8501.2: Communicating upcoming interest rate adjustments (03/02/16)

© Freddie Mac Single-Family Seller Servicer Guide

The Servicer must send two separate written notifications to the Borrower prior to an initial interest step-rate adjustment on a Step-Rate Mortgage. These notifications must be sent in order to ensure that Borrowers are fully prepared for increases to their PITIAS Payment amounts, and have a full understanding of when and why the payment amount will increase. If after the initial step-rate adjustment the Mortgage will be subject to subsequent interest rate adjustments, the Servicer, in accordance with Section 8501.2(c), must send one notification letter prior to the payment due date associated with each subsequent adjustment.

(a) As early as the 150th day and no later than the 90th day prior to the first payment due date following the initial interest rate adjustment The Servicer must provide the Borrower with a written notice of the initial interest rate adjustment that will occur as a result of a step-rate feature on the Borrower's Step-Rate Mortgage (i.e., at the end of a fixed-rate term).

(b) As early as the 75th day and no later than the 60th day prior to the first payment due date following the initial interest rate adjustment The Servicer must provide the Borrower with a second written notice of the initial interest rate adjustment. Each written notice of an upcoming interest rate adjustment sent to the Borrower in accordance with the requirements in Section 8501.2(a), 8501.2(b) or 8501.2(c) must:

1. Provide the amount and effective date of the interest rate increase, and the amount and due date of the Borrower's first increased monthly payment at the new adjusted level
2. Explain that, pursuant to the terms of the modification agreement, at the end of the initial fixed-rate term, the interest rate will increase according to the schedule in the agreement until it reaches a pre-determined Interest Rate Cap. (Note: As applicable, the Servicer must explain how the Interest Rate Cap was derived, and that once the interest rate reaches its cap, it will remain fixed for the remaining Mortgage term.)
3. Explain that the monthly payment includes an Escrow for property taxes, hazard insurance and other escrowed expenses, which could also increase the monthly payment amount if those amounts are increased
4. Explain how the new payment is determined
5. Include a payment schedule table similar to the one included in the Borrower's modification agreement, which outlines the future interest rates and monthly payment amounts (identifying principal and interest, as well as Escrows), and the effective dates for each; alternatively, the Servicer may explain these terms, dates and amounts;
6. Include the Servicer's contact information and instructions for the Borrower to contact the Servicer if the Borrower has any questions regarding the content of the notice
7. Include the Homeowners HOPE™ Hotline Number (888-995-HOPE)
8. Explain that free budgeting assistance from the HUD-approved housing counseling agencies is available via HUD.gov; and
9. Provide information regarding the availability of additional information on Freddie Mac's Mortgage Help Resource Center web site (http://myhome.freddiemac.com/)

(c) As early as the 120th day and no later than the 60th day prior to the first payment due date at each subsequent adjusted rate level Servicers must provide each Borrower with a written notice of each subsequent interest rate adjustment that will occur as a result of a step-rate feature on a Step-Rate Mortgage.