The Treasury Department is simplifying and standardizing key documents needed to apply for loan modifications under the government's Home Affordable Modification Program (HAMP), in hopes of speeding approvals for homeowners seeking mortgage relief.

Under the new guidelines, homeowners seeking a loan modification will be required to submit three items: an application and affidavit of hardship; an authorization for the IRS to release the borrower's tax information; and documentation of current income. The first two are standard forms; the last may be current pay stubs or other evidence of income as described in program guidelines.

Servicers will be required to respond to borrowers within 30 days to inform them whether their application is approved, denied or incomplete. If the application is incomplete, the server must list the additional documents a borrower must provide.

The new guidelines are intended to address what has been a major problem with the program, obtaining the necessary paperwork so that homeowners can be approved for permanent loan modifications. Mortgage servicers have reported considerable difficulty in obtaining all the needed documents from homeowners, while homeowners complain that mortgage servicers routinely lose the documents they provide.

The new guidelines will apply to homeowners who are first applying to be considered for a trial loan modification under the program. Currently, many homeowners are accepted for trial modifications without formally documenting their income. The program requires that homeowners successfully complete the three-month trial period before being approved for a permanent modification.

The new guidelines apply to all trial loan modifications begun after June 1, 2010, although servicers may adopt them at any time before then.

Close to 500,000 homeowners have completed three-month trial modifications under the program, but only 112,000 had been approved for permanent modifications as of Jan. 1. The government has been pressing servicers to finalize decisions on outstanding completed modifications, which resulted in a doubling of the number of permanent modifications finalized in December.

Another 350,000 trial modifications were underway but had not yet completed the three-month trial period as of Jan. 1 Approximately 50,000 other homeowners who began trial modifications had been turned down for permanent status as of that date.

Published on November 20, 2008