Freddie Mac Updates Servicing Guide
Freddie Mac released Bulletin 2016-5: Servicing. Key highlights are provided below. This Guide Bulletin announces:
Mortgage modifications
The eligibility of a Mortgage subject to an indemnification agreement for a modification, provided certain requirements are met – New
Foreclosure
- Revisions to certain State foreclosure timelines
- The cessation of the temporary suspension of State foreclosure timeline compensatory fee assessment and billing in certain States
- Additional circumstances in which it may be in Freddie Mac’s best interest to waive the right to collect a deficiency
REO
- Revisions to our payment and reimbursement requirements for real estate taxes and homeowners association (HOA), condominium and Planned Unit Development (PUD) dues for REO – June 16, 2016
- Updates to our rollback requirements to be consistent with our Single-Family News Center article dated January 25, 2016
- Additional detail regarding our REO expense reimbursement requirements following completion of a deed-in-lieu of foreclosure
Additional Guide updates and reminders
In addition to the changes listed above, we are making further updates and revisions 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.
MORTGAGE MODIFICATIONS
Mortgages subject to indemnification agreements
To assist more Borrowers, we are updating the Guide to permit a Mortgage subject to an indemnification agreement to be eligible for a mortgage modification.
If a Mortgage is subject to an indemnification agreement and is otherwise eligible for a Freddie Mac mortgage modification, the Servicer has 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 obtains in writing any required approval under the terms of the credit enhancement from the entity providing the enhancement to enter into a modification agreement. NOTE: Pursuant to Guide 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; 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 by the example below:
- Calculate “Original Accrual Rate” – the lesser of (i) the pre-modified Accounting Net Yield (ANY) as of the evaluation date; and (ii) the pre-modified Note Rate MINUS 0.35%
- Calculate “Current Accrual Rate” – the lesser of (i) the post-modified ANY as of the evaluation date; and (ii) the post-modified Note Rate MINUS 0.35%
- Calculate “Modification Shortfall” – the excess, if any, of (i) one-twelfth of the Original Accrual Rate multiplied by the pre-modified UPB; over (ii) one-twelfth of the Current Accrual Rate multiplied by the post-modified, interest-bearing UPB
- Calculate “Modification Excess” – the excess, if any, of (i) one-twelfth of the Current Accrual Rate multiplied by post-modified, interest-bearing UPB; over (ii) one-twelfth of the Original Accrual Rate multiplied by the pre-modified UPB
- Calculate the Modification Loss Amount – the excess of the aggregate monthly Modification Shortfall over the aggregate monthly Modification Excess
This Modification Loss Amount calculation is comparable to what is used to assess the impacts of mortgage modifications for Mortgages included in Structured Agency Credit Risk transactions. The calculation example above represents how the Modification Loss Amount will be determined for any initial mortgage modification completed on and after March 9, 2016 for any Mortgage subject to indemnification. For any subsequent mortgage modification completed on a single Mortgage, the pre-modified Note Rate used in the calculation will be the Note Rate in effect prior to the initial mortgage modification.
This change will be applicable to all Borrower evaluations for any Freddie Mac mortgage modification available under the Purchase Documents including, but not limited to, the Home Affordable Modification Program (HAMP®), Freddie Mac Standard Modification, Freddie Mac Streamlined Modification, Capitalization and Extension Modification for Disaster Relief (“Disaster Relief Modification”) and Freddie Mac MyCity Modification.
Please refer to the Freddie Mac Bulletin for important Foreclosure and other announcements.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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