FDIC Loan Modification Program Page 3
Input borrower specific income information into theNPV Tool, which provides a real-time workout solution.
Perform automated loan level underwriting acrosslarge segments of the portfolio to support pre-approvedbulk mailings.
Verify income information the borrower provided viacheck stubs, tax returns, and/or bank statements.
Compare the cost of the modified concessions to theestimated cost of foreclosure to mitigate losses.
Mandate that the cost of the modification must be lessthan the estimated foreclosure loss.
Use a financialmodel withsupportableassumptions toensure investorinterests areprotected.
Require the borrower to make one payment at the timeof the modification.
Cap the interest rate at the Freddie Mac WeeklySurvey rate effective at the time of the modification.
Lower the interest rate as required to meet the targetHTI ratio, fixing the adjusted rate and monthly paymentamount for 5 years.
Step up the initial interest rate gradually starting in year6 by increasing it one percentage point each year untilreaching the Freddie Mac Weekly Survey rate cap.
Provide borrowersthe opportunity tostay in their homewhile making anaffordable paymentfor the life of theloan.
Return the loan to a current status.
Capitalize delinquent interest and escrow.
Modify the loan terms based on waterfalls, starting at afront-end 38 percent HTI ratio down to a 31 percentHTI ratio, subject to a formal NPV floor.
Reduce interest rate to as low as 3 percent.
Extend, if necessary, the amortization and/or term ofthe loan to 40 years.
Forbear principal if necessary.
Offer proactiveworkout solutionsdesigned to addressborrowers who havethe willingness butlimited capacity topay.
BorrowerAffordabilityDeterminationProcessStrategyFDIC Loan Modification Program
As indicated in the summary table below, the FDIC’s Loan Modification Program is primarily based ontwo principals:1)Determining a payment the borrower can afford by multiplying the borrower’s gross monthlyincome times the appropriate housing-to-income (HTI) ratio, less taxes and insurance to achieve aminimum payment reduction of 10 percent, and2)Protecting investors’interests by requiring that the cost of the modification is less than theestimated cost of foreclosure (the Net Present Value (NPV)floor).