9206.12: Modified Mortgage conditions (10/01/17)

© Freddie Mac Single-Family Seller Servicer Guide

The Servicer must ensure that the modified Mortgage:

1. Retains its First Lien position and continues to be fully enforceable in accordance with its terms at the time of modification, throughout its modified term, and during any bankruptcy or foreclosure proceeding involving the Mortgage. The Servicer must record the modification agreement only when doing so is necessary to ensure its compliance with this First Lien retention and modification enforcement requirement. If recordation is not immediately necessary, but may be required in the future to comply with this First Lien retention and modification enforcement requirement, the Servicer must have the modification agreement in recordable form. The modification agreement must be executed by the Borrower(s).Notwithstanding the foregoing, the Servicer must:

(a) Ensure all real estate taxes or, for Manufactured Homes taxed as personal property, personal property taxes, condominium/homeowner’s association (HOA) fees, utility assessments (such as water bills), ground rent and other assessments that could become a First Lien are current

(b) Obtain a title endorsement or similar title insurance product issued by a title insurance company prior to or at the time of the modification whenever it is necessary to record the modification agreement to retain the modified Mortgage's First Lien position

(c) Obtain subordination agreements from any junior lienholders, if required by the title insurance company

(d) Record the executed loan modification agreement, even if the jurisdiction where the property is located does not require the Servicer to do so, whenever recordation is necessary to retain the modified Mortgage's First Lien position, if, in the future, recordation is necessary to enforce the terms of the modified mortgage (e.g., pre-foreclosure), or if it contains provisions related to the assignment of leases and rents

1. Retain all living signers on the existing Note as obligors. Except as otherwise provided in Section 9206.13(e), all Borrowers and any other signatory to the Security Instrument must sign the modification agreement and all other required documents.
2. Contain a due-on-transfer provision if the existing Mortgage documents do not contain such a provision (see Exhibit 78, Modification Due on Transfer Rider, for an example of a due-on-transfer rider)
3. Not have any secondary financing included in the UPB
4. Not provide any cash-out to the Borrower
5. Except as set forth in Sections 9206.5(e) and 9206.4(d), have an Escrow account for real estate taxes, property, flood, mortgage insurance premiums and ground rent even if the existing Mortgage does not have an Escrow account
6. Retain mortgage insurance coverage if the existing Mortgage has such coverage, and the loss coverage percentage must remain the same
7. Contain an assignment of rents rider if the property is a 1-unit Investment Property or a 2- to 4-unit property (see Exhibit 77for an example of an assignment of rents rider)
8. Retain any existing credit enhancement, such as an indemnification agreement. (Note: Mortgages subject to recourse are not eligible for a Freddie Mac Flex Modification®or Capitalization and Extension Modification for Disaster Relief.) If the Servicer is not the provider of the credit enhancement, it must obtain written approval from the institution providing the enhancement.
9. Contain a Modification Bankruptcy Disclosure Rider for a Borrower who has been discharged from the Freddie Mac debt (see Exhibit 78A, Modification Bankruptcy Disclosure Rider, for an example of the rider)
10. Be a fully amortizing fixed-rate Mortgage. The Mortgage after modification must not be: an interest-only Mortgage, a bi-weekly Mortgage or a daily simple interest Mortgage.
11. Have flood insurance coverage if the property is located in an area that has been identified by the Director of the Federal Emergency Management Agency (FEMA) as a Special Flood Hazard Area (SFHA). The Servicer must determine if the area where the property is located has been identified as a SFHA. This step must be taken even if the property was not located in a SFHA when the Mortgage was originated. If the property is located in a SFHA, then the Servicer must require that the Borrower purchase flood insurance as required in Section 8202.3.