New loan modification rules reflect common sense
A couple of developments occurred on the foreclosure front this past week that I wanted to pass along.
First, it does not sound like much, but maybe it will help: In a bid to increase the number of permanent loan modifications under its Making Home Affordable program, the U.S. Treasury Department has tweaked the rules.
Beginning June 1, 2010, at-risk borrowers seeking a loan modification must now provide proof of income and other financial information up front, as part of the initial application process.
Among the documents, borrowers must provide two recent pay stubs and sign an electronic form allowing access to their tax return.
It sounds like a no-brainer, but apparently, borrowers only had to provide verbal confirmation of income and were then enrolled in a trial modification program. The modification did not become permanent until borrowers provided more substantial documentation. This often did not happen.
Borrowers complained that lenders lost their paperwork, took too long to process it, etc. Lenders complained that borrowers did not supply the requested paperwork or provided insufficient documents, etc.
Whoever is to blame, the program has been widely criticized for the meager number of permanent modifications that have resulted.
Incredibly, only 110,000 borrowers have been approved for a permanent modification. Hopefully, the new rules will help expedite the documentation process and speed up permanent loan modifications. Let’s hope so.
This is a $75 billion program and the centerpiece of the Obama administration’s approach to the foreclosure crisis. So far, it has not even touched the problem.
The program seeks to reduce borrowers’ monthly payments by reducing interest rates to as low as 2 percent for five years or extending the term of a loan up to 40 years.
In another development on the foreclosure front, Fannie Mae, the quasi-government agency that backs the majority of residential mortgages in the U.S., is cutting prices.
Fannie Mae, which at the end of the third quarter owned 72,275 foreclosed homes, is now allowing buyers to apply 3.5 percent of the sale price of a foreclosed home toward closing costs.
Alternatively, the buyer can use the money toward the purchase of new appliances for the home. The buyer must live in the home.
