4402.1: Common requirements for Seller-Owned Converted and Seller-Owned Modified Mortgages (07/11/16)

(a) Eligible Mortgages(i) Requirements related to the Mortgage prior to conversion or modification

Prior to conversion or modification, the Mortgage must have had the following characteristics:

The Mortgage must have been secured by a First Lien on a 1- to 4-unit Primary Residence or a 1-unit second home
The occupancy type of the Mortgage Premises must not have changed since the Note Date or since the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
The Mortgage met all Freddie Mac's eligibility and underwriting requirements on the Note Date or on the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
The loan-to-value (LTV), total LTV (TLTV) and Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios did not exceed the limits in Section 4203.4 as of the Note Date or as of the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
The principal balance of the Mortgage has not increased since the Note Date, or since the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage, and the loan amount of the Mortgage prior to modification did not exceed the maximum loan amount in Section 4203.3 in effect on the Note Date (The Mortgage may not be a super conforming Mortgage)
The Mortgage was not in default and otherwise meets the requirements in Section 4201.7
The Mortgage was a conventional, fully amortizing Mortgage and the Mortgage had an original amortization term no greater than 30 years from the Note Date or from the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
The Mortgage was not an interest-only Mortgage prior to conversion or modification

(ii) Eligibility of the Seller-Owned Converted or Seller-Owned Modified MortgageA Seller-Owned Converted or Seller-Owned Modified Mortgage must have the following characteristics:

The Mortgage meets all Freddie Mac's eligibility and underwriting requirements in effect on the Delivery Date
The current LTV, TLTV and HTLTV ratios do not exceed the limits in Section 4203.4 as of the Delivery Date. The current ratios are calculated by dividing the UPB of the Mortgage as of the Delivery Date by the value as defined in Section 4203.1.
The Mortgage must comply with the maximum original loan amounts stated in Section 4203.3 in effect on the Settlement Date. (The Mortgage may not be a super conforming Mortgage.)
The Seller may not have assessed a prepayment penalty in connection with the conversion or modification of the Mortgage
The Borrowers are the same as the Borrowers on the Mortgage prior to conversion or modification, except that a Borrower who contributed no qualifying income, assets or reserves to the Mortgage may have been removed
The Mortgage is a conventional, fully amortizing Mortgage and the Mortgage term may not extend beyond 30 years from the Note Date or from the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage

A Mortgage originated as a Construction Conversion or Renovation Mortgage is a Seller-Owned Modified Mortgage if:

The terms of the Permanent Financing have been modified or if an ARM, converted to a fixed-rate Mortgage, after the Effective Date of Permanent Financing; and
It meets the requirements of this Chapter 4402, and
It is not a Home Possible® Mortgage or a Mortgage secured by a Manufactured Home

(b) Special underwriting requirements

Except as modified by this chapter, the Seller is required to manually underwrite and requalify each Borrower using Freddie Mac's eligibility and underwriting requirements in accordance with Topics 5100 through 5500 as in effect as of the Delivery Date. In addition, Mortgages secured by second homes must meet the requirements of Section 4201.15.
The Mortgage must comply with the minimum Indicator Score requirements set forth in Exhibit 25 for an applicable Mortgage product, and must meet the requirements of Topics 5100 through 5500. If no Borrower has a usable Credit Score and as a result, the Mortgage does not have an Indicator Score, the Mortgage is not eligible for purchase
A Seller-Owned Converted or Seller-Owned Modified Mortgage is not eligible to be submitted to Loan Product AdvisorSM for evaluation
The Seller-Owned Converted or Seller-Owned Modified Mortgage will not receive any representation and warranty relief relating to the evaluation of the Mortgage through Loan Product Advisor and any previous relief provided is of no force and effect in connection with the Mortgage
The Seller-Owned Converted or Seller-Owned Modified Mortgage eligibility and underwriting requirements must be based on the loan purpose as of the Note Date

(c) Special documentation requirementsThe Seller must maintain in the Mortgage file:

All documentation required by the Purchase Documents as of the Note Date or as of the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
All documentation associated with the conversion or modification of the Mortgage
The Mortgage payment history of the Mortgage for the 12-month period prior to the Delivery Date (or the full length of Mortgage payment history, if less than 12 months) documented by a new credit report or a Servicer generated payment history
Credit, employment and income documentation required to requalify each Borrower in accordance with the Standard Documentation requirements in Topic 5300 for the Seller-Owned Converted or Seller-Owned Modified Mortgage including, but not limited to:
- New Uniform Residential Loan Application
- New credit report meeting the requirements of Section 5203.1
- Verification of income and employment
Any other documentation required as of the Delivery Date (e.g., the Indicator Score). If Freddie Mac required a minimum Indicator Score for the Mortgage at time of origination, the Seller must note this Indicator Score in addition to the Indicator Score required for delivery under this chapter on the Form 1077, Uniform Underwriting and Transmittal Summary.

Underwriting documentation must be obtained within 120 days prior to the modification or Conversion Date.

(d) Property value warranty requirementsThe Seller must provide a new appraisal with an effective date no more than 120 days prior to the modification or Conversion Date. The appraisal must meet Freddie Mac requirements. The Seller warrants that the property value has not declined since the effective date of the most recent appraisal if the Mortgage was originated as a Construction Conversion or Renovation Mortgage. The new appraisal must not be used to determine the original LTV, TLTV and HTLTV ratios for the Mortgage or the current LTV, TLTV and HTLTV ratios as of the Delivery Date.
(e) Planned Unit Development, leasehold estate and condominium warranty requirements

For Mortgages secured by Condominium Units, the Seller must underwrite the Condominium Project, and based on such evaluation, must represent and warrant that the Condominium complies with the requirements set forth in Chapter 5701.Mortgages secured by leasehold estates must meet the special warranties set forth in Chapter 5704 as applicable.Mortgages secured by Planned Unit Developments must meet the special warranties set forth in Chapter 5702 as applicable.(f) Mortgage insurance requirements

For a Mortgage that had an LTV ratio greater than 80% on the Note Date or on the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage, and has a current LTV ratio greater than 80%, the required level of mortgage insurance coverage will be determined by the requirements in this Guide as of the Note Date or as of the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage
The Seller is not required to increase existing mortgage insurance coverage to comply with Section 4701.1 if Freddie Mac's minimum coverage amounts have increased between the (i) Note Date or the Effective Date of Permanent Financing if the Mortgage was originated as a Construction Conversion or Renovation Mortgage, and (ii) the Delivery Date
The Seller/Servicer must warrant that conversion or modification has not altered or impaired the coverage under the mortgage insurance policy. If the Seller/Servicer cannot warrant that the insurance policy has not been impaired, the Seller/Servicer must obtain an endorsement which brings the policy into compliance with the requirements of Section 4701.1.
Lender-paid mortgage insurance is permitted
The custom mortgage insurance option described in Section 4701.1(b) and financed mortgage insurance premiums described in Section 4701.2(a) are not permitted

(g) Form 1077, Uniform Underwriting and Transmittal Summary

On Form 1077, or on another document in the Mortgage file, the Seller must state that the loan is a Seller-Owned Converted Mortgage or a Seller-Owned Modified Mortgage. If applicable, Seller must state that the Mortgage was originated as a Construction Conversion or Renovation Mortgage.
(h) Title insurance

The Mortgage must meet the title insurance requirements of Chapter 4702. The Seller/Servicer must warrant that conversion or modification has not altered or impaired coverage under the title insurance policy or attorney's opinion of title.