Second Lien Mortgage LendersMortgage lenders Second Lien
In February 2009, when the administration for the first time introduced HASP, part of its credit change strategy involved the provision of incentives to help service providers change or remove second lien mortgage mortgages. However, as further information on the HAMP was released by the administration in March and April, no new information was provided on how to motivate the services to change second lien mortgage lending.
This detail was eventually released on April 28, 2009, when the Ministry of Finance released the launch of the Second Lien Program. Second Lien Program is estimated by the Treasury Department to support approximately 1 to 1.5 million high-risk borrower who may be entitled to HAMP modifiers to their first lien mortgage lending but have second lien mortgage lending that could retard or hinder a change to the HAMP lending.
Second Lien Program is expected to be accompanied by a HAMP change to a borrower's first lien mortgage facility. If a HAMP change is made to the mortgage of the first lien, the servant must immediately decrease payment for the corresponding mortgage of the second lien in accordance with the minutes of the Second Lien Program.
According to the minutes, the interest on the second lien mortgage is to be reduced to either 1 or 2 per cent per year (depending on whether the mortgage is a redemption or an interest only loan) for five years, after which the interest is increased, generally to the then prevailing interest on the corresponding first lien mortgage.
Furthermore, the second mortgage must be written off again (usually according to the repayment plan of the first lien mortgage modification), and if there is a capital indulgence on the first lien mortgage, there must be a proportional amount of capital indulgence on the second lien mortgage.
Second Lien Program has a "pay-for-success" incentives similar to that of HAMP: The participant service provider is entitled to an upfront $500 prepayment for each successfully amended second lien and additional "success" installments of $250 per year (up to three years) as long as the amended senior debt facility continues to be active.
Furthermore, the Mortgagor may obtain up to five years of "success payments" of $250 per annum to be used to mitigate the net amount of the corresponding first lien mortgage credit. The investor also receives incentives in relation to the interest cut of the amended mortgage with the amount of the incentives paid as a function of the nature of the second lien mortgage and the interest adjustments.
Alternatively to changing the mortgage with a second lien, the relevant borrower can cancel the mortgage. A 3 cent bonus is payable to the investors for each US Dollard of repaid capital for credits more than 180 day overdue. In the case of mortgage credits with a second lien less than 180 day past due, the incentives are between 4 and 12 eurocent per dollars of capital, calculated on the backend (post-modification) mortgage earnings and the second lien mortgage lending value of the credit.
What is H4H's relationship to HAMP, the Second Lien Programme and PPIP? Government News Releases of April 28 also heralded that the Federal Housing Administration's H4H Programme, a transitional mortgage assurance programme launched by Congress in the Housing and Economic Recovery Act of 2008, will become part of the Making Home Affordable Programme.
According to H4H, qualifying borrower can re-finance their mortgage with the first lien into new 30-year or 40-year old, fixed-rate, FHA-insured mortgage bonds, whereby the mortgage with the first lien requires the holder to pay out at less than the actual value of the home (which may be less than the amount of capital due on the re-funded loan).
Even though the administration, HUD and the Bundesbank authorities have strongly encouraged the use of the H4H programme, it seems that only a few H4H funding operations have been carried out. The HAMP requires that, when assessing whether a borrowing entity is a candidate for HAMP credit amendment, the service provider must also consider whether the borrowing entity is a candidate for H4H funding.
According to the changes communicated on April 28, "Pay for Success" incentives are available for referrals to 4H, but only for service providers and originating institutions participating in HAMP. Service providers may obtain an upfront prepayment of $2,500 for each succesful refinance of 4H and lenders who arrange for 4H funding are entitled to performance incentives of up to $1,000 per year (up to three years) for each funded facility as long as the facility continues to be up to date.
Administration also indicated that it will pursue legislative action to enhance and promote greater involvement in the H4H funding programme. Enhancements included lowering FHA policy charges, enhancing the lenders' ability to fund risky lending, and allowing higher leverage debtors to qualifying for H4H funding. Which are the participating service employees?
On April 28, the Making Home Affordable website list the following service providers that have entered into HAMP agreements: Countrywide Home Loans servicing LP; GMAC Mortgage LLC; Home Loan Services, Inc.; Ocwen Financial Corporation, Inc.; Saxon Mortgage Services; Select Portfolio Servicing; Wells Fargo Bank, N.A.; and Wilshire Credit Corporation.
Meanwhile, in mid-April, the Treasury Department announced independently that about $9.9 billion of the $75 billion spent on credit reform had been assigned to the first six mortgage managers to sign HAMP contracts: These awards constitute "caps" to the incentives that may be obtained in conjunction with HAMP changes under the applicable service agreement.
In the Finance Ministry's April 28 notice, it was not discussed how the incumbents' cap would refer to incentives for changes under the Second Lien Programme and the H4H refinancing. It is anticipated that the HAMP agreements will be subject to incentives from June onwards. Service personnel were authorised to begin implementing HAMP Amendments in March, upon programme notification and before HAMP agreements were concluded, but no incentives can be paid for a HAMP Amendment Term Loan pending the borrower's completion of its three-month Sample Amendment Deadline.
Some of the detail remains difficult to grasp, as our March and April warnings report on the administration's effort to promote home loans changes. No new information was included in the April 28 notice on the "house rate amortization payments" pledged under HASP for investor or payment for uncovered or foreclosed assets.
Furthermore, the logistical and mechanical aspects of the payment of incentives have not yet been covered in the management's announcement or programme policy.