Freddie Mac 2014 Annual Report Download - page 180

175 Freddie Mac
borrower is not eligible for a modification, our seller/servicers pursue other workout options before considering foreclosure. We
receive information related to loan workouts, such as completed modifications and loans in a modification trial period, and
other alternatives to foreclosure from our servicers at the loan level on at least a monthly basis. For loans in a modification trial
period, we do not receive the terms of the expected completed modification until the modification is completed. For these
loans, we only receive notification that they are in a modification trial period.
Repayment plans are agreements with the borrower that give the borrower a defined period of time to reinstate the
mortgage by paying regular payments plus an additional agreed upon amount in repayment of the past due amount. These
agreements are considered TDRs if they result in a delay in payment that is considered to be more than insignificant.
Forbearance agreements are agreements between the servicer and the borrower where reduced payments or no payments
are required during a defined period. These agreements are considered TDRs if they result in a delay in payment that is
considered to be more than insignificant.
For HAMP loan modifications, our servicers typically obtain information on income, assets, and other borrower
obligations to consider eligibility for modification and determine modified loan terms. Under HAMP, the goal of a single-
family loan modification is to reduce the borrower’s monthly mortgage payments to a specified percentage of the borrower’s
gross monthly income, which may be achieved through a combination of methods, including: (a) interest rate reduction;
(b) term extension; and (c) principal forbearance. Principal forbearance is when a portion of the principal is made non-interest-
bearing and non-amortizing, but this does not represent principal forgiveness. Although HAMP contemplates that some
servicers will also make use of principal forgiveness to achieve reduced payments for borrowers, we have only used
forbearance of principal and have not used principal forgiveness in modifying our loans.
We implemented a non-HAMP standard loan modification initiative, which replaced our previous non-HAMP
modification initiative beginning January 1, 2012. Our HAMP and non-HAMP modification initiatives are available for
borrowers experiencing what is generally expected to be a longer-term financial hardship. In July 2013, we implemented a
streamlined (non-HAMP) modification initiative, which provides an additional modification opportunity to certain borrowers,
and is scheduled to end in December 2015. The modification that borrowers receive under this initiative will have the same
mortgage terms as our non-HAMP standard modification. Borrowers are not required to apply for assistance or provide income
or hardship documentation for this type of modification.
Both HAMP and our non-HAMP standard modification require a three month trial period during which the borrower will
make monthly payments based on the estimated amount of the modification payments. After the final trial-period payment is
received by our servicer, the borrower and servicer enter into the modification. We consider restructurings under these
initiatives as TDRs at the inception of the trial period if the expected modification will result in a change in our expectation to
collect all amounts due at the original contract rate. Since we do not receive the terms of the modification until completion of
the trial period, we estimate the impairment for loans in a modification trial period that are considered TDRs using the average
impairment recorded for completed modifications and the estimated likelihood of completion of the trial period. If the borrower
fails to successfully complete the trial period, the impairment for the loan is then based on the original terms of the loan. If the
borrower successfully completes the trial period, the impairment for the loan is then based on the modified terms of the loan.
These subsequent adjustments to impairment are based on the success or failure of the borrower to complete the trial period and
are recorded through the provision for credit losses.
During 2014, approximately 51% of completed single-family loan modifications that were classified as TDRs involved
interest rate reductions and, in certain cases, term extensions and approximately 25% involved principal forbearance in addition
to interest rate reductions and, in certain cases, term extensions. During 2014, the average term extension was 184 months and
the average interest rate reduction was 1.3% on completed single-family loan modifications classified as TDRs.
Multifamily TDRs
The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the unique facts and
circumstances of each loan. This assessment considers qualitative factors such as whether the borrower’s modified interest rate
is consistent with that of a borrower having a similar credit profile at the time of modification. In certain cases, for maturing
loans we may provide short-term loan extensions of up to one year with no changes to the effective borrowing rate. In other
cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as reducing
the interest rate or extending the maturity for longer than one year. In cases where we do modify the contractual terms of the
loan, the changes in terms may be similar to those of single-family loans, such as an extension of the term, reduction of
contractual rate, principal forbearance, or some combination of these features.
TDR Activity and Performance
The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs during
the years ended December 31, 2014 and 2013, based on the original category of the loan before the loan was classified as a
TDR. Loans classified as a TDR in one period may be subject to further action (such as a modification or remodification) in a
subsequent period. In such cases, the subsequent action would not be reflected in the table below since the loan would already
have been classified as a TDR.
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