Freddie Mac Single-Family Seller/Servicer Guide 9209.2 — Borrower documentation for deeds-in-lieu of foreclosure

This section contains requirements related to: ■ Borrower documentation ■ Evaluating the Borrower (a) Borrower documentation (i) Borrower documentation requirements for a deed-in-lieu of foreclosure Borrower documentation requirements for a deed-in-lieu of foreclosure by Delinquency status If the Mortgage Delinquency status at of the time of evaluation is… The Servicer must… Current or less than 90 days delinquent Evaluate the Borrower based on a complete Borrower Response Package as defined in Section 9102.5. Note: If the Mortgage is current or less than 60 days delinquent, the Servicer must determine that the Borrower's monthly payment is in non-retention imminent default in accordance with Section 9209.2(b)(iv). Between 90 days and 18 months delinquent Evaluate the Borrower based on a complete Borrower Response Package, unless one of the following conditions applies: ■ The Borrower failed a Freddie Mac Flex Modification® Trial Period Plan within the 12 months prior to evaluation for a short sale or deed-in-lieu of foreclosure ■ The Borrower previously received a Freddie Mac Flex Modification and become 60 days or more delinquent within the first 12 months of the effective date of the modification without curing the Delinquency ■ The Borrower previously completed three or more modifications; or ■ The Borrower received a forbearance plan as a result of a hardship due to their Mortgaged Premises or places of employment being located in an Eligible Disaster Area or COVID-19 and became 90 days or more delinquent prior to the evaluation for a deed-in-lieu of foreclosure; or ■ The Mortgage is not secured by an Investment Property, as identified at origination, and the Borrower’s FICO® Credit Score is less than or equal to 620 In these cases, the Servicer must evaluate the Borrower for a Streamlined Deed-in-Lieu of Foreclosure (“Streamlined DIL”). Greater than 18 months delinquent Evaluate the Borrower for a Streamlined DIL. A Streamlined DIL is a Standard Deed-in-Lieu of Foreclosure where the Servicer is not required to obtain the Borrower Response Package or to verify an eligible hardship. (ii) Credit Score requirements The Borrower’s Credit Score must be no more than 90 days old as of the date the Servicer evaluates the Borrower for a deed-in-lieu of foreclosure. If there is more than one Borrower on the Mortgage, the Servicer must choose one Credit Score that is adequately indicative of the credit reputation of all Borrowers currently on the Mortgage. The Servicer must first select a single Credit Score for each Borrower on the Mortgage. If the Servicer obtains multiple Credit Scores for a single Borrower, the Servicer must use the middle/lower method to select the single Credit Score for that Borrower. If there are multiple Borrowers on the Mortgage, the Servicer must determine the single Credit Score for each Borrower using the method described above. The Servicer must then select either the lowest Credit Score across all Borrowers on the Mortgage or the average Credit Score from all Borrowers’ single scores. Whichever method is used, the Servicer must choose the single Credit Score using the same method and procedure for all Borrowers and for all Mortgages consistent with fair lending laws. If during the current period of Delinquency, the Borrower was determined eligible for a Streamlined Short Sale (refer to Section 9208.1(c)), then the Borrower is also eligible for a Streamlined DIL outlined above, even if the Credit Score that was used previously to determine eligibility for the Streamlined Short Sale is now more than 90 days old at the time of the deed-in-lieu of foreclosure evaluation. However, if the Borrower has since brought the Mortgage current, then the Borrower is no longer eligible for a Streamlined Short Sale or Streamlined DIL and is required to submit a complete Borrower Response Package to the Servicer to be evaluated for a deed-in-lieu of foreclosure. (b) Evaluating the Borrower (i) Evaluating the credit report The Servicer must obtain a credit report for each Borrower on the Mortgage (or a joint report for co-Borrowers). The credit report must be no more than 90 days old as of the date the Servicer evaluates the Borrower for a deed-in-lieu of foreclosure. The Servicer must review the credit report to verify that the Borrower meets the relevant requirements for a deed-in-lieu of foreclosure and to evaluate the Borrower’s ability to make a contribution. (ii) Verifying occupancy For Borrowers who are current or less than 60 days delinquent, the Servicer must review the credit report to verify that at least one of the Borrowers is occupying the Mortgaged Premises as a Primary Residence. If the credit report does not indicate that the Mortgaged Premises is the Primary Residence for at least one Borrower, then the Servicer must use good business judgment to reconcile the inconsistency. (iii)New Mortgages Unless the Borrower is eligible for a Streamlined DIL, the Servicer must review the Borrower’s credit report to determine whether the Borrower obtained a new Mortgage(s) in the six months preceding the Borrower’s Delinquency or, if the Borrower is current, in the six months preceding the evaluation of the Borrower for a deed-in-lieu of foreclosure. If the Servicer’s review of the credit report reveals a new Mortgage, the Servicer may approve the deed-in-lieu of foreclosure only if the eligible hardship for a Borrower who was 90 or more days delinquent was due to distant employment transfer, relocation due to new employment or Permanent Change of Station (PCS) orders and the Servicer verifies that: ■ The Borrower intends to occupy the property securing the new Mortgage as the Borrower’s Primary Residence ■ The new employment location is greater than 50 miles one way from the Mortgaged Premises ■ The new property address is reasonably near the Borrower’s new employment location If the Borrower has any other hardship, or if the above referenced hardship was for a Borrower who was less than 90 days delinquent, and the Servicer determines a new Mortgage has been obtained, the Servicer is not delegated to approve the deed-in-lieu of foreclosure and must submit the request to Freddie Mac for consideration. If the Servicer’s review of the credit report indicates that a mortgage creditor has made an inquiry within the previous four-month period, the Servicer must contact the Borrower to determine the following on the Mortgage sought: ■ The address of the property ■ The purpose of the inquiry (e.g., refinance or purchase Mortgage) and ■ The result of the inquiry (e.g., refinance or purchase Mortgage is pending, closed or canceled) If a purchase Mortgage was obtained, then the Servicer is not delegated to approve the deed-in-lieu of foreclosure, and the file must be sent Freddie Mac. Refer to Section 9209.1 regarding the submission of a deed-in-lieu of foreclosure to Freddie Mac. (iv) Special requirements for Borrowers who are current or less than 60 days delinquent If a Borrower is current or less than 60 days delinquent, he or she must be considered to be in non-retention imminent default following the business rules in the chart below unless the Borrower was discharged from a Chapter 7 bankruptcy.

