Freddie Mac Single-Family Seller/Servicer Guide 9207.1 — Workout Mortgage assumption, including overview, eligibility, submission, approval and closing requirements

This section contains information related to: ■ What is a workout Mortgage assumption? ■ When to consider a workout Mortgage assumption ■ Eligibility requirements for a workout Mortgage assumption ■ Submitting a workout Mortgage assumption recommendation to Freddie Mac ■ Freddie Mac’s decision about a Servicer’s recommendation for workout Mortgage assumption ■ Approval conditions for a workout Mortgage assumption ■ Closing requirements for workout Mortgage assumption ■ Servicer fee for workout Mortgage assumption

(a) What is a workout Mortgage assumption? A workout Mortgage assumption permits a qualified applicant to assume title to the property and the Mortgage obligation from a Borrower who is currently delinquent or in imminent danger of default on his or her Mortgage because of an eligible hardship. This workout option has different requirements than the requirements for Transfers of Ownership allowed under certain Mortgage documents or federal law. Servicers must submit recommendations for workout Mortgage assumptions to Freddie Mac for approval. Refer to Chapter 8406 for those requirements.

(b) When to consider a workout Mortgage assumption (i) Long-term hardships If the Borrower’s eligible hardship, as described in Section 9202.1(b), is permanent or long term and he or she cannot or does not want to retain ownership of the property but is cooperative and has a potential buyer for the property, then the Servicer should explore the possibility of a workout Mortgage assumption in accordance with the requirements in Sections 9207.1(c) through 9207.1(h) as a solution to the Delinquency. (ii) Simultaneous assumptions, relief options and modifications The Servicer must also consider an assumption of the Mortgage in situations where: ■ All Borrowers are deceased or ■ One or more Borrower(s) on the Note has an eligible hardship as described in Section 9202.1(b) and the hardship is expected to cause a long-term or permanent decrease in the Borrower’s income or increase in the Borrower’s expenses such that all Borrowers on the Note are unable or unlikely to continue making the monthly Mortgage payment obligation In this circumstance, if a natural person with a legal or beneficial interest in the Mortgaged Premises wishes to assume the Mortgage obligation (“non-Borrower applicant”), then the Servicer must first determine if the non-Borrower applicant meets the Transfer of Ownership requirements under Chapter 8406. If the non-Borrower applicant does not meet the Transfer of Ownership requirements under Chapter 8406 and the due-on-transfer clause has been triggered or the Mortgage is delinquent, the Servicer must explore all available relief options as described in Chapter 9203, including forbearance and payment deferral. Defined term: For purposes of this section, a natural person with a beneficial interest in the Mortgaged Premises includes: ■ An heir or legatee who will inherit the Mortgaged Premises following completion of probate or distribution of the assets of the estate of the deceased Borrower; or ■ A person awarded title to the Mortgaged Premises pursuant to a court decree or courtapproved separation agreement where a quitclaim deed has not been executed or recorded. If a Servicer is uncertain whether a person has a beneficial interest in the Mortgaged Premises, it should consult its legal counsel or submit the case to Freddie Mac via Resolve®. If the non-Borrower applicant meets the Transfer of Ownership requirements under Chapter 8406 and the due-on-transfer clause has not been triggered or the Mortgage is delinquent, and the Servicer determines that a relief option is unlikely to lead to a resolution of the default or Delinquency, the non-Borrower applicant may be considered for a simultaneous assumption and modification under the Freddie Mac Flex Modification® requirements. The non-Borrower applicant must provide the Servicer with a complete Borrower Response Package, and the Servicer must evaluate the nonBorrower applicant as if he or she were a Borrower. Servicers may first consider whether the non-Borrower with a legal or beneficial interest in the property can qualify using the non-Borrower income requirements specified in Section 9202.1(c)(ii). If the applicant does not meet the non-Borrower income criteria in Section 9202.1(c)(ii) and/or wishes to assume the Mortgage obligation, then Servicers must follow the requirements below to submit a recommendation to Freddie Mac for a simultaneous assumption and modification. Servicers must obtain Freddie Mac’s approval prior to offering an otherwise eligible nonBorrower applicant a simultaneous assumption and modification. To submit a recommendation for a simultaneous assumption and Freddie Mac Flex Modification, the Servicer must submit its recommendation to Freddie Mac via the Resolve User Interface. See Resolve Online Help for additional details. Freddie Mac’s decision will be available in the Resolve Dashboard accessible via Freddie Mac Gateway®. Supporting documentation must be submitted to Freddie Mac (see Directory 5) upon request. If Freddie Mac does not approve the request for a simultaneous assumption and modification, the Servicer must refer to Section 1301.2(i) for information on adverse action notices that must be provided to the non-Borrower applicant on behalf of Freddie Mac. The requirements in this Section 9207.1(b) also apply in cases where the only remaining Borrower is a trust and to other transfers that require acceleration of the Note. Note: Refer to Chapter 8406 for additional information regarding Transfers of Ownership.

