Trial Payment Plans for Loan Modifications and Partial Claims

On August 15, 2011, the U. S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (2011-28), entitled Trial Payment Plan for Loan Modifications and Partial Claims under Federal Housing Administration's Loss Mitigation Program.

The purpose of the trial payment plan is to confirm a borrower's readiness and ability to make regular monthly mortgage payments and avoid re-default.

This Mortgagee Letter (ML) identifies circumstances under which borrowers must successfully complete a trial payment plan, prior to the lender executing a loan modification or a partial claim action under the Federal Housing Administration's (FHA) Loss Mitigation Program.

In addition, the ML announced the time requirements for lenders to complete permanent loan modification and partial claim documents in order to receive an incentive fee.

• Additionally, the ML provides Appendix A: Reporting Requirements for Type II Special Forbearance / Trial Payment Plans.

• This ML supersedes Mortgagee Letters 2000-05 and 2002-17 with respect to guidance pertaining to trial payment plans.

• Relevant Mortgagee Letters: 2000-05, 2002-17, 2003-19, 2006-15, 2008-21, and 2009-35.

Effective: October 1, 2011

PREREQUISITES

The ML requires successful completion of a trial payment plan as a prerequisite for a lender executing a permanent standard modification and/or partial claim in the following situations:

• If a borrower has been delinquent (30 or more days) twice or more in the preceding 12 months;
• If a borrower has been delinquent for 90 days or more (three or more consecutive payments past due) in the preceding 36 months;
• If a borrower has defaulted within 90 days of a previous loss mitigation retention option (special forbearance, loan modification, and partial claim) executed in the past 12 months;
• If the financial analysis reflects a borrower has a net surplus income of less than 20 percent of total net income;
• If less than 14 months have elapsed since the origination of the loan;
• If the amount added to the loan balance in a loan modification or the amount of the partial claim exceeds 10 percent of the unpaid principal balance;
• If the borrower failed a trial payment plan for FHA's Making Home Affordable Program (FHA-HAMP); or
• If the borrower determines that a trial payment plan is necessary to demonstrate the borrower's ability to sustain the modified payment.

TRIAL PAYMENT PLAN GUIDELINES

The trial payment plan should be for a minimum period of three (3) months and the borrower should make at least three (3) full, consecutive monthly payments prior to final execution of the loan modification or the partial claim.

Reporting requirements are outlined in Appendix A of the ML.

In addition, under no circumstances may a lender include language in any loss mitigation documents which requires borrowers to waive their rights to be considered or approved for a loss mitigation option.

Loan Modifications

The rate for the trial payment plan and the permanent modified mortgage must be in compliance with Mortgagee Letter 2009-35, which defines the Market Rate to be "no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the permanent modification is executed. The weekly survey results are published on the Freddie Mac website. The Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates that it publishes weekly in its Statistical Release H.15 (See Here).

The final payment under the permanent modification must be the same or less than the trial mortgage payment.

Accordingly, this ML amends the aforementioned Mortgagee Letter 2009-35 by requiring the permanent rate to be established when the trial payment plan is approved by the servicer.

The approval date is the date the servicer offers the trial payment plan to the borrower.
In addition, mortgages in Ginnie Mae's Mortgage Backed Securities (MBS) must meet Ginnie Mae's repurchase requirement(s), prior to executing final modification documents. See Here.

Partial Claims

For partial claims, the monthly payment during the trial period must be the same as the regularly scheduled payment.

The lender must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance.

TRIAL PAYMENT PLAN FAILURE

Foreclosure action must be suspended during trial payment plans.

In the event a trial payment plan fails, an additional 90-day extension is provided in which the mortgagee must commence or recommence foreclosure or initiate another loss mitigation option.

If the trial payment plan fails, before commencing or continuing a foreclosure, the lender must re-evaluate the borrower's eligibility for other appropriate loss mitigation actions.
A trial payment plan is considered to have failed and is deemed broken when any of the following occurs:

• The mortgagor vacates or abandons the property; or
• The mortgagor does not make the scheduled trial plan payment within 15 days of the trial payment plan due date.