(A) Non-retention imminent default evaluation business rules Resolve® will evaluate the information the Servicer provides against the imminent default business rules. Any Borrower who is current or less than 60 days delinquent at the time the Servicer commences the initial evaluation is in non-retention imminent default if the Borrower meets the requirements of the following business rules: Non-retention imminent default evaluation business rules To be considered in non-retention imminent default, the Borrower must meet all requirements under business rule 1 and must meet the requirements for either: ■ Business rule 2, or ■ Business rule 3 Business rule 1 Each Borrower must: ■ Submit a complete Borrower Response Package Non-retention imminent default evaluation business rules To be considered in non-retention imminent default, the Borrower must meet all requirements under business rule 1 and must meet the requirements for either: ■ Business rule 2, or ■ Business rule 3 ■ Be current or less than 60 days delinquent (i.e., less than three monthly payments past due) on the Mortgage as of the evaluation date ■ Occupy the property as a Primary Residence (or at least one Borrower on the Mortgage must occupy the property as his or her Primary Residence) ■ Have Cash Reserves (as defined in Section 9209.2(b)(iv)(C)(I)) less than $25,000 ■ Have an eligible hardship as described in Section 9202.1(b) Note: Requirements related to occupancy and nonretirement liquid assets do not apply if the Borrower is a Servicemember (as defined in Section 8503.1) with PCS orders and the property securing the Mortgage is or was the Borrower’s Primary Residence where the transfer or new employment location is greater than 50 miles one way from the property securing the Mortgage. Business rule 2 The Borrower is considered in non-retention imminent default if the Borrower meets the requirements of business rule 1, and: ■ The Borrower’s Credit Score is less than or equal to 620 determined in accordance with Section 9206.1(e)(v); AND ■ The Mortgage has had two or more 30-day Delinquencies in the most recent 6-month period; OR ■ The Borrower’s housing expense-to-income ratio is greater than 40% as of the evaluation date If the Borrower has one of the Imminent Default Hardships described below in business rule 3, the Borrower may be determined to be in non-retention imminent default even if these business rule 2 requirements are not met. The Servicer must submit all information for business rule 1 and business rule 2 in all instances, even if the Borrower does not meet the requirements under business rule 2 and instead is approved based on the Imminent Default Hardship under business rule 3.

