Can I Qualify for a Loan Modificaiton Without A Job?

As a follow-up to NPR's story about homeowners struggling to navigate their way through the Making Home Affordable program, a listener wrote to NPR asking whether people whose only income is unemployment benefits are still eligible to be considered for a loan modification under the program. There seems to be some confusion among lenders and housing counselors on this point. Chana Joffe-Wolt, an NPR reporter, ran it by the Treasury Department's point person for the program, who said, yes. Here's the full answer:

As of now, unemployment must continue for nine months to be counted, but we are consistently reviewing requirements. People on unemployment are eligible, and people on unemployment have gotten loan modifications.

There are a number of different parameters for eligibility (can be found on MHA website), so I can't comment on why this couple in particular is having difficulty. The administration is committed to keeping families in their homes and we are exploring ways to reach as many in need of assistance as possible.

This is consistent with the program guidelines issued by Fannie Mae, the entity designated by Treasury as the Financial Agent for the program. Under the heading "Verifying Borrower Income and Occupancy Status," the guidelines provide:

If the borrower receives public assistance or collects unemployment:

Acceptable documentation includes letters, exhibits or a benefits statement from the provider that states the amount, frequency, and duration of the benefit. The servicer must determine that the income will continue for at least nine months.

Wisconsin-based information management company offers new loan servicing software designed around Making Home Affordable

BROOKFIELD, Wis. - (Business Wire) Fiserv, Inc. (NASDAQ:FISV), the leading global provider of financial services technology solutions, announced today its Loan Servicing Platform, with extensive loan modification and loss mitigation features, is fully compatible with new guidelines from the U.S. Treasury Department on home loan modifications. In fact, from its inception the Fiserv platform was the first loan servicing system that was fully capable of supporting the Making Home Affordable Modification program.

As part of the Obama administration’s initiative, the U.S. Department of the Treasury created the Home Affordable Modification Program (HMP) as part of the Making Home Affordable program. Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were named as the administrators of the HMP. Designed to help as many as three to four million distressed homeowners avoid foreclosure by modifying loans and monthly mortgage payments to an affordable level, the program provides clear and consistent guidelines that the mortgage industry must follow.
The Loan Servicing Platform is an example of Fiserv’s processing services core competency and utilizes integrated default management tools that allow servicers to track and study the loans being modified. With this knowledge, servicers can formulate best-option workout scenarios based on operational business rules while meeting HMP guidelines.

Read full press release

An editorial and two responses to Gretchen Morgenson’s column

An editorial in this past Sunday's New York Times urges the Obama administration to do more to address the foreclosure crisis. Also, here are links to two interesting responses to Gretchen Morgenson’s column asking why there have been so few modifications:

Why So Few Mortgage Modifications? by Zubin Jelveh, The New Republic
Making Home Affordable Is … Not by Tim Fernholz, The American Prospect

So Many Foreclosures, So Little Logic

An article in today's New York Times reports that foreclosures are picking up speed. That's not a surprise. But what is surprising is that many lenders are apparently neglecting less expensive alternatives to foreclosure, alternatives such as loan modificaitons. When it seems to make greater economic sense to keep borrowers in their homes paying a reduced amount, than it does to toss them out and wind up loosing tens of thousands of dollars more, why aren't lenders selecting the less expensive alternative?

The article reports on a recent study of 3.5 million subprime loans in securitization pools overseen by Wells Fargo. The analysis showed that, among recent foreclosures from that pool, the average loss was 64.7 percent of the original loan balance; a staggering $144,000 loss on the average $223,000 mortgage.

This is much higher than the roughly $60,000 loss per foreclosure that others have estimated (see previous post). One explanation for the difference might be the recent study's focus solely on subprime loans. Another explanation could be the rapid decline in home values since the earlier estimates were calculated, a decline which means greater losses when homes are foreclosed.

Regardless of whether the loss per foreclosure is $60,000 or $144,000, the basic premise is that lenders have a lot of room to restructure loans and reduce borrowers' monthly mortgage payments -- and still end up in a better economic position than they would at the end of a long and costly foreclosure process. Why aren't more loans being modified?

The full artcile is available here.

A typical foreclosure costs the lender $60,000

A policy paper released last year by the Mortgage Bankers Association, an industry trade group, provides a useful summary of the significant costs borne by participants in the foreclosure process--with a focus on the lenders. While costs for individual loans vary widely, the paper cites research estimating that foreclosing a loan costs the lender nearly $60,000, on average. Other research estimates the cost to the lender somewhere between 30 and 60 percent of the outstanding loan balance.

Further reading:

Mortgage Bankers Association, Lenders’ Cost of Foreclosure, a policy paper prepared for the Congressional Education Series Briefing (May 28, 2008).

Darryl E. Getter, Understanding Mortgage Foreclosure: Recent Events, the Process, and Costs, Congressional Research Service Report for Congress (November 5, 2007).

Desiree Hatcher, Foreclosure Alternatives: A Case for Preserving Homeownership, Profitwise News and Views, published by the Federal Reserve Bank of Chicago (February 2006)

Karen M. Pence, Foreclosing on Opportunity: State Laws and Mortgage Credit, Board of Governors of the Federal Reserve System (May 13, 2003)

Amy Crews Cutts and Richard K. Green, Innovative Servicing Technology: Smart Enough to Keep People in Their Houses?, Freddie Mac Working Paper #04-03 (July 2004).

Obama Administration Expands Home Refinancing Program

July 1, 2009 - By Renae Merle - Washington Post Staff Writer

The Obama administration announced today an expansion of a key part of its foreclosure prevention program to allow more homeowners who owe more than their home is worth to refinance into lower-cost mortgages.

The effort is an acknowledgment by the administration that falling home prices limited the impact of its housing program, Making Home Affordable. Under the program, homeowners could refinance if their mortgage did not exceed the value of their home by more than 105 percent. Now, the administration is expanding the program to homeowners who are up to 125 percent underwater on their loan. more ...

Paper Avalanche Buries Plan to Stem Foreclosures

June 28, 2009 - by PETER S. GOODMAN – New York Times

LOS ANGELES — Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November. more ...