FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
`INDEX NO. 656028/2021
`RECEIVED NYSCEF: 12/28/2021
`RECEIVED NYSCEF: 12/28/2021
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`EXHIBIT K
`EXHIBIT K
`
`

`

`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
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`Supplemental Directive 10-05
`
`June 3, 2010
`
`Home Affordable Modification Program – Modification of Loans with
`Principal Reduction Alternative
`
`Background
`
`In Supplemental Directive 09-01, the Treasury Department (Treasury) announced the eligibility,
`underwriting and servicing requirements for the Home Affordable Modification Program
`(HAMP). Under HAMP, servicers apply a uniform loan modification process to provide eligible
`borrowers with sustainable monthly payments. This Supplemental Directive provides guidance
`to servicers on a Principal Reduction Alternative (PRA) to give servicers additional flexibility to
`offer relief to borrowers whose homes are worth significantly less than the remaining amounts
`owed under their first lien mortgage loans (negative equity). Under PRA, servicers are required
`to evaluate the benefit of principal reduction for every HAMP eligible loan with high negative
`equity, defined herein, and are encouraged to offer principal reduction whenever the net present
`value (NPV) result of a HAMP modification using PRA is greater than the NPV result without
`considering principal reduction. Treasury is introducing an alternative modification waterfall to
`perform this evaluation and financial incentives for principal reduction. This Supplemental
`Directive also provides that the Second Lien Modification Program (2MP) will now require
`principal reduction in an amount at least proportional to any principal reduction offered on a
`corresponding HAMP modified first lien mortgage loan.
`
`In addition, this Supplemental Directive expresses Treasury’s position regarding the applicability
`of the servicer safe harbor (Servicer Safe Harbor) set forth in Section 129A of the Truth In
`Lending Act, 15 U.S.C. 1639a (TILA), to residential loan modifications under HAMP and 2MP,
`as well as to short sales and deeds-in-lieu of foreclosure under the Home Affordable Foreclosure
`Alternatives (HAFA) Program. This Supplemental Directive also expresses Treasury’s position
`regarding the accounting treatment to be employed by servicers and other transaction parties for
`HAMP modifications that include principal forbearance.
`
`This Supplemental Directive provides guidance to servicers of first and second mortgage lien
`loans that are not owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed
`by a federal agency, such as the Federal Housing Administration.
`
`This Supplemental Directive covers the following topics:
`
`PRA Requirements
`Alternative Waterfall
`Net Present Value Model
`Application of Principal Reduction
`Documentation Requirements
`
`

`

`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
`
`Servicer Reporting
`Credit Bureau Reporting
`Incentive Compensation
`Compliance
`Document Retention
`Impact on Second Lien Modifications
`Servicer Safe Harbor
`Treatment of Principal Forbearance in HAMP
`
`PRA Requirements
`
`Beginning on the later of (i) October 1, 2010; or (ii) the implementation date for version 4.0 of
`the HAMP NPV model (PRA Effective Date), servicers must evaluate any loan that is being
`considered for HAMP with a mark-to-market loan-to-value (MTMLTV) ratio greater than 115
`percent using both the standard HAMP modification waterfall (Standard Waterfall) and an
`alternative modification waterfall that includes principal reduction as the required second step in
`the waterfall (Alternative Waterfall). When determining the loan’s unpaid principal balance
`(UPB), servicers should include any amounts that would be capitalized in accordance with
`HAMP guidelines. Servicers should follow regulatory and investor guidance when selecting the
`appropriate valuation method to determine the mark-to-market value of the property and use this
`value for both the NPV model and the PRA MTMLTV ratio calculation.
`
`Servicers may immediately offer HAMP modifications utilizing PRA as of the date of this
`Supplemental Directive in accordance with the guidance set forth herein. Guidance relating to
`principal reduction and related investor incentives for first lien mortgage loans in HAMP trial
`period plans or permanent HAMP modifications prior to the date of this Supplemental Directive
`will be provided in a future Supplemental Directive.
`
`Alternative Waterfall
`
`reduction between Step 1
`servicers use principal
`the Alternative Waterfall,
`Under
`(capitalization) and Step 2 (interest rate reduction) of the Standard Waterfall set forth in
`Supplemental Directive 09-01 as follows:
`
`Reduce the UPB by an amount necessary to achieve either the target monthly mortgage
`payment ratio of 31 percent or a MTMLTV ratio equal to 115 percent, whichever is
`reached first;
`
`If the UPB is reduced to create a MTMLTV ratio of 115 percent and the target monthly
`mortgage payment ratio of 31 percent has not been achieved (based on a fully amortizing
`principal and interest payment over the remainder of the current loan term and using the
`current mortgage interest rate), continue with the standard HAMP modification waterfall
`steps of interest rate reduction,
`term extension and principal forbearance, each as
`necessary, until the target monthly mortgage payment ratio of 31 percent is achieved.
