Freddie Mac 2015 Annual Report Download - page 112

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 110
Loan Workout Activities
When refinancing is not practicable, we require our servicers first to evaluate the loan for a forbearance
agreement, repayment plan or loan modification, because our level of recovery on a loan that reperforms
is often much higher than for a loan that proceeds to a foreclosure alternative or foreclosure. We offer the
following types of home retention options:
• Forbearance agreements - Arrangements that require reduced payments during a defined period,
generally less than one year, to allow borrowers to return to compliance with the original mortgage
terms or to implement another loan workout. For agreements completed in 2015, the average time
period for reduced payments was between three and four months.
• Repayment plans - Contractual plans designed to repay past due amounts to allow borrowers to
return to compliance with the original mortgage terms. For plans completed in 2015, the average time
period to repay past due amounts was approximately four months.
• Loan modifications - Contractual plans that may involve changing the terms of the loan, adding
outstanding indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of
both, including principal forbearance, but not principal forgiveness. We offer two main types of loan
modifications:
HAMP loan modifications - The goal of a HAMP loan modification is to reduce the borrower’s
monthly mortgage loan payment to 31% of gross monthly income. HAMP is available for loans
originated on or before January 1, 2009. A borrower may receive only one HAMP modification.
HAMP modifications contain the following features:
• Trial period - HAMP requires completion of a trial period of at least three months, during
which the borrower makes monthly payments based on the modified terms of the loan, prior
to receiving the final modification. Borrowers who fail to complete the trial period are
considered for our other workout activities.
• Incentive payments - 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. We bear the costs of these incentives and are
not reimbursed by Treasury, except as discussed below.
• Newly introduced incentive program - In January 2015, at the instruction of FHFA, we
implemented an additional $5,000 incentive program for eligible borrowers who remain in
good standing through the sixth year of their HAMP loans. The incentive is applied toward
reducing the borrowers' outstanding loan balance. Treasury will pay this incentive on the
majority of our eligible HAMP modified loans. Incentive payments began in late 2015.
Servicers are required to offer the borrowers who receive incentive payments an opportunity
to modify their loan by reamortizing the UPB over the remaining term of the loan, which could
lower the borrowers’ monthly principal and interest payments and further reduce the risk of
borrower default.
Non-HAMP loan modifications - Primarily consist of our standard non-HAMP modification
program and a streamlined modification initiative for certain eligible borrowers. Each of these
programs requires completion of a trial period of at least three months prior to receiving the
modification. If a borrower fails to complete the trial period, the loan is considered for our other
workout activities. The streamlined modification offers eligible borrowers the same loan terms as
the non-HAMP standard modification, including an extension of the loan’s term to 480 months and
a fixed interest rate. Servicers are paid incentive fees for each completed non-HAMP modification,