HAMP Standard and Alternative Modification Waterfalls Training Presentation for Servicers

Transcription

1 HAMP Standard and Alternative Modification Waterfalls Training Presentation for Servicers

2 Agenda 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 Discussion/Questions 2

3 Overview of HAMP Eligibility Criteria Servicer, Investor, Insurer Guideline HAMP Tier 1 HAMP Tier 2 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, 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 Condition Financial Hardship The property securing the mortgage loan has not been condemned. The borrower must be able to document a financial hardship. 3

4 Overview of HAMP Eligibility Criteria Guideline HAMP Tier 1 HAMP Tier 2 Natural Persons Occupancy The borrower is a natural person. Mortgage loans made to business entities are not eligible for assistance under HAMP. The 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

5 Overview of HAMP Eligibility Criteria Guideline HAMP Tier 1 HAMP Tier 2 Delinquency The 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

6 Overview of HAMP Eligibility Criteria Guideline HAMP 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. --- *Only single family properties occupied by borrowers as principal residences qualify for HAMP Tier 1. 6

7 Overview of HAMP Eligibility Criteria Previous HAMP Trial or Modification Previous HAMP Tier 1 Trial Previous HAMP Tier 1 Modification Previous HAMP Tier 2 Trial or Modification Guideline HAMP Tier 1* HAMP Tier 2 The mortgage loan has never received a TPP or been modified under HAMP. The mortgage loan received a HAMP Tier 1 TPP on which the borrower defaulted. (Tier 2 TPP must be at least 10% less than failed Tier 1 TPP.) --- The mortgage loan received a HAMP Tier 1 permanent modification on which the borrower defaulted. (Additional eligibility criteria include: demonstrable change in circumstances or 12 or more months since effective date of HAMP Tier 1 modification.) --- The mortgage loan received a HAMP Tier 2 TPP or permanent modification on which the borrower defaulted *Only single family properties occupied by borrowers as principal residences qualify for HAMP Tier 1. 7

8 HAMP Tier 1 - Standard Modification Waterfall What Is it? STEP 1 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%. Capitalization STEP 2 Interest Rate Reduction STEP 3 Term Extension NOTE: Steps must be performed in sequence STEP 4 Principal Forbearance 8

9 HAMP Tier 1 - Standard Modification Waterfall Loan Information Current UPB Current Remaining Term Delinquent Interest MTMLTV ratio property valuation Data Inputs Taxes, insurance, homeowner association dues, and escrow shortage Funds remaining in the existing suspense account 9

10 HAMP Tier 1 Standard Modification Waterfall Capitalization 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. Note: Late fees should not be capitalized! 10

11 HAMP Tier 1 Standard Modification Waterfall Capitalization Worksheet Example Current UPB $ 274, Out-of-Pocket Escrow Advances $ 3, Projected Escrow Advance during trial period $ 1, Delinquent Interest $ 7, Late Fees $ Adjusted Gross UPB $ 286, Gross Monthly Income $ 3, Desired 31% ($ x.31) $ 1, Taxes & Insurance ($ ) HOA Payment ($ ) Future Escrow Shortage Payment ($ 10.00) Target Monthly Mortgage Payment $ Original payment (Pre-modification) $ 1, Current payment $ 1, Remaining Term 284 months Current Interest Rate 5.875% 11

12 HAMP Tier 1 Standard Modification Waterfall Capitalization - Monthly Mortgage Payment Ratio Calculation Current payment $ 1, Taxes & Insurance $ HOA Payment $ Future Escrow Shortage Payment $ Total PITIA: $ 2, Total PITIA payment: $ 2, Gross Monthly Income: $ 3, X 100 = Current Monthly Mortgage Payment Ratio: 63.3% 12

13 HAMP Tier 1 Standard Modification Waterfall Interest Rate Reduction 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. 13

14 HAMP Tier 1 Standard Modification Waterfall Interest Rate Reduction Scenario Adjusted Gross UPB Current Interest Rate Current Term $ 286, % 284 months Use Current Interest Rate as the starting point NEW INTEREST RATE 2.0% Gross Monthly Income $ 3, Desired 31% $ 1, Tax and Insurance $ HOA Payment $ Future Escrow Shortage $ % Target Payment $ PROJECTED PAYMENT $ 1, Note: 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. 14

