The loan limit for a HAMP-eligible mortgage is $729,750. This means that a good portion of loans eligible for HAMP are jumbo mortgages (those not guaranteed by Fannie Mae or Freddie Mac). How do borrowers without Fannie- or Freddie-guaranteed loans take advantage of HAMP? What do homeowners with jumbo mortgages need to know about their loan modification options?
Fannie Mae and Freddie Mac impose loan limits that range from $417,000 to $729,750, and the maximum loan amount for HAMP eligibility is also $729,750. If your mortgage is owned or serviced by Fannie Mae or Freddie Mac, you automatically meet one of the criteria for HAMP eligibility. But what if your mortgage doesn't exceed $729,750 and is not owned or serviced by either of the government-sponsored enterprises (GSEs)? You may qualify for a non-GSE HAMP loan modification. HAMP is strictly voluntary for mortgage servicers not associated with Fannie Mae or Freddie Mac. You can learn if your mortgage servicer is participating in HAMP by checking the list maintained by MakingHomeAffordable.gov.
My lender is on the list. Do I get a modification?
Just because your lender is on the list and you meet the basic HAMP eligibility requirements, it doesn't mean that you are a shoe-in for a HAMP modification. Since Fannie Mae and Freddie Mac have been taken over by the government, lenders associated with them have to comply with the HAMP guidelines as written. However, non-GSE lenders are still private companies with investors, and the investors have some say in which mortgages they will consider modifying.
Some ways that jumbo HAMP programs differ
1. Reserve requirement: Traditionally, HAMP borrowers can be denied a modification if their reserves -- deposits they have with brokerage houses, banks and other depository institutions -- exceed three months of housing payments (principal, interest, taxes, insurance, HOA dues, etc.). Retirement funds aren't considered to be part of these reserves. However, most non-GSEs do consider retirement funds to be part of their reserves.
So even if you would have qualified under regular HAMP, you may be denied for a private-market HAMP modification. That's because non-GSE investors must approve any HAMP concessions. Non-GSE lenders can pretty much change HAMP guidelines to suit them, substitute their own forms for the standard HAMP forms, and create their own net present value (NPV) test.
2. NPV testing: Larger non-GSE lenders are not required to apply the same NPV test that regular HAMP lenders are. According to HMPadmin.com, they get to devise their own. "Servicers having at least a $40 billion servicing book will have the option to create a version of the NPV calculator." If you fail the NPV test, meaning that the lender runs some numbers and concludes that it can expect to lose less money by denying you a modification, it does not have to offer you a mortgage modification.
Under HAMP, even if the NPV test comes out negative, you might still be able to get a modification, since the lender is required to consider modifying more of the terms of the loan to get you into the program. Even after reducing the interest rate to as low as 2% and extending the loan term to 40 years, the lender is also required to consider the effect of reducing the loan balance to 100% or less of the property's current value or even cutting more than 30% of the loan balance. This is all done to try to get the borrower in line with HAMP's 31% debt-to-income ratio requirement.
3. Less generous concessions: If the investors don't agree to lower your interest rate to HAMP-allowed levels, you may be offered a less-generous alternative. For example, HAMP allows interest rates as low as two percent, but a non-GSE lender may draw the line at 3 percent or 4 percent. HAMP's goal is to get your housing expense ratio to 31 percent of your gross income; a non-GSE lender may be OK with 38 percent.
The bottom line
Your chances of a successful modification if your loan is not with Fannie Mae or Freddie Mac vary, but are certainly lower than if it is with one of the GSEs. A report by the Government Accountability Office (GAO) found that "the 10 HAMP servicers that we spoke with reported a wide range of denial rates. The reasons for denying trial modifications varied by servicer -- for example, one servicer reported high proportions of investors prohibiting HAMP modifications and another servicer reported insufficient or excessive borrower income as the most common reasons for denial."
The GAO also noted that several servicers had posted inaccurate information about HAMP on their websites, information that is presumably being relied on by borrowers. Finally, the GAO reported that non-GSEs define "imminent default" differently. This is critical because imminent default is one criterion required for a HAMP loan mod for non-GSE lenders. Per the report: "Treasury has not provided specific guidance on how to evaluate non-GSE borrowers for imminent default, leading to inconsistent practices among servicers. Among the 10 servicers we contacted, there were 7 different sets of criteria for determining imminent default."
The fact is that if your loan is not with Freddie Mac or Fannie Mae, your ability to obtain a modification is uncertain.