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iii. Responsible Modification Incentives:
- Because loan modifications are more likely to succeed if they are made before a borrower
misses a payment, the plan will include an incentive payment of $1,500 to mortgage holders
and $500 for servicers for modifications made while a borrower at risk of imminent default
is still current on their payments.
- The servicer portion of this incentive will also be available for modifications of FHA,
VA, or Agriculture Department loans, or refinance loans under the Hope for Homeowners or
similar FHA programs.
iv. Incentives to Help Borrowers Stay Current: To provide an extra incentive for
borrowers to keep paying on time under the modified loan, the initiative will provide a monthly
pay for performance success payment that goes straight towards reducing the principal balance
on the mortgage loan.
- As long as the borrower stays current on his or her payments, he or she can get up
to $1,000 each year for five years, subject to a de minimis threshold.
- As with the servicer incentives, these borrower incentives are also available for
modifications of FHA, VA, or Agriculture Department loans, or refinance loans under
the Hope for Homeowners or similar FHA programs.
v. Home Price Decline Payments: To encourage the modification of more mortgages
and enable more families to keep their homes, the Administration -- together with the
FDIC -- has developed an innovative payment that provides compensation that can partially
offset losses from failed modification when home prices decline, but is structured as a
simple cash payment on every eligible loan. The Treasury Department will make payments
totaling up to $10 billion to discourage lenders, servicers and investors from opting
to foreclose on mortgages that could be viable now out of fear that home prices will
fall even further later on. This initiative provides servicers with the security to
undertake more mortgage modifications by assuring that if home price declines continue
to occur or worsen, investor losses are partially offset. Holders of mortgages modified
under the program would be provided with an additional payment on each modified loan,
linked to declines in the home price index.
vi. Second Liens: While eligible loan modifications will not require any
participation by second lien holders, the program will include additional incentives
to extinguish second liens on loans modified under the program, in order to reduce the
overall indebtedness of the borrower and improve loan performance. Servicers will be
eligible to receive compensation when they contact second lien holders and extinguish
valid junior liens (according to a schedule to be specified by the Treasury Department,
depending in part on combined loan to value). Servicers will be reimbursed for the
release according to the specified schedule, and will also receive an extra $250 for
obtaining a release of a valid second lien.
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