Freddie Mac Standard Modification Overview for Housing Counselors. Counselor Connection Baltimore, Maryland May 8, 2012

Transcription

1 Freddie Mac Standard Modification Overview for Housing Counselors Counselor Connection Baltimore, Maryland May 8, 2012

2 Objectives Understand how Servicers will apply Freddie Mac requirements for the Standard Modification Understand how Servicers will apply Freddie Mac requirements for the Borrower Response Package, including updated income and hardship documentation for the Standard Modification Explain the Standard Modification process 2012 Freddie Mac 2

3 What is a Loan Modification? A loan modification is a written agreement that the Servicer enters 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 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) Section B What is a loan modification? 2012 Freddie Mac 3

4 Benefits of the Standard Modification Creates a more affordable first lien housing payment that helps more borrowers with a sustainable modification solution Simplifies the Servicer s underwriting of the modification by establishing 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-defaults 2012 Freddie Mac 4

5 Alternatives to Foreclosure Evaluation Hierarchy Section Evaluation Hierarchy, Borrower Solicitation and Communication HARP Reinstatement and Relief Options HAMP Modification Standard Modification HAFA Short Sale Freddie Mac Short Payoff HAFA Deed in Lieu Freddie Mac Deed in Lieu Foreclosure 2012 Freddie Mac 5

6 Eligible Property Types 2012 Freddie Mac 6

7 Eligible Property Types Owner- or non-owner-occupied properties» 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 2012 Freddie Mac 7

8 Eligible Mortgages 2012 Freddie Mac 8

9 Eligible Mortgages Conventional first-lien mortgages owned, guaranteed, or securitized 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 B Ineligibility 2012 Freddie Mac 9

10 Eligible Mortgages (cont d) MTMLTV ratio is the gross UPB of the current loan divided by the property value The gross UPB» if not previously modified it is the current unpaid principal balance» If defaulted d on a prior loan modification with a principal i forbearance it is the interest bearing UPB and the noninterest bearing UPB Section B65.13c - Mortgage eligibility 2012 Freddie Mac 10

11 Eligible Mortgages (cont d) Comparison of LTV to MTMLTV LTV Pre-modified MTMLTV The loan-to-value (LTV) Divide the sum of the ratio is obtained by dividing interest-bearing and noninterest bearing UPB by amount by the appraised the property valuation the first-lien mortgage g value of the mortgaged specified by Freddie Mac premises: in Guide Section B65.16: First-Lien Mortgage Amount Appraised Value Origination Interest-bearing + Non-interest bearing UPB Property Valuation Pre-modification Section B Eligibility Requirements for a Freddie Mac Standard Modification 2012 Freddie Mac 11

12 Ineligible Mortgages FHA/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 2012 Freddie Mac 12

13 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 for review Section B65.4 Approval authority 2012 Freddie Mac 13

14 Standard Modification Exceptions Example of exceptions that Servicers can send to Freddie Mac for approval» MTMLTV < 80 percent» When the Borrower s hardship is one that does not fall under the definition of eligible hardship in Guide Section and the Servicer believes an exception should be considered d» Loans that have been previously modified two or more times 2012 Freddie Mac 14

15 Borrower Eligibility 2012 Freddie Mac 15

16 Borrower Eligibility Borrower 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 modification If prior modified monthly principal and interest payment is reduced by more than 10%: less than or = to 10%: And the effective date of the prior modification vs. the evaluation for the Standard Modification is within 12 months: greater than 12 months: Ineligible Eligible Eligible Eligible Examples of Standard Modification eligibility for borrowers who have defaulted on previous modifications: Principal + Interest Payment HAMP Modification Standard Modification Pre-HAMP HAMP Reduction Effective Date Evaluation Date # Months Eligible? $1,000 $880 12% 10/15/ /15/ YES $1,000 $880 12% 1/15/ /15/ NO $1,000 $910 9% 1/15/ /15/ YES $1,000 $910 9% 10/15/ /15/ YES Section B65.13 Eligibility requirements 2012 Freddie Mac 16

17 Borrower Eligibility (cont d) Borrower must have verified income available to make the modified mortgage 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 requirements Section B65.18 Determining i the terms 2012 Freddie Mac 17

18 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 Freddie Mac Standard Modification) Borrowers who are current or less than 60 days delinquent must occupy the 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 or decrease in income Unemployment and other temporary hardships are not eligible hardships Section B65.13 Eligibility requirements 2012 Freddie Mac 18

19 Imminent Default Hardship Documentation Section B65.15 Determining Imminent Default for Freddie Mac Standard Modification 2012 Freddie Mac 19

20 Solicitation Timeline 2012 Freddie Mac 20

21 Standard Modification Process Timeline Send Borrower Package 31st 35th * day of delinquency Receive a Complete Borrower Response Package Evaluate Borrower per Evaluation Hierarchy No more than 30 days Within day of delinquency Hierarchy 5 days 3 5* months Trial Period Submit closing data to Freddie Mac within 2 months after Trial Period ends Send Borrower Package 61st 65th day of delinquency, if quality right party contact not achieved Determine Eligibility Determine Modification Terms Make Send Borrower Evaluation Standard Decision Modification Trial Period Plan Notice Determine Final Modification Terms Include capitalized amounts Standard Modification Closing and Settlement 2012 Freddie Mac 21

22 Borrower Solicitation Package Borrower Solicitation Package used for ALL solutions Uniform requirements for what must be sent to a borrower:» Solicitation it ti 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 2012 Freddie Mac 22

23 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 2012 Freddie Mac 23

24 New Hardship Requirements Servicers 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 default hardship documentation The borrower must document the financial hardship by: Signing i and submitting i 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 2012 Freddie Mac 24

