Freddie Mac Updates Servicing Guidelines
September 25, 2015
By Anna DeSimone
Freddie Mac has recently issued two Bulletins announcing changes to the Single Family Seller/Servicer Guide. The two bulletins pertain to servicing rules, as summarized below.
Summaries
Bulletin 2015-14: Servicing (08/12/15)
All of the changes announced in this Bulletin are effective immediately unless otherwise noted.
DEFAULT MANAGEMENT
Settlement automation process for liquidation transactions
The following requirements are effective March 1, 2016; however, Servicers are encouraged to implement them beginning November 23, 2015, when the new liquidation settlement screens will become available in Workout Prospector.
To help ensure efficient and timely settlements for Freddie Mac-owned or guaranteed Mortgages, we are announcing a new automated settlement process for liquidation transactions including short sales, deeds-in-lieu of foreclosure (DILs), charge-offs and third-party foreclosure sales.
Beginning November 23, 2015, Servicers may submit settlement data via the new liquidation settlement screens in Workout Prospector.
Once the Servicer submits the appropriate liquidation transactions in Workout Prospector and receives approval, the “Liquidation Settlement” link becomes available providing access to the new liquidation settlement screens. Prior to submitting settlement data via the liquidation settlement screens, Servicers must first report the liquidation via the Freddie Mac Service Loans application. Servicers must also continue to comply with all settlement time frames in the Guide, and report and remit, as applicable, any approved short sales, DILs, charge-offs and third-party foreclosure sales in accordance with the requirements of Guide Chapter 78. If the reporting and remittance requirements for the liquidation are not completed, Workout Prospector will not allow the liquidation transaction to be submitted for settlement in Freddie Mac’s systems.
Beginning March 1, 2016, Servicers must submit all required data for settling liquidation transactions via the applicable liquidation settlement screens in Workout Prospector. As of this date, Freddie Mac will not accept or review the Settlement/Closing Disclosure Statement previously required or a third-party foreclosure sale claim package (unless submitted as supporting documentation at the request of Freddie Mac) previously required. Freddie Mac reserves the right to request a copy of the Settlement/Closing Disclosure Statement for review.
If, prior to March 1, 2016, a Servicer chooses to submit data through the liquidation settlement screens in accordance with the updated procedures announced in this Bulletin, then it must immediately comply with the changes announced herein, and the March 1, 2016 effective versions of the Guide sections impacted, as of the date of its first submission.
After the Servicer submits all required settlement data to Freddie Mac through the appropriate liquidation settlement screens and the liquidation transaction is accepted for settlement by Freddie Mac, the Servicer may begin reviewing the Detail Adjustment Report (DAR) the following Business Day to confirm the total adjustment/credit on the report.
Similar to modifications settled via Workout Prospector, the Servicer must retain a portable document format (PDF) download or printout of the required settlement data for each liquidation transaction submitted via the “Liquidation Settlement” option in Workout Prospector. The Servicer must retain the PDF or printout in its Mortgage file or servicing system. In addition, the Servicer must provide a digital copy of the PDF or printout to Freddie Mac for review upon request
Workout Prospector Users’ Guide and training and resources
When submitting required settlement data to Freddie Mac for a liquidation transaction, the Servicer must comply with the instructions in the Workout Prospector Users’ Guide. Training and resources for the settlement automation process for liquidation transactions, including an updated Workout Prospector Users’ Guide, will be provided at a later date.
DAR changes for third-party foreclosure sales
Effective November 23, 2015
Freddie Mac is making enhancements to the DAR with respect to charge-offs following a third-party foreclosure sale. Effective November 23, 2015, the amount posted to the DAR will be determined, in part, by the gross sale proceeds (i.e., the sale price plus any excess proceeds received by the Servicer), and not the net sale proceeds from the sale of the property.
If the net sale proceeds do not equal the sale price because of shortages in the sale proceeds (such as sheriff or auctioneer fees), then the Servicer must submit a claim in the Freddie Mac Reimbursement System using expense code 030000 (Sheriff/Auctioneer Fees) for reimbursement of these shortages.
As a reminder, the Servicer must review the DAR and report any discrepancies to Freddie Mac by submitting Form 1205 within 30 calendar days following Freddie Mac’s posting of the amount to the DAR.
HAMP Year Six Pay for Performance incentive
(see Bulletin for details)
PROPERTY INSPECTIONS
Updated property inspection frequency requirements
Effective January 1, 2016, but Servicers are encouraged to implement prior to the effective date
Section 65.33(a) currently requires Servicers to order and obtain a complete property inspection report by the 60th day of Delinquency and to continue obtaining new inspection reports every 30 days if:
- The Mortgage secured by the property remains more than 45 days delinquent, and
- The Servicer has not achieved a quality right party contact with the Borrower or has not received a Property Condition Certificate (PCC) from the Real Estate Owned (REO) broker
In response to Servicer feedback, we are eliminating the 30-day requirement and instead requiring Servicers, for Mortgages meeting the above criteria, to complete a new property inspection every calendar month and to ensure that no two monthly inspections are completed within a 20-day period.
Property inspections reimbursable under expense codes 404016 (Ordinance Required Property Inspection (weekly)) and 404017 (Ordinance Required Property Inspection (Biweekly)) are exempt from the 20-day requirement. See Bulletin 2013-15 for additional information on the use of these expense codes.
