Advanced Search
Single-Family News
Back to Single-Family News Cover
May 2008
In This Issue...
What's New Mortgage Products Underwrite and Process with Loan Prospector Sell & Deliver Loans Service Loans Training and Education

Additional process and requirement changes to reflect today's business environment

We've recently issued three Single-Family Seller/Servicer Guide (Guide) Bulletins that introduced changes to align our processes and requirements to better reflect today's business environment. Many of these changes will also help you operate more effectively and efficiently.

It is important that you thoroughly review our April 17 [PDF 155K] , April 22 [PDF 94K] and May 2 [PDF 191K] Bulletins with the key changes and effective dates summarized below:

Changes announced with the May 2 Guide Bulletin

Revised maximum financing requirements for mortgages with maximum LTV/TLTV/HTLTV ratios equal to or greater than 95 percent

Effective May 2, for mortgages with maximum LTV/TLTV/HTLTV ratios equal to or greater than 95 percent secured by properties located in a declining market, when the required five percent maximum financing reduction would result in an LTV/TLTV/HTLTV ratio of less than 95 percent, you are not required to reduce the maximum LTV/TLTV/HTLTV ratios below 95 percent provided that the following conditions are met:

  • The property type is a 1-unit primary residence (excludes manufactured homes).
  • The transaction type is a purchase mortgage or no cash-out refinance mortgage.
  • The mortgage receives a Loan Prospector "Accept".

As a result of this change, for mortgages secured by properties located in a declining market that meet the criteria outlined in the May 2 Bulletin and:

  • Have maximum financing of 95 percent LTV/TLTV/HTLTV, you do not need to reduce maximum financing.
  • Have maximum financing of 97 percent LTV/TLTV/HTLTV, the maximum financing only needs to be reduced to 95 percent.

Permitting additional related costs to be included in the refinance mortgage amount for certain Freddie Mac-owned refinance mortgages

With conditions, we are allowing closing costs, financing costs, and prepaids/escrows to be included in the new transaction for Freddie Mac-owned no cash-out refinance mortgages and Freddie Mac-owned streamlined refinance mortgages that meet the requirements to be exempt from our declining markets requirements.

This change is effective for such mortgages with Freddie Mac settlement dates on or after February 21, 2008, the date of the Bulletin we first announced this exemption. Please review our May 2 Guide Bulletin carefully for the revised exemption conditions.

OFHEO's Indexes for Homes not located in Metropolitan Statistical Areas

In addition to the updates announced in the May 2 Guide Bulletin, in our May 2 Single-Family Advisory e-mail, we also recommended using OFHEO's Indexes for Homes not in Metropolitan Statistical Areas (MSAs) [XLS] to improve identification of declining markets and assist you in determining whether a reduction in maximum financing is necessary for properties located outside of an MSA.

When using this Index, you must follow the same guidance we provided in our February 21 Guide Bulletin [PDF 286K] for using OFHEO's House Price Index when identifying declining markets for properties located in an MSA.

Changes announced with the April 22 Guide Bulletin

Revised requirements for second home mortgages and investment property mortgages

We revised our requirements for second home mortgages and investment property mortgages, effective for Freddie Mac settlement dates on or after August 1, 2008, to limit the number of financed properties in which a borrower may have an individual or joint ownership interest to four properties.

  • For second home mortgages, we are limiting the number of 1- to 4-unit financed properties in which a borrower may have an individual or joint ownership interest (including the subject property) to four. This new requirement is being identified as a Discretionary Provision under Guide Section 12.13 and Exhibit 26, Discretionary Provisions.
  • For investment property mortgages, a borrower who owns more than one financed investment property may not have an individual or joint ownership interest in more than four 1- to 4-unit properties that are financed, including the subject property.

Revised requirements for no cash-out and cash-out refinance mortgages

We also revised our requirements for no cash-out and cash-out refinance mortgages to ensure they reflect the risks of these transactions in current market conditions. The following requirement revisions take effect for mortgages with Freddie Mac settlement dates on or after August 1, 2008:

  • When a Seller originates a cash-out refinance mortgage, the Seller holds that mortgage for less than six months, and that mortgage is refinanced as a "no cash-out" refinance mortgage, the resulting refinance mortgage may not be sold to Freddie Mac as a no cash-out refinance mortgage. Instead, it must be sold to Freddie Mac as a cash-out refinance mortgage and will be assessed the cash-out refinance mortgage Indicator Score/LTV postsettlement delivery fee, in addition to any other applicable delivery fees.
  • The borrower on a cash-out refinance mortgage must have owned the subject property for at least six months prior to the note date of the new refinance mortgage.

Selling system enhancements to expand your business options

With our April selling system enhancements, we introduced new capabilities to allow you to deliver more of your loans to Freddie Mac through our Guarantor execution options. With this Guide Bulletin we updated our requirements to capture these new capabilities. Read more about our recent selling system enhancements in a related article in this issue of Single-Family News.

