Freddie Mac Standard Modification
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 B65), 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 B65.16, 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 B65.14.
Solicitation and Documentation
Using a Borrower Solicitation Package, Servicers must solicit borrowers who are 31 days or more delinquent between the 31st and 35th day of delinquency and again between the 61st and 65th day of delinquency if quality right party contact was not achieved or the borrower did not respond to the initial solicitation.
Refer to Guide Section 64.6, 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 – Updated July 2015
- 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 mark-to-market loan-to-value (MTMLTV) ratio of the mortgage in order to determine the terms of the modification.
If the gross unpaid principal balance (UPB), before capitalization, creates a MTMLTV ratio that is greater than or equal to 80 percent, Freddie Mac Servicers are delegated the authority to determine the proposed modification terms and final eligibility based on the following:
- Capitalize the arrearages in accordance with Guide Section B65.23, 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 pre-modified MTMLTV ratio 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, whichever forbearance amount is less.
When a mortgage has a MTMLTV ratio that is less than 80%, use the following steps to determine the modification terms. Effective July 1, 2014, 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 B65.18, Determining the Terms of a Freddie Mac Standard Modification and Freddie Mac Streamlined Modification, for additional details. Alternatively, under Guide Bulletin 2014-3, Servicers may continue to process Standard Modifications through the Workout Prospector® exception path under Guide Section B65.13.
Final Eligibility Requirements
The determination that the Standard Modification results in the following is based upon the monthly payment calculated for the trial period plan:
- The principal and interest payment must be less than or equal to the borrower’s current contractual principal and interest payment. Refer to Guide Chapter B65.18 for additional payment reduction requirements that may apply.
- The modification must result in a housing expense-to-income ratio that is greater than or equal to 10 percent and less than or equal to 55 percent.
- Note: Nonowner-occupied properties have a different calculation for the housing expense-to-income ratio.
To help ensure the borrower is able to sustain the modified payment amount, the borrower is placed into a three-month trial period during which they must remit the estimated new monthly mortgage payments before being placed into a permanent modification. In the event the borrower is in bankruptcy, the trial period plan may be up to two months longer.
If a borrower does not meet the eligibility requirements outlined in Guide Chapter B65, but the Servicer believes the borrower may benefit from a Standard Modification, the Servicer may submit an exception request to Freddie Mac via Workout Prospector®.
Servicers must use Workout Prospector to evaluate borrowers for the Standard Modification, unless otherwise indicated by Freddie Mac.
Net Present Value (NPV) Test
Servicers do not need to perform a NPV test for the Standard Modification.
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 B65.19(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.
Single-Family Updates and News Articles
- Standard Modification Interest Rate
- Frequently Asked Questions – Updated
- Servicing Alignment Initiative
- Automated Valuation Model Collateral Values report available on the HAMP Web page – Login Required