`
`Supplemental Directive 10-05
`
`Page 2
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`INDEX NO. 656028/2021
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`The servicer must use the NPV model to evaluate the proposed modifications generated by
`application of both the Standard Waterfall and the Alternative Waterfall.
`
`As set forth in Supplemental Directive 09-01, if the NPV result for the proposed
`modification generated by applying the Standard Waterfall is positive, servicers must
`modify the loan.
`
`If the NPV result for the proposed modification generated by applying the Alternative
`Waterfall is positive, servicers are encouraged, but are not required, to perform a HAMP
`loan modification utilizing PRA, even in instances where the NPV result from the
`Standard Waterfall is negative or is less than the NPV result generated by application of
`the Alternative Waterfall.
`
`If neither the Standard Waterfall NPV nor the Alternative Waterfall NPV is positive, the
`servicer is not required to modify the loan.
`
`The primary purpose of completing the Alternative Waterfall analysis is to demonstrate whether
`reducing principal on loans with MTMLTV ratios greater than 115 percent results in a positive
`NPV. However, when making the determination to reduce principal, servicers may, consistent
`with investor guidelines and contractual obligations, reduce the UPB of a loan to an amount that
`results in a MTMLTV ratio that is greater or lesser than the 115 percent target ratio in the
`Alternative Waterfall. Because servicers have this discretion in offering principal reduction,
`servicers must develop and adhere to a written policy for making principal
`reduction
`determinations that treats all similarly-situated loans in a consistent manner and in compliance
`with fair lending and other applicable laws and regulations.
`
`Servicers will qualify for PRA investor incentive payments as set forth in this Supplemental
`Directive for reductions creating a MTMLTV ratio as low as 105 percent, even if the reduction
`results in a monthly mortgage payment ratio below the 31 percent target. Servicers are not
`precluded from reducing principal below a 105 percent MTMLTV ratio; however, PRA investor
`incentives will not be paid on the portion of any principal reduction that reduces the MTMLTV
`ratio below 105 percent. Additionally, pursuant to Supplemental Directive 09-01, Investor
`Payment Reduction Cost Share Incentives will only be paid based on modification terms that
`reflect the target monthly mortgage payment ratio (31 percent).
`
`Net Present Value Model
`
`Pursuant to Supplemental Directive 09-01, all loans that meet the HAMP eligibility criteria must,
`prior to offering a trial modification using verified borrower income, be evaluated using a
`standard NPV model that compares the NPV result with a modification to the NPV result
`without a modification. An updated NPV model (“NPV 4.0”), under development by Treasury,
`will reflect principal reduction incentives and will compare the NPV result of modifications with
`and without principal reduction with the NPV result without modification. The software
`application for NPV 4.0 will be available on the Home Affordable Modification Program
`servicer web portal accessible at www.HMPadmin.com. On this portal, servicers will have
`access to NPV 4.0 as well as detailed guidelines for submitting proposed modification data.
`
`Supplemental Directive 10-05
`
`Page 3
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`In addition to the evaluation using NPV 4.0, servicers may conduct other evaluations to
`determine the level of principal reduction that is in the best interest of investors. However,
`servicers must only submit the results of the Standard Waterfall and Alternative Waterfall
`evaluations completed with NPV 4.0 to Treasury's system of record.
`
`Application of Principal Reduction
`
`PRA is a deferred principal reduction program that allows a borrower to earn principal reduction
`over a three-year period by successfully making payments in accordance with the modified loan
`terms.
`If the loan is modified pursuant to PRA, the principal reduction amount should be
`initially treated as non-interest bearing principal forbearance (PRA Forbearance Amount). The
`PRA Forbearance Amount is separate and exclusive of any other forbearance that may be offered
`in conjunction with a HAMP modification.
`
`If the borrower is in good standing (as defined in Supplemental Directive 09-01) on the first,
`second and third anniversaries of the trial period effective date, the servicer must reduce the UPB
`of the loan on each anniversary date in installments equal to one-third of the initial PRA
`Forbearance Amount.