Guide updates to provide information regarding calculation of LTV ratios

We've updated the Guide language to provide you with more information regarding Freddie Mac's calculation of LTV ratios.

  • Freddie Mac calculates the LTV ratio for each mortgage it purchases based on the data delivered by the Seller.
  • Please note that the updated language is for informational purposes and does not reflect any changes in our requirements or process.

Additional guidance regarding Home Possible® Mortgages homeownership education requirements

In our special February 21 Guide Bulletin, we announced new homeownership education requirements for first-time homebuyers applying for purchase transaction Home Possible Mortgages with settlement dates on or after June 1, 2008.

We provided additional guidance on this education requirement with the April 22 Guide Bulletin. Read our Home Possible article in this issue of Single-Family News for details on the additional guidance and acceptable formats of homeownership education.

Guide updates to incorporate our revised requirements announced in the February 21 Guide Bulletin

We've incorporated into the Guide the changes to our credit requirements that we announced in our special February 21 Guide Bulletin. We've also refined some of those changes to provide that, effective also for mortgages with Freddie Mac settlement dates on or after June 1, 2008,

  • Section 184 Native American Mortgages with LTV/TLTV/HTLTV ratios greater than 97% remain eligible for purchase, in addition to Home Possible Mortgages with a minimum Indicator Score of 700, FHA/VA Mortgages and Section 502 GRH Mortgages.
  • Sellers must also reduce the maximum HTLTV ratio when a property is located in a market with declining values.

Changes announced with the April 17 Guide Bulletin

Revision of form and delivery codes reflecting recent changes to our purchase requirements of Condominium Unit Mortgages

We've updated Form 1077, Uniform Underwriting and Transmittal Summary, and revised the coding system on Form 11, Mortgage Submission Schedule, and Form 13SF, Mortgage Submission Voucher to reflect the recent changes we've made in our project classification types for the sale of eligible Condominium Unit Mortgages.

  • Sellers may begin using the revised form immediately; however, the use of the revised Form 1077 will not be required until October 17, 2008.
  • Sellers may begin using the updated delivery codes for Condominium Unit Mortgages on Form 11 and Form 13SF; however, use of the revised codes will not be required until June 1, 2008.

Diversification of foreclosure and bankruptcy referrals

To ensure the availability of qualified firms to handle high volumes of foreclosure and bankruptcy referrals and thereby reduce operational risks, we are requiring Servicers to diversify their foreclosure/bankruptcy counsel or trustees, and develop a contingency plan to manage new referrals.

Effective June 1, 2008, Servicers are required to:

  • Retain more than one law firm or trustee in any state where they refer a total of 250 or more Freddie Mac loans to foreclosure or bankruptcy in a calendar year.
  • Develop a contingency plan for redirecting new foreclosures and bankruptcy referrals in the event a law firm or trustee they conduct business with is unable to accept new referrals.

We are also expanding our eligibility criteria for foreclosure and bankruptcy counsel to require that when selecting a law firm to handle foreclosures and bankruptcies, Servicers must consider the reputation of the firm, as well as, whether the firm's attorneys, principals, and managers are, or have been, subject to any legal or disciplinary actions.

Converting Forms 59 and 59E into interactive spreadsheets

In response to your feedback, we've built in automated calculations in Form 59, Custodial Account P&I Reconciliation Worksheet, and Form 59E, Escrow Custodial Account Reconciliation Worksheet. These new interactive Microsoft® Excel spreadsheets will now help you save time, improve accuracy, and simplify custodial account reconciliation.

We've also added worksheets with supporting logs to each form to help you reconcile the current accounting cycle and track cumulative variances.

New expense codes to facilitate reimbursements requests

We've added two new expense codes to Exhibit 74, Expense and Income Codes for Form 104SF, to make it easier for Servicers to request reimbursement for certain expense items that may be incurred during the foreclosure process. These new expense codes are:

  • 010002, Trustee/Attorney Fees Torrens Act (MN only) - reimbursement requests for legal fees associated with the transfer of title on properties titled under the Torrens system. At this time this expense code is effective for properties in the state of Minnesota only.
  • 093003, Pest Removal – reimbursement requests for pest extermination. Servicers must request prior approval for this expense.

Changes to our Designated Counsel Program

In response to increasing foreclosure volumes, we've expanded our Designated Counsel/Trustee Program in New Jersey and California.

  • New firms Powers Kirn, L.L.C. and Phelan, Hallinan, Schmieg & Diamond, P.C. began accepting new program referrals in New Jersey on May 1, 2008.
  • New trustee Routh Crabtree Olsen, P.S. began accepting new program referrals in California on April 1, 2008.

For more information

It is important that you are familiar with all changes announced in our recent Guide Bulletins. Use the following resources to learn more about the changes we announced in April and May.


© 2008 Freddie Mac