15 HAMP Tier 1 Standard Modification Waterfall Term Extension 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. 15

16 HAMP Tier 1 Standard Modification Waterfall Term Extension Scenario Adjusted Gross UPB Amount $ 286, NEW Interest Rate 2.0% Current Term 284 months Gross Monthly Income $ 3, Desired PITI@31% $ 1, 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. NEW TERM 480 months Tax and Insurance $ HOA Payment $ Future Escrow Shortage $ % Target Payment $ PROJECTED PAYMENT $ 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 or re-amortization, proceed to Step 4, Principal Forbearance. 16

17 HAMP Tier 1 Standard Modification Waterfall Principal Forbearance 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. Forbearance Limits 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%. 17

18 HAMP Tier 1 Standard Modification Waterfall Principal Forbearance Scenario Adjusted Gross UPB Amt $ 286, INTEREST BEARING UPB AMT $ 227, NEW Interest Rate 2.0% NEW Interest Rate 2.0% NEW Term 480 months NEW Loan Term 480 months Gross Monthly Income $ 3, PRINCIPAL FORBEARANCE AMT $ 59, Desired PITI@31% $ 1, Tax and Insurance $ HOA Payment $ Adjusted Gross UPB Amount is reduced incrementally until the Principal Forbearance Amount brings the target monthly mortgage payment ratio to 31% Future Escrow Shortage $ % Target Payment $ NEW ACTUAL PAYMENT $ Note: 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. 18

19 HAMP Tier 1 Standard Modification Waterfall Final Results and Evaluation Monthly Payment Ratio Payment STEP 1 Capitalization 63.3% $ 1, STEP 2 Interest Rate Reduction 2% 46.8% $1, STEP 3 Term Extension 480 Months 35.8% $ STEP 4 Principal Forbearance $59, % $ Target 31% $

20 HAMP Tier 1 Standard Modification Waterfall Acceptable Deviations 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! 20

21 HAMP Tier 1 - Alternative Modification Waterfall What Is it? STEP 1 Capitalization STEP 2 PRA STEP 3 Interest Rate Reduction STEP 4 Term Extension STEP 5 Principal Forbearance 21

22 HAMP Tier 1 - Alternative Modification Waterfall When to Use 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%. 22

23 HAMP Tier 1 - Alternative Modification Waterfall Loan Information Current UPB MTMLTV Ratio property valuation Delinquent Interest Data Inputs Current Remaining Term Taxes, insurance, homeowner association dues, and escrow shortage Funds remaining in the existing suspense account 23

24 HAMP Tier 1 - Alternative Modification Waterfall Capitalization Worksheet Example Current UPB $ 274, Out-of-Pocket Escrow Advances $ 3, Projected Escrow Advance during trial period $ 1, Delinquent Interest $ 7, Late Fees $ Adjusted Gross UPB $ 286, Gross Monthly Income $ 3, Desired 31% ($ x.31) $ 1, Taxes & Insurance ($ ) HOA Payment ($ ) Future Escrow Shortage Payment ($ 10.00) Target monthly mortgage payment $ Original payment (Pre-modification) $ 1, Current payment $ 1, Remaining Term 284 months Current Interest Rate 5.875% 24

25 HAMP Tier 1 - Alternative Modification Waterfall PRA 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. 25

26 HAMP Tier 1 - Alternative Modification Waterfall PRA Scenario Current Property Value $ 210, Adjusted Gross UPB $ 286, PRINCIPAL REDUCTION NEEDED TO REACH 115% MTMLTV $ 45, % MTMLTV UPB $ 241, NEW INTEREST BEARING UPB $ 241, Current Interest Rate 5.875% Current Term 284 months Gross Monthly Income $ 3, Desired PITI@31% $ 1, Tax and Insurance $ HOA Payment $ The 115% MTMLTV ratio is reached, but the monthly payment ratio is 55.1%. Future Escrow Shortage Payment $ Target Payment (31%) $ WORKING P & I PAYMENT $ 1, Note: If the 31% target monthly mortgage payment ratio cannot be reached by reducing principal under Step 2, proceed to Step 3, Interest Rate Reduction. 26

27 HAMP Tier 1 - Alternative Modification Waterfall Interest Rate Reduction Scenario Adjusted Gross UPB Amount Current Interest Rate Current Term $ 241, % 284 months Use Current Interest Rate as the starting point NEW INTEREST RATE 2.0% Gross Monthly Income $ 3, Desired 31% $ 1, Tax and Insurance $ HOA Payment Future Escrow Shortage Payment $ $ % Target Payment $ PROJECTED PAYMENT $ 1, Note: 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. 27

