Fannie Mae and Freddie Mac have offered several possible solutions for borrowers who received modifications through the government’s Home Affordable Modification Program (HAMP) who are facing increased monthly payments when the interest rates on their modifications reset, according to the FHFA’s 2015 Annual Report to Congress released on Wednesday.
The government launched HAMP in February 2009 in response to the crisis as a way for delinquent borrowers to avoid foreclosure. Since then, the program has helped approximately 1.8 million families and completed approximately 2.3 million homeowner assistance actions. HAMP is set to expire at the end of this year.
Under the terms of HAMP, five years after receiving a modification, homeowners will see the interest rate increase by 1 percentage point each year until it reaches the market rate in place at the time they received their modification. According to Treasury, the typical HAMP homeowner will experience two to three step-ups; the nationwide median payment increase after the first step-up is $93, while the median payment increase after the final step-up is around $206.
According to the FHFA’s annual report to Congress, in January 2015, the Agency directed the GSEs to implement a $5,000 pay-for-performance incentive to reduce the outstanding principal for HAMP borrowers who have remained in good standing through the end of the sixth year of their modification. The FHFA then made two changes to its Streamlined Modification products; in March, the period of time for which a borrower who recently experienced an interest rate reset must have been delinquent in order to receive a modification was reduced from 90 days to 60 days, and then in May the sunset date for all Streamlined Modification products was eliminated.
“One of the reasons for ensuring the continuing availability of this loss mitigation tool is its role as a solution for HAMP borrowers who face rate resets,” FHFA said in its report.
Also according to FHFA, during 2015 Fannie Mae and Freddie Mac identified approximately 16,000 HAMP borrowers facing resets who were eligible for a refinance through the government’s Home Affordable Refinance Program (HARP), which is also set to expire at the end of 2016. The GSEs provided servicers with information that would enable them to solicit these borrowers for HARP, according to FHFA.
Treasury has been monitoring HAMP data closely and has created a three-pronged safety net to help borrowers should they struggle with a step-up to avoid re-defaulting. The prongs are one, requiring servicers to notify borrowers at two separate time points that a step-up is imminent (no less than 120 days from first rate increase and at least 60 days prior to first increase); the second is introducing post-modification counseling for borrowers who are at risk of re-default and have missed a payment; and the third is an enhanced suite of tools which include increased incentives for remaining current and improved HAMP Tier 2 modification options.
Click here to view the entire FHFA Annual Report to Congress for 2015.