Freddie Mac is committed to providing assistance to borrowers – especially when their homes have been impacted by disaster-related events. We are prepared to quickly respond with effective relief measures to help borrowers and provide guidance for Sellers and Servicers in the aftermath of a disaster.
When a borrower is impacted by a natural or man-made disaster, your goals are to:
- Assist the borrower in addressing the disaster and their situation
- Understand the extent of the damage while remaining empathetic toward their state of mind and situation
- Identify and provide the best and most appropriate relief options to resolve any delinquency resulting from the situation
An Eligible Disaster is a disaster, either man-made or natural, which results in an area being designated as an Eligible Disaster Area. The following qualifications must be met:
- A financial hardship (e.g., a loss/reduction of income or increase in expenses) that impacts the borrower’s ability to pay his or her current contractual monthly payment, and
- One of the following:
- The property securing the mortgage loan experienced an insured loss
- The property securing the mortgage loan is located in a FEMA-Declared Disaster Area eligible for Individual Assistance, or
- The borrower’s place of employment is located in a FEMA-Declared Disaster Area eligible for Individual Assistance
How to determine eligibility
The first step is to check the Federal Emergency Management Agency's (FEMA) website to determine if the borrower’s home or place of employment is located in a declared disaster area.
COVID-19 is not considered a natural disaster, but is defined as a national emergency.For relief options related to COVID-19, see COVID-19 SERVICING: Guidance for Helping Impacted Borrowers and the Servicing for COVID-19 Related Hardships Reference Guide.
Making Contact (QRPC)
As is the case of any delinquency, in a disaster, it’s important to establish contact with the borrower, co-borrower or trusted advisor as soon as possible following an eligible disaster to begin presenting them with options that may be appropriate to protect their mortgage. This is known as Quality Right Party Contact, or QRPC.
Standard steps to achieve QRPC can be found in Guide Section 9102.3: Establishing Borrower Contact During Delinquency). Find disaster relief-specific information below.
If you are able to make contact:
Determine the number of properties and extent of the damage and take the borrower through the next steps you will perform:
- Make sure the property is secure
- Monitor and coordinate the insurance claim process and repairs
- Help the borrower access local, state or federal disaster aid.
For details, see Guide Section 8404.2: Property Protection Activities Following a Disaster.
If you are not able to make contact:
If you cannot get in contact with the borrower, you may need to place the borrower into a forbearance plan; see Forbearance section below.
If there is any risk of ownership:
If you determine that the disaster has affected the borrower’s home and may pose a danger to either the borrower’s or Freddie Mac’s ownership of the property, see Guide Section 9202.5 Risk of Property Ownership and accordingly:
- Notify Freddie Mac within five (5) business days of learning about the situation
- Attach copies of the most recent six (6) consecutive months (or less, depending on level of delinquency) of Form 1013, 1-4 Unit Property Inspection Report and any other relevant information.
A property inspection is not required in all cases, but it is required if you cannot determine the status of the property through borrower contact.
If the status of the property cannot be determined based on QRPC, we require, at minimum, an exterior property inspection to assess whether the property has been impacted by the disaster. You may only complete an interior property inspection if you have identified that the property is abandoned or if the interior inspection is required under our insurance loss settlement requirements. These requirements are for all Freddie Mac owned or guaranteed mortgages in eligible disaster areas, regardless of delinquency status. See Guide Section 8404.2: Property protection activities following a disaster.
The property inspector should use Form 1013: 1-4 Unit Property Inspection Report or equivalent to document the results.
Remember that inspection costs may not be reimbursable if the inspection does not meet requirements. See Guide Section 9701.9: Reimbursement for Property Inspection and Property Preservation Expenses.
Handling Insurance Claims
Upon notification of loss or damage to a mortgaged property, it is the Servicer’s responsibility to monitor and coordinate the insurance claims process. As detailed in Guide Section 8202.11: Insurance loss settlements, this includes:
- General coordination and facilitation between the borrower and insurer
- Reporting damages as needed (see 8202.11 (b) Reporting damage for qualifications)
- Disbursing loss proceeds without delay but according to specific guidelines (see 8202.11 (c) Disbursing loss proceeds)
- Overseeing repair or reconstruction of the mortgaged premises (see 8202.11(d)) and ensuring final inspection meets requirements (as found in 8202.11(e)).
Reporting Delinquency Due to a Disaster
Since delinquency due to a disaster is distinct from a typical delinquency, you must report the status according to Guide Section 8404.5: Disaster Reporting Requirements, which includes:
- Credit agencies
- Report to credit bureaus according to the Fair Credit Reporting Act (FCRA) and per any updated guidelines.
- Freddie Mac
- Report all mortgages affected by a disaster (that are 31 or more days delinquent) via Electronic Default Reporting (EDR) transmission using default reason code 034 (Eligible Disaster Area). See Guide Section 8404.5 for timing requirements.
- The borrower’s place of employment is located in a FEMA-Declared Disaster Area eligible for Individual Assistance.
- Forbearance or repayment plans to Freddie Mac
- Report all mortgages subject to forbearance or repayment plan resulting from disaster-caused hardship via EDR, using default code 09 for forbearance or default code 12 for a repayment plan. See Guide Section 8404.5 for timing requirements. Refer to Chapter 9203 for more details.
See EDR Quick Reference Guide and for default codes as well as Exhibit 82: EDR Transmission Code List.
Helping a borrower find the right relief option for them based on their situation is a crucial aspect of managing disaster-related delinquencies. The first step is determining whether relief is required.
If relief is needed, a detailed discussion of available options should follow. This includes:
- Repayment plan
- Disaster Payment Deferral
- Flex Modification
- Short Sale
- Deed-in-Lieu of Foreclosure
For details on how to approach loss mitigation strategies with Freddie Mac, refer to Guide Section 9201.2: Freddie Mac Loss Mitigation Evaluation Hierarchy.
When a disaster occurs, a borrower may need to be placed into a forbearance plan which allows the borrower to make either reduced or no monthly payments for a specific period of time. See Guide Section 8404.4: Delinquency Management Activities Following a Disaster for details.
Disaster Payment Deferral
At the end of a disaster-related forbearance period, if the hardship has been resolved and the eligible borrower is still unable to make payments, you may offer a Disaster Payment Deferral.
See 9203.26 Disaster Payment Deferral for details and requirements, and our guide to Payment Deferral for more information.
After forbearance, if an eligible borrower is no longer able to make their monthly payments due to a disaster, a Flex Modification may be a solution. The goal of a Flex Modification is to achieve a 20% reduction in the monthly payment. A Flex Modification will extend the term out to 40 years.
Flex Modification begins with a Trial Period Plan (TPP) where the borrower must complete three reduced monthly payments during forbearance to prove their ability to make these payments on a longer basis.
See Guide Section 9206.10: Determining the Terms of a Freddie Mac Flex Modification.
Workout Prospector® or Resolve® are used to identify workout options and submit the information to Freddie Mac.
Note: Workout Prospector is in the process of being replaced by Resolve®.