Making Home Affordable | August 2014 Making Home Affordable HAMP Modification: Interest Rate...
-
Upload
clifford-ashley-kennedy -
Category
Documents
-
view
217 -
download
3
Transcript of Making Home Affordable | August 2014 Making Home Affordable HAMP Modification: Interest Rate...
Making Home Affordable | August 2014
Making Home Affordable HAMP Modification:
Interest Rate Step-Up, Impact, and Resources
2Making Home Affordable | August 2014
Agenda
Interest Rate Step Up3
HAMP Waterfall Overview1
NPV Overview2
Options for Homeowners4
Resources for Trusted Advisors5
3Making Home Affordable | August 2014
Total Active HAMP Modifications 10,000 and lower
10,001-20,000 20,001-30,000 30,001 and higher
NEARLY
2 MILLION
MHA assistance actions –
modifications, short sales, and forbearances.
Paid in MHA Incentives to borrowers, servicers & investors.
OVER
$7.8BILLION
OVER
$26 BILLION
In total monthly mortgage payment savings.
Making Home Affordable (MHA) Program Highlights to Date
4Making Home Affordable | August 2014
The Tier 1 Standard Modification Waterfall is a stated order of successive steps that must be applied until the homeowner’s target monthly mortgage payment ratio is reduced to 31% of his or her gross income.
STEP 1
Capitalization
STEP 2
Interest Rate Reduction
STEP 3
Term Extension
STEP 4
Principal Forbearance
HAMP Tier 1 Standard Modification Waterfall
HAMP Overview
5Making Home Affordable | August 2014
HAMP Modification Structure: Tier 1 (2009) & PRA* (2010)• Provide deep payment reduction to
achieve a 31% debt-to-income (DTI) ratio for troubled borrowers
• Waterfall steps performed in increments to achieve 31% DTI ratio1. Interest rate reduced as low as 2.0 %2. Term extended up to 480 months3. Principal forbearance
• Borrower receives “pay-for-performance” incentive (up to $1,000/year for 5 years of principal forgiveness if current) +
Target 31% DTI Ratio
Step 1Reduce Interest
Rate
Step 2 Extend
Term
Step 3Principal
Forbearance
2009 Standard Modification Waterfall
GOAL:
TOOLS:
Target 31% DTI Ratio
Step 1 Principal
Reduction
Step 2 Reduce
Interest Rate
Step 3 ExtendTerm
PRA Modification Waterfall • Provide relief to underwater borrowers
who are struggling to make their mortgage payments
• All Non-GSE borrowers evaluated for principal forgiveness if loan-to-value (LTV) ratio is greater than 115%
• If eligible, principal is reduced. The reduction vests over a 3-year period
• Investor receives incentive per dollar of principal forgiven (maximum $0.63 per dollar of principal reduction)
GOAL:
TOOLS:
*Principal Reduction Alternative+Similar programs and TARP incentives are offered to loans guaranteed by the Federal Housing Administration (FHA) and the Department of Agriculture’s Rural Housing Service (RHS)
6June 2014 | Making Home Affordable
* Calculations Performed by NPV Model
• Outstanding interest• Escrow advances• Out-of-pocket servicing
expenses
STEP 1Capitalize
• Adjust the interest rate to Freddie Mac’s PMMS rate
• Extend loan term to 480 months.
• Forbear or forgive principal if pre-mod LTV is >115%.
STEP 2*Adjust the Terms of the Mortgage
• Post-mod principal and interest payment is less than or equal to the pre-mod principal and interest payment
• Post-mod front-end DTI must be 10% - 55%.
STEP 3*Affordability Requirements
HAMP Tier 2 – Modification WaterfallEvaluation and Determination
Core range:
25% - 42%
7Making Home Affordable | August 2014
Net Present Value (NPV) ModelNPV will be run as a single evaluation process. The standardized NPV test will be run simultaneously for both HAMP Tier 1 and Tier 2 if the borrower meets the eligibility requirements for HAMP Tier 1.
Occupancy Eligibility Tier 1 Result Tier 2 Result Offer
Owner-Occupied, HAMP Tier 1 Eligible
Positive Positive Tier 1
Positive Negative Tier 1
Negative Positive Tier 2Tier 1 (optional)
Negative Negative Tier 1 or Tier 2 (optional)
Rental Property or other HAMP Tier 1 Ineligible
N/A Positive Tier 2
N/A Negative Tier 2 (optional)
8Making Home Affordable | August 2014
• HAMP Tier 1 modifications included interest rate reductions to as low as 2% for the first five years to help homeowners avoid foreclosure.
• The terms of the HAMP Tier 1 modification include a gradual interest rate step-up after five years.
• Homeowners in HAMP Tier 1 modifications will experience a gradual interest rate increase, also known as a rate step-up, of 1% per year (maximum) until their rate adjusts to the market rate at the time of their modification.
HAMP Interest Rate Step-Up
Understanding the terms of a HAMP Modification
Homeowners with Fannie Mae or Freddie Mac owned HAMP loans who will experience a similar rate step-up should contact Fannie Mae, Freddie Mac, or their servicer.
