HAMP Standard and Alternative Modification Waterfalls...2 HAMP Tier 1 –Standard Modification...

Standard and Alternative Waterfalls 1

Making Home Affordable | February 2015

Training Presentation for Servicers

HAMP Standard and Alternative Modification

Waterfalls

2Making Home Affordable |February 2015

Agenda

HAMP Tier 2 – Standard & Alternative Modification Waterfalls4

Overview of HAMP Eligibility1

HAMP Tier 1 – Standard Modification Waterfall2

HAMP Tier 1 – Alternative Modification Waterfall3

Resources7

Net Present Value (NPV) Model6

Discussion/Questions8

Prohibitions on Modification Waterfall Steps5


Overview of HAMP Eligibility

Criteria GuidelineHAMP

Tier 1

HAMP

Tier 2

Servicer,

Investor,

Insurer

Guidance applies to MHA-participating servicers of mortgages not owned,

guaranteed, or insured by Fannie Mae, Freddie Mac, FHA, VA, or USDA. ��

Origination The mortgage loan is a first lien originated on or before January 1, 2009. ��

Unpaid

Principal

Balance

Limits

The unpaid principal balance, prior to capitalization, must be less than or

equal to: � $729,750 for a one-unit property � $934,200 for a two-unit property � $1,129,250 for a three-unit property� $1,403,400 for a four-unit property

��

Property

ConditionThe property securing the mortgage loan has not been condemned. ��

Financial

HardshipThe borrower must be able to document a financial hardship. ��





Tier 1

HAMP

Tier 2

“Natural”

Persons

The borrower is a “natural” person. Mortgage loans made to business

entities are not eligible for assistance under HAMP. ��

OccupancyThe mortgage loan is secured by a single family property that is occupied

by the borrower as his or her principal residence. ��

Occupancy

The mortgage loan is secured by a single-family property that is used by

the borrower for rental purposes only and not occupied by the borrower,

whether as a principal residence, second home, or vacation home.

Borrower may not own more than five single-family properties in

addition to the principal residence.

--- ��




Tier 1

HAMP

Tier 2

DelinquencyThe mortgage loan securing the principal residence is not delinquent,

but default is reasonably foreseeable. ��

Delinquency The mortgage loan securing the principal residence is delinquent. ��

Delinquency The mortgage loan securing the rental property is delinquent. --- ��




Tier 1

HAMP

Tier 2

Minimum

Payment Ratio

The borrower’s monthly mortgage payment, PITIA, (including principal,

interest, taxes, insurance, and when applicable, association fees, existing

escrow shortages) is greater than 31 percent of the borrower’s verified

monthly gross income.

��

Minimum

Payment Ratio

The borrower’s monthly mortgage payment, PITIA, is less than or equal

to 31 percent of the borrower’s verified monthly gross income. --- ��




Tier 1

HAMP

Tier 2

Previous

HAMP Trial

or

Modification

The mortgage loan has never received a TPP or been modified under

HAMP. ��

Previous

HAMP Tier 1

Trial or

Modification

The mortgage loan has received a HAMP Tier 1 TPP or permanent

modification if the borrower has experienced (i) a change in circumstance

or (ii) at least 12 months have passed since the HAMP Tier 1 modification

effective date.

--- ��

Previous

HAMP Tier 2

Trial or

Modification

The mortgage loan received a HAMP Tier 2 TPP or permanent

modification on which the borrower defaulted or lost good standing. --- ---


8Making Home Affordable | February 2015


An individual, as a borrower or co-borrower, may receive permanent HAMP modifications on mortgages secured by up to six properties.

� A borrower may receive one permanent modification under HAMP Tier 1 or HAMP Tier 2 for a loan secured by an owner-occupied property.

For example: If the borrower loses good standing on a HAMP Tier 1 modification, the borrower may be considered for HAMP Tier 2 permanent modification on the subject property.

� A borrower or co-borrower may receive one HAMP Tier 2 permanentmodification with respect to each of five other properties that meet Tier 2 eligibility requirements.

Limit on Multiple Modifications


The Standard Modification Waterfall is

a stated order of successive steps that

must be applied until the borrower’s

target monthly mortgage payment

ratio is reduced to 31%.STEP 1

CapitalizationSTEP 2

Interest Rate

ReductionSTEP 3

Term

Extension STEP 4

Principal

Forbearance

What Is it?

