The document provides information on the standard and alternative modification waterfalls used in the Home Affordable Modification Program (HAMP). The standard waterfall is a series of steps - capitalization, interest rate reduction, term extension, principal forbearance - that servicers must apply to reduce a borrower's monthly mortgage payment ratio to 31%. The alternative waterfall may be used for loans with high loan-to-value ratios and aims to reduce the ratio to 115% through principal reduction or other steps.

1. HAMP Standard and Alternative Modification
Waterfalls
Training Presentation for Servicers
Making Home Affordable | February 2012

2. Agenda
Standard Modification Waterfall
Alternative Modification Waterfall
References & Resources
Discussion & Questions
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3. Standard Modification Waterfall
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4. Standard Modification Waterfall
What Is it? The standard modification waterfall is a
stated order of successive steps that
servicers must apply until the borrower’s
target monthly mortgage payment ratio
is reduced to 31%.
STEP 1
Capitalization
STEP 2
Interest Rate
Reduction
STEP 3
Term
Extension STEP 4
Principal
Forbearance
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5. Standard Modification Waterfall
When to Use It
HAMP Second to last Start of
Evaluation trial payment permanent mod
Run Waterfall Run NPV Test Run Waterfall
Reach the target Determine if loan Based on updated loan
monthly mortgage modification is characteristics. Do not run NPV test
payment ratio. favorable to investor. again. If NPV must be run because
it is conjoined with the waterfall in
the servicer’s system, disregard
NPV outputs.
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6. Standard Modification Waterfall
Current UPB Delinquent Interest
MTMLTV ratio –
Current Remaining Term
property valuation
Necessary
Loan Taxes, insurance,
homeowner association
Information dues, and escrow shortage
Funds remaining in the
existing suspense account
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7. Standard Modification Waterfall
Waterfall Steps
STEP 1 Capitalization
STEP 2 Interest Rate Reduction
STEP 3 Term Extension
STEP 4 Principal Forbearance
Steps must be performed in sequence
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8. Standard Modification Waterfall
STEP 1 Capitalization
 The servicer must capitalize accrued interest, out-of-pocket
escrow advances to third parties, and any required escrow
advances that will be paid to third parties during the trial
period.
 Mortgage insurance payments that are due to should also be
capitalized.
 Late fees may not be capitalized!
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9. Standard Modification Waterfall
STEP 1 Capitalization
Servicers can capitalize advances for expenses incurred in performing
servicing obligations related to the preservation of the secured
property and enforcement of the mortgage.
 Example: foreclosure fees and costs.
However, these costs and expenses must:
 Be consistent with the security instrument.
 Be allowable under GSE guidelines.
 Not be prohibited by applicable law.
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10. STEP 1 Capitalization Example Worksheet
Item
Current UPB $ 274,965.19
Out-of-Pocket Escrow Advances $ 3,500.00
Projected Escrow Advance during trial period $ 1,000.00
Delinquent Interest $ 7,526.07
Late Fees  $ 250.00
Adjusted Gross UPB $ 286,991.26
Gross Monthly Income $ 3,667.10
Desired PITIA @ 31% ($3667.10 x .31) $ 1,136.80
Taxes & Insurance ($ 337.11)
HOA Payment ($ 100.00)
Future Escrow Shortage Payment ($ 10.00)
Target Monthly Mortgage Payment $ 689.69
Original payment (Pre-modification) $ 1,774.61
Current payment $ 1,872.96
Remaining Term 284 months
Current Interest Rate 5.875%
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11. STEP 1 Capitalization - Monthly Mortgage Payment Ratio
Item
Current payment $ 1,872.96
Taxes & Insurance $ 337.11
HOA Payment $ 100.00
Future Escrow Shortage Payment $ 10.00
Total PITIA: $ 2,320.07
Total PITIA payment: $ 2,320.07
÷
Gross Monthly Income: $ 3,667.10
X 100 =
Current Monthly Mortgage Payment Ratio: 63.3%
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12. STEP 1 Capitalization Results and Evaluation
Monthly Payment
Ratio
Payment
STEP 1 Capitalization 63.3% $ 1872.96
STEP 2 Interest Rate Reduction
STEP 3 Term Extension
STEP 4 Principal Forbearance
Target 31% $ 689.69
Proceed to STEP 2
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13. Standard Modification Waterfall
STEP 2 Interest Rate Reduction
The servicer reduces the borrower’s interest rate:
 In increments of 0.125% or 1/8 percent.
