By Moe Bedard
American Securitization Forum, which represents companies that issue mortgage backed securities, as well as investors, loan servicers and rating agencies, issued a 34 page document outlining guidelines for servicers to follow in streamlining refinancing or loan modifications on adjustable rate mortgages that are scheduled to adjust in the next 2 1/2 years.
ASF Executive Director George Miller said the agreement provides a common framework to evaluate borrowers’ situations, and expedites processes for loan servicers to pursue refinancing and loan modification options on a more systematic basis.
Let’s go over some of these details which now seem to be set in stone;
- Applies to first mortgages only
- Adjustable rate mortgages fixed for 3 years or less (ie: 2/28 & 3/27 ARM’s etc.)
- Only loans originated between January 1, 2005 and July 31, 2007
- Have initial reset rate between January 1, 2008 and July 31, 2010
- The streamlined loan modification approach would be begin before the initial reset and typically should begin 120 days prior to the reset of the borrowers rate
- If loan to value (LTV) or cash loan to value (CLTV) is below 97%, servicer may obtain an updated value via desk top appraisal (AVM) or broker price opinion (BPO)
- All servicers of 2nd liens “should” cooperate fully (should does not mean mandatory and can be a HUGE issue)
Borrowers will be divided into 3 segments;
- Refinance – Borrowers who are likely to be able to refinance
- Loan Modification – Borrowers unlikely to refinance
- Loss Mitigation – Borrower is not current and demonstrating a difficulty in meeting the introductory rate
Borrowers in Segment 1 – Refinance
- Current – Means the loan must not be more than 30 days delinquent and must not have been delinquent 1×60 days in the last 12 months.
- Loan to Value Test (LTV) – All current loans with an LTV (based on 1st lien only) greater than 97% are deemed not eligible and will be placed in segment 2.
- Not FHA Secure Eligible – All current loans that otherwise do not satisfy FHA Securerequirements, including delinquency history, debt to income ratios at origination and loan amount standards are within segment 2
Borrowers in Segment 2 Loan Modification
- Occupancy – Borrower currently occupies the property as a primary residence
- FICO Score Test – If the current FICO score is less than 660 and is less than a score higher than the FICO score at origination, the borrowers is considered to have met the “FICO test”
- Rate Adjustment Test – The servicer determines that, at the upcoming reset, the payment amount would go up by more than 10%
- Can’t Meet the FICO Test?– The servicer will use an alternate analysis to determine if he borrower is eligible for a loan modification as well as the terms of the loan modification. This would be done on a case by case basis with a full analysis of the borrowers debt to income
Devilish Detail – For borrowers that are eligible for a fast track modification, the fast track option is non-exclusive and DOES NOT preclude a servicer from using an alternate analysisto determine if a borrower is eligible for a loan modification, as well as the terms of the modification.
To put this in homeowner terms –Lenders and servicers DO NOT have to fast track loan modifications and if they chose not to and they can do whatever the hell they want.
Borrowers in Segment 3 – Loss Mitigation
- Moe Alert – Borrowers in segment 3 will be stuck in the never ending grinding wheels of the servicers loss mitigation department and will most likely have (if they are lucky) a 1 in 100 chance of working some kind of loan workout or loan modification with their lender. In other words, much of the same ol, same ol.
I am going to stop this post here because I am pretty upset with this plan. I had reported yesterday that I am cautiously optimistic about this new Hope Now deal and that the devil is in the details.
The devil has reared its ugly, horny head in this ASF guide.
Anyone that is on the front lines of the mortgage and foreclosure crisis and understands the guidelines set above by the American and Securtitzation forum is “NOW” fully aware that this plan will help “VERY FEW” homeowners.
I called this a “big” step forward yesterday by Paulson and Hope Now. I’m going to recant that statement and say, “This is an ity bitty baby step forward and it looks like many homeowners and housing counselors will continue the “same” battle they have been fighting with mortgage servicers before this new plan was announced.
“A 100 calls, a 100 faxes, 100 headaches and 100 foreclosures that could have been prevented at a time.”