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Updates to the Freddie Mac Standard Modification

August 1, 2012

There are two refinements being made to the Freddie Mac Standard Modification that will offer you greater precision in your borrower evaluations. The interest rate is being reduced to bring greater alignment with current market conditions. There will also be a technology update to Workout Prospector® that impacts your Standard Modification borrower evaluations.

New Standard Modification Interest Rate Now Available

We are adjusting the Standard Modification interest rate from 4.625 percent to 4.25 percent effective for new trial period plan evaluations conducted on or after September 1, 2012. Beginning today, you will find the new rate on the Standard Modification Interest Rate Web page. You are encouraged to begin using the new rate immediately.

Key Points

  • You must use the fixed interest rate in effect on the date you evaluate the borrower to determine their eligibility and calculate the terms of a trial period plan payment. You must refer to the Standard Modification Interest Rate Web page for the interest rates and effective dates.
  • You must use the same fixed interest rate that was in effect on the date you determined the borrower to be eligible for the trial period plan when determining the final modification terms.

Workout Prospector

When evaluating a borrower for a Standard Modification in Workout Prospector, it will prompt you to use the 4.25 percent interest rate if the date you indicate in the “Workout Decision Date” field is on or after August 1, 2012. However, you are not required, but are encouraged, to use this rate for new borrower evaluations conducted in August 2012.

If you are not operationally ready to support the new rate for trial period plan evaluations conducted in August 2012, you must complete the following steps to evaluate borrowers for a trial period plan and determine the permanent modification terms using the 4.625 percent interest rate:

  • Underwrite the borrower to determine their eligibility for a trial period plan. Please note: As you transmit the loan through Workout Prospector, you may receive fatal warnings because you are using the 4.625 percent interest rate and not the new interest rate. If the fatal warnings are due to the differences in the interest rate used and result in different modification terms displayed, please continue transmitting the loan in Workout Prospector with the interest rate that is displayed in Workout Prospector.
  • Prepare the final loan modification documents using the 4.625 percent interest rate you used when you determined the borrower’s eligibility for a trial period plan.
  • Reflect the correct loan modification terms on Form 1128, Loss Mitigation Transmittal Worksheet, including use of the 4.625 percent interest rate, when you submit the loan for settlement.

Update to Standard Modification Monthly Housing Expense-to-Income Ratio Calculation in Workout Prospector

Workout Prospector will be updated to exclude monthly borrower-paid mortgage insurance payments in the monthly housing expense-to-income ratio on owner-occupied and second homes for Standard Modifications. We are making this system change so Workout Prospector corresponds with the current Single-Family Seller/Servicer Guide (Guide) requirement. You will see this system refinement for new borrower evaluations conducted on or after November 1, 2012.

Key Points

  • If you are currently excluding borrower-paid mortgage insurance payments in your borrower evaluations, no further action is required on your part.
  • If you offered a borrower a Standard Modification trial period plan and you included the monthly borrower-paid mortgage insurance payments in the monthly housing expense-to-income ratio calculation, you must honor the terms of that trial period plan. You must, however, begin excluding monthly borrower-paid mortgage insurance payments from the calculation for new borrower evaluations conducted on or after November 1, 2012.
  • You must enter “0” in the “Monthly Mortgage Insurance” field in the “Modification” screen to exclude the mortgage insurance payment in the calculation prior to November 1, 2012, when you evaluate a borrower in Workout Prospector.

By making this change in Workout Prospector, it ensures that Standard Modification borrower evaluations in Workout Prospector are consistent with other workout options, including the Home Affordable Modification program.

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