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Compensation for MHA Programs 1

Making Home Affordable | February 2012

Making Home Affordable (MHA)

Incentive Compensation for HAMP, 2MP, and HAFA℠

2 Making Home Affordable | February 2012

Course Objectives

This course will provide:

• A comprehensive overview of MHA incentive compensation on the following programs: HAMP, 2MP and HAFA

• Detailed information on incentives and accruals

• Guidance on Official Monthly Report (OMR) submissions and their impact on incentives

• Assistance in identifying anniversary incentives on monthly reports posted to the HAMP Reporting Tool

• A definition of interim month

• Guidance in managing servicer anniversary incentive inquiries

• A review of incentive compensation

• A list of MHA Resources

• A forum for questions and answers


HAMP Incentive Payment Types

Entity Payment Name

Servicer Servicer Incentive Payment

Pay-for-Success Payment

Borrower Pay-for-Performance Success Payment

Investor (Non-GSE)

Monthly Reduction Cost Share Payment

Current Borrower One-Time Bonus Payment

Home Price Decline Protection (HPDP) Incentive Payment

Principal Reduction Alternative℠ Incentive Payments

Note: No incentives will be paid unless the servicer has reported to the Program Administrator any required servicer or loan set-up data



HAMP Incentive Payment Types - Servicer

Compensation Amount

1) For loans less than or equal to 120 days delinquent as of the TPP Effective Date - $1,600

2) Between and including 121 and 210 days delinquent as of the TPP Effective Date - $1,200

3) Greater than 210 days delinquent as of the TPP Effective Date - $400

Frequency One-time payment

Timing Payable in the first month of the official/permanent modification

Conditions TPP must be successfully completed

Servicer Incentive Payment


HAMP Incentive Payment Types – Servicer

Compensation Amount

Equal to the lesser of $1,000 ($83.33/month) or one-half of the reduction in the borrower’s annualized monthly mortgage payment

Frequency Accrued monthly for the first three years of the permanent modification

Timing Payable annually in the month of the anniversary of the first TPP payment due date

Conditions

• Borrower’s monthly mortgage payment must be reduced through HAMP by at least six percent

• Loan must be in good standing and not paid in full

• OMR must be received

Note: If the loan ceases to be in good standing or is paid in full, the servicer will forfeit any incentive payments that have accrued but are unpaid and will cease to be eligible for any further incentive payments for that loan after that time, even if the borrower subsequently cures their delinquency.

Pay-for-Success Payment


HAMP Incentive Payment Types - Borrower

Compensation Amount

Equal to the lesser of $1,000 ($83.33/month) or one-half of the reduction in the borrower’s annualized monthly mortgage payment for each month a timely payment is made

Frequency Accrued monthly for the first five years of the permanent modification

Timing Payable annually in the month of the anniversary of the first TPP payment due date

Conditions

• Borrower’s monthly mortgage payment must be reduced through HAMP by at least six percent

• Loan must be in good standing and not paid in full at the time the incentive is paid

• Borrower makes timely monthly payments for accrual • OMR must be received

Note: If the loan ceases to be in good standing or is paid in full, the borrower will forfeit any incentive payments that have accrued but are unpaid and will cease to be eligible for any further incentive payments after that time, even if the borrower subsequently cures his or her delinquency.

Pay-for-Performance Success Payment



HAMP Incentive Payment Types – Borrower

Number of Months Accrued = 3

Total Anniversary Incentive = $83.33 (incentive amount) X 3 (total months accrued) = $249.99

Month 1 2 3 4 5 6 7 8 9 10 11 12

Payment One PMT Received

One PMT Received

One PMT Received

No

PMT

No

PMT

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

Accrued Borrower Incentive

$83.33 $83.33 $83.33 0 0 0 0 0 0 0 0 0

Example 1: Borrower misses two payments and does not bring loan current


HAMP Incentive Payment Types – Borrower


Total Anniversary Incentive = $83 (incentive payment) X 10 (total months accrued) = $833.33

