Freddie Mac Standard Modification Overview for Housing ... · Overview for Housing Counselors...

Freddie Mac Standard ModificationOverview for Housing Counselorsg

Counselor Connection Baltimore, Maryland

May 8, 2012y ,

Objectives

Understand how Servicers will apply Freddie Mac requirements for the Standard Modificationrequirements for the Standard Modification

Understand how Servicers will apply Freddie Mac requirements for the Borrower Response Packagerequirements for the Borrower Response Package, including updated income and hardship documentation for the Standard Modification

Explain the Standard Modification process

© 2012 Freddie Mac 2

What is a Loan Modification?

A loan modification is a written agreement that the Servicer enters into with the borrower that permanently changes oneenters into with the borrower that permanently changes one or more of the the original terms of the Note, such as:

An increase in the amount of the unpaid principal balance (UPB) caused by capitalization of interest or non-interest arrearages, escrow amounts, and/or other advances

A change in the Note rate the monthly payment and/or theA change in the Note rate, the monthly payment, and/or the maturity date

A forbearance of a portion of the principal balance (no write-off or permanent reduction of the UPB of the mortgage is allowed)

Change in the product type (an adjustable rate mortgage modified to a fixed-rate mortgage)


to a fixed rate mortgage)

Section B65.11 - What is a loan modification?

Benefits of the Standard Modification

Creates a more affordable first lien housing payment that helps more borrowers with a sustainable modification solutionborrowers with a sustainable modification solution

Simplifies the Servicer’s underwriting of the modification by establishing consistent modification terms, including the sameestablishing consistent modification terms, including the same interest rate, for all eligible borrowers

Provides Servicers with an option that allows borrowers to sustain homeownership even if a borrower previously defaulted on a modification or is currently in default

Reduces the risk of potential borrower re defaultsReduces the risk of potential borrower re-defaults


Alternatives to Foreclosure Evaluation Hierarchy

Section 64.6 - Evaluation Hierarchy, Borrower Solicitation and Communication

HARP Reinstatement and Relief Options

HAMP Modification

Standard Modification

HAFAShort Sale

Freddie MacShort Payoff

HAFA Deed in Lieu

Freddie Mac Deed in Lieu

© 2012 Freddie Mac

Foreclosure

5

Eligible Property Types


Eligible Property Types

Owner- or non-owner-occupied properties

» Primary residences» Primary residences

» Non owner occupied properties (investment and second homes) are eligible if the borrower is 60 or more days delinquent

The property may be vacant, but not condemned


Section B65.13(b) - Property eligibility

Eligible Mortgages


Eligible Mortgages

Conventional first-lien mortgages owned, guaranteed, or securitized by Freddie Macsecuritized by Freddie Mac

Mortgages originated at least 12 months prior to the evaluation date for the modification

The pre-modified mark-to-market loan-to-value (MTMLTV) ratio must be greater than or equal to 80 percent

Mortgages may be previously modified, but not more than once


Section B65.13c - Mortgage eligibility and B65.14 - Ineligibility

Eligible Mortgages (cont’d)

MTMLTV ratio is the gross UPB of the current loan divided gby the property value

The gross UPB

» if not previously modified – it is the current unpaid principal balance

If d f lt d i l difi ti ith i i l» If defaulted on a prior loan modification with a principal forbearance – it is the interest bearing UPB and the non-interest bearing UPB


Section B65.13c - Mortgage eligibility

Eligible Mortgages (cont’d)

Pre-modified MTMLTVLTV

Comparison of LTV to MTMLTV

Divide the sum of the interest-bearing and non-interest bearing UPB by

The loan-to-value (LTV) ratio is obtained by dividing the first-lien mortgage g y

the property valuation specified by Freddie Mac in Guide Section B65.16:

g gamount by the appraised value of the mortgaged premises:

First-Lien Mortgage Amount

Interest-bearing + Non-interest bearing UPB

Appraised Value Property Valuation

Origination Pre-modification


Section B65.13 - Eligibility Requirements for a Freddie Mac Standard Modification

Ineligible Mortgages

FHA/VA and Guaranteed Rural Housing loansFHA/VA and Guaranteed Rural Housing loans

Loans subject to recourse or indemnification agreements

Loans subject to active non-routine litigation

Mortgages secured by non-owner-occupied properties where the borrower is current or less than 60 days delinquent


Section B65.14 – Ineligibility for Freddie Mac Standard Modification

Servicer Approval Authority

All Freddie Mac Servicers are delegated to approve eligible Freddie Mac Standard Modifications