`
`If a borrower is in good standing and pays the loan in full (i) at any time more than 30 calendar
`days after the HAMP modification effective date; (ii) after the PRA reporting and payment
`processes are made available; and (iii) prior to application of the entire PRA Forbearance
`Amount, the borrower shall immediately be fully vested in and entitled to the unapplied PRA
`Forbearance Amount as a curtailment. When the servicer receives a payoff request on behalf of
`a borrower that meets these requirements, the unapplied PRA Forbearance Amount shall be
`deducted from the payoff balance.
`
`Documentation Requirements
`
`The documents for PRA are the same as those required under HAMP. However, the Trial Period
`Plan Notice and the Home Affordable Modification Agreement must be modified to include
`language regarding the deferred principal reduction terms. This language will be set forth in the
`revised documents that will be available on www.HMPadmin.com prior to the PRA Effective
`Date.
`This language will include a notification to the borrower that principal reduction is
`reported to the Internal Revenue Service and may have tax consequences. The language will
`also advise borrowers to seek guidance from a tax professional.
`
`Servicers that offer HAMP modifications utilizing PRA prior to issuance of the revised
`documents must modify the Home Affordable Modification Agreement to include the deferred
`principal reduction terms.
`
`Supplemental Directive 10-05
`
`Page 4
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`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
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`Borrower Notice
`
`Upon receipt of a written request from a borrower or an authorized representative of the
`borrower related to principal reduction, the servicer must, within 30 calendar days of receipt of
`the request, respond in writing. The response, when applicable, must include the reason(s) that
`principal reduction was not offered to the borrower.
`
`Servicer Reporting
`
`The PRA reporting and payment processes are currently under development by Fannie Mae, in
`its capacity as Treasury’s financial agent. Subsequent guidance will be provided describing the
`PRA reporting and payment processes and when they will be available (the time period between
`the date of this Supplemental Directive and the date the PRA reporting and payment processes
`are available shall be referred to herein as the Interim Period). Servicers who offer loan
`modifications with PRA during the Interim Period will be required to report the transaction to the
`Treasury system of record. Any PRA principal reduction on Interim Period loans should be
`reported in the existing principal write-down field. Servicers should not, however, reduce the
`UPB by the amount of any PRA principal reduction in the Treasury system of record for Interim
`Period loans (though servicers should reduce the UPB by any principal reduction that is not
`related to PRA). When the PRA reporting and payment processes are implemented, servicers
`shall submit a correction transaction that will move the PRA principal reduction to a new PRA
`specific principal forgiveness field. During the Interim Period, Servicers must collect and retain
`PRA specific information so that the necessary data can be reported when the processes become
`available.
`
`The HAMP Data Dictionary and Supplemental Directive 09-06 Data Dictionary will be revised
`to reflect new and modified edits for PRA and will be posted on www.HMPadmin.com.
`Servicers will be required to report the Standard Waterfall NPV model inputs, the Alternative
`Waterfall NPV model
`inputs, final modification terms, and NPV outputs for both NPV
`evaluations.
`
`Credit Bureau Reporting
`
`Servicers should report a “full-file” status report to the four major credit repositories for any loan
`modified pursuant to this Supplemental Directive in the same manner they report a loan modified
`under HAMP as set forth in Supplemental Directive 09-01.
`In addition, as each installment of
`the PRA Forbearance Amount is applied to the UPB of the loan, the servicer should update the
`credit repositories with the current balance owed and amend the K-4 segment to reflect the
`reduced UPB.
`
`The "due date" in the K4 Segment should reflect the scheduled maturity date of the HAMP
`modified loan. However, if the Principal Forbearance Amount no longer applies after the portion
`of the loan is forgiven, the servicer should no longer report the K4 Segment.
`
`Supplemental Directive 10-05
`
`Page 5
`
`

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`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
`
`Incentive Compensation
`
`No incentives of any kind will be paid if the servicer has not executed the Servicer Participation
`Agreement to participate in HAMP. The calculation and payment of all incentive compensation
`will be based strictly on the borrower’s verified income. Servicers must apply or remit, as
`applicable, all borrower and investor incentive compensation it receives with respect to any PRA
`modified loan within timeframes as required by applicable law, but in no event later than 30
`calendar days after receipt.
