Summary of Guidelines

U.S. D



March 4, 2009

Making Home Affordable

Summary of Guidelines

Making Home Affordable

will offer assistance to as many as 7 to 9 million homeowners, making their

The Home Affordable Refinance

solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these

borrowers would be unable to refinance because their homes have lost value, pushing their current loanto-

value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be

eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an

adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation

requirements are not likely to be burdensome


The Home Affordable Refinance program ends in June 2010.


foreclosure by reducing monthly mortgage payments. Working with the banking and credit union

regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury

Department today announced program guidelines that are expected to become standard industry practice

in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with

an expanded and improved Hope for Homeowners program.

With the information now available,

program will be available to 4 to 5 million homeowners who have a. In addition, in some cases an appraisal will not be. This flexibility will make the refinance quicker and less costly for both borrowers and lenders.Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoidservicers can begin immediately to modify eligible mortgages

under the Modification program so that

detailed guidelines (separate document) provide information on the following:

Eligibility and Verification

at-risk borrowers can better afford their payments. The

Loans originated on or before January 1, 2009.

Higher limits allowed for owner-occupied properties with 2-4 units.

First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750.

stubs, and most recent tax return, and must sign an affidavit of financial hardship.

All borrowers must fully document income, including signed IRS 4506-T, two most recent pay

documentation; no investor-owned, vacant, or condemned properties.

Property owner occupancy status will be verified through borrower credit report and other

when the servicer determines that the borrower is at imminent risk of default.

Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments

under the program.

Loan Modification Terms and Procedures

Modifications can start from now until December 31, 2012; loans can be modified only once

unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain

waivers of limits on participation.

Participating servicers are required to service all eligible loans under the rules of the program

that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the

net present value of cash flows with modification and without modification. If the test is positive

– meaning that the net present value of expected cash flow is greater in the modification scenario

– the servicer must modify absent fraud or a contract prohibition.

Participating loan servicers will be required to use a net present value (NPV) test on each loan

property valuation methodologies, home price appreciation assumptions, foreclosure costs and

timelines, and borrower cure and redefault rate assumptions.

Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates,

more than 31% of gross monthly income (DTI).

Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no

then if necessary extending the term or amortization of the loan up to a maximum of 40 years,

and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners

refinancing are acceptable alternatives.

The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%),

association and/or condominium fees. Monthly income includes wages, salary, overtime, fees,

commissions, tips, social security, pensions, and all other income.

The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s

before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers

Servicers must enter into the program agreements with Treasury's financial agent on or

38% DTI to 31% DTI.

The program will share with the lender/investor the cost of reductions in monthly payments from

each modification, plus "pay for success" fees on still-performing loans of $1,000 per year.

Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for

reduction payments each year for up to five years.

Homeowners who make their payments on time are eligible for up to $1,000 of principal

$500 to servicers for modifications made while a borrower is still current on mortgage payments.

The program will provide one-time bonus incentive payments of $1,500 to lender/investors and


The program will include incentives for extinguishing second liens on loans modified under this

and until the servicer has first entered into the program agreements with Treasury’s financial


No payments will be made under the program to the lender/investor, servicer, or borrower unless

Transparency and Accountability

Similar incentives will be paid for Hope for Homeowner refinances.

central to the program.

Measures to prevent and detect fraud, such as documentation and audit requirements, will be

compliance review, including borrower eligibility, underwriting, incentive payments, property

verification, and other documentation.

Servicers will be required to collect, maintain and transmit records for verification and


Freddie Mac will audit compliance.

mortgages more affordable and helping to prevent the destructive impact of foreclosures on families,

communities and the national economy.