By: Kerri M. Smith
Followers of Treasury’s HAMP program will need to update their shortcuts to the latest version of the HAMP Handbook, Version 3.4. Treasury issued the latest HAMP Handbook, the consolidated guidance related to HAMP for non-GSE mortgage loans, on December 15, 2011. Version 3.4 of the Handbook includes all of the prior Supplemental Directives, including those with effective dates after the publication of Version 3.3. In addition to these updates, Treasury announced that Version 3.4 includes certain clarifications addressing: (1) ARM loan eligibility; (2) Timing of response to initial packages; and (3) “Escalated Cases” and pending litigation. We explain these changes below.
1. ARM Loan Eligibility
To qualify for HAMP, the borrower’s monthly mortgage payment ratio prior to the modification must be greater than 31 percent. Version 3.4 of the Handbook clarifies its guidance for determining this ratio for ARM loans. Previously, Supplemental Directive 11-10 stated that for ARM loans (including pay option ARMs) with a scheduled interest rate reset within 120 days of the evaluation date, the servicer must determine the monthly payment using the remaining term of the mortgage, the current UPB (before capitalization) and the borrower’s current scheduled fully amortizing payment based on the reset rate. Version 3.4 explains that the reset rate is to be calculated by applying the index or formula as if it were in effect at the time of evaluation, even if the reset rate would not take effect until a future date and/or be calculated using a future index.
Supplemental Directive 11-10 also provided that for loans that are scheduled for a rate reset more than 120 days from the evaluation date, the servicer must rely on the borrower’s current scheduled payment based on the current note rate to determine the monthly payment. Version 4.3 clarifies that in the case of pay option ARMs, a borrower’s current scheduled payment is the minimum payment required under the loan documents regardless of which payment the borrower elected to pay in the prior period.
2. Timing of Response to Initial Packages
HAMP imposes certain timing requirements related to the evaluation of the borrower’s Initial Package. For example, the servicer must acknowledge receipt of the Initial Package within 10 business days. Within 30 calendar days of receipt of the Initial Package, the servicer must also determine whether it will respond to a borrower with a notice of incomplete information, a trial period plan notice or a non-approval notice. Version 3.4 clarifies that the servicer must send one of these three notices within 10 business days of evaluating the borrower and determining which notice is appropriate.
3. Escalated Cases and Pending Litigation
According to HAMP, a servicer is required to determine the accuracy of each borrower inquiry and dispute that rises to the level of an “Escalated Case” and reach a resolution. Escalated Cases include, for example, inquiries or challenges to program denials. Supplemental Directive 11-10 provided that if the servicer is advised by its legal counsel that it cannot provide the borrower with information about the Escalated Case due to pending litigation, the servicer need not respond fully to the inquirer. Version 3.4 clarifies that this litigation exception will not apply in circumstances where the only litigation is a judicial foreclosure where claims disputing issues of fact have not been raised.