HAMP Tier 1 - Standard Modification Waterfall

NOTE: Steps must be performed in sequence



MTMLTV ratio –

property valuation

Delinquent Interest

Current Remaining Term

Taxes, insurance,

homeowner association

dues, and escrow shortage

Funds remaining in the

existing suspense account

Current UPB

HAMP Tier 1 - Standard Modification Waterfall

Data Inputs

Loan Information


HAMP Tier 1 – Standard Modification Waterfall

The following items must be capitalized:

• Accrued interest;

• Out-of-pocket escrow advances to third parties;

• Required escrow advances that will be paid to third parties during the trial

period;

• Mortgage insurance payments that are due.

Advances for expenses incurred in performing servicing obligations, such as

foreclosure fees and costs, must also be capitalized. These costs must:

• Be consistent with the security instrument.

• Be allowable under GSE guidelines.

• Not be prohibited by applicable law.

Capitalization

Note: Late fees should not be capitalized!


Gross Monthly Income $ 3,667.10

Desired PITIA @ 31% ($3667.10 x .31) $ 1,136.80

Taxes & Insurance ($ 337.11)

HOA Payment ($ 100.00)

Future Escrow Shortage Payment ($ 10.00)

Target Monthly Mortgage Payment $ 689.69

Original payment (Pre-modification) $ 1,774.61

Current payment $ 1,872.96

Remaining Term 284 months

Current Interest Rate 5.875%


Current UPB $ 274,965.19

�Out-of-Pocket Escrow Advances $ 3,500.00

�Projected Escrow Advance during trial period $ 1,000.00

�Delinquent Interest $ 7,526.07

��Late Fees �� $ 250.00

Adjusted Gross UPB $ 286,991.26

Capitalization Worksheet Example




Taxes & Insurance $ 337.11

HOA Payment $ 100.00

Future Escrow Shortage Payment $ 10.00

Total PITIA: $ 2,320.07

Total PITIA payment: $ 2,320.07

÷÷÷÷Gross Monthly Income: $ 3,667.10

X 100 =

Current Monthly Mortgage Payment Ratio: 63.3%


Capitalization - Monthly Mortgage Payment Ratio Calculation


Reduce the borrower’s interest rate:

� In increments of 0.125% or 1/8 percent.

� Until the target monthly mortgage payment ratio is reached.

� Interest rate floor is 2%.

� Incentives will not be paid for reducing the rate lower than the

2% floor.

� If the resulting rate is below the Interest Rate Cap (Freddie Mac

Primary Mortgage Market Survey, PMMS, Rate), then the reduced

rate will not increase for the first five years.

The ending rate does not have to be a multiple of one-eighth.

Interest Rate Reduction



NEW INTEREST RATE

PROJECTED PAYMENT

2.0%

$ 1,269.32

Current Term

Adjusted Gross UPB

Tax and Insurance

Current Interest Rate

Gross Monthly Income

HOA Payment

Desired PITI @ 31%

Target Payment

284 months

$ 286,991.26

$ 337.11

5.875%

$ 3,667.10

$ 100.00

$ 1,136.80

$ 10.00

$ 689.69

Future Escrow Shortage

If the 31% target monthly mortgage payment ratio cannot be reached by lowering the interest rate to the 2% floor,

then reduce the interest rate to the 2% floor and proceed to Step 3, Term Extension.Note:

46.8%

Use Current

Interest Rate

as the

starting point

Interest Rate Reduction Scenario




Extend the term:

� In one-month increments.

� Up to 480 months, which is the cap.

� As of the data collection date.

When the loan converts to a permanent modification, the term extension

should be as of the Modification Effective Date instead of the data

collection date.

Term Extension



35.8%

Adjusted Gross UPB Amount $ 286,991.26

NEW Interest Rate 2.0%

Current Term 284 months


Desired PITI@31% $ 1,136.80

Tax and Insurance $ 337.11


Future Escrow Shortage $ 10.00

Target Payment $ 689.69

NEW TERM 480 months

PROJECTED PAYMENT $ 869.08

Current term is the

number of months

between modification

effective date and

maturity date.

Term length for target

monthly mortgage

payment ratio

determination may

not go beyond 480

months.

If extending the term to 480 months does NOT achieve the 31% target monthly mortgage payment ratio, or if the

investor does NOT allow term extension or re-amortization, proceed to Step 4, Principal Forbearance.Note:

Term Extension Scenario



Principal forbearance amount:

• Is non-interest bearing;

• Is non-amortizing;

• Results in a balloon payment fully due and payable upon the earliest of

the borrower’s transfer of the property, payoff of the interest bearing

UPB, or at maturity of the mortgage loan.

The greater of the following:

• 30% of the UPB after capitalization; or

• An amount resulting in a modified interest bearing balance that would

create a current MTMLTV equal to 100%.

