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Property Repair Evaluation and Documentation Changes

November 29, 2012

We rely on our Sellers to properly document repair requirements and our Servicers to manage repair agreements and complete related reporting requirements, ensuring that our mortgages are secured by safe and well-maintained housing and properties that remain in compliance with loan documentation. In looking at our recent repair management practices, we observed that there was not much differentiation in the treatment of major and minor items. Consequently, our collective focus on the most important physical needs of the property was diluted by the equal attention we paid to less significant items. In the interest of strengthening our focus on real property-related risk, we have made changes to our repair requirements, as described further below. In making these changes, we expect to not only improve our focus on risk, but also improve the repair management experience for borrowers, Seller/Servicers and Freddie Mac.

The new property repair requirements are effective for property condition reports ordered on and after January 1, 2013. They were announced in the October 31, 2012, Guide Bulletin and as part of our new Servicing Standards. Please register today for one of the following training sessions to ensure that you are ready to adopt these new requirements:

Date Event Location Suggested Participants
December 7 Training: Property Repair Updates Webinar Seller/Servicers and Third-Party Consultants
December 11 Training: Property Repair Updates Webinar Seller/Servicers and Third-Party Consultants

New Repair Categories

We've defined three different categories of repairs that the property condition consultant will be responsible for identifying and categorizing. The following categories ensure that repair agreements consistently focus on appropriate repairs and improve efficiency for Seller/Servicers and borrowers.

  • Critical Repairs – Repairs and replacements that significantly impact habitability, tenant safety, value, income or marketability. Critical Repairs must be corrected before Freddie Mac will commit to purchase a mortgage.

  • Priority Repairs – Repairs and replacements that are significant and must be addressed as soon as possible, including all life safety hazards, code violations, material deficiencies and significant deferred maintenance items. Material deficiencies are any unresolved problems that cannot reasonably be addressed by normal operations or routine maintenance. Priority Repairs must be included in the Loan Agreement in the Schedule of Required Repairs.

  • Operational Repairs: Minor deficiencies and minor deferred maintenance that Freddie Mac expects the borrower to complete as part of a repair and maintenance budget. These items must be completed during the first year following funding. A new document, the Repair Letter, must identify the Operational Repairs that the Servicer will monitor to confirm completion as part of the annual property inspection process.

Repair Agreement Roles and Responsibilities

The new requirements increase focus on significant items while strengthening and streamlining procedures. They also ensure that necessary repairs are appropriately addressed. The following parties are necessary for the successful implementation of the new requirements:

  • Property Condition Consultant - Responsible for identifying and categorizing the repairs in the Property Condition Report.

  • Seller – Responsible for ensuring that the Property Condition Consultant is appropriately qualified and experienced, that the Property Condition Report meets the standards outlined in the Freddie Mac Seller/Servicer Guide, that Priority Repairs and Operational Repairs are clearly described and included in the Loan Agreement and the Repair Letter, as applicable, and that time frames established for Priority Repairs are appropriate (reflecting the urgency of each item as well as the feasibility of completion within the allotted time).

  • Servicer – Responsible for tracking and documenting the completion of the Priority and Operational Repairs identified in the Repair Letter, as well as communicating status of such items to Freddie Mac.

New Property Condition Report Form

We revised Form 1105, Property Condition Report Form, to include a description of and references to the new repair categories along with additional instructions. The new version of Form 1105 must be used for all Property Condition Reports ordered on or after January 1, 2013.

Please contact your Freddie Mac regional representative, relationship manager, or asset management representative if you have any questions about the upcoming training or the new property repair requirements.

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