Servicers to Get $15B for Loan Mods
Washington-The Obama administration is moving quickly to launch its $75 billion loan modification program, allotting nearly $15 billion to 14 mortgage firms to cover incentive payments for them, investors and homeowners.
However, one analyst pointed out that the funding is by no means pure profit. "They will incur a great deal of costs to do these loan mods," said the analyst, requesting anonymity.
Since the loan mod plan was unveiled in mid-February, some servicers have delayed modifications and routed eligible loans into the new program - in part because of the incentives.
If the borrower's monthly payment is reduced by 6% or more but not below a 31% mortgage debt-to-income ratio, the servicer can receive success payments of up to $1,000 for three years, provided the borrower stays current.
It's estimated that more than 10,000 non-GSE loans - where the borrowers meet the criteria and submitted the documentation - are already in the 90-day trial period. (President Obama expects the Home Affordable Modification program will help 3 million to 4 million at-risk homeowners.)
Borrowers are required to make timely payments during the trial period before the modification is finalized and the formal documentation is signed.
"Some mods are being seasoned right now," said Michael O'Leary, senior mortgage consultant with MRG Document Technologies. MRG provides legal and document services for loan modifications. The consultant noted the servicers are expected to completely re-underwrite the loans without charging origination fees.
Once the trial period is complete and loan documents are signed, the servicer is entitled to a one-time $1,000 incentive payment and the investor receives a $1,500 check. The investor incentive is important because the program is targeted mainly at hard-to-modify loans in private-label mortgage-backed securities.
The homeowner also is rewarded if the modification is successful. A mortgagor can receive annual incentives worth $1,000 for five years that can reduce principal.
The Treasury Department allotted $9.9 billion to six servicers to cover the cost of the incentives. According to published reports, Chase Home Finance is receiving a $3.55 billion allotment, Wells Fargo Bank $2.87 billion, CitiMortgage $2.1 billion, GMAC Mortgage $633 million, Saxon Mortgage Services $407 million and Select Portfolio Servicing $376 million. The other eight receiving funding so far include Countrywide Home Loans Servicing with $1.86 billion, Bank of America $798.9 million, Aurora Loan Services $798 million, Ocwen Financial Corp. $659 million, Wilshire Credit Corp. $366 million, Home Loan Services $319 million, Carrington Mortgage Services $195 million and Green Tree Servicing $156 million.
One source familiar with the situation told Mortgage Servicing News that these firms have been lobbying Treasury hard for the incentive payments because they realize the fee income at stake is enormous.
Meanwhile, Treasury Department and Federal Housing Finance Agency officials are trying to issue the final guidance for the loan modification program along with the net present value test. "That is being finalized," FHFA director James Lockhart said.
Servicers will be required to offer borrowers a loan modification if the NPV test is positive, according to guidance issued by Fannie Mae.
Fannie is acting as Treasury's administrator for the Home Affordable Modification program. The GSE also is the paying agent for the incentive payments. Freddie will be reviewing servicers' compliance with the program guidelines.
Fannie and Freddie have already issued servicer guidance for modifying loans the GSEs own or guarantee. The GSEs are using an existing NPV test because they are not being reimbursed by the government, Mr. Lockhart said.
Fannie and Freddie are expected to make the incentive payments to servicers, investors and homeowners out of their own coffers. Despite the cost, the GSE regulator said Fannie and Freddie will benefit in the long run.
"When you are sitting on $5 trillion in mortgages - anything you can do to stabilize the housing market will have a long-term positive impact," Mr. Lockhart said.
Jennifer Harmon contributed to this story.