Making Home Affordable Understanding the Terms of a HAMP Modification: Interest Rate Increase, Impact, and Resources
Agenda 1 HAMP Overview 2 HAMP Interest Rate Increase 3 Impact to Homeowners 4 Resources for Homeowners 5 Options for Homeowners with Additional Hardship 6 Resources for Trusted Advisors 2
HAMP Overview Program Highlights NEARLY 1.5 MILLION Homeowners who have received permanent HAMP modifications.* $485 MONTHLY SAVINGS Median decrease in monthly housing payment under HAMP.* $34.8 BILLION Estimated aggregate payment savings to homeowners who received HAMP 1 st lien permanent modifications, to date.* Sources: Making Home Affordable Program Performance Reports Second Quarter 2014 and First Quarter 2015 (*) 3
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
HAMP Interest Rate Increase Understanding the Terms of a HAMP Modification Why are HAMP Interest Rates Increasing? 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 increase after five years. Homeowners in HAMP Tier 1 modifications will experience a gradual interest rate increase of 1% per year 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 increase should contact Fannie Mae, Freddie Mac, or their servicer. 5
HAMP Interest Rate Increase Interest Rate Increase 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
HAMP Interest Rate Increase Interest Rate Increase 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
HAMP Interest Rate Increase Interest Rate Increase 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 4.9% 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 Increase Pre-Mod: 6.5% $2,407 Pre-Mod After 3 rd Increase: 4.9% (Fixed) After 2 nd Increase: 4% After 1 st Increase: 3% $1,594 $1,476 $1,342 Year 6 Year 7 Year 8 Life of Loan Post-Mod: 2% $1,214 Post-Mod Years 1-5 8
HAMP Interest Rate Increase Timeframes Offer The first interest rate increase went into effect in Q3 2014 for the earliest group of HAMP modifications. Source: Making Home Affordable Program Performance Report First Quarter 2015 9
HAMP Interest Rate Increase Number of Increases and Payment Changes Offer Number of Interest Rate Increases Overall, 83% of HAMP Tier 1 homeowners will experience an interest rate increase after five years. The majority of HAMP homeowners will experience two or three rate increases. The number of rate increases 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 pre-modification interest rate. The median amount of the first monthly payment increase is $95, and the median monthly payment increase after the final interest rate increase is $211. Sources: Treasury Notes Blog HAMP Rate Reset: Just the Facts (3/12/14) and Making Home Affordable Program Performance Report First Quarter 2015 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. 11
Resources for Homeowners Helping Homeowners Prepare Communication Channels Mortgage Servicer Homeowners may contact their mortgage servicer directly with questions regarding rate increases. Servicer contact information on monthly mortgage pay stub For the list of participating HAMP Servicers and their contact information, visit: http://www.makinghomeaffordable.gov/ 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. 1-888-995-HOPE (4673) 12
Resources for Homeowners Helping Homeowners Prepare What Treasury is Doing Requiring Explanation of Modification Terms Servicers to notify homeowners of the interest rate increase 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 increases. 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 increases. Requiring Mandatory Advance Notice Servicers to provide homeowners with advance notice 120-240 calendar days and then 60-75 calendars day before first rate increase. Providing Information via the Internet Treasury to post more information for homeowners on www.mha.gov and social media. Working with Servicers Treasury to obtain input from servicers regarding the effect of rate increases on homeowners via Roundtable series. Talking to Homeowners Treasury is collecting as much information as possible and monitoring all interest rate increases. 13
Options for Homeowners with Additional Hardship MHA Programs HAMP Tier 2 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. Servicers must proactively solicit a borrower for HAMP Tier 2 if that borrower loses good standing on their HAMP Tier 1 modification, or at such earlier time as required by applicable law. A loan permanently modified under HAMP may be re-modified, without regard to the loss of good standing, provided that either: The borrower has experienced a change in circumstance; or At least 12 months have passed since the HAMP Modification Effective Date. 14
Options for Homeowners with Additional Hardship MHA and Treasury Programs 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. 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: http://www.makinghomeaffordable.gov/programs/unemploye d-help/pages/hhf.aspx 15
Resources for Trusted Advisors Name Contact Information HAMP Solution Center (866) 939-4469 escalations@hmpadmin.com Fannie Mae (800) 7Fannie KnowYourOptions.com Resource_center@fanniemae.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) 622-8525 HUD.gov/offices/hsg/sfh/nsc/nschome.cfm (800) 414-1226 VA Loans (877) 827-3702 HomeLoans.va.gov 16
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Understand MHA Options Visit MakingHomeAffordable.gov Find information on MHA programs and participating mortgage companies. 21
Discussion/Questions U.S. Department of the Treasury Homeownership Preservation Office 22