Making Home Affordable. Understanding the Terms of a HAMP Modification: Interest Rate Step-Up, Impact, and Resources

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1 Making Home Affordable Understanding the Terms of a HAMP Modification: Interest Rate Step-Up, Impact, and Resources

2 Agenda 1 HAMP Overview 2 HAMP Interest Rate Step-Up 3 Impact to Homeowners 4 Resources for Homeowners 5 Options for Homeowners with Additional Hardship 6 Resources for Trusted Advisors 2

3 HAMP Overview Program Highlights OVER 1.3 MILLION Homeowners received permanent modifications (Tier 1 & Tier 2) APPROX. MONTHLY $540 SAVINGS Median homeowner reduction in first lien mortgage payment. OVER 70 PERCENT Of homeowners remain active in their HAMP modification. Source: Making Home Affordable Program Performance Report Through March

4 HAMP Overview HAMP Tier 1 Standard Modification Waterfall STEP 1 Capitalization STEP 2 Interest Rate Reduction STEP 3 The Tier 1 Standard Modification Waterfall is a stated order of successive steps that must be applied until the homeowner s target monthly mortgage payment ratio is reduced to 31% of his or her gross income. Term Extension STEP 4 Principal Forbearance 4

5 HAMP Interest Rate Step-Up Understanding the Terms of a HAMP Modification Why are HAMP Interest Rates Stepping-Up? HAMP Tier 1 modifications included interest rate reductions to as low as 2% for the first five years to help homeowners avoid foreclosure. The terms of the HAMP Tier 1 modification include a gradual interest rate step-up after five years. Homeowners in HAMP Tier 1 modifications will experience a gradual interest rate increase, also known as a rate step-up, of 1% per year (maximum) until their rate adjusts to the market rate at the time of their modification. Homeowners with Fannie Mae or Freddie Mac owned HAMP loans who will experience a similar rate step-up should contact Fannie Mae, Freddie Mac, or their servicer. 5

6 HAMP Interest Rate Step-Up Interest Rate Step-Up Example 2005: Nick buys $330,000 home 10% down payment $297,000 mortgage (30 yr fixed at 6.5%) 2008: Income drops to $47,000 due to illness Nick s Current Monthly Payment Principal & Interest $1,877 Taxes $350 Insurance $105 Association Fee $75 Total Monthly Payment $2,407 Target Monthly PITIA payment for HAMP is $1,214. November 2009 l Making Home Affordable 6

7 HAMP Interest Rate Step-Up Interest Rate Step-Up Example Step 1 HAMP Waterfall Current After HAMP Add $18,722 in unpaid interest and advances $286,359 Unpaid Principal Balance Step 2 Reduce interest rate to 2% $2,407 Step 3 Extend term to 40 years monthly payment (Principal, interest, taxes, insurance, association fees) $305,131 UPB $1,650 PITIA $1,644 PITIA Step 4 Forbear $46,000 in principal $1,214 PITIA November 2009 l Making Home Affordable 7

8 HAMP Interest Rate Step-Up Interest Rate Step-Up Example Starting in year 6, Nick s interest rate will rise 1% per year until market rate at time of permanent modification is reached. In year 7, the interest rate will increase to 4%. In year 8, the interest rate will increase to 4.85% and will be fixed for life of Nick s loan. Nick saved $71,580 in the first five years. Interest Rate Total Monthly Payment Interest Rate Step-Up Pre-Mod: 6.5% $2,407 Pre-Mod 3 rd Increase: 4.85% (Fixed) $1,594 Year 8 Life of Loan 2 nd Increase: 4% $1,476 Year 7 1 st Increase: 3% $1,342 Year 6 Post-Mod: 2% $1,214 Post-Mod Years 1-5 8

9 HAMP Interest Rate Step-Up Timeframes & Payment Changes Timeframe Offer for Rate Step-Ups For some HAMP homeowners, interest rate step-ups will begin in the 3rd quarter of 2014 (October 2014), impacting approximately 30,000 HAMP homeowners by the end of this year, all of whom received modifications in Number of Interest Rate Step-Ups Approximately 80 percent of homeowners with a HAMP Tier 1 modification will experience at least one future rate step-up. The majority of HAMP homeowners will experience two or three rate step-ups. The number of rate step-ups and the amount of the payment increase will vary depending on the effective date of the modification, whether the modification included principal forgiveness and other factors. Final Rate and Mortgage Payment The maximum rate depends on the market rate at time of modification. For 92% of HAMP homeowners this will result in a rate at or below 5%, well below the average 6.3% interest rate before their modification for most homeowners. After all interest rate step-ups have occurred, the cumulative monthly payment increase for a typical loan will be approximately $200. Source: Treasury Notes blog HAMP Rate Reset: Just the Facts (3/12/14) 9

