mortgage relief to eligible homeowners whose homes are worth significantly less than the remaining amounts owed under their first lien mortgage loans. The Principal Reduction Alternative (PRA) guidance applies to non-GSE loans eligible for the Home Affordable Modification Program (HAMP) only.
Principal Reduction Alternative (PRA)
With this new guidance, servicers are required to evaluate all HAMP-eligible loans with a mark-to-market loan-to-value (MTMLTV) greater than 115% to determine if a principal reduction is beneficial. If the evaluation shows the net present value (NPV) for a HAMP modification using PRA is positive, servicers are encouraged to offer the principal reduction to the borrower. An updated NPV model reflecting principal reduction will be available to use for this evaluation. Additional details are as follows:
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Effective Date -- The PRA Effective Date (i.e., the date the principal reduction evaluation is required) will be either October 1, 2010, or the date of the HAMP NPV Model 4.0 release (whichever is later). However, servicers may immediately offer PRA for HAMP-eligible modifications as long as the reduction follows all PRA requirements.
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Application -- PRA is earned over a three-year period and is initially treated as a PRA Forbearance. Each year (for three years) that the borrower is in good standing on the anniversary of their trial period effective date, one-third of the original PRA forbearance amount will be reduced. This reduced amount will be applied to their unpaid principal balance.
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Second Lien -- Servicers participating in the Second Lien Program (2MP) will be required to provide a principal reduction on the borrower’s second mortgage in proportion to any principal reduction offered on the borrower’s first mortgage.
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Investor Incentive -- Investors will receive an incentive based on loan delinquency, LTV ratio, and the amount of the principal reduction. Note: Guidance on principal reduction and related investor incentives will be forthcoming for loans in active HAMP Trial Period Plans or that were permanently modified prior to June 3, 2010 (i.e., the SD 10-05 effective date).
Review SD 10-05 for the specifics on NPV Testing, Documentation Requirements, Compliance, and more.
Questions?
Contact the HAMP Solution Center at support@hmpadmin.com or 1-866-939-4469.
To view the online HAMP Update, please click here
About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 700 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.