(B) Income and asset documentation and verification (I) Documentation and verification To be evaluated for imminent default, a Borrower must, at a minimum, provide a complete Borrower Response Package as defined in Section 9102.5(c). In addition to the income documentation required under Section 9202.1(c), the Servicer must obtain the Borrower’s Credit Score in accordance with Section 9206.1(e)(v). Non-retention imminent default evaluation business rules To be considered in non-retention imminent default, the Borrower must meet all requirements under business rule 1 and must meet the requirements for either: ■ Business rule 2, or ■ Business rule 3 Business rule 3 The Borrower is considered in non-retention imminent default if the Borrower meets the requirements of business rule 1 and the Borrower provided the documentation required in Section 9202.1(b) supporting one of the Imminent Default Hardships listed below: ■ Death of a Borrower or death of either the primary or secondary wage earner in the household ■ Long-term or permanent disability or serious illness of a Borrower/co-Borrower or dependent family member ■ Divorce or legal separation or separation of Borrower unrelated by marriage, civil union or similar domestic partnership under applicable law; or ■ Distant employment transfer or relocation due to new employment or PCS orders where the property securing the Mortgage being evaluated is the Borrower’s Primary Residence. The new employment location must be more than 50 miles one way from the property securing the Mortgage being evaluated. The Imminent Default Hardship must currently cause and be expected to continue to cause a long-term or permanent decrease in income or increase in expenses. (II) Verification of income and assets; resolution of material inconsistencies Servicers must review all documentation submitted by the Borrower to identify any material inconsistencies, including material inconsistencies with a tax return or tax transcript if one was obtained under Section 9202.1(c). If, based on the Servicer’s good business judgment, there are material inconsistencies with respect to the income or asset information disclosed by the Borrower or with other documentation relevant to the imminent default decision, the Servicer must obtain other documentation to reasonably reconcile such material inconsistencies. Servicers must also document such material differences in their Servicing system. If the Servicer cannot reconcile such material differences, the Borrower cannot be considered in imminent default.