» The Servicer must obtain any necessary MI approval from the mortgage insurer

If a borrower’s situation does not meet all these eligibility requirements, but the Servicer believes that a workout option is still the best solution to the delinquency, then the Servicer may submit a recommendation to Freddie Mac f ifor review


Section B65.4 – Approval authority

Standard Modification Exceptions

Example of exceptions that Servicers can send to Freddie Mac for approval

» MTMLTV < 80 percent» MTMLTV < 80 percent

» When the Borrower’s hardship is one that does not fall under the definition of eligible hardship in Guide Section 65.17 and the Servicer b li ti h ld b id dbelieves an exception should be considered

» Loans that have been previously modified two or more times


Borrower Eligibility


Borrower EligibilityBorrower must have been determined to be ineligible for HAMP

Borrowers who received, but defaulted on a HAMP trial period, HAMP modification, or other modification are eligible, unless the:

1. Effective date of the prior HAMP or other modification is within 12 months of the evaluation for the Standard Modification, and

2. Monthly principal and interest payment on the mortgage was reduced by more than 10 percent as a result of the prior modificationpercent as a result of the prior modification

If prior modified monthly principal and interest payment is reduced by…

And the effective date of the prior modification vs. the evaluation for the Standard Modification is…

…within 12 months: …greater than 12 months:…more than 10%: EligibleIneligible

…less than or = to 10%:

Principal + Interest Payment HAMP Modification Standard Modification # Months Eligible?

Examples of Standard Modification eligibility for borrowers who have defaulted on previous modifications:

Eligible

gg

Eligible

Pre-HAMP HAMP Reduction Effective Date Evaluation Date # Months Eligible?

$1,000 $880 12% 10/15/2010 11/15/2011 13

$1,000 $880 12% 1/15/2011 12/15/2011 11

$1,000 $910 9% 1/15/2011 12/15/2011 11

YESNOYES


$1,000 $910 9% 10/15/2010 11/15/2011 13 YES

Section B65.13 – Eligibility requirements

Borrower Eligibility (cont’d)

Borrower must have verified income available to make the modified t tmortgage payment

Unemployment benefits are not an acceptable source of income

The modification must result in a principal & interest payment reduction of at least 10 percent

The modification must result in a housing expense-to-income ratio (PITIAS divided by gross monthly income) that is greater than or equal to 10 percent, and less than or equal to 55 percent

Section B65.13c – Eligibility requirementsS ti B65 18 D t i i th t


Section B65.18 – Determining the terms

Borrower Eligibility (cont’d)

Borrower must be either 60 days or more delinquent, or current or less than 60 days delinquent and determined to be in imminent default (Guide Section B65 16 Determining Imminent Default for a Freddiedefault (Guide Section B65.16, Determining Imminent Default for a Freddie Mac Standard Modification)

Borrowers who are current or less than 60 days delinquent must occupy the property as their primary residence to be eligiblethe property as their primary residence to be eligible

Borrower must document an eligible hardship that is causing or expected to cause a permanent or long-term increase in expenses orexpected to cause a permanent or long-term increase in expenses or decrease in income

Unemployment and other temporary hardships are not eligible hardships


Section B65.13 – Eligibility requirements

Imminent Default Hardship Documentation


Section B65.15 – Determining Imminent Default for Freddie Mac Standard Modification

Solicitation Timeline


Standard Modification Process Timeline

Submit closing data to Freddie Mac

Receive a Complete Borrower Response

P k

Send BorrowerPackage

31st–35th *day of delinquency

Evaluate Borrower

per Evaluation Hierarchy

Trial Period

No more than 30 days

Within 5 days

3–5* months

to Freddie Mac within 2 months after

Trial Period ends

Package

day of delinquency Hierarchy y

Send BorrowerPackage61st–65th

day of delinquency, if quality right

Determine Eligibility

Determine Modification

Terms

Make Evaluation Decision

Send Borrower Standard

Modification Trial Period Plan

Notice

Determine Final

Modification TermsInclude

capitalized amounts

Standard Modification Closing and Settlement

if quality right party contact not achieved

amounts


Borrower Solicitation Package

Borrower Solicitation Package used for ALL solutionsUniform requirements for what must be sent to a borrower:

S li it ti l tt» Solicitation letter

» Uniform Borrower Assistance Form with a hardship affidavit

» Borrower checklist

» FAQ document

» Important notices (foreclosure scam)

