Making Home Affordable

President Obama released guidelines for the Homeowner Affordability and Stability Plan.  The guidelines are referred to as Making Home Affordable (MHA). 

There are two very recent major developments that will affect anyone in Maryland who is facing foreclosure and wants to modify their mortgage in order to avoid the foreclosure. These two developments include revisions to President Obama’s Guidelines for Making Home Affordable and the Maryland Rules relating to foreclosures. The revisions to the Maryland Rules apply to all foreclosures filed in Maryland after May 1, 2009.

REVISED GUIDELINES:

The Treasury Department recently announced revisions to the Guidelines of Making Home Affordable (“Revised Guidelines”) program. These revisions now include second mortgages and more clearly delineate the method of achieving a loan modification. The Revised Guidelines require lenders to temporarily reduce payments for those borrowers eligible for modification under the guidelines. They also more clearly delineate the Net Present Value test (“NPV”), an initial hurdle toward modification.

The NPV compares the value gained to the lender through foreclosure with the value gained to the lender through modification. The test involves a complex series of formulas to be applied to the individual borrowers. These formulas may be modified by certain servicers. Finally, the servicers are given latitude in making certain determinations specific to individual cases.

Software programmers from Fannie Mae developed a program available to loan servicers to apply the NPV test. I submitted an application, as an attorney, to be able to access this software program. I am awaiting a reply from the Home Affordable Modification Program (“HMP”).

In the interim I have developed my own software calculations of the NPV test using the method outlined in the Revised Guidelines. I am using my calculations as a guideline in rendering any opinions that I may have. These are not a guarantee.

If a borrower wants to take advantage of the MHA program they must first qualify for the program. MHA lists thirteen rules necessary for qualification, as opposed to the original four qualifying rules. The thirteen qualifying factors (“Qualifying Factors”) are:

1. The mortgage loan has not been previously modified under the HMP.
   
2. The mortgage loan is delinquent or default is reasonably foreseeable; loans currently in foreclosure are eligible.
   
3. The mortgage loan is secured by a one- to four-unit property, one unit of which is the borrower’s principal residence.
   
   • Cooperative share mortgages and mortgage loans secured by condominium units are eligible for the HMP.
     
   • Loans secured by manufactured housing units are eligible for the HMP.
     
4. The property securing the mortgage loan must not be vacant or condemned.
   
5. The borrower documents a financial hardship and represents that (s)he does not have sufficient liquid assets to make the monthly mortgage payments by completing a Home Affordable Modification Program Hardship Affidavit and provides the required income documentation.
   
6. The documentation supporting income may not be more than 90 days old (as of the date the servicer is determining HMP eligibility).
   
7. The borrower has a monthly mortgage payment ratio of greater than 31 percent.
   
8. A borrower in active litigation regarding the mortgage loan is eligible for the HMP.
   
9. The servicer may not require a borrower to waive legal rights as a condition of the HMP.
   
10. A borrower actively involved in a bankruptcy proceeding is eligible for the HMP at the servicer’s discretion. Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible, provided the Home Affordable Modification Trial Period Plan and Home Affordable Modification Agreement are revised as outlined in the Acceptable Revisions to HMP Documents section of this Supplemental Directive.
    
11. The borrower agrees to set up an escrow account for taxes and hazard and flood insurance prior to the beginning of the trial period if one does not currently exist.
    
12. Borrowers may be accepted into the program if a fully executed Home Affordable Modification Trial Period Plan is in the servicer’s possession on December 31, 2012.
    
13. The current unpaid principal balance (UPB) of the mortgage loan prior to capitalization must be no greater than:
    1 Unit: $729,750
    2 Units: $934,200
    3 Units: $1,129,250
    4 Units: $1,403,400

The original MHA Guidelines discussed, without specificity, use of a three month trial period that the borrower had to successfully complete in order to qualify for a loan modification. The Revised Guidelines require that the lender offer this trial period to all borrowers who initially qualify for MHA under the Qualifying Factors. Specifically, the lender must offer a trial package to the borrower where the terms are an accurate estimation of the mortgage payments, if modified. The borrower would have to make all payments under the proposed modification in order to further qualify under MHA.

NEW MARYLAND RULES RELATING TO FORECLOSURE:

Under the new Maryland Rules a borrower only has fifteen days to ask the court to stay the foreclosure proceeding unless the borrower can show “good cause” why they did not file for a stay during this fifteen day period. The court can condition the stay upon reasonable assurances that:

(1) the property will remain covered by adequate insurance,
(2) the property will be adequately maintained,
(3) property taxes, ground rent, and other charges relating to the property that become due prior to the hearing will be paid, and
(4) periodic payments of principal and interest that the parties agree or that the court preliminarily finds will become due prior to the hearing are timely paid in a manner prescribed by the court.

The court may require the moving party to provide reasonable security for compliance with the conditions it sets and may revoke the stay upon a finding of non-compliance.

The combination of the Revised Guidelines and new Maryland Rules require coordination between any foreclosure defense and presentation of any modification request under the Revised Guidelines. Specifically, a borrower who is in foreclosure should argue that the temporary payment trial period under the Revised Guidelines should be the same as the periodic payments required under the new Maryland Rules. The problems are at least twofold:

There is generally an overall disconnect between the servicer and the servicer’s attorney handling the foreclosure. The attorney handling the foreclosure immediately refers the borrower to the servicer but proceeds with the foreclosure action. In the past there were many cases were the servicer approved the modification but did not notify the attorney who sold the property at foreclosure; and

The servicer most probably does not have enough information to know if an individual borrower would qualify under MHA.

The result is that the foreclosures continue and people who might otherwise save their homes are losing them.

You should be aware that: