1MP Phase 2 1 · Jan –Mar 2010 (3 months) = $63,500 Phase 3 Commencement Phase 2 Evaluation Phase 1 Engagement Self Employment Income – Example Profit and Loss Making Home Affordable

1MP_Phase 2 1

1 Making Home Affordable | February 2012

First Lien Modification Program Home Affordable Modification Program ℠

Phase 2 Evaluation


Objective The objective of this three part training series is to assist servicers in the execution of the Home Affordable Modification Program or HAMP.

At the completion of the HAMP training series, you will be familiar with:

The borrower outreach

and communication

requirements

The resources for

additional guidance

The process flow

of the initial request,

evaluation, underwriting,

trial period plan, and

permanent modification Please note that this presentation

is not intended to replace the

in-depth guidance set forth in

the Handbook.


HAMP – is a central part

of the Making Home

Affordable Program,

introduced in February

2009 to help stabilize the

housing market and give

struggling homeowners

new opportunities to stay

in their homes.

By participating in HAMP,

a servicer, investor and

borrower become

eligible for incentive

compensation from the

U.S. Department of the

Treasury.

HAMP participating

servicers and investors perform modifications,

possibly reduce losses,

and help the United

States housing market grow stronger.

Notes:

• The material in this presentation applies to mortgages not held by a GSE (Fannie Mae and Freddie Mac).

• This presentation is directed to servicers who signed the Servicer Participation Agreement and related

documents (SPA).

HAMP participating

servicers and investors perform modifications,

possibly reduce losses,

and help the United

States housing market grow stronger.

HAMP – is a central part

of the Making Home

Affordable Program,

introduced in February

2009 to help stabilize the

housing market and give

struggling homeowners

new opportunities to stay

in their homes. Notes:

• The material in this presentation applies to mortgages not held by a GSE (Fannie Mae and Freddie Mac).

• This presentation is directed to servicers who signed the Servicer Participation Agreement and related documents (SPA).

By participating in HAMP,

a servicer, investor and

borrower become

eligible for incentive

compensation from the

U.S. Department of the

Treasury.

Overview

1MP_Phase 2 2



Agenda HAMP Eligibility Criteria Phase 1

Communication and Borrower Notices Phase 1

Protections Against Unnecessary Foreclosure Phase 1

HAMP Documents and External Reporting Requirements Phase 3

Alternative Loss Mitigation Options Phase 3

Underwriting Phase 2

HAMP Evaluation Process Phase 2

Initial Package Phase 2

Trial Period Plan Phase 3

Permanent Modification Phase 3

Underwriting

HAMP Evaluation Process

Initial Package


The Initial Package

Phase 3 Commencement

Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 3


IRS form 4506-T or

4506T-EZ

Evidence of

Income

Initial Package

Request for

Mortgage Assistance (RMA)


Phase 2 Evaluation

Phase 1 Engagement

Dodd-Frank

Certification


Request for Mortgage Assistance Form


Phase 2 Evaluation

Phase 1 Engagement


Servicer determines eligibility within 30 calendar days

• Servicer sends borrower additional Incomplete Information notice • Extends submission 15 additional calendar days

• Servicer sends borrower Incomplete Information Notice • Borrower has 30 calendar days to submit requested information

Servicer has 10 business days to communicate decision to borrower

Initial Package – Process

Non-Approval Notice

• Borrower submits Initial Package to servicer • Servicer sends written acknowledgement to borrower within 10

business days

Incomplete Information

Servicer Communication

Servicer Review

Submission & Acknowledgement

TPP Notice

-or-

Non-Approval Notice

Servicer sends borrower

NO

Initial Package

complete? YES

YES

NO

Package complete

after 30 days?

YES

NO

Package complete

after 45 days?

Incomplete Information


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 4


Non-Approval Notice

Sent to homeowners who have not been approved for a TPP or permanent modification. Sent to homeowners who have not been approved for a TPP or permanent modification.

Includes a description of other foreclosure alternatives including steps the homeowner should take to be considered for those options. Includes a description of other foreclosure alternatives including steps the homeowner should take to be considered for those options.

If an NPV evaluation was conducted, includes all the NPV Data Input Fields and Values used in the NPV evaluation. If an NPV evaluation was conducted, includes all the NPV Data Input Fields and Values used in the NPV evaluation.


Credit Report C

Evidence of Income B

Request for Mortgage Assistance (RMA) D

IRS Form 4506-T A

Test Your Knowledge! What documentation is NOT included in the Initial Package?


Phase 2 Evaluation

Phase 1 Engagement

Credit Report




Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 5


HAMP Evaluation Process To determine eligibility for HAMP, occupancy and income must be

verified.


Phase 2 Evaluation

Phase 1 Engagement

To document and support occupancy, a credit report must be obtained for all HAMP applicants. To document and support occupancy, a credit report must be obtained for all HAMP applicants.

The servicer’s Verification Policy must describe how the servicer will determine a borrower's monthly gross income and how the servicer will calculate non-traditional income scenarios such as underemployment, recent employment, overtime, seasonal or sporadic income.

A property that was non-owner occupied at origination, but is now occupied by the borrower, may be

considered the borrower’s principal residence.

The servicer’s Verification Policy must describe how the servicer will determine a borrower's monthly gross income and how the servicer will calculate non-traditional income scenarios such as underemployment, recent employment, overtime, seasonal or sporadic income.

A property that was non-owner occupied at origination, but is now occupied by the borrower, may be

considered the borrower’s principal residence.


Wage or Salary Wage or Salary

Rental Income

Other Earned Income

Self-Employment Income

Benefit Income

Alimony, Separation Maintenance, and Child Support Income

Passive and Non-Wage Income Passive and Non-Wage Income

Rental Income

Other Earned Income

Self-Employment Income

Benefit Income


HAMP Evaluation Process The following are examples of income types:


Phase 2 Evaluation

Phase 1 Engagement


Non-Borrower occupant household

income – voluntary

Non-Borrower occupant household

income – voluntary

All borrowers on the mortgage note,

regardless of whether they reside

in the property or not

All borrowers on the mortgage note,

regardless of whether they reside

in the property or not


Whose Income

Should Be

Considered?

Note: If a borrower is divorced and has been removed from

the title through a divorce decree and is not contributing to

the monthly mortgage payment – the servicer may use only

the income of the borrower who is occupying the property at

the time of the HAMP evaluation.

Note: A non-borrower is someone who is not on the original note

(and may or may not be on the original security instrument),

but is contributing to the overall household expenses.


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 6


HAMP Evaluation Process Wage or Salary

Each wage-earning (W-2)

borrower must provide a

copy of two recent

pay stubs:

• Pay stubs must not be more

than 90 days old at time of

submission.

• Pay stubs must include the

borrower’s year-to-date earning


Phase 2 Evaluation

Phase 1 Engagement



Name and address of the borrower’s employer 1

Borrower home address known by

employer 2

Rate of pay 3

Marital status 4

Pay ending date 6

How often this borrower is paid 7

Current pay period gross earnings and the

hours worked during this pay period 8

Year-to-date gross income and hours 9

Commission Income 10

Federal Taxes 11

Deductions 12

Number of exemptions 5

1

2

3

4

6

7

8 9

11

12

5

10


Phase 2 Evaluation

Phase 1 Engagement

Wage or Salary – Example Paystub


Self-employed borrower must provide

his/her most recent quarterly or

year-to-date profit and loss statement.

When reviewing the borrower’s profit

and loss statement to calculate the

gross income, servicer must include the

net profits:

•Salary or draw amounts and depreciation

and depletion (if applicable).

When reviewing the borrower’s profit

and loss statement to calculate the

gross income, servicer must include the

net profits:

•Salary or draw amounts and depreciation

and depletion (if applicable).

Self-employed borrower must provide

his/her most recent quarterly or

year-to-date profit and loss statement.


Self-Employment

Income

Note: At the servicer’s discretion, if consistent with the servicer’s Verification Policy, four consecutive months of bank

statements may be obtained in lieu of the profit and loss statement or if the information in the profit and loss

statement is insufficient.


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 7


HAMP Evaluation Process 1

3

4

2

Dates which the Profit

and Loss is covering

1

Take the total income of $63,500

and divide by 3 months - we can

determine the borrowers monthly

income to be $21,166.

