The American Securitization Forum (ASF) has updated its Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans as described in the association's release today.
This framework for fast-track the loan modification procedure can now apply to subsequent rate resets on subprime ARM loans, in addition to the initial rate reset.
The original framework was introduced and endorsed by President George W. Bush, Treasury Secretary Henry Paulson and federal bank regulators on December 6, 2007.
Under the framework, individual borrower criteria such as credit scores and the amount of home equity willl be used to help servicers streamline the evaluation of their subprime ARM portfolios and to introduce troubled borrowers more efficiently into appropriate workout solutions.
The updates to the framework apply to borrowers meeting the criteria in segment two of the framework. These borrowers can be eligible for a fast-track loan modification if their payment amount would increase by more than 10% from their previous payment amount, if they are current on their loans but ineligible to refinance into any available mortgage product because of poor credit scores, if they have low or no equity in their homes or a history of delinquent payments, and if the property covered by the mortgage loan is occupied as the borrowers primary residence.
Borrowers in this category could be offered a loan modification that freezes the interest rate at the current payment rate for five years.
ASF Deputy Executive Director Tom Deutsch said the post December 2007 reduction of short-term interest rates has been beneficial to homeowners with ARMs because payment increase upon reset of loan interest rates has been minimized or even eliminated.
Deutsch said the changes introduced through the loan modification can control for significant interest rate increases, which, in turn, prevents foreclosure when possible.