25 Determine Eligibility for a Trial Period Plan Based on Estimated Modification Terms Section B65.18 Determining the terms of a Freddie Mac Standard Modification 2012 Freddie Mac 25

26 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 2012 Freddie Mac 26

27 Example 1 Without Forbearance Calculations Gross UPB (interest bearing + non-interest bearing) before capitalization: $190,000 Property value: $180,000 Step 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 $ 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 g is not eligible for forbearance. Step 8 Reassess proposed modified P&I based upon new interest-bearing UPB 2012 Freddie Mac 27

28 Examples 2 and 3 Forbearance Calculations Gross UPB (interest t bearing + non-interest t bearing) before capitalization: ti $190, Property value: Example 2 = $100,000 Example 3 = $150,000 $ 7,000 (interest) $190,000 (gross UPB before capitalization) Step 1 Capitalize Arrearages $ 3,000 (tax advance) + $ 10,000 $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: $ Modified Principal & Interest Payment Section B65.18 Step 4 Calculate Pre-modified MTMLTV (gross UPB before capitalization property value) Example 2 Example 3 $190,000 $100,000 = 190% Pre-modified MTMLTV $190,000 $150,000 = 126.7% pre-modified MTMLTV Step 5 Determine if the pre-modified MTMLTV is greater than 115% 190% is greater than 115%; therefore, eligible for forbearance. Step 6 If pre-modified MTMLTV is greater than 115%, forbear as follows: 115% x $100,000 (property valuation) = $115,000 Forbearance amount A $200, (post-modification ti gross UPB) to calculate 115% 115,000 pre-modified MTMLTV $ 85,000 (forbearance amount A) Forbearance amount B at 30% of Gross $200,000 x 30% = 60,000 (forbearance amount B) Capitalized UPB 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 MTMLTV ratio Step 8 Reassess proposed modified P&I based upon new interest-bearing UPB $ Modified Principal & Interest Payment ($140,000 interest-bearing UPB) 126.7% is greater than 115%; therefore, eligible for forbearance. 115% x $150,000 (property valuation) = $172,500 $200, (post-modification ti gross UPB) 172,500 $ 27,500 (forbearance amount A) $200,000 x 30% = 60,000 (forbearance amount B) 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 MTMLTV ratio $ Modified Principal & Interest Payment ($172,500 interest-bearing UPB) 2012 Freddie Mac 28

29 Standard Modification Housing Expense to Income Ratio Calculations Property Type Primary Residence Second Home Investment Property with Positive or Zero Net Rental Income Investment Property with Negative Net Rental Income Calculations PITIAS Payment Monthly Gross Income PITIAS payment of the subject property PITIAS payment of the borrower s + primary residence Monthly Gross Income PITIAS payment of primary residence Monthly gross income + Net rental income PITIAS payment of primary residence _+ Negative net rental income Monthly Gross Income Section B65.13c Mortgage Eligibility 2012 Freddie Mac 29

30 Principal and Interest Payment Reduced by at Least 10 Percent 100% $2,800 Step 9 using Example 1 MONTHLY INCOME Pre-Modified Principal and Interest Payment Estimated Modified Principal and Interest Payment Principal & Interest $ $1, $ Current principal pa and interest payment: $ x 10% = $ $1, Current P&I payment $ $ = 10% reduction of current principal and interest payment Taxes Insurance HOA Fees 2012 Freddie Mac 30

31 Assess Eligibility: Post-Modification Monthly Housing Expense-to-Income Ratio (PITIAS) Step 10 using Example 1 Post-Modified PITIAS 100% MONTHLY INCOME $2, P&I $ Taxes $ Hazard Insurance $ Flood Insurance $ Mortgage Insurance $ HOA Fees $ Actual Monthly Escrow Shortage Payment $ Total $1, % $1, Post-Modified PITIAS Ratio: $1, $2, % Target PITIAS 10% $ Principal & Interest $ Taxes Insurance HOA Fees $100 $75 $25 Including Mortgage Insurance 2012 Freddie Mac 31

32 Standard Modification If the borrower is found eligible for a Standard Modification, they must enter into a three month trial period» The trial period can be extended up to two months to obtain court approval if a bankruptcy is filed The Servicer may utilize an interim reporting month to facilitate processing that follows the trial period and is not part of the trial period Section B65.19 Trial Period Plan requirements 2012 Freddie Mac 32

33 Standard Modification High Level Process Servicer evaluates borrower for Standard Modification Delegated or Exception? Exception Review Servicer submits request to Freddie Mac for Exception approval Delegated Path (If borrower meets eligibility) Trial Period Process Freddie Mac analyzes Exception request Freddie Mac documents and delivers decision Workout Prospector Approved Freddie Mac approved or rejected? Rejected Post- Settlement QC Settlement Reporting Consider HAFA Short Sale 2012 Freddie Mac 33

34 Resources Questions about the Standard Modification or the Servicing Alignment Initiative Freddie Mac Standard Modification Webpage Freddie Mac Standard Modification Reference Guide Solicitation forms/templates Freddie Mac 34

35 Resources Servicing Alignment Initiative fact sheet: Servicing Alignment Initiative FAQs Other resources for housing counselors: Freddie Mac 35

36 Stay Connected! Subscribe to Freddie Mac s Housing Professionals Outreach News Get the Latest News on Freddie Mac Borrower Outreach Initiatives Sign Up for Trainings Obtain Information That Helps With Your Borrower Engagement Strategies Staying connected is quick and easy! Go to Freddie Mac s Housing Professionals Outreach News Subscription Center and sign up today! Visit: Freddie Mac 36

37 ??? Questions??? 2012 Freddie Mac 37