Freddie Mac finalizes new modification option

by JON PRIOR

Tuesday, September 13th, 2011

Freddie Mac finalized requirements for a new modification option that will be made available to qualified borrowers on Oct. 1.

Mortgage servicers must evaluate borrowers deemed ineligible for the larger Home Affordable Modification Program for the new “Standard Modification” beginning in January. Trial period plans can begin in October. Through the new program the borrower’s principal and interest payments drop at least 10%, according to Freddie.

Since March 2009, servicers granted roughly 791,000 permanent HAMP modifications and extended more than 1.6 million trials through the national program. But servicers canceled more than 763,000 trials because of redefault, not enough documentation or the borrower did not meet the requirements.

In order for a borrower to qualify for a standard modification, he or she must be at least 60 days delinquent. If they’ve missed fewer payments or are current, he or she must be an owner-occupant, in imminent default and provide a hardship document.

The borrower must have already been evaluated for HAMP within 12 months of the Standard Modification. Mortgages on homes without an owner-occupant can be eligible, even vacant homes that cannot be condemned.

The loan-to-value ratio of the mortgage must also be greater than 80%.

Servicers will receive $1,600 for each modification completed before the loan slips into 120-day delinquency. They get $1,200 for a modified mortgage between 120- and 210-days behind. For standard modifications completed after 210 days of missed payments, the servicer gets $400 from Freddie.

The standard modification program will fall under the joint servicing alignment initiative launched in April.

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