Freddie Mac Standard Modification
May 13, 2013
The Freddie Mac Standard Modification provides at-risk borrowers with an option to achieve affordable mortgage payments. A core component of the Servicing Alignment Initiative, this modification creates a sustainable modified payment.
In conjunction with our focus on earlier and more frequent borrower contact, the Standard Modification’s underwriting requirements enable Freddie Mac Servicers to evaluate financially distressed homeowners for a modification quickly. In addition, the Standard Modification places borrowers in a trial period to ensure they are able to meet the modified terms, which positions them for greater long-term success and helps reduce re-default rates in the Servicer’s Freddie Mac portfolio.
For more information, see Single-Family Seller/Servicer Guide (Guide Chapter B65), Workout Options.
Effective July 1, 2013, Servicers must evaluate any borrower who is at least 90 days delinquent but not more than 720 days delinquent for Freddie Mac's Streamlined Modification. Servicers may immediately offer eligible borrowers the new Freddie Mac Streamlined Modification. The Streamlined Modification is a two-year initiative that provides very delinquent eligible borrowers an additional modification opportunity without requiring the borrower to provide a Borrower Response Package.
Mortgage and Borrower Eligibility
Eligible Property Types
The following property types are eligible for the Standard Modification:
- Owner- or nonowner-occupied properties. (i.e., primary residences, investment properties, or second homes).
- Vacant properties, but cannot be condemned.
The following mortgages are eligible for the Standard Modification:
- First-lien mortgages owned, guaranteed, or securitized by Freddie Mac.
- The pre-modified mark-to-market loan-to-value (MTMLTV) ratio (gross unpaid principal balance of the current loan, including any principal forbearance as a result of a prior modification, divided by the property value obtained in accordance with Guide Section B65.16, Property Valuation Requirements) must be greater than or equal to 80 percent.
- Mortgages originated at least 12 months prior to the evaluation date for the modification.
- Mortgages may be previously modified, but not more than once.
Borrowers may be eligible for this modification if they meet the following requirements:
- Borrowers must be either:
- 60 days or more delinquent; or
- Current or less than 60 days delinquent, occupy the property as their primary residence, and determined to be in imminent default in accordance with Guide Section B65.16, Determining Imminent Default for a Freddie Mac Standard Modification.
- Borrowers must document an eligible hardship that is causing or expected to cause a permanent or long-term increase in expenses or decrease in income. (Unemployment and other temporary hardships are not eligible hardships.)
- Borrowers must have verified income available to make the modified mortgage payment. (Unemployment benefits are not an acceptable source of income.)
- Borrowers must have been determined to be ineligible for the Home Affordable Modification program (HAMP). In addition, borrowers who received but defaulted on a HAMP Trial Period Plan, a HAMP modification or other modification, or Trial Period Plan are eligible, except as otherwise prohibited by Guide Section B65.14.
Solicitation and Documentation
Using a Borrower Solicitation Package, Servicers must solicit borrowers who are 31 days or more delinquent between the 31st and 35th day of delinquency and again between the 61st and 65th day of delinquency if quality right party contact was not achieved or the borrower did not respond to the initial solicitation.
Refer to Guide Section 64.6, Evaluation Hierarchy, Borrower Solicitation and Communication, for complete borrower solicitation requirements.
Trial Period Documents
- Standard Modification Trial Period Plan Notice, located in Guide Exhibit 93, Evaluation Model Clauses – Updated March 27, 2013
- Must be sent within five days of an evaluation decision, but no later than 30 days, after receiving a complete Borrower Response Package.
If the gross unpaid principal balance (UPB), before capitalization, creates a mark-to-market loan-to-value (MTMLTV) ratio that is greater than or equal to 80 percent, Freddie Mac Servicers are delegated the authority to determine the proposed modification terms and final eligibility based on the following:
- Capitalize the arrearages in accordance with Guide Section B65.23, Expenses, Delinquent Amounts, and Capitalization Rules.
- Adjust the interest rate to the fixed rate published on the Standard Modification Interest Rate Web page that is in effect on the date of the borrower’s evaluation.
- Extend the amortization term to 480 months from the modification effective date.
- If the pre-modified MTMLTV ratio is greater than 115 percent, forbear the principal to create a post-modification interest-bearing MTMLTV ratio of 115 percent or forebear 30 percent of the post-capitalized UPB, whichever forbearance amount is less.
Final Eligibility Requirements
The determination that the Standard Modification results in the following is based upon the monthly payment calculated for the trial period plan:
- For trial period effective dates before August 1, 2013, the modified principal and interest payment must be at least 10 percent less than the borrower’s pre-modification principal and interest payment. For trial period effective dates on and after August 1, 2013, the principal and interest payment must be less than or equal to the borrower’s pre-modification principal and interest payment.
- The modification must result in a housing expense-to-income ratio that is greater than or equal to 10 percent and less than or equal to 55 percent.
- Note: Nonowner-occupied properties have a different calculation for the housing expense-to-income ratio.
To help ensure the borrower is able to sustain the modified payment amount, the borrower is placed into a three-month trial period during which they must remit the estimated new monthly mortgage payments before being placed into a permanent modification. In the event the borrower is in bankruptcy, the trial period plan may be up to two months longer.
If a borrower does not meet the eligibility requirements outlined in Guide Chapter B65, but the Servicer believes the borrower may benefit from a Standard Modification, the Servicer may submit an exception request to Freddie Mac via Workout Prospector®.
Servicers must use Workout Prospector to evaluate borrowers for the Standard Modification, unless otherwise indicated by Freddie Mac.
Reporting and Incentives
Electronic Default Reporting (EDR)
By the third business day of each month, Servicers must report the following applicable EDR default action codes for the previous month's Standard Modification activity:
- HD – "Modification in Review": To report that the borrower is being evaluated for a Standard Modification. Servicers are required to report this code along with the date they begin reviewing the loan. Servicers will only do this one time in the month following the month in which the event took place.
- HE – "Ineligible for Modification": To report that the borrower is ineligible for a Standard Modification. Servicers are required to report this code along with the date they made the decision. Servicers will only do this one time in the month following the month in which the event took place.
- BF – "Standard Modification Trial Period": To report that the borrower has entered into a trial period. In addition to reporting this code, Servicers must indicate the trial period effective date as the first day of the month and establish it in accordance with Guide Section B65.19(a). Servicers must report this code and date each month the borrower is in the trial period.
- TM – “Alternative Modification Trial Period”: To report that the borrower has entered into a trial period for the Streamlined Modification. Servicers must report this code along with the trial period effective date each month during the trial period.
Servicers will receive incentives for successfully settled Standard Modifications based on the term of delinquency on the trial period plan effective date:
- $1,600 for each Standard Modification that is less than or equal to 120 days delinquent (less than or equal to 150 days from the due date of last paid installment [DDLPI])
- $1,200 for each Standard Modification that is 121-210 days delinquent (151-240 days from DDLPI)
- $400 for each Standard Modification that is greater than 210 days delinquent (greater than 240 days from DDLPI)
Servicers are required to settle a Standard Modification successfully by complying with all eligibility, underwriting, documentation, closing, and reporting requirements, including submitting accurate closing data to Freddie Mac, within two months after the trial period ends to be eligible to receive the financial incentives.
Single-Family Updates and News Articles
- Standard Modification Fact Sheet – Updated
- Standard Modification Interest Rate
- Frequently Asked Questions – Updated
- Servicing Alignment Initiative