III.A.2.k. Home Retention Options (03/14/16)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definition

ii. Forbearance Plans

iii. HUD Postponement of Principal Payments for Servicemembers

iv. Special Forbearance – Unemployment

v. Loan Modification

vi. FHA-HAMP

i. Definition

Home Retention Options are the Loss Mitigation Options of Informal and Formal Forbearances, SFB-Unemployment, Loan Modification, and FHA-HAMP.

ii. Forbearance Plans

(A) Definitions Forbearance Plans are arrangements between a Mortgagee and Borrower that may allow for a period of reduced or suspended payments and may provide specific terms for repayment. Informal Forbearance Plans are oral agreements allowing for reduced or suspended payments for a period of three months or less and may provide specific terms for repayment. Formal Forbearance Plans are written agreements executed by one or more of the Borrowers, allowing for reduced or suspended payments for a period greater than three months, but not more than six months, unless otherwise authorized by HUD, and such plans may include specific terms for repayment.

(B) Standard The Mortgagee must first evaluate the Borrower for both Informal and Formal Forbearance Plans. The Mortgagee may offer Informal Forbearance Plans to a Borrower with a Delinquent Mortgage who does not have losses of income or increases in living expenses that can be verified. The Mortgagee may offer a Formal Forbearance Plan when:

the Borrower does not have a loss of income or increase in living expenses that can be verified;
the Mortgagee determines that 85 percent of the Borrower’s surplus income is sufficient to bring the Mortgage current within six months; or
if the Mortgagee determines that the Borrower is otherwise ineligible for other Home Retention Options but has sufficient surplus income or other assets that could repay the indebtedness.

Informal and Formal Forbearances are not eligible for loss mitigation incentive payments.

(C) Forbearance Reporting The Mortgagee must report the appropriate Delinquency/Default Status (DDS) Code reflecting the use of Informal and Formal Forbearance. For Formal Forbearance Plans that would run past the deadline to initiate foreclosure, the Mortgagee must request an extension of time in EVARS, including in the request a statement that the Borrower qualified for the Formal Forbearance Plan under HUD’s Loss Mitigation Home Retention Option Priority guidance.

iii. HUD Postponement of Principal Payments for Servicemembers

(A) Standard The Mortgagee may, by written agreement with the Borrower, postpone for the period of military service and three months thereafter any part of the monthly Mortgage that represents amortization of principal. The Mortgagee must include in the agreement a provision for the resumption of monthly payments after such period, in amounts which will completely amortize the mortgage debt within the maturity, as provided in the original Mortgage.

(B) Required Documentation The Mortgagee must retain in the servicing file a copy of the written agreement postponing principal payments.

iv. Special Forbearance – Unemployment

(A) Definition The SFB-Unemployment Option is a Home Retention Option available when one or more of the Borrowers has become unemployed and this loss of employment has negatively affected the Borrower’s ability to continue to make their monthly Mortgage Payment.

(B) Eligibility

(1) Defaulted Mortgage Status The Mortgage must meet the following conditions at the time the SFB-Unemployment Agreement is executed:

be at least three months past due (61 Days Delinquent), but not more than 12 months due and unpaid; and
not be in foreclosure, or foreclosure action has been suspended or canceled, when the SFB-Unemployment Agreement is executed.

(2) Borrower Qualifications

(a) Standard The Mortgagee must ensure that the Borrower meets all of the following eligibility requirements for an SFB-Unemployment Option:

The Borrower has recently experienced a verified loss of income or increase in living expenses due to loss of employment.
The Borrower must be an Owner-Occupant Borrower and will occupy the Property as a Principal Residence during the term of the SFB-Unemployment Agreement, unless an exception is granted.
One or more Borrowers is not currently receiving Continuous Income or, alternatively, an analysis of the financial information under FHA-HAMP resulted in a Mortgage Payment greater than 40 percent of current gross monthly income and one of the Borrowers has a verifiable unemployment status.
A Borrower has a verified unemployment status and:
- no Borrower is currently receiving Continuous Income; or
- an analysis of Borrower financial information under the Home Retention Priority Waterfall indicates that the SFB-Unemployment Option is the best or only option available for the Borrower.

(b) Exception to Owner-Occupant Requirement for Sale or Assumption The Mortgagee may offer an SFB-Unemployment Option to an unemployed Borrower when the Mortgagee has knowledge that the mortgaged Property is for sale or an assumption of the Property is in process.

(c) Required Documentation The Mortgagee must obtain from the Borrower such supporting documentation of the Borrower’s unemployment as:

Third Party Documentation including receipts of unemployment benefits; or
an affidavit signed by the Borrower, stating the date that the Borrower became unemployed and stating that the Borrower is actively seeking, and is available, for employment.

The Mortgagee must retain this documentation in the Claim Review File.

(3) Property Condition The Mortgagee must conduct any review it deems necessary, including a property inspection, when the Mortgagee has reason to believe that the physical conditions of the Property adversely impact the Borrower’s use or ability to support the debt as follows:

financial information provided by the Borrower shows large expenses for property maintenance;
the Mortgagee receives notice from local government or other third parties regarding property condition; or
the Property may be affected by a disaster event in the area.

If significant maintenance costs contributed to the Default or are affecting the Borrower’s ability to make payments under the Mortgage or SFB-Unemployment Agreement, the Mortgagee may provide in the SFB-Unemployment Agreement a period of mortgage forbearance during which repairs specified in the agreement will be completed at the Borrower’s expense.

(C) Review under the Loss Mitigation Home Retention Priority Waterfall The Mortgagee must assess the Borrower’s financial ability to repay their mortgage delinquency and must determine if the loss of employment is the major cause which has resulted in mortgage Default. The Mortgagee must use the six-step process of the Loss Mitigation Home Retention Option Priority Waterfall to:

determine that it is a Borrower of record who has experienced the loss of employment;
determine the loss of employment has had a direct impact on the Borrower’s ability to make the monthly Mortgage Payment; and
enable the Mortgagee to determine a reasonable monthly Mortgage Payment while the Borrower is performing on the SFB-Unemployment Option, even if the Borrower has a negative surplus amount.