Net Profit amounts 2 $49,500

Officer wages and

salaries 3 + $10,000

Depreciations 4 + $4,000

Total Income Jan – Mar 2010 (3 months)

= $63,500


Phase 2 Evaluation

Phase 1 Engagement

Self Employment Income – Example Profit and Loss


Rental Income Considerations

• For borrowers who have a

previous rental income

history, obtain a copy of most recent tax year IRS Schedule

E (Supplemental Income and

Loss) to determine income.

• For borrowers without a

previous rental income history, obtain a copy of the

current lease agreement and

bank statements or copies of

the cancelled rental checks

evidencing deposits or current lease agreement and

cancelled rent checks.

Income from Primary

Residence

Use 75 percent of the monthly gross rental income, with the

remaining 25 percent

considered vacancy loss and

maintenance expense.

Income from Non-Primary

Residence

Use 75 percent of the monthly gross rental income, reduced

by the monthly debt principal,

interest, taxes, and insurance,

including mortgage insurance,

and homeowners association fees, if applicable.

Determining the Income

Income from Primary

Residence

Use 75 percent of the monthly gross rental income, with the

remaining 25 percent

considered vacancy loss and

maintenance expense.

Income from Non-Primary

Residence

Use 75 percent of the monthly gross rental income, reduced

by the monthly debt principal,

interest, taxes, and insurance,

including mortgage insurance,

and homeowners association fees, if applicable.

Rental Income Considerations

• For borrowers who have a

previous rental income

history, obtain a copy of most recent tax year IRS Schedule

E (Supplemental Income and

Loss) to determine income.

• For borrowers without a

previous rental income history, obtain a copy of the

current lease agreement and

bank statements or copies of

the cancelled rental checks

evidencing deposits or current lease agreement and

cancelled rent checks.


Determining the Income


Phase 2 Evaluation

Phase 1 Engagement


HAMP Evaluation Process Rental Income Example

Non-Primary Residence

Primary Residence


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 8


Other Earned Income

• Bonus, commission

fees, housing

allowance, tips and overtime.

• Borrower must provide

reliable third-party

documentation (e.g.,

an employment contract or printouts

documenting tip

income).

Benefit Income

• Social security,

disability, survivor

benefits, pension, public assistance,

adoption assistance

and food stamps.


documentation evidencing the

amounts they will

receive, frequency of

the benefits and

evidence of receipt.


• Must be voluntarily

provided by the

borrower.

• Borrower must provide:

•Divorce decree,

separation agreement

or other legal

documents filed with

the court.

•Evidence of receipt of

payment – 2 most

recent bank

statements or deposit

slips.

Passive and Non-Wage Income

• Income such as rental,

bonus, and tips may be

included without

documentation.

Income that is NOT included when evaluating a borrower for HAMP

• Income tax refunds

• Non-borrower

non-household income

• Grants, including

mortgage assistance

payments

• Severance payments

• Unemployment benefits

Income that is NOT included when evaluating a borrower for HAMP

• Income tax refunds

• Non-borrower

non-household income

• Grants, including

mortgage assistance

payments

• Severance payments

• Unemployment benefits

HAMP Evaluation Process Additional Types of Income


Phase 2 Evaluation

Phase 1 Engagement

Other Earned Income

• Bonus, commission

fees, housing

allowance, tips and overtime.


reliable third-party

documentation (e.g.,

an employment contract or printouts

documenting tip

income).

Benefit Income

• Social security,

disability, survivor

benefits, pension, public assistance,

adoption assistance

and food stamps.


documentation evidencing the

amounts they will

receive, frequency of

the benefits and

evidence of receipt.


• Must be voluntarily

provided by the

borrower.

• Borrower must provide:

•Divorce decree,

separation agreement

or other legal

documents filed with

the court.

•Evidence of receipt of

payment – 2 most

recent bank

statements or deposit

slips.

Passive and Non-Wage Income

• Income such as rental,

bonus, and tips may be

included without

documentation.


Monthly Principal Residence PITIA payments. MI premiums.

