Freddie Mac 2010 Annual Report Download - page 134

programs. In October 2010, we issued instructions requiring servicers to accept assistance on behalf of borrowers under the
HFAs’ unemployment assistance and mortgage reinstatement assistance programs. The unemployment assistance programs
are designed to assist unemployed or underemployed borrowers by paying all or a portion of their monthly mortgage
payment for a period of time. The mortgage reinstatement assistance programs are designed to bring delinquent borrowers to
current status. To the extent our borrowers participate in the HFA unemployment assistance programs and the full contractual
payment is made by an HFA, a borrower’s mortgage delinquency status will remain static and will not fall into further
delinquency. As HFAs were in the process of implementing these programs during 2010, we believe participation in these
programs by our borrowers has been limited through December 31, 2010, and our delinquency statistics have not been
significantly affected. However, our delinquency reporting statistics may be impacted in 2011 to the extent a significant
number of borrowers receive assistance through these programs.
Compliance Agent. We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP
by mortgage holders other than Freddie Mac and Fannie Mae. 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 seller/servicers, which could negatively affect our ability to purchase loans from them
in the future.
Expected Impact of the MHA Program on Freddie Mac
As previously discussed, HAMP, which is part of 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.
We believe our overall loss mitigation programs could reduce our ultimate credit losses over the long term. However, we
cannot currently estimate whether, or the extent to which, costs incurred in the near term from HAMP or other MHA
Program efforts may be offset, if at all, by the prevention or reduction of potential future costs of serious delinquencies and
foreclosures due to these initiatives.
We are devoting significant internal resources to the implementation and support of the various initiatives under the
MHA Program, which has increased, and will continue to increase, our expenses. It is likely that the costs we incur related
to loan modifications and other activities under HAMP will be significant, to the extent that borrowers participate in this
program in large numbers, for the following reasons:
• Except for certain Other Guarantee Transactions and loans underlying our other guarantee commitments, we will bear
the full cost of the monthly payment reductions related to modifications of loans we own or guarantee and all servicer
and borrower incentive fees and we will not receive a reimbursement of these costs from Treasury. We paid
$241 million of servicer and borrower incentive fees in 2010, as compared to $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 compensation fees per
modification as long as the borrower remains current on a loan modified under HAMP. As of December 31, 2010, we
have also accrued $83 million for both initial fees and recurring incentive fees not yet due. We also incur incentive
fees to the servicer and borrower for short sales and deed-in-lieu transactions under HAFA. As of December 31, 2010,
the incentive fees on these HAFA transactions were not significant.
• Under HAMP, we typically provide concessions to borrowers, including interest rate reductions and forbearance of
principal and interest on a portion of the UPB. To the extent borrowers successfully obtain HAMP modifications, we
will continue to experience high volumes of TDRs, similar to our experience during 2010.
• Some borrowers will fail to complete the HAMP trial period and others will default on their HAMP modified loans.
For those borrowers who redefault or who do not complete the trial period and do not qualify for another loan
workout, HAMP will have delayed the foreclosure process. If home prices decline while these events take place, a
delay in the foreclosure process may increase the losses we recognize on these loans, 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.
• We expect that non-GSE mortgages modified under HAMP will include mortgages backing our investments in non-
agency mortgage-related securities. Such modifications 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).
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