Principal Forbearance

Forbearance Limits




Adjusted Gross UPB Amt $ 286,991.26 INTEREST BEARING UPB AMT $ 227,751.85

NEW Interest Rate 2.0% NEW Interest Rate 2.0%

NEW Term 480 months NEW Loan Term 480 months

Gross Monthly Income $ 3,667.10 PRINCIPAL FORBEARANCE AMT $ 59,239.41





Target Payment $ 689.69 NEW ACTUAL PAYMENT $ 689.69

31%

The principal forbearance calculation assumes 2% interest and a term length of 480 months. If the investor does

not allow term extensions, additional steps are necessary to calculate the correct forbearance amount. Note:

Adjusted Gross

UPB Amount

is reduced

incrementally

until the

Principal

Forbearance

Amount

brings the

target monthly

mortgage

payment ratio

to 31%

Principal Forbearance Scenario



Final Results and Evaluation

Monthly Payment Ratio

Payment

Capitalization 63.3% $ 1,872.96

Interest Rate Reduction 2% 46.8% $1,269.32

Term Extension 480 Months 35.8% $869.08

Principal Forbearance $59,239.41 31% $689.69

Target 31% $689.69

STEP 1

STEP 2

STEP 3

STEP 4




A borrower may be provided with more favorable modification terms than

required by HAMP. Deviations from the Standard Waterfall must be noted

in the servicing system or mortgage file.

Acceptable deviations may include:

• Interest rate does not increase after five years or is reduced to less than 2%.

• Additional principal forbearance is substituted for term extension.

• Reducing the monthly mortgage payment ratio lower than 31%.

Incentive payments will be based on only the terms that reflect the Standard

Modification Waterfall and the target monthly mortgage payment ratio!

Acceptable Deviations



HAMP Tier 1 - Alternative Modification Waterfall

STEP 1

Capitalization

STEP 3

Interest Rate

ReductionSTEP 4

Term

ExtensionSTEP 5

Principal

Forbearance

STEP 2

PRA

What Is it?



The Alternative Modification Waterfall:

� Is applied in addition to the Standard Modification Waterfall for loans that

have an MTMLTV ratio greater than 115%.

� Will determine whether reducing the MTMLTV to 115% will produce a

positive NPV result.

� Can be used on any loan with an MTMLTV ratio greater than 105%.

� Is used to determine the target monthly mortgage payment ratio of 31%,

once the MTMLTV is reduced to 115%.

When to Use It



Current Remaining Term

Current UPB

MTMLTV Ratio –

property valuation

Delinquent Interest

Taxes, insurance,

homeowner association

dues, and escrow shortage

Funds remaining in the

existing suspense account

Data Inputs

Loan Information




Capitalization Worksheet Example

Current UPB $ 274,965.19

�Out-of-Pocket Escrow Advances $ 3,500.00

�Projected Escrow Advance during trial period $ 1,000.00

�Delinquent Interest $ 7,526.07

��Late Fees �� $ 250.00

Adjusted Gross UPB $ 286,991.26


Desired PITIA @ 31% ($3667.10 x .31) $ 1,136.80

Taxes & Insurance ($ 337.11)

HOA Payment ($ 100.00)

Future Escrow Shortage Payment ($ 10.00)

Target monthly mortgage payment $ 689.69

Original payment (Pre-modification) $ 1,774.61


Remaining Term 284 months



The current UPB is reduced by an amount necessary to reach either:

� An MTMLTV ratio equal to 115%, or

� A target monthly mortgage payment ratio of 31%.

The PRA amount:

� Is initially treated as a non-interest bearing principal forbearance;

� Is separate and exclusive of any other forbearance;

� Will be reduced over time if borrower remains in good standing.

Offering PRA is encouraged and must be applied in accordance with a written

PRA policy.

PRA



Current Property Value $ 210,000.00

Adjusted Gross UPB $ 286,991.26 PRINCIPAL REDUCTION NEEDED TO REACH 115% MTMLTV

$ 45,491.26

115% MTMLTV UPB $ 241,500.00 NEW INTEREST BEARING UPB $ 241,500.00


Current Term 284 months






Target Payment (31%) $ 689.69 “WORKING” P & I PAYMENT $ 1,576.08

The 115% MTMLTV

ratio is reached,

but the monthly

payment ratio is

55.1%.

If the 31% target monthly mortgage payment ratio cannot be reached by reducing principal under Step 2, proceed

to Step 3, Interest Rate Reduction.

