Mortgage borrowers who are turned down for loan modifications may now get additional information that could help them understand why they didn’t qualify under the so-called “HAMP test.”

Until recently, borrowers weren’t privy to the data used to perform the Home Affordable Modification Program’s, or HAMP’s, “net present value” test. But as of Feb. 1, loan servicers are required to send letters disclosing up to 33 data points to some borrowers who were rejected for HAMP loan modifications. Not all loans are covered by this requirement, which is part of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, so not all borrowers will receive letters.

HAMP test required

The data points focus on the borrower’s financial situation, home, existing loan and proposed modification, according to Tom Goyda, a spokesman for Wells Fargo in St. Louis. Borrowers who believe they have found mistakes in the data may file appeals with their servicers. Final decisions are up to the servicers.

“If they think there are any errors in terms of the inputs used, they have 30 days during which they can provide, in writing, what their evidence is to support what they believe the correct value should be,” Goyda says.

HAMP’s net present value, or NPV, test measures whether a loan modification makes financial sense for the lender. If so, the servicer must offer the borrower a trial modification. If a modification isn’t in the lender’s financial interest, and the borrower hasn’t made the payments, the servicer may foreclose on the loan.

HAMP test website

Borrowers who want to see the inputs in action will soon be able to run their own practice HAMP tests on a website being developed by the U.S. Treasury. The website is expected to be ready in late spring and will include definitions of terms and icons to explain the inputs, according to Treasury spokeswoman Andrea Risotto. The system will have security features, but it will be open to anyone who wants to use it.

The chief benefit should be greater transparency in the HAMP process. Borrowers will be able to evaluate whether their situation might pass the HAMP test and see how changes in the data could affect the results, Risotto says. For example, a borrower who believes the loan servicer’s opinion of the home’s value was incorrect can see whether a more accurate valuation, perhaps based on an appraisal obtained by the borrower, would affect the outcome of the test.

The website will perform only HAMP calculations, not tests based on servicers’ proprietary non-HAMP loan modification models.

Inputs determine outcome

Besides the disclosed inputs, the results of a HAMP test depend on other factors controlled by the servicer, such as the estimated cost of the loan modification, the perceived likelihood that the borrower will default on the loan and cost of a foreclosure. HAMP’s guidebook for servicers lists 51 recommended inputs for the NPV test.

The design of the HAMP test is critical, a point that was well-explained in a Congressional Oversight Panel’s December 2010 review of federal foreclosure prevention programs.

“If the NPV model is calibrated correctly,” the report states, “it will get the correct homeowners into HAMP to prevent avoidable foreclosures. However, an incorrect calibration could either act as a means to delay inevitable foreclosures or grant subsidies to those who would otherwise cure (a loan default) and therefore do not need the extra help.”

Borrowers won’t be able to test the model’s accuracy, and they won’t be able to test their servicers’ assumptions. But the new data should clear up some of the mystery about what goes into the HAMP test.

By Marcie Geffner

As the result of a post-purchase review of mortgage loan files that identified a number of appraisal issues, Fannie Mae has updated its Selling Guide with additional appraisal guidance.

The new policy requirements and clarifications concerning existing lender requirements – which take effect on all mortgage applications dated on or after Sept. 1, 2010 — have been added to a number of appraisal sections of the Selling Guide, including:

• Inclusion of interior photographs in the appraisal report
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies
• Appraiser selection criteria
• Sources of comparable market data
• Selection of comparable sales
• Communication under the HVCC
• Seller concessions
• Treatment of personal property
• Market Conditions Addendum to the Appraisal Report (Form 1004MC)

A copy of the Fannie Mae Selling Guide updates on appraisal policies can be found here.

AB 260 – Effective Jan. 1, 2010: Tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.

Mortgage Broker Activities Restricted: Commencing January 1, 2010, a mortgage broker will be deemed a fiduciary with a duty to place the borrower’s economic interest above his or her own. This fiduciary duty pertains to a mortgage broker who makes loans secured by residential property of one-to-four units.

Also starting with loans originated on or after July 1, 2010, the law will strictly regulate higher-priced mortgage loans as defined, including requiring upfront disclosure if a mortgage broker only arranges higher-priced mortgage loans, restricting prepayment penalties and yield spread premiums, prohibiting negative amortization, and prohibiting mortgage brokers from steering borrowers to higher-cost loans.

High priced mortgage loans are defined under federal law as:
1. Loans secured by a principal residence, and
2. The APR exceeds the rate for average prime rate offer rate by 1.5% for loans secured by a 1st, or
3. The APR exceeds the rate for average prime rate offer rate by 3.5% for loans secured by a 2nd or junior loan.

The average prime offer rate is published by the Fed and is updated at least weekly.

SB 237 – Effective Jan. 1, 2010: Creates a Registration Program for Appraisal Firms.

Appraisal Industry Oversight: The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC). Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority as defined.

This law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction. Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation.

Bills currently pending in Congress may suspend or rescind HVCC so this law may have limited effect if those laws pass.

AB 329 – Effective January 1, 2010: Reverse Mortgage Program Revisions

Reverse Mortgages: Provides new disclosure and other requirements under the Reverse Mortgage Elder Protection Act. These mostly duplicate existing federal laws. The new provisions are that loan officers are prohibited from selling or referring borrowers to sellers of insurance or annuities.