Freddie Mac 2015 Annual Report Download - page 113

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 111
but these programs do not include any borrower incentive payments. Loans may generally be
modified three times under our non-HAMP loan modification programs, but only once during a 12
month period. In June 2015, we announced that we are extending our streamlined modification
program indefinitely. In July 2015, we implemented a new modification initiative to help reduce the
risk of default on step-rate modified loans under HAMP. Under this initiative, eligible borrowers with
a step-rate modified loan will be evaluated for either a non-HAMP standard modification or a non-
HAMP streamlined modification. In September 2015, we announced changes designed to expand
the pool of borrowers eligible to participate in our modification programs.
When a seriously delinquent single-family loan cannot be resolved through a home retention option, we
typically seek to pursue a foreclosure alternative or sale of the non-performing loan. We offer the following
types of foreclosure alternatives:
• Short sale - The borrower sells the property for less than the total amount owed under the terms of
the loan. A short sale is preferable to a borrower because we provide limited relief to the borrower
from repaying the entire amount owed on the loan and, in some cases, we also provide cash
relocation assistance, while allowing the borrower to exit the home in an orderly manner. A short sale
allows Freddie Mac to avoid the costs we would otherwise incur to complete the foreclosure and
subsequently sell the property.
• Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer title of the property to us
without going through formal foreclosure proceedings.
We discuss sales of non-performing loans below in "Servicing Transfers and Sales of Non-Performing
Loans."
Our loan modification volume declined during 2015 compared to 2014, primarily due to lower volumes of
seriously delinquent loans. As of December 31, 2015, the borrower’s monthly payment for all of our
completed HAMP modifications was reduced on average by an estimated $527 at the time of
modification, which amounts to an average of $6,323 per year, and a total of $1.6 billion in annual
reductions (as calculated by multiplying the number of completed modifications by the average reduction
in annual payment, without adjustment for actual loan performance following modification). In recent
years, our non-HAMP modifications represented the majority of our modification volume. The portion of
our modification volume that is HAMP-related continued to decline in 2015 primarily due to the decline in
the number of borrowers eligible for HAMP. We incurred $69 million and $112 million of servicer incentive
expenses on modified loans during 2015 and 2014, respectively.
The volume of foreclosures has moderated in recent periods, primarily due to declining volumes of
seriously delinquent loans, the success of our loan workout programs, and our sales of non-performing
loans. The volume of our short sale transactions declined in 2015 compared to 2014, continuing the trend
in recent periods. Similarly, the volume of short sales in the overall market also declined in recent periods
as home prices have continued to increase.
The following graphs provide detail about our single-family loan workout activities and foreclosures.