Yesterday, HOPE NOW, together with the Treasury Department, the U.S. Department of Housing and Urban Development and the Federal Housing Finance Agency, announced the development of the Streamlined Mortgage Modification Plan (SMP) to assist the most at-risk homeowners—those behind 90 days or more on their mortgages.
Using any combination of the following three modification tools, the SMP seeks to reduce a borrower’s monthly mortgage payment (including capitalized past due payments, principal, interest, taxes, insurance and HOA/condo fees) to no more than 38% of the borrower’s gross monthly income: (1) extending the term of the mortgage up to no more than 40 years; (2) reducing the interest rate; and/or (3) forbearing (but not forgiving) part of the principal. Where the 38% target cannot be reached, the mortgage is reconsidered for the SMP on a case-by-case basis and additional foreclosure prevention options also are considered. The SMP is expected to be implemented by December 15, 2008.
The SMP represents an expedited, systematic and uniform approach available to loans originated prior to January 1, 2008, and owned by Freddie Mac, Fannie Mae or participating balance sheet lenders. It is modeled after the FDIC’s IndyMac Loan Modification Program and follows recent modification programs announced by JPMorgan Chase & Company and Citigroup, Inc., which are, in turn, similar to the program previously announced by Bank of America and endorsed by the State Foreclosure Prevention Working Group.
Yesterday, the House Financial Services Committee held a hearing where legislators encouraged the financial industry to modify mortgage terms for troubled borrowers, particularly those mortgages that have been sold in packages to investors. In his opening statement, Rep. Paul Kanjorski (D-PA) expressed his concerns that the financial industry, current Administration and housing agencies, “simply have not pursued modification with the urgency our nation’s financial crisis demands.” Testimony was heard from Thomas Deutsch of the American Securitization Forum, Michael Gross of Bank of America, Molly Sheehan of JPMorgan Chase and Benjamin Allensworth of the Managed Fund Association. These executives, however, while pledging to avoid as many foreclosures as possible, expressed reluctance to modifying these mortgage terms fearing that they may be sued by the investors that now own these mortgages.