Combating mortgage fraud and abuse continues to be a top
priority of the United States Trustee Program. We have
dedicated significant civil and criminal enforcement resources
to address an array of issues, ranging from loan origination
scams to mortgage servicer violations to foreclosure rescue
fraud. Through detection by Program staff and, through
referrals from trustees, counsel, and other third parties, we
have uncovered wrongdoing and taken civil enforcement actions
against those who prey upon vulnerable homeowners. Where
appropriate, we also have referred suspected criminal conduct
to our law enforcement partners. As an adjunct to combating mortgage fraud
and abuse, we also can help homeowners in bankruptcy by making
sure they are aware of the potential to save their homes
through the government’s Home Affordable Modification
Program, also known as HAMP.
HAMP helps struggling homeowners stay in their homes by
modifying their monthly mortgage payments to make them more
affordable. Though not all homeowners will qualify for this
program, for those who do, HAMP may provide a real
opportunity to save their homes. As members of the bankruptcy community, United
States Trustee Program staff, as well as chapter
7 and 13 trustees, have a unique opportunity to ensure that struggling
homeowners are aware of HAMP. I am asking each of you to help get the word out to consumers about this important
assistance program. The few moments it will take to educate consumer debtors about HAMP may be all that is needed to help many of them save their homes. While HAMP has been around since 2009, the
Treasury Department, which oversees HAMP, recently
enhanced the guidelines to make it clear that borrowers
in chapter 7 or 13 can be considered for a HAMP modification.
This is an important clarification.
Accordingly, the United States Trustee Program is taking a
number of steps, including by making available a Fact Sheet for
all debtors at sections 341 meetings, by posting Frequently
Asked Questions on our Web site, and by distributing this video, to ensure that debtors are aware that
HAMP may be an option to help them keep their home.
But your help is needed. This video will provide you not only
with information about HAMP, but also with the tools you will
need to help debtors begin the process. I would like to thank the many individuals
who have been involved in developing this awareness video,
especially United States Trustee Program Assistant Director
Doreen Solomon, Chapter 13 Trustee Kevin Anderson, and the
Program’s National Bankruptcy Training Institute for its continuing
efforts to broaden its educational outreach.
Thanks also to you for taking the time to learn about HAMP and
the important role you can play in helping qualified debtors
save their homes. Hi, I’m Doreen Solomon with the United States
Trustee Program.
And I am Kevin Anderson, a chapter 13 Standing Trustee and
Past President of the National Association of Chapter 13
Trustees. Welcome. Kevin and I are here to talk with you about
HAMP, the Home Affordable Modification Program. With the
Treasury Department’s recent clarifications, this home
saving program is now available to consumer debtors who are
in active chapter 7 or 13 cases now or in the future.
We are going to give you the information you need, both to
understand HAMP and to be a referring resource to
homeowners in bankruptcy. Now, your first thought might be, “How am
I going to fit this additional task into my workload?” That was
my first reaction as well, but as I thought about it, I realized
that all I really need to do is raise my awareness of the HAMP program
so that I can easily spot potential HAMP candidates and
then ensure that they are aware of this program that may help
them save their homes.
And no one has a better opportunity to spot them and come
face-to-face with these folks to ensure they know about HAMP
than we do as trustees. To assist you in educating your bar and your staff, the U.S.
Trustee Program has prepared and is distributing to you a onepage
handout that you can use to streamline this most
important communication. Now, let’s talk about HAMP basics, how to
identify eligible consumer debtors, and what you can do in either
a chapter 7 or 13 case.
Here are the basics. HAMP was announced by Treasury in
March 2009. HAMP’s goal is to assist struggling homeowners
get relief and avoid foreclosure by reducing the homeowner’s
monthly mortgage payments so that the payments are more
affordable. HAMP modifications were originally limited to first
mortgages, but recently were expanded to include modifications
of second loans in tandem with the modification of the first lien.
Homeowners in bankruptcy have always been eligible for HAMP,
however, Treasury recently expanded its guidelines specifically
for homeowner’s in bankruptcy. These guidelines went into
effect on June 1S t, 2010. Another recent HAMP amendment allows mortgage
servicers to evaluate whether unemployed homeowners who
request assistance under HAMP qualify for a forbearance
plan. So Doreen, what are the fact patterns we should
be looking for to identify debtors who might be eligible
for HAMP? Good question Kevin, let me give you a five-part
eligibility test. First, the homeowner must be the owner-occupant
of a one- to four-unit home.