Once the Mortgagee’s review of the Borrower’s financials has been completed and it has been determined that the SFB-Unemployment is the most appropriate Option, the Mortgagee will develop the SFB-Unemployment Agreement.

(D) Special Forbearance – Unemployment Agreement

(1) Definition The Special Forbearance-Unemployment Agreement is a written agreement between a Mortgagee and the Borrowers, one or more of whom has become unemployed, allowing for reduced and/or suspended Mortgage Payments.

(2) Standard [Highlighted text below must be implemented no later than December 1, 2016]The Mortgagee must prepare a Special Forbearance-Unemployment Agreement that provides for the following:

identifies the specific months for which the account is Delinquent and notes the total arrearage that accrued prior to the beginning of the Agreement;
suspends and/or reduces the current monthly Mortgage Payment;
ensures that the forbearance payment installments required under the terms of the Agreementare based on the Borrower’s ability to pay;
disallowslate fees to be assessed while the Borrower is performing under the terms of the Special Forbearance-Unemployment Agreement;
indicates that ifthe Borrower’s financial circumstances change, the Mortgagee may adjust the monthly payment based on an evaluation of the Borrower’s new financial information;
disallowsthe accrued arrearage to exceed the equivalent of 12 months Delinquent Principal, Interest, Taxes, and Insurance (PITI) (the 12 months of PITI for Adjustable Rate Mortgages (ARM), Graduated Payment Mortgages (GPM), and Growing Equity Mortgages (GEM) will be calculated by multiplying 12 times the monthly payments due on the date of Default);
specifies the date that the Special Forbearance-Unemployment Agreement will expire if it is not earlier revised or terminated because of a change in the Borrower’s financial circumstances; and
permitsthe Borrower to pre-pay the mortgage delinquency at any time.

The SFB-Unemployment Agreement will not include terms for reinstatement because the Mortgagee must re-evaluate the Borrower for more permanent Loss Mitigation Options to cure a Default once the Borrower is gainfully employed and/or the SFB-Unemployment Agreement expires.

(3) Required Documentation The Mortgagee must retain in the Claim Review File:

evidence that the Mortgagee analyzed the Borrower’s financial condition;
evidence that the SFB-Unemployment Agreement is supported by the financial analysis; and
a copy of the SFB-Unemployment Agreement, executed by at least one Borrower and by an authorized agent of the Mortgagee.

(4) Effective Date The Executed SFB-Unemployment Agreement date is the date the Mortgagee executes the SFB-Unemployment Agreement. The SFB-Unemployment Agreement is considered “executed” when:

at least one of the Borrowers has signed and dated the Agreement;
the Agreement has been returned to the Mortgagee; and
the authorized Mortgagee representative has signed and dated the Agreement as well.

(5) Cancellation or Suspension of Foreclosure

(a) Standard Upon execution of an SFB-Unemployment Agreement, if foreclosure has already been initiated, the Mortgagee must cancel or temporarily suspend foreclosure action, where such suspension is permissible under state law.

(b) Required Documentation The Mortgagee must include in the Claim Review File documentation showing that the Borrower provided new information that made them eligible for an SFB-Unemployment Option after foreclosure was initiated.

(6) Review of SFB-Unemployment Agreements

(a) Standard The Mortgagee must review the Borrower’s continued eligibility for SFB-Unemployment on a monthly basis and must adjust the terms of the Agreement if there is a change in financial circumstances.

(b) Required Documentation The Mortgagee must clearly document in the Claim Review File the Borrower’s compliance with the terms of the Agreement and any adjustment of terms due to changes in financial circumstances.

(7) Re-Evaluation of the SFB-Unemployment Agreement The Mortgagee must review the Borrower’s continued eligibility for SFB-Unemployment or, alternatively, eligibility for other Loss Mitigation Options if the Borrower presents evidence that their financial circumstances have changed. The Mortgagee must ensure that the re-evaluated SFB-Unemployment Agreement will not allow for the Mortgage to become more than 12 months of PITI Delinquent.

(E) Payment Application The Mortgagee may reduce, suspend, or both, the required monthly Mortgage Payment for the time period of the SFB-Unemployment Agreement. The Mortgagee must place payments submitted by the Borrower during the SFB-Unemployment period in a suspense or memo fund account which is to be identified as belonging to the Borrower. When the suspense funds total a full monthly payment, the Mortgagee must apply the payment to the Borrower’s account. If the Borrower does not complete the SFB-Unemployment Agreement, all funds held in suspense will be applied to the Borrower’s account.

(F) Foreclosure-Related Fees and Costs The Mortgagee may address foreclosure-related fees and costs due to a foreclosure cancellation/suspension through the qualification of a permanent Loss Mitigation Option or at the expiration of the SFB-Unemployment Agreement. The Mortgagee must not require the Borrower to pay more than the foreclosure-related fees and costs HUD has identified as customary and reasonable. See Appendix 4.0 – HUD Schedule of Standard Attorney Fees.

(G) Expiration of SFB-Unemployment Agreement

(1) Re-evaluation of Borrower During the month in which the SFB-Unemployment Agreement is to expire, the Mortgagee must evaluate the Borrower to determine if the Borrower qualifies for:

an additional period of forbearance beyond the initial expiration, but not allowing for more than 12 months of Delinquent PITI, due to continued unemployment; or
a permanent Loss Mitigation Option.

(2) Notification to Borrower The Mortgagee must notify the Borrower, in writing, the results of the review, including the following information:

whether or not they qualify for a Loss Mitigation Option;
the reason for denial; and
allowing the Borrower a minimum of seven Days to submit additional information that may impact the Mortgagee’s evaluation.

(H) Option Failure An SFB-Unemployment Option is considered failed if the Borrower:

abandons the Property;
informs the Mortgagee that the terms of the SFB-Unemployment Agreement will not be fulfilled; or
fails to perform under the terms of the SFB-Unemployment Agreement for 60 Days, without any advisement to the Mortgagee of any problems that prevented the Borrower from complying with the Agreement’s terms.

If the SFB-Unemployment Option fails, the Mortgagee must initiate foreclosure or complete another Loss Mitigation Option. HUD provides an automatic 90-Day extension during which the Mortgagee must take one of these actions.

