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Freddie Mac Rolls Out New Standard Modification

Freddie Mac has rolled out a new standard for mortgage modifications. Dubbed the “Standard Modification,” the GSE says it will strengthen servicers’ ability to support positive outcomes for financially distressed borrowers. The Standard Modification replaces Freddie Mac’s classic modification, which is a debt coverage ratio mod, and is part of the Servicing Alignment Initiative underway to bring the two GSEs’ protocol for handling defaulted loans in line with one another.

Freddie Mac says the new formula will help servicers simplify underwriting by using a standard set of modification terms, including a 5 percent interest rate, for all eligible borrowers.

The new Standard Modification is available to borrowers who don’t qualify for the government’s Home Affordable Modification Program (HAMP), and includes a trial period to help ensure borrowers can sustain their modified mortgage payments and reduce re-default rates in servicers’ Freddie Mac portfolios, the GSE explained.

The new loss mitigation model officially goes into effect in January.

Freddie Mac is also implementing an incentive plan to pay servicers for “successfully settling Standard Modifications in a timely manner based on the term of delinquency when the trial period starts,” the GSE explained.

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