TO: Freddie Mac Servicers October 11, 2017 2017-22 SUBJECT: SERVICING UPDATES This Guide Bulletin announces: Imminent default evaluation and process for mortgage modifications New imminent default evaluation and process requirements for mortgage modifications July 1, 2018 Servicemembers Civil Relief Act (SCRA) An extension of the time by which a Servicer must provide a written notice when responding to a request for a Servicemembers Civil Relief Act (SCRA) interest rate reduction A time frame for Servicers to submit their requests for reimbursement of SCRA interest rate credits Updates to the file format in Guide Exhibit 71 that Servicers must use to report loans eligible for the SCRA interest rate subsidy February 1, 2018 Property Condition Certificate (PCC) November 15, 2017 Removal of the manual submission process of the Property Condition Certificate (PCC) to the Servicer once the property is acquired as REO Updates to our requirements regarding when a Servicer must cancel a property insurance policy for an REO property Additional Guide updates Further updates as described in the Additional Guide Updates section of this Bulletin EFFECTIVE DATE All of the changes announced in this Bulletin are effective immediately unless otherwise noted. IMMINENT DEFAULT EVALUATION AND PROCESS FOR MORTGAGE MODIFICATIONS In response to industry feedback, at the direction of the FHFA, under the Servicing Alignment Initiative and jointly with Fannie Mae, we are eliminating the Imminent Default Indicator test and replacing it with a more transparent, rules-based approach. Implementation Servicers may begin implementing the changes below once Workout Prospector is updated to accommodate the intake of imminent default data (but not before then) and must implement the changes below no later than July 1, 2018. The Servicer will ultimately be delegated to make the imminent default determination. Workout Prospector will be updated prior to July 1, 2018 to provide a mechanism for Servicers to report imminent default data to Freddie Mac. In a future Bulletin, we will notify Servicers when Workout Prospector will be updated and will provide additional guidance regarding how to report imminent default information to Freddie Mac using Workout Prospector. If the Servicer implements the changes before July 1, 2018, it may implement the requirements related to the Borrower hardship, income and other documentation section of Bulletin 2017-18, including new Guide Form 710, Mortgage Assistance Application (MAAp), and the new imminent default evaluation requirements for modifications:
On the same date (provided Workout Prospector has been updated with the imminent default changes); or On separate dates on or before July 1, 2018 If the Servicer chooses to implement the MAAp prior to implementing the new imminent default requirements, then the Servicer must calculate the Borrower s debt payment-to-income ( DTI ) ratio using expense information in the Borrower s credit report for the purposes of the Imminent Default Indicator test, which requires a DTI ratio. Current requirements Currently, when evaluating a Borrower for a Freddie Mac Flex Modification, an imminent default evaluation is necessary if the status of the Mortgage is current or less than 60 days delinquent as of the date the Servicer commences the initial evaluation of the Borrower using: The Cash Reserves test, and The Imminent Default Indicator test Revised requirements The new rules-based approach for determining imminent default for mortgage modifications is described below: Imminent default evaluation business rule requirements for mortgage modifications To be considered in imminent default, the Borrower must meet all requirements under Business Rule 1, and must meet the requirements for either: Business Rule 2, or Business Rule 3 Business Rule 1 Business Rule 2 Each Borrower must: Submit a complete Borrower Response Package Be current or less than 60 days delinquent (i.e., less than three monthly payments past due) on the Mortgage as of the imminent default evaluation date Occupy the property as a Primary Residence or, at least one Borrower on the Mortgage must occupy the property as his or her Primary Residence Have Cash Reserves less than $25,000 Have an eligible hardship as described in Guide Section 9202.2 A Borrower is considered in imminent default if the Borrower passes the requirements of Business Rule 1; and The Borrower s FICO score is less than or equal to 620; AND The Mortgage has had two or more 30-day Delinquencies in the most recent 6- month period; OR The Borrower s pre-modification housing expense-to-income ratio is greater than 40% If the Borrower has one of the Imminent Default Hardships described below in Business Rule 3, the Borrower may be determined to be in imminent default even if these Business Rule 2 requirements are not met. Page 2
Imminent default evaluation business rule requirements for mortgage modifications To be considered in imminent default, the Borrower must meet all requirements under Business Rule 1, and must meet the requirements for either: Business Rule 2, or Business Rule 3 Business Rule 3 The Borrower is considered in imminent default if the Borrower passes the requirements of Business Rule 1, and the Borrower provided the documentation required in Section 9202.2 supporting one of the Imminent Default Hardships listed below: Death of a Borrower or death of either the primary or secondary wage earner in the household Long-term or permanent disability; or serious illness of a Borrower/co-Borrower or dependent family member Divorce or legal separation; separation of Borrower unrelated by marriage, civil union or similar domestic partnership under applicable law; or Principal and interest payment increase as a result of an interest adjustment applied to a Step-Rate Mortgage no more than 12 months prior to the evaluation date The Imminent Default Hardship must currently cause and be expected to continue to cause a long-term or permanent decrease in income or increase in expenses. To ensure that Freddie Mac has the information necessary to conduct periodic reviews of our imminent default criteria, the Servicer must submit all information for Business Rule 1 and Business Rule 2 in all instances, even if the Borrower does not meet the requirements under Business Rule 2 and instead is approved based on