July 31, 2

TH

REDEF

EXECU

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1

The logist

under Trea

sourced fro 2

 Fannie M

2012

HE EFFECT

FAULT RA

TIVE SUM

e inception o

d their mortg

(HAMP). A

ations with lo

of the perfor

has shown th

ayment redu

HAMP modif

market loan-t

rincipal bala

HAMP PRA 

hat have rela

orrowers wi

modification.

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or a given pa

rincipal redu

without princ

EFFECTS 

2010, the U.S

ive (PRA) pr

l owed by ho

owed on the 

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tic regression d

asury's Making

om Fannie Mae

Mae and Freddie

T OF THE P

ATES IN TH

(

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of the Makin

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As of May 20

oan principal

rmance of H

he following

uction is an i

fication rede

to-value, or M

ance relative

participating

atively riskie

th much low

gression cont

ayment redu

uction perfor

cipal reductio

OF HAMP

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rogram. HAM

omeowners w

mortgage. A

nent modifica

 

described in thi

g Home Afford

e as program a

e Mac do not p

P

PRINCIPAL

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(HAMP): E

ng Home Aff

nently modif

012, over 63

l reduction u

HAMP modif

g results: 

important dr

efault rates a

MTMLTV, r

e to the home

g servicers te

er credit char

wer credit sco

trols for thes

ction, homeo

rm better tha

on.

P PRA ON R

nt of the Tre

MP PRA pro

whose home

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ations. 

is paper was pe

able Program. 

administrator. 

participate in th

Page 1 of 5 

L REDUCT

AFFORDA

EARLY RES

fordable Prog

fied through 

,000 homeow

under HAMP

fications with

river of HAM

also fall as th

ratio decreas

e’s value dec

end to use th

racteristics th

ores and that

se riskier cha

owners who

an homeown

REDEFAUL

easury annou

ovides finan

s are worth s

2012, homeo

erformed by Fa

 The data poin

he PRA progra

TION ALTE

ABLE MOD

SULTS1

gram, over o

the Home A

wners have r

P PRA2. Thi

h and withou

MP modifica

he loan’s afte

ses (i.e. as th

creases). 

he principal r

han the over

t are more se

aracteristics.

o received a H

ners who rec

LT RATES

unced the HA

cial incentiv

significantly

owners have 

annie Mae in it

nts, figures and

am.

ERNATIVE

DIFICATION

one million h

Affordable M

received per

is document 

ut PRA. To

ation perform

er modificati

he size of the

reduction fe

rall HAMP p

eriously deli

. The regres

HAMP mod

ceive a HAM

AMP Princip

ves to investo

y less than th

been grante

ts role as progr

d tables reflecte

E (PRA) ON

N PROGRA

homeowners

Modification 

rmanent 

presents an 

o date, this 

mance. 

ion mark-toe loan’s curr

ature on loan

population -

inquent at tim

ssion shows

dification wit

MP modificat

pal Reductio

ors for reduc

he remaining

ed over 63,00

ram administra

ed herein were 

N

AM 

s

-

rent 

ns 

me of 

that 

th 

tion 

on 

cing 

g

00 

ator 
HAMP d

HAMP m

a 28 perc

monthly 

reduction

Figure 1

Source: M

The rede

ratio decr

that is 12

the redef

lower pos

rate after 

data show tha

modification

centage poin

payment red

n. Figure 1 s

. 60+ Day D

aking Home A

fault rate of 

reases. At 2

2 percentage 

fault curves b

st-modificati

6 months tha

at the amoun

s. Twenty-fo

t difference 

duction and l

shows the re

Delinquency

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HAMP mod

24 months, lo

points lowe

by MTMLTV

on MTMLTV

an for the red

P

nt of the mon

our months a

in the redefa

loans that re

edefault curv

y Rate by Pa

gram Performan

difications al

oans with les

er than loans 

V. The gap i

Vs increases 

default rate a

Page 2 of 5 

nthly payme

after convert

ault rate betw

eceived more

ves by the pe

ayment Red

nce Report thr

lso decrease

ss than or eq

with more t

n the redefau

as the loans 

after 24 month

ent reduction

ting to a perm

ween loans t

e than a 50%

ercent of mon

duction 

rough March 20

es as the after

qual to 80% 

than 170% M

ult rate betwe

age. This ga

ths. 

n affects the 

manent mod

that received

% monthly pa

nthly payme

012 

r-modificati

MTMLTV r

MTMLTV. F

een loans wit

ap is smaller 

performance

dification, th

d a 20% or le

ayment 

ent reduction

on MTMLT

redefault at a

Figure 2 sho

th higher and

for the redef

e of 

ere is 

ess 

n. 