10 Impact to Homeowners Mortgage Payment Changes Economic Conditions General economic conditions are improving, particularly home price appreciation and job growth. Final interest rates are below pre-modification rates for most homeowners. However, there are factors that may impact a homeowner s ability to accommodate the payment increase: Improvement in the economy has been uneven, and Homeowners may have experienced additional hardship since modification (i.e., increase in expenses or decrease in income). If a payment increase presents a challenge, homeowners should contact a housing counselor or their servicer immediately. 10

11 Resources for Homeowners Helping Homeowners Prepare Communication Channels Mortgage Servicer Homeowners may contact their mortgage servicer directly with questions regarding rate step-ups. Servicer contact information on monthly mortgage pay stub For the list of participating HAMP Servicers and their contact information, visit: get-started/contact-mortgage/pages/default.aspx Homeowner HOPE Hotline Homeowners may call the Homeowner s HOPE Hotline to speak to live HUD-approved housing counselors or to escalate a case HOPE (4673) 11

12 Resources for Homeowners Helping Homeowners Prepare What Treasury is Doing Requiring Explanation of Modification Terms Servicers to notify homeowners of the interest rate step-up at time of modification. Training HOPE Hotline Call Centers Treasury to provide training to HOPE Hotline agents to prepare them to assist homeowners with rate step-ups. Requiring Financial Counseling Largest servicers in HAMP to offer financial counseling to assist homeowners in staying current on their mortgage payments. Training Housing Counselors Treasury to provide training to housing experts that homeowners can turn to for help with preparing for the rate step-ups. Requiring Mandatory Advance Notice Servicers to provide homeowners with advance notice calendar days and then calendars day before first rate step-up. Providing Information via the Internet Treasury to post more information for homeowners on and social media. Working with Servicers Treasury to obtain input from servicers regarding the effect of rate step-ups on homeowners via Roundtable series. Talking to Homeowners Treasury is collecting as much information as possible and monitoring all interest rate step-ups. 12

13 Options for Homeowners with Additional Hardship MHA Programs HAMP Tier 2 A homeowner currently in a HAMP Tier 1 permanent modification may be eligible for HAMP Tier 2 if: The homeowner has been in the modification less than 5 years and loses good standing due to a hardship. More than five years have passed since the HAMP Tier 1 Modification Effective Date, regardless of whether the homeowner is still in good standing. Homeowners may be eligible for HAMP Tier 2 if they have a hardship caused by mortgage payment increases. HAMP Tier 2 modifications have an interest rate that is fixed for the duration of the loan. Home Affordable Foreclosure Alternatives (HAFA) Provides homeowners with a healthy transition to more affordable housing. Homeowners sell their home as a short sale or transfer the title to the lender through a deed-in-lieu of foreclosure. HAFA offers a more efficient process than a traditional short sale. Participating investors, servicers, and homeowners may be eligible for incentives. 13

14 Options for Homeowners with Additional Hardship Treasury Programs Hardest Hit Fund (HHF) If a homeowner lives in a state that is participating in Treasury s HHF Program, additional assistance may be available via the state s Housing Finance Agency. For the list of HHF states and contact information, visit: d-help/pages/hhf.aspx 14

15 Resources for Trusted Advisors Name Contact Information HAMP Solution Center (866) Fannie Mae (800) 7Fannie KnowYourOptions.com Freddie Mac (800) Freddie, select option 2 FreddieMac.com FHA Loans FHA National Servicing Center USDA RHS Loan Centralized Servicing Center FHA National Servicing Center (877) HUD.gov/offices/hsg/sfh/nsc/nschome.cfm (800) VA Loans (877) HomeLoans.va.gov 15

16 Learn More About MHA Visit HMPadmin.com for official guidance, learning opportunities, newsletters, and more 16

17 Register for MHA Training Webinars are conducted regularly on MHA program fundamentals, resources, and more. Register today at HMPadmin.com 17

18 Escalate Difficult-to-Resolve Cases Trusted advisors escalate cases to HMPadmin.com Follow up by phone to (866)

19 Subscribe to the MHA enewsletter Includes program updates, outreach events, homeowner resources, plus learning and partnership opportunities 19

20 Understand MHA Options Visit MakingHomeAffordable.gov Find information on MHA programs and participating mortgage companies. 20

21 Discussion/Questions U.S. Department of the Treasury Homeownership Preservation Office 21

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