the Imminent Default Hardship under Business Rule 3. Home Affordable Modification Program (HAMP ) modifications Since Servicers are no longer conducting HAMP evaluations on Freddie Mac Mortgages, we will not update HAMP requirements for these imminent default evaluation requirement changes. HAMP requirements unrelated to the ongoing Servicing of Mortgages modified under HAMP will be retired from the Guide at a future date. Imminent Default Indicator Servicing tool and Guide impacts As a result of these new imminent default evaluation and process requirements for mortgage modifications, we are: Retiring the Imminent Default Indicator Servicing tool on June 30, 2018 Updating Sections 9206.5, 9206.7 and 9206.10 and Exhibit 88; and Deleting Exhibit 90 SERVICEMEMBERS CIVIL RELIEF ACT Interest rate relief requests In response to Servicer feedback, we are extending the time by which a Servicer must provide a written notice when responding to a request for an SCRA interest rate reduction on a Mortgage that meets the requirements of the SCRA from five to 15 Business Days. Guide impact: Section 8503.4 Reimbursement requests of SCRA interest rate credits To help facilitate a Servicer s timely reimbursement of SCRA interest rate credits, effective immediately Freddie Mac is requiring that Servicers submit reimbursement requests within 24 months from the end date Page 3
of a Servicemember s Period of Military Service. Additionally, we are emphasizing that Freddie Mac will only reimburse the difference between the Note Rate and the 6% interest rate limit prescribed by the SCRA. Guide impact: Section 8503.2 Exhibit 71, CSV File Format to Report Loans Eligible for the SCRA Interest Rate Subsidy Effective February 1, 2018, but Servicers may implement immediately if they are able to do so Due to changes in operational procedures, we are updating Exhibit 71, which provides the format of the comma separated value (CSV) file for Servicer reporting of Mortgages eligible for the SCRA interest rate subsidy, to remove the Servicer loan number field and to rename and reformat the remaining fields as follows: ServicerNo FMLoanNo BorrowerName DtStart DtEnd Guide impact: Exhibit 71 PROPERTY CONDITION CERTIFICATE Effective November 15, 2017 Manual submission of the PCC Freddie Mac will no longer manually deliver a paper copy of the PCC to the Servicer upon Freddie Mac s acquisition of the property as REO since the PCC completion date is reported in REO Manager. If Servicers are not already using REO Manager to monitor every step of the REO process, we encourage them to do so immediately. Effective November 15, 2017, Freddie Mac will no longer manually deliver the PCC to the Servicer and the Servicer will only be able to obtain the PCC completion date via REO Manager. Property insurance cancellation for REO properties Currently, the Servicer must cancel a property insurance policy on an REO property within 14 days after receipt of the PCC confirming that the property is vacant and has been inspected unless there is claimable damage or the property was sold. Since Freddie Mac will no longer deliver a paper PCC to the Servicer, we are requiring the Servicer to cancel the property insurance policy on an REO property within 14 days after the PCC completion date, even when there is claimable damage to the property or the property has sold. Guide updates We are updating Sections 8601.30, 8601.31, 9202.12, 9603.1, 9603.8, 9603.11, 9603.12, 9701.5, 9701.7 and 9701.9 and Exhibit 57 to reflect the elimination of the manual PCC process and the cancellation of property insurance for REO properties. ADDITIONAL GUIDE UPDATES Freddie Mac modification interest rate As a result of the replacement of the Freddie Mac Standard and Streamlined Modifications with the Flex Modification, we are updating the Freddie Mac modification interest rate web page to: Change the name from Freddie Mac Standard Modification Interest Rate to Freddie Mac Modification Interest Rate ; and Change the web address from http://www.freddiemac.com/singlefamily/service/standardmodrate.html to http://www.freddiemac.com/singlefamily/service/modrate.html Guide impacts: Sections 9206.4 and 9206.10 Page 4
Remedy Manager SM As previously announced, Remedy Manager SM was retired, effective June 26, 2017. We are updating Exhibit 88 to remove references to Remedy Manager. Servicers can access information related to remedy management in Quality Control Advisor SM, which is part of the Freddie Mac Loan Advisor Suite. Guide impact: Exhibit 88 GUIDE UPDATES SPREADSHEET For a detailed list of the Guide updates associated with this Bulletin and the topics with which they correspond, refer to the Bulletin 2017-22 (Servicing) Guide Updates Spreadsheet available at http://www.freddiemac.com/singlefamily/guide/docs/bll1722_spreadsheet.xls. CONCLUSION If you have any questions about the changes announced in this Bulletin, please contact your Freddie Mac representative or call the Customer Support Contact Center at (800) FREDDIE. Sincerely, Yvette W. Gilmore Vice President Servicer Performance Management Page 5
TO: Freddie Mac Sellers October 18, 2017 2017-23 SUBJECT: SELLING UPDATES This Guide Bulletin announces: Calculating the monthly debt payment-to-income ratio Updates to our requirements for: Student loan debts January 18, 2018 Contingent liabilities January 18, 2018 Appraisal requirements Revisions to certain appraisal requirements, including: Removal of the requirement to obtain a new appraisal when the Settlement Date is more than 120 days after the Note Date Updates to Loan Collateral Advisor collateral representation and warranty relief and automated collateral evaluation (ACE) eligibility requirements Requirement that an appraisal update be reported only on Guide Form 442, Appraisal Update and/or Completion Report January 18, 2018 Specifying that an unlicensed or trainee (or similar classification) appraiser may perform an appraisal update January 18, 2018 Delivery requirement updates Updates to our delivery requirements for: Mortgages with ACE appraisal waivers Super conforming Mortgages Additional Guide updates Further updates as described in the Additional Guide Updates and Reminders section of this Bulletin EFFECTIVE DATE All of the changes announced in this Bulletin are effective immediately unless otherwise noted. CALCULATING THE MONTHLY DEBT PAYMENT-TO-INCOME RATIO Effective for Mortgages with Settlement Dates on and after January 18, 2018, but Sellers may implement the changes in their entirety immediately We are updating our requirements for calculating the monthly debt payment-to-income ( DTI ) ratio, including our requirements for the treatment of student loan debt and contingent liabilities. Student loan debt Our updated requirements for qualifying Borrowers with student loan debt support access to credit and provide Sellers with a responsible, simplified approach that addresses student loan repayment plans and student loan forgiveness programs offered today. Highlights of the changes are as follows:
