What if reducing the interest rate is not enough to get the borrower’s front-end DTI down to 31 percent?
If the rate is reduced to as low as the 2 percent floor and the DTI is still above 31 percent, Supplemental Directive 09-01 specifies that the servicer may next extend the term and reamortize the mortgage loan by up to 40 years. If the DTI still exceeds 31 percent, then the servicer must forbear (defer) a portion of the principal (no more than the greater of (i) 30% of the unpaid principal balance of the loan; or (ii) an amount resulting in a modified interest bearing balance that would create a current mark-to-market loan-to-value ratio equal to 100 percent). The deferred amount does not accrue interest, but will result in a balloon payment at the maturity of the loan. Servicers and investors should carefully review the section of Supplemental Directive 09-01 titled “Standard Modification Waterfall” and should seek approval from Fannie Mae, as Treasury’s Financial Agent, before deviating from the standard payment reduction guidance.