Example 2: Borrower misses two payments and brings loan current

Month 1 2 3 4 5 6 7 8 9 10 11 12

Payment One PMT Received

One PMT Received

One PMT Received

No

PMT

No

PMT

One PMT Received

+

2PMTS

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received


$83.33 $83.33 $83.33 0 0 $83.33

+

$166.66

$83.33 $83.33

$83.33

$83.33

$83.33

$83.33


HAMP Incentive Payment Types - Investor

Compensation Amount

Equal to one-half of the dollar difference between (i) the borrower’s monthly payment (principal and interest only) under the modification calculated at 31 percent of the borrower’s monthly gross income and (ii) the lesser of:

• What the borrower’s monthly payment (principal and interest only) would be at a 38 percent monthly mortgage payment ratio; or

• The borrower’s pre-modification monthly payment (principal and interest only)

Frequency Payable monthly for up to five years of the permanent modification

Timing Payable monthly beginning the month after the permanent modification effective date

Conditions • Loan must be in good standing and not paid in full

• Permanent modification must be effective






Compensation Amount

$1,500

Frequency One-time payment for each completed modification

Timing Payable in the first month of the permanent modification becomes effective

Conditions

• The borrower must make their payment in the intervening month prior to the TPP Effective date; or

• The borrower agrees to start their trial period on the first day of the next month.

Current Borrower One-Time Bonus Payment



Compensation Amount

HPDP Incentive Amount = HPDP Index Value * UPB Quintile Payment * mark-to-market LTV Weighting Factor

Frequency Accrued monthly for the first two years of the permanent modification

Timing Payable annually on each the first anniversary and the second anniversary of the date on which the first trial period payment is due under the TPP

Conditions

• TPP Effective Date and NPV Date must be on or after September 1, 2009


• Borrower’s monthly mortgage payment must be reduced by at least six percent


Note: If loan disqualifies or pays off before end of two year period, amount accrued when loan was in good standing is paid out to investor in month it lost good standing or paid off as reported to the HAMP Reporting Tool.

Home Price Decline Protection (HPDP) Incentive


Compensation Amount

Paid at $0.18 per dollar of principal reduction amount for loans that were more than six months past due at any time during the 12-month period prior to NPV evaluation date, otherwise the following applies:

• $0.63 per dollar of the principal reduction amount for mark-to-market LTV less than 115% and equal to or greater than 105%

• $0.45 per dollar of the principal reduction amount for mark-to-market LTV of 115%-140%

• $0.30 per dollar of the principal reduction amount for mark-to-market LTV greater than 140%

Frequency Payable annually for the first three years of the permanent modification.

Timing Payable annually in the month of the anniversary of the first trial period payment due date.

Conditions

• Only paid if the modification terms reflect the target monthly mortgage payment ratio

• Paid only in conjunction with principal reduction that is deferred over three years in accordance with the program



HAMP Incentive Payment Types – Investor

Note: For details on incentives for PRA modifications with a TPP Effective Date prior to 3/1/2012, please refer to the Compensation Matrix on HMPadmin.com

Principal Reduction Alternative (PRA) Investor Incentive Payment



2MP Incentive Payment Types

Entity Payment Name

Servicer Completed Modification/Extinguishment Incentive

Servicer Success Payment

Borrower Borrower Success Payment

Investor Monthly Reduction Cost Share Payment

Full Extinguishment Payment



2MP Incentive Payment Types – Servicer

Compensation Amount

$500


Timing Payable in the month the permanent modification becomes effective or in the month after the full extinguishment is reported

Conditions

• Permanent modification must be effective or the full extinguishment is reported

• UPB must be equal to or greater than $5,000

• Pre-modification scheduled monthly payment must be equal to or greater than $100

Note: The servicer cannot receive the $500 incentive for both a permanent modification and an extinguishment for the same loan.

Completed Modification/Extinguishment Incentive


2MP Incentive Payment Types - Servicer

Compensation Amount

$250 each year for up to three years

Frequency Accrued monthly for the first three years

Timing Payable annually for each year of the first three years after the anniversary of the month in which the permanent 2MP modification becomes effective

Conditions

• Borrower’s monthly second lien payment must be reduced by at least six percent

• First and second lien loan must be in good standing under HAMP or 2MP and not paid in full


Note: The pay-for-success fee does not accrue during the 2MP trial period.