Current requirement Revised requirement Student loans in repayment When a monthly payment is not reported on the credit report, the Seller must obtain documentation verifying the monthly payment amount included in the monthly DTI ratio. For calculating the monthly DTI ratio, use the greater of: The monthly payment amount reported on the credit report, or 0.5% of the original loan balance or outstanding balance as reported on the credit report, whichever is greater Rationale for the changes: Our current requirements were developed based on traditional student loan repayment plans that provide for fully amortizing monthly payments typically reported on credit reports Our revised requirements continue to permit the use of the reported payments for student loans with fully amortizing monthly payments while also providing a solution for evaluating student loans in income-driven repayment plans Income-driven repayment plans are becoming more prevalent in the market and are subject to annual recertification of the monthly payment amount. By requiring the use of a minimum payment of 0.5% of the original loan balance or outstanding balance, whichever is greater, the risk of the potential payment shock from the monthly payment increasing after the annual recertification is reduced; however, the Borrower is still given the benefit of using a lower monthly payment amount than would be required under the traditional fully amortizing repayment plan. We also simplified our requirements by removing the requirement that the Seller must obtain documentation if a monthly payment amount is not reported on the credit report Student loans in deferment or forbearance If no monthly payment is reported on the credit report and there is no documentation in the Mortgage file indicating the proposed monthly payment amount (e.g., the loan verification letter), 1% of the outstanding balance will be considered as the monthly amount for qualifying purposes. Use the greater of: The monthly payment amount reported on the credit report, or 1% of the original loan balance or outstanding balance as reported on the credit report, whichever is greater Rationale for the changes: Using 1% of the original loan balance, if greater, accounts for traditional student loan plans providing for a fixed payment based on the original loan balance Using 1% of the outstanding loan balance, if greater, accounts for student loans with an outstanding balance greater than the original balance due to interest that had accrued during a period of forbearance These requirements provide a simple approach with no additional documentation needed from the Borrower Page 2
Student loan forgiveness, cancelation, discharge and employment-contingent repayment programs None The student loan payment may be excluded from the monthly DTI ratio provided the Mortgage file contains documentation that indicates the following: AND The student loan has ten or less monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employmentcontingent repayment program, paid, or The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid at the end of the deferment or forbearance period The Borrower currently meets the requirements for the student loan forgiveness, cancelation, discharge or employmentcontingent repayment program, as applicable, and the Seller is not aware of any circumstances that will make the Borrower ineligible in the future Rationale for the changes: This new provision provides additional flexibility to exclude student loan debt from the monthly DTI ratio when it is likely that student loan payments will no longer be required in the near future, or are not required currently and will not be required in the future. Impacted Loan Product Advisor feedback messages will be updated by January 18, 2018. Guide impact: Guide Section 5401.2 Contingent liabilities It has become more common for Borrowers to receive help from others in making payments on their debts (e.g., Borrower s parents making their student loan payments). To account for this, we are updating our requirements to permit installment, revolving and lease payments to be excluded from the monthly DTI ratio when a party other than the Borrower has been making timely payments on the debt for the most recent 12 months and certain other requirements are met. In addition, we are updating our requirements for excluding Mortgage debt from the monthly DTI ratio when a party other than the Borrower has been making timely payments for the most recent 12 months. In all cases, we are no longer requiring that the Borrower be a cosigner or guarantor on the excluded debt. Guide impact: Section 5401.2 Training We will update the training related to student loans and contingent liabilities that is available on the Freddie Mac Learning Center soon. Page 3
