In recent years, HAMP has been the gold standard for loan modifications. Now that the program has ended, advocates need to deal with each servicer individually and work within their own modification programs. This has already been much more prevalent in New York since many HAMP servicers transferred their loans to smaller non- participating servicers.

The general trend for in-house or proprietary modifications seem to focus on a 20% payment reduction in a streamlined form. Servicers are leaning towards less required documentation and underwriting. Verifying what each servicer offers before submitting an application is a good practice.

When a servicer considers a homeowner for a non-HAMP modification, the servicer will typically look to the homeowner’s budget to determine whether or not the modification will be affordable. Outside of HAMP, the servicer can request more information, can consider a variety of factors, and can require a down payment from the homeowner. Advocates should help a client prepare for these issues and start tracking what types of modifications are being offered by various servicers.

In addition, servicers ideally want to see a budget that has a reasonable surplus so the borrower can qualify for an in-house modification. Budgets and an affordability assessment are more important than ever. Servicers typically prefer a budget reflecting that there is some cushion after expenses, but not too much where they can afford to pay back the default. The advocate should never suggest a specific amount of surplus for the borrower to meet.

Offering several alternatives to lenders can be successful if there are no available offering that the borrower would qualify for. The smaller servicers that have entered the market often assign one person to a file. Try sending them some choices that include actual numbers.

For example, client has a balance of $400,000.00.
OPTION 1 – 2% interest rate, 40 years, no forbearance
OPTION 2 – 3% interest rate, 40 years, $50,000 forbearance
OPTION 3 – 4% interest rate, 30 years, 150,000.00 forbearance

It is important to first confirm that your client can afford all proposed options.

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