Freddie Mac 2008 Annual Report Download - page 31

purchases of mortgage-related securities by the end of the second quarter of 2009. As of February 25, 2009, according to
information provided by the Federal Reserve, it held $17.3 billion of our direct obligations and purchased $74.2 billion of
our mortgage-related securities under this program.
Homeowner Affordability and Stability Plan
On February 18, 2009, the Obama Administration announced the HASP. In addition to the announced changes to the
Purchase Agreement discussed above, as well as Treasury’s continued purchases of Freddie Mac and Fannie Mae
mortgage-related securities, HASP includes the following initiatives:
•Loan Modification Program. Under HASP, we will offer to financially struggling homeowners loan modifications
that reduce their monthly principal and interest payments on their mortgages. This program will be conducted in
accordance with HASP requirements for borrower eligibility. The program seeks to provide a uniform, consistent
regime that servicers would use in modifying loans to prevent foreclosures. Under the program, servicers that service
loans we own or guarantee will be incented to reduce at-risk borrowers’ monthly mortgage payments to as little as
31% of gross monthly income, which may be achieved through a variety of methods, including interest rate
reductions, principal forbearance and term extensions. Although HASP contemplates that some servicers will also
make use of principal reduction to achieve reduced payments for borrowers, we do not currently anticipate that
principal reduction will be used in modifying our loans. We will bear the full cost of these modifications and will not
receive a reimbursement from Treasury. Servicers will be paid incentive fees both when they originally modify a loan,
and over time, if the modified loan remains current. Borrowers whose loans are modified through this program will
also accrue monthly incentive payments that will be applied to reduce their principal as they successfully make timely
payments over a period of five years. Freddie Mac, rather than Treasury, will bear the costs of these servicer and
borrower incentive fees. Mortgage holders are also entitled to certain subsidies for reducing the monthly payments
from 38% to 31% of the borrower’s income; however, we will not receive such subsidies on mortgages owned or
guaranteed by us. As the details of this program continue to develop, there may be additional incentive fees and other
costs that we will bear.
•Compliance Agent. We will play a role under HASP as the compliance agent for foreclosure prevention activities.
As the program compliance agent, we will conduct examinations and review servicer compliance with the published
rules for the program with respect to mortgages not owned or guaranteed by us or by Fannie Mae, and report results
to Treasury. These examinations will be primarily on-site but will also involve off-site documentation reviews. Based
on the examinations, we may also provide Treasury with advice, guidance and lessons learned to improve operation of
the program. Treasury will reimburse us for the expenses we incur in connection with providing these services.
•Streamlined Refinancing Initiative. Under HASP, we will help borrowers who have mortgages with current loan-to-
value, or LTV, ratios up to 105% to refinance their mortgages without obtaining new mortgage insurance in excess of
what was already in place. We have worked with our Conservator and regulator, FHFA, to provide us the flexibility to
implement this element of HASP. Through the initiative, we will offer this refinancing option only for qualifying
mortgage loans we hold in our portfolio or that we guarantee. We will continue to hold the portion of the credit risk
not covered by mortgage insurance for refinanced loans under this initiative. We expect to issue guidelines describing
the details of this initiative and we expect to implement this initiative in the second quarter of 2009.
The HASP is designed to help in the housing recovery, to promote liquidity and housing affordability, to expand our
foreclosure prevention efforts and to set market standards. The Obama administration announced that the key components of
the plan are providing access to low-cost refinancing for responsible homeowners suffering from falling house prices,
creating a $75 billion homeowner stability initiative to reach up to three to four million at-risk homeowners and supporting
low mortgage rates by strengthening confidence in Freddie Mac and Fannie Mae.
We expect that our efforts under the HASP will replace the previously announced Streamlined Modification Program.
The potential impact of the loan modification program under HASP on our business differs from that of the Streamlined
Modification Program in three respects: (i) the HASP loan modification program will provide for greater reductions in
borrower monthly payments; (ii) the HASP loan modification program will include modifications of mortgages not yet in
default but under which default is deemed to be imminent; and (iii) the HASP loan modification program will require us to
provide additional monetary incentives for servicers and borrowers to enter into loan modifications.
At present, it is difficult for us to predict the full extent of our activities under these initiatives and assess their impact
on us. However, to the extent that our servicers and borrowers participate in these programs in large numbers, it is likely that
the costs we incur associated with modifications of loans, the costs associated with servicer and borrower incentive fees and
the related accounting impacts, will be substantial. HASP will require us, in some cases, to modify loans when default is
imminent even though the borrower’s mortgage payments are current. If current loans are modified and are purchased from
PC pools, our guarantee may no longer be eligible for an exception from derivative accounting under SFAS 133, thereby
requiring us, pursuant to our current accounting policy, to account for our guarantee as a derivative instrument. Management
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