APPRAISAL REQUIREMENTS Mortgages with Settlement Dates more than 120 days after the Note Date Previously, a new appraisal was required when the Settlement date was more than 120 days after the Note date. To streamline our appraisal requirements for Mortgages with Settlement Dates more than 120 days after the Note Date we have removed this requirement. When the Settlement Date is more than 120 days after the Note Date, Sellers must now warrant the value of the subject property is not less than either the appraised value as of the effective date of the appraisal or, for Mortgages originated with an ACE appraisal waiver, the estimated value or sales price used to underwrite the Mortgage in Loan Product Advisor. If the Seller cannot make this warranty, then the Mortgage is eligible for sale only through a negotiated sales transaction through our bulk sales unit. Guide impacts: Sections 4201.5 and 5601.8 Loan Collateral Advisor collateral representation and warranty relief and ACE appraisal waiver eligibility requirements To provide additional flexibility for Mortgages with Settlement Dates more than 120 days after the Note Date, we have removed the: Requirement that Mortgages with appraisals that received collateral representation and warranty relief through Loan Collateral Advisor with Settlement Dates more than 120 days after the Note Date are not eligible for collateral representation and warranty relief, and Requirement that Mortgages with Settlement Dates more than 120 days after the Note Date are not eligible to be sold with an ACE appraisal waiver Guide impact: Section 5601.9 Appraisal update requirements Effective for Mortgages with Settlement Dates on and after January 18, 2018 but Sellers may implement immediately To streamline our appraisal reporting requirements and align with recent revisions to our unlicensed or trainee appraiser requirements, we are making changes to our requirements for obtaining an appraisal update as follows: Appraisal update requirements Topic Past requirement Revised requirement Reporting requirements When an appraisal update is required, Sellers may either report the update on Form 442 or obtain a new appraisal The results of the appraisal update must be reported on Form 442 Appraiser requirements The appraiser who provided the opinion of market value should perform the appraisal update. The Seller may select another Seller-approved appraiser who is qualified to perform the appraisal update. The original appraiser should perform the appraisal update If the original appraiser is not available, another appraiser may be used Freddie Mac will accept an appraisal update performed by an unlicensed or trainee (or similar classification) appraiser if a supervisory appraiser signs the appraisal update Page 4
Guide impacts: Sections 5601.8 and 5601.10 UPDATED DELIVERY REQUIREMENTS Mortgages with ACE appraisal waivers Following the announcement of ACE in Bulletin 2017-8, ULDD Data Point Property Valuation Amount (Sort ID 83) has been added to the Guide to provide additional delivery instructions for Mortgages with appraisal waivers. Guide impact: Section 6302.10 Super conforming Mortgages Bulletin 2017-20 streamlined our appraisal requirements for super conforming Mortgages. As a result, obsolete delivery requirements for super conforming Mortgages have been removed from the Guide. Guide impact: Section 6302.31 ADDITIONAL GUIDE UPDATES AND REMINDERS Pool maturity and issuance guidelines We have updated the Guide to specify the pooling requirement related to the Final Maturity at Issuance for 15- and 30-Year TBA PC to reflect the Securities Industry and Financial Markets Association s (SIFMA) Good Delivery Guidelines for Pool Maturity at Issuance, as follows: The final maturity of a 30-year Freddie Mac TBA PC must be greater than 15 years and one month at issuance The final maturity of a 30-year Freddie Mac TBA PC shall not exceed 361 months The final maturity of a 15-year Freddie Mac TBA PC shall not exceed 181 months Guide impact: Section 6202.3 Clarifying Credit Score requirements for Mortgages sold through the fixed-rate Cash Servicing Released Sales Process In response to Seller questions, we are updating Guide language related to Credit Scores and Credit Fees in Price to clarify that a Seller is required to deliver ULDD Data Point Loan Level Credit Score Value (Sort ID 251) for Mortgages sold through the Servicing Released Sales Process, regardless of whether the Mortgage is a Loan Product Advisor Mortgage. This update aligns with the existing special delivery requirements for fixed-rate Mortgages sold through the Servicing Released Sales Process in Section 6302.26. Guide impacts: Sections 5203.2 and 6303.1 Assets as a basis for repayment of obligations Effective September 14, 2017 We are making additional Guide updates to align with changes announced in Bulletin 2017-20 related to requirements for Mortgages when assets are used as a basis for repayment of obligations (formerly referred to as assets as a basis for Mortgage qualification ). Guide impacts: Sections 5307.1 and 6302.33 and Guide Exhibit 34 Proposed Texas constitutional amendments for home equity lending Voters in Texas will be voting on proposed amendments to the Texas constitution on November 7, 2017. These amendments, if passed, will affect home equity lending in Texas, and will become effective on January 1, 2018. Freddie Mac is assessing the potential impact on our Texas Equity Section 50(a)(6) Mortgage documents and will provide guidance and updates if the amendments are passed. Page 5
GUIDE UPDATES SPREADSHEET For a detailed list of the Guide updates associated with this Bulletin and the topics with which they correspond, refer to the Bulletin 2017-23 (Selling) Guide Updates Spreadsheet available at http://www.freddiemac.com/singlefamily/guide/docs/bll1723_spreadsheet.xls. CONCLUSION If you have any questions about the changes announced in this Bulletin, please contact your Freddie Mac representative or call the Customer Support Contact Center at (800) FREDDIE. Sincerely, Christina K. Boyle Senior Vice President Single-Family Sales and Relationship Management Page 6
TO: Freddie Mac Sellers October 25, 2017 2017-24 SUBJECT: TEMPORARY SELLING REQUIREMENTS RELATED TO CALIFORNIA WILDFIRES Freddie Mac is committed to helping Borrowers impacted by the California wildfires receive the assistance they need. We also want to provide Sellers with underwriting guidance and flexibilities to assist in originating and selling impacted Mortgages to Freddie Mac. To that end, Freddie Mac is extending the temporary selling requirements that were announced in Guide Bulletins 2017-16, 2017-19 and 2017-21 to Mortgages and Borrowers whose Mortgaged Premises are located in Eligible Disaster Areas impacted by the California wildfires. As a reminder, Freddie Mac defines an Eligible Disaster Area as an area comprised of counties or municipalities that have been declared by the President of the United States to be a major disaster area where federal aid in the form of individual assistance is being made available. Exception for Orange County, California Except for the temporary property inspection fee reimbursement for Sellers described below, the temporary selling requirements announced