Excerpts from Fannie’s Press Release - Tuesday, 9/21/10 6:12 PM:
“The Second Lien Modification Program (2MP), announced on September 21, 2010... is designed to work in tandem with the Home Affordable Modification Program (HAMP) to create a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans.”
“All Fannie Mae-approved servicers must participate in 2MP for all eligible Fannie Mae second lien mortgages, and are required to do so no later than January 1, 2011.”
So?! What does a HAMP modification feature have to do with selling real estate? Why concern ourselves with workout plans for second mortgages? Good questions.
The answers lie in the way government works. Government solutions usually have strings attached and the strings tend to wind in and around anything within reach. In this instance the tentacles of control may hold a benefit to RE sales. To put this context let’s look at federal activity over the past 26 months:
Jul 2008 | FDIC | Intervenes in IndyMac’s insolvency and inherits Indy’s large portfolio of non- performing mortgages loans. |
Aug 2008 | FDIC | Introduces loan modification program “for troubled Indymac borrowers who are currently behind on their mortgage payments.” |
Oct 2008 | Bush Admin | The Emergency Economic Stabilization Act enacted in response to the sub-prime mortgage crisis, TARP fund created. |
Nov 2008 | FDIC | based on the IndyMac loan modification model. |
Feb 2009 | Obama Admin | Making Home Affordable program (HAMP) announced, codifying the FDIC’s Mod in a Box model as mandatory for mortgage servicers under EESA/TARP. |
Mar 2009 | GSEs | GSEs for approval of loan modifications under HAMP. |
May 2009 | HUD | FHA implements Home Affordable Modification Program. |
Nov 2009 | US Treasury | (HAFA) program announced, establishing standard requirements for short sales and deeds-in-lieu of foreclosure. |
Nov 2009 | GSEs | MI Companies directed to delegate short sale approval authority to GSEs. |
Sep 2010 | Fannie | announced as enhancement to HAMP. |
OK, so much for the history lesson. What’s the point?
Simply put – within the Bank-Bailout/HAMP/HAFA arena – one program affects another. IndyMac’s insolvency leads to Mod in a Box. Mod in a Box becomes HAMP. HAMP leads to HAFA, MI delegation to GSEs, and now mandatory reductions of subordinate liens during mortgage modification.
The US Treasury Department is the hammer and TARP is the anvil upon which financial institutions are drawn into mandatory concessions. For better or for worse, that’s what is happening.
It doesn’t exist today, but recent history would seem to indicate that in the near future subordinate lienholders will be required to accept short payoffs. HAFA already includes provision for payment of $3000 to subordinate lienholders. What’s missing is a mechanism to require subordinate lienholders to accept short payoffs. Coming soon...
Your thoughts?