Servicer Success Payment



2MP Incentive Payment Types - Borrower

Compensation Amount

Up to $250 each year for up to five years

Frequency Accrued for each month in which the borrower makes current payments on both first and second lien loans

Timing Payable annually for each of the first five years after the anniversary of the month in which the permanent 2MP modification became effective

Conditions

• Borrower’s monthly second lien mortgage payment must be reduced through 2MP by at least six percent

• First and second lien loans must be in good standing and not paid in full at the time the incentive is paid


Borrower Success Payment


2MP Incentive Payment Types – Borrower


Total Anniversary Incentive = $0

Month 1 2 3 4 5 6 7 8 9 10 11 12

1MP Payment

One PMT Received

One PMT Received

One PMT Received

No

PMT

No

PMT

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

2MP Payment

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received

One PMT Received


0 0 0 0 0 0 0 0 0 0 0 0

Example 1:

Borrower misses two payments on the first lien loan and does not bring loan current.


2MP Incentive Payment Types - Investor

Compensation Amount

160 basis points multiplied by the unmodified UPB (less any partial principal forgiveness, if applicable) of the second lien converted to a monthly rate (divided by 12 months)

Equation: (160 basis points X unmodified UPB of second lien) / 12

Frequency Payable monthly beginning the month after official/permanent modification effective date

Timing Payable monthly beginning the month following the month the permanent 2MP modification becomes effective

Conditions • First lien modified under HAMP must be in good standing

• Neither the first nor second lien have been paid in full

• 2MP OMRs(2 OMRs) must be received




2MP Incentive Payment Types - Investor

Compensation Amount

Paid $0.06 per dollar of the UPB being extinguished if the second lien is more than six months delinquent at any time during the 12 months prior to the date of the extinguishment, otherwise the following applies:

• $0.21 per dollar of the UPB extinguished for a CLTV less than 115%

• $0.15 per dollar of the UPB or extinguished for a CLTV of 115%-140%

• $0.10 per dollar of the UPB or extinguished for a CLTV greater than 140%

The CLTV is the ratio of the current total UPB of the HAMP modified first lien and the current total UPB of the unmodified second lien divided by the property value obtained in connection with the permanent HAMP modification.


Timing Payable in the month all required data relating to the second lien extinguishment is received by the Program Administrator

Conditions

The 2MP servicer must represent and warrant that the second lien has been released in compliance with applicable laws when submitting a request for payment.

Full Extinguishment Payment


HAFA Incentive Payment Types

Entity Payment Name

Borrower Borrower Relocation Assistance

Servicer Servicer Incentive

Investor Investor Reimbursement for Subordinate Lien Releases



HAFA Incentive Payment Types – Borrower

Compensation Amount

$3,000


Timing Payable in the month the Short Sale/Deed-In-Lieu Loan Set-up is received after closing

Conditions

• HAFA Loan Setup transaction and Notification must board the HAMP Reporting Tool

• Short sale-property sale or transaction amount must be less than or equal to the sum of the final UPB amount and the total allowable costs amount

• The HAFA transaction must be reported in the HAMP Reporting Tool

Borrower Relocation Assistance



HAFA Incentive Payment Types – Servicer

Compensation Amount

$1,500



Conditions

• HAFA Loan Set-up transaction and Notification must board the HAMP Reporting Tool

• Short sale-property sale or transaction amount must be less than or equal to the sum of the final UPB amount and the total allowable costs amount

Servicer Incentive


HAFA Incentive Payment Types - Investor

Compensation Amount

Up to $2,000; Investor receives $1 for each $3 of total mortgage related subordinate lien releases up to $6,000



Conditions

• HAFA Loan Setup transaction and Notification must board the HAMP Reporting Tool

• Short Sale- Property Sale or Transaction Amount must be less than or equal to the sum of Final Unpaid Principal Balance amount and Total Allowable Costs Amount

• Subordinate lien holders must agree to release their liens and waive all future claims against the borrower

Investor Reimbursement for Subordinate Lien Releases


Course Objectives

This course will provide:

