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» VISIT US ONLINE @ DSNEWS.COM 59 regression techniques, we isolated a wide variety of factors, such as payment reduction, delinquency at the time of modification, credit score, and loan-to-value ratio. Our analysis showed that for both HAMP and non-HAMP modifications initial delinquency at the time of modification is the most significant driver of early stage performance. Over time, though, the size of payment reduction becomes the most significant driver of performance. In short, the econometric analysis confirms the experience of loss mitigation professionals that getting to borrowers early in their delinquency and offering meaningful payment reductions optimizes the chances of the homeowner's ultimate success. Lesson two: Industry-wide standards are critical to helping large numbers of homeowners. It's often the case that industry-wide problems require an industry-wide set of solutions, and the housing crisis has proven no exception. While MHA has generated more than 1.6 million first lien modifications over the past six years, private industry has generated more than 4 million. As mentioned earlier, many of the private industry modifications share the same payment- reducing and other homeowner-friendly characteristics as HAMP modifications. Prior to 2009, modifications did not typically reduce homeowners' payments. In fact, the OCC reports that in the first quarter of 2009, nearly half of mortgage modifications increased monthly mortgage payments. MHA and HAMP were launched at about that time and quickly established a series of benchmarks and tools the private industry soon adopted. Perhaps most importantly, HAMP established a universal affordability standard of 31 percent debt-to-income ratio (DTI). e program also made widely available a Net Present Value (NPV) tool that enabled servicers to determine whether a modification made economic sense for the mortgage investor. By the third quarter of 2010, 90 percent of modifications in the United States lowered monthly mortgage payments. Lesson ree: Helping large numbers of homeowners requires a robust servicing infrastructure and processes that focus on the homeowner. It became apparent early in the housing crisis that mortgage servicers lacked the necessary systems and overall infrastructure to help large numbers of delinquent homeowners. Servicers have made progress in addressing these shortcomings, and their work continues. It was also clear that there was a need for better processes to reach struggling homeowners and assist them in seeking solutions. Here, too, MHA has played an important and positive role. Under MHA, servicers are required to follow clearly defined protocols in reaching out to delinquent homeowners and to ensure all loss mitigation options are exhausted before moving toward foreclosure. Servicers must also provide struggling homeowners with a single- point-of-contact (SPOC), a directive aimed at streamlining communications and making it easier for homeowners to navigate the loss mitigation process. MHA requires clear notices to keep borrowers informed of any missing documents and the results of their evaluations. Many of the homeowner protections implemented under MHA have been adopted by the Consumer Finance Protection Bureau (CFPB), including requirements regarding SPOC and borrower notifications. MHA also requires servicers to establish clear paths for escalating homeowner complaints; and for the largest MHA servicers, escalation teams must be independent of the original underwriting decision-makers. Treasury has made additional escalation channels available to both homeowners and counselors through our partnership with the Homeowner's HOPE Hotline (888- 995-HOPE), giving homeowners a chance to escalate their cases with a third party who works on their behalf to resolve issues with servicers. Last, but not least, we have supported MHA's requirements with a strong systematic compliance review program that requires participating servicers to take specific actions to improve their processes, as HAMP PERFORMANCE AT 36 MONTHS NON-HAMP PERFORMANCE AT 36 MONTHS 36.8% 36.7% 21.3% 25.5% 12.6% 10.2% 6.4% 2.1% 6.8% 10.5% 13.9% 12.2% 2.1% 2.7% PAYMENT REDUCTION PRE-MOD DELINQUENCY MTMLTV AT MOD ORIGINATION FICO STATE/MSA FACTORS TIME FACTORS (MODIFICATION DATE) ALL OTHER FACTORS "Studies by the Office of the Comptroller of the Currency (OCC) have found that homeowners in HAMP consistently exhibit lower delinquency and re-default rates than those in private industry modifications. The OCC attributes this to HAMP's emphasis on affordability of monthly payments, verification of income, and completion of a trial payment period." COVER STORY SUCCESS FORMUL AS INDUSTRY INSIGHT INDUSTRY INSIGHT

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