THE HAMP SERVICING GUIDLINES Created by Katy Box, former Staff Attorney at Northwest Consumer Law Center Voice Recording by Zach Parsons, intern at Northwest Consumer Law Center

HAMP PARTICIPATION  Servicers not investors participate in the Home Affordable Modification Program, otherwise known as “HAMP”  Most major servicers participate in HAMP, with a few exceptions  HAMP participation list: answers/Pages/get-answers-how-contact-mortgage-company.aspxhttp:// answers/Pages/get-answers-how-contact-mortgage-company.aspx

ACESSING THE HAMP SERVICING GUIDLINES  Non-GSE Servicers: _45.pdf _45.pdf  Fannie Mae:  Freddie Mac:  FHA: ps/letters/mortgageettp://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudcli ps/letters/mortgagee

This Presentation  Based off The Making Home Affordable Handbook for Non-GSE Servicers  _45.pdf _45.pdf  Very similar to the Freddie Mac and Fannie Mae HAMP servicing guidelines

HAMP ELIGIBILITY REQUIREMENTS  Loan originated before January 1, 2009  No previous HAMP modification (for Tier I modification)  Owner occupied, single family property  Unpaid principle balance of $729,750 or less, for a one unit property

HAMP TIER I WATERFALL  Servicers must apply the modification steps enumerated in the “Standard Modification Waterfall” in the order of succession until the borrower’s monthly mortgage payment is reduced to 31% of the borrower’s gross monthly income  Waterfall steps:  Capitalization  Interest rate reduction  Term extension  Principal forbearance

HAMP TIER II - WATERFALL  Effective June 1, 2012, the Obama administration expanded the HAMP program to borrowers who did not meet the eligibility requirements under the existing program (HAMP Tier 1).  HAMP Tier 2 is available to homeowners who:  want to modify a loan on a rental property  previously did not qualify for HAMP because their debt-to-income ratio was 31% or lower  previously received a HAMP trial period plan, but defaulted in their trial payments

HAMP TIER II WATERFALL-continued  No target payment is created  Steps  Capitalization  Set fixed interest rate based on Market rate  Market rate is determined by Freddie Mac Weekly Market Survey:  Extend term to 480 months  Forbears principle to the lessor of 30% of post modification principle balance or amount to create a post modification loan to market value ratio of 115%  LTV is principal balance divided by value of property  After completing all steps, servicer determines whether  The payment was reduced by at least 10%  Determines whether the payment falls within 10% to 55% of borrowers gross monthly income

B owes $100,000 on her loan, and has missed $20, in payments (no expenses or escrow advances). B has an adjustable rate mortgage with a 7% interest rate. She has 300 months remaining in her term. Her gross Monthly income is $ ($310 is 31%). HAMP TIER I – TEST SCENARIO

HAMP TIER I Waterfall Step 1: Capitalization 1) $120,000 is the new UPB 1) If you amortize $120,000 over the remaining 300 month term her new monthly payment is $848

HAMP TIER I Waterfall Step 2: Interest rate reduction 1) Reduce interest rate by increments of 0.125% (stop at 2%)  If you reduce the interest rate to 2% and amortize the loan over the remaining 300 months, her new payment is $508.63

HAMP TIER I Waterfall Step 3: Term Extension 1) Extend term to 480 months  Monthly payment with full term extension is $363

HAMP TIER I Waterfall Step 4: Forbearance 1) Forbear up to 30%  Maximum principle forbearance is $36,000 (30% of UPB)  A principle balance of $102,500 will reach  the target payment, only requiring about a 14% forbearance A forbeared principle amount is placed as a non-interest bearing lien on the property that is payable in full at the end of the loan term.

HAMP TIER II B owes $100,000 on her loan, and has missed $20, in payments (no expenses or escrow advances). B has an adjustable rate mortgage with a 7% interest rate. She has 300 months remaining in her term. Her gross monthly income is $ ($310 is 31%). The original payment was $

HAMP TIER II Waterfall Step 1: Capitalization  The new principle balance is $120,000 1) If you amortize $120,000 over the remaining 2) 300 month term her new monthly payment is $848 3) This payment does it fall within 10% to 55% of the borrowers gross monthly income, so we have to move on to the next step of the waterfall

HAMP TIER II Waterfall Step 2: Interest rate reduction  The interest rate is set at the Freddie Mac Weekly Market Rate 

HAMP TIER II INTEREST RATE REDUCTION  With the reduced interest rate over the remaining life of the loan, the new payment is still not within 10% to 55% of the borrowers gross monthly income  Servicer must continue down the waterfall

HAMP TIER II WATERFALL STEP 3: TERM EXTENSION  Term is extended to up to 480 months with the reduced interest rate  There’s no need to move on to principle forbearance, because the term extension was sufficient to create a payment between 10% to 55% of the borrower’s gross monthly income

NET PRESENT VALUE TEST  Passing the waterfall is not enough  Even if an affordable mortgage payment is created using the waterfall, the borrower still must pass the net present value test to be eligible for a loan modification