Freddie Mac Standard Modification
December 14, 2016 – In Single-Family Seller/Servicer Guide (Guide) Bulletin 2016-22, we announced the new Freddie Mac Flex Modification, which is designed to offer you an easier, flexible way of helping more borrowers qualify for a loan modification in a changing housing environment. Please visit Freddie Mac's new Freddie Mac Flex Modification webpage for modification information and reminders.
The Freddie Mac Standard Modification provides at-risk borrowers with an option to achieve a modification of the borrower's mortgage payments. A core component of the Servicing Alignment Initiative, this modification allows a borrower to modify their payment and avoid foreclosure.
In conjunction with our focus on earlier and more frequent borrower contact, the Standard Modification’s underwriting requirements enable Freddie Mac Servicers to evaluate financially distressed homeowners for a modification quickly. In addition, the Standard Modification places borrowers in a trial period to ensure they are able to meet the modified terms, which positions them for greater long-term success and helps reduce re-default rates in the Servicer’s Freddie Mac portfolio.
For more information, see Single-Family Seller/Servicer Guide (Guide Chapter 9204), Workout Options.
Mortgage and Borrower Eligibility
Eligible Property Types
The following property types are eligible for the Standard Modification:
- Owner- or nonowner-occupied properties. (i.e., primary residences, investment properties, or second homes).
- Vacant properties, but cannot be condemned.
The following mortgages are eligible for the Standard Modification:
- First-lien mortgages owned, guaranteed, or securitized by Freddie Mac.
- Mortgages originated at least 12 months prior to the evaluation date for the modification.
- Mortgages may be previously modified, but not more than twice.
Borrowers may be eligible for this modification if they meet the following requirements:
- Borrowers must be either:
- 60 days or more delinquent; or
- Current or less than 60 days delinquent, occupy the property as their primary residence, and determined to be in imminent default in accordance with Guide Section 9206.8, Determining Imminent Default for a Freddie Mac Standard Modification.
- Borrowers must document an eligible hardship that is causing or expected to cause a permanent or long-term increase in expenses or decrease in income. (Unemployment and other temporary hardships are not eligible hardships.)
- Borrowers must have verified income available to make the modified mortgage payment. (Unemployment benefits are not an acceptable source of income.)
- Borrowers must have been determined to be ineligible for the Home Affordable Modification program (HAMP). In addition, borrowers who received but defaulted on a HAMP Trial Period Plan, a HAMP modification or other modification, or Trial Period Plan are eligible, except as otherwise prohibited by Guide Section 9206.6.
Solicitation and Documentation
Servicers must solicit borrowers as early in the delinquency cycle as possible but no later than the 36th day after the due date of an unpaid monthly installment. Servicers must send the borrower at least one general solicitation no later than the 45th day after the due date of an unpaid monthly installment if quality right party contact and a resolution to the delinquency have not been achieved.
Visit the Borrower Solicitation Package page for more information.
Refer to Guide Section 9102.5 & 9201.2, Evaluation Hierarchy, Borrower Solicitation and Communication, for complete borrower solicitation requirements.
Trial Period Documents
- Standard Modification Trial Period Plan Notice, located in Guide Exhibit 93, Evaluation Model Clauses
- Must be sent within five days of an evaluation decision, but no later than 30 days, after receiving a complete Borrower Response Package.
The Servicer must first determine the post-modified mark-to-market loan-to-value (MTMLTV) ratio of the mortgage in order to determine the terms of the modification.
For mortgages with a post-modified MTMLTV ratio equal to or greater than 80%:
- Capitalize the arrearages in accordance with Guide Section 9206.15, Expenses, Delinquent Amounts, and Capitalization Rules.
- Adjust the interest rate to the fixed rate published on the Freddie Mac Standard Modification Interest Rate Web page that is in effect on the date of the borrower s evaluation.
- Extend the amortization term to 480 months from the modification effective date.
- If the post-modified MTMLTV ratio (which includes capitalized amounts) is greater than 115 percent, forbear the principal to create a post-modification interest-bearing MTMLTV ratio of 115 percent or forebear 30 percent of the post-capitalized UPB and capitalized arrearages, whichever forbearance amount is less.
For mortgages with a post-modified MTMLTV ratio that is less than 80%:
- Servicers must determine the amortization term options to be included in the Trial Period Plan Notice by calculating the estimated modified principal and interest payment using a 480-month term, a 360-month term, and a 240-month term, provided certain payment reduction conditions are met. See Guide Chapter 9206.10, Determining the Terms of a Freddie Mac Standard Modification and Freddie Mac Streamlined Modification, for additional details.
Reporting and Incentives
Electronic Default Reporting (EDR)
By the third business day of each month, Servicers must report the following applicable EDR default action codes for the previous month's Standard Modification activity:
- HD – "Modification in Review": To report that the borrower is being evaluated for a Standard Modification. Servicers are required to report this code along with the date they begin reviewing the loan. Servicers will only do this one time in the month following the month in which the event took place.
- HE – "Ineligible for Modification": To report that the borrower is ineligible for a Standard Modification. Servicers are required to report this code along with the date they made the decision. Servicers will only do this one time in the month following the month in which the event took place.
- BF – "Standard Modification Trial Period": To report that the borrower has entered into a trial period. In addition to reporting this code, Servicers must indicate the trial period effective date as the first day of the month and establish it in accordance with Guide Section 9206.11(a). Servicers must report this code and date each month the borrower is in the trial period.
- TM – “Alternative Modification Trial Period”: To report that the borrower has entered into a trial period for the Streamlined Modification. Servicers must report this code along with the trial period effective date each month during the trial period.
Servicers will receive incentives for successfully settled Standard Modifications based on the term of delinquency on the trial period plan effective date:
- $1,600 for each Standard Modification that is less than or equal to 120 days delinquent (less than or equal to 150 days from the due date of last paid installment [DDLPI])
- $1,200 for each Standard Modification that is 121-210 days delinquent (151-240 days from DDLPI)
- $400 for each Standard Modification that is greater than 210 days delinquent (greater than 240 days from DDLPI)
Servicers are required to settle a Standard Modification successfully by complying with all eligibility, underwriting, documentation, closing, and reporting requirements, including submitting accurate closing data to Freddie Mac, within two months after the trial period ends to be eligible to receive the financial incentives.
- Standard Modification Interest Rate
- Frequently Asked Questions
- Servicing Alignment Initiative
- Automated Valuation Model Collateral Values report available on the HAMP Web page – Login Required