By Michael Nazarinia, May 7th, 2014

(Loansafe.org) - Attorneys, Mortgage Bankers, Loan Officers, Real Estate Agents and Non-Profit homeowner advocates do not usually know when an offer is the best offer that can be achieved for a loan modification, or if an application has been erroneously denied for such things as "defective" appraisals at Wells Fargo during Net Present Value (NPV) evaluations for HAMP and in house jumbo proprietary modifications, per a California mortgage broker, D.S. who has been a loansafe user for several years now.

The updated improvements to the Home Affordable Modification Program (HAMP) Tier 2 guidelines announced April 22nd, 2014 make it easier to qualify for a loan modification by getting rid of features which made the HAMP Tier 2 results less successful than intended as only 44,072 borrowers were helped under the expanded Tier 2 program as of the latest Making Home Affordable (MHA) Program Performance Report published on 4/4/2014.

To put that into perspective, the total permanent modifications for a federal expansion of an existing program now two years old as of June 1st, 2014, HAMP Tier 2, is roughly the size of attendance of one UCLA football game at the Rose Bowl in September of 2011 under former coach Rick Neuheisel.

Homeowners are often seemingly surprised when a payment or loan balance goes up after a loan has been modified because they have not been educated on what to expect for payments when they first apply for a loan modification or been told about the Loan Modification Waterfall Steps common to all loan modifications and initially started under the Sheila Bair's FDIC Loan Mod in a Box Protocol:

"The IndyMac loan modification framework is an effective loss mitigation strategy for both portfolio and securitized mortgages. I have long supported a systematic and streamlined approach to loan modifications to put borrowers into long-term, sustainable mortgages--achieving an improved return for bankers and investors compared to foreclosure. Implementing widespread loan modifications based on the Program used at IndyMac will strengthen local neighborhoods where foreclosures are driving down property values and will help stabilize the broader economy. I would encourage all industry participants to adopt the FDIC Loan Modification Program as the standard approach in dealing with the grave problems facing us with continued mounting foreclosures." - Sheila Bair, FDIC Chairman, November 20, 2008 press release.

The Actual text of the full Sheila Bair FDIC Loan Mod in a Box guide is here as a PDF download.

There is an easy way to tell if your loan modification offer is a good deal or not, or why the payment or loan balance went up, and it depends on calculating your monthly income correctly at the time of your loan modification application as well as your total past due and servicer advances towards real estate taxes and insurance.

If the borrower's income is based on employment as a wage earner (W2), then the gross income is calculated based on the average monthly income for the trailing most recent one month in all commonly known modification programs.

For example, if the borrower is paid weekly, then 52 weeks multiplied by the weekly rate and then divided by 12 would be the monthly average.

Self Employed borrowers can use year to date, or most recent quarterly for monthly average income calculation and a two year history of stable and continuous income is not required for a modification, but a true and verifiable hardship must exist to be eligible.

See page 101 of the MHA Handbook 5.1 for further evidence of allowable income sources and guidelines for servicers to follow or have written policies to the contrary.

If the proposed loan modification monthly payment of (PITIA) Principal, Interest, Taxes, Insurance, Association Dues is a combined 31% of the gross monthly income, then likely the loan is a HAMP Tier 1 style loan modification and this is the best loan modification offer available for all loans except those backed by FHA insurance.

Eligibility requirements for HAMP Tier 1 are here and available to servicers who are participating in the MHA HAMP program, such as Green Tree, Nationstar, Select Portfolio Services, Specialized Loan Servicing and many others.

If the proposed modification payment of PITIA is between 10% to 55% of the gross income, this is also acceptable if the Tier 1 HAMP modification was not approved and the borrower does not dispute the denial based on the Net Present Value Data Input Values Chart PDF download which has been shown by the Special Inspector General of MHA HAMP in a 2012 report to be a common source of error (Page 10 of this report) due to poor quality control at mortgage servicers as well as high staff turnover due to inadequate working conditions.

"Any model will be only as good as its inputs. In addition to other Treasury oversight bodies, SIGTARP found in its sample that servicers made errors using NPV inputs and did not properly maintain records of all NPV inputs. Good recordkeeping on NPV inputs is critical for oversight and to protect homeowners' rights. Congress specifically intended that, through the web-based NPV calculator, homeowners have the right to ensure that their personal information was submitted correctly. A servicer's failure to maintain the NPV inputs as required by Treasury guidance thwarts the intention of Congress, the ability for effective compliance and oversight, and the rights of homeowners who have been denied a HAMP modification due to the NPV test."

"Within SIGTARP's judgmental sample of 149 applications that were reviewed for HAMP modifications between 2009 and early 2011 by 3 of the largest servicers -- Ocwen, Wells Fargo, and GMAC Mortgage -- SIGTARP found that the servicers could provide both accurate inputs and documentation for only 2 of the HAMP applications. SIGTARP found instances in which servicers failed to comply with HAMP guidelines on maintaining records on NPV inputs. For 19 HAMP applications, the servicer was not able to provide all of the inputs used to evaluate the homeowner for the NPV test."

