Retirement of Bulletin 2020-17; Selling Guidance Related to COVID-19

Question: If the credit report does not show late mortgage payments, but indicates that the borrower may have been in COVID-19 related forbearance based on how the mortgage is reported, is additional due diligence required to determine the current status of any mortgages the borrower is obligated on?

Answer: No. With the retirement of Bulletin 2020-17, Sellers are no longer required to exercise additional due diligence to verify whether or not each mortgage is current, has been reinstated, or is in a repayment plan, loan modification Trial Period Plan, Payment Deferral or is subject to another loss mitigation program.

Question: If the credit report does not show late mortgage payments but additional documentation in the loan file, (such as a payoff statement) indicates previous late payments that have been resolved (e.g., a deferred balance as a result of a previous COVID-19 related forbearance), does this information invalidate the Loan Product Advisor^® risk class of Accept?

Answer: No. Evidence of previous late mortgage payments due to COVID-19 related forbearance does not invalidate the risk class assessment from Loan Product Advisor. However, for all mortgages delivered to Freddie Mac, the Seller must ensure compliance with Guide Sections 4201.1 and 4201.13 as described in Question 1 in the BORROWER NOT MAKING PAYMENTS ON EXISTING MORTGAGE AT THE TIME OF NEW LOAN APPLICATION section.

Question: For manually underwritten mortgages, if the credit report does not show late mortgage payments but additional documentation in the loan file (such as payoff statement) indicates previous late payments that have been resolved (e.g., a deferred balance that resulted from a previous COVID-19 related forbearance), are the late mortgage payments considered significant derogatory credit as described in Section 5202.5?

Answer: No. For manually underwritten mortgages, mortgage payments missed during COVID-19-related forbearance are not considered significant derogatory credit for the purpose of compliance with requirements in Section 5202.5.

For every mortgage sold to Freddie Mac the Seller must warrant that “repayment of the debt can be expected” from the borrower (see Section 4201.1) and that there are “no circumstances or conditions of which the Seller is aware involving the mortgage, the mortgaged premises or the creditworthiness of the borrower that would adversely affect the value or marketability of the mortgage.” (See Section 4201.13)

If a borrower is not making payments on an existing mortgage at the time of application for a new mortgage, it may be an indication that the borrower is experiencing a financial hardship that is preventing them from making their mortgage payments. The Seller must also consider whether the borrower’s circumstances will impact their willingness or ability to make the payments on the new mortgage. The new mortgage must comply with Section 4201.7, including the requirement that no part of the borrower’s monthly payment on the mortgage being sold to Freddie Mac may have been 30 days or more delinquent.

The new mortgage may be eligible for sale to Freddie Mac. The requirement that the borrower has made a minimum of three payments under the loss mitigation program was retired in February 2023, therefore, there is currently no minimum number of payments required. The Seller must underwrite the mortgage in accordance with the Guide requirements. 

Note: Borrowers who have been accepted for Payment Deferral are considered current upon completion of the Payment Deferral.

Yes, under Section 4301.4, the proceeds of a "no cash-out" refinance mortgage may be used to pay off any remaining balance under a repayment plan, Payment Deferral, or other loss mitigation program, as these would be considered funds used to pay off the first mortgage.

No. Section 4301.4 describes the permissible uses of proceeds from a “no cash-out” refinance.  Any secondary financing that is paid off or paid down with the proceeds of a “no cash-out” refinance mortgage must have been used in its entirety to acquire the subject property.