9206.11: Trial Period Plan requirements (12/01/18)

© Freddie Mac Single-Family Seller Servicer Guide

Refer to Bulletin 2018-14 which announced updates to evaluation notices and Borrower solicitation letters. The revisions may be implemented prior to the mandatory implementation of the January 1, 2019 version of this section.

A Borrower who is evaluated and determined eligible for a Freddie Mac Flex Modification® or a Capitalization and Extension Modification for Disaster Relief ("Disaster Relief Modification") must enter into a Trial Period Plan under which the Borrower will be required to remit three monthly payments at an estimated modified payment amount. (See also Section 9206.11(b) for Trial Period extension requirements for Borrowers in bankruptcy.)

The Servicer may utilize an interim month following the end of the Trial Period to facilitate processing of the modification agreement in accordance with Section 9206.16(b). A payment is not required during the interim month.

(a) Processing the Trial Period Plan offer If the Borrower qualifies for a modification, the Servicer must offer the Borrower a Trial Period Plan.

(i) The Flex Modification Trial Period Plan Notice Within five days of an evaluation decision, but no later than 30 days following receipt of the complete Borrower Response Package, the Servicer must send the Borrower a Borrower Evaluation Notice indicating the outcome of its decision. If the Borrower is approved for a Flex Modification, the Servicer must send the Borrower a Standard Modification Trial Period Plan Notice, after amending it, as necessary, to conform to the Flex Modification program terms. The amended Standard Modification Trial Period Plan Notice communicates the qualification decision to the Borrower. The Standard Modification Trial Period Plan Notice is included in Exhibit 93, Evaluation Model Clauses. See Section 9206.11(a)(iii) below for additional requirements for Mortgages with post-modification mark-to-market loan-to-value (MTMLTV) ratios less than 80%.

(ii) The Flex Modification Trial Period Plan Notice for offers under Section 9206.5(c)If the Borrower who is eligible under Section 9206.5(c) is approved for an offer for a Flex Modification, the Servicer must send the Borrower a Streamlined Modification Trial Period Plan Notice with Exhibit 1191, Streamlined Modification Solicitation Letter, or Exhibit 1191B, Streamlined Modification Solicitation Letter for Day 60 Rate Reset, as applicable, in accordance with the requirements described in Section 9102.5(a). The Servicer must amend the documents, as applicable, to conform to the Flex Modification program terms. If the Borrower is approved for a streamlined offer for a Flex Modification due to an Eligible Disaster in accordance with the requirements of Section 9206.5(e), the Servicer must send the Borrower the Streamlined Modification Trial Period Plan Notice, amended as set forth in Exhibit 93 for Eligible Disasters, and Exhibit 1191A, Streamlined Modification Post-Disaster Forbearance Solicitation Letter. The Servicer must amend the Streamlined Modification Trial Period Plan Notice for Eligible Disasters and Exhibit 1191A to conform to the Flex Modification program terms. The amended Streamlined Modification Trial Period Plan Notice communicates the qualification decision to the Borrower. The Streamlined Modification Trial Period Plan is included in Exhibit 93.

(iii) Special requirements for Mortgages with post-modification MTMLTV ratios less than 80%In addition to the requirements above, the Servicer must revise the Trial Period Plan Notice for a Borrower whose Mortgage has a post-modified MTMLTV ratio less than 80% to include a statement reminding the Borrower that once the Mortgage has been modified, the Borrower can always pay more than the contractual payment without penalty if he or she desires to pay down the debt faster.

(iv) The Disaster Relief Modification Trial Period Plan Notice If the Borrower is approved for a Disaster Relief Modification in accordance with the requirements in Section 9206.4, the Servicer must send the Borrower a Disaster Relief Modification Trial Period Plan Notice. The Disaster Relief Modification Trial Period Plan Notice communicates the qualification decision to the Borrower and is included in Exhibit 93.