Second, the amount of the first lien must be less than
$729,750. This is the cap for a one-unit home. The amount for
a two-unit home is $934,200, a three-unit home is $1,129,250,
and a four-unit is $1,403,400. Third, the first lien mortgage must have originated
before January 1, 2009.
Fourth, is the 31 % test. The combined amount of the principal
and interest payment, taxes, insurance, and any homeowner
association fees must be greater than 31 % of the homeowner’s
HAMP Script Page 3 of 11 Anderson:
current gross monthly income. So, the total combined amount
of these mortgage related payments must exceed 31 % of their
monthly gross. Fifth, the homeowner must demonstrate that
the current mortgage payment is not affordable due to
a documented financial hardship. Classic examples would
be a job loss or a medical condition that impacts earning ability.
If the homeowner meets these five criteria, they are eligible to be
considered for HAMP. That doesn’t mean they be granted a
modification; this is just the first step. If they are eligible, they
can then apply for HAMP to see if they qualify. Doreen, before we get to qualifications, what
if they don’t meet these eligibility requirements? Are they just
out of luck? Kevin, I’m glad you asked that. I think now
is a good time to discuss a fundamental resource that you should
keep at your fingertips.
The Treasury Department and HUD have created an
outstanding Web page that contains detailed information about
HAMP and other alternatives for distressed homeowners. The
Web address is at the bottom of your screen. It’s Making Home
Affordable DOT GOV. I encourage you to browse through the
site and refer it to anyone who has a question regarding trying
to save their home. I should also note there are excellent resources
on the site on how to avoid scams aimed at distressed homeowners.
Now, back to your question regarding a homeowner who is not
HAMP eligible. The site also details several other programs
under the Making Home Affordable umbrella. And for those homeowners who don’t have access
to the Internet, they can call the Homeowner’s HOPE
Hotline at 888 995 4673. If they call, they can speak with
a HUD certified housing counselor who can explain the various
programs. Kevin, now is a good time to talk about how
to apply for HAMP. Thanks Doreen. If a homeowner is HAMP eligible,
they can then seek to become qualified for a HAMP modification
to their mortgage. The homeowner will need to gather the required
income documentation and send it to their mortgage
servicer. The mortgage servicer will confirm eligibility
and determine whether they qualify.
To apply, the homeowner must submit proof of income and two
forms which I will discuss in a moment. Generally, the two
most recent pay stubs are all that are needed for proof of
income, as long as they also contain year-to-date information. A
person who is self-employed must provide the most recent
quarterly or year-to-date profit/loss statement. Now, to the two required forms.
The first form is an MHA Request for Modification and Affidavit.
This form captures information on the homeowner’s income,
expenses, subordinate liens on the property, and liquid assets.
It includes a Hardship Affidavit, fraud notice, and information
about the trial period plan. The second form is the IRS Form 4506T DASH
EZ. That’s the Short Form Request for Individual Tax Return
Transcript. This form gives the mortgage servicer permission
to request a copy of the homeowner’s most recently filed tax return.
The Make Home Affordable DOT GOV Web site will walk the
homeowner through the entire process under the Request a
Modification tab. By the way, the site also has an eligibility tab
that directs you to a page that will walk the homeowner through
the eligibility questions and instantly lets the homeowner know
if they are eligible, provided, of course, that they accurately
answer the questions. If they can’t fmd the required documentation,
need help with the forms, or have eligibility questions,
they should call the HOPE Hotline number. This assistance is free.
I should also mention that if a homeowner is in an active
chapter 7 or chapter 13 bankruptcy, the servicer may accept
copies of the bankruptcy schedules and tax returns (if returns
are required to be filed) in lieu of the two required forms.
Homeowners able to use this option must separately submit a
completed Hardship Affidavit to their mortgage servicer. If the
bankruptcy schedules are more than 90 days old when submitted to the servicer, the homeowner will be required to
provide updated evidence of income. So the homeowner has now completed and submitted
the required forms to the loan servicer, what
happens next Doreen? The servicer will review the information to
verify eligibility. If the eligibility criteria are met, the servicer
will ask questions about current income, assets, and expenses,
as well as any specific hardship circumstances to determine
if the homeowner is unable to make the mortgage payment.
The servicer will then go through a Net Present Value analysis
to determine whether the value of the loan to the investor will
be greater if the loan is modified, factoring in any government
incentive payments, than if the loan is sold through a
foreclosure sale. If the modified loan is of greater value, the
servicer must offer the homeowner a HAMP trial period plan.
The homeowner must accept the trial period plan by making
their first trial period payment. The trial period is typically a
three-month period at a new lower payment amount.
