Making Home Affordable | June 2012
Training Presentation for Servicers
HAMP Standard and Alternative Modification
Waterfalls
2 Making Home Affordable | June 2012
Agenda
HAMP Tier 2 Standard & Alternative Modification Waterfalls 4
Overview of HAMP Eligibility 1
HAMP Tier 1 Standard Modification Waterfall 2
HAMP Tier 1 Alternative Modification Waterfall 3
Resources 7
Net Present Value (NPV) Model 6
Discussion/Questions 8
Prohibitions on Modification Waterfall Steps 5
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Overview of HAMP Eligibility
Criteria Guideline HAMP Tier 1
HAMP Tier 2
Servicer, Investor, Insurer
Guidance applies to MHA-participating servicers of mortgages not owned, guaranteed, or insured by Fannie Mae, Freddie Mac, FHA, VA, or USDA.
Origination The mortgage loan is a first lien originated on or before January 1, 2009.
Unpaid Principal Balance Limits
The unpaid principal balance, prior to capitalization, must be less than or equal to: $729,750 for a one-unit property $934,200 for a two-unit property $1,129,250 for a three-unit property $1,403,400 for a four-unit property
Property Condition
The property securing the mortgage loan has not been condemned.
Financial Hardship
The borrower must be able to document a financial hardship.
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Overview of HAMP Eligibility Criteria Guideline
HAMP Tier 1
HAMP Tier 2
Natural Persons
The borrower is a natural person. Mortgage loans made to business entities are not eligible for assistance under HAMP.
Occupancy The mortgage loan is secured by a single family property that is occupied by the borrower as his or her principal residence.
Occupancy
The mortgage loan is secured by a single-family property that is used by the borrower for rental purposes only and not occupied by the borrower, whether as a principal residence, second home, or vacation home. Borrower may not own more than five single-family properties in addition to the principal residence.
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Overview of HAMP Eligibility Criteria Guideline
HAMP Tier 1
HAMP Tier 2
Delinquency The mortgage loan securing the principal residence is not delinquent, but default is reasonably foreseeable.
Delinquency The mortgage loan securing the principal residence is delinquent.
Delinquency The mortgage loan securing the rental property is delinquent. ---
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Overview of HAMP Eligibility Criteria Guideline
HAMP Tier 1*
HAMP Tier 2
Minimum Payment Ratio
The borrowers monthly mortgage payment, PITIA, (including principal, interest, taxes, insurance, and when applicable, association fees, existing escrow shortages) is greater than 31 percent of the borrowers verified monthly gross income.
Minimum Payment Ratio
The borrowers monthly mortgage payment, PITIA is less than or equal to 31 percent of the borrowers verified monthly gross income. ---
*Only single family properties occupied by borrowers as principal residences qualify for HAMP Tier 1.
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*Only single family properties occupied by borrowers as principal residences qualify for HAMP Tier 1.
Criteria Guideline HAMP Tier 1*
HAMP Tier 2
Previous HAMP Trial or Modification
The mortgage loan has never received a TPP or been modified under HAMP.
Previous HAMP Tier 1 Trial
The mortgage loan received a HAMP Tier 1 TPP on which the borrower defaulted. (Tier 2 TPP must be at least 10% less than failed Tier 1 TPP.) ---
Previous HAMP Tier 1 Modification
The mortgage loan received a HAMP Tier 1 permanent modification on which the borrower defaulted. (Additional eligibility criteria include: demonstrable change in circumstances or 12 or more months since effective date of HAMP Tier 1 modification.)
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Previous HAMP Tier 2 Trial or Modification
The mortgage loan received a HAMP Tier 2 TPP or permanent modification on which the borrower defaulted. --- ---
Overview of HAMP Eligibility
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The Standard Modification Waterfall is
a stated order of successive steps that
must be applied until the borrowers
target monthly mortgage payment
ratio is reduced to 31%.
STEP 1
Capitalization STEP 2
Interest Rate Reduction
STEP 3
Term Extension STEP 4
Principal Forbearance
What Is it?
HAMP Tier 1 - Standard Modification Waterfall
NOTE: Steps must be performed in sequence
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MTMLTV ratio property valuation
Delinquent Interest
Current Remaining Term
Taxes, insurance, homeowner association dues, and escrow shortage
Funds remaining in the existing suspense account
Current UPB
HAMP Tier 1 - Standard Modification Waterfall
Data Inputs
Loan Information
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HAMP Tier 1 Standard Modification Waterfall
The following items must be capitalized:
Accrued interest;
Out-of-pocket escrow advances to third parties;
Required escrow advances that will be paid to third parties during the trial period;
Mortgage insurance payments that are due. Advances for expenses incurred in performing servicing obligations, such as foreclosure fees and costs, must also be capitalized. These costs must:
Be consistent with the security instrument.
Be allowable under GSE guidelines.
Not be prohibited by applicable law.
Capitalization
Note: Late fees should not be capitalized!
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Gross Monthly Income $ 3,667.10 Desired PITIA @ 31% ($3667.10 x .31) $ 1,136.80 Taxes & Insurance ($ 337.11) HOA Payment ($ 100.00) Future Escrow Shortage Payment ($ 10.00) Target Monthly Mortgage Payment $ 689.69
Original payment (Pre-modification) $ 1,774.61
Current payment $ 1,872.96
Remaining Term 284 months
Current Interest Rate 5.875%
HAMP Tier 1 Standard Modification Waterfall
Current UPB $ 274,965.19 Out-of-Pocket Escrow Advances $ 3,500.00 Projected Escrow Advance during trial period $ 1,000.00 Delinquent Interest $ 7,526.07 Late Fees $ 250.00 Adjusted Gross UPB $ 286,991.26
Capitalization Worksheet Example
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Current payment $ 1,872.96 Taxes & Insurance $ 337.11 HOA Payment $ 100.00 Future Escrow Shortage Payment $ 10.00 Total PITIA: $ 2,320.07
Total PITIA payment: $ 2,320.07
Gross Monthly Income: $ 3,667.10
X 100 =
Current Monthly Mortgage Payment Ratio: 63.3%
HAMP Tier 1 Standard Modification Waterfall
Capitalization - Monthly Mortgage Payment Ratio Calculation
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Reduce the borrowers interest rate:
In increments of 0.125% or 1/8 percent.
Until the target monthly mortgage payment ratio is reached.
Interest rate floor is 2%.
Incentives will not be paid for reducing the rate lower than the 2% floor.
If the resulting rate is below the Interest Rate Cap (Freddie Mac Primary Mortgage Market Survey, PMMS, Rate), then the reduced rate will not increase for the first five years.
The ending rate does not have to be a multiple of one-eighth.
Interest Rate Reduction
HAMP Tier 1 Standard Modification Waterfall
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NEW INTEREST RATE
PROJECTED PAYMENT
2.0%
$ 1,269.32
Current Term
Adjusted Gross UPB
Tax and Insurance
Current Interest Rate
Gross Monthly Income
HOA Payment
Desired PITI @ 31%
Target Payment
284 months
$ 286,991.26
$ 337.11
5.875%
$ 3,667.10
$ 100.00
$ 1,136.80
$ 10.00
$ 689.69
Future Escrow Shortage
If the 31% target monthly mortgage payment ratio cannot be reached by lowering the interest rate to the 2% floor,
then reduce the interest rate to the 2% floor and proceed to Step 3, Term Extension. Note:
46.8%
Use Current Interest Rate as the starting point
Interest Rate Reduction Scenario
HAMP Tier 1 Standard Modification Waterfall
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Extend the term:
In one-month increments.
Up to
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