Freddie Mac Standard Modification FAQs
March 27, 2013
The following are answers to frequently asked questions about Freddie Mac’s requirements for the Freddie Mac Standard Modification. They provide additional guidance on our Standard Modification requirements, but are not a replacement or substitute for information found in the Single-Family Seller/Servicer Guide (Guide) or the terms of your Master Agreement and/or Master Commitment.
For complete requirements, review Guide Chapter B65, Workout Options.
- How is the Standard Modification different from the "classic" modification?
- Am I able to evaluate a borrower for both the Standard Modification and "classic"
- Is the underwriting for the Standard Modification process like HAMP? – Updated
- What happens if the borrower is ineligible for the Standard Modification? – Updated
- Why are you changing the interest rate?
- How frequently will you adjust the interest rate?
- I am in the process of finalizing a borrower’s Standard Modification, and the interest rate adjusted to a percentage that is lower than what they received for the trial period. May I use the lower interest rate for their permanent modification?
- When will Workout Prospector® reflect the new interest rate?
- Why do I need to place the borrower in a trial period before offering a permanent modification?
- Are borrowers able to pay more than their estimated modified mortgage payment during the trial period?
- Please define "timely trial period payments."
- Under what circumstances may I submit an exception request to Freddie Mac? – Updated
- Are borrowers with MTMLTV ratios less than 80 percent eligible for a Standard Modification?
- Under what circumstances would Freddie Mac not consider an exception request?
- Why are recourse loans not eligible for the Standard Modification?
Reporting and Technology
- When will Workout Prospector be updated with the Standard Modification offering?
- How do I report that a borrower is in a Standard Modification trial period?
- Do I need to report default action code 09 (forbearance) when reporting that a borrower is in a Standard Modification trial period?
- When will I receive my incentive payment?
- In order to receive my financial incentive, you indicate I must “successfully settle” the Standard Modification. What does “successfully settle” mean?
The Standard Modification has different eligibility and underwriting criteria compared to the "classic" modification. The Standard Modification has consistent modification terms, including the interest rate, for all eligible borrowers whereas underwriting for the "classic" modification targets a total debt coverage ratio. Borrowers who have a pre-modified mark-to-market loan-to-value (MTMLTV) ratio greater than 115 percent will be offered a forbearance option under the Standard Modification.
No. The Standard Modification replaced the "classic" modification. All "classic" modifications must have been approved by December 31, 2011, and be settled by February 28, 2012. The associated Form 1128, Loss Mitigation Transmittal Worksheet (LMTW), must be submitted to Freddie Mac by March 6, 2012.
No. For a mortgage with a pre-modified MTMLTV ratio that is equal to or greater than 80 percent using the gross unpaid principal balance (UPB) of the current loan, you will complete the first three steps (capitalize arrearages, adjust the interest rate to the fixed rate published on the Standard Modification Interest Rate Web page that is in effect on the date of the borrower’s evaluation, and extend the amortization term to 480 months) before determining if the borrower is eligible for a Standard Modification. You will only complete the fourth step (forebear principal) if the borrower’s pre-modified MTMTLV ratio is greater than 115 percent before determining if the borrower is eligible for a Standard Modification.
Once you determine the proposed modification terms, you must ensure that the modified principal and interest payment is less than the pre-modified principal and interest payment. In addition, you must ensure that the post-modification housing expense-to-income ratio is equal to or greater than 10 percent and less than or equal to 55 percent.
The determination that the Standard Modification results in: (1) a principal and interest payment reduction less than the pre-modified principal and interest payment, and (2) a housing expense-to-income ratio that is greater than or equal to 10 percent or less than or equal to 55 percent is based upon the monthly payment calculated for the trial period. These two eligibility requirements are not applicable when the final modification agreement is prepared.
For the Home Affordable Modification program (HAMP), you must complete only the steps in the waterfall necessary to reach a specific modified payment that results in a post-modification housing expense-to-income ratio that is close to but not below 31 percent.
As required in Guide Chapter 64.6, Evaluation Hierarchy, Borrower Solicitation, and Communication, you must continue evaluating the borrower for an alternative to foreclosure in the following sequence:
- Freddie Mac Standard Short Sale
- Freddie Mac Standard Deed-in-Lieu
If the borrower is not eligible for or not interested in any of these workout options, you must continue with the foreclosure process. However, you may continue to solicit eligible borrowers for a Streamlined Modification, subject to the requirements in Guide Section B65.12.1.
By adjusting the interest rate from time to time, you will have the ability to provide borrowers with a rate that aligns more closely to current market conditions.
