Freddie Mac 2011 Annual Report Download - page 157

The MHA Program is designed to help in the housing recovery, promote liquidity and housing affordability, expand
foreclosure prevention efforts, and set market standards. Participation in the MHA Program is an integral part of our
mission of providing stability to the housing market. Through our participation in this program, we help borrowers
maintain home ownership. Some of the key initiatives of this program include HAMP and HARP, which are discussed
below.
Home Affordable Modification Program
HAMP commits U.S. government, Freddie Mac and Fannie Mae funds to help eligible homeowners avoid
foreclosures and keep their homes through mortgage modifications, where possible. Under this program, we offer loan
modifications to financially struggling homeowners with mortgages on their primary residences that reduce the monthly
principal and interest payments on their mortgages. HAMP requires that each borrower complete a trial period during
which the borrower will make monthly payments based on the estimated amount of the modification payments. Trial
periods are required for at least three months. After the final trial-period payment is received by our servicer and the
borrower has provided necessary documentation, the borrower and servicer will enter into the modification. We bear the
costs of these activities, including the cost of any monthly payment reductions.
Pursuant to the servicing alignment initiative, we changed some of the processes and procedures for our loans under
HAMP to match the new processes and procedures for the servicing alignment initiative. Certain other features of HAMP
include the following:
• Under HAMP, the goal is to reduce the borrowers’ monthly mortgage payments to 31% of gross monthly income,
which may be achieved through a combination of methods, including interest rate reductions, term extensions, and
principal forbearance. Although HAMP contemplates that some servicers will also make use of principal reduction
to achieve reduced payments for borrowers, we have only used forbearance and have not used principal reduction
in modifying our loans.
• For HAMP modifications with a trial period beginning on or after October 1, 2011, servicers are paid incentive
fees on a tiered structure, ranging from $400 to $1,600, based on the severity of the delinquency at the start of the
trial period. Prior to October 1, 2011, servicers were paid a $1,000 incentive fee when they modified a loan and an
additional $500 incentive fee if the loan was current when it entered the trial period. In addition, servicers receive
up to $1,000 for any modification that reduces a borrower’s monthly payment by 6% or more, in each of the first
three years after the modification, as long as the modified loan remains current.
• Borrowers whose loans are modified through HAMP accrue monthly incentive payments that are applied annually
to reduce up to $1,000 of their principal per year, for five years, as long as they are making timely payments under
the modified loan terms.
• HAMP applies to loans originated on or before January 1, 2009.
On January 27, 2012, Treasury announced enhancements to HAMP, including extending the end date to
December 31, 2013, expanding the program’s eligibility criteria for modifications, increasing incentives paid to investors
who engage in principal reduction, and extending to the GSEs the opportunity to receive investor incentives for principal
reduction. Treasury has not yet published details about the incentives that will be available to the GSEs. FHFA announced
that the GSEs will extend their use of HAMP until December 31, 2013, and continue to offer the standard modification
under the servicing alignment initiative. FHFA noted that Treasury’s expanded eligibility criteria for HAMP modifications
are consistent with our standard non-HAMP modification.
FHFA announced that it has been asked to consider the newly available HAMP incentives for principal reduction.
FHFA previously released an analysis concluding that principal forgiveness does not provide benefits that are greater than
principal forbearance as a loss mitigation tool. FHFA stated that its assessment of the investor incentives now being
offered by Treasury will follow its previous analysis, including consideration of the eligible universe, operational costs to
implement such changes, and potential borrower incentive effects.
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