Important Changes Coming to Goverment Loan Modification Program

February 4, 2010 · Posted in News For Homebuyers

If you haven’t already applied for a loan modification via the federal government’s Home Affordable Modification Program (HAMP), but plan on doing so, look out for the following changes announced today.

For all HAMP trial period plans with effective dates on or after June 1, loan servicers will only be able to evaluate borrowers for eligibility if they submit evidence of income beforehand.

In the past, borrowers were able to verbally state income to get the ball rolling with a trial loan modification, and later verify income in writing to obtain a permanent loan modification.

But of the more than 900,000 trial loan modifications initiated, only 100,000 have been moved to permanent status, partially because borrowers didn’t provide the necessary paperwork to verify the stated income figures.

Once these changes are implemented (potentially immediately at the discretion of individual loan servicers), borrowers will need to provide the following upfront “Initial Package” to qualify:

- Request for Modification and Affidavit (RMA) form
- IRS Form 4506-T or 4506-EZ and
- Evidence of Income

The RMA form provides the servicer with borrower/co-borrower financial information and cause of hardship.

The IRS 4506-T/4506T-EZ forms are requests for transcripts of tax returns in case borrowers decide to fudge the numbers.

Evidence of income documentation will vary based upon employment type.

Within 10 business days of receiving the initial package, the servicer must acknowledge in writing the borrower’s request for HAMP participation by sending confirmation it was received.

Within 30 calendar days, the servicer must review the documentation and determine if the package is either incomplete, eligible for a HAMP trial mod, or ineligible, whereby the borrower must be considered for alternative loss mitigation options.

*The changes outlined above apply to loans not owned or guaranteed by Fannie Mae or Freddie Mac.

The aim is to streamline the process and ensure more borrowers are eligible (and eventually granted permanent loan mods) before going through all the legwork only to find that borrowers misrepresented themselves.