Two rules taking effect within the last four days are meant to accelerate mortgage modifications under the government’s much-criticized, foreclosure-rescue program.
The latest one is a new rule that allows mortgage servicers to waive the escrow requirements for first-lien home equity lines of credit (HELOC) and home equity loans during a Home Affordable Modification Program (HAMP) trial-period, according to HAMP administrators.
The waiver applies to all servicers that “due to system and technology limitations” are not able to collect escrow payments on home equity loans or credit lines.
“By eliminating the need to convert these loans during the trial period to a new servicing system, the loan can begin the trial modification process faster,” said a statement by HAMP administrators to servicers.
During the HAMP trial periods, the borrower must pay all escrow obligations, such as tax and insurance bills. Trial period payments only apply to principal and interest. However, once the trial modification is converted to permanent status, the loan must move to a servicing system that can accept escrow payments for home equity loans or credit lines, administrators said.
The escrow-relate waiver is the second such rule to take effect this weeks intended to peed up HAMP processing.
The first waiver announced Dec. 16 eliminates the protracted process of re-starting a trial mortgage modification if the borrower’s income “exceeds by 25 percent” the income information used initially to start the trial period. Borrowers are subject to re-evaluations of their income status after a certain trial period.
This waiver, deemed “critical” by HAMP administrators, does away with the kind of bureaucratic red tap that lenders and servicers have been complaining about for months.
The waiver can be applied retroactively to all borrowers whose trial periods have been restarted based on the original rule.
“Therefore, a borrower who is currently in a restarted trial period can be immediately converted to a permanent modification if they have made at least three (or four, if required) trial period payments under their combined original and restarted trial periods,” the new guidelines read.
The government’s handling of HAMP has come under fire by the program’s Congressional Oversight Panel and by mortgage industry experts testifying before Congress this month. The program’s overall effectiveness has been questions.
Additionally, critics say HAMP doesn’t go far enough to reduce mortgage balances and address the issue of negative equities.
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