A comprehensive overview of MHA incentive compensation on the following programs: HAMP, 2MP and HAFA

Detailed information on incentives and accruals

• Guidance on Official Monthly Report (OMR) submissions and their impact on incentives

• Assistance in identifying anniversary incentives on monthly reports posted to the HAMP Reporting Tool

• A definition of interim month

• Guidance in managing servicer anniversary incentive inquiries

• A review of incentive compensation

• A list of MHA Resources

• A forum for questions and answers



Official Monthly Reports (OMR)

• Servicers must report loan activity for permanent modifications on a monthly basis

• OMRs report permanent modification’s previous month’s activity

• OMRs cannot be submitted until permanent modification boards in the HAMP Reporting Tool

• Reporting begins the first month AFTER the permanent modification is effective or the same month of a late submission loan setup

• Example: If permanent modification effective date is Feb 1st, OMR reporting begins March for February activity

• Due by the fourth business day of each month, however, the system accepts OMRs through business day eight

• Multiple OMRs can be submitted in the same month if corrections are needed

Continued …


Official Monthly Reports (continued)

OMRs are due even if a payment is not received during the prior month’s activity.

Receipt of the OMR directly impacts incentives where applicable.

• Reported LPI Date is used to determine borrower accruals if the borrower is current and if the borrower remains in good standing

• Servicer pay-for-success incentives disbursed only upon receipt of an OMR

• Borrower pay-for-performance incentives disbursed only upon receipt of an OMR

Continued …

Note: Servicers should reference data elements and definitions set forth in the appropriate Data Dictionary located on HMPadmin.com.


Official Monthly Reports

File layout includes 11 data fields:

1. HAMP Servicer Number

2. Servicer Loan Number

3. Last Paid Installment Date (LPI) as of month’s end

4. Unpaid Principal Balance (UPB) as of previous month’s end

5. Principal Payment Amount received for the previous month

6. Interest Payment Amount received for the previous month

7. Action Code

8. Action Date

9. Note Rate

10. Payment Effective Date

11. Principal and Interest Payment



OMR Example: OMR Reported Current

• June payment is received on time during June

• OMR submitted by fourth business day of July for June activity

• Unpaid Principal Balance (UPB) = UPB at June month end

• Principal Payment = full principal payment(s) received during June

• Interest Payment = full interest payment(s) received during June

• LPI Date (due date of the last payment received in June) = June 1, 2010

• Compensation is dependent on whether receipt of OMR is paid on-time in July (i.e., Payment Reduction Cost Share, where applicable) and Borrower Pay for Performance AND Servicer Pay for Success Payment accruals advance one month


OMR Example: OMR Reported Delinquent

• June payment is not received by June month end

• OMR is submitted by fourth business day of July

• UPB = UPB as of May month end

• Principal Payment = $0.00

• Interest Payment = $0.00

• LPI Date after Modification = May 1, 2010

• Borrower Pay for Performance accruals are not credited for June and do NOT advance one month as LPI Date reported is not current


OMR Example: OMR Prepaid

• June and July payments are made in June

• August payment is not received by July month end

• OMR is submitted by the fourth business day of July

• Principal Payment = sum of principal payments made in June

• Interest Payment = sum of interest payments made in June

• LPI Date = July 1, 2010 (indicates prepaid)

• OMR is submitted by fourth business day of August

• Principal Payment = $0.00

• Interest Payment = $0.00

• LPI Date = July 1, 2010

• Compensation dependent on whether receipt of OMR is paid on-time in July and August and borrower pay-for-performance AND servicer pay-for-success accruals are credited for each month



OMR - Impact on Monthly Compensation

• HAMP Reporting Tool validates OMRs to ensure current LPI date before accruing borrower pay-for-performance compensation

• Servicer pay-for-success payment are dependent only on receipt of the OMR

• Note: LPI Date does not have to be current

• Borrower compensation associated with any period of delinquency is not recoverable

• LPI dates reported 90 days or greater result in the borrower’s loss of good standing and the loan disqualifying, thus impacting borrower/servicer compensation


OMR - Impact on Anniversary Compensation

• Must receive an OMR to trigger anniversary payments

• System disburses cumulative accrued balances applicable at anniversary period


• Late submissions on an anniversary are treated the same as ongoing, permanent loans


OMR Example: Servicer Anniversary Incentive Report for HAMP

Servicer Anniversary

• Anniversary Period April 2010

• Borrower LPI was current through life

• Monthly values = $83.3333 and Investor Cost Share = $100.00

• OMR received on Anniversary; system disburses current accrual balances

Accruals Brwr Mo. Brwr Cum.