"For another 19 HAMP applications, the servicer provided all inputs used to perform the NPV test, and provided documentation for all these inputs, but in some cases that documentation did not support the input used. For 109 applications, the servicers either could not provide documentation to support various inputs, or provided inaccurate documentation for various inputs. For the 149 denied HAMP applications, SIGTARP found that approximately 19% of the inputs either were entered incorrectly or could not be supported by the servicers' records. Because of the servicers' failure to maintain documentation of the NPV inputs, SIGTARP was unable to determine how many homeowners from its sample may have been wrongly denied a HAMP modification."

"One of the key inputs in SIGTARP's sample where SIGTARP found errors or lack of documentation was the borrower's gross income. Despite GAO's June 2010 report about servicer errors in calculating gross income, SIGTARP found servicer errors. The extent to which servicers used incorrect data increased the risk of an improper decision to an unacceptable level. When servicers use erroneous information in the NPV test, homeowners may be denied a HAMP modification and may ultimately lose their homes."

The current HAMP Tier 2 guidelines for Debt To Income ratio for the mortgage servicers are published at this link and program improvements are on the way per the latest Supplemental Directive 14-02 effective July 1st, 2014.

The major improvement in HAMP outlined by this Supplemental Directive is that the new HAMP Tier 2 risk adjustment is now zero basis points (0.00%) versus the current 50 basis points (0.50%) addition to the Freddie Mac Mortgage Market Survey Rate (rounded to nearest 0.125%) thereby allowing more borrowers to qualify.

Additionally, the "Post Modification Principal and Interest Payment" needed to be reduced by 10% or more from the current monthly principal and interest payment using the higher interest rate, but that requirement is now also eliminated effective July 1st, 2014.

The current FHA requirements are for a fixed term of 360 months with a rate no higher than 0.25% than the Freddie Mac Mortgage Market Survey Rate and a Partial Claim of up to 30% of the current loan balance is allowed.

A partial claim on an FHA loan modification carries a rate of 0% on this amount of the Partial Claim and this helps achieve affordability for the borrowers.

All Fannie Mae and Freddie Mac loan modifications, whether they are Standard or Streamline, carry the current rate of 4.625% and a term fixed for 40 years, 480 months and will change monthly beginning August 7th, 2014.

These are are available if the borrower did not qualify for MHA Tier 1 HAMP as Fannie Mae and Freddie Mac do not participate in Tier 2 HAMP.

The Debt to Income ratio for the Post Modification 1st mortgage Principal and Interest, Taxes, Insurance and Association dues (if any, for example condos or town homes) must be between 10% to 55% for the Fannie Mae Standard or Streamline Modifications, while using the Standard Rate of 4.625% and term of 480 months at the time of this writing.

If you have an in-house modification that is not HAMP, or FHA or Fannie or Freddie, then the terms should be somewhat similar to the rates and terms above.

Plenty of mistakes still occur at the mortgage servicers, so feel free to visit www.loansafe.org and post your scenario to get unbiased information from the Loan Mod Help Center Diligence Group.

Due to constant turnover at the servicers, an allowable 10% of loan modification decisions are erroneously denied for the best mod program.

This was as a result of the settlement reached with as part of the National Mortgage Settlement.

Make sure to review the "Settlement Documents" on the right side of the the website starting on page 201 "Servicing Standards Quarterly Compliance Metrics" for Bank of America to verify for yourself that 10% errors are allowed, and know there are experts standing by to verify if you received a good modification or were denied a modification erroneously or you need help obtaining the best loan modification out there for your unique situation.

If you need help with the mod process contact Loansafe's Diligence Group Loan Help Center at Loansafe.org 800-779-4547 then press option 2 for independent advice on if you are qualified for a loan modification or other repayment plan options, or you are in bankruptcy or trying to avoid bankruptcy, or fighting the fight in litigation for the best modification available.

Attorneys, brokers, loan officers, real estate agents and Non-profit Housing Counselors are all welcome to call in or post on loansafe about their unique situation or contact the author for a consultation.

Attorneys, brokers, loan officers and real estate agents work in their client's and communities' best interests by saving every foreclosure that is preventable in cases of a non-vacant and non-abandoned property with steady and stable income for borrowers from business and/or job and/or rent and/or assets.

The MHA Unemployment Program remains in effect as well as the Treasury's Hardest Hit Funds to help pay for the mortgage while the borrower seeks employment during a period of layoff and can't qualify for any mortgage modification due to being on unemployment.

About Michael Nazarinia

Loan Modification Expert Analyst, Homeowner Advocate & Counselor. Net Present Value Test and Evaluation Expert of the best alternatives to foreclosure in the decision making process of minimizing loss for the mortgage loan investor and homeowner. Evidence preparation and evaluation of Fair Housing Act violations and servicing errors for bankruptcy, litigation or regulatory complaints.

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