(C) Cash Reserves test The Servicer must complete an evaluation of the Borrower’s Cash Reserves. The Borrower must have Cash Reserves of less than $25,000 to be further evaluated for imminent default. If the Borrower either discloses or provides documentation indicating the Borrower has Cash Reserves equal to or greater than $25,000, then the Borrower is not in imminent default. (I) Definition of Cash Reserves For purposes of determining imminent default, Cash Reserves are defined as follows: Cash Reserves: Any non-retirement liquid asset the Borrower has available for withdrawal from any financial institution or brokerage, including funds on deposit in the Borrower’s checking, savings, money market or certificate of deposit account or other depository account, stocks, bonds, mutual funds, U.S. government securities and other securities that are traded on an exchange or marketplace generally available to the public (e.g., New York Stock Exchange, National Association of Securities Dealers Automated Quotations, Midwest SE, Chicago Board of Trade or Over the Counter) for which the price can be readily verified through financial publications. Assets are only considered retirement assets if they are held in a qualified retirement account such as a 401k, 403b, 457, Individual Retirement Account or pension fund. If the assets are not held in a retirement account, the assets must be considered Cash Reserves. (II) Calculating Cash Reserves The Servicer must calculate the Borrower’s Cash Reserves in accordance with the following requirements: ■ The Servicer must determine that, for every Borrower on the Mortgage, all the Borrower’s Cash Reserves have been accounted for on Form 710, Mortgage Assistance Application ■ In making the determination that all Cash Reserves have been accounted for, the Servicer must review all information provided by the Borrower to determine if the asset information stated on Form 710 is reasonably consistent with information available from all other information provided by the Borrower, including verbal information shared by the Borrower ■ If there are inconsistencies between the Borrower’s disclosure of assets and the information provided by the Borrower, then the Servicer must obtain the Borrower’s tax return or tax transcript to reconcile the inconsistencies. The following requirements apply: ❑ If, upon reviewing the Borrower’s tax return or tax transcript, if applicable, the Servicer observes interest, dividend income or gains/losses that, in total, that could not be reasonably produced by the Borrower’s disclosed Cash Reserves, and such income indicates deposits, securities holdings or other assets that could be in excess of the amounts disclosed by the Borrower on Form 710, the Servicer must reconcile the inconsistency with the Borrower ❑ The Servicer must require the Borrower to produce a signed federal tax return and all relevant schedules, in the event the Servicer used a tax transcript in lieu of a tax return, along with any other relevant documentation that verifies the disposition and/or current status of those assets, which produced the income or gains/losses to resolve the inconsistency ❑ The Servicer must ensure that the Borrower’s disclosure of assets is reasonably accurate despite the inconsistency between the disclosed assets and the income or gain/loss from assets reported on the tax return or tax transcript ❑ In determining what documentation is needed to reconcile an inconsistency, the Servicer must review the detailed tax return schedules and forms and request from the Borrower copies of recent and past statements from those asset holdings or transactions indicated on the schedules and forms that produced the income or gain/loss (e.g., checking, savings, brokerage account statements, asset sale statements or records) ■ If there are inconsistencies between the Borrower’s disclosure of assets and the tax return information that cannot be reconciled, the Borrower cannot be considered in imminent default. If the Servicer determines that the Borrower has Cash Reserves of less than $25,000 and meets all other requirements of Section 9206.1(e)(ii), then the Borrower is considered to be in imminent default.

(D) Imminent default Credit Score Servicers must choose one Credit Score that is adequately indicative of the credit reputation of all Borrowers currently on the Mortgage. Servicers must use a Credit Score based on the credit-scoring model. This score must be obtained and determined in accordance with the requirements below. (I) Obtaining Credit Scores for each Borrower The Servicer must request a Credit Score for each Borrower on the Mortgage from any one of the following three credit repositories: ■ Equifax Credit Information Services ■ Experian Information Systems and Services ■ TransUnion Credit Information Company The Borrower’s Credit Score must be less than 90 days old on the date the Servicer performs the imminent default evaluation. (II) Borrowers with no available Credit Score It is unusual for any Borrower who has obtained a Mortgage not to have a Credit Score. If no single Credit Score can be identified for a Borrower, the Servicer must recheck the information provided when ordering the Credit Scores and resubmit a request. If the Servicer is still unable to obtain a Credit Score for that Borrower, it may rely on the Credit Scores of all other Borrowers as determined in accordance with this section. Absent a Credit Score for any Borrower on the Mortgage, the Borrower may not be determined to be in imminent default under the requirements of business rule 2, and the Servicer must proceed to evaluate the Borrower under the requirements of business rule 3 in Section 9206.1(e)(ii). When a Credit Score is not available for any Borrower on the Mortgage, the Servicer must: ■ Maintain documentation in the Mortgage file that demonstrates the Servicer’s attempts to obtain Credit Scores from all three credit repositories on all Borrowers ■ Enter the result that a FICO score is not available for any Borrower on the Mortgage into Resolve ■ Proceed to the Imminent Default Hardship test in business rule 3 to determine if an Imminent Default Hardship exists (III) Determining the Imminent Default Credit Score The Servicer must identify the Imminent Default Credit Score in accordance with the following: ■ The Servicer must first select a single Credit Score for each Borrower on the Mortgage. If the Servicer obtains multiple Credit Scores for a single Borrower, the Servicer must use the middle/lower method to select the single Credit Score for that Borrower. This method is the most predictive when determining a single Borrower's overall credit reputation. If three Credit Scores are obtained for a Borrower, the single score for that Borrower is the one with the middle value. For example, if the Credit Scores were 660, 656 and 640, the single Credit Score selected by the Servicer should be 656. When there is a duplicate score, the Seller must select that score to be the single score. If the Credit Scores for a Borrower were 660, 660 and 640, the Servicer should select 660. If two Credit Scores were obtained for a Borrower, the Servicer must select the lower of the two Credit Scores to be the single Credit Score for that Borrower. ■ If there is only one Borrower on the Mortgage, the single Credit Score, determined in accordance with the above requirements, is considered the Imminent Default Credit Score ■ If there are multiple Borrowers on the Mortgage, the Servicer must determine the single Credit Score for each Borrower using the method described above. The Servicer must then select either the lowest Credit Score across all Borrowers on the Mortgage or the average Credit Score from all Borrowers' single scores. (Note: Whichever method is used, the Servicer should choose the single Credit Score using the same method and procedure for all Borrowers and for all Mortgages consistent with fair lending laws.)

