Important changes to pricing and credit requirements

In response to changing credit quality in the market today, including the deteriorating performance of higher-risk mortgage products and widespread home price depreciation, on November 15 we announced changes to our pricing and credit requirements to reflect prevailing market conditions.

The changes in our November 15 Single-Family Seller/Servicer Guide (Guide) Bulletin [PDF 209K] include moving to a more granular level of risk-based pricing, reminding Sellers of our requirements for originating mortgages in declining markets, and amending our requirements for maximum financing concessions. Separately, we announced that, effective November 15, 2007, we would discontinue the purchase of no income, no asset (NINA) loans that we purchase on a negotiated basis.

The November 15 Guide Bulletin [PDF 209K] and a revised Guide Exhibit 19, Postsettlement Delivery Fees [PDF 150K] are available on FreddieMac.com and AllRegs®. It is important that you thoroughly review this Bulletin, with key requirements summarized below.

Expanding risk-based pricing

We are making the following changes to our delivery fee rates for settlements on or after March 1, 2008:

• Adding new delivery fee rates based on Indicator Score and Loan-to-Value (LTV) ratio for all mortgage products with LTV ratios greater than 70 percent as follows:
  
  

  Indicator Score	Delivery Fee Rate
  Below 620	2.00%
  620-639	1.75%
  640-659	1.25%
  660-679	0.75%

  
  
  * This new delivery fee will apply to all mortgage products except 15-year fixed-rate mortgages, Home Possible® Mortgages, Loan Prospector® A-minus and other Caution Mortgages, and Non-Loan Prospector Mortgages that are subject to CS/LTV (A-minus) fees, FHA/VA Mortgages, Section 184 Native American Mortgages, and Assumable Section 502 Guaranteed Rural Housing Mortgages sold with recourse.
• Increasing existing delivery fee rates for the following mortgage product types:
  • Increasing by 50 basis points the delivery fee rates for mortgages subject to CS/LTV (A-minus) delivery fees.
  • Increasing by 50 basis points the delivery fee for mortgages secured by manufactured homes.
  • Increasing by 75 basis points the balloon/reset delivery fee rate for these mortgages with LTV ratios greater than 90%.
  • Increasing the delivery fee from zero to 50 basis points for 2-unit primary residences with LTV ratios > 75% and ≤ 90% (does not include Home Possible 2-unit primary residences).
• Decreasing by 50 basis points the pricing incentive for 1-unit purchase transaction Home Possible Mortgages and other lender-branded affordable mortgages where the borrower’s income is at or below 80 percent of the area median income.
• Revising the delivery fee rate structure for mortgages with 80/10/10 secondary financing and Home Possible Mortgages with secondary financing to reflect an Indicator Score range of <720 and ≥ 720 instead of 700.

Determining property values in declining markets

We are reinforcing our existing appraisal standards and underwriting expectations related to maximum financing in declining markets. The November 15 Guide Bulletin [PDF 209K] provides more information on:

• Appraiser responsibilities when performing an appraisal.
• Seller responsibilities for appraisals.
• Reminders related to maximum financing for properties located in declining markets, including requirements that the LTV ratio must not exceed an amount that is 5 percent less than the maximum LTV ratio allowed for the specific type of mortgage or product.

We use OFHEO's House Price Index to help identify declining markets. This is a tool that you may use to help in determining whether a mortgage is subject to our maximum financing restrictions.

Changes to maximum financing concessions

With the November 15 Guide Bulletin, we also amended our guidelines to require that maximum financing concessions be calculated based on TLTV ratio rather than LTV ratio, effective for all mortgages with note dates after March 14, 2008.

Changes to no documentation mortgage purchases

In response to deteriorating trends in credit quality, effective November 15 we discontinued the purchase of no income/no asset (NINA) mortgages and similar no documentation loans that we had purchased on a negotiated basis.

For more information

To help you prepare for these changes, we encourage you to:

• Review our November 15 Guide Bulletin [PDF 209K], including an updated Exhibit 19 [PDF 150K], for further details, including delivery and operational requirements.
• Discuss upcoming changes with your Freddie Mac Account Manager or contact (800)FREDDIE.