FHLMC Guide Bulletin 2016-07: Freddie Mac Principal Reduction Modification
April 14, 2016
In Single-Family Seller/Servicer Guide (Guide) Bulletin 2016-07, we’re announcing the Freddie Mac Principal Reduction Modification. We’ve developed this temporary offering with Fannie Mae and at the direction of the Federal Housing Finance Agency (FHFA).
Review Guide Bulletin 2016-07 for the eligibility requirements and modification terms. We are publishing requirements and terms only in the Guide Bulletin (not in the Guide), since this is a temporary offering.
Principal Reduction Modification Highlights
- This modification is aimed at helping assist seriously delinquent, underwater borrowers at risk of foreclosure, mainly in neighborhoods hit hardest by the housing crisis.
- It leverages the Freddie Mac Streamlined Modification (Streamlined Modification) structure. The evaluation criteria, Trial Period Plan, processing and reporting are the same as the Streamlined Modification. Some key differences include:
- Evaluation Criteria – the mortgage must:
- Have a UPB less than or equal to $250,000, before capitalizing eligible arrearages.
- Have a post-modification mark-to-market loan-to-value (MTMLTV) ratio greater than 115%.
- Not have been for an investment property at origination.
- Solicitation Letter. Solicit eligible borrowers by sending the Principal Reduction Modification Solicitation Letter provided in Attachment A of Guide Bulletin 2016-07.
- Submission Through Workout Prospector®. Once the borrower successfully completes the Trial Period Plan and executes the modification agreement, you enter the terms of the modification and data for all required fields using the Workout Prospector Court-Mandated Modification/Litigation exception path.
- Principal Reduction. This is achieved by calculating the forbearance amount as you would with a streamlined modification; that amount is later forgiven. Eligible borrowers in active Trial Period Plans (as defined in the Guide Bulletin) for Home Affordable Modification Program (HAMP®), Freddie Mac Standard Modification or Streamlined Modification or Freddie Mac MyCity Modification, may also have their forbearance amount forgiven following settlement of the modification.
What Servicers Need to Do
Evaluate the starting population provided in the list on our Servicer Performance Profile website of reports using the eligibility criteria provided in Guide Bulletin 2016-07 by October 1, 2016. Servicers may implement prior to October 1, 2016, if they are ready to do so.
An initial borrower solicitation must be sent no later than October 15, 2016, and all subsequent solicitation letters must be sent by December 31, 2016.
Be ready to discuss alternative workout solutions with borrowers who don’t end up qualifying for the Principal Reduction Modification, including modifications with principal forbearance.
Training and Resources
Take advantage of training opportunities on our Learning Center. A reference guide and tutorial on the Principal Reduction Modification will be available by April 30, 2016.
For More Information
- Read Guide Bulletin 2016-07 [pdf], which includes a link to FAQs developed by the GSEs and FHFA to assist with inquiries.
- Read the FHFA press release.
- Check out our Summary of Upcoming Requirement Changes [pdf] document.
- Contact your Freddie Mac representative.
Source: Freddie Mac