 Until the target monthly mortgage payment ratio is reached.
 Interest rate floor is 2%.
 Incentives will not be paid for reducing the rate lower than
the 2% floor.
 If the resulting rate is below the Interest Rate Cap (Freddie
Mac Primary Mortgage Market Survey, PMMS Rate), then the
reduced rate will not increase for the first five years.
The ending rate does not have to be a multiple of one-eighth.
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14. STEP 2 Interest Rate Reduction Scenario
Current Notes Result
Adjusted Gross UPB $ 286,991.26
Use Current
Current Interest Rate 5.875% Interest Rate NEW INTEREST RATE 2.0%
as the
Current Term 284 months starting point
Gross Monthly Income $ 3,667.10
Desired PITI @ 31% $ 1,136.80
Tax and Insurance $ 337.11
HOA Payment $ 100.00
Future Escrow Shortage $ 10.00 46.8%
Target Payment $ 689.69 PROJECTED PAYMENT $ 1,269.32
If the 31% target monthly mortgage payment ratio cannot be reached by lowering the interest rate to the 2% floor,
Note:
then reduce the interest rate to the 2% floor and proceed to Step 3, Term Extension.
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15. STEP 2 Interest Rate Results and Evaluation
Monthly
Payment
Payment Ratio
STEP 1 Capitalization 63.3% $ 1,872.96
STEP 2 Interest Rate Reduction 2% 46.8% $1,269.32
STEP 3 Term Extension
STEP 4 Principal Forbearance
Target 31% $ 689.69
Proceed to STEP 3
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16. Standard Modification Waterfall
STEP 3 Term Extension
The servicer extends the term:
 In one-month increments.
 Up to 480 months, which is the cap.
 As of the data collection date.
When the loan converts to a permanent modification, the term
extension should be as of the modification effective date instead of
the data collection date.
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17. Standard Modification Waterfall
STEP 3 Term Extension - Special Considerations
Investors may not allow term extension due to:
 Pooling & Servicing Agreement (PSA)
 General Investor Servicing Agreement or Guideline
 When this is the case, servicers should re-amortize the loan
on an extended schedule of 480 months.
 The extended amortization schedule results in a balloon
payment due at maturity.
 If re-amortization is prohibited, then servicers should skip
this step and proceed to Step Four, Principal Forbearance.
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18. STEP 3 Term Extension Scenario
Current Notes Result
Current term is the
Adjusted Gross UPB Amount $ 286,991.26 number of months
between modification
NEW Interest Rate 2.0% effective date and
maturity date.
Current Term 284 months Term length for target
NEW TERM 480 months
monthly mortgage
Gross Monthly Income $ 3,667.10 payment ratio
determination may
not go beyond 480
Desired PITI@31% $ 1,136.80 months.
Tax and Insurance $ 337.11
HOA Payment $ 100.00
Future Escrow Shortage $ 10.00 35.8%
Target Payment $ 689.69 PROJECTED PAYMENT $ 869.08
If extending the term to 480 months does NOT achieve the 31% target monthly mortgage payment ratio, or if the
Note:
investor does NOT allow term extension or re-amortization, proceed to Step 4, Principal Forbearance.
