Freddie Mac 2014 Annual Report Download - page 112

107 Freddie Mac
Our relief refinance initiative (which includes HARP, the portion of our relief refinance initiative for loans with LTV
ratios above 80%) gives eligible homeowners with existing loans that are owned or guaranteed by us an opportunity to
refinance into loans with more affordable monthly payments and/or fixed-rate terms. Although our relief refinance initiative
(including HARP) is a one of our more significant borrower assistance programs, the program is scheduled to end in December
2015.
Relief refinance mortgages (including HARP loans) generally have performed better than loans with similar
characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009 primarily because
the new mortgage results in one or more of the following borrower benefits compared to the original loan: (a) a reduced
monthly payment; (b) a lower interest rate; (c) a shorter loan term; or (d) replacement of an adjustable interest rate with a fixed
interest rate. As of December 31, 2014, the borrower’s monthly payment for all of our completed HARP loans was reduced on
average by an estimated $205 at the time of refinance.
When a struggling borrower cannot qualify for a relief refinance mortgage, our servicers may consider a workout option,
including a loan modification. Our primary loan modification initiatives are HAMP and our non-HAMP standard loan
modification initiatives. Under these programs, we offer loan modifications to eligible borrowers that reduce the monthly
payments on their mortgages. These initiatives require that the borrower complete at least a three month trial period during
which the borrower will make monthly payments based on the estimated amount of the modification payments. In 2013, we
implemented a streamlined modification initiative, which provides an additional modification opportunity to certain borrowers.
The modification that borrowers receive under this initiative has the same mortgage terms as our non-HAMP standard
modification. This modification initiative is scheduled to end in December 2015.
If a borrower is unable to use other borrower assistance programs, our servicers may pursue a short sale or foreclosure.
Our servicing guidelines require that our servicers refrain from starting the foreclosure process on a primary residence until a
loan is at least 121 days delinquent, regardless of where the property is located. However, we evaluate the timeliness of
foreclosure completion by our servicers based on the state where the property is located. In November 2014, we announced an
extension of foreclosure timelines in our guidelines for 47 states or other jurisdictions. Our servicing guide provides for
instances of allowable foreclosure delays in excess of the expected timelines for specific situations involving delinquent loans,
such as when the borrower files for bankruptcy or appeals a denial of a loan modification.
In 2012, we began to facilitate the transfer of servicing for certain groups of loans that were delinquent or were deemed at
risk of default to servicers that we believe have capabilities and resources necessary to improve the loss mitigation associated
with the loans. Depending on our experience with the results of these transfers and specific servicer experience and capacity,
we may permit additional transfers in the future (subject to FHFA approval).
For more information about our workout programs and the role of our servicers in managing problem loans, see
“BUSINESS — Our Business —Our Business Segments — Single-Family Guarantee Segment — Single-Family Loan
Workouts and the MHA Program” and “Institutional Credit Risk Profile — Single-family Mortgage Seller/Servicers.”
Risk Profile
During 2014, we helped approximately 120,000 borrowers either stay in their homes or sell their properties and avoid
foreclosures through our various loan workout programs, and we completed approximately 52,000 foreclosures. We bear the
full costs associated with our loan workouts on mortgages that we own or guarantee, and do not receive any reimbursement
from Treasury (except as discussed below). These costs include borrower and servicer incentive fees as well as the cost of any
monthly payment reductions.
In January 2015, at the instruction of FHFA, we implemented a new $5,000 principal reduction incentive payable to
eligible borrowers who remain in good standing on their HAMP modified loans through the sixth anniversary of their
modification. Treasury will pay the $5,000 incentive for certain of our eligible HAMP modified loans, and we will pay the
$5,000 incentive on our other eligible HAMP modified loans. For additional information, see “BUSINESS — Our Business —
Our Business Segments — Single-Family Guarantee Segment — Single-Family Loan Workouts and the MHA Program —
HAMP and Non-HAMP Modifications.”
Our ability to manage problem loans has been adversely affected by delays, including those due to increases in
foreclosure process timeframes, general constraints on servicer capacity (which affects the rate at which servicers modify or
foreclose upon loans), and court backlogs (in states that require a judicial foreclosure process). These situations generally
extend the time it takes for the loans to be modified, foreclosed upon, or otherwise resolved, and thus transition out of serious
delinquency. As of December 31, 2014 and 2013, the percentage of seriously delinquent loans that have been delinquent for
more than six months was 69% and 71%, respectively, and most of these loans have been delinquent for longer than one year.
The following tables include information about our relief refinance loans that we either purchased or guaranteed as well
as information about: (a) the composition of these loans in our portfolio; and (b) the serious delinquency rates of these loans.
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