(I) Special Forbearance Incentive The Mortgagee may claim an incentive for each SFB-Unemployment Agreement. Mortgagees with “A” Tier Ranking System (TRS) II scores will be eligible for an incentive of $200 per SFB-Unemployment claim. The Mortgagee may not file more than one SFB-Unemployment incentive claim per Default due to the Borrower’s unemployment.

(J) Reporting of SFB-Unemployment The Mortgagee must report in SFDMS the use of an SFB-Unemployment.

v. Loan Modification (Effective December 1, 2016, the traditional Loan Modification Option will be eliminated from HUD’s Loss Mitigation Waterfall)

(A) Definition A Loan Modification is a permanent change in one or more terms of a Borrower’s Mortgage.

(B) Standard Loan Modification may include a change within the following:

interest rate;
capitalization of Delinquent principal, interest or escrow items;
extension of time available to repay the Mortgage; and/or
re-amortization of the balance due.

(C) Eligibility The Mortgagee must ensure that the Borrower is able to support the monthly mortgage debt after the Mortgage is modified.

(1) Defaulted Mortgage Status The Mortgagee must ensure that the Mortgage meets the following eligibility criteria for an incentivized Loan Modification:

at least 12 months elapsed since the closing (or origination) date of the original Mortgage, as evidenced on HUD’s system; and
Default due to a verified loss of income or increase in living expenses.

(2) Borrower Qualifications The Mortgagee must ensure that the Borrower meets the following eligibility criteria for a Loan Modification:

The Borrower has recently experienced a verified loss of income or increase in living expenses.
One or more Borrowers receives Continuous Income sufficient to support the monthly payment under the modified rate and/or term, although not sufficient to sustain the original Mortgage and repay the arrearage.
The surplus income is at least $300 and is at least 15 percent of the Borrower’s net income.
85 percent of the Borrower’s surplus income is insufficient to cure arrears within six months.
The Borrower’s monthly PITI Mortgage Payment can be reduced by the greater of 10 percent of the existing monthly Mortgage Payment amount and $100, using the Market Rate and amortizing the new Mortgage over 30 years.
The Borrower has successfully completed a three-month Trial Payment Plan based on the Loan Modification monthly Mortgage Payment amount.
The Borrower has not executed a permanent Loan Modification or FHA-HAMP agreement in the past 24 months.

The Mortgagee must also ensure that the Borrower is an Owner-Occupant Borrower who will occupy the Property as their Principal Residence. A Loan Modification may not be used as a means to reinstate a Mortgage prior to sale or assumption.

(3) Property Condition The Mortgagee must conduct any review it deems necessary, including a property inspection, when the Mortgagee has reason to believe that the physical conditions of the Property adversely impact the Borrower’s use or ability to support the debt as follows:

financial information provided by the Borrower shows large expenses for property maintenance;
the Mortgagee receives notice from local government or other third parties regarding property condition; or
the Property may be affected by a disaster event in the area.

(D) Review under the Loss Mitigation Home Retention Priority Waterfall The Mortgagee must use the six-step process of the Loss Mitigation Home Retention Option Priority Waterfall to:

determine if the Borrower has the capacity to repay the arrearage through an Informal or Formal Forbearance Plan or to utilize an SFB-Unemployment, before considering the Loan Modification Option; and
reduce the monthly payment by the greater of 10 percent of the original monthly Mortgage Payment amount and $100, using the Market Rate and amortizing the new Mortgage over 30 years.

(E) Trial Payment Plans

(1) Definition A Trial Payment Plan (TPP) is a payment plan for a minimum period of three months, during which the Borrower must make the agreed-upon consecutive monthly payments prior to final execution of the Loan Modification or FHA-HAMP.

(2) Standard Before executing permanent Loan Modification or FHA-HAMP agreements, the Mortgagee must ensure that the Borrower successfully completes a TPP of a minimum of three months.

(3) Entering into the Trial Payment Plan Agreement

(a) Definition The Trial Payment Plan (TPP) Agreement is a written agreement to enter into a TPP, to be executed by all parties on the original Note and the FHA-insured Mortgage.

(b) Standard

(i) Trial Payment Plan Start 12 Months after Closing Date Where a Borrower is eligible for a Loan Modification or FHA-HAMP Option, the Mortgagee must ensure that the Borrower’s TPP begins only after 12 months have elapsed since the Closing Date of the Mortgage.

(ii) Trial Payment Plan Terms The Mortgagee must ensure that the following apply to interest rates and monthly payment amounts under TPPs:

The interest rate for the TPP and the permanent Loan Modification must not be greater than Market Rate.
The permanent Market Rate is established when the TPP is offered to the Borrower.
The established monthly permanent Loan Modification Payment must be the same or less than the established monthly trial payment.

(iii) Start of Trial Payments The Mortgagee must send the proposed TPP Agreement to the Borrower at least 15 Days before the date the first trial payment is due.

(iv) Trial Payment Plan Signatures All parties on the original Note and Mortgage and all parties that will be subject to the modified Mortgage and/or Partial Claim must execute the TPP Agreement unless:

a Borrower or co-Borrower is deceased; or
a Borrower and a co-Borrower are divorced; or
a Borrower or co-Borrower on the original Note and Mortgage has been released from liability in connection with an assumption performed in accordance with HUD’s requirements.

When a Borrower uses a non-borrower household member’s income in qualifying for a Loss Mitigation Home Retention Option and that non-borrower household member will also be included on the modified Note, FHA-insured Mortgage and/or Partial Claim, the non-borrower household member must sign the TPP Agreement.

The Mortgagee may evaluate on a case-by-case basis and provide an exception to the above TPP signature requirements when a Borrower is unable to sign a TPP Agreement due to physical disability, mental condition, or military deployment.

(c) Required Documentation The Mortgagee must retain the following in the Claim Review File:

a copy of the TPP Agreement; and
if the TPP Agreement was not signed by all parties on the original Note and Mortgage, documentation evidencing the Mortgagee’s review and approval of the TPP Agreement per the requirements in this section.