If the homeowner successfully makes all of their trial period
payments and the income and expense information provided is
determined to be accurate, the servicer will then execute a
permanent modification agreement. I would note that even if the Net Present
Value analysis doesn’t satisfy the greater value threshold, the investor
and servicer may still offer to modify the loan. However,
modification in such cases is not required.
Kevin, can you explain how the loan is modified? Sure. The servicer must follow sequential
steps to lower the homeowner’s monthly payment to reach the target
of 31 % gross income. It should be noted these steps may
vary based on investor guidelines.
The first step is capitalization. The servicer must capitalize all
outstanding interest, escrow advances and other out of pocket
servicing expenses. Late fees cannot be capitalized and if the
homeowner completes the trial successfully, the late fees are
waived. Interest rate reduction is the second step. The servicer begins
to lower the interest rate on the principal and interest portion of
the monthly payment in 1/8 increments. The servicer is able to
reduce the interest rate to as low as 2%. If the 31 % target payment is not reached
by lowering the interest rate to 2%, the third step is to
extend the term up to 40 years.
If the target payment is still not reached by maximizing the term
extension to 40 years, the fourth step is forbearance. The
servicer would remove the principal needed from the unpaid
principal balance to get to the target 31 % payment.
That forborne amount is placed into an interest-free account
which will become payable as a balloon payment if the loan is
refinanced, the home is sold, or the loan reaches maturity.
If the loan-to-value ratio for the first mortgage lien is greater
than 115%, servicers must add a step after capitalization and
consider principal reduction. The actual application of the
principal reduction is at the servicer’s discretion. Kevin as a Chapter 13 Standing Trustee, what
will you be doing differently now to make debtors aware of or
to focus on their rights under HAMP?
First, I will make sure that each of my debtors receives a copy of
the “one-pager” pamphlet the U.S. Trustee Program has put
together. Not only is it a quick and easy primer for the debtor,
but most importantly, it gives them the Web address for Make
Home Affordable DOT GOV and the phone number to the HOPE
Hotline. Then, in connection with my normal case review
procedures, I will look for cases where a debtor may be
eligible for a HAMP modification. A review of the debtor’s bankruptcy
schedules should answer the eligibility questions. Specifically,
Schedule D will contain the basic mortgage information,
and I should be able to quickly do the 31 % payment calculation
from the information on Schedules I and J. If I can’t
get it from the schedules, a question or two at the 341 meeting
will help fill any holes.
If a debtor appears to be eligible, I am going to encourage them
and their counsel to read the handout and to visit the Web site
to learn more about their potential eligibility. And in some cases where I deem it appropriate and with the debtor’s permission, I
may take a more active role by communicating with the servicer
about a HAMP modification. While doing this will take a little extra
time, an important purpose of Chapter 13 relief is to give debtors
the opportunity reorganize their finances so they can stay
in their homes. This goal is even more important in light of the
mortgage meltdown crisis. Section 1302 directs that I am to
“assist the debtor in performance under the plan.” I can’t think
of a better way to assist homeowners in Chapter 13 to successfully
perform under their plan than to make them aware of the
mortgage modification options available through HAMP.
All I am talking about is using the Chapter 13 system in conjunction
with HAMP to help folks pay for and stay in their
homes. Well put, Kevin
Now let’s talk about how this affects chapter 13 standing
trustees and what you and your colleagues can do to make
debtors more aware of HAMP. Both chapter 7 debtors and chapter 13 debtors
who are in a trial payment plan and subsequently file bankruptcy
must still be considered by the servicer for HAMP. Under
Treasury Directive 10-02, they will not lose the chance
to receive a permanent modification simply because they
filed for bankruptcy.
Likewise, both chapter 7 and chapter 13 debtors who file first
and then decide to request a mortgage modification through
HAMP must also be considered. Is it possible to skip the trial period?
In chapter 13, there will be an opportunity for homeowners to
bypass the trial period and go directly to a permanent HAMP
modification. First, the debtor must make all post-petition
payments on their first lien mortgage that came due prior to the
effective date of modification. Second, at least three of those
payments must be equal to or greater than the proposed
modified payment. Third, if required by the jurisdiction’s local
rules, the modification must be approved by the bankruptcy
court. This option is not yet available, as it requires
system modifications that are being developed.
Kevin how do you see debtors listing HAMP trial modification in
their schedules and repayment plan. I would expect that the plan to disclose not
only that the debtor has or is in the process of applying for a
HAMP modification, but also how the modification will impact
the debtor’s budget and plan. For example, if the debtor intends
to use HAMP to recapitalize the pre-petition mortgage arrearage,
that should be disclosed and the plan could reflect zero
for arrears, and schedule J would list the amount of the modified
mortgage payment– even though the modification hadn’t
become final at the time of filing.
