Guide Bulletin 2011-16 Announces Requirements for the Standard Modification
September 12, 2011
We are making a series of updates to our servicing requirements that will strengthen your ability to support positive outcomes for financially distressed borrowers. These updates announced in today's Single-Family Seller/Servicer Guide (Guide) Bulletin 2011-16 include our requirements for the new Freddie Mac Standard Modification – a core component of Freddie Mac's requirements for the Servicing Alignment Initiative (SAI).
The new Standard Modification is effective for borrower evaluations beginning January 1, 2012, and will:
- Replace our classic modification, which is a debt coverage ratio modification.
- Expedite your evaluation of financially distressed borrowers for a modification by using Freddie Mac's borrower contact and solicitation requirements for the SAI.
- Simplify your underwriting by using a standard set of modification terms, including a 5 percent interest rate, for all eligible borrowers.
- Include a trial period to help ensure borrowers can sustain their modified mortgage payments and reduce re-default rates in your Freddie Mac portfolio.
- Incent you for successfully settling Standard Modifications in a timely manner based on the term of delinquency when the trial period starts.
We strongly encourage you to begin evaluating borrowers for the Standard Modification as soon as you are operationally ready. Trial period plans may begin as early as October 1, 2011. Borrower evaluations occurring on or after January 1, 2012, must be for the Standard Modification. Additionally, please note that once you begin evaluating borrowers for the Standard Modification you may no longer evaluate borrowers for the classic modification
Refer to today's Guide Bulletin 2011-16 for specific guidance on implementing the Standard Modification, including details about updates to Workout Prospector® and our requirements for reporting Standard Modification activity.
In support of the SAI, we are updating our servicing requirements for non-performing loans. Effective October 1, 2011, we are:
- Updating our foreclosure suspension requirements to provide additional time for evaluating a borrower for alternatives to foreclosure and receiving the borrower's acceptance of an offer.
- Requiring you to obtain approval from Freddie Mac to postpone a foreclosure sale for mortgages that are more than 12 months delinquent.
- Requiring you to make follow-up telephone calls to borrowers at least every three days during and after the 14-day borrower response period for an alternative to foreclosure offer.
- Offering you the flexibility to use a credit report or other documentation to verify that a non-borrower occupies the property as his or her primary residence.
To help with your implementation of Freddie Mac's requirements for the SAI, we encourage you to review our recently updated Servicing Alignment Initiative FAQs. Also be sure to read our published article about two new reports available in Default Reporting ManagerSM that will help you reconcile your foreclosure time line compensatory fees.
Upcoming Updates to Standard Modification and Borrower Solicitation Requirements
In an upcoming Guide Bulletin, we will announce additional updates to our Standard Modification and borrower solicitation requirements to maintain a consistent approach to the key components of the joint-GSE efforts under the SAI. These upcoming changes include:
- Requiring borrower-paid mortgage insurance payments to be included when calculating the monthly housing expense-to-income ratio for the Standard Modification. Requirements issued in today's Guide Bulletin currently exclude mortgage insurance payments from this calculation.
- Permitting you to use a Behavioral Model Tool, and when the results indicate that a mortgage is at low risk for default, you may choose not to send the Borrower Solicitation Package between days 31 and 35 of delinquency. Please note that benchmarks for obtaining complete Borrower Response Packages will not change should you choose not to solicit such borrowers.
- Requiring you to continue solicitation and collection efforts in instances where a borrower, who was less than 60 days delinquent and did not qualify for any alternative to foreclosure, subsequently becomes 60 or more days delinquent.
These requirements are not currently included in Guide Bulletin 2011-16. You are encouraged to include these changes in your implementation plans in advance of announcing our formalized requirements in an upcoming Guide Bulletin.
Additional Servicing Requirement Updates
Guide Bulletin 2011-16 also provides additional updates to our servicing requirements, which have various effective dates. We are:
- Retiring MIDANET® for the PC (MIDANET) for servicing functions from the Guide as we near completion of Servicer transition to the Service Loans application. Read more.
- Discontinuing the automated conversion process for convertible ARMs owned by Freddie Mac to coincide with the retirement of MIDANET.
- Updating our foreclosure suspension requirements related to state Housing Finance Agencies' unemployment and reinstatement mortgage assistance programs under the Hardest Hit Fund and HUD's Emergency Homeowners' Loan Program. Read more.
- Requiring the use of Designated Counsel in Kentucky and Minnesota for foreclosure and bankruptcy referrals on mortgages secured by two-to-four unit properties and manufactured homes. Read more.