The interest rate adjustments are not based on a predetermined schedule; the rate will be adjusted as necessary, based on market conditions. Therefore, you must refer to the Standard Modification Interest Rate Web page each time you evaluate a borrower for a Standard Modification trial period plan to ensure that you are using the most current interest rate in effect on that date.
I am in the process of finalizing a borrower's Standard Modification, and the interest rate adjusted to a percentage that is lower than what they received for the trial period. May I use the lower interest rate for their permanent modification?
No. The interest rate that you used to evaluate the borrower for the trial period plan must be the same interest rate for the final modification.
Workout Prospector will be updated to include the new interest rate when it is published on FreddieMac.com. As we update our systems, you may see the new rate in Workout Prospector prior to it being published on FreddieMac.com. In the event this occurs, you may select the current interest rate or new interest rate for your borrower evaluations. However, you must use the new interest rate as of the effective date indicated on the Standard Modification Interest Rate Web page.
Placing borrowers in a trial period will help ensure they can meet the modified terms. If they are unable to demonstrate their ability to make their modified mortgage payments before being placed into a permanent modification, you can help them find a more suitable alternative to foreclosure that meets their specific needs.
Yes. In those scenarios, you must apply the overpayment in accordance with the existing mortgage documents and applicable payment posting laws. Borrowers may not, however, deduct the overpayment from their modified mortgage payments.
A timely trial period payment is when you receive the payment by the date indicated in the trial period plan agreement. The payment is still considered on time if it is made by the end of the month in which the payment is due. You should, however, encourage the borrower to meet the terms of their agreement.
If a borrower does not meet the eligibility requirements outlined in Guide Chapter B65, but you believe the borrower may benefit from a Standard Modification, you may submit an exception request to Freddie Mac via the Workout Prospector.
We are providing Servicers with delegated authority to approve eligible borrowers for a Standard Modification when their pre-modified MTMLTV ratios (using the gross UPB of the current loan) are greater than or equal to 80 percent.
If a borrower has a pre-modified MTMLTV ratio below 80 percent and you believe the borrower will benefit from a Standard Modification, you should submit an exception request to Freddie Mac using Guide Exhibit 95, Freddie Mac Standard Modification Exception Transmittal. Once Workout Prospector is updated to process exception requests, you will no longer need to use Guide Exhibit 95.
Servicers may not request exceptions on the following ineligible mortgages:
- FHA/VA and Guaranteed Rural Housing mortgages.
- Mortgages subject to recourse or indemnification agreements.
- Mortgages subject to active non-routine litigation.
- Mortgages secured by nonowner-occupied properties (i.e., second homes and investment properties) where the borrower is current or less than 60 days delinquent.
Under the recourse/indemnification agreement, the holder of the recourse obligation holds the risk – not Freddie Mac; therefore, mortgages with recourse and/or indemnification are ineligible for any non-HAMP modification.
Reporting and Technology
Servicers must use Workout Prospector to evaluate borrowers for the Standard Modification, unless otherwise indicated by Freddie Mac.
All borrowers who are approved for a Standard Modification trial period plan as of December 12, 2011, must be entered into Workout Prospector no later than December 31, 2011.
To report that the borrower has entered into a Standard Modification trial period, you must report default action code BF. In addition to reporting this code, you 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). You must report this code and date each month the borrower is in the trial period.
Unlike HAMP, you do not report default action code 09 (forbearance) with default action code BF. However, if you reported both default action code 09 (forbearance) with default action code BF, edit 568 will activate.
- If you intended to report default action code BF, but you received edit 568 and default reason code 09 processed instead, contact 800-FREDDIE, and select option 4. If default action code BF processed, but you received edit 568 for default action code 09, resubmit the transaction with a blank default action code and the DDLPI to clear the error.
- If you intended to report default action code 09, but you received edit 568 and default action code BF processed instead, contact 800-FREDDIE, and select option 4. If default action code 09 processed, but you received edit 568 for default action code BF, resubmit the transaction with a blank default action code and the DDLPI to clear the error.
If you 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, you will receive the applicable financial incentive from Freddie Mac. Please note that an interim month is not included in the trial period for incentive payment purposes.
Freddie Mac will track all workouts you settle on a monthly basis. We will then send you a check and the loan detail for all of the eligible workouts you settled and successful repayment plans that occurred during the period you are being compensated.
For more information, refer to Guide Section 65.42, Compensation Program.
We consider a Standard Modification successfully settled when you comply 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.