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Underwriting Requirements

HAMP underwriting focuses on creating a more affordable first-lien housing payment of principal, interest, taxes, insurance (property, flood, etc.), homeowner/condo association fees, and escrow shortage (PITIAS) that is as close as possible, but no less than, 31 percent of the borrower's gross monthly household income. A new PITIAS amount is established using a sequential process as needed in the following order:

1. Capitalizing arrearages.
2. Reducing the interest rate.
3. Extending the amortization terms to up to 40 years.
4. Granting partial principal forbearance.

All Freddie Mac Servicers must use Workout Prospector to evaluate all borrowers for a modification under HAMP. Servicers may rely on their own proprietary or third-party system, provided they adhere to the requirements outlined in Single-Family Seller/Servicer Guide (Guide) Section C65.6 (g). If a modification does not occur under HAMP, the Servicer must continue to evaluate the borrower for other foreclosure alternatives (with the exception of short-term and long-term forbearance plans) using Workout Prospector.

Servicers are able to access Workout Prospector from our Servicing Technology Tools Web page. You will need your secure Workout Prospector ID and password to access the tool. If you are a first-time user of Workout Prospector or need to update your account, complete the online Workout Prospector registration form.

Currently, we provide an Automated Valuation Model (AVM) property value report for Servicers to use where these values are available. This report will be available to Servicers from the secure HAMP Web page, and it will be updated on the 5th business day of each month through December 2009. Beginning January 1, 2010, Freddie Mac will no longer publish the report of automated values on its Web site, and Servicers must begin using the property values provided in Workout Prospector, if one is available.

A total monthly debt payment-to-income ratio is calculated after the PITIAS, and borrowers with ratios greater than or equal to 55 percent must agree to enter a free credit-counseling program with a HUD-approved housing counseling agency as a condition for the modification. To the extent permitted by applicable law, an escrow account must be maintained on the modified mortgage, even if the existing mortgage does not have an escrow account.

Borrowers must successfully complete a Trial Period, during which they will be required to remit the estimated new monthly payments. Servicers enter into a workout/forbearance plan with the borrower during the Trial Period, followed by a modification agreement upon successful completion of the Trial Period. Additional requirements for income, collateral, escrows, credit enhancements, the Trial Period, and the steps to take once the borrower successfully completes the Trial Period are detailed in the Single-Family Seller/Servicer Guide Chapter C65.

Servicers must perform a Treasury net present value (NPV) test for all eligible mortgages to compare the modification terms under the program to the estimated loss if the property were to go into foreclosure when they are qualifying the borrower for a Trial Period on both stated income and verified evaluations. However, if a Servicer relied on stated income to prepare and send the Trial Period Plan and verified income is different than the stated income, then the Servicer must run the NPV test again before signing and sending the Trial Period Plan to the borrower.

The Treasury NPV Model is accessible from the Home Affordable Modification Web page for Servicers. A user ID and password are required for access to this special Servicer Web page, which can be obtained by completing and submitting the HAMP Registration Form.