AAR Homeowner Affordability And Stability Program

Homeowner Affordability and Stability Program

Understanding the Logistics

Amy Swaney, CMBPeoples Mortgage Company

Making Home Affordable

3 Distinct Areas of Focus

• Home Affordable Refinance Programs

• Home Affordable Modification Programs

• Restoring Confidence in FNMA/FHLMC

Borrower

Brokers

Servicing

InvestorBankers

WallStreet

Secondary

Market

Understanding the Secondary Market

Understanding Securitization

$100 MillionPool of

Mortgages

$100 Million

MBS

The Bank

Buys or Originates

The Bank

Packages into MBS

The Secondary Market Buys the MBS and Sells to investors

Understanding Securitization -Then

FNMA

FHMLC

$100 Million

MBS

Wall Street Firms

Private

Understanding Securitization - Now

FNMA

FHMLC

$100 Million

MBS

Wall Street Firms

Private

Making Home Affordable

3 Distinct Areas of Focus

• Home Affordable Refinance Programs

• Home Affordable Modification Programs

• Restoring Confidence in FNMA/FHLMC

1 -Home Affordable Refinance

Understanding the Secondary Market Federal National Mortgage Association

(FNMA/Fannie Mae)Federal Home Loan Mortgage Corporation

(FHLMC/Freddie Mac)

2 separate entities both currently held in conservatorship by the government

Freddie MacHome Affordable

RefinanceFHLMC must own your 1st mortgage

1. You must be current

2. Your 1st mortgage must be 105% or less of current market value

3. If you have a 2nd mortgage, the lender MUST AGREE to subordinate

4. You must obtain the refinance from your current servicer

Fannie MaeHome Affordable

RefinanceFannie Mae must own your 1st mortgage

1. You must be current

2. Your 1st mortgage must be 105% or less of current market value

3. If you have a 2nd mortgage, the lender must agree to subordinate

4. You may obtain the refinance from any mortgage originator or current servicer

How Do You Know?

Is your loan owned by Fannie Mae?1-800-7FANNIE (8 a.m. - 8 p.m. EST)

http://www.fanniemae.com/homeaffordable

Is your loan owned by Freddie Mac? 1-800-FREDDIE (8am to 8pm EST)

www.freddiemac.com/avoidforeclosure

http://www.fanniemae.com/homeaffordable

http://www.freddiemac.com/avoidforeclosure

1-Home Affordable Refinance

General Guidelines for both Programs

Mortgage Insurance:• If original loan did not require mortgage insurance

- new loan will not require mortgage insurance• If original loan did require mortgage insurance -

new loan will require the same amount of coverage

Loan Level Price Adjustments:LLPA’s reduced

1-Home Affordable Refinance

General Guidelines for both Programs

Streamline Documentation Guidelines:

• AVM or Reduced Appraisal

• Income documentation waivers

Home Affordable Refinance

Issues• Loans over 105% LTV - Arizona• 2nd Mortgage Lenders not required to

subordinate• No determination of how the secondary

market will price these loans• Banks still have liquidity issues for funding

the loans

2- Home Affordable Modification

Who is Eligible?

• 1st Mortgages currently owned by FNMA or FHLMC • Must be owner-occupied, 1- to 4- unit, including

condos, cooperatives, 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.

Home Affordable Modification

Who is Eligible?• Eligible borrowers must provide affirmation of

financial hardship and proof of current income. • Borrowers may be in foreclosure.• 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.

Borrowers are still eligible if they are in active bankruptcy.


UnderwritingUnderwriting looks to create a 1st mortgage

housing payment of 31% of household income

(principal, interest, insurances, taxes, homeowner/condo association fees, and escrow shortages- PITIAS)

A new PITIAS amount is established.


UnderwritingBorrowers must successfully complete a three-month trial payment period, during which they will be required to pay 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.


Incentives• Borrowers who remain current on their payment

receive a principal reduction of up to $1,000 per year for five years.

• Servicers receive money 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.


How Will Lenders Modify?

• Use borrower’s monthly household gross income x 31%

• Solve for new monthly “affordable” payment using the following sequential steps until the 31 percent PITIAS-to-income ratio is achieved:

.

Home Affordable ModificationModification Process

STEPS

1. Calculate New Unpaid Principal Balance: Principal Balance + Escrow Shortages + Arrearages = Unpaid Principal Balance (UPB)

2. Calculate a new monthly payment:Use the new UPB The current note rate on the mortgageThe remaining term * If an affordable payment is achieved, the interest rate will fix permanently at the current note rate – if not continue

3. Reduce the interest rate in decrements of 0.125 percent to no lower than 2.0 percent **If the modified interest rate is below the market rate, the rate will remain fixed for five years. In the sixth year, the interest rate will be subject to annual increases of no more than 1 percent per year, not to exceed the lesser of the fully indexed rate at the time the loan was originated or the market rate (PMMS) at the time the modification documents are prepared.


Modification ProcessSTEPS

4. Extend the amortization term Month-by-month up to 480 months

5. Forebear principalThe interest-bearing principal is not less than 100 percent of current market value. ***Deferred principal will not be subject to interest and requires a balloon payment due upon sale, payoff or maturity. Deferred principal will be non-interest bearing and non-amortizing.

6. If a PITIAS-to-income ratio of no less than 31 percent cannot be achieved, the borrower does not qualify for this program.


Benefits• Modifications under program available to

any first lien up to $729,750.• Incentives for servicers to extinguish 2nd

lien debt• Additional Incentives to servicers to

facilitate short-sales AND deed-in-lieu's for loans not qualified for program


Issues• Loans must be owned or guaranteed by

FNMA/FHLMC• Credit Implications not determined• Is this delaying inevitable• No safe-harbor for servicers on private

label portfolios

3-Confidence in FNMA/FHLMC

Continuing the purchase of up to $600 billion in GSE debt and GSE Mortgage

Backed Securities

Increase the GSE’s retained portfolio caps from $50 billion to $900 billion

Marilyn Ferguson

It's not so much that we're afraid of change or so in love with the old ways, but it's that place

in between that we fear . . . . It's like being between trapezes.

It's Linus when his blanket is in the dryer. There's nothing to hold on to.

More Information…

To receive updates and get on my email broadcast list text or email me your name, company name, email and phone number

Amy Swaney,CMB480-529-3008

[email protected]

AAR Homeowner Affordability And Stability Program

Economy & Finance

Transcript of AAR Homeowner Affordability And Stability Program