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19. STEP 3 Term Extension Results and Evaluation
Monthly
Payment
Payment Ratio
STEP 1 Capitalization 63.3% $ 1,872.96
STEP 2 Interest Rate Reduction 2% 46.8% $1,269.32
480
STEP 3 Term Extension 35.8% $869.08
Months
STEP 4 Principal Forbearance
Target 31% $ 689.69
Proceed to STEP 4
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20. Standard Modification Waterfall
STEP 4 Principal Forbearance
The principal forbearance amount is:
 Non-interest bearing.
 Non-amortizing.
 Results in a balloon payment fully due and payable upon the
earliest of the borrower’s transfer of the property, payoff of
the interest bearing UPB, or at maturity of the mortgage loan.
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21. Standard Modification Waterfall
STEP 4 Principal Forbearance Limits
With respect to both “positive” and “negative” NPV results, servicers
are not required to, but may forbear more than the greater of:
 30% of the UPB after Capitalization.
 An amount resulting in a modified interest bearing balance
that would create a current MTMLTV equal to 100%.
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22. STEP 4 Principal Forbearance Scenario
Current Notes Result
Adjusted Gross UPB Amt $ 286,991.26 Adjusted Gross INTEREST BEARING UPB AMT $ 227,751.85
UPB Amount
NEW Interest Rate 2.0% is reduced NEW Interest Rate 2.0%
incrementally
until the
NEW Term 480 months NEW Loan Term 480 months
Principal
Gross Monthly Income $ 3,667.10 Forbearance PRINCIPAL FORBEARANCE AMT $ 59,239.41
Amount
Desired PITI@31% $ 1,136.80 brings the
target monthly
Tax and Insurance $ 337.11 mortgage
payment ratio
to 31%
HOA Payment $ 100.00
Future Escrow Shortage $ 10.00 31%
Target Payment $ 689.69 NEW ACTUAL PAYMENT $ 689.69
The principal forbearance calculation assumes 2% interest and a term length of 480 months. If the investor does
Note: not allow term extensions, additional steps are necessary to calculate the correct forbearance amount.
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23. STEP 4 Principal Forbearance Results and Evaluation
Monthly
Payment
Payment Ratio
STEP 1 Capitalization 63.3% $ 1,872.96
STEP 2 Interest Rate Reduction 2% 46.8% $1,269.32
STEP 3 Term Extension 480 Months 35.8% $869.08
STEP 4 Principal Forbearance $59,239.41 31% $689.69
Target 31% $689.69
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24. Standard Modification Waterfall
Special Considerations
Servicers may provide borrowers with more favorable modification
terms than required by HAMP. Deviations from the Standard Waterfall
must be noted in the servicing system or mortgage file.
Acceptable deviations may include:
 Interest rate does not increase after five years or is reduced to less than
2.0 percent.
 Additional principal forbearance is substituted for term extension.
 Reducing the monthly mortgage payment ratio lower than 31%.
Incentive payments will be based on only the terms that reflect the Standard
Modification Waterfall and the target monthly mortgage payment ratio!
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25. Standard Modification Waterfall
Restrictions on Waterfall Steps
Servicers may partially perform or skip a step in the Waterfall due to
restrictions from a:
 Pooling & Servicing Agreement (PSA).
 General Investor Servicing Agreement or Guideline.
Servicers should document in the loan file:
 Source of the restriction.
 Proof of reasonable efforts to seek a waiver.
 Evidence of approval or denial from the investor.
Servicers should skip any step that is restricted by a PSA or servicing
agreement and continue running the waterfall.
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26. Alternative Modification Waterfall
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27. Alternative Modification Waterfall
What Is it?
STEP 1
Capitalization STEP 2
Principal STEP 3
Reduction
Interest Rate STEP 4
Reduction
Term STEP 5
Extension
Principal
Forbearance
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28. Alternative Modification Waterfall
When to Use It
The Alternative Modification Waterfall:
 Is applied in addition to the Standard Modification Waterfall for loans
that have an MTMLTV ratio greater than 115%.
