[Moe Bedard]

From the Q & A:

Home Affordable Modifications are designed to prevent foreclosures by making mortgage payments affordable for working homeowners struggling to retain homeownership. The plan is not intended to replace equity lost by home price depreciation.


The servicers follow steps to get the payment on the first lien alone, including Principal, Interest, Taxes, Insurance, and HOA dues if applicable, down to the target of 31% of gross income. They are not reducing principal to get there....................one of the very last steps, if needed, is principal forbearance.............which leaves the amount taken off of the front end of the loan and places it in a balloon payment due when the property is sold or refinanced..........but they would be reducing the rate and extending terms first.

In summary, participating servicers will (in order):

• Determine that a loan meets the minimum eligibility criteria (owner occupied, originated before January 1, 2009, UPB equal to or less than $729,750). If yes:

• Obtain sufficient income information to determine if the borrower has a front-end debt-to-income (DTI) ratio of 31% or greater (verbal income may be accepted for initial evaluation subject to verification prior to final approval). If yes:

• Capitalize (add to the loan amount) accrued interest, past due taxes and insurance, delinquency charges paid to third parties (e.g., for inspecting the property), and escrow advances by the servicer – but not late fees or other default fees charged by the servicer;

• Determine how much of an interest rate reduction is required to get the borrower's mortgage payment to 31% DTI, and if the DTI still exceeds 31% at the rate floor of 2%, modify the loan in other respects specified in the Guidelines;

• Apply a Net Present Value (NPV) test to determine if modification (including the incentive payments) provides the investor with a better financial outcome than foreclosure. If yes:

• Put the borrower on a trial modification at the new interest rate and payment for three months.

• If the borrower is current at the end of the trial modification period, the servicer will execute a modification agreement that includes escrows for taxes and insurance even if the prior loan was not escrowed.