How To use Obama’s Program to get Wells Fargo Loan Modification

Obama’s Loan Modification Program:

Under this Program, a mortgage lender needs to reduce a borrower’s payments to 38 percent of monthlyincome and the federal government would provide additional incentives, such as a $1,000 upfront payment per modification and more payments if the borrower keeps current (Stolberg and Andrews 2009).

The government would also match additional reductions to bring the payment to as low as 31 percent of monthly income. The payment can be reduced via a waterfall of options, typically beginning with interest rate reduction.

During the same period, the number of 60+day delinquencies increased by 17 percent and the ratio of the number of loan modifications to the total number of 60+day delinquencies was only 7.2 percent of in the third quarter 2008.

If the initial modification at a 38 percent of HTI does not decrease the borrower!?s payment by 10 percentor more, the HTI ratio can be lowered to 35 percent and then to 31 percent to achieve the 10 percent savings. In cases where a 10 percent reduction can not be achieved, the 31 percent HTI ratio is used for affordability. FDIC (2008) provides the technical details about the loan modification program.

The underwriting criteria include missing at least three mortgage payments, proof of financial hardship, not in active bankruptcy, and payment on first-lien mortgage not exceeding 38 percent of a borrower gross monthly household income (Inside Mortgage Finance, 2008). Servicers are expected to begin actively soliciting eligible borrowers with owner-occupied mortgages and loan-to-value ratios of 90 percent or
more. Servicers will be compensated $800 for each successful loan modification under the program.

Wells Fargo Loan Modification:

The modifications,which include changes in loan terms, interest rates, and principal were completed with the goal of creating sustainable mortgage payments for consumers facing financial difficulties. Wells Fargo is proud to have helped the government bring this program to bear, while completing more than 220,000 loan modifications  incuding trial modifications .underour own programs in the first seven months of the year.

Wells Fargo are confident we can ache our portion of the government goal to reach 500,000 HAMP trial modification starts by Nov. 1.

It is safe to assume at least a vast majority of these private-label securitizations as nonprime loans. About 36 percent of those for which data on the loan type variable are available were labeled as subprime or Alt-A loans. About 40 percent were classified as conventional and the rest, 24 percent, were labeled as conforming or non conforming loans. However, many of those loans listed as conventional or with missing
value are not typical prime loans. As suggested in the literature, it is reasonable to assume the following characteristics significantly increase mortgage credit risk:

1) original loan-to-value ratios;
2) limited or no documentation;
3) interest-only loan;
4) negative amortization;
5) borrower FICO score less than 620

Higher than 90 percent (Foote, Gerardi, Goette, and Willen 2008; Immergluck 2008). A vast majority of conventional loans and those with missing values (86 percent and 90 percent, respectively) have at least one of these risky loan features. In this sense, most of them should be considered subprime or Alt-A mortgages, although they were coded as conventional, conforming, or with missing values.

Without including Alt-A loans, subprime loans alone accounted for 48 percent of all foreclosure starts in the second quarter of 2008 (Mortgage Bankers Association 2008). 

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