Life After HAMP - The Future of Loss Mitigation
During the financial crisis, the Treasury Department established the Home Affordable Modification Program (HAMP) to attempt to systemize loss mitigation procedures and standardize the relief available to consumers through loan modifications. Millions of homeowners were able to access the program from 2009 to the present and now HAMP is winding down and will terminate at the end of 2016. After HAMP terminates, there will be a need for servicers to be able to provide loss mitigation under a cohesive framework. A unified framework is preferable because it offers clarity and predictability to both servicers and consumers, equitable outcomes that do not vary based on the particular government insurer or guarantor, and provides servicers with a single program to administer.
An MBA Task Force including over 35 members from 20 companies convened to draw upon the experiences of the financial crisis and HAMP to formulate universal principles that should be applied to a future loss mitigation program.
The MBA Task Force came to the conclusion that the successor to HAMP should also be a relatively universal program- One Modification or "One Mod."
One Mod: 4 Guiding Themes
"One Mod" incorporates four guiding themes that drive successful loss mitigation:
- Accessibility. The successor to HAMP should be accessible to as many consumers as possible.
- Affordability. It should result in affordable relief for eligible customers.
- Sustainability. It should be sustainable over the long-term to avoid re-default.
- Transparency. It should be easy-to-understand and transparent in both its process and how any outcomes are determined.
One Mod: 10 Core Principles
From these four guiding themes, the Task Force developed 10 core principles:
1. Eliminate "gaps" that consumers can fall through.
2. Only require the consumer submit documentation that is directly related to their eligibility for the modification.
3. Produce a positive outcome for the investor.
4. Result in a decrease in mortgage payments for the consumer immediately following modification.
5. Distinguish between short-term hardships and longer-term hardships.
6. Use waterfall of options and loss mitigation solution that are based on criteria that have a clear impact on re-default rates.
7. Provide a solution that maximizes the relief that the consumer is eligible for in the first loss mitigation offer.
8. Offer home retention and liquidation options at the same time.
9. When a term extension is utilized, educate the consumer about how additional money applied to monthly payments can change the amortization schedule.
10. Provide clear disclosure to the consumer of their loss mitigation options and the rationale for the selected loss mitigation option presented to the consumer.
One Mod: The Waterfall Proposal
The need for a loan modification to provide meaningful payment relief was paramount among all the lessons learned from the large volume of loan modifications during the crisis. The Task Force developed a "One Mod" waterfall proposal that offers deep payment relief for customers and a positive economic outcome for investors.
One Mod: Tool-Kit Process Flow Example