in this Bulletin do not apply to Mortgaged Premises located in Orange County, California due to the isolated nature of the impact of the wildfires there. If a Seller originated a Mortgage that is secured by a property in Orange County that is impacted by the wildfires, the Seller should contact its Freddie Mac representative or call the Customer Support Contact Center at (800) FREDDIE. No special Servicing requirements Servicers must follow the requirements of Guide Chapter 8404 for Servicing Mortgages in an Eligible Disaster Area impacted by the California wildfires. As a reminder, Freddie Mac will reimburse for Servicing-related property inspections for all Mortgages in Eligible Disaster Areas under the temporary reimbursement process outlined in Bulletin 2017-21. EFFECTIVE DATE All of the changes announced in this Bulletin are effective immediately unless otherwise noted. AGE OF DOCUMENTATION REQUIREMENTS The following age of documentation requirements apply to Mortgages secured by properties located in Eligible Disaster Areas affected by the California wildfires (except for properties located in Orange County) that have Application Received Dates on or before and Note Dates after October 10, 2017: Property valuation documentation, including the point value estimate from HVE or the new appraisal, as applicable, must be dated no more than 180 days before the Note Date Any required underwriting documentation, including, but not limited to, Loan Product Advisor Feedback Certificates, credit reports, verifications of income, employment and sources of funds, must be dated no more than 180 days before the Note Date Note: Loan Product Advisor will automatically pull a new credit report for Mortgages that are submitted or resubmitted to Loan Product Advisor 120 days or more after the date of the credit report. The most recent credit report must be used to analyze the Borrower s credit reputation and determine the Indicator Score, as applicable.
As a reminder, no more than 10 Business Days prior to the Note Date, the Seller must confirm a Borrower's employment by obtaining a 10-day pre-closing verification of employment in accordance with the requirements of Guide Section 5302.2, when applicable. For a self-employed Borrower, the Seller remains responsible for a verification of the current existence of the Borrower's business no more than 120 calendar days prior to the Note Date in accordance with the requirements of Section 5304.1(g). For Mortgages that meet the requirements above, Sellers may use these temporary requirements in conjunction with their negotiated terms. SPECIAL COLLATERAL REQUIREMENTS AND GUIDANCE In recognition of the complexity and special circumstances related to originating Mortgages under these conditions, Freddie Mac is providing specific requirements and guidance for Mortgages secured by properties located in Eligible Disaster Areas affected by the wildfires (except for properties located in Orange County). Property damage As with any disaster, as specified in Section 5601.2(c), the Seller should take appropriate steps, including a property inspection, to determine if a Mortgage remains eligible for sale to Freddie Mac. For Mortgages with Note Dates prior to October 10, 2017, but not yet sold to Freddie Mac, the Seller is responsible for determining whether the property was damaged. If the Seller determines that the property has been damaged such that the damage impacts the safety, soundness, or structural integrity, the property is not acceptable as security for the Mortgage and the Mortgage is not eligible to be sold to Freddie Mac. For less severe damage, the Seller may sell the Mortgage to Freddie Mac if the Seller ensures the damage is covered by insurance as required in Chapter 8202 and that the insurance is adequate to protect against future loss as specified in Section 5601.2(c). For Mortgages in process as of October 10, 2017, Sellers must determine if the property is acceptable security for the Mortgage. Automated collateral evaluation appraisal waivers Sellers may not accept automated collateral evaluation (ACE) appraisal waiver offers for properties located in zip codes corresponding to the Eligible Disaster Area affected by the wildfires unless the related Mortgage has a Note Date prior to October 10, 2017 and the Seller has confirmed the condition of the Mortgaged Premises has not been adversely impacted by the wildfires. Loan Collateral Advisor collateral representation and warranty relief For Mortgages with Note Dates prior to October 10, 2017 that are secured by properties located in zip codes corresponding to the Eligible Disaster Area affected by the wildfires and that received collateral representation and warranty relief through Loan Collateral Advisor, the Seller must take appropriate steps to determine whether the property has been damaged. Freddie Mac will continue to offer collateral representation and warranty relief if the Seller confirms and documents that the property has not been adversely impacted and includes such documentation in the Mortgage file. PROPERTY INSPECTION FEE REIMBURSEMENT FOR SELLERS Freddie Mac will reimburse Sellers through September 30, 2018 for property inspections completed in Eligible Disaster Areas affected by the California wildfires when the following requirements are met: The property inspection was completed prior to the sale or securitization of the Mortgage The original appraisal or ACE appraisal waiver was obtained prior to the area having been declared an Eligible Disaster Area We will reimburse Sellers for actual inspection costs not to exceed $75 for an individual Mortgage after the Mortgage has been sold or securitized. Page 2
