Federal regulators warned mortgage servicers Monday that they will still expect them to offer loan modifications to distressed homeowners even after the Home Affordable Modification Program expires at yearend.
In a joint white paper from the Treasury Department, Department of Housing and Urban Development and Federal Housing Finance Agency, the agencies said they will keep an eye on mortgage servicers.
"Going forward, Treasury, HUD and FHFA will continue engaging with a variety of stakeholders — particularly mortgage servicers — to assess how foreclosure alternative options will incorporate and further develop the core principles presented in the white paper," the paper said.
Prior to the foreclosure crisis, servicers usually added unpaid interest and fees to the mortgage balance, which created additional burdens on struggling homeowners.
The HAMP program proved that a 10% reduction in mortgage payments consistently reduced redefaults. And "deeper payment reduction consistently outperformed modifications with smaller payment reduction," the white paper says.
The white paper outlines five principles that the agencies believe were essential to the success of the government’s programs and should provide a foundation for any future loss mitigation programs. The principles are:
- Accessibility: Ensuring that there is a simple process in place for homeowners to seek mortgage assistance and that as many homeowners as possible are able to easily obtain the needed and appropriate level of assistance.
- Affordability: Providing homeowners with meaningful payment relief that addresses the needs of the homeowner, the servicer and the investor to support long-term performance.
- Sustainability: Offering solutions designed to resolve the delinquency and be effective long-term for the homeowner, the servicer and the investor.
- Transparency: Ensuring that the process to obtain assistance, and the terms of that assistance, are as clear and understandable as possible to homeowners, and that information about options and their utilization is available to the appropriate parties.
- Accountability: Ensuring that there is an appropriate level of oversight of the process to obtain mortgage assistance.
"The progress in developing successful loss mitigation programs over the past seven years has been encouraging and has benefitted homeowners, servicers, and investors. We look forward to further evolution of home retention solutions and foreclosure alternative programs that will benefit all stakeholders," the interagency white paper says.
The Mortgage Bankers Association welcomed the paper.
"MBA agrees with many of the principles articulated by the Treasury Dept. and have been working diligently with stakeholders to develop a way forward to replace HAMP," the group said in a statement. "This will include a proposal for a new universal loss mitigation program which offers deep and meaningful payment relief to borrowers in financial stress."