8502.2: Rate changes on ARMs (03/02/16)

© Freddie Mac Single-Family Seller Servicer Guide

(a) Determining the new Note Rate The Servicer must adjust the Note Rate on an ARM in accordance with the provisions set forth in the Note and any applicable Adjustable-Rate Riders. The Note will specify the Index on which any adjustments must be based, as well as other factors that must be used to determine the new Note Rate. These factors include, but are not limited to:

• The dates on which the Note Rate may change (Interest Change Date)
• The date on which the Index value used to calculate the new Note Rate is determined, usually expressed as a number of days (known as the Lookback Period)
• The Margin, which is the number of percentage points that must be added to the current Index value to establish the new Note Rate
• The limitations on the amount that the Note Rate may change at the first adjustment, subsequent adjustments and during the life of the Mortgage (Initial Cap, Periodic Cap and Life Cap) and any associated rounding rules

Upon each Note Rate change, the Servicer must calculate a new monthly payment amount based on the new Note Rate that is sufficient to fully amortize the UPB of the ARM over the remaining term.

(b) Notifying the Borrower With respect to each ARM serviced for Freddie Mac, the Servicer must correctly calculate any and all adjustments to the interest rate or the monthly payment and give to the Borrower all notices of adjustment of interest rate and monthly payments in strict accordance with the requirements of applicable law and with the terms of the Note and the Security Instrument. With respect to LIBOR-Indexed ARMs, in the notices of adjustment in the interest rate and monthly payment provided the Borrower before the effective date of the change, the Servicer must inform the Borrower that the LIBOR Index value used to calculate the new interest rate is the average of the London interbank offered rates for six-month or one-year US dollar denominated deposits, as applicable, as published in the print edition of The Wall Street Journal.

(c) Notification of the new Accounting Net Yield (ANY)Freddie Mac will notify the Servicer via the ARM notification report of the revised Accounting Net Yield (ANY) that the Servicer will be required to send us on an ARM in accordance with the product requirements set forth at the time of purchase. The ARM notification report will be available through the Freddie Mac Service Loans application at http://www.freddiemac.com/singlefamily/service.The Servicer must verify the rate change notification information. If there are any differences or omissions, the Servicer must note the discrepancies on the bottom of the notification and return it to Freddie Mac (see Directory 7). Do not return the notification if the information on it is correct and complete. The new ANY must be used for the accounting cutoff date indicated in the notification. The Servicer must report and remit net yield interest based on the new ANY beginning with the effective accounting cycle shown on the notification. The Servicer must ensure that the adjusted Note Rate supports the new ANY. The Servicer will be liable for all net yield interest deficiencies that result from differences in calculations between the ANY that Freddie Mac provides the Servicer and the Servicer's calculations. Depending on the next Interest Change Date at the time of Mortgage delivery, the Servicer may not receive notification from Freddie Mac prior to the effective date of the new ANY.