Freddie Mac 2009 Annual Report Download - page 140

2MP are intended to create a comprehensive solution to help borrowers achieve greater affordability by lowering payments
on both first lien and second lien mortgages. Under 2MP, when a borrower’s first lien mortgage is modified under HAMP
and the servicer of the second lien mortgage is a 2MP participant, that servicer must offer either to modify the borrower’s
second lien according to a defined protocol or to accept a lump sum payment in exchange for full extinguishment of the lien.
2MP offers incentive payments to borrowers, servicers and investors and requires principal forbearance on the second lien in
the same proportion as any principal forbearance granted on the first lien. We do not expect to incur significant direct costs
under the program, because we own or guarantee an insignificant amount of second lien mortgages.
Compliance Agent. We are the compliance agent for Treasury for certain foreclosure avoidance activities under
HAMP. Among other duties, as the program compliance agent, we conduct examinations and review servicer compliance
with the published requirements for the program. Some of these examinations are on-site, and others involve off-site
documentation reviews. We report the results of our examination findings to Treasury. Based on the examinations, we may
also provide Treasury with advice, guidance and lessons learned to improve operation of the program. It is unclear how
servicers will perceive our actions in this role. It is possible that this could hurt our relationships with our lender customers,
which could negatively affect our ability to purchase loans from them in the future.
Consulting Services. We are advising and consulting with Treasury about the design, results and future improvement
of the MHA Program.
Expected Impact of MHA Program on Freddie Mac. As previously discussed, the MHA Program is intended to
provide borrowers the opportunity to obtain more affordable monthly payments and to reduce the number of delinquent
mortgages that proceed to foreclosure and, ultimately, mitigate our credit losses by reducing or eliminating a portion of the
costs related to foreclosed properties. At present, it is difficult for us to predict the full extent of these initiatives and assess
their impact on us since the impact is in part dependent on the number of borrowers who remain current on the modified
loans versus the number who redefault. In addition, it is not possible at present to estimate whether, and the extent to which,
costs incurred in the near term, will be offset by the prevention or reduction of potential future costs of loan defaults and
foreclosures due to these initiatives.
It is likely that the costs we incur related to loan modifications and other activities under HAMP may be significant, to
the extent that borrowers participate in this program in large numbers, for the following reasons:
• Except for certain Structured Transactions and loans underlying our long-term stand-by agreements, we will bear the
full cost of the monthly payment reductions related to modifications of loans we own or guarantee, all servicer and
borrower incentive fees and we will not receive a reimbursement of these costs from Treasury. We incur incentive
fees to the servicer and borrower associated with each HAMP loan once the modification is completed and reported
to the MHA Program administrator, and we paid $11 million of such fees in 2009. We also have the potential to incur
up to $8,000 of additional servicer incentive fees and borrower incentive fees per modification as long as the
borrower remains current on a loan modified under HAMP. We accrued $106 million in 2009 for both initial fees and
recurring incentive fees not yet due. The MHA Program administrator reported that more than 143,000 of our loans
had made first payments in the trial period or had completed modification under HAMP as of December 31, 2009.
• Many borrowers will fail to complete the HAMP trial period and others will default on their HAMP modified loans.
For these loans, HAMP will have effectively delayed the foreclosure process and could increase our losses, to the
extent the prices we ultimately receive for the foreclosed properties are less than the prices we could have received
had we foreclosed upon the properties earlier, due to continued home price declines. Delays in foreclosure can also
increase our REO operations expense.
• We expect that non-GSE mortgages modified under HAMP will include mortgages backing our investments in non-
agency mortgage-related securities. Such modifications will reduce the monthly payments due from affected
borrowers, and thus could reduce the payments we receive on these securities (to the extent the payment reductions
have not been absorbed by subordinated investors or by other credit enhancement). Incentive payments from Treasury
passed through to us as a holder of the applicable securities may partially offset such reductions.
We are devoting significant internal resources to the implementation of the various initiatives under the MHA Program,
which will increase our expenses. The size and scope of our efforts under the MHA Program may also limit our ability to
pursue other business opportunities or corporate initiatives. We expect to be compensated by Treasury for some or all of our
services as compliance agent. We do not expect to be compensated for the consulting services we are providing to Treasury.
Housing Finance Agency Initiative. On October 19, 2009, we entered into a Memorandum of Understanding with
Treasury, FHFA and Fannie Mae, which sets forth the terms under which Treasury and, as directed by FHFA, we and Fannie
Mae, would provide assistance, through three separate programs, to state and local housing finance agencies, or HFAs, so
that the HFAs can continue to meet their mission of providing affordable financing for both single-family and multifamily
housing. FHFA directed us and Fannie Mae to participate in the HFA initiative on a basis that is consistent with the goals of
137 Freddie Mac