Srvcr Mo. Srvcr Cum. Inv CS

March $83.3333 $916.6666 $83.3333 $916.6666 $100.00

April $83.3333 $1,000.00 $83.3333 $1000.00 $100.00

April Disbursement ($1,000.00) ($1000.00)

May $83.3333 $83.3333 $83.3333 $83.3333 $100.00



Accessing Servicer Anniversary Incentive Reports

Step 1: Log in to HAMP Reporting Tool at https://hamp.lpsappliedanalytics.com/

Step 2: Click on the “Reports” Tab

Step 3: Click on the “First Lien Cash Payment Summary” Link

Continued …



Step 4: Log in to HMPadmin.com

Step 5: Click on HAMP Loan Reporting Tools and Documents

Continued …


Step 6: Click on File Formats

Step 7: Scroll down and click on HAMP Cash Payment Summary Column Headers


Continued …




Step 8: Copy and paste the headers into the Cash Payment Summary spreadsheet

Step 9: Identify specific program incentive type fields


Managing Anniversary Incentive Inquiries

Servicer Initiates Inquiry

• Inbound phone calls/emails

• Servicer Inquiry Form posted on HMPadmin.com

• Email [email protected]

Inquiry Scenarios

• General anniversary incentive inquiries

• Servicer loan specific inquiries

• Loan level incentive compensation disputes

MHA Teams Managing Servicer Inquiries

• HAMP Solution Center

• Servicer Integration Team (SIT)

• MHA Operations Analyst

• Compensation Inquiry Team


HAMP Incentive Inquiry Request Form



The time between the final trial period month and the month in which the modification becomes effective –is defined as the interim month.

For example, if the last trial period month is March the borrower would not be required to make any payment during April, and the modification would become effective, and the first payment would be due, on May 1st.

Neither the borrower nor the servicer will be entitled to accrue incentive compensation for the interim month for the borrower and servicer anniversary based incentives if the borrower does not make a trial period payment during the interim month.

Application of the Interim Month


Servicer Anniversary Incentive Compensation

Anniversary Incentive Compensation Essentials

• Maximum servicer anniversary incentive is $1,000 ($83.3333*12)

• Incentive does not accrue for the interim month when a permanent modification is established utilizing “skip-a-pay” option

• Currently, system functionality does not permit corrections of historical OMRs

• HAMP Reporting Tool retroactively updates monthly incentives upon submission of official corrections

• Inquiry process instructions and the general incentive inquiry form are located on HMPadmin.com

• Loan-level disputes must be submitted to [email protected]

Continued …


Servicer Anniversary Incentive Compensation (continued)

Anniversary Incentive Compensation Essentials

• OMRs must be reported in the anniversary month to trigger incentive payments

• Funds disbursed to servicer of record; reporting transfer in anniversary month results in funds disbursed to transferee

• Borrower anniversary accruals disbursed to “Borrower-specific” account if separate from “Servicer-specific” account

• Official cancels result in draft back of all disbursed funds



Borrower Anniversary Incentive Compensation

Borrower Anniversary Incentive Specific Compensation Essentials

• Borrower incentives are to be applied to principal as a curtailment

• Borrower incentive does not accrue for the interim month when permanent loan modification is established utilizing “skip-a-month” option

• Maximum borrower benefit per year is $1,000 ($83.3333*12)

• Borrowers accrue monthly incentives only in months the LPI date is current

• Servicers are encouraged to display borrower accrual incentives on the monthly mortgage statement


Additional MHA Support

MHA Support Resources

Compensation Inquiry Team

[email protected]

Servicer Integration Team [email protected]


Questions?