(4) Application of Trial Payments The Mortgagee must treat payments made under the TPP as Partial Payments, held in a suspense account and applied in accordance with HUD’s Partial Payments guidance and applicable federal regulations.

(5) End of Trial Payment Plan Period

(a) Standard The Mortgagee must offer the Borrower a permanent Loan Modification or FHA-HAMP Option after the Borrower’s successful completion of a TPP.

(b) Trial Payment Plan Failure The Borrower has failed the TPP when one of the following occurs:

the Borrower does not return the executed TPP Agreement within the month the first trial payment is due;
the Borrower vacates or abandons the Property; or
the Borrower does not make a scheduled TPP payment by the last Day of the month it was due.

(c) Review for Other Loss Mitigation Options after Trial Payment Plan Failure

(i) Standard If a Borrower fails to successfully complete a TPP under a Loan Modification, the Mortgagee must still re-evaluate the Borrower’s eligibility for other appropriate Loss Mitigation Options as follows:

If the Borrower provides documentation showing that their financial circumstances have changed since the Mortgagee’s previous evaluation, the Mortgagee must verify the change in financial circumstances and reevaluate the Borrower for Loss Mitigation Options.
If the Borrower has not provided information regarding a change in their financial circumstances since the Mortgagee’s previous evaluation, the Mortgagee must evaluate the Borrower for Home Disposition Options prior to initiating foreclosure.

(ii) Required Documentation The Mortgagee must include in the Claim Review File documentation supporting any changes in financial circumstances or employment.

(6) Funds Remaining at the End of Trial Payment Period

(a) Successful Completion of Trial Payment Plan For unapplied funds remaining at the end of the trial payment period that do not total a full PITI payment, the Mortgagee must apply these funds to any calculated escrow shortage or to reduce any amounts that would otherwise be capitalized onto the principal balance.

(b) Trial Payment Plan Failure If the Borrower does not complete the TPP, the Mortgagee must apply all funds held in suspense to the Borrower’s account in the established order of priority.

(7) Trial Payment Plans during Foreclosure The Mortgagee must suspend and/or terminate foreclosure action, depending on state law requirement, during the TPPs. In the event a Borrower fails to make a payment required under a TPP, the Mortgagee must review the Borrower for other appropriate loss mitigation actions before commencing or continuing a foreclosure. HUD provides an automatic 90-Day extension for the Mortgagee to commence or recommence foreclosure or initiate another Loss Mitigation Option, should a TPP fail.

(8) Reporting of Trial Payment Plans The Mortgagee must report in SFDMS the use of a TPP.

(F) Loan Modification Documents The Mortgagee must ensure that the Mortgage is not in foreclosure at the time the Loan Modification documents are executed. The Mortgagee must remove the Mortgage from foreclosure prior to executing the Loan Modification documents. HUD does not require a specific format for the Loan Modification documents; however, the Mortgagee must use documents that conform to all applicable federal and state laws.

(G) FHA-HAMP Loan Modification Provisions [Highlighted text below must be implemented no later than December 1, 2016]

(1) Standard The Mortgagee must ensure that the FHA-HAMP Loan Modification fully reinstates the Mortgage and complies with the interest rate and modified principal balance provisions below. The Mortgagee must complete an escrow analysis of the Mortgage. The Mortgagee must not provide the Borrower with any cash from the FHA-HAMP Loan Modification.

(2) Interest Rate The Mortgagee must ensure that any modified loan, including ARM, GPM or GEM, is a fixed-rate Mortgage. At the Mortgagee’s discretion, the Mortgagee may reduce Note interest rates below Market Rate; however, discount fees associated with rate reductions are not reimbursable. When increasing Note interest rates, the Mortgagee must calculate the maximum interest allowable as the Market Rate.

(a) Market Rate Market Rate is a rate that is no more than 25 bps greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30-year fixed-rate conforming Mortgages (U.S. average), rounded to the nearest one-eighth of 1 percent (0.125 percent), as of the date a TPP is offered to a Borrower.

(b) Market Rate Resources The Weekly Primary Mortgage Market Survey results are published on the Freddie Mac website. The Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates, which is published weekly in its Selected Interest Rates – H.15 website.

(3) Modified Loan Term The Mortgagee must re-amortize the total unpaid amount due over 360 months from the due date of the first installment required under the modified FHA-insured Mortgage.

(H) FHA Mortgage Insurance Coverage and MIP [Highlighted text below must be implemented no later than December 1, 2016]When the FHA-HAMP Loan Modification has been processed in accordance with HUD requirements, HUD will extend FHA mortgage insurance coverage to the new principal balance and modified maturity date. FHA insurance will remain in force until the Mortgage has been paid in full or otherwise terminated. The amount of MIP will continue to be based on the scheduled unpaid principal balance of the original Mortgage, without taking into consideration delinquencies or prepayments.

(I) Lien Status The Mortgagee must, if required by state or federal law, record the Loan Modification documents to preserve the first-lien status of the modified FHA-insured Mortgage.

(1) Subordination Request If title to the Property is encumbered with an FHA Title I Mortgage and the Mortgagee servicing the Title II Mortgage has determined that a Subordination Agreement is necessary to ensure HUD’s first-lien status, the Mortgagee may forward a subordination request to:

S. Department of Housing and Urban Development
Home Improvement Branch
451 7th Street, SW, Room 9272
Washington, DC 20410

For Partial Claims or Mortgages held by the Secretary of HUD (Secretary-held Mortgages), the Mortgagee must contact HUD’s Loan Servicing Contractor.

(2) Subordination Notification If title to the Property is encumbered with an FHA Title I Mortgage which has been assigned to the Secretary and the Mortgagee servicing the Title II Mortgage has determined that a Subordination Agreement is not needed to ensure HUD’s first-lien status, the Mortgagee servicing the Title II Mortgage may send a written notification to:

S. Department of Housing and Urban Development
Albany Financial Operations Center
52 Corporate Circle
Albany, NY 12203

(J) Default following Loan Modification If the Mortgage becomes Delinquent following a Loan Modification, the Mortgagee must treat this as a new Default and service the Defaulted Mortgage accordingly and in line with HUD policies and other federal regulations. The Mortgagee must upload the Loan Modification documents into P260 when a Conveyance Claim is filed or the Mortgage is foreclosed following a Loan Modification.