(c) Eligibility requirements for a workout Mortgage assumption To recommend a Borrower for a workout Mortgage assumption, the Servicer must complete Form 1077, Uniform Underwriting and Transmittal Summary, and ensure that all of the following eligibility requirements are met: ■ The Borrower must have an eligible hardship ■ The Borrower must be delinquent in his or her payments or in imminent danger of default ■ The Borrower must submit a complete Borrower Response Package. (See Section 9102.5 for information on the Borrower Response Package.) ■ The Borrower must be cooperative and allow access to the interior of the property for a BPO for: ❑ A Mortgage secured by a 2- to 4-unit property, a Manufactured Home or a dwelling subject to a leasehold estate ❑ A Cooperative Share Loan secured by a First Lien on the Cooperative Interest to a Cooperative Unit. (See Chapter 8801 for special Servicing requirements for Cooperative Share Loans.) ■ The indebtedness-to-value (ITV) ratio must be equal to or greater than 85%. The total ITV ratio is the total indebtedness under the terms of the Mortgage, which includes the UPB, accrued interest, Escrow advances and expenses (see Exhibit 57A, Approved Attorney, Foreclosure, Mediation, Postponement Fees and Title Expenses, for the applicable expense limits) divided by the probable sales price determined by Freddie Mac. ■ The applicant assuming the Mortgage must meet Freddie Mac’s underwriting guidelines in Topics 5100 through 5500 and Section 8406.2(a) as documented on Form 1077 ■ The applicant must pay a Down Payment of at least 5% of the total indebtedness unless the Transfer of Ownership meets the criteria listed in Section 8406.1(c) or 8406.1(d)

(d) Submitting a workout Mortgage assumption recommendation to Freddie Mac To recommend a workout Mortgage assumption, the Servicer must: ■ Obtain a property valuation through BPOdirect® (see Section 2406.1 regarding obtaining a property value via BPOdirect). ❑ For a Mortgage secured by a 1-unit property (excluding a Manufactured Home, a dwelling subject to a leasehold estate or a Cooperative Unit), the Servicer must, unless otherwise noted below, use an available automated value ❑ If an automated value is not available for the Mortgage secured by a 1-unit property, or, pursuant to Section 9207.1(c), the Borrower must be cooperative and allow access to the interior of the property for a BPO, then the Servicer must order a new property valuation in accordance with Sections 2406.1, 9202.4(b) and 9202.4(d), if necessary ❑ The property valuation must be less than 90 days old on the date the Servicer recommends the workout Mortgage assumption to Freddie Mac Note: The Servicer does not need to submit the valuation to Freddie Mac because Freddie Mac will have access to the value via BPOdirect. Notwithstanding the requirements above, if the Servicer has previously obtained a Freddie Mac-compliant property valuation (i.e., Freddie Mac-provided BPO, Freddie Mac-provided appraisal or an appraisal obtained in compliance with Topic 5600), the Servicer must use the Freddie Mac-compliant property valuation in connection with a workout Mortgage assumption evaluation. ■ Submit all of the following to Freddie Mac (see Directory 5): ❑ The Borrower’s complete Borrower Response Package (see Section 9102.5 for a description of the Borrower Response Package) ❑ Completed Form 1077 detailing the Servicer’s underwriting of the applicant ❑ A copy of the fully executed sales contract and addenda ❑ Estimated seller Closing Costs, if applicable ❑ If the Mortgage is covered by mortgage insurance, a faxed copy of the approval from the MI to Freddie Mac within two Business Days of the Servicer’s receipt of the MI’s approval

(e) Freddie Mac’s decision about a Servicer’s recommendation for workout Mortgage assumption Freddie Mac will review the documentation the Servicer submits and make a decision to approve or deny the workout Mortgage assumption request. (i) Approval of request If Freddie Mac approves the assumption request, it will send the Servicer an approval letter detailing any conditions of Freddie Mac’s approval. (ii) Denial of request If Freddie Mac denies the assumption request, it will send the Servicer an explanation of why Freddie Mac denied the request and provide the Servicer with the course of action it must take to resolve the Delinquency. The Servicer must provide an adverse action notice to all applicable parties, in addition to any other notice or disclosure required under the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act and any other applicable law or regulation. Refer to Section 1301.2(i) for more information about adverse action notice requirements.

(f) Approval conditions for a workout Mortgage assumption If Freddie Mac approves the Servicer’s recommendation to allow an assumption of the Mortgage, the Servicer must ensure that all conditions listed on Freddie Mac’s approval letter are met and must: 1. Obtain approval from the FHA, RHS, VA or MI, if applicable; for leasehold Mortgages, obtain the consent of the fee simple landowner/lessor to the assignment of lease, if required under the lease 2. Complete an Escrow analysis or establish an Escrow account to ensure that there are sufficient funds to pay the property taxes, property and mortgage insurance premiums, etc. 3. Process the assumption so that the settlement occurs within 30 days of Freddie Mac’s approval and submit the assumption agreement for recordation within one Business Day of the settlement. Note: Per Section 1402.5(c)(ii), the Servicer must update the MERS® eRegistry (as defined in Section 1402.1(b)) to provide notice of the assumption agreement upon a workout Mortgage assumption (with or without a release of liability) of an eMortgage (as defined in Section 1402.1(b)). 4. Comply with the documentation requirements in Section 8406.3(a) 5. Ensure that the Borrower does not receive any cash-out from the transaction unless Freddie Mac receives all sums due to it 6. Ensure that all delinquent amounts are brought current at the time of settlement 7. Retain any credit enhancement if the existing Mortgage has a credit enhancement. (If the Servicer is not the provider of the credit enhancement, it must obtain written approval from the institution providing the enhancement.) 8. For leasehold Mortgages, ensure the transferee has acquired the transferor’s leasehold interest either by obtaining a new lease or assuming the existing lease and that the transfer of the leasehold interest is recorded 9. For Cooperative Share Loans, comply with the requirements in Section 8801.3(a)

(g) Closing requirements for workout Mortgage assumption After the workout Mortgage assumption has been closed, submit the following to Freddie Mac (see Directory 5) to settle the workout: ■ A copy of the settlement statement ■ A copy of the executed assumption agreement ■ A copy of the deed ■ The Borrower’s contribution or promissory note, if applicable ■ A copy of the written approval from the provider of the credit enhancement, if applicable

(h) Servicer fee for workout Mortgage assumption The Servicer may charge the applicant a fee not to exceed the greater of $400 or 1% of the UPB of the Mortgage, to a maximum fee of $900.