» IRS Form 4506T-EZ


Section 64.6 (c): Documents and Forms Section 64.6 (d): Written Communications With The Borrower

Income Documentation

There are revised income documentation requirements

Servicers must now obtain the same documentation when evaluating borrowers for a HAMP modification under Guide Chapter C65 or for a non-HAMP (classic or Standard) modification under Guide Chapter B65


Section 65.18: Borrower Income Documentation

New Hardship RequirementsServicers must apply new hardship requirements to borrowers who are:

– 60 days or more delinquent, or

Less than 60 days delinquent who do not require additional imminent– Less than 60 days delinquent who do not require additional imminent default hardship documentation

The borrower must document the financial hardship by:

Si i d b i i h S i l d F 10– Signing and submitting to the Servicer a completed Form 710

– Providing to the Servicer a written explanation describing the specific nature of his or her hardship

– Providing to the Servicer the hardship documentation


Determine Eligibility for a Trial Period Plan Based on Estimated Modification Terms

© 2012 Freddie Mac 25Section B65.18 – Determining the terms of a Freddie Mac Standard Modification

Determine Eligibility for a Trial Period Plan Based on Estimated Modification Terms (cont’d)


Section B65.18 – Determining the terms of a Freddie Mac Standard Modification

Example 1 – Without Forbearance Calculations

Gross UPB (interest bearing + non-interest bearing) before capitalization: $190,000Property value: $180,000

Step 1 – Capitalize ArrearagesStep 1 Capitalize Arrearages$ 7,000 – interest$ 3,000 – tax advance$10,000

$190,000 (gross UPB before capitalization)+ $ 10,000

$200,000 = Post- modification Gross UPB

Step 2 – Adjust interest rate to a 5% fixed-rate

Step 3 – Extend Amortization to 480 months$964.39 Modified Principal & Interest Payment

Step 4 – Calculate Pre-modified MTMLTV $190,000 ÷ $180,000 = 105.6% Pre-modified MTMLTV

Step 5 – Determine if the pre-modified MTMLTV is greater than 115%105.6% is not greater than 115%; therefore, the mortgage is not eligible for forbearance.


g g g g

Step 8 – Reassess proposed modified P&I based upon new interest-bearing UPB

Examples 2 and 3 – Forbearance CalculationsG UPB (i t t b i i t t b i ) b f it li ti $190 000

$ 7,000 (interest) $190,000 (gross UPB before capitalization)$ 3,000 (tax advance) + $ 10,000$10,000 $200,000 = Post-modification Gross UPB

Gross UPB (interest bearing + non-interest bearing) before capitalization: $190,000 Property value:

Step 1 – Capitalize Arrearages

Step 2 – Adjust interest rate to a 5% fixed-rate

Example 3 = $150,000Example 2 = $100,000

Section B65.18Step 2 Adjust interest rate to a 5% fixed rate

Example 3$190,000 ÷ $150,000 = 126.7% pre-modified MTMLTV

Step 4 – Calculate Pre-modified MTMLTV (gross UPB before capitalization ÷ property value)Step 3 – Extend Amortization to 480 months: $964.39 Modified Principal & Interest Payment

Step 5 – Determine if the pre-modified MTMLTV is greater than 115%

Example 2$190,000 ÷ $100,000 = 190% Pre-modified MTMLTV

126.7% is greater than 115%; therefore, eligible for forbearance.

115% x $150,000 (property valuation) = $172,500

$200 000 ( t difi ti UPB)Forbearance amount

Step 5 – Determine if the pre-modified MTMLTV is greater than 115%

Step 6 – If pre-modified MTMLTV is greater than 115%, forbear as follows:

A

190% is greater than 115%; therefore, eligible for forbearance.

115% x $100,000 (property valuation) = $115,000

$200 000 ( t difi ti UPB)

$200,000 x 30% = 60,000 (forbearance amount B)

$200,000 (post-modification gross UPB)–172,500$ 27,500 (forbearance amount A)

Step 7 – Choose the lesser forbearance amount (A or B)

Forbearance amount to calculate 115%

pre-modified MTMLTV

Forbearance amount at 30% of Gross Capitalized UPB

B

A

$200,000 x 30% = 60,000 (forbearance amount B)

$200,000 (post-modification gross UPB)–115,000$ 85,000 (forbearance amount A)

In Example 3, $27,500 must be forborne, as it is the lesser of the two calculations$200,000 (post-modification gross UPB)– 27,500 (forbearance amount A)$172,500 (post-modification interest-bearing UPB)