Guide impacts: Section 65.33
Updated Form 1013
Effective January 1, 2016, but Servicers are encouraged to implement prior to the effective date
Over the past several months, Freddie Mac has worked with Fannie Mae and Federal Housing Finance Agency (FHFA) to develop aligned property inspection forms that more closely reflect the type of information that must be gathered when conducting Guide-required property inspections. Both Freddie Mac and Fannie Mae will continue to use their own inspection forms (Form 1013 for Freddie Mac and Form 30 for Fannie Mae); however, the information requested on the forms will, for the most part, be the same.
See Bulletin for further information.
SUBSEQUENT TRANSFERS OF SERVICING – UPDATES TO FORM 1034T
We are updating Form 1034T to address questions from Servicers and for ease of Servicer use. The updated form:
- Provides explicit instructions for the Transferor Servicer’s and Document Custodians, as well as Transferee Document Custodians
- Has been renamed from “Subsequent Transfer Custodial Certification Schedule” to “Subsequent Transfer Document Custodial Certification Schedule”
Bulletin 2015-15: Servicing (09/09/15)
All of the changes announced in this Bulletin are effective immediately unless otherwise noted.
MORTGAGE MODIFICATIONS
Effective March 1, 2016
Servicers must comply with the mortgage modification changes announced below for new evaluations completed on or after March 1, 2016; however, Servicers are encouraged to implement them as early as possible.
MTMLTV ratio calculation for Freddie Mac Standard and Streamlined Modifications
To enable more Borrowers to qualify for Freddie Mac Standard and Streamlined Modifications, as well as to provide more affordable modified payments, we are revising the MTMLTV ratio calculation for determining the Mortgage eligibility requirements and terms of a modification.
Current requirements
Guide Section B65.18 currently provides that the MTMLTV ratio is the gross unpaid principal balance (UPB) of the Mortgage, including any principal forbearance amount, if applicable, divided by the property value obtained in accordance with Section B65.16. For Mortgages with a pre-modification MTMLTV ratio equal to or greater than 80%, forbearance relief is not provided if the ratio is less than or equal to 115%.
Revised requirements
We are revising our requirements to provide that whenever a calculation of the MTMLTV ratio is used to determine Standard and Streamlined Modification terms, it must include the UPB, and, if applicable, any principal forbearance amount and/or any arrearages that may be capitalized, divided by the property value. This revision will substantially increase the number of Borrowers who qualify for Standard and Streamlined Modifications and provide additional mortgage payment relief for certain Borrowers.
Workout Prospector®
We will inform Servicers in a future communication of the date Workout Prospector will be available to process the terms of Standard and Streamlined Modifications to determine the post-modification MTMLTV ratio of a Mortgage. Until Workout Prospector is updated, the Servicer must generate the terms of the Trial Period Plan using its proprietary systems. Once the Servicer has approved the Borrower for a Standard or Streamlined Modification, the Servicer must transmit the terms to Freddie Mac via the Standard Modification exception path in Workout Prospector and indicate the workout has been approved by the Servicer in accordance with the revised eligibility requirements. The Servicer must clearly communicate in the comments section of Workout Prospector that it is submitting the terms for a Standard or Streamlined Modification Trial Period and include the following information, as applicable:
- The Servicer contact name, e-mail address and telephone number
- Indicate that it is a Standard or Streamlined Modification processing request
- Indicate whether the post-modification MTMLTV ratio is equal to or greater than 80% or less than 80%
- The modified interest rate (modified Note Rate)
- The term of the modification (term of the modified Note in months)
- The amount of post-modification deferred UPB (for Mortgages with partial principal forbearance)
Freddie Mac Streamlined and MyCity Modification eligibility
To maximize mortgage modification options for severely delinquent Borrowers and to further streamline the review of a Borrower for the Streamlined Modification and the MyCity Modification, we are expanding our eligibility requirements so that a Mortgage/Borrower with all of the following characteristics is eligible for a Streamlined or MyCity Modification, provided all other eligibility requirements are met:
- The Mortgage is not a Step-Rate Mortgage; and
- The Borrower was current on his or her Mortgage for each of the five months prior to the Due Date of Last Paid Installment (DDLPI) and never made a payment after becoming delinquent; and
- The Borrower has not provided a reason for default or, if right party contact has been made, the Borrower’s reason for default is not an eligible hardship as specified under Section 65.17; and
- The Borrower’s current FICO® score is 750 or greater determined in accordance with Section B65.12.1(b)
BANKRUPTCY REFERRALS AND THE SERVICER’S RESPONSIBILITY TO WORK WITH COUNSEL
In an effort to increase Servicer efficiencies when handling Freddie Mac Default Legal Matters, we are amending and removing certain Servicing requirements related to referring bankruptcy cases to counsel, as well as explaining in more detail the Servicer’s responsibility to work with counsel.
Servicers are no longer required to:
- Refer a bankruptcy case to the same law firm handling the foreclosure if the Borrower is in foreclosure at the time of the bankruptcy referral, or
- Refer a foreclosure to the law firm that handled the bankruptcy matter if the Borrower was current or delinquent at the time of the bankruptcy referral and is subsequently referred to foreclosure
However, when referring a foreclosure or bankruptcy case to counsel, if the Servicer determines it is in Freddie Mac’s best interest, the Servicer should give preference to the law firm handling the foreclosure, or that handled the bankruptcy matter, as applicable.
Please refer to the Bulletin for additional information
About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at Anna@bankersadvisory.com
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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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