Making Home Affordable Program (MHA)

On March 4, 2009 the US Treasury issued Uniform Guidance for two distinct and different programs under President Obama’s “Making Home Affordable” plan which is the Administration’s strategy to get the housing market corrected:

The two programs include:

1. Home Affordable Modification

2. Home Affordable Refinance

Home Affordable Modification Program:

Eligibility and Verification

·          Loans originated on or before January 1, 2009.

·          First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.

·          All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.

·          Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.

·          Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.

·          Modifications can start from now until December 31, 2012; loans can be modified only once under the program.

Loan Modification Terms and Procedures

·          Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.

·          Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.

·          Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.

·          Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).

·          The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.

·          The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.

·          Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers

·          The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.

·          Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.

·          Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.

·          The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.

·          The program will include incentives for extinguishing second liens on loans modified under this program.

·          No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.

                        Similar incentives will be paid for Hope for Homeowner refinances.

Transparency and Accountability

·          Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.

·          Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.

·          Freddie Mac will audit compliance.

Eligibility

    * The refinancing option is only available for conforming loans owned or securitized by Fannie Mae and Freddie Mac.
    * The property must be owner occupied.
    * The borrower must have sufficient income to support the new mortgage debt
    * The first mortgage may not exceed 105% of the current market value of the property. For example if the property is worth $200,000, the borrower must owe $210,000 or less.
    * If a borrower has a second lien and the total debt on the property exceeds 105% the borrower may still be eligible for a refinance if the first lien does not exceed 105% of the value of the property and all junior lien holders agree to subordinate to the new first mortgage.
    * Borrow cannot be delinquent on their mortgage (if they are delinquent use the Home Modification Program)
    * Only transaction costs may be included in the refinanced amount.
    * Both Fannie Mae and Freddie Mac have established toll-free numbers and web submission process to determine if a customer’s loan is owned or securitized by Fannie Mae or Freddie Mac.

Home Affordable Modification Program, con't.

On March 4, 2009, the federal government announced details of the Home Affordable Modification program, part of the Making Home Affordable program. The Home Affordable Modification program is a loan modification program designed to reduce at-risk borrowers' monthly mortgage payments.

Freddie Mac is pleased to play a leadership role by implementing the Home Affordable Modification program. Our March 11, 2009, Single-Family Seller/Servicer Guide Bulletin [PDF 112K] 2009-6 provides requirements for Servicers to implement, underwrite, and service eligible Freddie Mac-owned mortgages under the Home Affordable Modification program. We urge Servicers to thoroughly review the Bulletin for complete requirements.

Requirements for the Home Affordable Modification Program
The Home Affordable Modification program is effective immediately for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2012. Servicers should no longer solicit borrowers for a modification under the Streamlined Modification Program, and should instead begin to solicit eligible borrowers who are 31 or more days delinquent for a modification under the Home Affordable Modification program. Servicers should not solicit borrowers for this program who are less than 31 days delinquent.

Mortgage and Borrower Eligibility Requirements
The following mortgages are allowed for modification under this program:

First-lien conventional mortgages that are single-family 1- to 4- unit primary residences, including condos, cooperatives, Guide-eligible manufactured homes, and conforming jumbo mortgages.
Mortgages for properties that are abandoned, vacant, or condemned are not eligible.
Mortgages may be previously modified, but can only be modified once under the Home Affordable Modification program.
Eligible borrowers must provide affirmation of financial hardship and proof of current income. Borrowers may be in foreclosure, and any foreclosure action will be temporarily suspended while borrowers are considered for foreclosure prevention options unless the Servicer has completed efforts to contact a borrower and has determined (1) the borrower has not responded or (2) the borrower does not have the capacity or willingness to participate in the program or a Freddie Mac workout program. Borrowers are still eligible if they are in active bankruptcy. If the borrower is in pending litigation regarding the mortgage, they can obtain a modification without waiving legal rights. Other mortgage and borrower eligibility requirements apply as noted in the March 11 Bulletin [PDF 112K].

Borrower Solicitation Requirements
Freddie Mac Servicers must proactively solicit borrowers who are 31 days or more past due, using the processes and tools that will be available in the coming days. Servicers are prohibited from soliciting borrowers who are less than 31 days delinquent. However, if a borrower who is less than 31 days delinquent proactively seeks assistance from the Servicer, they may be considered for a modification under the new Home Affordable Modification program.