AUTOMATIC EXTENSIONS

If a borrower is unable to complete a trial payment plan within the initial six-month time limit from the date of default (see 24 CFR § 203.355), the lender is allowed a 90-day extension of the foreclosure deadline provided the initiation of a loss mitigation option (including a trial payment plan) was begun prior to the expiration of the initial six month period.

Therefore, if there have been no other intervening delays (such as bankruptcy) this "automatic" extension will extend the six (6) month deadline to initiate foreclosure by 90 days.

To qualify for the automatic extension, the lender must have completed the loss mitigation evaluation required by 24 CFR § 203.605 and approved the appropriate loss mitigation action.

Documentation of this analysis must be maintained in the claim review file.

In addition, the loss mitigation initiative must be reported via the Single Family Default Monitoring System (SFDMS).

OCC: "Foreclosure Irregularities"

In his testimony today to the Senate Committee on Banking, Housing, and Urban Affairs, Acting Comptroller of the Currency John Walsh discussed implementation of initiatives required by the Dodd-Frank Wall Street Reform and Consumer Protection Act before.

There are several areas of interest to the residential mortgage originations community. However, Mr. Walsh's statement about the "Foreclosure Processing Irregularities" merits attention. 

The following is a brief outline of the Acting Comptroller's testimony on Dodd-Frank Initiatives.

DUE DILIGENCE REVIEW

Policies and Procedures

Examiners determined if the policies and procedures in place ensured adequate controls over the foreclosure process and that affidavits, assignments, and other legal documents were properly executed and notarized in accordance with applicable laws, regulations, and contractual requirements.

Organizational Structure and Staffing

Examiners reviewed the functional unit(s) responsible for foreclosure processes, including staffing levels, qualifications, and training programs.

Management of Third-Party Service Providers

Examiners reviewed the financial institutions' governance of key third parties used throughout the foreclosure process.

Quality Control and Internal Audits

Examiners assessed foreclosure quality control processes. Examiners also reviewed internal and external audit reports, including government-sponsored enterprise (GSE) and investor audits and reviews of foreclosure activities, and institutions' self-assessments to determine the adequacy of these compliance and risk management functions.

Compliance with Applicable Laws

Examiners checked compliance with applicable state and local requirements as well as internal controls intended to ensure compliance.

Loss Mitigation

Examiners determined if servicers were in direct communication with borrowers and whether loss mitigation actions, including loan modifications, were considered as alternatives to foreclosure.

Critical Documents

Examiners determined whether servicers had control over the critical documents in the foreclosure process, including appropriately endorsed notes, assigned mortgages, and safeguarding of original loan documentation.

Risk Management

Examiners determined whether institutions appropriately identified financial, reputation, and legal risks, and whether these risks were communicated to the board of directors and senior management.

FINDINGS

In general, the examinations found critical deficiencies and shortcomings in foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third party law firms and vendors.

These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole.

By emphasizing timeliness and cost efficiency over quality and accuracy, examined institutions fostered an operational environment that is not consistent with conducting foreclosure processes in a safe and sound manner.

Despite these deficiencies, the examination of specific cases and a review of servicers' custodial activities found that loans were:

-seriously delinquent
-servicers maintained documentation of ownership
-servicers had perfected interest, thus legal standing to foreclose.

Case reviews evidenced that servicers were in contact with troubled borrowers and had considered loss mitigation alternatives, including loan modifications.

A small number of foreclosure sales should not have proceeded because of an intervening event or condition, such as the borrower:

(a) being covered by the Servicemembers Civil Relief Act;

(b) filing bankruptcy shortly before the foreclosure action; or

(c) being approved for a trial period modification.

While all servicers exhibited some deficiencies, the nature of the deficiencies and the severity of issues varied by servicer.