PRA Scenario

Note:




Current Term

Adjusted Gross UPB Amount

Tax and Insurance

Current Interest Rate

Gross Monthly Income

HOA Payment

Desired PITI @ 31%

Future Escrow Shortage Payment

Target Payment

284 months

$ 241,500.00

$ 337.11

5.875%

$ 3,667.10

$ 100.00

$ 1,136.80

$ 10.00

$ 689.69

NEW INTEREST RATE

PROJECTED PAYMENT

2.0%

$ 1,068.11

Use Current Interest Rate as the starting point

41.3%

Interest Rate Reduction Scenario

If the 31% target monthly mortgage payment ratio cannot be reached by lowering the interest rate to the 2% floor,

reduce the interest rate to the 2% floor, then proceed to step 4, Term Extension. Note:



If extending the term to 480 months does not achieve the 31% target monthly mortgage payment ratio, or if the

investor does not allow term extension, proceed to Step 5, Principal Forbearance.

Adjusted Gross UPB Amount $ 286,991.26

New Interest Rate 2%

Current Term 284 months NEW TERM 480 Months






Target Payment $ 689.69 PROJECTED PAYMENT $ 869.08

Note:

35.8%

“Current term”

is the number of

months between

modification

effective date and

maturity date.

Term length for

target monthly

mortgage payment

ratio determination

may not go beyond

480 months.

Term Extension Scenario




Adjusted Gross UPB Amount $ 286,991.26 Step 1 Capitalization $ 286,991.26

Adjusted Gross UPB less

Principal Reduction Amount$ 241,500.00 Step 2 Principal Reduction $ 45,491.26

Interest Rate 5.875% Step 3 Interest Rate Reduction 2.0%

Loan Term 284 months Step 4 Loan Term Extension 480 months

Gross Monthly Income $ 3,667.10 Step 5 INTEREST BEARING UPB $ 227,751.85

Desired PITI@31% $ 1,136.80 PRINCIPAL FORBEARANCE $ 13,748.15




Target Payment $ 689.69 ACTUAL PAYMENT $ 689.69

The principal forbearance calculation assumes 2% interest and a term length of 480 months. If the investor does

not allow term extensions, additional steps are necessary to calculate the correct forbearance amount.

Principal Forbearance Scenario

31%

New UPB is

reduced

until the

forbearance

amount

brings the

target

monthly

mortgage

payment

ratio to 31%

Note:




Capitalization $ 286,991.26

PRA $ 45,491.26

Interest Rate Reduction 2.0%

Loan Term Extension 480 months

Principal Forbearance $ 13,748.15

Interest Bearing UPB Amount $ 227,751.85

Target Payment $ 689.69

STEP 1

STEP 2

STEP 3

STEP 4

STEP 5

31%

Final Results and Evaluation



If principal is forgiven in an amount equal to or greater than 5% of the pre-modification UPB, either:

• Elect not to reduce the interest rate all the way to the 2% floor before applying a term extension; or

• Apply term extension prior to the interest rate reduction.

The interest rate must be fixed and treated as the modified rate.

Principal Reduction Limits


If pre-modification MTMLTV ratio is greater than 115%.

Forbear or forgive an amount equal to the lesser of:

• A post-modification MTMLTV ratio of 115%

• 30% of the post-modification UPB.

Principal

Forbearance/

Forgiveness

PMMS Rate + Risk Adjustment (expressed in basis points).Interest Rate

Adjustment

480 months and re-amortize from the Data Collection Date.Term

Extension

Outstanding UPB + Accrued Interest + Escrow Advances.Capitalization

Steps performed

by NPV Model

Steps performed

by NPV Model

Principal Forbearance is replaced with PRA.

Alternative

Modification

Waterfall

HAMP Tier 2 Standard & Alternative Modification Waterfalls



HAMP Tier 2 Standard & Alternative Modification Waterfalls

To be eligible for HAMP, loans must also meet two affordability requirements, as calculated by the NPV model:

1. The modified principal and interest payment must be less than or equal to the pre-modification monthly principal and interest payment; and

2. The post-modification DTI ratio must be within the Expanded Acceptable DTI Range (10%-55%, inclusive).

Servicers have the option to select a DTI range suitable for their portfolio under the following conditions:

• The low end of the range must fall within 10%-25%, inclusive.

• The high end of the range must fall within 42%-55%, inclusive.

• The same DTI range must be used for all the loans serviced.

Affordability Requirements

Servicers must notify the Program Administrator of any change to their DTI range no

later than 15 calendar days prior to the change.


Certain steps in the Waterfall may be restricted by Pooling & Servicing Agreement (PSA) or General Investor Servicing Agreement or Guideline.When this is the case, skip the step, continue with the Waterfall, and document in the loan file:

• Source of the restriction.

• Proof of reasonable efforts to seek a waiver.