(v) Authorized changes to Trial Period Plan Notices The Servicer may amend a Trial Period Plan Notice as necessary to request any Borrower cash contribution the Borrower promises to pay for expenses and delinquent amounts not capitalized, if applicable. Servicers may also amend a Trial Period Plan to condition the approval of the mortgage modification on obtaining any necessary court and/or trustee approvals for Borrowers in bankruptcy and to address situations where a Borrower files for bankruptcy during the Trial Period. In addition, Servicers must amend the Trial Period Plan Notice as necessary to ensure compliance with applicable laws, rules and regulations. If the Borrower previously received a Chapter 7 bankruptcy discharge, but did not reaffirm the mortgage debt under applicable law, the Servicer must add the following language to the Trial Period Plan Notice under the section "Additional Trial Period Plan Information and Legal Notices:"

• If you previously received a Chapter 7 bankruptcy discharge, but did not reaffirm the mortgage debt under applicable law:
  • You agree that you were discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that you will not have personal liability on the debt pursuant to this Trial Period Plan.

If under applicable law, a Servicer may not establish an Escrow account, the Servicer must delete the following language from the Trial Period Plan Notice:

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  Your new monthly payment will include an escrow for property taxes, hazard insurance and other escrowed expenses. If the cost of your homeowner’s insurance, property tax assessment or other escrowed expenses increases, your monthly payment will increase as well.
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  If your monthly payment did not include escrows for taxes and insurance, you are now required to do so:
  • You agree that any prior waiver that allowed you to pay directly for taxes and insurance is revoked. You agree to establish an escrow account and to pay required escrows into that account.

(vi) Effective Date of the Trial Period Plan When preparing the Trial Period Plan Notice, the Servicer must determine the Trial Period Plan Effective Date and the due date of the first Trial Period payment in accordance with the following instructions:

For example, if the Servicer sends the Trial Period Plan to the Borrower on June 10, the Trial Period Plan Effective Date and first Trial Period payment due dates are both July 1. If the Servicer sends the Trial Period Plan to the Borrower on June 17, the Trial Period Plan Effective Date and first Trial Period payment due date are both August 1.Notwithstanding the requirement above, after the Trial Period Plan Notice was sent to the Borrower, the Servicer may commence the Trial Period on the first day of the next month if the Borrower consents to commence the Trial Period earlier than the effective date requirements set forth above. If the Borrower fails to submit the first Trial Period payment on or before the last day of the first Trial Period month (e.g., on or before July 31st in the example above) the Servicer must consider the Trial Period Plan offer to be rejected by the Borrower.

(vii) Borrower acceptance of offer A Borrower's notification to the Servicer indicating an intent to accept a Trial Period Plan offer within 14 days of the date of the offer constitutes sufficient notice solely for purposes of suspending foreclosure referral or sale in accordance with Sections 9301.6, 9301.7 and 9301.28.For purposes of legal acceptance, Borrowers are not required to sign or return the Trial Period Plan Notice. Timely receipt of the first payment due under the Trial Period Plan Notice is evidence of the Borrower's acceptance of the Trial Period Plan terms and conditions. The Servicer must receive the Borrower's first Trial Period payment on or before the last day of the month in which the Trial Period Plan Effective Date occurs (Trial Period Plan Offer Deadline). Otherwise, the Servicer must consider the Trial Period Plan offer to have expired.

(b) Requirements during the Trial Period The first Trial Period payment is due by the Trial Period Plan Offer Deadline. The Servicer must require the Borrower to remit timely payments. Each Trial Period payment must be received no later than the last day of the month in which the Trial Period payment is due. Borrowers who fail to make timely Trial Period payments are considered to have failed the Trial Period. Servicers must use good business judgment in determining whether Trial Period payments were received timely or if mitigating circumstances caused the payment to be late. Exceptions must be documented in the Servicer's records. Although the Borrower may make scheduled Trial Period payments earlier than expected, the payments may not result in acceleration of the Modification Effective Date. During the Trial Period, the Servicer must:

• Continue to report and remit to Freddie Mac in accordance with the investor reporting and remitting requirements set forth in the Guide, which include the advancing of scheduled interest (and principal, if applicable) under the existing Mortgage terms to Freddie Mac, provided that the Servicer has not inactivated the Mortgage
• Report any specific loan-level activity via EDR as provided in Sections 9102.7 and 9206.13(a)
• Credit to an unapplied or suspense funds account, payments made by the Borrower during the Trial Period. Once enough funds have accumulated in the unapplied or suspense funds account to satisfy the oldest payment due under the existing Mortgage terms (including applying the portion of the Trial Period payment allocable to escrowed items to the existing or newly established Escrow account provided those amounts were due at the time of the oldest delinquent payment due date), the Servicer must apply the payment in accordance with the current Note and Security Instrument, or prior modification agreement, if applicable.

