How MBS and HAMP are related and why a CPA is better suited to assist a borrower in the loan modification process. dean.gittleson@gmail.com

1. How MBS relates to HAMP
Why a CPA is a better Choice to Negotiate your Loan
Modification
Organization – Calculation – Presentation - Negotiation

2. Understanding
the Mortgage Back Security Market
Wall
Street Borrower
Secondary
Market Brokers
Servicing
Investor Bankers

3. Understanding Securitization
• Lender creates pools of mortgages
• Lender a pool of mortgages into a subsidiary called a “Special
Investment Vehicle” (SIV)
• The SIV then creates groupings of loans and legally binds them into
certificates to be sold as a “Mortgage Backed Security” (MBS)
• Each Certificate represents a fraction of each loan in the group
• Since each loan produces cash flow each Certificate represents a
fraction of the loan’s cash flow
• Each Certificate also represents a fraction of the mortgage collateral
• Certificates are sold to investors on such as hedge funds, pension
funds and insurance companies
• A “secondary market” exits to buy or sell mortgage back securities
Your loan might be partially “owned” by hundreds of
certificate holders!

4. Understanding Securitization
The Secondary Market Buys
the MBS and Sells to investors
The Bank
Loans the packages
Bank Loans into
Originates Certificates
In here
Your
Loan $100 Million
$100 Million
Mortgage
Pool of
Backed
Mortgages
Security

5. The “Originate to Distribute” Market Structure:
Separating Actions From Consequences
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6. HAMP Participation by Servicers
• Participation not generally required
– Carrots/Sticks to encourage participation
– Federal regulators are encouraging licensees to
participate
– All or Nothing participation (whole portfolio)
• Required For …
– Banks that accepted TARP money after 3/4/2009
– Fannie/Freddie portfolio mortgages or MBS pool
mortgages guaranteed by Fannie/Freddie
– Loans guaranteed by FHA
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7. Servicer Participation Agreement (SPA)
COMMITMENT TO PURCHASE FINANCIAL INSTRUMENT
and
SERVICER PARTICIPATION AGREEMENT
This Commitment to Purchase Financial Instrument and Servicer Participation
Agreement (the “Commitment”) is entered into as of the Effective Date, by and
between Federal National Mortgage Association, a federally chartered corporation, as
financial agent of the United States (“Fannie Mae”), and the undersigned party
(“Servicer”). Capitalized terms used, but not defined contextually, shall have the
meanings ascribed to them in Section 12 below.
Recitals
WHEREAS, the U.S. Department of the Treasury (the “Treasury”) has established a
Making Home Affordable Program pursuant to section 101 and 109 of the Emergency
Economic Stabilization Act of 2008 (the “Act”), as section 109 of the Act has been
amended by section 7002 of the American Recovery and Reinvestment Act of 2009

8. HAMP SPA Gotcha for Borrowers
2. Authority and Agreement to Participate in Programs
A. Servicer shall perform the Services for all mortgage loans it services, whether it services such mortgage loans
for its own account or for the account of another party, including any holders of mortgage-backed securities
(each such other party, an “Investor”).
B. Fannie Mae acknowledges that Servicer may service mortgage loans for its own account or for the account of
one or more Investors and may be subject to restrictions set forth in pooling and servicing agreements or other
servicing contracts governing Servicer’s servicing of a mortgage loan; Servicer shall use reasonable efforts to
remove all prohibitions or impediments to its authority, and use reasonable efforts to obtain all third party
consents, waivers and delegations that are required, by contract or law, in order to perform the Services.
C. Notwithstanding subsection B., if (x) Servicer is unable to obtain all necessary consents, waivers and
delegations for performing any Services under the Programs, or (y) the pooling and servicing agreement or other
servicing contract governing Servicer’s servicing of a mortgage loan prohibits Servicer from performing such
Services for that mortgage loan, Servicer shall not be required to perform such Services with respect to that
mortgage loan and shall not receive all or any portion of the Purchase Price (defined below) otherwise payable
for such Services with respect to such loan.
D. Notwithstanding anything to the contrary contained herein, the Agreement does not apply to GSE Loans.
Servicers are directed to the servicing guides and bulletins issued by Fannie Mae and Freddie Mac, respectively,
concerning the Programs as applied to GSE Loans.
E. Servicer’s performance of the Services and implementation of the Programs shall be subject to review by
Freddie Mac and its agents and designees as more fully set forth in the Agreement.

9. HAMP Eligibility
• Broad Coverage
– Loan balance ≤ $729,750 (higher for 2-4 unit properties)
– Modification yields greater return than foreclosure
– In default or at imminent risk of default.
• Qualified Borrowers
– First-lien, owner-occupied
– Document income, and sign affidavit of financial hardship
• Narrow Window
– Loans originated on or before January 1, 2009.
– Now thru December 31, 2012 (one mod only per loan)
– Servicers have until Dec. 31, 2009 to sign on.
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10. HAMP Carrots
• Servicer Incentives (after 90-day trial period):
– $1,000 for each modified mortgage + $1,000/ year for 3 years if
borrower stays current
– $500 for modifications made prior to delinquency
– $250 + more tba by Treasury for release of 2nd lien
– Compensation for foreclosure alternatives (if mod not possible):
short sales or deeds-in-lieu
• Borrower Incentives: up to $1,000/year for 5 years for current
borrowers toward principal
• Lender/Investor Incentives:
– Interest reduction subsidy
– $1,500 payment for pre-default modification delinquency and
payments to offset probable losses from home price declines
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11. HAMP Modification Process
1. Calculate 31% of Borrower’s long-term, stable income.
This value is the amount the fully amortized monthly payment,
property taxes HOA and insurance (PITIAS)consumes of monthly
income.
2. Calculate New Unpaid Principal Balance:
Principal Balance + Escrow Shortages + Arrearages = Unpaid
Principal Balance (UPB)
3. Calculate a new monthly payment:
• Use the new UPB
• The current note rate on the mortgage
• The remaining term
* If an affordable payment is achieved, the interest rate will fix
permanently at the current note rate – if not continue
4. Reduce the interest rate in decrements of 0.125 percent
to no lower than 2.0 percent
**If the modified interest rate is below the market rate, the rate
will remain fixed for five years. In the sixth year, the interest rate
will be subject to annual increases of no more than 1 percent per
year, not to exceed the lesser of the fully indexed rate at the time
the loan was originated or the market rate (PMMS) at the time the
modification documents are prepared.

12. HAMP Modification Process
5. Extend the amortization term
Month-by-month up to 480 months
6. Forebear principal (Balloon Payment)
The interest-bearing principal is not less than 100 percent of current
market value.
***Deferred principal will not be subject to interest and requires a
balloon payment due upon sale, payoff or maturity. Deferred
principal will be non-interest bearing and non-amortizing.
7. If a PITIAS-to-income ratio greater than 31 percent is
necessary to support a modification the borrower does
not qualify for this program.

13. Why a CPA?
• The NPV test is
complicated. Income from
all sources, & proper
valuation of the subject
property makes or breaks
many deals
• Knowing the process is
very important
• Usually not legal issue
• Usually is about
organization, presentation,
rapport and timeliness