TV 

a rate 

ows 

d

fault 
Figure 2

Source: M

To date, 

the princ

the time 

modifica

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modifica

modified

than over

Table 2. 

characte

Source: M

*Sample sh

The stand

influenci

Numb

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modific

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A

0%

10%

20%

30%

40%

50%

60+ Day Delinquency Rate

2. 60+ Day D

aking Home A

participating

ipal reductio

of modificat

ations. 

ere to look o

ations withou

d with the pri

rall HAMP m

HAMP mo

eristics* 

aking Home A

hown includes 

dard approac

ing an outcom

ber of 

anent 

cations

Pe

day

at

613

All modificati

60+ D

3 months 6

M

Delinquency

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g servicers h

on feature un

tion and borr

only at the ea

ut controlling

incipal reduc

modification

dification p

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all HAMP loa

ch in statistic

me is called 

ercent 90+ 

ys delinquent 

t 6 months

5.80%

ions

ay Delinquency

6 months 9 mo

Months After Conve

P

y Rate by Af

gram System o

have selected

nder HAMP 

rowers with 

arly redefaul

g for these ri

ction feature

ns, as shown 

performance

gram System o

ans that were m

cal analysis 

regression a

Number o

permanent

modification

30,345

Modifica

fo

y Rate by After

nths 12 months

ersion to Permane

Page 3 of 5 

fter Mod M

f Record – data

d loans with 

PRA – loan

lower overa

t performanc

iskier charac

e under HAM

in Table 2.

e after 6 mo

f Record – data

modified at leas

for disentan

analysis. In t

f 

t

ns

Percen

days del

at 6 m

6.30

ations with PR

rgiveness

r Mod MTMLTV

s 18 months

ent Modification

MTMLTV

a through Mar

riskier credi

ns that are mo

all credit sco

ce of HAMP

cteristics, it w

MP PRA are

onths withou

a through Mar

st 6 months bef

ngling the im

this case, a lo

nt 90+ 

linquent 

months

0%

RA 

24 months

rch 2012 

it characteris

ore seriously

ores than all H

P PRA versu

would appea

performing 

ut controllin

rch 2012 

fore March 20

mpacts of diff

ogistic regre

less than 80% 

80% to 90% (in

90% to 100% (

100% to 110% 

110% to 120% 

120% to 130% 

130% to 140% 

140% to 150% 

150% to 160% 

160% to 170% 

more than 170%

stics to recei

y delinquent

HAMP 

us all HAMP

ar that loans 

slightly wor

ng for risk 

12. 

ferent factor

ession contro

(inclusive)

nclusive)

inclusive)

(inclusive)

(inclusive)

(inclusive)

(inclusive)

(inclusive)

(inclusive)

(inclusive)

%

ive 

t at 

P

rse 

rs 

ols 
for risk c

modifica

MTMLT

modifica

vintage o

(includin

received 

or receiv

forbearan

This anal

improvem

This resu

that a hom

a homeow

principal

Some hav

as princip

with prin

modifica

though, i

The regre

character

homeown

days deli

rate after

of which

payment 

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o

4

 F

m

 P

p

th

Table 3 i

characteristic

ations with an

TV, originatio

ation, age of 

of the modifi

ng all past du

principal red

ed principal 

nce, geograp

lysis indicate

ment in perfo

ult is consiste

meowner wh

wner at the s

l reduction. 

ve wondered

pal reduction

ncipal forbea

ation without

is smaller tha

ession analy

ristics that in

ner with a pr

inquent) with

r 6 months im

provides a 3

reduction in

Rate reductio

f a standard 

.6% chance 

orbearance (

model shows 

rincipal redu

ayment redu

he homeown

illustrates the

cs, which all

nd without th

on loan-to-v

the loan, del

ication, unpa

ue amounts),

duction, whe

reduction un

phy, servicer

es that for lo

formance wh

ent with an a

ho receives a

same post-m

d if principal

n. These resu

arance perfor

t forbearance

an the impro

ysis allows us

nfluence defa

re-modificat

hin six mont

mplied by th

30% paymen

n the followi

on and term e

HAMP mod

of redefault.

