To find out if a loan is Fannie Mae or Freddie Mac, use the corresponding lookup tool under Resources.
Standard Modifications are in place until the GSE Flex Modifications take effect in the latter part of 2017. Standard Modifications take different forms depending on the post-modification MTMLTV (mark-to-market loan-to-value ratio) and on whether the modification is done through the streamlined process.
For loans with MTMLTV above 80%, GSE Standard Modifications follow these waterfall steps:
(1) capitalizing eligible arrears;
(2) setting a fixed interest rate;
(3) extending the term of the loan to 480 months from the modification date;
(4) and forbearing the principal to the lesser of (a) the amount needed to create a post-modification MTMLTV ratio of 115% or (b) 30% of the post-modification unpaid principal balance.
After running the loan through the waterfall, the servicer must test for affordability. A Standard Modification must produce: (1) a principal and interest payment reduction; and (2) a DTI ratio that is greater than or equal to 10% and less than or equal to 55% (FDMC Guide § B65.18(a); FNMA Guide § D2-3.2-05). If the modification does not meet these requirements, then the borrower is not eligible for a Standard Modification.
Loans with MTMLTV below 80% are eligible for an alternative Standard Modification without interest rate reduction or principal forbearance (FDMC Guide § B65.18 and FNMA Guide § F-1-22). The interest rate is set depending on the nature of the current interest rate. If the loan is a fixed rate loan, then the interest rate is not changed. If the loan is either an adjustable rate or a step-rate loan, then the interest rate is set to the greater of (1) the current interest rate of the loan or (2) the relevant GSE’s standard modification interest rate.
Aside from these differences, Standard Modifications for loans with MTMLTV<80% are the same as those with higher MTMLTVs. The arrears are capitalized, and the term of the loan is extended to 480 months. The modification must produce (1) a principal and interest payment reduction and (2) a DTI ratio that is greater than or equal to 10% and less than or equal to 55%.