Freddie Mac 2012 Annual Report Download - page 30

form of credits) 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.
• Servicers are paid incentive fees for each completed HAMP modification. Servicers receive additional incentive fees
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.
Except in limited instances, each borrower’s reduced payment will remain in effect for a minimum of five years, and
borrowers whose interest rates were adjusted below market levels will have their interest rate and payment gradually
increased after the fifth year to a rate consistent with the market rate at the time of modification. Although mortgage
investors under the MHA Program are entitled to certain subsidies from Treasury for reducing the borrowers’ monthly
payments from 38% to 31% of the borrower’s income, we do not receive such subsidies on modified mortgages owned or
guaranteed by us. We also bear the costs of borrower incentive payments and servicer incentive fees for our HAMP loans,
without reimbursement of such costs from Treasury.
Trial periods are required to be at least three months in duration. Our servicers are permitted to add an interim month,
which will be reported as a fourth trial period month. In addition, our servicers are authorized to extend a trial period for up
to an additional two months when the borrower is in bankruptcy in order to provide additional time to have the mortgage
removed from the bankruptcy plan, which is a prerequisite to a modification under HAMP.
We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP by mortgage holders
other than Freddie Mac and Fannie Mae. Among other duties, as the program compliance agent, we conduct examinations
and review servicer compliance with the published requirements for the program. Some of these examinations are on-site,
and others involve off-site documentation reviews. We report the results of our examination findings to Treasury. Based on
the examinations, we may also provide Treasury with advice, guidance and lessons learned to improve operation of the
program.
Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program
Our relief refinance opportunities, including HARP (which is the portion of our relief refinance initiative for loans with
LTV ratios above 80%), are a significant part of our effort to keep families in their homes. Only borrowers with Freddie
Mac-owned or guaranteed mortgages are eligible for our relief refinance mortgage initiative. Our relief refinance initiative
began in 2009 and is designed to provide eligible homeowners with existing loans owned or guaranteed by us an opportunity
to refinance their mortgage without obtaining new mortgage insurance in excess of what was already in place. Our relief
refinance initiative enables us to assist homeowners by making their mortgage payments more affordable through one or
more of the following ways: (a) a reduction in payment; (b) a reduction in interest rate; (c) movement to a more stable
mortgage product type (i.e., from an adjustable-rate mortgage to a fixed-rate mortgage); or (d) a reduction in amortization
term.
HARP and the relief refinance mortgage initiative originally permitted eligible borrowers with Freddie Mac mortgages
(that were sold to us on or before May 31, 2009) and LTVs up to 125% to refinance their mortgages. In October 2011,
FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP, in an effort to attract more
eligible borrowers who can benefit from refinancing their home mortgages. We subsequently made similar changes to the
relief refinance mortgage initiative for loans with LTV ratios of 80% and less. The enhancements to HARP and the relief
refinance mortgage initiative included:
• removing the 125% LTV ratio ceiling for fixed-rate mortgages;
• relieving the lenders of certain underwriting and borrower eligibility representations and warranties on the original
mortgage being refinanced;
• eliminating the need for a new property appraisal where there is a reliable automated valuation model estimate
provided by the purchasing GSE; and
• extending the last application date for HARP loans to December 31, 2013.
We began purchasing HARP loans under the revised program in January 2012. In September 2012, we announced
additional changes to our relief refinance process that are intended to reduce the seller/servicers’ operational complexities
associated with originating these loans.
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