STANDARDS AND CORRECTIVE ACTIONS

Handling borrower payments, including applying payments to principal and interest and taxes and insurance before they are applied to fees, and avoiding payment allocation processes designed primarily to increase fee income.

Providing adequate borrower notices about their accounts and payment records, including a schedule of fees, periodic and annual statements, and notices of payment history, payoff amount, late payment, delinquency, and loss mitigation.

Responding promptly to borrower inquiries and complaints, and promptly resolving disputes.

Providing an avenue for escalation and appeal of unresolved disputes.

Effective incentives to work with troubled borrowers, including early outreach and counseling.

Making good faith efforts to engage in loss mitigation and foreclosure prevention for delinquent loans, including modifying loans to provide affordable and sustainable payments for eligible troubled borrowers.

Implementing procedures to ensure that documents provided by borrowers and third parties are maintained and tracked so that borrowers generally will not be required to resubmit the same documented information.

Providing an easily accessible single point of contact for borrower inquiries about loss mitigation and loan modifications.

Notifying borrowers of the reasons for denial of a loan modification, including information on the NPV calculation.

Implementing strong foreclosure governance processes that ensure compliance with all applicable legal standards and documentation requirements, and oversight and audit of third party vendors.

Not taking steps to foreclose on a property or conduct a foreclosure sale when the borrower is in a trial or permanent modification and is not in default on the modification agreement.

Ensuring appropriate levels of trained staff to meet current and projected workloads.

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Testimony of John Walsh, Acting Comptroller of the Currency,
before the Committee on Banking, Housing and Urban Affairs, U. S. Senate
February 17, 2011

The Principal Reduction Alternative

Jonathan Foxx is a former Chief Compliance Officer of two publicly traded financial institutions. He is the President and Managing Director of Lenders Compliance Group, the nation’s first full-service, mortgage risk management firm in the country.

About a half million permanent modifications have gone through HAMP, and 1.7 million trial modifications have been offered, even though the Obama Administration promised HAMP would assist three to four million homeowners. Anecdotally and statistically HAMP has failed.

RealtyTrac reports 2.9 million homes were in foreclosure in 2010, and 2.8 million in 2009, and 2.3 million in 2008. Furthermore, 2011 will see a 20% increase in foreclosure filings - that's above the 3 million mark! As to repossessions: approximately 2,800,000 since 2008, and still growing.

Is there a more effective way to prevent foreclosures?

HAMP - Problem or Solution?

Those who have been following our Newsletters already know that I have been highly critical of the boondoggle known as the Home Affordable Modification Program (HAMP).

Here's just a few selections from our Archive:

• HAMP: "Continues to Struggle"
• HAMP: Continues Downward Trend
• April Loan Modification Report: Is HAMP Failing?

Verdict of SIGTARP

Contrasting the RealtyTrac data with HAMP statistics, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) states in a report issued on January 26, 2011:

"The number of permanent mortgage modifications under HAMP remains anemic - there were just 522,000 ongoing permanent modifications as of December 31, 2010, with approximately 238,000 of those funded by and attributable to TARP. The remaining were funded outside of TARP by the GSEs. A combined total of more than 792,000 trial and permanent modifications have been canceled, with more than 152,000 trial modification still in limbo. These permanent modification numbers pale in comparison not only to foreclosure filings, but also to Treasury's initial prediction that HAMP would 'help up to 3 to 4 million at-risk homeowners avoid foreclosure' by reducing monthly payments to sustainable levels." (My Emphasis)

An Alternative

In a brief, but very concisely worded White Paper, entitled Principal Reduction Modification Math - A Report by Rick Rogers, JD/MBA, a compelling case is made for the fact that lenders will receive far more value from principal reduction modifications than from other mortgage modifications. The paper is fairly technical, but well worth reading. Rick's practice is devoted to foreclosure, mortgage default, and related matters, and he is an expert in Net Present Value (NPV) comparative analysis. Rick has kindly supported my wish to inform you of his insights.

You can download Rick's White Paper from the HAMP section of our Library.