To receive the reimbursement amount, the Seller must: Maintain copies of the inspection invoice(s) in the Mortgage file E-mail an Excel spreadsheet of its Mortgages to Loan_Delivery_Funding_Ops@freddiemac.com with the subject line: Seller reimbursement request for disaster-related property inspections. The spreadsheet must include: The Seller/Servicer number The Freddie Mac Settlement Date The Freddie Mac loan number The Seller loan number The amount to be reimbursed The property zip code The reimbursement amount will be reflected in the Seller s monthly billing statements. To receive the credit on the Seller s next month s statement, we must receive the spreadsheet no later than the 15 th of the current month. We will accept spreadsheets through September 2018. For questions about the reimbursement process, Sellers should call its Freddie Mac representative or e-mail us at Loan_Delivery_Funding_Ops@freddiemac.com. SYSTEM AND GUIDE UPDATES System updates Freddie Mac systems will be updated as soon as possible to accommodate the age of documentation flexibilities and restrict ACE appraisal waiver and collateral representation and warranty relief eligibility in the impacted areas. Since the wildfires had isolated impact on Orange County properties, Freddie Mac will not be systematically removing the corresponding zip codes for Orange County relating to the ACE appraisal waiver and collateral representation and warranty relief eligibility. As specified in Section 5601.2(c), the Seller should take appropriate steps, including a property inspection, to determine if a Mortgaged Premises located in this area remains eligible for sale to Freddie Mac. Guide updates The Guide will not be updated to include these temporary requirements. Sellers must retain a copy of this Bulletin to ensure compliance with these requirements. CASH CONTRACTS Sellers should contact the Cash Desk (571-382-5960 or cash_ex@freddiemac.com) if there are Mortgages in a contract that cannot be delivered prior to contract expiration because the property securing the Mortgage is in an Eligible Disaster Area affected by the California wildfires. REMINDER ABOUT FREDDIE MAC RELIEF REFINANCE MORTGAGES SM Sellers are reminded that for Freddie Mac Relief Refinance Mortgages SM secured by properties affected by disasters: A Seller is not required to obtain a property inspection or new appraisal when a property valuation (either an HVE point value estimate or an appraisal) was relied on prior to a disaster, and A Seller can use an HVE point value estimate with a high or medium confidence score after a disaster without obtaining a property inspection or appraisal to determine property condition This flexibility for Relief Refinance Mortgages does not impact Servicing requirements. Seller/Servicers must ensure that the Mortgaged Premises are covered by insurance meeting the requirements in Chapter 8202, and in Page 3
accordance with the terms of the Security Instrument and applicable law. See Section 4302.2 for further information. CONCLUSION Freddie Mac is committed to ensuring that Borrowers receive the Mortgage assistance they need to mitigate the devastating impacts of the California wildfires. We encourage Seller/Servicers to visit our Natural Disaster Relief web page for disaster relief resources and management tools. We appreciate the understanding and consideration that Freddie Mac Seller/Servicers have extended to Borrowers coping with hardships as a result of the California wildfires and the hurricanes that devastated so many different geographic areas. If you have any questions about the changes announced in this Bulletin, please contact your Freddie Mac representative or call the Customer Support Contact Center at (800) FREDDIE. Sincerely, Christina K. Boyle Senior Vice President Single-Family Sales and Relationship Management Page 4
TO: Freddie Mac Servicers November 2, 2017 2017-25 SUBJECT: SERVICING REQUIREMENTS TO ASSIST BORROWERS IMPACTED BY ELIGIBLE DISASTERS We are expanding our requirements for Mortgages held by Borrowers whose Mortgaged Premises or places of employment are located in any Eligible Disaster Area designated on and after August 25, 2017 by announcing: Modifications Effective February 1, 2018 The temporary Freddie Mac Extend Modification for Disaster Relief ( Extend Modification ) New A revision to our eligibility criteria for the Capitalization and Extension Modification for Disaster Relief ( Disaster Relief Modification ) Insurance Temporary revisions to certain requirements for: The distribution of insurance loss settlements Borrower-requested cancelation of Borrower-paid mortgage insurance Servicers must refer to the Federal Emergency Management Agency s (FEMA) web site to determine if a Borrower s Mortgaged Premises or place of employment is located in an Eligible Disaster Area. REVISIONS TO THE GUIDE FOR THE TEMPORARY EXTEND MODIFICATION FOR DISASTER RELIEF AND INSURANCE REQUIREMENTS Unless otherwise stated below, the requirements described in this Bulletin are temporary and the Guide will not be updated to reflect them. Servicers must refer to this Guide Bulletin to ensure compliance with these temporary requirements and must follow the requirements until otherwise instructed by Freddie Mac. We will evaluate these requirements in the future and determine if they should be incorporated into the Guide. MODIFICATIONS Extend Modification for Disaster Relief In response to customer and industry feedback, we are introducing the Freddie Mac Extend Modification for Disaster Relief ( Extend Modification ). This temporary offering was designed at the direction of the FHFA and in coordination with Fannie Mae. It is an addition to the suite of options already available to Servicers to assist impacted Borrowers who were current or less than 31 days delinquent (i.e., have not missed more than one monthly Mortgage payment) as of the date the Eligible Disaster occurred. Servicers must consider eligible Borrowers for this modification once the Borrower s hardship is resolved and the Borrower indicates the ability to resume making the contractual monthly payments on the Mortgage but reinstatement or a repayment plan is not a viable option. The Extend Modification is similar to the existing Capitalization and Extension Modification for Disaster Relief ( Disaster Relief Modification ). The primary difference between these two modification options is that the Disaster Relief Modification requires the capitalization of arrearages in accordance with Guide Section 9206.15, while the Extend Modification does not permit the Servicer to capitalize arrearages, and instead extends the Mortgage term by a number of months equal to the number of missed monthly payments. As described in the Borrower contact requirements and disaster evaluation hierarchy section below, the Extend Modification is the first mortgage modification option available in Freddie Mac s evaluation hierarchy for Borrowers who were impacted by an Eligible Disaster ( disaster evaluation hierarchy ).
