The amount of incentive paid on non-agency mortgages with principal reduction under the government’s loan modification program has been raised. Second-lien investors are also being paid more to reduce or eliminate principal.
The amount earned by investors who reduce principal through the Home Affordable Modification Program on non-agency loans has been increased, according to a supplemental directive issued Thursday. The higher payout applies to modifications that include principal reduction under the Principal Reduction Alternative.
On loans that have not been more than six months past due during the prior 12 months with loan-to-value ratios of at least 105 percent but less than 115 percent based on a mark-to-market value, the payout will be 63 cents for each dollar in principal forgiven. The rate falls to 45 cents for LTVs between 115 percent and 140 percent, while it is 30 cents when the LTV exceeds 140 percent.
But if the loan has been more than six months delinquent, then the maximum payout is 18 cents per dollar in principal reduction regardless of the LTV.
“Servicers are not precluded from reducing principal below a 105 percent mark-to-market loan-to-value ratio; however, Principal Reduction Alternative incentives will not be paid on the portion of any principal reduction that reduces the mark-to-market loan-to-value ratio below 105 percent,” the directive stated.
Impacted modifications are those that have a trial period plan that is effective on or after March 1.
In addition, incentive compensation has been raised for investors who provide full extinguishment or permanent modifications with partial extinguishment under the Second Lien Modification Program. The second lien program was launched in March 2010.
Second liens that haven’t been more than six months past due during the past year with combined LTVs of less than 115 percent will earn investors 42 cents for each dollar in principal reduction. The rate falls to 30 cents for LTVs between 115 percent and 140 percent, and mortgages with LTVs higher than 140 percent will earn investors 20 cents for each dollar extinguished.
Second liens that have been delinquent more than six months will generate just 12 cents in incentive compensation per dollar written down.
The second-lien update impacts loans that are either completely written down, or permanently modified with partial principal reduction, on or after June 1.
The guidance doesn’t apply to loans owned or guaranteed by Fannie Mae or Freddie Mac, insured or guaranteed by the Department of Veterans Affairs or the Department of Agriculture’s Rural Housing Service, or insured by the Federal Housing Administration.