First just a word about the HAMP program itself. There are several moving parts to the HAMP eligibility program.  

I will name a few significant aspects.

• NPV - the acronym for Net Present Value, when we've extricated the math and algorithm basics - is simply a calculation to decide if the lender is in a better profit position by approving a modification or would have a higher profit margin by foreclosing. It is part of HAMP procedures.
• Plus, the so-called waterfall process, which is really just a step-by-step analytical tool used for HAMP loan workouts. It consists of a series of calculations; however, in this case using such parameters as the gross monthly income, percentage of that gross income used to generate a target monthly payment, and so forth.
• Servicers evaluating HAMP modifications derive a mark to market loan to value (MTM-LTV) ratio on any loan greater than 115%. If so, a principal reduction then becomes available to reducing monthly payments to the eligible 31% of the borrower's gross income.
• Some generic rules: to get to the eligible 31% of gross income servicers reduce the interest rate, extend the loan term, even provide principal forbearance, but only use principal reduction as a last resort.

Nevertheless, these and certain other criteria are supposed to lead to successful permanent modifications based, among other things, on lowering the interest rate, extending the loan term, and/or reducing the loan balance until the eligible target payment is reached.

This White Paper asserts that the the re-default rate - the rate during the 12 months immediately following the modification - is the "single most important factor" when comparing the NPV of a standard Home Affordable Modification Program (HAMP) with the   Principal Reduction Alternative HAMP (PRA HAMP) modifications.

The comparative analysis offered indicates that the more effectual means to preventing foreclosure is not through the standard HAMP but through the PRA HAMP program, because PRA HAMP not only includes the above-outlined HAMP criteria but also specifically permits the reduction of principal. However, PRA HAMP is optional and lenders determine whether or not to implement its principal reduction feature.

As the White Paper affirmatively states:

"Lenders will receive far more value from Principal Reduction modifications than from other mortgage modifications."

FRB Report

Rick cites a recent Federal Reserve Bank of New York Staff Report (FRB Report), entitled Second Chances: Subprime Mortgage Modification and Re-Default , that serves to support the findings that "principal reduction modifications were included in a sufficient number for the authors [of the FRB Report] to state the following conclusion in the Abstract:  '... the re-default rate declines relatively more when the payment reduction is achieved through principal forgiveness as opposed to lower interest rates.'" 

Furthermore, Rick culls the following conclusion from page 30 of the FRB Report:

"Restoring the borrower's incentive to pay in this way [referring to principal reduction] nearly quadruples the reduction in re-default rates achieved by payment reductions through interest rate modifications and term extensions alone."

Put another way: in many instances, principal reduction through PRA HAMP modalities is a more effective foreclosure prevention solution than just reducing the mortgage interest rate along with the other standard HAMP modalities.

And by what ratio? The White Paper points out that "the FRB Report suggests 4 of every 10 standard HAMP modifications will fail, while only about 1 in 10 PRA HAMP modifications will fail."

Here is one of several suggestions offered in this White Paper:

"Consistent with the HAMP concept, a PRA HAMP modification should be mandatory for participating Lenders whenever its NPV exceeds that of both the standard HAMP modification and the "No Modification" alternatives."

Principal Reduction Alternative

Principal reduction is surely a viable means to preventing foreclosure through the PRA HAMP procedures, so it is hard to fathom why the Obama Administration continues to advance dubious claims of success relating to the HAMP program, without further encouraging lenders and servicers to make more use of PRA HAMP.
As the aforementioned SIGTARP report states:

"Treasury's central foreclosure prevention effort designed to preserve that goal [of 'preserving homeownership'] - the Home Affordable Modification Program (HAMP) - has been beset by problems from the outset and, despite frequent retooling, continues to fall dramatically short of any meaningful standard of success." (My emphasis)

The Treasury's most recent Press Release about the HAMP "Scorecard" has this rosy and promising subtitle: "New Making Home Affordable data reveals mortgage help reaching struggling middle class, underwater and minority homeowners."