 Will determine whether reducing the MTMLTV to 115% will produce a
positive NPV result.
 Can be used on any loan with an MTMLTV ratio greater than 105%.
 Is used to determine the target monthly mortgage payment ratio of
31%, once the MTMLTV is reduced to 115%.
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29. Alternative Modification Waterfall
Current UPB
MTMLTV Ratio –
Current Remaining Term
property valuation
Necessary
Loan Taxes, insurance,
homeowner association
Delinquent Interest Information dues, and escrow shortage
Funds remaining in the
existing suspense account
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30. Alternative Modification Waterfall
STEP 1 Capitalization
Current UPB $ 274,965.19
Out-of-Pocket Escrow Advances $ 3,500.00
Projected Escrow Advance during trial period $ 1,000.00
Delinquent Interest $ 7,526.07
Late Fees  $ 250.00
Adjusted Gross UPB $ 286,991.26
Gross Monthly Income $ 3,667.10
Desired PITIA @ 31% ($3667.10 x .31) $ 1,136.80
Taxes & Insurance ($ 337.11)
HOA Payment ($ 100.00)
Future Escrow Shortage Payment ($ 10.00)
Target monthly mortgage payment $ 689.69
Original payment (Pre-modification) $ 1,774.61
Current payment $ 1,872.96
Remaining Term 284 months
Current Interest Rate 5.875%
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31. Alternative Modification Waterfall
STEP 2 Principal Reduction
The current UPB is reduced by an amount necessary to reach either:
 An MTMLTV ratio equal to 115%, or
 A target monthly mortgage payment ratio of 31%.
The principal reduction amount:
 Is initially treated as a non-interest bearing principal forbearance.
 Is separate and exclusive of any other forbearance.
 Will be reduced over time if borrower remains in good standing.
Servicers are encouraged to offer principal reduction and must do so in
accordance with their written PRA policy.
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32. STEP 2 Principal Reduction
Current Result
Current Property Value $ 210,000.00
PRINCIPAL REDUCTION NEEDED
Adjusted Gross UPB $ 286,991.26 $ 45,491.26
TO REACH 115% MTMLTV
115% MTMLTV UPB $ 241,500.00 NEW INTEREST BEARING UPB $ 241,500.00
Current Interest Rate 5.875%
Current Term 284 months The 115% MTMLTV
Gross Monthly Income $ 3,667.10 ratio is reached,
but the monthly
Desired PITI@31% $ 1,136.80 payment ratio is
Tax and Insurance $ 337.11 55.1%.
HOA Payment $ 100.00
Future Escrow Shortage Payment $ 10.00
Target Payment (31%) $ 689.69 “WORKING” P & I PAYMENT $ 1,576.08
If the 31% target monthly mortgage payment ratio cannot be reached
Note: by reducing principal under Step 2, proceed to Step 3, Interest Rate Reduction.
Proceed to STEP 3
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33. STEP 3 Interest Rate Reduction
Current Notes Result
Adjusted Gross UPB Amount $ 241,500.00
Use Current
Current Interest Rate 5.875% Interest Rate NEW INTEREST RATE 2.0%
as the
starting point
Current Term 284 months
Gross Monthly Income $ 3,667.10
Desired PITI @ 31% $ 1,136.80
Tax and Insurance $ 337.11
HOA Payment $ 100.00
Future Escrow Shortage Payment $ 10.00
41.3%
Target payment Payment $ 689.69 PROJECTED PAYMENT $ 1,068.11
If the 31% target monthly mortgage payment ratio cannot be reached by lowering the interest rate to the 2% floor,
Note: reduce the interest rate to the 2% floor, then proceed to step 4, Term Extension.
Proceed to STEP 4
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34. STEP 4 Term Extension
Current Notes Result
“Current term”
Adjusted Gross UPB Amount $ 286,991.26 is the number of
months between
New Interest Rate 2% modification
effective date and
maturity date.
