Making Home Affordbale Counselor Training September Presentation

Making Home Affordable
Information for Housing Counselors
September 2009
September 2009 l Making Home Affordable 1
Today’s Topics:
• MHA Program explanation & features
• Frequently asked questions
• Options to help borrowers who are not eligible for
the refinance or modification programs
• Additional resources
Mortgage Market in Crisis
• Millions of homes are in foreclosure or at‐risk
• Home prices continue to fall
• Trillions of dollars in real estate value lost
• Millions of families are “underwater”
• Job losses continue to increase
Administration Homeowner
Plan Affordability &
Stability Plan
Program for Making Home
Homeowners Affordable Program
Programs Home Affordable Home Affordable

Available Refinance Modification
Getting Started
Easy‐to‐Use Main Navigation for
Homeowners to Quickly Find
Information
Access Checklist to Prepare
Borrowers to Speak with their
Mortgage Lender or Counselor
On the Home Page, consumers can
access:
; Spanish Content
; 1‐888‐995‐HOPE (4673)
; Beware of Scams
; Information Video
Sample Home Page ; Helpful Links in Footer
Guidance For Servicers: www.HMPadmin.com
Easy‐to‐Use Main Navigation
for Servicers to Quickly Learn
About HAMP
Access Hardship Affidavit and
Other Modification Documents
Easy Access to the
Supplemental Directive
Program Guidelines
From the Home Page, servicers can
access:
; Registration Information and Forms
; Web Training
; FAQs
; News and Updates
Sample Home Page
Home Affordable Refinance Program (HARP)
• Purpose
– Gives borrowers the opportunity to refinance
into more affordable loans at today’s lower rates
– Only for borrowers with Fannie Mae or Freddie
Mac loans
• Scope
– Estimated millions of borrowers are eligible
HARP Eligibility Criteria
Borrower: Loan:
• Owner‐occupant of a • Mortgage is owned or
1‐4 unit property guaranteed by Fannie
Mae or Freddie Mac
• Is current on the
mortgage • Amount of first mortgage
does not exceed 125% of
• Has reasonable property’s current market
ability to pay the value
new mortgage
payment • Refinance will improve
long‐term affordability or
sustainability of the loan
How Does HARP Differ from other Refinances?
• No equity requirement
• No combined loan‐to‐value requirement
• MI flexibilities for loans with higher LTVs
• Faster to qualify and may be less expensive to
process
• Limited cash‐out to cover closing costs only; no debt
consolidation
How Does a Borrower Apply for HARP?
• First, determine basic eligibility using tools on
www.MakingHomeAffordable.gov
• Borrowers may contact their current servicer or
any lender approved by the investor ‐ subject to
LTV limitations
Key for Counselors ‐ make sure borrowers understand:
• Refinance is through bank’s mortgage lending shop
• Modification is through bank’s servicing shop
Home Affordable Modification Program (HAMP)
• Purpose
– Modifies loans of qualifying at‐risk borrowers to
achieve affordable payments
– Allows borrowers to keep their homes
¾ Reduces impact of foreclosure on communities
– Incentives encourage participation from all parties
– Uses clear and consistent guidelines
• Scope
– Estimated millions of borrowers are eligible
HAMP Eligibility Criteria
Borrower: Loan:
• Owner‐occupant of 1‐4 unit • Amount owed on first
property mortgage equal to or less than
$729,750
• Has sufficient, documented
income to support the • Mortgage originated on or
modified payment before January 1, 2009
• Has financial hardship and is • First mortgage payment (PITI +
delinquent or at risk of homeowner association/
imminent default condo fees) is greater than
31% of borrower’s gross
income
Key For Counselors
• Educate borrowers about MHA options to avoid foreclosure
• Make initial determination of eligibility for HAMP or other options
Determining Imminent Default
• Borrowers who are current on their loans but are
struggling to make payments may also be eligible
for HAMP if they:
‐ Have a documented hardship – decrease in income,
increase in expenses, facing interest rate increase within
the next four months, etc.
‐ Do not have sufficient savings or other liquid assets to
make future payments
Restrictions on HAMP Eligibility
• Originated after January 1, 2009
• Previously modified under HAMP
• Secured by investment properties or secondary
residences
• Secured by vacant or condemned properties
• HAMP expires December 31, 2012
Modification Process: Determine Eligibility
• Determine if borrower meets minimum eligibility criteria
• Obtain borrower’s income and debt information
– May rely on verbal information for trial period but servicer
will need to verify and document before modification is final
• Calculate borrower’s target modified payment to reach debt‐to‐
income ratio of 31%
Key for Counselors
• Assemble documentation and stress importance of
submitting documentation before trial period is over
• Prepare borrower to work effectively with servicer
• Facilitate borrower/servicer interaction
• Provide mandatory counseling for borrowers with DTI >55%
