Making Home Affordable | August 2014 Making Home Affordable HAMP Modification: Interest Rate Step-Up, Impact, and Resources

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


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


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


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%


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)


• 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.


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


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)


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.


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


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


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


Trusted advisors escalate cases to [email protected]

Follow up by phone to(866) 939-4469

Escalate Difficult-to-Resolve Cases


Includes program updates, outreach events, homeowner resources, plus learning and partnership opportunities

Subscribe to the MHA eNewsletter


U.S. Department of the TreasuryHomeownership Preservation Office

Discussion/Questions

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Making Home Affordable | August 2014 Making Home Affordable HAMP Modification: Interest Rate Step-Up, Impact, and Resources