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New Imminent Default Indicator and HAMP Updates and Reminders

October 14, 2009 Single-Family Advisory E-mail

Imminent Default Indicator Required Soon for HAMP

We are providing you with advance notice and important information to help you prepare for a new Home Affordable Modification program (HAMP) tool that will be available soon. The tool, Imminent Default Indicator TM (IDI), is a software application that will help you determine if a borrower with a Freddie-Mac owned or guaranteed mortgage is in imminent default. This tool, which will be accessible from the HAMP secure Web page, will replace a portion of the current imminent default evaluation for a modification under HAMP and will be required when conducting this evaluation.

IDI will help you identify most borrowers who are in imminent default. However, the determination of a borrower’s imminent default status will remain with you if the borrower is not identified by IDI to be in imminent default. Further guidance on the determination of imminent default and timeframes for using IDI will be available in a future Single-Family Seller/Servicer Guide (Guide) Bulletin. In addition, an Imminent Default Indicator Users’ Guide will be available to provide helpful information on how to use this new HAMP tool.

We encourage you to begin preparing now to implement IDI by:

  • Updating your system(s) using the Imminent Default Indicator Technical Specifications Version 1.0. The specifications are currently available as a secure HAMP program Web link on our HAMP Web page.
  • Obtaining a User ID and password to access Workout Prospector®, one of Freddie Mac's online servicing tools. If you already have access, you will automatically be able to use IDI when the tool becomes available. Because IDI will be required when evaluating certain borrowers for HAMP in Workout Prospector, we have streamlined the process to enable access to both tools with just one User ID and password. If you do not have access to Workout Prospector, and you have not requested access for it, you must complete the online Workout Prospector registration form today.

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HAMP Updates and Reminders

Today, we are providing you with clarification regarding certain HAMP modification definitions, and reminding you about key points when reporting and remitting final payments for Trial Period Plans.   

Clarification – Calculating Delinquent Interest

When using the Freddie Mac Borrow Qualification Worksheet (BQW), Workout Prospector or your own proprietary system, please note the following:

  • To determine the amount of Delinquent Interest (arrears) to be capitalized, the following calculation must be used: (UPB x Interest Rate) ¸ 12 x Number of months from DDLPI through the effective date of the modification interest rate change.
  • When preparing a HAMP Modification Agreement, the 'First Payment Due On' field in the Freddie Mac BQW and the ‘First Payment Due Date’ field in Workout Prospector are defined one of two ways based on when a borrower pays the final Trial Period payment.

Scenario 1

If the borrower pays the final Trial Period payment on or before the due date outlined in the Trial Period Plan, or does not pay the final Trial Period payment on or before the due date in the Trial Period Plan and you do not elect to include an interim month between the final Trial Period month and the month in when the first modified payment is due, then:

The new interest rate and new principal balance on the modified mortgage are effective the first day of the Trial Period's last month, which is exactly one month prior to the first modified payment due date to allow for payment of interest in arrears. This is also the “effective date of the modification interest rate change.”

Scenario 2

If the borrower does not pay the final Trial Period payment on or before the due date in the Trial Period Plan and you elect to include an interim month between the final Trial Period month and the month when the first modified payment is due, then:

Interest will not begin to accrue at the modified interest rate on the modified principal balance until the first day of the interim month that follows the final Trial Period month, the “effective date of the modification interest rate change”, to accommodate the first modified payment of interest in arrears.

The Borrower Qualification Worksheet Users' Guide and the Workout Prospector HAMP Users’ Guide have been updated to reflect these changes. 

In all instances, Servicers relying on proprietary or third-party systems should ensure that delinquent interest for purposes of capitalization is calculated appropriately. In addition, when determining the amount of delinquent interest to be capitalized, Servicers must advance the DDLPI whenever sufficient Trial Period payments are received that enables a full monthly payment to be posted to the account.

Reminder: Reporting and Remitting Final Payments for Trial Period Plans

When preparing final HAMP modification documents and the Loss Mitigation Transmittal Worksheet (LMTW), all Trial Period Plan payments must be credited to the borrower's account once a full monthly payment can be posted. The remainder available at the end of the Trial Period should be used to offset amounts that would otherwise be capitalized or go towards the Current Principal Balance. Payments posted to the account must also be remitted to Freddie Mac prior to sending the LMTW. Servicers must not remit modified payments due under a HAMP Modification Agreement until after a loan’s modification terms are processed by Freddie Mac during the monthly cycle update. If funds are remitted prior to the modification terms being processed, the loan will not cycle properly and will require a manual correction that will not take effect until the next month's accounting cycle.

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