All closed-end subordinate mortgages. HELOC payments - use the minimum monthly payment reported

on the credit report.

If supplied - alimony, child support and separate maintenance

payments with more than ten months remaining.

Revolving or open-end accounts, regardless of the balance.

If no monthly payment shown, use 3 percent of the

outstanding balance.

Monthly Secondary home PITIA payments.

Installment debts with more than ten months of remaining payments or account with no payments, listed as deferred or forbearance, payment must be verified.

Negative net rental income.

Car lease payments, regardless of the number of payments

remaining.

Revolving or open-end accounts, regardless of the balance.

If no monthly payment shown, use 3 percent of the

outstanding balance.

Monthly Secondary home PITIA payments

HELOC payments - use the minimum monthly payment reported

on the credit report.

If supplied - alimony, child support and separate maintenance

payments with more than ten months remaining.

Car lease payments, regardless of the number of payments

remaining.

Negative Net Rental Income

Monthly Principal Residence PITIA payments.

All closed-end subordinate mortgages.

Installment debts with more than ten months of remaining payments or account with no payments, listed as deferred or forbearance, payment must be verified.

MI premiums.

HAMP Evaluation Process Verifying Monthly Gross Expenses

Monthly gross expenses include the monthly charges described in the following list:


Phase 2 Evaluation

Phase 1 Engagement



Borrowers with back-end ratios of 55 percent or more must agree in writing to obtain HUD-approved

counseling as a condition of receiving a HAMP modification, even if they recently completed counseling.

Borrowers with back-end ratios of 55 percent or more must agree in writing to obtain HUD-approved

counseling as a condition of receiving a HAMP modification, even if they recently completed counseling.

Face to face counseling sessions are encouraged, however telephone sessions are permitted.

Servicers must send a HAMP Counseling letter to borrowers informing them of the counseling

requirement.

Face to face counseling sessions are encouraged, however telephone sessions are permitted.

Servicers must send a HAMP Counseling letter to borrowers informing them of the counseling

requirement.

HUD Counseling Requirement


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 9


Unemployment Benefits B

Non-Borrower Household Income D

Social Security Disability A

Child Support C

Test Your Knowledge! What income is excluded for monthly gross income calculation under HAMP?


Phase 2 Evaluation

Phase 1 Engagement

Unemployment Benefits


Underwriting


Phase 2 Evaluation

Phase 1 Engagement


To qualify for HAMP, the verified

monthly gross income must

confirm that the borrower’s

monthly mortgage payment ratio prior to the modification is greater

than 31 percent.

The monthly mortgage payment

ratio is the ratio of the borrower’s current monthly mortgage

payment to the monthly gross

income of all borrowers on the

mortgage note, whether or not

those borrowers reside in the property.

For adjustable rate

mortgage (ARM)

loans that are scheduled to reset

more than 120

days after the

evaluation – the

monthly payment used in the

determination must

be the borrower’s

current scheduled

monthly mortgage payment and the

note interest rate

in effect at the time

of evaluation

For adjustable rate

mortgage (ARM)

loans that are scheduled to reset

more than 120

days after the

evaluation – the

monthly payment used in the

determination must

be the borrower’s

current scheduled

monthly mortgage payment and the

note interest rate

in effect at the time

of evaluation

To qualify for HAMP, the verified

monthly gross income must

confirm that the borrower’s

monthly mortgage payment ratio prior to the modification is greater

than 31 percent.

The monthly mortgage payment

ratio is the ratio of the borrower’s current monthly mortgage

payment to the monthly gross

income of all borrowers on the

mortgage note, whether or not

those borrowers reside in the property.

Underwriting The Borrower’s Monthly Mortgage Payment Ratio

For ARM loans

that are scheduled

to reset within 120 days of the

evaluation –the

fully amortizing

payment

determined by the remaining term of

the mortgage, the

current unpaid

principal balance

and the reset rate.

For ARM loans

that are scheduled

to reset within 120 days of the

evaluation –the

fully amortizing

payment

determined by the remaining term of

the mortgage, the

current unpaid

principal balance

and the reset rate.