In some cases, a Borrower s monthly payment obligation will increase as a result of the Extend Modification, including when: The Servicer changes the ARM and Step-Rate Mortgage interest rate to a fixed-rate following the instructions below The Servicer must recover funds that it advanced to cover delinquent taxes and insurance premiums that are typically capitalized in accordance with Section 9206.15; or An Escrow shortage has been identified and the Borrower is unable to pay the Escrow shortage as a lump sum, so the Borrower must pay the shortage as part of the monthly payment in accordance with Section 9206.15 In these instances, the Borrower may decline the Servicer s offer for an Extend Modification, in which case, the Servicer must evaluate the Borrower for a Disaster Relief Modification, which is the next available option in the disaster evaluation hierarchy. Complete Extend Modification requirements and features are described below, including eligibility requirements, modification terms and details regarding the collection of funds to cover Escrow shortages and Escrow advances. Servicer implementation Servicers must implement the Extend Modification no later than February 1, 2018, and must utilize the requirements for this modification, which are provided in this Bulletin, until otherwise instructed by Freddie Mac. A Servicer may implement earlier than February 1, 2018 if it is operationally ready to do so. If a Servicer does not service any Mortgages for Borrowers who have been impacted by an Eligible Disaster that occurred on or after August 25, 2017, the Servicer is not required to implement the Extend Modification. However, if the Servicer subsequently identifies impacted Mortgages (e.g., due to a new Eligible Disaster or Transfer of Servicing), the Servicer must implement the Extend Modification as soon as is reasonably possible. Borrower contact requirements and disaster evaluation hierarchy Prior to the end of the Borrower s disaster-related forbearance, the Servicer must attempt to contact the Borrower and establish Quality Right Party Contact (QRPC). If QRPC is established with a Borrower who was 31 days or more delinquent (i.e., had missed more than one monthly payment) prior to the Eligible Disaster, then the Borrower is not eligible for the Extend Modification (or Disaster Relief Modification), and the Servicer must evaluate the Borrower in accordance with the standard evaluation hierarchy. If QRPC is established with a Borrower who was current or less than 31 days delinquent (i.e., the Borrower had not missed more than one monthly payment) prior to the Eligible Disaster, and the Borrower is unable to resolve the Delinquency through a reinstatement or repayment plan, the Servicer then must evaluate the Borrower for the loss mitigation options set forth in the following disaster evaluation hierarchy: 1. Extend Modification 2. Disaster Relief Modification 3. Freddie Mac Flex Modification 4. Short sale 5. Deed-in-lieu of foreclosure If QRPC is not established at the end of the disaster related forbearance, and the Borrower is eligible for a streamlined offer for a Flex Modification, the Servicer must send the Borrower an offer for a Flex Modification. The solicitation must include high level information about the alternative disaster modification options that may be available, as described in more detail in the Flex Modification section below. Eligibility requirements and exclusions The Extend Modification eligibility requirements and exclusions are similar to the requirements for the Disaster Relief Modification. The following table provides the Extend Modification eligibility requirements and exclusions: Page 2
Extend Modification Eligibility Requirements Borrower eligibility Mortgage and property eligibility A Borrower is eligible for an Extend Modification if: The Borrower was current or less than 31 days delinquent (i.e., had not missed more than one monthly payment) at the time of the disaster and the Borrower s hardship was caused by an Eligible Disaster The Borrower s Mortgaged Premises or place of employment is located in an Eligible Disaster Area designated as such on or after August 25, 2017 The Borrower was at least 30 days/one payment delinquent and less than 360 days/12 payments delinquent at the time of evaluation for the mortgage modification The Borrower indicates the ability to continue making contractual payments (including projected monthly payments for delinquent taxes and insurance premiums and/or for Escrow shortages, as applicable) The Borrower is not required to provide a Borrower Response Package to be considered for and offered the Extend Modification. The Mortgage: General eligibility Must be a conventional First Lien Mortgage currently owned or guaranteed in whole or in part by Freddie Mac May be secured by a Primary Residence, second home or Investment Property and may be vacant or condemned The Servicer is not required to obtain a property valuation to offer the Extend Modification. Mortgages subject to indemnification agreements If the Mortgage is subject to an indemnification agreement and is otherwise eligible under the requirements of Guide Chapter 9206, the Servicer has the discretion to approve the mortgage modification provided the following conditions are met: The modified Mortgage retains its credit enhancement If the Servicer is not the credit enhancement provider, the Servicer must first obtain in writing any required approval under the terms of the credit enhancement from the entity providing the enhancement to enter into a modification agreement that complies with the requirements of Chapter 9206; and The Servicer remits to Freddie Mac an annual payment for the amount of all modification-related costs (e.g., interest rate shortfall) as calculated by Freddie Mac pursuant to Freddie Mac s Modification Loss Amount methodology. The Modification Loss Amounts due will be calculated on a monthly basis and billed on an annual basis for the life of the modified Mortgage. If the Mortgage is subject to a partial indemnification, each year the Servicer will be billed the appropriate percentage of the Modification Loss Amount that corresponds with the partial indemnification agreement. Modification Loss Amounts will be determined by Freddie Mac in accordance with a process described in Bulletin 2016-5. Note: Pursuant to Section 9204.6, the Servicer is not eligible to receive an incentive for completing a modification on a Mortgage that is subject to an indemnification agreement. Page 3
