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83 » Reducing the interest-bearing unpaid principal (through principal forbearance) » Extending the amortization period e first two options are constrained in the current environment as a result of increasing rates and elevated levels of housing appreciation. Interest rates have risen significantly in 2022, with the Freddie Mac Primary Mortgage Market Survey (PMMS)'s 30- year, fixed-rate mortgage rising from 3.22% on January 6, to 5.54% on July 21. Freddie Mac's PMMS is the basis for most industry modification programs. In many programs, the amount of relief available to customers through a modification that reduces the interest-bearing principal is tied to the LTV ratio. As housing values appreciate, LTV ratios decrease, thus limiting a mortgage servicer's ability to provide principal reduction. As a result, the industry must now consider new types of programs to provide needed payment relief to customers who have equity (~20%) in their homes, and whose mortgages are at a rate lower than current market rates. Industry stakeholders may consider one or more among the following options: » Allowing a portion of the principal balance to be included in partial claims/MRAs while re-amortizing the remaining interest- bearing balance and maintaining the customer's current rates. is solution requires GNMA to permit recast within their securities. » Re-amortizing the mortgage for a period beyond 40 years. » Providing interest-only options (and no negative amortization) for customers who have a strong equity position, which maintains the ability for customers to remain in their homes with an affordable payment, sell their homes at a time of their choosing, and participate in future equity appreciation 3 . » Reintroducing a step-rate modification feature where the initial rate is lower than the market rate and increases to the market rate over the life of the loan. e HAMP program fixed the initial rate for five years, then step up annually by a maximum of 1% until the market rate was reached. » Establishing a permanent VA Partial Claim program that aligns with the processing requirements that FHA and USDA have established and avoids the burdensome complexity of VA's COVID-19-only Partial Claim. Erik Schmitt is Product Executive with JPMorgan Chase & Company, leading product management for Chase's origination and servicing businesses. Previously, Schmitt led a team responsible for the firm's foreclosure prevention and loss mitigation products. In this capacity, he worked closely with investors and regulators to influence the future of foreclosure prevention and customer assistance. He was also responsible for designing and executing the firm's servicing strategy on loan sales and sub-servicing. 83 The industry has made significant strides since the onset of the financial crisis and continues to learn and grow by working to enhance programs and build a robust loss mitigation toolkit. Ongoing evaluation of the economic environment and its effect on current home retention solutions is critical to the continued effort to provide consistent and meaningful assistance to customers. 1 U.S. Bureau of Labor Statistics 2 McDashTM 3 It may be prudent to require a minimum 20% equity for the interest-only option to provide protection against housing price decline. Generally 20% equity would still enable a customer to sell a property even with 10% Housing Price Decline (assuming 10% cost to sell).