On March 17, 2015, Freddie Mac issued an update to its Single-Family Seller/Servicer Guide (“Guide”) requiring servicers to offer additional modifications on previously modified step-rate mortgages. This requirement will take effect July 1, 2015.
By requiring loan re-modifications, Freddie Mac is seeking to address what has been on everyone’s mind for a while—the expiring HAMP modifications. HAMP was designed to provide deep and immediate payment relief to homeowners facing financial hardship. However, after five years, the majority of HAMP modifications will experience a gradual interest rate increase of up to one percent per year until their rate adjusts to the market rate at the time of their modification. This interest rate reset may send a lot of homeowners back into default.
The new requirement of remodification offers will apply to borrowers who become 60 days delinquent within 12 months following step-rate adjustments and corresponding increases to borrowers’ principal and interest payments. Specifically, such delinquent borrowers with step-rate mortgages must be offered “Freddie Mac Streamlined Loan Modification,” which requires a principal and interest payment adjustment to amounts equal or less than pre-modification payments. If the Servicer determines that the Borrower is eligible for a Streamlined Modification, the Servicer must send the Borrower at least one solicitation that includes the Streamlined Modification Solicitation Letter and the Streamlined Modification Trial Period Plan Notice no later than 15 days after the eligibility evaluation. In addition, those Borrowers who are current on their step-rate mortgages may also be eligible for re-modification offers if such Borrowers have cash reserves totaling less than $25,000.
While July 1, 2015 is the date of mandatory implementation of the new requirements, Freddie Mac states that servicers are “encouraged to implement these changes as early as possible.” We will continue to monitor this important development.