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Introducing the Home Affordable Modification Program in Support of the federal Making Home Affordable PlanMarch 4, 2009 Single Family Advisory

Freddie Mac is pleased to play a key role in sustaining homeownership and supporting the federal Making Home Affordable Program by announcing our requirements for implementing the federal government's new loan modification initiative, the Home Affordable Modification Program. This program offers a strong foreclosure prevention solution by expanding eligibility to borrowers who are delinquent as well as borrowers who are current, but in imminent danger of default. This new program:

  • Replaces the Streamlined Modification Program.

  • Reduces the monthly mortgage payment to no greater than 31 percent of the borrower's gross monthly household income.

  • Requires free HUD-approved counseling for borrowers with monthly total debt-to-income ratios equal to or greater than 55 percent.

  • Provides incentives to borrowers and Servicers for successful modifications and ongoing timely payments.

By reaching out to borrowers through this program, we can work together to be a critical and stabilizing force for the nation's families and their communities. In support of the Making Home Affordable Program, Freddie Mac is suspending foreclosure sales on mortgages eligible for Home Affordable Modifications. In addition, we are also announcing that Freddie Mac will continue to suspend all scheduled evictions involving occupied single-family 1- to 4-unit residences with Freddie Mac-owned mortgages until April 1, 2009.

Requirements for the Home Affordable Modification Program

The Home Affordable Modification Program is effective immediately for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2012. Servicers should no longer solicit borrowers for a modification under the Streamlined Modification Program, and should instead begin to solicit eligible borrowers who are 31 or more days delinquent for a modification under the Home Affordable Modification Program. Servicers should not solicit borrowers for this program who are less than 31 days delinquent.

Mortgage and Borrower Eligibility Requirements

The following mortgages are allowed for modification under this program:

  • First-lien conventional mortgages that are owner-occupied, single-family 1- to 4-unit primary residences, including condos, cooperatives, Guide-eligible manufactured homes, and conforming jumbo mortgages.

  • Mortgages for properties that are abandoned, vacant, or condemned are not eligible.

  • Mortgages may be previously modified, but can only be modified once under the Home Affordable Modification Program.

Eligible borrowers must provide affirmation of financial hardship and proof of current income. Borrowers may be in foreclosure, and any foreclosure action will be temporarily suspended while borrowers are considered for foreclosure prevention options. Borrowers who may be in pending litigation involving the mortgage, or who are in active bankruptcy are eligible for this program. Other mortgage and borrower eligibility requirements will be announced in a future Guide Bulletin.

Borrower Solicitation Requirements

Freddie Mac Servicers must proactively solicit borrowers who are 31 days or more past due, using the processes and tools that will be available in the coming days. Servicers are prohibited from soliciting borrowers who are less than 31 days delinquent. However, if a borrower who is less than 31 days delinquent proactively seeks assistance from the Servicer, they may be considered for a modification under the new Home Affordable Modification Program.

Underwriting Requirements

Underwriting focuses on creating a first-lien housing payment of principal, interest, insurance (property, flood, etc.), taxes, homeowner/condo association fees, and escrow shortage (PITIAS) that is no greater than 31 percent of the borrower's gross monthly household income. A new PITIAS amount is established using a sequential process as needed in the following order:

  1. Capitalizing arrearages.
  2. Reducing the interest rate.
  3. Extending the amortization terms up to 40 years.
  4. Granting partial principal forbearance.

A total monthly debt-to-income ratio is then calculated, and borrowers with ratios greater than or equal to 55 percent must agree to enter a free credit-counseling program with a HUD-approved housing counseling agency as a condition for the modification. An escrow account must be maintained on the modified mortgage, even if the existing mortgage does not have an escrow account. Additional details will be announced in a future Guide Bulletin.

Borrowers must successfully complete a three-month trial payment period, during which they will be required to remit the estimated new monthly payment. Servicers enter into a workout/forbearance plan with the borrower during the trial period, followed by a modification agreement upon successful completion of the trial period. Additional requirements for income, collateral, escrows, credit enhancements, the trial period, and the steps to take once the borrower successfully completes the trial period will be announced in a future Guide Bulletin.

Reporting and Incentives

Servicers should consult their mortgage insurance providers for approval and specific processes related to the reporting of modified terms, payment of premiums, payment of claims, and other operational matters in connection with privately insured mortgage loans modified under the Home Affordable Modification Program. Freddie Mac is seeking to obtain delegations of authority from each mortgage insurer so that Servicers can more efficiently process these loan modifications without having to obtain mortgage insurer approval on individual loans. We will post a list of the mortgage insurers from whom we have received a delegated authority agreement and will update that list as we obtain delegations. Until we obtain a delegated authority agreement from a mortgage insurer on behalf of all Servicers, each Servicer must obtain mortgage insurer approval on a case-by-case basis.

For borrowers who are 31 days or less delinquent at the time the workout plan becomes effective, Servicers should suppress credit reporting during the trial period.

The Home Affordable Modification Program provides incentives to borrowers and Servicers for successful modifications and timely mortgage payments.

  • Borrowers who remain current on their mortgage payment receive a principal reduction of up to $1,000 per year for five years.

  • Servicers receive $1,000-$1,500 for each eligible modification they establish, and incentives of up to $1,000 each year for three years as long as a borrower stays current on their loan.

  • Incentives accrue monthly based on timely payment and are awarded yearly. The payment of incentives will be forfeited should the borrower become 90 days or more delinquent at any time.

Details and requirements for reporting and remitting to Freddie Mac during and after a successful or unsuccessful trial period will be announced in a future Guide Bulletin.

For More Information

It is important that you review the information listed below to prepare for these changes to our requirements.

Foreclosure Sale Suspension/Eviction Suspension Continues

Servicers should not complete a foreclosure sale on a mortgage eligible for the Home Affordable Modification Program unless they completed their efforts to contact the borrower and determined either that the borrower did not respond or does not have the capacity or willingness to participate in the Home Affordable Modification Program or any other Freddie Mac workout program. Freddie Mac's previously announced suspension of foreclosure sales on occupied properties expires on March 6, 2009.

Today we are also announcing that, effective immediately, we will continue to suspend actions on all scheduled evictions involving occupied single-family 1- to 4-unit residences with Freddie Mac-owned mortgages until April 1, 2009.

© 2009 Freddie Mac

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