`
`Additionally, as detailed in Supplemental Directive 09-01, if a borrower loses good standing it
`cannot be restored even if the borrower subsequently cures the default. A loan that is not in good
`standing is not eligible to receive borrower,
`servicer or
`investor
`incentives and/or
`reimbursements and such payments will no longer accrue for that mortgage loan. If a borrower
`loses good standing before the entire PRA Forbearance Amount has been applied to the UPB, the
`unapplied PRA Forbearance Amount shall remain as non-interest bearing principal forbearance
`for the remaining life of the loan.
`
`Investor Incentive Compensation
`
`For each loan modified under PRA, investors receive the Investor Payment Reduction Cost Share
`and if applicable:
`(i)
`the one-time current borrower
`incentive payment described in
`Supplemental Directive 09-01 and (ii) the Home Price Decline Protection incentive payments
`described in Supplemental Directive 09-04.
`
`Additionally, investors will receive PRA investor incentive payments based on the delinquency
`status of the loan, the MTMLTV ratio used to complete the Alternative Waterfall analysis and
`the amount of principal reduction installment actually applied by the servicer.
`
`Principal Reduction Incentive Schedule:
`Per Dollar of UPB Forgiven in MTMLTV Ratio Range
`(Loans Less than or Equal to Six Months Past Due)
`
`MTMLTV Ratio Range
`
`105% to <115%
`0.21
`
`115% to 140%
`0.15
`
`>140%
`0.10
`
`With respect to loans which were less than or equal to six months past due at all times during the
`12 month period prior to the NPV evaluation date, investors will be entitled to receive $0.21 per
`dollar of principal reduction equal to or greater than 105 percent and less than 115 percent
`MTMLTV ratio; $0.15 per dollar of principal reduction equal to or greater than 115 percent and
`less than or equal to 140 percent MTMLTV ratio; and $0.10 per dollar of principal reduction in
`excess of 140 percent MTMLTV ratio.
`
`Supplemental Directive 10-05
`
`Page 6
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`

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`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
`
`With respect to loans which were more than six months past due at any time during the 12 month
`period prior to the NPV evaluation date, irrespective of MTMLTV ratio range, investors will be
`paid $0.06 per dollar of principal reduction and will not be eligible for incentives in the above
`extinguishment schedule. PRA investor incentive payments will be earned by investors in the
`month in which the applicable principal reduction amount is actually applied to reduce the
`borrower’s UPB as set forth above.
`
`While servicers may reduce principal below 105 percent MTMLTV ratio, no PRA incentive,
`including PRA incentives paid for Interim Period loans, will be paid for that portion of the
`principal reduction amount that reduces the MTMLTV ratio below 105 percent. Also, as
`provided in Supplemental Directive 09-01, servicers may substitute principal reduction for any
`step in the waterfall and may reduce principal at any time during the life of the loan. However,
`PRA investor incentives will only be paid in conjunction with principal reduction that is deferred
`over three years in accordance with the requirements of this Supplemental Directive.
`
`Interim Period Incentive Compensation
`
`Loans with a premodification MTMLTV greater than 115 percent that are permanently modified
`under HAMP during the Interim Period and include PRA principal reduction may be eligible for
`PRA investor incentives in compliance with the prior section. PRA investor incentives will be
`paid so long as (i) the loan remains in good standing on the implementation date of the PRA
`reporting and payment processes by Treasury’s financial agent; (ii) the modification otherwise
`complies with HAMP requirements; (iii) the modification terms are accurately entered into the
`Treasury system of record at the time of modification in compliance with the guidance set forth
`above in the “Servicer Reporting” section; and (iv) when the PRA reporting and payment
`processes become available, a correction transaction is submitted moving the PRA principal
`reduction to the new PRA specific principal forgiveness field and all additional PRA specific
`data retained by the servicer is reported to the Treasury system of record. Servicers providing
`principal reduction during the Interim Period will not be required to perform an Alternative NPV
`evaluation for loans modified prior to the PRA Effective Date. All servicers must, as indicated
`above, have written policies governing the consistent application of principal reduction.
`Notwithstanding the foregoing,
`Interim Period loans
`that are fully satisfied prior
`to
`implementation of the PRA reporting and payment processes are not eligible for PRA investor
`incentives.
`
`Compliance
`
`Treasury has selected Freddie Mac to serve as its compliance agent (MHA-C) for HAMP.
