A recently released Supplemental Directive from Treasury increases incentives for second lien investors when loans receive principal reductions.
The increased incentives apply to permanent HAMP modifications with principal reductions through the government’s Principal Reduction Alternative (PRA) that have trial period plans starting March 1 or later.
The incentives are also available when second liens are completely or partially eliminated through the Second Lien Modification Program (2MP) on loans modified starting June 1.
For loans no more than six months delinquent over the previous 12 months, investors may receive $0.63 per
dollar of written down principal between 105 percent and 115 percent market-to-market loan-to-value ratios (MTMLTVs), or $0.45 per dollar of written down principal between 115 percent and 140 percent MTMLTV.
For loans that have been more than six months delinquent sometime in the previous 12 months, investors may receive $0.18 per dollar of written down principal, irrespective of MTMLTV ratio.
Regarding second liens modified through 2MP that have not been more than six months delinquent in the previous year, investors may receive $0.12 per dollar of unpaid principal balance eliminated on second liens.
While servicers may reduce principal below 105 percent MTMLTV, they will not receive incentives on the portion of principal reduction that brings the MTMLTV below 105 percent, according to Treasury.
Investors may also receive $0.12 per dollar of eliminated unpaid principal balance on second mortgage liens more than six months delinquent in the year prior to the “date of extinguishment,” Treasury stated in the directive.
“This guidance does not apply to mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, insured or guaranteed by the Veterans Administration or the Department of Agriculture’s Rural Housing Service or insured by the Federal Housing Administration,” the directive states.