Freddie Mac recently adjusted its mortgage modification rules to help increase borrower eligibility.
In order to enable more borrowers to qualify, the government-sponsored enterprise (GSE) has updated to the mark-to-market loan-to-value ratio (MTMLTV) calculation for its standard and streamlined modifications, as outlined in its Single-Family Seller/Servicer Guide.
Currently, the MTMLTV is calculated as the gross unpaid principal balance (UPB) 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%.
Under the revised 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, according to a bulletin from the company.
Freddie Mac says the revisions will substantially increase the number of borrowers who qualify for standard and streamlined modifications and will also help reduce some borrowers' monthly payments.
In addition, Freddie Mac has expanded the eligibility requirements for its streamlined and MyCity modifications in order to maximize modification options for severely delinquent borrowers.
It has also updated its rules to give servicers greater flexibility when handling Freddie Mac Default Legal Matters related to bankruptcy referrals. In order to increase servicer efficiency, the GSE is 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.
Under the revised 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 says.
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.
The new rules go into effect on March 1, 2016.