The U.S. Department of Treasury (Treasury) recently released Supplemental Directive (SD) 16-03 (MHA Program Termination and Borrower Application Sunset II) to the Making Home Affordable (MHA) handbook, containing “sunset” provisions for its MHA program. The release of this Supplemental Directive signals that there will be no further extensions of the program.

The Making Home Affordable program was announced in 2009, by the Obama Administration, as a relief to distressed homeowners. The MHA program’s objective is to provide guidelines to lenders to modify the terms of eligible mortgages so that “at-risk” homeowners would be able to reduce their monthly mortgage payments and to avoid foreclosure. According to the most recent MHA Program Performance Report, during the last 7 years, the MHA program has only helped 2.5 million of the 7 to 9 million homeowners that were identified as “at-risk” by the Obama Administration in 2009. This means that the remaining 4.5 to 6.5 million “at-risk” homeowners who do not submit their request for borrower assistance by December 31, 2016, will be faced with foreclosure.

SD 16-03 provides the following modifications to the MHA handbook for winding down the program:

• All borrower requests for assistance under MHA must be submitted by December 31, 2016;
• On December 1, 2017, MHA Help and the Home Affordable Modification Program (HAMP) Solution Center will no longer accept new cases, nor escalate cases to servicers;
• All cases that have been escalated prior to December 1, 2017 must be resolved by May 1, 2018;
• After December 30, 2016, servicers will no longer be required to assign relationship managers to borrowers;
• Effective May 1, 2018, servicers will no longer be required to follow Section 3 of Chapter 1 of the MHA Handbook; however, the Treasury suggests that servicers continue to follow the best practices that have been established by MHA;
• After September 1, 2016, servicers are no longer required to satisfy the Reasonable Effort standard set forth in Section 2.2.1 of Chapter II of the MHA handbook; and
• Servicers will not be required to suspend a scheduled foreclosure sale if a borrower submits an Initial Package after December 30, 2016.

After continuously developing and expanding the MHA program over the last 7 years, it is surprising that Congress has refused to extend its life. Since 2009, the Treasury has issued 5 versions of its MHA handbook and has issued over 80 Supplemental Directives, including SD 16-03, refining the guidance it has provided to participating servicers. Congress’ decision to abandon the MHA program seems misguided because of the time and resources it has invested in the program. Most importantly, the termination of the program on December 31, 2016, leaves up to 6.5 million “at-risk” homeowners scrambling to submit requests for assistance or face the possibility of foreclosure.

The U.S. Treasury Department has issued Supplemental Directive 15-06 “Making Home Affordable Program – Streamlined Modification Process”.

This new program is akin to the Streamlined Modifications already offered on GSE Loans. GSE or “Government-sponsored enterprise”, are privately held corporations for a public purpose such as Fannie Mae and Freddie Mac. These GSEs have had in place streamline modifications that Loan Servicers are mandated to offer to eligible borrowers. One draw-back in any type of modification with a GSE Loan is the fact that principal reduction is not offered.

This new directive is for Non-GSE Loans and the Loan Servicers and Lenders such as Chase, Citibank, Carrington Mortgage, Nationstar Mortgage and so many others. The streamline modification provides a modification opportunity to delinquent borrowers of Non-GSE Loans without the need to submit any docs or for any income verification. In fact, once a Loan Servicer has designated its pool of eligible borrowers a Streamline HAMP Trial Period Plan Offer will be issued to the Borrower. The only thing for the Borrower to do is make the first payment to enter into the trial period. This will greatly improve the approval process for those Borrowers that are directly designated and free up resources for those borrowers that may not be eligible by lessening the modification approval time frame. The bonus is that in Non-GSE modifications, principal reduction can, and may be included in the modification.

Eligible Borrowers will only learn of this from their Loan Servicers directly by mail. Be sure to keep an eye on all mail received from your Loan Servicer to see if you are in luck. Regrettably, if a Borrower does not fit within the specific eligibility pool they will be out of luck for streamline modifications.

On October 30, 2014, Supplemental Directive 14-04 was issued by Treasury.

2 major changes for those considering a short sale or deed-in-lieu are offered by this Directive.

FIRST - Relocation assistance available to the property owner, who occupies the property as a principal residence and is required to vacate as a condition of the short sale or deed-in-lieu, will be eligible for $10,000 as opposed to $3,000 for transactions that close on or after February 1, 2015.

SECOND - Perhaps most importantly, for transactions closing on or after February 1, 2015, the gross sales proceeds that may be paid to a subordinate mortgage lien holder (e.g. 2nd mortgage) used to be capped at $8,500, but now there is no cap requirement. Instead, servicers can create their own cap provided its not less than $12,000.

To explain the second change above, a first mortgagee may approve a short sale, but the second mortgagee may deny it because there is no fair market value to support a payment to the mortgagee (i.e. the house is underwater as to the second mortgage). This change permits the first mortgagee to pay the second mortgagee (out of their monies from the short sale) to approve the short sale and extends what was a cap of $8,500 in payment to a minimum new cap of $12,000 and potentially no cap at all.

Many deals die because of the second lienholder - this Supplemental Directive should save a lot of deals.

Now, the new rule permits a loan that was previously permanently modified under HAMP to be re-modified regardless of loss of good standing so long as, either, the borrower has experienced a change in circumstance, or at least 12 months have passed since the HAMP Modification Effective Date. This amendment will allow for borrowers to re-modify loans that have already received a HAMP permanent modification if they experience a new hardship or if one year has passed.