(E) Calculating housing expense-to-income ratio The Servicer must input verified income data into Resolve. Based on the Servicer’s input, Resolve will determine if the Borrower’s housing expense-to-income ratio is greater than 40%. For purposes of this determination, the Borrower’s current monthly housing expense is divided by the Borrower’s monthly gross income (or the Borrowers’ combined monthly gross income in the case of co-Borrowers) plus any allowable non-obligor household income. The Borrower’s current monthly housing expense consists of the following, as applicable: ■ Monthly principal and interest payment ■ Monthly pro rata amount for real estate taxes ■ Monthly pro rata amount for property or flood insurance ■ Monthly pro rata amount for homeowners association (HOA) dues, Condominium Unit or Cooperative Unit Maintenance Fees and ground rent ■ Any Escrow shortage currently included as part of the monthly contractual payment If the Borrower has been granted interest rate relief under the Servicemembers Civil Relief Act (SCRA), the Servicer must use the principal and interest payment and the contractual rate of interest in effect on the Note prior to the granting of the SCRA relief rather than the temporarily SCRA-reduced interest rate and related SCRA monthly payment when calculating the Borrower’s current monthly housing expenseto-income ratio. If a Borrower has indicated that there are condominium/HOA or Cooperative Corporation assessments (see Chapter 8801 for special Servicing requirements for Cooperative Share Loans), Condominium Unit maintenance fees or Cooperative Unit Maintenance Fees or ground rents but has not been able to provide written documentation to verify these amounts, the Servicer must rely on the information provided by the Borrower if the Servicer has made reasonable efforts to obtain the amounts in writing. The current monthly housing expense does not include mortgage insurance premium payments or payments due to holders of subordinate liens. Based on the information provided by the Servicer, Resolve will calculate the Borrower’s housing-to-expense income ratio and determine if it meets the imminent default requirements under business rule 2.

(F) Payment history Based on the information provided by the Servicer, Resolve will review the Borrower’s payment history and determine if it meets the imminent default requirements under business rule 2.

(G) Imminent default evaluation results If the Borrower meets the requirements of business rule 1 and meets the requirements of either business rule 2 or business rule 3, the Borrower is in imminent default. The Servicer must evaluate the Borrower for a deed-in-lieu of foreclosure, and no further analysis is required by the Servicer to determine imminent default.

(H) General requirements and information If the Servicer determines that a Borrower is in imminent default, the Servicer must continue evaluating the Borrower using the applicable requirements outlined in this chapter to determine if the Borrower qualifies for a deed-in-lieu of foreclosure.