• Evidence of approval or denial from the investor.

Prohibitions on Modification Waterfall Steps

General

Submit a request through the Servicer formal waiver and exception process for

changing the terms of the HAMP Tier 2 Standard Modification Waterfall!


If Capitalization is not permitted, for modifications under HAMP Tier 1 and Tier 2, if allowable:

• Forgive the amount that would otherwise be capitalized; or

• Establish a non-interest bearing balloon payment “forbearance” in

the amount that would have been capitalized, which is due at

maturity.


Capitalization

Note: Negative amortization after the Modification Effective Date is

prohibited!



If the interest rate cannot be modified below a certain rate:

• For HAMP Tier 1 loans - adjust the rate to the greater of the restriction rate

or the rate required to achieve the target monthly mortgage payment.

• For HAMP Tier 2 loans - adjust the rate to the greater of the restricted rate

or the HAMP Tier 2 Rate.

If the interest rate cannot be permanently modified:

• For HAMP Tier 1 loans - adjust the rate to one required to achieve the

target monthly mortgage payment for the maximum period allowed and

then step up the rate.

• For HAMP Tier 2 loans - convert the interest rate to a fixed rate.


Interest Rate Adjustment

Note: If an adjustable rate cannot be converted to a fixed rate, the loan is

not eligible for a HAMP modification under Tier 1 or Tier 2.


If the term extension is limited or not permitted for HAMP Tier 1 and Tier 2:

• Extend the term as far as allowable; and/or

• Re-amortize the loan using the remaining term.

If the remaining term is equal to or greater than 480 months:

• Skip this step;

• Enter the remaining term in the NPV input field “Amortization Term after Modification”.


Term Extension


Net Present Value (NPV) Model

NPV will be run as a single evaluation process. The standardized NPV test will be run simultaneously for both HAMP Tier 1 and Tier 2 if the borrower meets the eligibility requirements for HAMP Tier 1.

Occupancy Eligibility Tier 1 Result Tier 2 Result Offer

Owner-Occupied,

HAMP Tier 1 Eligible

Positive Positive Tier 1

Positive Negative Tier 1

Negative PositiveTier 2

Tier 1 (optional)

Negative NegativeTier 1 or Tier 2

(optional)

Rental Property or other

HAMP Tier 1 Ineligible

N/A Positive Tier 2

N/A Negative Tier 2 (optional)



As previously stated, the NPV model will run the Waterfall for HAMP Tier 2 loans. In the event of Investor Restrictions on a Waterfall step(s), completion of the following inputs must be added to the NPV Model, prior to running the Waterfall.

Net Present Value (NPV) Model

NPV Codes for Investor Restrictions

Used for

investor

restrictions

on any

steps in the

Waterfall.

Used for

investor

restrictions on

modifying the

interest rate.

Used for

investor

restrictions

on term

extension.

Used for investor

restrictions on

forbearance

amount.

Used to report

additional PRA

amount over

what NPV

calculates.


Net Present Value (NPV) ModelTimeline

HAMP Evaluation

• Capitalized UPB and

Remaining Term should

be as of the Data

Collection Date for NPV

Evaluation.

Trial Period Permanent

Modification Boarding

NPV evaluation is not permitted after the borrower is approved for trial modification

HAMP Tier 1 & Tier 2 HAMP Tier 1 HAMP Tier 1 & Tier 2

• Determine NPV results for HAMP Tier 1 & 2.

• NPV Model calculates Tier 2 Waterfall terms.

Run Waterfall Run NPV Test Run Stand Alone

Waterfall

• Tier 1 & 2 Project UPB and remaining term as of the Modification Effective Date to determine trial period payment and for reporting Trial Loan Set-Up.

• Tier 2: Use rate and term from NPV Test results.

• Tier 2: Recalculate Principal Forbearance/Forgiveness, if applicable.


Summary

� Overview of HAMP Eligibility

� HAMP Tier 1 - Standard Modification Waterfall

� HAMP Tier 1 – Alternative Modification Waterfall

� HAMP Tier 2 – Standard & Alternative

Modification Waterfalls

� Prohibitions on Modification Waterfall Steps

� Net Present Value (NPV) Model



Resources

• HAMP Solution Center:

� 1-866-939-4469

� [email protected]

• HAMP Servicer Integration Team

� HAMP_Integration_Team

@fanniemae.com

Additional Resources

HMPadmin.com

• Programs

• Learning Center

• Resources

• News

• Contact Us


Thank You

Discussion/Questions

HAMP Standard and Alternative Modification Waterfalls...2 HAMP Tier 1 –Standard Modification...

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