Number: RL34372
Title: The HOPE NOW Alliance/American Securitization Forum (ASF) Plan to Freeze Certain Mortgage Interest Rates
Authors: David H. Carpenter, American Law Division; Edward Vincent Murphy, Government and Finance Division 
Abstract: In response to the downturn in the U.S. mortgage market, the Bush Administration helped broker an alliance of mortgage lenders, servicers, counselors, and investors called the HOPE NOW Alliance, whose stated goals are to "maximize outreach efforts to homeowners in distress to help them stay in their homes" and to "create a unified, coordinated plan to reach and help as many homeowners as possible." One aspect of the alliance is the Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the Framework or ASF Plan), as proposed by the American Securitization Forum (ASF). Pursuant to the Framework, borrowers who meet certain requirements qualify for "fast track" loan modification, which may include an interest rate freeze at the rate prior to reset that, in most cases, lasts for five years. Because this type of modification is a deviation from the norm, servicers willing to perform loan workouts in accordance with the Framework's guidelines could worry that they would open themselves up to tax, accounting, and contract liability from secondary market investors and federal regulators of tax-exempt trusts. This potential liability could deter servicers from engaging in loss mitigation, even those measures outlined in the Framework. The data show that loan modifications and formal repayment plans have been increasing steadily in each successive quarter since the issuance of the Framework. However, it is difficult to identify which of these modifications were made pursuant to the ASF Plan and which occurred through alternative channels.
Pages: 7
Date: May 8, 2008