`Supplemental Directive 09-01 describes the overall roles and responsibilities of both servicers
`and the compliance agent in performing servicer reviews and oversight, which are unchanged by
`this Supplemental Directive. As compliance agent, MHA-C will incorporate an evaluation of
`documented information to assess PRA implementation, processes, and controls into its servicer
`reviews. Additional information will be provided to servicers as part of the conduct of the
`compliance agent’s reviews. The scope of the assessments will include among other things, an
`evaluation of documented evidence to confirm adherence (e.g., accuracy and timelines) to PRA
`requirements with respect to the following:
`
`Supplemental Directive 10-05
`
`Page 7
`
`

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`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
`
`The documented process for evaluating and approving borrowers for principal reduction
`under the guidance set forth in this Supplemental Directive.
`The standard policies and guidelines for completing principal reduction and consistent
`application of same.
`The execution of NPV/Waterfall processes, and retention of all applicable data, including
`accurately uploading required data into IR2 when the functionality exists.
`The timely and accurate payment of borrower and investor incentive payments.
`The appropriate treatment of second liens modified under 2MP where the modification of the
`first lien utilizes PRA.
`
`As with earlier versions of the NPV model, servicers wishing to recode the NPV model into their
`own processing systems will be required to undergo certification testing by MHA-C and receive
`authorization prior to implementing the recoded model.
`
`Document Retention
`
`Servicers are required to maintain appropriate documentary evidence of their HAMP-related
`activities, pursuant to Supplemental Directive 09-01, and to provide that documentary evidence
`to MHA-C upon request. With respect to PRA, documentation that should be maintained by the
`servicer includes, but is not limited to, the following:
`
`limited to those ensuring
`including but not
`Policies and procedures relating to PRA,
`consistent application of PRA and the circumstances under which the servicer would reduce
`principal below 105 percent MTMLTV ratio or create a modification with a payment below
`the target monthly mortgage payment ratio of 31 percent.
`Determination of eligibility for PRA
`Evidence of application of each applicable step in the Alternative Waterfall
`Application of both the Standard NPV and Alternative NPV Models
`
`For phone contact with borrowers related to PRA, well-documented servicer system notes
`(including but not limited to date, names of contact persons, and conversation summaries) will
`constitute appropriate documentation. Written correspondence should be retained in an
`accessible manner and made available to MHA-C upon request.
`
`Servicers must retain detailed records to document the reason(s) for any trial modification failure
`and the associated communication with borrowers. Servicers must retain required documents for
`a period of seven years from the date of the document collection.
`
`Supplemental Directive 10-05
`
`Page 8
`
`

`

`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 656028/2021
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`RECEIVED NYSCEF: 12/28/2021
`
`Impact on Second Lien Modifications
`
`When a first lien mortgage loan is modified under PRA and a servicer that has executed a
`Servicer Participation Agreement for the Second Lien Modification Program (2MP) services a
`second lien mortgage loan secured by the same property (whether or not that servicer also
`services the first
`lien mortgage loan),
`that 2MP servicer must also reduce principal
`in
`conjunction with the modification of the second lien. As of the publication date of this
`Supplemental Directive, the text below replaces in its entirety the text in Supplement Directive
`09-05 Revised, Update on the Second Lien Modification Program (2MP), describing “Step 4:
`Principal Forbearance”.
`
`Step 4: Principal Forbearance and Forgiveness
`
`If there was principal forbearance or forgiveness on the HAMP-modified first lien, a
`servicer must forbear or forgive principal on the second lien in the same proportion,
`based on the ratio of the principal forbearance or forgiveness amount of the HAMP-
`modified first lien to the total UPB of the HAMP-modified first lien on its modification
`effective date. If the servicer has deferred accrued interest in lieu of capitalization in Step
`1, the deferred amount will be in addition to any principal forbearance or forgiveness
`required under this Step 4. The servicer may, at its discretion and as permitted under the
`applicable pooling and servicing agreement, choose to forgive any amounts that are
`required to be forborne. All principal forgiveness required or provided under 2MP will be
`applied at the time of the permanent 2MP modification and will not be deferred.
`
`Example: The total unpaid principal balance plus the forgiveness amount of the HAMP-
`modified first lien on its modification effective date is $100,000, the amount of principal
`forbearance on the first lien is $5,000 and the amount of principal forgiveness is $5,000.
`Therefore, the servicer must forbear five percent of the second lien and must forgive five
`percent of the second lien. If the total unpaid principal balance of the second lien on the
`modification effective date is $40,000, the servicer must forbear $2,000 and must forgive
`$2,000, or the servicer may elect to forgive a larger amount.