(K) Loan Modification Incentive

(1) Standard The Mortgagee may claim a Loss Mitigation Incentive for completion of a Loan Modification if Loan Modification documents are executed within 60 Days of the Borrower’s successful completion of a TPP, and the Mortgagee reports to HUD the characteristics of the Loan Modification in FHAC or EDI.

(2) Non-Incentivized Loan Modifications The Mortgagee may modify Mortgages in Imminent Default. HUD does not offer incentives for these types of Loan Modifications unless performed under FHA-HAMP requirements. See Modifying a Performing Mortgage.

(L) Reporting of Loan Modification Terms The Mortgagee must report in SFDMS the use of a Loan Modification. If the Mortgage is in Default, the Mortgagee must report the characteristics of all modified Mortgages through FHAC or EDI. For non-incentivized modifications of performing Mortgages, the Mortgagee must report the characteristics of the Loan Modification in FHAC.

vi. FHA-HAMP

(A) Definition The FHA-HAMP Option is a Loss Mitigation Option using a Loan Modification and/or Partial Claim to allow the Mortgage to be reinstated, by establishing an affordable monthly payment, and providing for principal deferment as needed. A Partial Claim is FHA’s reimbursement of a Mortgagee advancement of funds on behalf of the Borrower in an amount necessary to assist in reinstating the Delinquent Mortgage under the FHA-HAMP Option.

(B) Eligibility

(1) Mortgage Status

(a) Defaulted Mortgage The Mortgagee must ensure that the Mortgage meets the following eligibility criteria for an FHA-HAMP:

the Mortgage is in Default or Imminent Default;
at least 12 months have elapsed since the date of the first payment on the original Mortgage, as evidenced on HUD’s Neighborhood Watch system;
a minimum of four Mortgage Payments have been paid by the Borrower on the current Mortgage;
Default is due to a verified loss of income or increase in living expenses; and
the Mortgage must not be in foreclosure at the time the FHA-HAMP documents are executed.

(b) Mortgage in Imminent Default To modify a Mortgage facing Imminent Default under FHA-HAMP, the Mortgagee must ensure that the following conditions are met:

at least 12 months elapsed since the Closing Date of the original Mortgage, as evidenced on HUD’s Neighborhood Watch system;
a minimum of four Mortgage Payments have been paid by the Borrower on the current Mortgage;
Imminent Default due to a verified loss of income or other hardship as explained in the definition of Imminent Default; and
the Mortgagee obtains documentation evidencing the cause of the Imminent Default.

(c) FHA Streamline Refinance Mortgage If the Mortgage is an FHA Streamline Refinance, the Mortgagee may use previous payment history on the prior FHA-insured Mortgage to determine if the Borrower has met the minimum requirement for four Mortgage Payments. A Streamline Refinance or change in FHA case numbers will not reset the 30 percent maximum Partial Claim statutory limit.

(2) Borrower Qualifications The Mortgagee must ensure that the Borrower meets the following eligibility criteria for the FHA-HAMP Option:

The Borrower has recently experienced a verified loss of income or increase in living expenses and all Borrowers on the Note have signed and submitted hardship affidavits attesting to and describing the hardship.
One or more Borrowers receives Continuous Income.
The Mortgagee’s calculations show that the resulting monthly Mortgage Payment not exceeding 40 percent of the Borrower’s gross monthly income can be offered, provided that either:
- the Borrower does not have surplus income of at least the greater of $300 and 15 percent of the Borrower’s net income; or
- 85 percent of the Borrower’s surplus income is insufficient to cure arrears within six months and the Borrower’s monthly PITI Mortgage Payment cannot be reduced by the greater of 10 percent of the original monthly Mortgage Payment amount and $100.
The Borrower has successfully completed a TPP based on the FHA-HAMP monthly Mortgage Payment amount.
The Borrower has not executed a Loan Modification or FHA-HAMP agreement in the past 24 months.

The Mortgagee must ensure that the Borrower is an Owner-Occupant Borrower who is occupying the Property as a Principal Residence. FHA-HAMP may not be used as a means to reinstate a Mortgage prior to sale or assumption.

(3) Property Condition The Mortgagee must conduct any review it deems necessary, including a property inspection, when the Mortgagee has reason to believe that the physical conditions of the Property adversely impact the Borrower’s use or ability to support the debt as follows:

financial information provided by the Borrower shows large expenses for property maintenance;
the Mortgagee receives notice from local government or other third parties regarding property condition; or
the Property may be affected by a disaster event in the area.

(C) Review under the Loss Mitigation Home Retention Priority Waterfall The Mortgagee must use the six-step process of the Loss Mitigation Home Retention Option Priority Waterfall to:

project the Borrower’s surplus monthly net income for a minimum of three months;
determine if the Borrower is eligible for an Informal Forbearance, a Formal Forbearance, SFB-Unemployment, and/or Loan Modification, before considering the FHA-HAMP Option; and
determine whether FHA-HAMP is appropriate for a Borrower whose surplus income is negative, but the resulting FHA-HAMP Mortgage Payment is 40 percent or less of the Borrower’s gross monthly income.

(D) FHA-HAMP Options The Mortgagee must complete a retroactive escrow analysis of the Mortgage. The Borrower must not receive any cash from the FHA-HAMP Option. The modified payment must be 40 percent or less of the Borrower’s gross monthly income. The Mortgagee must use the calculations in HUD’s Loss Mitigation Option Priority Waterfall to determine which, if any, FHA-HAMP Option is most appropriate. See Loan Modification Provisions for interest rate and principal balance requirements for FHA-HAMP Loan Modifications.

(1) FHA-HAMP Standalone Loan Modification The Mortgagee may offer an FHA-HAMP Standalone Loan Modification if:

the Mortgagee can achieve an affordable Mortgage Payment at or below the targeted payment without the use of an FHA-HAMP Partial Claim; and
the Borrower meets all requirements of the FHA-HAMP Option.

If Partial Claim funds are exhausted, the Mortgagee may offer an FHA-HAMP Standalone Loan Modification up to a final Mortgage Payment not exceeding 40 percent of gross monthly income, provided that all other program requirements have been met.