Political temporizing and vapid Press Releases are not helpful. The HAMP program is a failure, plain and simple.

Dressing HAMP up with fancy statistics and glowing pronouncements can't be convincing to those homeowners who would be better served by more aggressive and effective foreclosure prevention methodologies. Facts are stubborn things, and can't be wished away by the Obama Administration claiming that HAMP works for the "middle class, underwater and minority homeowners" - when, all the while, this government program clearly does no such thing for most of them. HAMP may be "reaching" these mortgagors, but it's really not helping them very much!

It seems to me that principal reduction through PRA HAMP should be more fully implemented and supported.

I'll give Rick Rogers the last word on the potential results of the principal reduction alternative:

"Lenders will achieve far greater financial benefits than with any current modification program, and borrowers will have a fighting chance to regain equity and security in their home."

What do you think?

I would welcome your comments. Please feel free to email me at any time.

Mortgage Performance Metrics: A Quick Look

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) released their 3rd quarter 2010 mortgage Mortgage Metrics Report.

Published in December 2010, the findings are compiled from data on first-lien residential mortgages serviced by national banks and federally regulated thrifts.

The report provides information on loan performance through September 30, 2010, the year's 3rd quarter.

I think the report offers a broad view of mortgage performance, because the mortgages in this portfolio comprise 64% of all mortgages outstanding in the United States, that is, 33.3 million loans totaling almost $6 trillion in principal balances.

According to the report, mortgage delinquency levels:

• Remained "elevated" and foreclosures (new, in process, and completed) increased during the 3rd quarter of 2010.

• New home retention actions (modifications, trial-period plans, and payment plans) decreased during the quarter.

• The overall credit quality of the portfolio of first-lien mortgages serviced by the largest national banks and thrifts seems to have remained "steady" during the 3rd quarter of 2010, after showing some improvement during the previous two quarters.

The full report is available in our Library.

Let's look now (see below) at five tables from the report and consider some statistical analysis.

According to this table, servicers implemented 470,321 new home retention actions during the 3rd quarter. This represents a 17% decline from the previous quarter.

• HAMP modifications decreased by 45.7% during the quarter while other modifications increased by 10.1%.

• New HAMP trial plans decreased by 33.2%, and other trial-period plans decreased 21% from the previous quarters.

The report indicates that servicers attribute this decline resulted from requirements to obtain, verify, and analyze borrower income before beginning a trial period plan and the falling number of borrowers who are eligible for existing modification programs.

The findings indicate that servicers modified 1,506,025 loans from the beginning of 2008 through the 2nd quarter of 2010.

• At the end of the 3rd quarter of 2010, 48% of these modifications remained current or were paid off.

• Another 10.2% were 30 to 59 days delinquent.

• Almost 24% of the modifications were seriously delinquent, 9.4% were in the process of foreclosure, and 4.2% had completed the foreclosure process.

• Modifications that reduced payments by 10% or more performed better than modifications that reduced payments by less than 10%.

• At the end of the third quarter, 58.9% of modifications that reduced payments by 10% or more were current and performing, compared with the 33.4% of modifications that reduced payments by less than 10%.

This table shows that more recent modifications have performed better than earlier modifications every quarter since the end of the first quarter of 2009, though the rate of improvement "appears to be moderating."

• At 6 months after modification, 20.2% of the modifications made in the 4th quarter of 2009 were seriously delinquent compared with 33.5% of the modifications made during the second quarter of 2009.

• The report states that this trend of lower delinquency rates following modification "corresponds with the increasing emphasis on repayment sustainability through reduction of the borrower's monthly payment, verified borrower income, and payment affordability relative to income."

One of the more interesting tables is this one, because it indicates that modified mortgages held in the servicers' portfolios performed better than modified mortgages serviced for others.

• The report asserts that this variance may result from differences in modification programs, servicers' additional flexibility to modify mortgage terms, and the underlying quality of loans serviced for different investors.

