The benchmark interest rate set by Fannie Mae and Freddie Mac for standard mortgage modifications will drop to its lowest level ever later this week, as the government-sponsored enterprises adjust their standards to match the market’s “historically low” interest rates.
Beginning May 13, Fannie Mae and Freddie Mac will lower the standard modification interest rate from 3.75% to 3.625%.
For the last two months, Fannie Mae and Freddie Mac’s standard modification interest rate was 3.75%, which itself was the lowest level ever – until now.
The new standard rate of 3.625% is also now one full percentage point lower than the standard modification rate was when Fannie and Freddie established the benchmark rate in January 2012.
When the program began in 2012, the benchmark interest rate was 4.625%.
According to the GSEs, the standard modification program is “designed to help those borrowers who are ineligible for the Home Affordable Modification Program.”
Therefore, the new rate does not extend to HAMP borrowers.
Since then, the benchmark rate has almost always been at 4% or above, with sub-4 rates only coming about recently.
In November 2015, Fannie and Freddie lowered the benchmark rate below 4% for the first time, to 3.875%.
But that decrease was quickly followed by the benchmark rate being increased back up to 4% in December 2015.
But in the months since then, Fannie and Freddie dropped the benchmark rate on multiple occasions, first back to 3.875% in February, then to 3.75% in March, and now to 3.625%.
This month’s record low is a far cry from July 2015, when Fannie and Freddie raised the required interest rate for standard modifications from 4.125% to 4.25%.
The standard modification rate hadn’t been that high since Nov. 2014.
According to information posted to Freddie Mac’s website, servicers must use the standard modification interest rate when determining the terms of a standard modification trial period plan, streamlined modification, trial period plan or a capitalization and extension modification for disaster relief trial period plan.