`
`Additionally, the first two sentences from the section titled “Principal Forgiveness Option” in
`Supplemental Directive 09-05 Revised, are deleted and replaced with the following sentence:
`
`In addition to any required forgiveness in Step 4 of the standard modification waterfall,
`servicers may, at their discretion and when permitted under the applicable pooling and
`servicing agreement or other investor servicing agreement, agree to forgive additional
`principal as part of a 2MP modification and will be eligible for both modification
`incentives and extinguishment incentives on any partial amount of principal that is
`forgiven so long as the unpaid principal balance of
`the second lien (at
`initial
`consideration for the second lien modification) is equal to or greater than $5,000 and has
`a premodification scheduled monthly payment equal to or greater than $100.
`
`Supplemental Directive 10-05
`
`Page 9
`
`

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`FILED: NEW YORK COUNTY CLERK 12/28/2021 05:00 PM
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`INDEX NO. 656028/2021
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`Servicer Safe Harbor
`
`As part of Helping Families Save Their Homes Act of 2009 (HFSTHA), Congress established
`the Servicer Safe Harbor by amending TILA for the purpose of providing a safe harbor to enable
`such servicers to modify and refinance mortgage loans under a “qualified loss mitigation plan.”
`Treasury has determined that each residential loan modification under HAMP (including PRA
`modifications) and 2MP, as well as each short sale and deed-in-lieu of foreclosure under HAFA,
`is a “qualified loss mitigation plan” as defined in the Servicer Safe Harbor. In addition, Treasury
`anticipates that
`the “FHA Program Adjustments to Support Refinancings for Underwater
`Homeowners,” which were previously announced by Treasury on March 26, 2010,1 will also
`constitute a “qualified loss mitigation plan” as defined in the Servicer Safe Harbor.
`
`Treatment of Principal Forbearance in HAMP
`
`Except under the circumstances described in the next paragraph, when a mortgage loan within a
`securitization vehicle is modified under HAMP, the following parties will take the respective
`actions:
`
`(i)
`
`(ii)
`
`(iii)
`
`the servicer must report to the trustee or securities administrator any forborne
`principal as a realized loss;
`the trustee or securities administrator must allocate any such reported forborne
`principal as a realized loss to the trust;2 and
`the servicer must act consistent with the presumption that such allocation has
`occurred, and may conclusively rely that it has.
`
`The direction to the servicer and the trustee or securities administrator to take the actions
`described in clauses (i) through (iii) above shall apply to any mortgage loan within a
`securitization vehicle unless the applicable securitization pooling or trust agreement: (A)
`explicitly provides for or allows repayment of principal to be postponed or forborne for a long
`period of time; (B) explicitly provides for or allows interest on such principal amount to be
`permanently forgiven; and (C) explicitly and affirmatively directs that such forborne principal
`not be treated as a realized loss. Although securitization pooling or trust agreements often use
`the term “principal forbearance” in addressing the postponement for short periods of the dates on
`which certain payments of principal are due, the exception set forth in this paragraph will only
`apply if the relevant agreement specifically addresses principal forbearance in the manner set
`forth in (A) through (C) in the immediately preceding sentence.
`
`1 http://makinghomeaffordable.gov/docs/FHA_Refinance_Fact_Sheet_032510%20FINAL2.pdf
`2 The reported forborne principal should be allocated as a realized loss such that, for purposes of calculating
`distributions to securityholders, such forborne amount is no longer outstanding under the amortization schedule
`applicable to the related mortgage loan.
`
`Supplemental Directive 10-05
`
`Page 10
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`INDEX NO. 656028/2021
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`
`The HFSTHA also states that qualified loss mitigation plan guidelines issued by Treasury under
`the Emergency Economic Stabilization Act of 2008 (EESA) shall constitute standard industry
`practice for purposes of all Federal and State laws. The qualified loss mitigation plan guidelines
`issued by Treasury under EESA include this Supplemental Directive. Accordingly, actions
`described in clauses (i)-(iii) above, when taken by a servicer pursuant to this Supplemental
`Directive, shall constitute “standard industry practice” within the meaning of the Servicer Safe
`Harbor, and, when taken by any other person pursuant to this Supplemental Directive, including
`a trustee or securities administrator under a securitization pooling or trust agreement, shall
`constitute “cooperation of such person with a servicer when such cooperation is necessary for the
`servicer to implement a qualified loss mitigation plan” within the meaning of the Servicer Safe
`Harbor.
`
`Supplemental Directive 10-05
`
`Page 11
`
`