(2) FHA-HAMP Standalone Partial Claim [Highlighted text below must be implemented no later than December 1, 2016]The Mortgagee must offer an FHA-HAMP Standalone Partial Claim as an appropriate Loss Mitigation Option for Owner-Occupant Borrowers if all the following criteria are met:

The Borrower’s current interest rate is at or below the Market Rate.
The Borrower’s current Mortgage Payment with re-analyzed escrowis at or below the targeted monthly payment.
A Mortgage Payment at or below the targeted monthly payment cannot be achieved by re-amortizing the Mortgage/outstanding debt for 360 months at the Market Rate.
TheFHA-HAMP Partial Claim will not exceed the 30 percent maximum statutory limit for all Partial Claims combined.
The Borrower meets all requirements of the FHA-HAMP Option.
Three or more full monthly payments are due and unpaid (i.e., 61 Days or more past due) when the Partial Claim promissory Note is executed.

(a) Statutory Maximum for Partial Claims The maximum cumulative value of all Partial Claims paid with respect to a Mortgage must not exceed 30 percent of the Mortgage’s unpaid principal balance. This maximum cumulative value must be established as of the date of Default at the time of payment of the initial Partial Claim on such Mortgage, and will remain constant for the life of the Mortgage.

(b) Interest on Partial Claims No interest will accrue on the Partial Claim.

(c) Payment of Partial Claim HUD will not require payment on the Partial Claim until the maturity of the FHA-HAMP Mortgage, the sale of the Property, or the Payoff or non-FHA refinancing of the Mortgage.

(3) Combination of FHA-HAMP Loan Modification and the FHA-HAMP Partial Claim The Mortgagee may offer FHA-HAMP Loan Modification and FHA-HAMP Partial Claim together for Mortgages in Default or in Imminent Default. The Mortgagee may utilize an FHA-HAMP Combination Loan Modification Partial Claim when establishing an affordable monthly payment that requires a Partial Claim in an amount needed to cover:

arrearages
legal fees and foreclosure costs
principal deferment

If the amount of arrearages, legal fees and foreclosure costs, and principal deferment exceed the statutory maximum for the Partial Claim, the Mortgagee may still utilize this combination of an FHA-HAMP Combination Loan Modification and Partial Claim for an eligible Borrower, so long as the modified payment is 40 percent or less of the Borrower’s gross monthly income.

(E) Capitalization of Delinquency in FHA-HAMP Loan Modification The Mortgagee may only include the following in the FHA-HAMP Loan Modification:

arrearages for unpaid accrued interest (outstanding arrearages capitalized into the Loan Modification are not subject to statutory limits on Partial Claims);
Mortgagee advances for escrowed items; and
related legal fees and foreclosure and bankruptcy costs for work actually performed for the current Default episode as of the date of the foreclosure cancellation and not higher than the foreclosure-related fees and costs HUD has identified as customary and reasonable.

The Mortgagee must not capitalize:

late fees; and
costs to complete needed repairs as part of the FHA-HAMP agreement.

(F) FHA-HAMP Trial Payment Plans [Highlighted text below must be implemented no later than December 1, 2016]

(1) Trial Payment Plans The Mortgagee must ensure that the Borrower successfully completes a TPP prior to executing any FHA-HAMP Option. See Trial Payment Plans for required terms and procedures. Definition A Trial Payment Plan (TPP) is a payment plan for a minimum period of three months, during which the Borrower must make the agreed-upon consecutive monthly payments prior to final execution of the FHA-HAMP agreement.

(2) Standard The Mortgagee must ensure that the Borrower successfully completes a TPP before executing permanent FHA-HAMP agreements, for a minimum of three months.

(3) Entering into the Trial Payment Plan Agreement

(a) Definition A Trial Payment Plan (TPP) Agreement is a written document codifying the TPP terms, which must be agreed upon by all Borrowers.

(b) Standard

(i) Trial Payment Plan Starts 12 Months after Closing Date Where a Borrower is eligible for an FHA-HAMP Option, the Mortgagee must ensure that the Borrower’s TPP begins only after 12 months have elapsed since the Closing Date of the FHA-insured Mortgage.

(ii) Trial Payment Plan Terms The Mortgagee must ensure that the following apply to interest rates and monthly payments under the TPP Agreement:

The interest rate for the TPP and the permanent Loan Modification must not be greater than Market Rate.
The permanent Market Rate is established when the TPP is offered to the Borrower.
The established monthly permanent FHA-HAMP Loan Modification Payment must be the same or less than the established monthly trial payment.
Agreement documents stipulate that after successfully completing the TPP, the Borrower must continue making payments in accordance with the terms of his or her signed TPP Agreement until his or her permanent FHA-HAMP Mortgage has been ratified by all parties.

(iii) Start of Trial Payments The Mortgagee must send the proposed TPP Agreement to the Borrower at least 15 Days before the date the first trial payment is due with notification of an established deadline date for Borrower acceptance or rejection of the Trial Payment Plan Terms. The acceptance/rejection deadline date must be on or before the first trial payment due date.

(iv) Trial Payment Plan Signatures All parties on the original Note and Mortgage and all parties that will be subject to the modified Mortgage and/or Partial Claim must execute the TPP Agreement unless:

a Borrower or co-Borrower is deceased;
a Borrower and co-Borrower are divorced; or
a Borrower or co-Borrower on the original Note and Mortgage has been released from liability in connection with an assumption performed in accordance with HUD’s requirements.

On a case-by-case basis, the Mortgagee may provide an exception to the above TPP signature requirements when a Borrower is unable to sign a TPP Agreement due to physical disability, mental condition, or military deployment.

(c) Required Documentation The Mortgagee must retain the following in the Claim Review File:

a copy of the signed TPP Agreement; and
documentation evidencing the Mortgagee’s review and approval of the TPP Agreement (per the requirements in this section), if the TPP Agreement was not signed by all parties on the original Note and FHA-insured Mortgage.