Phase 2 Evaluation

Phase 1 Engagement

1MP_Phase 2 10


Borrower’s monthly mortgage payments must include escrow

amount, unless prohibited by applicable law.

Prior to beginning a trial period, servicers must:

Perform an escrow analysis for taxes and insurance. When performing the escrow analysis,

the servicer must take into consideration any taxes and insurance payments that may come

due during the trial period. Amount previously advanced or amounts that come due during

the trial period should be capitalized.

Establish an escrow account for borrowers who currently do not have one.

Determine the exact escrow payment required.

Perform an escrow analysis for taxes and insurance. When performing the escrow analysis,

the servicer must take into consideration any taxes and insurance payments that may come

due during the trial period. Amount previously advanced or amounts that come due during

the trial period should be capitalized.

Establish an escrow account for borrowers who currently do not have one.

Determine the exact escrow payment required.

Underwriting Escrow Accounts and Evaluation


Phase 2 Evaluation

Phase 1 Engagement

Prior to beginning a trial period, servicers must:

Borrower’s monthly mortgage payments must include escrow

amount, unless prohibited by applicable law.


Homeowners Insurance = $500.00

• Due – August

• Borrower Analysis for modification – May

• Potential Trial Start – June

June Trial 1 July Trial 2 Aug Trial 3

1st Tax Installment

$1,000.00

Homeowners Insurance

$500.00

Amounts Due During the Trial

$1,500.00

Amounts to Capitalize if applicable by law

$1,500.00

Homeowners Insurance = $500.00

• Due – August

• Borrower Analysis for modification – May

• Potential Trial Start – June

June Trial 1 July Trial 2 Aug Trial 3

1st Tax Installment

$1,000.00

Homeowners Insurance

$500.00

Amounts Due During the Trial

$1,500.00

Amounts to Capitalize if applicable by law

$1,500.00

Underwriting Escrow Analysis Example

County Taxes = $2,000.00

• 1st Installment Due – July

• 2nd Installment Due – December

County Taxes = $2,000.00

• 1st Installment Due – July

• 2nd Installment Due – December

If the initial analysis

identifies a shortage

for future payments,

the servicer must take

steps to eliminate.


Phase 2 Evaluation

Phase 1 Engagement


Step 4

Principal Forbearance:

If necessary, forbear principal.

Step 4



Step 3

Extend the Term:

Extend the term without exceeding 480 months.

Step 3

Extend the Term:


Step 2

Reduce the Rate:

Reduce the borrower’s current rate to as low as two percent.

Step 2

Reduce the Rate:


Underwriting Standard Modification Waterfall The target monthly housing ratio is defined as 31 percent of the borrower’s monthly gross income - Servicer must follow the waterfall steps in order and as necessary until the 31 percent target is achieved.

Principal Forgiveness - Servicers may forgive principal either up front or on a deferred basis under the Principal Reduction Alternative (PRA) to achieve the target monthly mortgage payment. Up front principal forgiveness may be granted on a standalone basis or before any step in the standard waterfall process.


Phase 2 Evaluation

Phase 1 Engagement

Step 1

Capitalize:

Capitalize accrued interest, out-of-pocket servicing expenses.

Step 1

Capitalize:


Additional guidance can be found in the Handbook located on HMPadmin.com

1MP_Phase 2 11


Underwriting Variation from the Standard Modification Waterfall In accordance with investor guidelines, servicers have the option of providing borrowers with a more favorable

modification than that required by HAMP, which may call for a deviation from the standard modification waterfall.

Servicers may agree to a modification where the interest rate does not step up after five years or where

the interest rate is reduced to less than 2.0 percent.

Servicers may agree to a modification where the interest rate does not step up after five years or where

the interest rate is reduced to less than 2.0 percent.

Servicers may agree to a modification that reduces the borrower’s monthly mortgage payment ratio

below 31 percent.

Servicers may agree to a modification where additional principal forbearance is substituted for extending

the term as needed to achieve the target monthly mortgage payment ratio of 31 percent.

Servicers may agree to a modification that reduces the borrower’s monthly mortgage payment ratio

below 31 percent.

Servicers may agree to a modification where additional principal forbearance is substituted for extending

the term as needed to achieve the target monthly mortgage payment ratio of 31 percent.