(i) Recommencement and/or initiation of collection efforts and foreclosure actions A Borrower is considered to have failed a Trial Period Plan if the Borrower fails to:

• Make a Trial Period payment by the last day of the month in which the payment is due
• Comply with the terms of the Trial Period Plan; or
• Execute and return the modification agreement within the applicable 14-day time frame set forth in Section 9206.16

If the Borrower fails the Trial Period Plan, the Servicer must begin or recommence collection efforts in accordance with Section 9102.4 or, if applicable, recommence any suspended foreclosure action or proceeding.

After determining a Borrower has failed the Trial Period according to the requirements under this Section 9206.11(b), the Servicer must report any initiated or resumed collection or foreclosure activity through EDR. See Section 9102.7 for information on EDR.

Late charges may accrue during the Trial Period subject to the requirements of Section 9102.2. However, all accrued and unpaid late charges must be waived in the event the Mortgage is modified.

(ii) Changes to tax and insurance premium payments If there are changes in a Borrower's tax and insurance premium payments after the Borrower has been qualified for a Trial Period Plan, the Servicer is not required to re-qualify the Borrower based on the subsequent changes in taxes and insurance. However, the Servicer should provide written notice to the Borrower that explains the impact of the new Escrow payment on the modification.

(iii) Borrowers who become unemployed during Trial Period If a Borrower is experiencing financial hardship due to unemployment, Servicers must first consider the Borrower for a forbearance plan as set forth in Chapter 9203. If a Borrower is in a Trial Period Plan and becomes unemployed, the Servicer must not require the Borrower to convert from the Trial Period Plan to a forbearance plan. However, if an unemployed Borrower contacts the Servicer and requests assistance, the Servicer must determine whether the Borrower is eligible for forbearance relief in accordance with requirements in Chapter 9203.If a Borrower was in a Trial Period prior to entering into a forbearance plan as prescribed in Chapter 9203, such Borrower may be re-evaluated for a new Trial Period Plan based on the Borrower's financial circumstances upon completion of the forbearance plan, provided that he or she was performing in accordance with the terms of the previous Trial Period Plan (i.e., making timely Trial Period payments) prior to entering into the forbearance plan. Servicers must not resume/restart the terms of a previous Trial Period Plan. If a Borrower meets the eligibility requirements set forth in this chapter upon completion of the forbearance plan and accepts a new Trial Period Plan offer, the Borrower will be required to start a new Trial Period.

(iv) Borrowers filing for bankruptcy during the Trial Period Borrowers who are in a Trial Period Plan and subsequently file for bankruptcy may not be denied a modification on the basis of the bankruptcy filing. The Servicer and its counsel must work with the Borrower or Borrower's counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. Servicers should extend the Trial Period Plan as necessary to accommodate delays in obtaining court approvals or receiving a full remittance of the Borrower's Trial Period payments when they are made to a trustee, but they must not extend the Trial Period beyond nine months, resulting in a total 12-month Trial Period. In the event of a Trial Period extension, the Borrower must make a Trial Period payment for each month of the Trial Period, including any extension month, in order to remain eligible for a modification. See Section 9206.13(a) for information on reporting an extended Trial Period Plan via EDR.

(v) Chapter 13 bankruptcy When a Borrower in an active Chapter 13 bankruptcy is in a Trial Period Plan and the Borrower has made post-petition payments on the Mortgage in the amount required by the Trial Period Plan, a Servicer must not object to confirmation of a Borrower's Chapter 13 plan, move for relief from the automatic bankruptcy stay, or move for dismissal of the Chapter 13 case on the basis that the Borrower paid only the amounts due under the Trial Period Plan, as opposed to the non-modified Mortgage payments.

(vi) Chapter 7 bankruptcy Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the Mortgage and who did not reaffirm the Mortgage debt under applicable law, are eligible for a modification.