(4) Trial Payment Plan – Application of Payments For FHA-HAMP Mortgages, the Mortgagee must treat a trial payment in an amount less than a full monthly payment under the existing Mortgage as a Partial Payment and place them in the Borrower’s suspense account. These Partial Payments are to then be applied in accordance with HUD’s Partial Payments for Mortgages in Default guidance and any applicable federal regulations. For unapplied funds remaining at the end of the trial payment period that do not total a full PITI Mortgage Payment, the Mortgagee may apply the Borrower’s funds towards:

any calculated escrow shortage;
the unpaid principal balance when calculating the FHA-HAMP Mortgage’s monthly Mortgageamount; or
the FHA-HAMP Partial Claim amount.

(5) End of Trial Payment Plan Period

(a) Standard The Mortgagee must offer the Borrower a permanent FHA-HAMP Option after the Borrower’s successful completion of a TPP. The Mortgagee must:

prepare the permanent FHA-HAMP Modification Agreement early enough to allow sufficient processing time for the modification to be effective no later than the first day of the second month following the final Trial Payment Plan month;
provide the Borrower with the permanent FHA-HAMP documents to be executed by required parties at least 30 Days before the effective date of the modification with notification of the date by which signed documents must be returned;
sign the FHA-HAMP Modification Agreement and provide a fully ratified copy to the Borrower no later than 15 Days following receipt of the Borrower-signed documents; and
update its servicing system and files to reflect the FHA-HAMP transaction.

(b) Trial Payment Plan Failure The Borrower has failed the TPP when one of the following occurs:

the Borrower does not return the executed TPP Agreement within the month the first trial payment is due;
the Borrower vacates or abandons the Property; or
the Borrower does not make a scheduled TPP payment by the last Day of the month the payment was due.

(c) Review for Other Loss Mitigation Options after Trial Payment Plan Failure

(i) Standard The Mortgagee must re-evaluate the Borrower’s eligibility for other appropriate Loss Mitigation Options if a Borrower fails to successfully complete a TPP associated with an FHA-HAMP Option, as follows:

if the Borrower provides documentation demonstrating their financial circumstances have changed since the Mortgagee’s previous loss mitigation evaluation, the Mortgagee must verify the change in financial circumstances and re-evaluate the Borrower for Loss Mitigation Options; or
if the Borrower does not provide documentation demonstrating their financial circumstances have changed since the Mortgagee’s previous loss mitigation evaluation, the Mortgagee must evaluate the Borrower for Home Disposition Options prior to initiating foreclosure.

(ii) Required Documentation The Mortgagee must include documentation supporting any changes in the Borrower’s financial circumstances or employment status in the Mortgagee’s Claim Review File.

(6) Trial Payment Plans during Foreclosure The Mortgagee must suspend and/or terminate foreclosure action, depending on state law requirement, during the TPP. In the event the Borrower fails to make a payment required under a TPP, the Mortgagee must review the Borrower for other appropriate Loss Mitigation Options before commencing or continuing a foreclosure. HUD provides an automatic 90-Day extension for the Mortgagee to commence or recommence foreclosure or initiate another Loss Mitigation Option, should a TPP fail.

(7) Reporting of Trial Payment Plans The Mortgagee must report the use of an FHA-HAMP Option in SFDMS.

(G) FHA-HAMP Loan Modification Documents The Mortgagee must ensure that the Mortgage is not in foreclosure at the time the FHA-HAMP Loan Modification documents are executed. The Mortgagee must remove the Mortgage from foreclosure prior to executing the FHA-HAMP documents. See Loss Mitigation during the Foreclosure Process. FHA does not provide a model for FHA-HAMP Loan Modification documents, but the Mortgagee must ensure the FHA-insured Mortgage remains in a first lien position and is legally enforceable.

(H) FHA-HAMP Partial Claim Documentation and Delivery Requirements

(1) FHA-HAMP Partial Claim Promissory Note and Subordinate Mortgage

(a) Standard The Mortgagee must prepare the Partial Claim promissory Note and subordinate Mortgage as follows:

the promissory Note must be executed with the name of the Secretary;
the subordinate Mortgage must be prepared and recorded; and
the Partial Claim promissory Note and subordinate Mortgage/deed of trust must include:
- the full FHA Case Number;
- the provisions of HUD’s model Partial Claim Promissory Note and Partial Claim Subordinate Mortgage or a substantially similar document; and
- any amendments as required by state or federal law or regulations.

The Mortgagee must provide the Borrower with a Partial Claim promissory Note and subordinate Mortgage to be signed by the Borrower and recorded by the Mortgagee.

(b) Required Documentation The Mortgagee must retain in its Claim Review File:

a copy of the executed Partial Claim promissory Note and subordinate Mortgage;
evidence that the Mortgage was timely submitted for recording; and
the date the Mortgagee received the executed Partial Claim documents from the Borrower and the date the subordinate Mortgage was sent to be recorded.

(2) Recordation of FHA-HAMP Partial Claim Documents The Mortgagee must submit executed Partial Claim security instruments for recordation within five business days from the date of receipt from the Borrower or, where HUD execution is required, receipt from HUD. The Mortgagee must submit the security instruments for recordation before filing the FHA-HAMP incentive claim with HUD. The Mortgagee must ensure that the recordation of the Partial Claim security instruments does not jeopardize the first-lien status of the FHA-insured Mortgage; there is no lien priority requirement for the filing of a Partial Claim.

(3) Legal Fees and Foreclosure Costs for Partial Claims The Mortgagee may include actual foreclosure fees and costs incurred as of the date of the foreclosure cancellation in the Partial Claim. HUD will not reimburse attorney’s fees in excess of the amounts reflected in the HUD Schedule of Standard Attorney Fees. The Mortgagee must not include in subsequent disposition claims foreclosure fees and costs that were included and paid in the Partial Claim.

(4) Execution of Partial Claim Documents after Trial Payment Plan The Mortgagee must ensure that the Borrower has successfully completed a TPP before executing the Partial Claim promissory Note and subordinate Mortgage.

