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Affordable Merit Rate Mortgage

An incentive rate reduction for on-time payments

For borrowers with weak credit reputations or past credit challenges, our Affordable Merit Rate® Mortgage provides more options for homebuyers who are traditionally consigned to a limited choice of higher-cost financing alternatives.

By taking advantage of efficiencies with Loan Prospector® automated underwriting technology, you can qualify borrowers for Affordable Merit Rate at an initial interest rate that may be closer to conventional rates – delivering more homeownership opportunities to borrowers in the communities you serve. And, borrowers benefit from an additional one percentage point interest rate reduction for making their mortgage payments on time for 24 consecutive months.1

With Affordable Merit Rate Mortgages, borrowers will have a four-year period to make 24 consecutive on-time mortgage payments in order to qualify for a one-time, one percent interest rate reduction. If a late mortgage payment occurs in the first 24 months, borrowers will be re-evaluated on the 36- or 48-month anniversaries of the payment due date. Borrowers who meet the eligibility requirements will automatically receive the one-time rate reduction effective the month following the eligible anniversary date.

Product Features

FeatureRequirements
Property Type
  • 1- to 2-unit primary residences, including condominiums, PUDs, and manufactured homes.
Eligible Mortgage Products
  • 30-year fixed-rate mortgages
Transaction Type
  • Purchase
  • No cash-out refinances
Maximum LTV Ratios (without secondary financing)
  • Maximum LTV ratios must comply with Single-Family Seller/Servicer Guide (Guide) Section 23.4.1
Eligibility/Underwriting
  • Loan Prospector Caution loans that receive a special purchase eligibility code and the following feedback message:  500 Freddie Mac Eligible. LP A-minus Offering.
  • All mortgages that are identified as A-minus eligible by Loan Prospector and that meet the requirements of Guide Chapter C33 will be considered A-minus mortgages by Freddie Mac.  Mortgages identified as A-minus eligible but do not meet the requirements of Guide Chapter C33 or E33 are not eligible for sale to Freddie Mac as Affordable Merit Rate Mortgages.
  • If all mortgage payment histories for each qualifying borrower are not verified on the Loan Prospector credit reports, the Seller must directly verify and document in the mortgage file any mortgage payment histories during the last 12-month period.
  • If the borrower was 30-days or more delinquent more than twice or was 60-days or more delinquent on any combination of mortgages, the mortgage is ineligible for delivery to Freddie Mac.
  • A Loan Prospector Caution mortgage that receives loan evaluation results of eligible for A-minus and that does not meet the requirements of Guide Chapter E33 may be eligible for sale as an A-minus Mortgage if the requirements of Guide Chapter C33 are met.
Execution Options
  • Servicing-released Cash*
  • Servicing-retained Cash

*See our selling system availability matrix for a list of specific mortgages eligible for sale best efforts or mandatory, servicing released.

Delivery Fees
  • A Loan Prospector Caution mortgage that receives an A-minus assessment will not be assessed the CS/LTV postsettlement delivery fee if it meets the requirements of Guide Chapter E33 and is delivered as an Affordable Merit Rate mortgage.
  • See Guide Exhibit 19 for details on these fees and all other applicable fees.
Special Delivery Requirements
  • See Guide Section 17.29 for special delivery instructions for Affordable Merit Rate Mortgages. 
Single-Family Seller/Servicer Guide
  • Refer to Guide Chapter E33.

Lender Benefits

Freddie Mac's Affordable Merit Rate Mortgage helps you:

  • Qualify more borrowers with a less-than-perfect credit history.
  • Retain more customers in your servicing portfolio with the rate reduction incentive.
  • Use Loan Prospector to reduce costs, streamline your origination process, standardize your product line and obtain creditworthiness representation and warranty relief.
  • Further expand your A-minus marketing efforts to an additional borrower base.

Benefits for Your Borrowers

For your borrowers, an Affordable Merit Rate Mortgage:

  • Delivers home financing at a rate that may be lower than other higher-cost financing options.
  • Provides an additional rate reduction incentive for on-time payments that reduces the need to refinance and incur associated costs.
  • Helps establish a record of good credit management.

For More Information

  • Call your Freddie Mac representative.

Training Opportunities

Visit The Learning Center for live and recorded web conferences, access to classroom-style workshops and self-study tools – all designed to help you stay competitive, serve more borrowers and make it easier to do business with us.

1Freddie Mac defines on-time payment as any payment that does not go beyond 30 days past due.

The information in this document is not a replacement or substitute for information found in the Single-Family Seller/Servicer Guide and/or the terms of your Master Agreement and/or Master Commitment.

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