28 HAMP Tier 1 - Alternative Modification Waterfall Term Extension Scenario Adjusted Gross UPB Amount $ 286, New Interest Rate 2% Current Term 284 months NEW TERM 480 Months Gross Monthly Income $ 3, Desired PITI@31% $ 1, Tax and Insurance $ HOA Payment $ Future Escrow Shortage Payment $ 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. Target Payment $ % PROJECTED PAYMENT $ 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. 28

29 HAMP Tier 1 - Alternative Modification Waterfall Principal Forbearance Scenario Adjusted Gross UPB Amount $ 286, Step 1 Capitalization $ 286, New UPB is Adjusted Gross UPB less $ 241, reduced Principal Reduction Amount until the Step 2 Principal Reduction $ 45, Interest Rate 5.875% forbearance amount Step 3 Interest Rate Reduction 2.0% Loan Term 284 months brings the target Step 4 Loan Term Extension 480 months Gross Monthly Income $ 3, monthly Step 5 INTEREST BEARING UPB $ 227, mortgage Desired PITI@31% $ 1, payment PRINCIPAL FORBEARANCE $ 13, ratio to 31% Tax and Insurance $ HOA Payment $ Future Escrow Shortage $ % Target Payment $ ACTUAL PAYMENT $ Note: 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. 29

30 HAMP Tier 1 - Alternative Modification Waterfall Final Results and Evaluation STEP 1 STEP 2 STEP 3 Capitalization $ 286, PRA $ 45, Interest Rate Reduction 2.0% STEP 4 Loan Term Extension 480 months STEP 5 Principal Forbearance $ 13, Interest Bearing UPB Amount $ 227, % Target Payment $

31 HAMP Tier 1 - Alternative Modification Waterfall Principal Reduction Limits If principal is forgiven in an amount equal to or greater than 5% of the premodification 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. 31

32 HAMP Tier 2 Standard & Alternative Modification Waterfalls Capitalization Outstanding UPB + Accrued Interest + Escrow Advances. Interest Rate Adjustment Term Extension Principal Forbearance/ Forgiveness Alternative Modification Waterfall PMMS Rate + Risk Adjustment (expressed in basis points). 480 months and re-amortize from the Data Collection Date. 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 is replaced with PRA. Steps performed by NPV Model 32

33 HAMP Tier 2 Standard & Alternative Modification Waterfalls Affordability Requirements The NPV model will calculate whether: The modified P&I payment is reduced by at least 10% compared to the pre-modification monthly P&I payment; and The post-modification DTI ratio is within the Acceptable DTI Range (25%-42%). Loans that do not meet both affordability requirements will be ineligible for HAMP. When this is the case: Send the borrower a Non-Approval Notice; and Consider the borrower for alternative loss mitigation options. 33

34 Prohibitions on Modification Waterfall Steps General Performing certain steps in the Waterfall may be restricted by: Pooling & Servicing Agreement (PSA). 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. 34

35 Prohibitions on Modification Waterfall Steps Capitalization 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. Note: Negative amortization after the Modification Effective Date is prohibited! 35

36 Prohibitions on Modification Waterfall Steps Interest Rate Adjustment 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. 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. 36

37 Prohibitions on Modification Waterfall Steps Term Extension 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. 37

38 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 Positive Positive Tier 1 Owner-Occupied, HAMP Tier 1 Eligible Rental Property or other HAMP Tier 1 Ineligible Positive Negative Tier 1 Negative Negative Positive Negative Tier 2 Tier 1 (optional) Tier 1 or Tier 2 (optional) N/A Positive Tier 2 N/A Negative Tier 2 (optional) 38

39 Net Present Value (NPV) Model NPV Codes for Investor Restrictions 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. 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. 39

40 Net Present Value (NPV) Model Timeline Run Waterfall Run NPV Test Run Stand Alone Waterfall HAMP Tier 1 HAMP Tier 1 & Tier 2 HAMP Tier 1 & Tier 2 Capitalized UPB and Remaining Term should be as of the Data Collection Date for NPV Evaluation. Determine NPV results for HAMP Tier 1 & 2. NPV Model calculates Tier 2 Waterfall terms. 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. HAMP Evaluation Trial Period Permanent Modification Boarding NPV evaluation is not permitted after the borrower is approved for trial modification 40

41 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 41

42 Resources Additional Resources Servicer Integration Team HAMP Solution Center Training resources NPV tools and documents Reporting resources Live webinar training calendar 42

43 Discussion/Questions Thank You 43