Fannie Mae 2009 Annual Report Download - page 165

Because we did not begin implementing HAMP until March 2009 and servicers required time to execute the
program, the majority of workouts and loan modifications performed during 2009 were not made under
HAMP and the number of trial modifications initiated under this program was relatively small until the third
and fourth quarters of 2009. As shown in “Table 16: Impairments and Fair Value Losses in HAMP”, during
2009, we initiated approximately 333,000 trial modifications under HAMP, as well as other loan
modifications, repayment and forbearance plans. However, it is difficult to predict how many of these trial
modifications and initiated plans will be completed. There have been only a limited number of permanent
HAMP modifications because the program entails at least a three month trial period. During this trial period,
the loan servicer evaluates the borrower’s ability to make the required modified loan payment and collects all
required documentation before making the modification effective. The inability to obtain proper documentation
from borrowers who had entered into a trial modification was a significant factor in the low number of
modifications that have become permanent under HAMP. Accordingly, the majority of workouts and loan
modifications performed during 2009 were not made under HAMP. In a February 2010 announcement, as
directed by Treasury, servicers are required to conduct a full verification of a borrower’s eligibility prior to
offering a HAMP trial period plan. This is effective for all HAMP trial period plans with effective dates on or
after June 1, 2010.
Introduced in 2008, HomeSaver Advance serves as a foreclosure prevention tool early in the delinquency cycle
and does not conflict with our MBS trust requirements because it allows borrowers to cure their payment
defaults without modifying their mortgage loans. HomeSaver Advance allows servicers to provide qualified
borrowers with a 15-year unsecured personal loan in an amount equal to all past due payments relating to their
mortgage loan, generally up to the lesser of $15,000 or 15% of the unpaid principal balance of the delinquent
first lien loan. We record HomeSaver Advance loans at their estimated fair value at the date we purchase these
loans from servicers; to the extent the acquisition cost exceeds the estimated fair value, we record either an
impairment or a fair value loss charge-off against the “Reserve for guaranty losses” at the time we acquire the
loans. The aggregate unpaid principal balance and carrying value of our HomeSaver Advances were
$324 million and $1 million as of December 31, 2009, compared with $461 million and $8 million as of
December 31, 2008. Approximately 22% of the first lien mortgage loans associated with HomeSaver Advance
purchased during 2008 were current or had paid off as of nine months following the funding date of the
unsecured HomeSaver Advance loan.
Foreclosure alternatives may be more appropriate if the borrower has experienced a significant adverse change
in financial condition due to events such as unemployment or reduced income, divorce, or unexpected issues
like medical bills and is therefore no longer able to make the required mortgage payments. Since the cost of
foreclosure can be significant to both the borrower and Fannie Mae, to avoid foreclosure and satisfy the first
lien mortgage obligation, our servicers work with a borrower to sell their home prior to foreclosure in a
preforeclosure sale or accept the deed-in-lieu of foreclosure whereby the borrower voluntarily signs over the
title to their property to the servicer. These alternatives are designed to reduce our credit losses while helping
borrowers avoid the pressure and stigma associated with a foreclosure.
Given the continued increase in the number of loans at risk of foreclosure, we remain focused on our goals to
minimize our credit losses and help borrowers stay in their homes. As such, we expect to increase the number
of loan workouts in 2010 including modifications both under HAMP and outside the program. We also expect
to increase foreclosure alternatives in those instances that borrowers are unable to remain in their homes. We
expect to continue to look for additional solutions to help borrowers stay in their homes and avoid foreclosure.
In an effort to keep people in their homes, we experienced a shift in loan modification type during 2009 and
2008. Table 47 below displays the types of loan modifications provided to borrowers for 2009, 2008 and 2007.
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