Fannie Servicers to Gauge Imminent Default Risk for HAMP
Mortgage servicers of loans held in a Fannie Mae (FNM) portfolio and part of a mortgage-backed securities (MBS) pool will begin to use Freddie Mac’s (FRE) Imminent Default Indicator (IDI) in March, according to a set of Fannie servicer guidelines. Fannie servicers must use the indicator for borrowers either current or less than 60 days delinquent when determining eligibility for the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides capped incentives to servicers for the modification of loans on the verge of foreclosure. The IDI is a statistical model that predicts the likelihood of default or serious delinquency for loans less than 60 days past due. Servicers must implement the IDI by March 1, 2010. A borrower can be deemed eligible based on the imminent default evaluation if cash reserves are less than three times the monthly mortgage payment. Servicers must continue to process borrowers who were 31-59 days past due and cleared for a HAMP trial before the IDI implementation. A borrower is not considered in imminent default if the borrower has cash reserves totaling more than $25,000. The servicer, however, can continue to evaluate a borrower for HAMP if it’s demonstrated that he or she experiences a “hardship.” The data file from IDI includes the borrower’s credit score and monthly debt payment-to-income ratio. The servicer must also provide the property value used for the initial Net Present Value (NPV) test. Servicers modifying a loan must get a borrowers debt-to-income ratio down to 31% through the various waterfalls including an initial interest rate reduction. According to the latest Treasury report, every one of the more than 66,000 permanent modifications received an interest rate reduction, 43.2% received a term extension, and servicers provided principal forbearance to 26.6% of the borrowers. The requirement that Fannie servicers use Freddie's IDI by March was announced after the Treasury made an adjustment for all servicers under HAMP to obtain certain required documents before putting a borrower into a trial modification. A Treasury adviser said this week modification under HAMP applies to only "a certain subset" of troubled borrowers. Write to Jon Prior.