Mortgage

Freddie Mac makes it easier to get a mortgage modification

Changes rules to help more borrowers

In an effort to allow more borrowers to qualify for mortgage modifications, Freddie Mac announced changes to its mortgage modification rules.

According to a bulletin sent by Freddie Mac to its servicers on Wednesday, Freddie Mac is making several changes to its guidelines for standard and streamlined modifications.

In addition to making more borrowers eligible for a modification, Freddie Mac said that the changes, which go into effect on March 1, 2016, should also help provide more affordable post-modification mortgage payments for borrowers as well.

According to Freddie Mac, one of the main changes is to the “mark-to-market loan-to-value" ratio calculation, also known as MTMLTV, for standard and streamlined modifications terms.

Currently, the MTMLTV is calculated as the gross unpaid principal balance of the mortgage, including any principal forbearance amount, if applicable, divided by the property value obtained.  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%.

Freddie Mac is revising those standards.

Under the new rules, 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, Freddie Mac said in its announcement.

Freddie Mac said that 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.

Additionally, Freddie Mac announced changes to its eligibility rules for its streamlined and MyCity modification programs.

The MyCity Modification is a temporary offering established under the Neighborhood Stabilization Initiative, which Freddie Mac and Fannie Mae developed at the direction of the Federal Housing Finance Agency in an effort to stabilize communities that have been hardest hit by the housing crisis.

The MyCity modification provides eligible borrowers with up to a 60% reduction in their monthly principal and interest payments.

The MyCity modification is only available for mortgages located within the city of Detroit, Michigan, and Cook County, Illinois.

In its announcement, Freddie Mac said that changes will maximize the mortgage modification options for severely delinquent borrowers and further streamline the review of a borrower for the streamlined modification and the MyCity modification programs.

Under the news rules, a borrower is eligible for a streamlined or MyCity modification if all of the following qualifications 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 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; and
  • The borrower’s current FICO score is 750 or greater

Under Freddie Mac’s previous guidelines, the wording of similar stipulations made some borrowers ineligible for the streamlined and MyCity modifications.

Additionally, Freddie Mac announced changes to its requirements of servicers related to bankruptcy proceedings.

“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,” Freddie Mac said in the announcement.

Under the new rules, 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, Freddie Mac said.

If the servicer does not refer the bankruptcy case to the law firm handling the foreclosure, then the servicer must periodically update the foreclosure counsel regarding the status of the bankruptcy matter. 

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