(5) Reconciliation of Partial Claim Proceeds to Promissory Note Amounts If the Mortgagee miscalculates the Partial Claim amount, resulting in an overpayment to the Mortgagee, the Mortgagee must remit the overpaid amount immediately to HUD’s Servicing Contractor. In the event the Mortgagee claimed less than the actual Partial Claim promissory Note amount, the Mortgagee must absorb the cost of the miscalculation. The Mortgagee must include their review process for ensuring the accurate calculation of Partial Claims in their required QC Plan.

(6) Delivery of Partial Claim Documents

(a) Standard The Mortgagee must deliver to HUD’s Servicing Contractor:

no later than 60 Days from the execution date, the original Partial Claim promissory Note;
no later than six months from the execution date, the recorded subordinate Mortgage; and
with each delivery of Partial Claim documents, the Mortgagee must include a cover letter with the FHA case number for the documents that are being delivered.

(b) Partial Claim Discrepancies When HUD has received Partial Claim documents that do not fully support the amount claimed by the Mortgagee, HUD will consider the documents incomplete. The Mortgagee must timely correct the deficiencies to satisfy the six-month deadline for the Mortgage to provide complete and accurate Partial Claim documents. The Mortgagee may use the monthly Missing Documents Report to determine if any Partial Claim documents are missing and outside of the delivery times. Hud’s Servicing Contractor may follow up with the Mortgagee if there are any discrepancies between the Mortgagee’s cover letter and the documents received.

(7) Requests for Extensions of Time for Delivery of Partial Claim Documents

(a) Standard Mortgagees must periodically check on the status of all unreturned recorded Partial Claim Mortgages by, for example, using the Missing Documents Report. The Mortgagee may request an extension by submitting the request to the NSC for HUD approval via EVARS when:

Partial Claim document delivery has been delayed due to events beyond the Mortgagee’s control; or
circumstances have occurred preventing the Mortgagee from timely delivery.

The Mortgagee must request the extension in EVARS by:

checking Box 7, “Unable to submit recorded partial claim Mortgage within 6 months of execution;”
entering the number of Days needed to meet HUD’s delivery requirements;
indicating the reason for the delay in “Basis for Extension Request;” and
detailing any attempts to follow up on documents, including specific dates where possible.

HUD will not approve extensions pertaining to Partial Claim promissory Notes.

(b) Required Documentation The Mortgagee must retain in the Claim Review File documentation of any extensions received from HUD.

(8) Failure to Timely Provide Partial Claim Note and Subordinate Mortgage When the Mortgagee fails to provide HUD with the Partial Claim promissory Note and subordinate Mortgage within the required timeframes, HUD may require reimbursement of the full amount of the Partial Claim. When directed by HUD, the Mortgagee must reimburse:

the full claim amount (insurance benefits consisting of the arrearage, principal deferment, if necessary, and any HUD-allowed costs paid in the Mortgagee’s claim for mortgage insurance benefits); and
the incentive fee.

Upon reimbursement of the full amount of the Partial Claim, HUD will endorse any Partial Claim documents in its possession over to the Mortgagee and return them. The Mortgagee must properly record such documents within 30 business days of receipt from HUD.

The Mortgagee must not reverse the application of the Partial Claim funds. The Mortgagee may only pursue repayment of the Partial Claim funds from the Borrower under the original terms of the Partial Claim promissory Note and subordinate Mortgage.

HUD will not accept any documentation regarding the Partial Claim and HUD will not refund any funds to the Mortgagee after the Mortgagee has repaid the Partial Claim in accordance with this section.

(9) Servicing of FHA-HAMP Partial Claims The Mortgagee remains responsible for servicing the FHA-HAMP Partial Claim until the debt and security instruments are legally recorded in the appropriate jurisdiction and delivered to HUD. Mortgagees must notify HUD when the first Mortgage is being paid in full or refinanced in order for HUD to provide a payoff figure on a Partial Claim. HUD’s Servicing Contractor must be contacted to request a payoff quote on the outstanding Partial Claim.

(I) Lien Status The Mortgagee must ensure first-lien status of the modified Mortgage and must comply with any applicable state or federal laws and regulations in recording the subordinate FHA-HAMP documents.

(1) Subordination Request If title to the Property is encumbered with an FHA Title I Mortgage and the Mortgage servicing the Title II Mortgage has determined that a Subordination Agreement is necessary to ensure HUD’s first-lien status, the Mortgagee may forward a subordination request to:

S. Department of Housing and Urban Development
Home Improvement Branch
451 7th Street, SW, Room 9272
Washington, DC 20410

For Partial Claims or Secretary-held Mortgages, the Mortgagee must contact HUD’s Loan Servicing Contractor.

(2) Subordination Notification If title to the Property is encumbered with an FHA Title I Mortgage which has been assigned to the Secretary and the Mortgagee servicing the Title II Mortgage has determined that a Subordination Agreement is not required to ensure HUD’s first-lien status, the servicing Mortgagee of the Title II Mortgage may send a written notification to:

S. Department of Housing and Urban Development
Albany Financial Operations Center
52 Corporate Circle
Albany, NY 12203

(J) Option Failure

(1) Option Failure as New Default If the Mortgage becomes Delinquent following use of the FHA-HAMP Option, the Mortgagee must treat this as a new Default and service the Defaulted Mortgage accordingly.

(2) Delivery of FHA-HAMP Documents to HUD If the Mortgage is foreclosed following use of the FHA-HAMP Option, the Mortgagee must upload the FHA-HAMP Loan Modification into P260 when a conveyance claim is filed.

(K) FHA-HAMP Incentive The Mortgagee may claim an incentive for use of the FHA-HAMP Option if:

the permanent FHA-HAMP documents are executed within 60 Days of the Borrower’s successful completion of their TPP; and
the Mortgagee reports to HUD the characteristics of the Loan Modification.

(L) No Charge to Borrower for Modification The Mortgagee may not charge the Borrower a fee for processing and recording an FHA-HAMP modification of a Mortgage that is in Default or Imminent Default.

(M) Reporting of FHA-HAMP Loan Modification Terms The Mortgagee must report in SFDMS the use of FHA-HAMP. When an FHA-HAMP Loan Modification is used, the Mortgagee must report the characteristics of the modified Mortgage, whether or not the Mortgagee is eligible for an incentive for that modification, through FHAC or EDI.