	Introduction

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 the ASF Plan). The Framework was proposed by the American Securitization Forum (ASF), a professional forum for many organizations that participate in the securitization market and a member of the HOPE NOW Alliance. Borrowers who meet all of the requirements of Segment 2 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 broad swath 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 expose themselves 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, including making use of those measures outlined in the ASF Plan. The IRS then issued a separate revenue procedure (Rev. Proc 2008-28) to clarify more general tax issues relating to modification of securitized mortgage loans. The IRS identified conditions under which it would not challenge the tax status of the trusts that hold securitized loans, or assert that anticipatory loan modifications create a tax liability on prohibited transactions. Proc 2008-28 are (1) the mortgage is for a single-family (one- to four-unit) dwelling; (2) the dwelling is owner-occupied; (3) overdue mortgages make up less than 10% of the trust's assets at start-up; (4) there is reasonable belief that the original loan will result in foreclosure; (5) the loan modification is less favorable to the holder of the loan than the original loan; and (6) there is reasonable belief that the loan modification reduces the risk of foreclosure. 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 how many of these measures were made pursuant to the ASF Plan and how many were performed through alternative channels.
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 Internal Revenue Service (IRS) issued a revenue procedure (Rev. Proc 2008-28) on May 16, 2008, to clarify certain tax issues relating to modification of securitized mortgage loans. The IRS said that it would not challenge the tax status of the trusts that hold securitized loans, nor would the IRS assert that anticipatory loan modifications create a tax liability on prohibited transactions, if: (1) the mortgage is for a single-family (one- to four-unit) dwelling; (2) the dwelling is owner-occupied; (3) overdue mortgages make up less than 10% of the trust's assets at start-up; (4) there is reasonable belief that the original loan will result in foreclosure; (5) the loan modification is less favorable to the holder of the loan than the original loan; and (6) there is reasonable belief that the loan modification reduces the risk of foreclosure.
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. The Framework only applies to certain mortgages that are current, which makes it distinct from Project Lifeline, a plan announced on February 12, 2008, for mortgages that are in serious default.
On June 17, 2008, the HOPE NOW servicers announced common measures to expedite resolution of short sales and second mortgages, which can require third-party approval.