Freddie Mac 2012 Annual Report Download - page 29

effectively and to assist borrowers in maintaining home ownership where possible, or facilitate foreclosure alternatives when
continued homeownership is not an option. We require our single-family seller/servicers to first evaluate problem loans for a
repayment or forbearance plan before considering modification. If a borrower is not eligible for a modification, our seller/
servicers pursue other workout options before considering foreclosure.
Our loan workouts include:
• Forbearance agreements, where reduced payments or no payments are required during a defined period, generally less
than one year. They provide additional time for the borrower to return to compliance with the original terms of the
mortgage or to implement another loan workout. During 2012, the average time period granted for completed short-
term forbearance agreements was between two and three months.
• Repayment plans, which are contractual plans to make up past due amounts. These plans assist borrowers in returning
to compliance with the original terms of their mortgages. During 2012, the average time period granted for completed
repayment plans was between two and six months.
• Loan modifications, which may involve changing the terms of the loan, or adding outstanding indebtedness, such as
delinquent interest, to the UPB of the loan, or a combination of both. We require our servicers to examine the
borrower’s capacity to make payments under the new terms by reviewing the borrower’s qualifications, including
income. During 2012, we granted principal forbearance but did not utilize principal forgiveness for our loan
modifications. Principal forbearance is a change to a loan’s terms to designate a portion of the principal as non-
interest-bearing and non-amortizing. A borrower may only receive one HAMP modification; however, a loan may be
modified twice under our standard loan modification program. Generally, a borrower may only receive one standard
modification during a 12 month period. However, we reserve the right to approve additional non-HAMP loan
modifications to the same borrower, based on the borrower’s individual facts and circumstances.
• Short sale and deed in lieu of foreclosure transactions.
We also participate in the MHA Program, which 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. HAMP applies to loans originated on or before
January 1, 2009. The program is scheduled to end on December 31, 2013.
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 to be at least three months. After the final trial-period payment is received
by our servicer the borrower and servicer will enter into the modification.
To address documentation issues experienced when the program began, guidelines for HAMP provide that, for trial
periods that became effective on or after June 1, 2010, borrowers must provide income documentation before entering into
the trial period. Prior to the June 1, 2010 changes to HAMP, we experienced approximately a 38% modification completion
rate under the program. Subsequent to the June 1, 2010 changes, we have experienced a modification completion rate in
excess of 75%. When a borrower’s trial period is cancelled, the loan is considered for our other workout activities.
HAMP includes the following features:
• Under HAMP, the goal is to reduce the borrower’s 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. Borrowers whose loans are modified through HAMP accrue monthly incentive payments (in the
24 Freddie Mac