Fannie Mae 2010 Annual Report Download - page 168

continue to work with our servicers to implement our foreclosure prevention initiatives effectively and to find
ways to enhance our workout protocols and their workflow processes.
Loan modifications involve changes to the original mortgage terms such as product type, interest rate,
amortization term, maturity date and/or unpaid principal balance. Modifications include TDRs, which is the
only form of modification in which we do not expect to collect the full original contractual principal and
interest due under the loan. Other resolutions and modifications may result in our receiving the full amount
due, or certain installments due, under the loan over a period of time that is longer than the period of time
originally provided for under the terms of the loan.
During 2009 and 2010, 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, 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 and 2010, the prolonged economic stress and high levels of unemployment hindered the efforts
of many delinquent borrowers to bring their loans current. Accordingly, borrowers have become increasingly
in need of a workout solution prior to the resolution of the hardships that are causing their mortgage
delinquency. As a result, we completed more loan modifications during 2010 that are concentrated on
lowering or deferring the borrowers’ monthly mortgage payments for a predetermined period of time to allow
borrowers to work through their hardships. The vast majority of our loan modifications during 2010 and 2009
were designed to help distressed borrowers by reducing the borrower’s monthly principal and interest payment
through an extension of the loan term, a reduction in the interest rate, or a combination of both.
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
not qualify for HAMP or who fail to successfully complete the HAMP required trial period are provided with
alternative home retention options or a foreclosure avoidance alternative.
In addition, there has been greater focus on alternatives to foreclosure for borrowers who are unable to retain
their homes. 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.
Table 44 provides statistics on our single-family loan workouts that were completed, by type, for the periods
indicated. These statistics include loan modifications but do not include trial modifications under HAMP or
repayment and forbearance plans that have been initiated but not completed.
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