9Making Home Affordable | August 2014
HAMP Interest Rate Step-Up
Interest Rate Step-Up Example
Interest Rate
Pre-Mod: 6.5%
Interest Rate Step-Up
Year 7
3rd Increase: 4.85% (Fixed)
Year 6
2nd Increase: 4%
Post-Mod Years 1-5
1st Increase: 3%
Pre-Mod
Post-Mod: 2%
Total Monthly Payment
$2,407
$1,594
$1,476
$1,342
$1,214
Year 8 – Life of Loan
10Making Home Affordable | August 2014
HAMP Interest Rate Step-UpTimeframes & Payment Changes
Offer For some HAMP homeowners, interest rate step-ups will begin in the 3rd quarter of 2014 (October 2014), impacting approximately 30,000 HAMP homeowners by the end of this year, all of whom received modifications in 2009.
Timeframe for Rate Step-Ups
Approximately 80 percent of homeowners with a HAMP Tier 1 modification will experience at least one future rate step-up. The majority of HAMP homeowners will experience two or three rate step-ups.
The number of rate step-ups and the amount of the payment increase will vary depending on the effective date of the modification, whether the modification included principal forgiveness and other factors.
Number of Interest Rate Step-Ups
The maximum rate depends on the market rate at time of modification. For 92% of HAMP homeowners this will result in a rate at or below 5%, well
below the average 6.3% interest rate before their modification for most homeowners.
After all interest rate step-ups have occurred, the cumulative monthly payment increase for a typical loan will be approximately $200.
Final Rate and Mortgage Payment
Source: Treasury Notes blog “HAMP Rate Reset: Just the Facts” (3/12/14)
11Making Home Affordable | August 2014
Requiring Explanation of Modification Terms Servicers to notify homeowners of the interest rate step-up at time of modification.
What Treasury is doing
Helping Homeowner Prepare
Requiring Mandatory Advance NoticeServicers to provide homeowners with advance notice 120 - 240 calendar days and then 60 - 75 calendars day before first rate step-up.
Requiring Financial CounselingLargest servicers in HAMP to offer financial counseling to assist homeowners in staying current on their mortgage payments.
Talking to Homeowners Treasury is collecting as much information as possible and monitoring all interest rate step-ups.
Training HOPE™ Hotline Call Centers Treasury to provide training to HOPE™ Hotline agents to prepare them to assist homeowners with rate step-ups.
Training Housing Counselors Treasury to provide training to housing experts that homeowners can turn to for help with preparing for the rate step-ups.
Providing Information via the Internet Treasury to post more information for homeowners on www.mha.gov and social media.
Working with Servicers Treasury to obtain input from servicers regarding the effect of rate step-ups on homeowners via Roundtable series.
12Making Home Affordable | August 2014
MHA Programs
HAMP Tier 2
• A homeowner currently in a HAMP Tier 1 permanent modification may be eligible for HAMP Tier 2 if:
The homeowner has been in the modification less than 5 years and loses good standing due to a hardship.
More than five years have passed since the HAMP Tier 1 Modification Effective Date, regardless of whether the homeowner is still in good standing.
• Homeowners may be eligible for HAMP Tier 2 if they have a hardship caused by mortgage payment increases.
• HAMP Tier 2 modifications have an interest rate that is fixed for the duration of the loan.
Home Affordable Foreclosure Alternatives (HAFA)
• Provides homeowners with a healthy transition to more affordable housing.
Homeowners sell their home as a “short sale” or transfer the title to the lender through a “deed-in-lieu of foreclosure.”
HAFA offers a more efficient process than a traditional short sale. Participating investors, servicers, and homeowners may be eligible
for incentives.
Options for Homeowners
13Making Home Affordable | August 2014
Treasury Programs
Hardest Hit Fund (HHF)
• If a homeowner lives in a state that is participating in Treasury’s HHF Program, additional assistance may be available via the state’s Housing Finance Agency.
For the list of HHF states and contact information, visit: http://www.makinghomeaffordable.gov/programs/unemployed-help/Pages/hhf.aspx
Options for Homeowners
14Making Home Affordable | August 2014
Name Contact Information
HAMP Solution Center • (866) 939-4469• [email protected]
Fannie Mae • (800) 7Fannie• KnowYourOptions.com• [email protected]
Freddie Mac • (800) Freddie, select option 2 • FreddieMac.com
FHA LoansFHA National Servicing Center
• FHA National Servicing Center (877) 622-8525• HUD.gov/offices/hsg/sfh/nsc/nschome.cfm
USDA RHS LoanCentralized Servicing Center
• (800) 414-1226
VA Loans • (877) 827-3702• HomeLoans.va.gov
Resources for Trusted Advisors
15Making Home Affordable | August 2014
Trusted advisors escalate cases to [email protected]
Follow up by phone to(866) 939-4469
Escalate Difficult-to-Resolve Cases
16Making Home Affordable | August 2014
Includes program updates, outreach events, homeowner resources, plus learning and partnership opportunities
Subscribe to the MHA eNewsletter
17Making Home Affordable | August 2014
U.S. Department of the TreasuryHomeownership Preservation Office
Discussion/Questions