Today we issued Single-Family Seller/Servicer Guide Bulletin 2009-10, which announces important updates to requirements for the Home Affordable Modification program, including new criteria for determining whether a borrower is in imminent default, information and tools for Servicers to perform the required Net Present Value (NPV) test, and other changes to borrower eligibility and underwriting requirements.

Criteria for Determining Imminent Default

The Guide Bulletin provides criteria for determining whether a borrower who is current or less than 31days delinquent, and claims a hardship, is in imminent default. Using the process, requirements, and definitions outlined in our revised Guide Section C65.4, Servicers must consider the borrower for a modification under the Home Affordable Modification program if, after using the screening criteria outlined in this Guide section, the Servicer determines:

• The borrower’s Debt Coverage Ratio is less than 1.20 and
• The borrower’s cash reserves are less than three times the current monthly PITIA payment.

The Borrower Qualification Worksheet may be used to determine if a borrower, who is current or less than 31 days delinquent, is in imminent default. The updated Freddie Mac Borrower Qualification Worksheet will be available as a secure link on our Home Affordable Modification program Web page on Thursday, April 23. In addition, Freddie Mac is developing an automated solution to assist Servicers with the imminent default evaluation, and it will be available at a later date.

Net Present Value Calculations

All mortgages that meet Home Affordable Modification program criteria must be evaluated using the standardized NPV test that compares the NPV result for a modification to the NPV result for not modifying the mortgage. Today’s Bulletin and newly revised Guide Section C65.6 include detailed requirements for performing this test. These requirements include revisions for determining the amount of principal forbearance that may be permitted in order to achieve the Target Payment.

To assist Servicers, we are also introducing the Net Present Value (NPV) Calculator. The NPV Calculator is available on the Home Affordable Modification Servicer Web page. A user ID and password are required for access to the Servicer Web page. Servicers must complete and submit the HMP Registration Form to obtain a user ID and password.

Additional Updates

With today’s Bulletin, we are also announcing revisions and updates to these and other program requirements:

• Revising requirements for verification of income when the Servicer uses stated income to create and send the borrower a Trial Period Plan, along with revising the income documentation requirements.
• Revising the timeframe for when a borrower must respond to the Trial Period Plan offer package from 14 days to 30 days, and providing additional guidance if the borrower does not submit the required documents by the specified deadline.
• Updating the definition of Interest Rate Cap.
• Updating requirements for Servicers to continue to report “full-file” status reports to the four major credit repositories when borrowers enter the Trial Period, with criteria for borrowers who are current and borrowers who are delinquent when they enter the Trial Period.
• Revising collateral valuation requirements used for the NPV test and for determining the mark-to-market LTV ratio.
• Revising eligibility requirements to allow modifications of FHA, VA, and RHS mortgages, in accordance with guidance issued by the respective agency.
• Revising documentation requirements for verifying that eligible mortgages are occupied primary residences.
• Updating requirements for verifying installment debt and other expenses that must be included in the calculation of the borrower’s total monthly debt payment-to-income ratio.
• Providing further guidance on the Servicer’s “Pay for Success” and
  Borrower’s “Pay for Performance” incentive fees.
• Revising the Hardship Affidavit to now include a section for the collection of government monitoring data.
• Adding requirements for reporting data to Fannie Mae in its capacity as Financial Agent.
• Adding requirements provided by Freddie Mac, the Compliance Agent for the U.S Department of the Treasury.

Reminders

As a reminder, Servicers should continue to:

• Suspend all foreclosure sales on owner-occupied properties for borrowers who may be or are eligible for a modification under the Home Affordable Modification program.
• Report weekly Home Affordable Modification activity each Monday using the Program Performance Reporting Spreadsheet.