Saturday, July 12, 2008

ASF Issues Revised Streamlined Loan Modification Framework

On July 8, 2008, the ASF issued an updated “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans,” which replaces and supersedes the version previously announced and endorsed by President George Bush, Treasury Secretary Henry Paulson and federal bank regulators on December 6, 2007.

The ASF Streamlined Framework provides guidance to servicers to streamline evaluation of their subprime ARM portfolios and fast-track troubled borrowers more efficiently into appropriate workout solutions for that borrower’s individual needs.

The primary revision to the Framework is to permit application, in appropriate circumstances, of the fast-track loan modification procedure of Segment 2 to ANY rate resets on subprime adjustable-rate mortgage (ARM) loans, rather than only the initial rate resets contained in the original December, 2007 guidance. Under the revised guidance, the “payment shock” criteria for eligibility for a fast track loan modification reads, “The servicer determines that, at the upcoming reset, the payment amount would go up by more than 10% over the current payment amount.” If the borrower meets this criteria and the others specified in the Framework, they may qualify for a fast-track loan modification and the servicer could ‘freeze’ the borrower’s payment at his or her existing rate for a period up to five years.

The changes to the Framework are effective immediately and are expected to stay in place until the Framework sunsets on July 31, 2010.

The ASF would like to thank all of the various members who have provided significant input into the formulation of the revisions to the Framework. In particular, the ASF wishes to thank Steve Kudenholdt and his team at Thacher, Proffitt and Wood LLP, who have served as ASF’s outside counsel on this project since inception.

Please click here for a full copy of the July 8, 2008 ASF Streamlined Framework. Please click here for a version of the Executive Summary and here for a version of the full Framework, both of which are marked to show changes from the version issued on December 6, 2007.

Please click here for the ASF press release.

Also on July 8, the Internal Revenue Service (IRS) issued Revenue Procedure 2008-47, which describes the conditions under which changes to certain subprime mortgage loans will not cause the IRS to challenge the tax status of certain securitization vehicles holding the loans. This revenue procedure was issued in response to the updated ASF Streamlined Framework. Rev. Proc. 2007-72, which was issued on December 6, 2007, provided similar guidance regarding fast-track loan modifications that were effected in a manner consistent with the initial ASF Streamlined Framework. Rev. Proc. 2008-47 amplifies and supersedes Rev. Proc. 2007-72 by extending its provisions to cover additional loan modifications described in the updated ASF Streamlined Framework.

Please click here for Rev. Proc. 2008-47.

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