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ASF Updates Loan Modification Guidance: Fast-Track Loan Modifications Now Available Beyond Initial ARM Reset Date
Press Release
July 8,2008
New York, NY—The American Securitization Forum (ASF) today announced that it has updated its “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans.” The Framework’s fast-track loan modification procedure now may apply to subsequent rate resets on subprime adjustable-rate mortgage (ARM) loans, in addition to the initial rate reset.
“The sharp reduction in short-term interest rates since December, 2007 has been extraordinarily beneficial to homeowners with adjustable-rate mortgages by minimizing or even eliminating any payment increase when the interest rate on their loan resets,” said Tom Deutsch, deputy executive director of the American Securitization Forum. “Through the changes introduced today, servicers and investors have developed a proactive process that can control for significant interest rate increases and thereby ensure that the ASF Streamlined Framework is as effective as possible in helping troubled borrowers stay in their homes.”
Originally introduced and endorsed by President George Bush, Treasury Secretary Henry Paulson and federal bank regulators on December 6, 2007, ASF’s Streamlined Framework uses individual borrower criteria such as credit scores and amount of home equity to help servicers streamline evaluation of their subprime ARM portfolios and fast-track troubled borrowers more efficiently into appropriate workout solutions for their individual needs.
The updates to the Framework apply to borrowers meeting the criteria in Segment Two. These borrowers may be eligible for a fast-track loan modification if their payment amount would increase by more than 10 percent from their previous payment amount, they are current on their loans but ineligible to refinance into any available mortgage product because of poor credit scores, low or no equity in their homes or a history of delinquent payments, and the property covered by the mortgage loan is occupied as the borrower’s primary residence. Borrowers in this category could be offered a loan modification freezing the interest rate at the current payment rate for 5 years.
“Freezing a borrower’s interest rate in appropriate circumstances can have a tremendously beneficial impact on that borrower’s ability to meet his or her contractual obligations on their mortgage loan,” said Mr. Deutsch. “It is in everyone’s best interest to avoid foreclosure wherever possible, and consistently reviewing each loan for affordability when interest rates increase to ensure each borrower is able to afford the payment after reset is critical to achieving the goal of avoiding preventable foreclosures.”
The updated Framework is available on the ASF website at the following link: http://www.americansecuritization.com/uploadedFiles/ASFStreamlinedFramework7.8.08.pdf.
The American Securitization Forum is a broad-based professional forum through which participants in the U.S. securitization market advocate their common interests on important legal, regulatory and market practice issues. ASF members include over 365 firms, including issuers, investors, servicers, financial intermediaries, rating agencies, financial guarantors, legal and accounting firms, and other professional organizations involved in securitization transactions. The ASF also provides information, education and training on a range of securitization market issues and topics through industry conferences, seminars and similar initiatives. For more information about ASF, its members and activities, please go to www.americansecuritization.com. The ASF is a forum of the Securities Industry and Financial Markets Association.
Media Contact: Katrina Cavalli, kcavalli@americansecuritization.com, 212.313.1181