Modification Process: Calculate Modified Payment
Servicer performs the following steps, in order, necessary to reach
target modification payment…
Step 1: Capitalizes outstanding debt, escrow advances and
out‐of‐pocket servicing expenses (no late fees
allowed)
Step 2: Reduces the interest rate to as low as 2%
Reduced rate remains fixed for 5 years and increases 1% per year
thereafter to market interest rate at time of modification
Step 3: Extends loan term up to 40 years
Step 4: Defers a portion of the principal, interest‐free, until
loan is paid off
Modification Process: Perform NPV Test
• NPV test determines if modification benefits investor
– If NPV test is positive, servicer must modify loan
– If NPV test is negative, servicer may modify loan, but is
not required to
– Positive NPV test is not required for GSE loans
• NPV test factors include:
– Home value relative to mortgage amount
– Likelihood of foreclosure
– Home price trends
– Cost of foreclosure and cost of modification
– Default rate and discount rate
When Does HAMP Take Effect?
• After eligibility, modified payment calculation, and NPV test, servicer offers
borrower 3‐month trial modification plan
• Borrower signs and returns trial modification plan with first trial payment
• Modification is final after borrower successfully completes all 3 trial period
payments and returns all required documentation including signed
modification agreement
• If borrower does not complete trial period or defaults (90+ days past due)
after modification takes effect—
– Servicer will evaluate borrower for other loss mitigation options before
resuming foreclosure proceedings
– Servicer cannot offer a new Home Affordable Modification
Key for Counselors
• Help borrowers understand mod docs and importance of returning
them to servicer
• Coach borrowers for long‐term success
Second Mortgage Lien Modification Program (2MP)
• Purpose
– Modifies 2nd mortgages of qualifying at‐risk
borrowers to achieve affordable payments on both
mortgages
– Incentives encourage participation from all parties
• Scope
– Estimated that up to 50% of at‐risk borrowers with
1st mortgages have 2nd mortgages
2MP ‐ continued
• A 2nd mortgage lien may be eligible when…
– The mortgage lender is a participant in the
Second Mortgage Lien Modification Program
under HAMP
– Borrower’s corresponding 1st mortgage is
modified through HAMP
– Mortgage originated on or before January 1,
2009
• 3rd and/or 4th mortgage liens are not eligible
2MP ‐ Continued
• May only be modified once
• No fee charged to modify
• Borrower must provide consent to share their 1st
mortgage lien modification data with the 2nd
mortgage lender if the lenders are two different
parties
Are Lenders Required to Participate?
• Servicers of Fannie Mae and Freddie Mac loans ‐ YES
• For other loans, participation is optional. However,
significant financial incentives encourage participation
by borrowers, mortgage lenders and investors
• List of participating servicers of non‐GSE loans is
available at www.MakingHomeAffordable.gov
• Participating servicers may not proceed with
foreclosure sale until borrower has been evaluated for
MHA
Case Study: HAMP Modification
Current Situation The “Waterfall”
Monthly Income: $3,917 1. Capitalize Delinquent
Amount: $18,772
Months Delinquent: 10
2. Lower Interest Rate to 2%
Amount Delinquent: $18,772 For First 60 Months 2.00%*
Interest Rate: 6.50% Market Rate at Mod 4.85%
*Rate increases 1% a year after 5 years up to 4.85%
Remaining Months: 324
3. Increase Term to 326 months
PI Payment: $1,877
NEW PI Payment: $1,214
Monthly Savings for 60 Months
$663
Savings During First Year
$7,956
Incentives Reward Success
• Borrowers
– No cost for modification
– Increase equity on 1st mortgage from modified 1st and 2nd mortgages
– Must make timely payments for Servicer/Borrower to receive incentives
• Servicers
– Incentive for interest rate reduction for first and second mortgages
– Additional $500 if borrower faced imminent default
– Incentive to reduce monthly payment by 6% or more
• Investors
– Incentive for interest rate reduction for first and second mortgages
– Additional $1,500 to modify loans in imminent default
– Home Price Decline Protection incentive accrues over 2 year period for
loans in markets where property values continue to decline
Coming Attractions
• Consumer outreach to hardest hit foreclosure areas
• Foreclosure alternatives when modification is not the
answer
• Integration of FHA/VA/USDA Loans
• NPV model via web portal
Additional Resources
• Program details for borrowers, servicers and counselors
– www.MakingHomeAffordable.gov
– www.FinancialStability.gov
– www.HMPadmin.com
• For Immediate Borrower Assistance:
– Call 1‐888‐995‐HOPE (4673)
• Fannie Mae
– www.fanniemae.com or 1‐800‐7Fannie or
www.efanniemae.com
• Freddie Mac
– www.freddiemac.com or 1‐800‐Freddie
Questions and Answers
www.MakingHomeAffordable.gov
1‐888‐995‐HOPE (4673)

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