Freddie Mac 2014 Annual Report Download - page 21

16 Freddie Mac
mortgage or to implement another loan workout. During 2014, the average time period granted for completed short-
term forbearance agreements was between two and three months.
• Repayment plans, which are contractual plans to make up past due amounts. These plans assist borrowers in returning
to compliance with the original terms of their mortgages. During 2014, the average time period granted for completed
repayment plans was approximately four months.
• Loan modifications, which may involve changing the terms of the loan, or adding outstanding indebtedness, such as
delinquent interest, to the UPB of the loan, or a combination of both. We have used principal forbearance but have not
used principal forgiveness for our loan modifications. Principal forbearance is a change to a loan’s terms to designate a
portion of the principal as non-interest-bearing and non-amortizing.
• Foreclosure alternatives, which are short sale and deed in lieu of foreclosure transactions.
We participate in the MHA Program, which is designed to help in the housing recovery, promote liquidity and housing
affordability, expand foreclosure prevention efforts, and set market standards. Through our participation in this program, we
help borrowers maintain home ownership. Some of the key initiatives of this program include HAMP and HARP, which are
discussed below. We also maintain our non-HAMP standard loan modification and streamlined modification initiatives
discussed below. See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk
Framework and Profile — Managing Problem Loans" for additional information about our loan workout activities, as well as
HARP and our relief refinance initiative.
HAMP and Non-HAMP Modifications
Our primary loan modification programs are HAMP and our non-HAMP standard loan modification. Under these
programs, we offer loan modifications to struggling homeowners that reduce the monthly principal and interest payments on
their mortgages. Under HAMP, the goal is to reduce the borrower’s monthly mortgage payments to 31% of gross monthly
income. Both programs require that the borrower complete a trial period of at least three months prior to receiving the
modification. During the trial period, the borrower makes monthly payments based on the estimated amount of the modification
payments. If a borrower fails to complete the trial period, the loan is considered for our other workout activities. HAMP is
available for loans originated on or before January 1, 2009. The program is currently scheduled to end with trial period plan
effective dates on or before March 1, 2016 and modification effective dates on or before September 1, 2016.
In July 2013, we implemented a streamlined modification initiative, which provides an additional modification
opportunity to certain borrowers. This modification requires a three-month trial period and offers eligible borrowers the same
mortgage terms as the non-HAMP standard modification, including an extension of the loan’s term to 480 months and a fixed
interest rate.
Under HAMP, borrowers receive monthly incentive payments (in the form of credits) to reduce the principal balance of
their loans by up to $1,000 per year, for five years, as long as they are making timely payments under the modified loan terms.
Servicers are paid incentive fees for each completed HAMP modification and non-HAMP modification. Unlike HAMP
modifications, our non-HAMP standard and streamlined modifications do not provide for borrower incentive payments. We
bear the costs of these borrower incentive payments and servicer incentive fees, and are not reimbursed by Treasury.
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. In addition, we will require our servicers to offer such borrowers the opportunity to modify their loan by
reamortizing the unpaid principal balance over the remaining term of the loan, which could lower the borrowers’ monthly
principal and interest payments and would further reduce the risk of borrower default. 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. We expect to begin paying these incentives in late 2015. Our payment of these incentives is not expected to have a
significant effect on our earnings.
A borrower may only receive one HAMP modification. A loan may generally be modified twice (although only once
during a 12 month period) under our standard loan modification program or once under our streamlined modification program.
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.
Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program
Our relief refinance initiative (which includes HARP, the portion of our relief refinance initiative for loans with LTV
ratios above 80%) is a significant part of our effort to keep families in their homes. This initiative is designed to provide
eligible homeowners with loans already guaranteed by us an opportunity to refinance their mortgages on more favorable terms,
without obtaining new mortgage insurance in excess of what was already in place. Our relief refinance initiative allows us to
assist homeowners by employing one or more of the following: (a) a reduction in payment; (b) a reduction in interest rate;
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