• Note that the modified government-guaranteed mortgages had the highest delinquency rates at 6, 9, and 12 months following modification, consistent with their higher overall delinquency rates.

This table charts modified loan performance, by change in monthly payments, a statistical array of data that we have commented on in previous compliance updates, particularly with respect to the HAMP program.

The report finds that modifications with decreased monthly payments consistently had lower re-default rates than modifications that left payments unchanged or increased payments.

• After 6 months, 14.6% of modifications implemented since the second quarter of 2009 that decreased monthly payments by 20% or more were seriously delinquent.

• In contrast, 28.1% of modifications that left payments unchanged and 42.% of modifications that increased payments were seriously delinquent.

The report asserts that while lower payments reduce monthly cash flows to investors, the payments may result in longer-term sustainability.

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OCC and OTS Mortgage Metrics Report -
Disclosure of National Bank and Federal Thrift Mortgage Loan Data:
Third Quarter 2010
Issued: December 2010

Are Foreclosures Good For The Economy?

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

The foreclosure crisis has taken on new dimensions with the Obama Administration's apparent view that accepting the huge wave of foreclosures may be necessary and inevitable.

But have the borrowers who face foreclosure really been given every opportunity to save their homes?

Failed government programs, overwhelmed servicers and lenders, lack of systemic alternatives, and the absence of a coherent national plan or specially empowered agencies to stabilize the pandemic of foreclosures are depriving borrowers of ways and means to recover from this crisis.

"I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes.

We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover." Hillary Clinton - September 25, 2008

The most recent report of foreclosures from RealtyTrac provides the following schematic.

Just this past Friday, the New York Times put the Obama administration's non-response to the foreclosure crisis in bold relief:

"In the most recent mortgage mess, the Obama administration has - oddly and disturbingly - been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order."

However the foreclosure debacle does play itself out - and, let's be clear, there is no truly satisfactory outcome for lenders, borrowers, or the overall economy - it is important to identify who these defaulted borrowers really are: our neighbors, our co-workers, our professional class, our close friends and family, our most educated and least educated, our peers who have been downsized out of jobs, laid off, and whose jobs have been outsourced, our small business owners and self-employed.

For the most part, the foreclosed upon properties have not been demised by deadbeats - or "losers" (Rick Santelli) - or scammers or ignoramuses who would sign anything to own a house. That canard is the main stream media narrative, and it is not true at all. Statistic after statistic support the fact that most loans were underwritten pursuant to agency and investor guidelines, along with proper borrower verification.

Yet now, those same agencies and investors seem to be changing the rules. For instance, HUD is reevaluating the approval authority granted to FHA DE-mortgagees whose defaults are considered excessive, even though those mortgagees' FHA loans were underwritten to FHA guidelines.

And, since the foreclosure tsunami hit, millions of borrowers have endeavored in vain to save their homes through loss mitigation methods and loan modifications, only to find themselves, usually without the benefit of legal counsel, navigating the blizzard of new paperwork requirements in an often futile engagement with unresponsive servicers and intransigent lenders.

In some cases, borrowers in default are taking out second mortgages in order to save their homes - with payment of the proceeds going to their lawyer if the foreclosure is dismissed and the debt is reduced.

Is the appropriate response to foreclosure in this current economic environment to blame the victim?

Government assistance programs, such as HAMP, have been failures. Our servicer and investor clients are particularly frustrated by the enormous task they face to offer alternative loan terms, respond to thousands of inquiries, implement new mortgage instruments, properly execute all legal documents, and consistently and effectively track the progress of mitigated claims.

In the quote above, Mrs. Clinton stated that "We've got to stem the tide of failing mortgages and give the markets time to recover."

Maybe we should give our neighbors and neighborhoods the time to recover as well!

So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Fannie: Launches KnowYourOptions.com

Overview

The Federal National Mortgage Association (Fannie) recently bought the domain name "KnowYourOptions.com" for $50,000 from a domain name consultancy in June.