Examples of acceptable deviations include:


Phase 2 Evaluation

Phase 1 Engagement

Note: Investor guidelines may restrict or prohibit a modification step in the standard modification waterfall. If the servicer partially

performs or skips a modification step, the modification still qualifies for HAMP. Servicers must maintain evidence in the loan file

documenting the nature of any deviation from taking any sequential modification step in the modification waterfall.


PRA is designed to offer

mortgage relief to eligible

homeowners whose homes are

worth significantly less than the

remaining amounts owed under

their first lien mortgage loans.

Servicers are not required to

participate in PRA, but are

required to evaluate all

HAMP-eligible loans with a

mark-to-market loan-to-value

(MTMLTV) greater than 115

percent to determine if a

principal reduction is

beneficial.

If the evaluation shows the net

present value (NPV) for a

HAMP modification using PRA

is positive, servicers are

encouraged to offer the

principal reduction to the

borrower.

Servicers are not required to

participate in PRA, but are

required to evaluate all

HAMP-eligible loans with a

mark-to-market loan-to-value

(MTMLTV) greater than 115

percent to determine if a

principal reduction is

beneficial.

If the evaluation shows the net

present value (NPV) for a

HAMP modification using PRA

is positive, servicers are

encouraged to offer the

principal reduction to the

borrower.

Underwriting Principal Reduction Alternative (PRA)

PRA is designed to offer

mortgage relief to eligible

homeowners whose homes are

worth significantly less than the

remaining amounts owed under

their first lien mortgage loans.


Phase 2 Evaluation

Phase 1 Engagement


Step 4



Step 4



Step 3

Extend the Term:


Step 3

Extend the Term:


Step 2

Reduce the Rate:


Step 2

Reduce the Rate:


PRA Step

Principal Reduction Alternative:

Reduce the UPB until the target monthly payment is achieved.

PRA Step

Principal Reduction Alternative:

Reduce the UPB until the target monthly payment is achieved.

Underwriting Alternative Modification Waterfall

Principal Forgiveness - Servicers may forgive principal either up front or on a deferred basis under the Principal Reduction Alternative (PRA) to achieve the target monthly mortgage payment. Up front principal forgiveness may be granted on a standalone basis or before any step in the standard waterfall process.


Phase 2 Evaluation

Phase 1 Engagement

Additional guidance can be found in the Handbook located on HMPadmin.com

Step 1

Capitalize:


Step 1

Capitalize:


1MP_Phase 2 12


Principal Forgiveness D

Capitalization B

Reduce the Interest Rate A

Term Extension C

Test Your Knowledge! Which of the following is NOT a step in the Standard Modification Waterfall?


Phase 2 Evaluation

Phase 1 Engagement

Principal Forgiveness


Net Present Value (NPV)

All loans that meet the

HAMP eligibility

criteria and are deemed to be in

imminent default or

delinquent must be

evaluated using the

standardized NPV test.

All loans that meet the

HAMP eligibility

criteria and are deemed to be in

imminent default or

delinquent must be

evaluated using the

standardized NPV test.

Positive NPV Result

– Servicer must offer

the borrower a

modification.

Positive NPV Result

– Servicer must offer

the borrower a

modification.

Negative NPV

Result – At

servicer’s discretion

to perform the modification.

Negative NPV

Result – At

servicer’s discretion

to perform the modification.

Alternative Modification

Waterfall:

Positive Result – At

servicer’s

discretion to perform a loan

modification

utilizing PRA.

Alternative Modification

Waterfall:

Positive Result – At

servicer’s

discretion to perform a loan

modification

utilizing PRA.


Phase 2 Evaluation

Phase 1 Engagement

Resources are

available to servicers on

HMPadmin.com to

assist them in

performing the

NPV test.

Resources are

available to servicers on

HMPadmin.com to

assist them in

performing the

NPV test.


1MP_Phase 2 13


Resources

• Contact HAMP Servicer Integration Team E-

mail: [email protected]

Additional Resources

• Step-by-step job aids

• NPV tools and documents

• Reporting resources

• Live webinar training calendars

Resources located on

HMPadmin.com include:


Questions