(no rate or te

that the hom

uction (no ra

uction and an

ner would ha

ese results fo

P

ows a better

he principal 

value ratio, p

linquency of

aid principal

, delinquency

ether the mo

nder traditio

r, and home p

oans with sim

hen the HAM

assumption o

a modificatio

modification M

l forbearance

ults indicate

rms slightly 

e as well as w

ovement seen

s to separate

ault. For illu

tion MTMLT

ths without a

he same regre

nt reduction.

ing ways, via

extension to 

dification: Th

.

erm adjustm

meowner wo

ate, term, or 

n after-modi

ave a 3.5% ch

or our hypot

Page 4 of 5 

r comparison

reduction fe

percent mont

f the loan at 

l balance of t

y number of

odification w

onal HAMP,

price forecas

milar charact

MP modificat

of the HAMP

on with prin

MTMLTV w

e has a simil

that a home

better than a

without prin

n for a HAM

e the impact 

ustrative purp

TV of 165%

a payment re

ession mode

. The three d

a: 

achieve a 30

he model sh

ment) to achie

ould have a 4

forbearance

fication MT

hance of red

thetical borro

n of the perfo

eature. These

thly payment

time of mod

the loan at ti

f months in t

was done und

whether the

st following 

teristics, ther

tion includes

P net presen

ncipal reducti

who receives

lar effect on 

eowner recei

a homeowne

ncipal reduct

MP modificat

of the princi

poses, we co

% and a 10% 

eduction. We

el for three d

different mo

0 percent pa

hows that the

eve a 30 perc

4.4% chance

 adjustments

TMLTV of 1

default. 

ower with an

formance of H

e loan chara

t change, cre

dification, in

ime of modi

trial, whethe

der the HAM

e loan receiv

 the modific

re is a measu

s principal re

nt value (NPV

ion will perf

s a modifica

modificatio

iving a HAM

er who receiv

tion. This im

tion with pri

ipal reductio

onstructed a 

chance of re

e then consid

different mod

odifications p

ayment reduc

e homeowne

cent paymen

e of redefault

s), to achiev

15%: The m

n MTMLTV

HAMP 

acteristics inc

edit score at 

nvestor type, 

fication 

er the loan 

MP PRA prog

ved principal

cation. 

urable 

eduction. 

V) default m

form similar

ation without

on performan

MP modifica

ves a HAMP

mprovement,

incipal reduc

on from othe

hypothetical

edefault (90+

der the redef

difications, e

provide the 3

ction, an exa

r would hav

nt reduction:

t. 

e a 30 perce

model shows 

V of 165%. 

clude 

gram

l

model 

rly to 

t

nce 

ation 

P

,

ction. 

er 

l 

+

fault 

each 

30% 

ample 

ve a 

 The 

ent 

that 
Table 3. 

Borrowe

Modifica

No modi

Rate redu

30 percen

MTMLT

Forbeara

reduction

Principal

payment 

percent 

Note that

loan’s lif

expected

CONCL

While it 

when the

is consist

receives 

a homeow

the table 

probabili

to a 24%

reduction

Estimated 

er with 10 p

ation Struct

fication 

uction and te

nt payment r

TV) 

ance to achie

n (no change

l reduction to

reduction an

t these early 

fetime, and s

d to increase 

LUSION 

is still early,

e HAMP mo

tent with the

a modificati

wner getting

above demo

ities as comp

 reduction in

n, but neither

Default Out

percent initia

ture 

erm extensio

reduction (no

ve a 30 perc

e in MTMLT

o achieve a 3

nd MTMLTV

redefault ra

so the absolu

over time. 

, data show t

dification in

e assumption

on with prin

g a modificat

onstrates that

pared to a mo

n redefault p

r forgivenes

P

tcomes by M

al default p

on to achieve

o change in 

cent payment

TV) 

30 percent 

V of 115 

ates are just a

ute difference

that there is 

ncludes princ

n in the HAM

ncipal reduct

tion at that M

t principal re

odification u

probabilities 

s nor forbear

Page 5 of 5 

Modification

robability.

Probab

to 90-d

within

e a 

t

a fraction of 

es in probab

a measurabl

cipal reductio

MP NPV def

tion to a cert

MTMLTV w

eduction lea

utilizing forb

as compared

rance. 

n Structure

bility of adv

day delinqu

n 6 months 

10.0%

4.6% 

4.4% 

3.5% 

f expected re

bilities that w

le improvem

on. The out

fault model t

tain MTMLT

without princ

ds to a 20% 

bearance, an

d to a modifi

e for Hypoth

vancing

uency

default prob

we see here w

ment in borro

tcome of the

that a homeo

TV will perf

cipal reductio

reduction in

nd principal r

fication that r

hetical 

babilities ove

would be 

ower perform

 regression t

owner who 

form similarl

on. In summ

n redefault 

reduction lea

receives pay

er the 

mance 

test 

ly to 

mary, 

ads 

yment