Solicitation Tools and Documentation
Servicers may deploy the following borrower solicitation and cover letters, but must use the uniform instruments. The following documents are currently available for you to download from the secure Web site that requires your Mortgage Servicing Products ID to access:

A Proactive Solicitation Letter that may be used for borrowers who are 31 days or more delinquent. (Form 1120)
A Documentation Request Letter that may be used to collect additional required information from the borrower. (Form 1121)
A Hardship Affidavit to be signed by all borrowers. (Form 1122)
A Workout Plan Cover Letter for stated income. (Form 1123)
A Workout Plan Cover Letter for verified income. (Form 1124)
A Counseling Letter that informs borrowers they are required to attend credit counseling. (Form 1119)
A SIGTARP Fraud Notice that must accompany the Document Request Letter or the Workout Plan Cover Letter for stated income. (Form 1125)
The following documents will be available to you in the near future:

Home Affordable Modification Program Workout Plan (Uniform Instrument Form 3156)
Home Affordable Modification Program Modification Agreement (Uniform Instrument Form 3157)
An Agreement Cover Letter.
Servicers may also download the Freddie Mac logo to co-brand envelopes and packages. Servicers may not use Freddie Mac's logo without also including its own logo and any other disclosures required by applicable federal, State, or local law (e.g., equal housing lender logo).

Underwriting Requirements
Underwriting focuses on creating a first-lien housing payment of principal, interest, insurance (property, flood, etc.), taxes, homeowner/condo association fees, and escrow shortage (PITIAS) that is as close to, but no less 31 percent of the borrower's gross monthly household income. A new PITIAS amount is established using a sequential process as needed in the following order:

Capitalizing arrearages.
Reducing the interest rate.
Extending the amortization terms to up to 40 years.
Granting partial principal forbearance.
A Borrower Qualification Worksheet will be available in the near future for Servicers to use to calculate the PITIAS payment, determine borrower eligibility, and the loan modification terms available to the borrower. In the meantime, Servicers are to engage in solicitation of delinquent borrowers, gathering of required information and documentation, and a preliminary manual review of borrowers under the eligibility criteria. We will also provide an Automated Valuation Model (AVM) property value report for Servicers to use where these values are available. This report will be available to Servicers from this page, and will be updated on the 5th business day of each month beginning in April.

A total monthly debt-to-income ratio is then calculated, and borrowers with ratios greater than or equal to 55 percent must agree to enter a free credit-counseling program with a HUD-approved housing counseling agency as a condition for the modification. To the extent permitted by applicable law, an escrow account must be maintained on the modified mortgage, even if the existing mortgage does not have an escrow account. Additional details are available in the March 11 Bulletin [PDF 112K].

Borrowers must successfully complete a three-month trial payment period, during which they will be required to remit the estimated new monthly payment. Servicers enter into a workout/forbearance plan with the borrower during the trial period, followed by a modification agreement upon successful completion of the trial period. Additional requirements for income, collateral, escrows, credit enhancements, the trial period, and the steps to take once the borrower successfully completes the trial period are detailed in the March 11 Bulletin [PDF 112K].

Reporting and Incentives
Servicers should consult their mortgage insurance providers for approval and specific processes related to the reporting of modified terms, payment of premiums, payment of claims, and other operational matters in connection with privately insured mortgage loans modified under the Home Affordable Modification program. Freddie Mac is seeking to obtain delegations of authority from each mortgage insurer so that Servicers can more efficiently process these loan modifications without having to obtain mortgage insurer approval on individual loans. We will post a list of the mortgage insurers from whom we have received a delegated authority agreement and will update that list as we obtain delegations. Until we obtain a delegated authority agreement from a mortgage insurer on behalf of all Servicers, each Servicer must obtain mortgage insurer approval on a case-by-case basis.

The Home Affordable Modification program provides incentives to borrowers and Servicers for successful modifications and timely mortgage payments.

Borrowers who remain current on their mortgage payment receive a principal reduction of up to $1,000 per year for five years.
Servicers receive $1,000-$1,500 for each eligible modification they establish, and incentives of up to $1,000 each year for three years as long as a borrower stays current on their loan.
Incentives accrue monthly based on timely payment and are awarded yearly. The payment of incentives will be forfeited should the borrower become 90-days or more delinquent at any time.

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