Continuing a trend that’s seen the benchmark interest rate set by Fannie Mae and Freddie Mac for standard mortgage modifications fall consistently over the last eight months, the government-sponsored enterprises announced Wednesday that they are about to lower the benchmark rate again – to another all-time low.
Beginning Aug. 12, 2016, Fannie Mae and Freddie Mac will lower the standard modification interest rate from 3.625% to 3.5%.
For the last three months, Fannie and Freddie’s standard modification interest rate was 3.625%, which itself was the lowest level ever – until now.
The new standard rate of 3.5% is also now more than one full percentage point lower than the standard modification rate was when Fannie and Freddie first established the benchmark rate in January 2012.
When the program began in 2012, the benchmark interest rate was 4.625%.
But as interest rates dropped over the last several years, and stayed historically low in recent months, Fannie and Freddie adjusted the standard modification interest rate to keep pace with the declining market rates, but never before has the benchmark rate been this low.
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 to 3.625% in May, and now to 3.5%.
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%.
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.
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.
The new 3.5% interest rate takes effect on Aug. 12, 2016.