However, some debtors might decide to list the arrears in the
plan and reflect the full mortgage payment amount on schedule
J on the theory that there is no guarantee the servicer will
approve the modification and the debtor doesn’t want the
servicer to file an objection to confirmation or a motion for relief
from stay if modification is denied. For this reason, some
trustees are recommending that debtors file plans containing
alternative language stating that the debtor is seeking to modify
the mortgage through HAMP, but, if the modification is denied,
the debtor will pay the arrears through the plan and make
ongoing mortgage payments in the pre-petition amount.
HAMP also provides certain protections for debtors. One deals
with limiting actions by the servicer when a HAMP modification
is involved and the other protects the debtor while any
necessary court approvals are being sought. When a homeowner is in the trial period plan
and has made post-petition payments on the first lien mortgage
in the amount required by the trial period plan, a servicer
may not object to confirmation of the homeowner’s chapter 13
plan, move for relief from the automatic stay, or move for
dismissal of the chapter 13 case on the basis that the homeowner
paid only the amounts due under the trial period plan.
Another protection is for debtors who have entered a trial
repayment plan before filing and must get permission from the
bankruptcy court and/or the trustee. Treasury Directive 10
Dash 2 requires servicers to work with the homeowner or
homeowner’s counsel to obtain any court and/or trustee approvals required in accord with local court rules and procedures. The directive also gives servicers the ability
to extend the trial period as necessary to accommodate delays
in obtaining court approvals or to receive a full remittance
of the homeowner’s trial period payments when they are made through
the trustee. I should note, however, that the servicer is
not required to extend the trial period beyond two months. With the normal three month trial period, this gives a debtor at least
five months to obtain the required approvals to make the
HAMP modification permanent
I also want to discuss a case management issue arising from
the timing of a HAMP modification, because the modification
should be included in the confirmation or plan-modification
process.. If the HAMP modification occurs prior to
confirmation, it should be disclosed and addressed in either the
original plan or an amended plan so that the HAMP
modification becomes a part of the final, confirmed plan. If the
modification occurs post-confirmation, the debtor should file a
motion to modify the plan under Section 1329 to disclose and
seek approval of the modifications that will impact the debtor’s
mortgage payment and may impact the treatment of an
arrearage claim. Again, if the HAMP modification is included
in the confirmed plan, a modified or amended plan may not be
necessary. Doreen, do you see chapter 7 Panel trustees
taking the same kind of proactive actions to inform debtors
about HAMP as are contemplated for chapter 13 Standing trustees?
We expect that Chapter 7 trustees will be doing much of what
chapter 13 trustees will be doing, that is making sure that each
debtor receives the one-pager on HAMP and using the schedules
to spot potentially eligible debtors. Although, given the number
of cases they administer, it would not be practical for chapter 7
trustees to calculate whether the debtor’s mortgage exceeds
31 % of the debtor’s gross income. I think it would be perfectly
acceptable for the trustee to “eyeball” schedules I and J to see if
the mortgage payment looks like it’s more than one-third of the
debtor’s income. Again, the key is to make sure that debtors are
aware of HAMP and how to find out more about it. I also agree that this may require a little
extra effort. But, as you said, we are helping folks save their
homes. One other issue that you may encounter in
a chapter 13 case is where the debtor has previously received a
discharge in a chapter 7 case. Can they still get a HAMP
modification? The answer is yes. However, if the debtor did
not reaffirm the mortgage debt in the prior chapter 7, then
a specific representation from the debtor has to be added
to the permanent modification agreement.
That required representation reads: “I was discharged in a
Chapter 7 bankruptcy proceeding subsequent to the execution
of the Loan Documents. Based on this representation, Lender
agrees that 1 will not have personal liability on the debt
pursuant to this Agreement.” Trustees should visit H M P ADMIN DOT COM to read Treasury’s directives and learn more details about HAMP. Additionally, the Making Home Affordable public
report is published monthly and can be found on Financial
Stability Dot Gov. Back to you, Doreen. Kevin, thank you for helping us understand
HAMP and its implications in Chapter 7 and 13 cases. More
importantly, thank you for your commitment to taking the
necessary steps to ensure that eligible debtors learn about this
home saving opportunity .
On behalf of the United States Trustee Program, 1 also want to
thank each of you for taking the time to watch this video and
your anticipated efforts as a member of the bankruptcy
community to make sure the word on HAMP gets out.