On August 3, 2010, Fannie launched KnowYourOptions.com™ for consumers to use in order to determine their options when they are behind on their mortgage payments or are facing foreclosure.

____________________________________________

^^ Click ^^

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Highlights

Know Your Options Features

All options are presented to homeowners within two categories:

1. options for those who want to stay in their home. and

2. options for those who may want to leave.

For each, there's an overview, list of benefits, an explanation of how it works, and next steps.

Important Features

• A Virtual Assistant to walk homeowners through key sections of the site.

• An interactive Options Finder to get homeowners to the option that might be right for their situation.

• Mortgage-Related Calculators to help homeowners know how the various options work.
• Consistent Call-to-Action on every page - homeowners are encouraged to contact their mortgage company or a housing counselor to get help.

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Materials

Know Your Options Marketing Materials

Know Your Options sample letters and flyers for each option. Professionals can personalize these materials with their own contact information and use when working with homeowners.

Fannie plans to add more marketing materials in the future, such as banner ads, brochures, statement inserts and more.

Know Your Options Borrower Letters
All Options letter
Stay in My Home Options letter
Repayment Plan letter
Forbearance letter
Modification letter
Deed-for-Lease letter
Leave My Home Options letter
Short Sale letter
Deed-in-Lieu of Foreclosure letter

Know Your Options Flyers
All Options flyer
Stay in My Home Options flyer
Repayment Plan flyer
Forbearance flyer
Modification flyer
Deed-for-Lease flyer
Leave My Home Options flyer
Short Sale flyer
Deed-in-Lieu of Foreclosure flyer

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Fannie Mae: KnowYourOptions.com™
Press Release 8/3/10

HAMP: Continues Downward Trend

The government program established to assist homeowners in distress continues to under perform, with 91,118 trial modifications under the Home Affordable Modification Program (HAMP) being canceled in June and of those more than 70% had been in a trial period for six months or longer.

Based on the June 2010 Servicer Performance Report (Report) issued on July 20, 2010, it appears that, more often than not, most borrowers aren't surviving the trial modification stage.

Servicers also converted 51,205 trials to permanent modifications, approximately 3,481 more conversions than occurred in May. During the same period, the number of trial modifications also increased from May, growing from 30,099 to 38,728.

The recidivism rates for HAMP modifications six months after converting to a permanent modification are 5.9% of HAMP loans are 60+ days delinquent and 1.7% are 90+ days delinquent. At nine months after conversion, the rates rise to 7.7% for 60-day delinquencies and 2.4% for 90+ day delinquencies.

The velocity of the program is slowing down considerably!

On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

●Number of permanent loan modifications: 346,816 to 389,198 (Increase: 42,382)
●Number of trial modifications canceled: 429,696 to 520,814 (Increase: 91,118)
●Number of "active trials": 467,672 to 364,077 (Decrease: 103,595)

These statistics clearly show that the number of failed trial modifications to date are significantly greater than the number of successful, permanent ones, while the number of trials started has dropped precipitously.

As indicated above, the velocity of the program is slowing down considerably. On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

This is the slowest month-over-month pace since the program began.

Taken together, the above two charts indicate why trials modifications are probably slowing down: servicers are now pre-qualifying borrowers and are also running out of eligible borrowers.

The median front-end DTI before modification is 44.8% (which is about where it has remained for several months); and, the back-end DTI before modification is an astronomically high 79.9% (which, in any event, has been in this high range of 77.5% to 80.2% for several months).

That back-end DTI discloses an inescapable fact: nearly 80% of the borrower's income is going to servicing debt - and nearly 63.7% of income even after loan modification - a troublesomely high back-end ratio, which indicates likely defaults in the future.

It's no wonder that many borrowers never make it out of trial modification into permanent modification. Indeed, these are "median" characteristics - so many borrowers have even higher risk profiles.

Clearly, the program is not meeting with the kind of success predicted at its inception and is gradually coming to an end.

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Making Home Affordable Program
Servicer Report - June 2010 (07/21/10)