Current Term 284 months NEW TERM 480 Months
Term length for
target monthly
Gross Monthly Income $ 3,667.10 mortgage payment
ratio determination
Desired PITI@31% $ 1,136.80 may not go beyond
480 months.
Tax and Insurance $ 337.11
HOA Payment $ 100.00
Future Escrow Shortage Payment $ 10.00
Target Payment $ 689.69 35.8% PROJECTED PAYMENT $ 869.08
If extending the term to 480 months does not achieve the 31% target monthly mortgage payment ratio, or if the
Note: investor does not allow term extension, proceed to Step 5, Principal Forbearance.
Proceed to STEP 5
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35. STEP 5 Principal Forbearance
Current Notes Result
Adjusted Gross UPB Amount $ 286,991.26 Step 1 Capitalization $ 286,991.26
New UPB is
Adjusted Gross UPB less reduced
$ 241,500.00 Step 2 Principal Reduction $ 45,491.26
Principal Reduction Amount until the
forbearance
Interest Rate 5.875% Step 3 Interest Rate Reduction 2.0%
amount
Loan Term 284 months brings the Step 4 Loan Term Extension 480 months
target
Gross Monthly Income $ 3,667.10 monthly Step 5 INTEREST BEARING UPB $ 227,751.85
mortgage
Desired PITI@31% $ 1,136.80 payment PRINCIPAL FORBEARANCE $ 13,748.15
ratio to 31%
Tax and Insurance $ 337.11
HOA Payment $ 100.00
31%
Future Escrow Shortage $ 10.00
Target Payment $ 689.69 ACTUAL PAYMENT $ 689.69
The principal forbearance calculation assumes 2% interest and a term length of 480 months. If the investor does not
Note: allow term extensions, additional steps are necessary to calculate the correct forbearance amount.
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36. Alternative Waterfall Results and Evaluation
STEP 1 Capitalization $ 286,991.26
STEP 2 Principal Reduction $ 45,491.26
STEP 3 Interest Rate Reduction 2.0%
STEP 4 Loan Term Extension 480 months
STEP 5 Principal Forbearance $ 13,748.15
Interest Bearing UPB Amount $ 227,751.85
31% Target Payment $ 689.69
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37. Alternative Modification Waterfall
Variation
If principal is forgiven in an amount equal to or greater than 5% of the
pre-modification UPB, servicers can:
 Elect not to reduce the interest rate all the way to the 2% floor
before applying a term extension.
 Apply term extension prior to the interest rate reduction.
The interest rate must be fixed and treated as the modified rate.
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38. NPV Test
Considerations
The NPV test must be run during HAMP evaluation after the waterfall(s) on all
loans that are eligible.
The NPV test will yield a positive or negative result:
Positive NPV
 Servicer must offer the modification using the Standard Modification
Waterfall.
 Servicer is encouraged to offer the modification using the Alternative
Modification Waterfall.
Negative NPV
 Servicer has the option to perform the modification.
All information used for the NPV test should be as of the data collection date,
which is the date the UPB and remaining term data was collected.
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39. Summary
Standard Modification Waterfall
 Reduces the monthly mortgage payment to
achieve a target monthly mortgage payment
ratio of 31%
 Includes four steps
Alternative Modification Waterfall
 Includes Principal Reduction Alternative
 Demonstrates whether reducing principal will
produce a positive NPV result for loans that have
an MTMLTV ratio greater than 115%
 Includes five steps
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40. References & Resources
References
Sections 6.3 – 6. 6 of Chapter II of the MHA Handbook for Servicers of
Non-GSE Mortgages (on HMPadmin.com)
Resources
HAMP Solution Center (HSC)
Phone: 1-866-939-4469
Email: support@HMPadmin.com
Email: Hamp_Integration_team@fanniemae.com
Website: www.HMPadmin.com
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41. Discussion/Questions
Thank You
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