$172,500 ÷ $150,000 = 115% = Post-modification

Step 7 Choose the lesser forbearance amount (A or B)In Example 2, $60,000 must be forborne, as it is the lesser of the two calculations$200,000 (post-modification gross UPB)– 60,000 (forbearance amount B)$140,000 (post-modification interest-bearing UPB)$140,000 ÷ $100,000 = 140% Post-modification


$172,500 $150,000 115% Post modification MTMLTV ratio

Step 8 – Reassess proposed modified P&I based upon new interest-bearing UPB

MTMLTV ratio

$831.79 Modified Principal & Interest Payment ($172,500 interest-bearing UPB)

$675.08 Modified Principal & Interest Payment ($140,000 interest-bearing UPB)

Standard Modification Housing Expense to Income Ratio Calculations

Property Type CalculationsPrimary Residence PITIAS Payment

Monthly Gross IncomeSecond Home PITIAS payment of the subject property

PITIAS payment of the borrower’s p y__primary residence

Monthly Gross IncomeInvestment Property with PITIAS payment of primary residence

+

p yPositive or Zero Net Rental Income

p y p yMonthly gross income+ Net rental income

Investment Property with PITIAS payment of primary residenceInvestment Property with Negative Net Rental Income

PITIAS payment of primary residence_+ Negative net rental income

Monthly Gross Income


Section B65.13c – Mortgage Eligibility

Principal and Interest Payment Reduced by at Least 10 Percent

MONTHLY INCOME100% $2,800 Step 9 using Example 1

Current principal and

$1,080.12Pre-Modified Principal and

Interest Payment

Cu e p c pa a dinterest payment:

$1080.12 x 10% = $108.01

$964 39

Estimated Modified

Principal and

Payment

$1,080.12 Current P&I payment–$108.01

$ 972.11 = 10% reduction of

HOA

$964.39Principal & Interest

$964.39

Principal and Interest Payment

current principal andinterest payment


HOA FeesInsuranceTaxes

Assess Eligibility: Post-Modification Monthly Housing Expense-to-Income Ratio (PITIAS)

100%MONTHLY INCOME

$2,800.00

Post-Modified PITIAS

Step 10 using Example 1

P&I $964.39Taxes $100.00Hazard Insurance $ 50.00Flood Insurance $ 0 00Flood Insurance $ 0.00Mortgage Insurance $ 25.00HOA Fees $ 25.00Actual Monthly EscrowShortage Payment $ 0 00

55% $1,540.00

10% $280.00Target PITIAS$1,164.39

Shortage Payment $ 0.00Total $1,164.39

Post-Modified PITIAS Ratio:

HOA

$Principal & Interest

$964.39IncludingMortgageInsurance

÷ $2,800

41.59%

© 2012 Freddie Mac31

HOA FeesInsuranceTaxes

$100 $75 $25


If the borrower is found eligible for a Standard Modification they must enter into a three monthModification, they must enter into a three month trial period» The trial period can be extended up to two months to

bt i t l if b k t i fil dobtain court approval if a bankruptcy is filed

The Servicer may utilize an interim reporting h f ili i h f ll h i lmonth to facilitate processing that follows the trial

period and is not part of the trial period


Section B65.19 – Trial Period Plan requirements

Standard Modification High Level Process

Servicer evaluates borrower for


Delegated or Exception

?

Exception Review

Servicer submits request to FreddieModification

Delegated Path (If borrower meets eligibility)

Servicer submits request to Freddie Mac for Exception approval

Freddie Mac analyzes

Trial Period Process

Freddie Mac analyzes Exception request

Freddie Mac documents

Workout Prospector®

Freddie Mac documents and delivers decision

Freddie Mac approved or

rejected?

Approved Rejected

Post-


Settlement Consider HAFA Short Sale

ReportingSettlement QC

Resources

Questions about the Standard Modification or the Servicing Alignment Initiative

[email protected]

Freddie Mac Standard Modification Webpage

www.freddiemac.com/singlefamily/service/standard_modification.html

Freddie Mac Standard Modification Reference Guide

http://www.freddiemac.com/learn/service/alignment_initiative.html

Solicitation forms/templates

www.freddiemac.com/singlefamily/service/solicitation_docs.html


Resources

Servicing Alignment Initiative fact sheet:

www.freddiemac.com/corporate/housingpros/

Servicing Alignment Initiative FAQs

www.freddiemac.com/singlefamily/service/servicing_alignment_faq.html

Other resources for housing counselors:

http://www.freddiemac.com/corporate/housingpros/


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