Freddie Mac Standard Modification Updates
November 1, 2012
Two refinements were made to the Freddie Mac Standard Modification that offer you greater precision in your borrower evaluations. The interest rate is being reduced to bring greater alignment with current market conditions. There was also 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 4.25 percent to 4 percent effective for new trial period plan evaluations conducted on or after December 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.
- 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 Technology Update
When evaluating a borrower for a Standard Modification in Workout Prospector, it will prompt you to use the 4 percent interest rate if the date you indicate in the “Workout Decision Date” field is on or after November 1, 2012. However, you are not required, but are encouraged, to use this rate for new borrower evaluations conducted in November 2012.
If you are not operationally ready to support the new rate for trial period plan evaluations conducted in November 2012, you must complete the following steps to evaluate borrowers for a trial period plan and determine the permanent modification terms using the 4.25 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 4.25 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 4.25 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 4.25 percent interest rate, when you submit the loan for settlement.
Standard Modification Monthly Housing Expense-to-Income Ratio Calculation Reminder
As a reminder, Workout Prospector will exclude monthly borrower-paid mortgage insurance payments in the monthly housing expense-to-income ratio on owner-occupied and second homes for Standard Modifications. This applies to new borrower evaluations conducted on or after November 1, 2012. We made this system change so Workout Prospector corresponds with the current Single-Family Seller/Servicer Guide (Guide) requirement.
- Read Guide Section B65.18, Determining the Terms of a Freddie Mac Standard Modification.
- Visit the Standard Modification Interest Rate Web page.
- Direct questions to your Freddie Mac representative.