Fannie Mae 2009 Annual Report Download - page 163

foreclosure prevention initiatives effectively and to find ways to enhance our workout protocols and their
workflow processes. We have substantially increased the number of personnel designated to work with our
servicers. In addition, we have employees working on-site with our largest servicers.
Three key areas where our servicers play a critical role in implementing our foreclosure prevention initiatives
are: (1) establishing contact with the borrower; (2) considering the borrower’s financial profile in identifying
potential home retention strategies to reduce the likelihood that the borrower will re-default; and (3) in the
event that there is not a suitable home retention strategy available, offering a viable foreclosure alternative to
the borrower.
Loan Workout Metrics
During 2009 we announced clarifications and changes to our servicing policies that give servicers additional
flexibility in the foreclosure prevention process. These changes include allowing servicers, if appropriate, to
extend the forbearance period, increase the length of repayment plan terms, and begin earlier intervention of
foreclosure prevention efforts. We also made changes in 2008 to the documents that govern our single-family
trusts. These changes, which are intended to facilitate the workout process on loans included in trusts
governed by these trust documents, became effective January 1, 2009.
We refer to actions taken by servicers with borrowers to resolve the problem of existing or potential
delinquent loan payments as “workouts.” Our loan workouts reflect our various types of home retention
strategies, including loan modifications, repayment plans, forbearance, and HomeSaver Advance loans. If we
are unable to provide a viable home retention option, we provide foreclosure avoidance alternatives that
include preforeclosure sales or acceptance of deeds-in-lieu of foreclosure. The existence of a second lien may
limit our ability to provide borrowers with loan workout options, including foreclosure avoidance alternatives.
During 2009, we experienced a significant shift in our approach to workouts to address the increasing number
of borrowers facing long-term, rather than short-term, financial hardships. While it has always been our
objective to help borrowers retain their homes, prior to 2009, our workout solutions focused on borrowers after
the hardship that caused them to be delinquent on their mortgage obligation had been resolved. These
solutions included (1) loan modifications that capitalized the delinquent principal and interest payments and/or
extended the term of the loan, or (2) a personal loan, called a HomeSaver Advance and described in greater
detail below, used to cover the delinquent principal and interest. When a home retention solution was not
available, the borrower would sell the property as a means of paying off the entire mortgage obligation as the
value of the property was generally in excess of their mortgage obligation.
During 2009, the prolonged economic stress and high levels of unemployment hindered the efforts of many
delinquent borrowers to bring their loans current. Borrowers have become increasingly in need of workout
solutions prior to the resolution of the hardships that are causing their mortgage delinquency. Furthermore, as
a result of the severe decline in home prices, many borrowers do not have the ability to sell their property and
pay off their mortgage obligation to resolve their delinquency because their mortgage obligation is more than
the current value of their property. In response to this need, we have continued to look for ways to help
borrowers keep their homes. For instance, our loan modifications during 2009 have concentrated on lowering
or deferring borrowers’ monthly mortgage payments for a predetermined period of time to allow borrowers to
work through the hardships. In addition, as a means of reducing the cost and stigma associated with
foreclosure, there has been greater focus on alternatives to foreclosure for borrowers who are unable to retain
their homes.
In March 2009, we implemented HAMP, a modification initiative under the Making Home Affordable
Program. Intended to be uniform across servicers, HAMP is aimed at helping borrowers whose loan is either
currently delinquent or is at imminent risk of default. HAMP modifications can include reduced interest rates,
term extensions, and/or principal forbearance to bring the monthly payment down to 31% of the borrower’s
gross (pre-tax) income. We require that servicers first evaluate borrowers for eligibility under HAMP before
considering other workout options or foreclosure. By design, not all borrowers facing foreclosure will be
eligible for a HAMP modification. As a result, we are working with servicers to ensure that borrowers who do
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