Affordability: Modifications should provide affordable payments and terms. Sustainability: Modifications should produce long term performance.

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1 November 3, 2016 Ms. Maria Fernandez Mr. Prasant Sar Ms. Mary Baehr Mr. Luis Saucedo Federal Housing Finance Agency Constitution Center th Street, S.W. Washington, DC Dear Ms. Fernandez, Mr. Sar, Ms. Baer, and Mr. Saucedo: The undersigned organizations greatly appreciate all of the work that FHFA and the Enterprises have put into creating a post HAMP loss mitigation offering. Having had the opportunity to review the analysis and modification proposals presented by the Enterprises at our August 25 and October 11 meetings, we believe the proposed modification will provide appropriate relief to a significant segment of homeowners. The importance of the Enterprises offering a modification to all distressed borrowers that reduces monthly payments is twofold. First, historical data show that reducing monthly payments by at least 20 percent makes a significant, lasting difference that can keep many borrowers in their homes. Second, this modification will set an industry standard in a post HAMP environment to reduce monthly payments through a combination of interest rate reductions, term extensions, and loan forbearance. However, we believe there are a few tweaks to the details of what we believe to be the proposed modification that would enable it to help more borrowers, which we discuss below. Additionally, a one size fits all approach to help as many borrowers as possible will of necessity prove inadequate for certain subsets of the borrower population, including some of the most vulnerable, such as seniors, people with disabilities, and very low income borrowers. In particular, borrowers with some equity in their home will not receive much benefit from the forbearance portion of the mod. With these communities as our focus, we offer the following comments and recommendations. These recommendations are based on the following core principles: Affordability: Modifications should provide affordable payments and terms. Sustainability: Modifications should produce long term performance. Equality: Homeowners who engage with the servicer should have access to the same set of options regardless of the number of days they have been delinquent. Many 1

2 homeowners only seek assistance or succeed in connecting with their servicer after default or foreclosure. Transparency: Homeowners should be informed about all available options and be able to assess their eligibility through resources that are publicly available. Accountability: Homeowners who cannot gain access to their servicer to seek modifications or other foreclosure alternatives or who are not offered the appropriate options by their servicer should have clear and effective opportunities to escalate and obtain recourse. Recommendations 1. Create a more robust exceptions path as well as a series of triggers that would send distressed borrowers down that path. Given the inherent limitations of the proposed approach, we strongly recommend that the Enterprises create a far more robust exceptions path easily accessible by homeowners whether or not they are represented by a housing counselor, attorney, or other intermediary. For pre 90 day borrowers who will need to engage with servicers to obtain assistance, the servicer should be prepared to offer an exception path as needed. For post 90 day borrowers, the servicer s generic streamlined offer letter should inform borrowers who believe they have special circumstances to submit an application for individualized consideration. The exceptions path should have a robust toolbox that includes, but is not limited to: Interest rate reductions below market rate for certain circumstances; A mechanism for homeowners to know and rebut the automated valuation model (AVM) produced mark to market valuation; Term extension flexibility for borrowers nearing the end of their mortgage term, i.e., so a person in year 20 of a mortgage does not get extended out more years than are necessary to meet the payment reduction or HTI requirement. When a borrower submits an application that includes income and other information, the servicer should screen for specific circumstances that could qualify someone for an exception path, such as significant loss of income or significant increase in expenses (or both) due to death, disability, advanced age, permanent salary decrease or underemployment, medical issues or other family tragedy. For borrowers experiencing these circumstances, a different type of mod would be more useful. 2

3 Even without submitting a mod application, servicers should be able to screen for special circumstances through already available loan data that would indicate a borrower might benefit from the exceptions path. Examples of such circumstances include, but are not limited to: When the streamlined mod provides less than a 20 percent payment reduction; If a borrower has been in their current mortgage more than 10 years; If the original loan was counted toward Fannie or Freddie affordable housing goals credit; If the property is located in a FEMA disaster area or in an area where home values have recently appreciated significantly. We suggest creating a working group of the Enterprises, FHFA, servicers, housing advocates and counselors in the field, to consider what types of borrowers are most likely to need help that goes beyond the one mod and, as outlined above, to focus on making the exceptions path more robust and accessible both to housing counselors and other intermediaries, and to homeowners without assistance. 2. Increase the forbearance cap from 30% to 40%. As the Enterprises October 11 data analysis showed, increasing the forbearance cap to 40% increased the target bracket by 4.3 percentage points and reduced the ineligible bracket by 2 percentage points. These percentages represent a significant number of families, so this change should be included in any final proposal. 3. Offer the same modification options to all borrowers who engage, regardless of timing. We greatly appreciate that the Enterprises are considering including in their post 90 day streamlined mod an additional forbearance down to 80 percent LTV if forbearance down to 100 percent LTV does not result in a payment reduction of at least 20 percent. Many of the most troubled borrowers do not engage with their servicer early, and borrowers who are more than 90 days delinquent should be eligible for as much assistance as other borrowers. In that respect, the modification being considered by the Enterprises is a significant improvement on the Mortgage Bankers Association proposal. However, in the Enterprises proposal, borrowers who engage prior to 90 days not only get the additional forbearance if their payments are reduced by less than 20 percent but also if the mod does not reach a certain HTI level. For reasons of treating all borrowers equally, we recommend that servicers extending a streamlined modification after 90 days should notify borrowers that they can submit an application to be reviewed on the same terms as the pre 90 day borrowers. 3

4 4. Lower the HTI threshold to 31 percent. Enterprise data show that lowering the HTI threshold to 31 percent increases the number of borrowers who receive the additional forbearance by one percent (29.7% to 30.7%) and likely would not greatly increase the cost of modifications in the aggregate. We believe this data point alone suggests that the HTI threshold should be reduced to 31 percent. If this is a difficult decision, we believe two additional data points that could help would be: (1) understanding the demographic composition of the additional one percent of borrowers who would be helped using a different HTI; and (2) knowing whether reducing the HTI increases the total payment reduction for homeowners receiving modifications. 5. Create a housing counseling resource similar to the HAMP resource. Sincerely, Ideally, the Enterprises should contract with HUD approved housing counseling agencies to provide housing counseling support for distressed borrowers with Enterprise backed loans, just as MHA did for HAMP. At minimum, this system should support borrowers whose profiles suggest an exception path would be the best route for them, borrowers who do not respond within the first 90 days, and borrowers that are initially deemed ineligible for a mod. Americans for Financial Reform Center for American Progress Center for Responsible Lending Empire Justice Center National Community Reinvestment Coalition National Community Stabilization Trust National Consumer Law Center (on behalf of its low income clients) National Council of La Raza National Housing Resource Center 4

5 cc: Robert Kimble, Freddie Mac Ryan McGuiness, Freddie Mac Malloy Evans, Fannie Mae William Cleary, Fannie Mae 5