Posted on the Housing Wire by Paul Jackson:
The U.S. Treasury Dept. said Wedensday evening that it had completed arrangements with the first six major mortgage servicers to participate in a much-publicized program announced by the Obama administration to modify three to four million mortgages. The program, part of the Homeowners Affordability and Stability Plan detailed in March, will provide the selected servicers with a combined maximum of $9.9bn to modify troubled mortgages.
The department said the following servicers were the first to become eligible for payments under the Making Home Affordable loan modification program: Chase Home Finance LLC, Wells Fargo Bank NA, CitiMortgage Inc., GMAC Mortgage Inc., Saxon Mortgage Services Inc. and Select Portfolio Servicing.
The payments are part of the administration’s $75 billion program to try to prevent foreclosures and help borrowers refinance into new loans. Other servicers will be added as arrangements are finalized, the Treasury said; and it’s clear that the list of servicers looking to obtain incentive payments is quite long.
For example, West Palm Beach, Fla.-based Ocwen Financial Corp (OFC: 29.50 +9.54%), a subprime servicer not on the initial list of six released by Treasury officials, had said earlier this week it believed it was the first servicer in the country to begin executing loan modifications under the administration’s plan.
Also not on the initial Treasury list was Bank of America Corp. (BAC: 10.44 +3.47%), the nation’s largest servicer after its acquisition of Countrywide Financial last year. A request for comment on BofA’s implementation of the loan modification guidelines set forth in the HASP had not been returned by the time this story was published.
It’s unclear if servicers modifying mortgages to government-specified guidelines ahead of a final agreement with Treasury officials will be able to obtain incentive payments for mortgages they modify during the interim timeframe.
Among the first six to obtain funding from the Treasury, Chase could receive the lion’s share of incentive payments, up to $3.6 billion. Wells Fargo has been allotted $2.87 billion, and CitiMortgage $2.07 billion; GMAC could get $633 million, Saxon $407 million and Select Portfolio $376 million. All figures are based on the size of each company’s respective servicing portfolios, a senior Treasury official told the Wall Street Journal.
Under the plan, the government will pay servicers a $1,000 one-time fee for modifying a mortgage down to a 38% payment-to-income ratio for five years — a plan that analysts, including Amhert Securities analyst Laurie Goodman, say creates an incentive for homeowners to ‘rent’ their home. Modified loans must survive a 90-day trial in order to be eligible for the incentive payment.
Government funds will also match the cost of further interest-rate reductions or other modifications to bring payments down to 31% of a borrower’s income. If borrowers perform in their newly-modified mortgages, servicers would be eligible to receive $1,000 per year for three years under the government incentive program.