Extend Modification Eligibility Requirements Mortgages secured by leasehold estates If the Mortgage is secured by a leasehold estate, the term of the lease (or any exercised option to renew the lease, or any renewal options that are enforceable by the leasehold mortgagee, whichever is applicable) must not terminate earlier than five years after the maturity date of the proposed modified Mortgage. In the event that the current term of the lease (or applicable renewal options) terminates earlier than five years after the maturity date of the proposed modified Mortgage, the term of the lease must be renegotiated in order to satisfy this requirement prior to offering the Borrower a Trial Period Plan. Eligibility exclusions The following Mortgages and Borrowers are ineligible for the Extend Modification: Mortgages that were more than 31 days delinquent (i.e., the Borrower had missed more than one monthly payment) at the time of the Eligible Disaster FHA, VA and Guaranteed Rural Housing Mortgages Mortgages subject to recourse Mortgages subject to an approved short sale or deed-in-lieu of foreclosure transaction Borrowers who are currently performing under another Trial Period Plan, forbearance plan or repayment plan, including: With the exception of a streamlined offer, Mortgages that are currently subject to an unexpired offer to the Borrower for another modification or other alternative to foreclosure, such as a forbearance or repayment plan With the exception of a disaster forbearance plan, the Mortgage is currently performing under another forbearance plan or repayment plan Determining the terms of the Extend Modification The instructions for determining the terms of the Extend Modification are described below: Determining Extend Modification Terms Modification terms The modified Mortgage must be a fully amortized, fixed-rate Mortgage. The modified Mortgage must not be: an interest-only Mortgage, a bi-weekly Mortgage or a daily simple interest Mortgage. The Servicer must complete the steps below: Step 1: Set the interest rate as follows: If the Existing Mortgage is: A fixed-rate Mortgage (excluding Step- Rate Mortgages) An ARM or a Step- Rate Mortgage with no additional interest rate adjustments or steps scheduled Then The Servicer must use the existing interest rate on the Mortgage to calculate the Trial Period Plan payment and use that same rate to establish the terms of the modification agreement. The Servicer must use the existing rate to calculate the Trial Period Plan payment and use that same rate to establish the terms of the modification agreement. Page 4
Determining Extend Modification Terms An ARM or a Step- Rate Mortgage with additional interest rate adjustments or steps scheduled The Servicer must use the lesser of: Freddie Mac s modification interest rate in effect and posted on http://www.freddiemac.com/singlefamily/service/mod rate.html as of the date the Servicer evaluates and determines the Borrower is eligible for a Trial Period Plan; or The maximum step-rate/lifetime cap note rate to calculate the Trial Period Plan payment The same rate must be used to establish the terms of the modification agreement. Step 2: Extend the Mortgage term by the same number of payments missed during the disaster forbearance period Step 3: Advance the DDLPI to bring the Mortgage to current status If the Mortgage includes deferred principal, the Servicer must not capitalize this amount into the interest-bearing UPB. Deferred principal must continue to be deferred and be payable upon the earlier of the extended maturity date, sale or transfer of property, refinance, or payoff. Interest must not accrue on any deferred principal. The Servicer is required to extend the term in monthly increments to match the number of delinquent payments remaining after the Trial Period Plan, not to exceed 12 months. Escrow shortages Escrow advances Pursuant to existing requirements for the Flex Modification and the Disaster Relief Modification, and as described in Section 9206.15, in the case of an Escrow shortage in which the Borrower is unable to pay the Escrow shortage as a lump sum, the Borrower must pay the shortage as part of the monthly payment ( Projected Monthly Escrow Shortage Payments ) on the modified Mortgage. If the Borrower must pay Projected Monthly Escrow Shortage Payments, then the Servicer must: Spread the Escrow shortage amount equally over a 60-month period, and Take into account the remaining unpaid Escrow shortage amount in any subsequent Escrow analysis to ensure that the Borrower may continue to pay those amounts over the remaining portion of the 60-month period. The Servicer may not accelerate or compress the remaining unpaid amount of the Escrow shortage into a new Escrow payment as a result of a future Escrow analysis. To facilitate this process, the Servicer may choose to spread any additional Escrow shortage that results from a subsequent Escrow analysis over the remaining months of the 60-month period. Funds advanced by the Servicer, or to be advanced and paid to a third party, prior to the date the Borrower executes the mortgage modification agreement for the payment of real estate taxes and insurance premiums ( Escrow Advances ) are permitted to be capitalized under existing mortgage modification options such as the Flex Modification and the Disaster Relief Modification, in accordance with Section 9206.15. However, the Extend Modification does not allow for the capitalization of arrearages and, therefore, the Servicer must recoup from the Borrower Escrow payments it advanced either via a lump sum payment, or as part of the Borrower s Projected Monthly Escrow Shortage Payments, as described in the Escrow shortages section, directly above. Trial Period Plan and permanent modification documents A Borrower who is evaluated and determined to be eligible for an Extend Modification must complete a Trial Period Plan in accordance with the requirements in Section 9206.11, during which the Borrower must remit three monthly payments at an estimated modified payment amount. The Servicer must send the Borrower a Trial Period Page 5