Freddie Mac Single-Family Seller/Servicer Guide 4701.2 — Mortgage insurance premiums

This section contains requirements related to: ■ Eligible mortgage insurance premiums ■ Borrower-paid financed premiums ■ Lender-paid mortgage insurance

(a) Eligible mortgage insurance premiums Eligible Mortgage insurance premiums include the following: Eligible mortgage insurance premiums Premium type When premiums are paid Annual premium An initial premium paid at closing to cover the first year’s premium and annual renewal premium payments thereafter paid from accumulated escrow deposits Monthly premium Premiums paid monthly from accumulated escrow deposits Single-premium A lump-sum premium paid at closing to purchase life of Mortgage coverage Split-premium An initial up-front payment premium paid at closing and an ongoing monthly premium paid from accumulated escrow deposits (i) Borrower-paid mortgage insurance premiums For Borrower-paid mortgage insurance premiums, the Borrower must pay the mortgage insurance premium by a single payment at closing, through monthly Escrow payments or as a combination of the two. A Mortgage that includes a Borrower-paid mortgage insurance premium in the Note Rate is not eligible for sale to Freddie Mac. (ii) Lender-paid mortgage insurance premiums Lender-paid mortgage insurance premiums for annual and monthly premium programs must be included in the Servicing Spread included in the Note Rate on the Mortgage (see Section 4701.2(b)). Mortgages with single-premium lender-paid mortgage insurance do not require an adjustment to the Minimum Servicing Spread.

(b) Borrower-paid financed premiums For purposes of this section, the definitions below apply. Definitions applicable to this section B Base LTV ratio The loan-to-value (LTV) ratio calculated using the Mortgage amount without the financed mortgage insurance premium G Gross LTV ratio The LTV ratio calculated using the Mortgage amount, which includes the financed mortgage insurance premium Mortgages for which the Borrower-paid mortgage insurance premium is included as part of the principal amount of the Mortgage (i.e., a financed premium) are eligible for purchase provided the Mortgage complies with the following requirements: ■ The Base LTV ratio must not exceed the maximum LTV ratio permitted for the Mortgage Product or offering ■ The Gross LTV ratio must not exceed 95%, except for Home Possible® Mortgages, HomeOne® Mortgages and HeritageOne® Mortgages, for which the Gross LTV ratio must not exceed 97% ■ The Mortgaged Premises must be a 1- to 4-unit Primary Residence or a 1-unit second home ■ The Mortgage is a fixed-rate, fully amortizing Mortgage or an ARM ■ The amount of coverage meets the standard coverage level requirements in Section 4701.1 using the Base LTV ratio (i) Financed mortgage insurance premium endorsement The mortgage insurance policy must include an endorsement, generally referred to as the “financed mortgage insurance premium endorsement.” This endorsement states that adjustments will be made to the claim calculation to meet the required exposure level for the Base LTV ratio. (ii) Maximum original loan amount The maximum original loan amounts provided in Section 4203.1(c) apply to Mortgages with financed mortgage insurance premiums. The original loan amount of the Mortgage inclusive of the amount of any financed mortgage insurance premium may not exceed the maximum original loan limits provided in Section 4203.1(c). (iii)Delivery requirements for Mortgages with financed mortgage insurance premium See Section 6302.21 for delivery requirements. Any applicable Credit Fees will be assessed based on the Mortgage’s Gross LTV ratio and the UPB, which includes the financed mortgage insurance premium.

(c) Lender-paid mortgage insurance Freddie Mac will purchase Mortgages with single, annual or monthly premium lender-paid mortgage insurance that meet the requirements below. (i) Annual and monthly premiums For annual and monthly premiums: ■ The Mortgage must be a fixed-rate, fully amortizing Mortgage or a non-convertible ARM ■ For monthly and annual premium programs, premium payments must be made from the Servicing Spread compensation. To ensure that the Servicer receives sufficient Servicing compensation after premium payments are made: ❑ For fixed-rate Mortgages, the Minimum Contract Servicing Spread must be at least 0.250% and the maximum Servicing Spread may not exceed 0.500%. The Minimum Contract Servicing Spread must be equal to or greater than the Minimum Servicing Spread. The Minimum Contract Servicing Spread must be no less than the sum of the Minimum Servicing Spread plus the amount necessary to pay the mortgage insurance premium when due and must not exceed 0.500%. ❑ For non-convertible ARMs, the Minimum Contract Servicing Spread requirements in Sections 6102.4(b) and 6201.4(b)(iii) must be met ❑ For Mortgages that are modified in accordance with Chapter 9206, the Servicing Spread will be reduced to 0.250% in accordance with Section 9206.2(d)(iii). This potential change in the Servicing Spread does not change a Servicer’s responsibility to continue making premium payments. ■ Coverage must be maintained for the life of the Mortgage. A change in MI may be allowed if approved by Freddie Mac (see Chapter 8203). ■ The Mortgage must be sold under the Guarantor or MultiLender Swap program (ii) Single premiums For single premiums: ■ The Mortgage must be a Mortgage eligible for purchase under the Purchase Documents ■ Coverage must be maintained for the life of the Mortgage. A change in MI may be allowed if approved by Freddie Mac (see Chapter 8203). The Seller must ensure that the required mortgage insurance for the Mortgage is in full force and effective on the Delivery Date of the Mortgage regardless of whether the entire mortgage insurance premium is paid by the Seller prior to the Delivery Date. The Seller must obtain and be able to produce evidence of any required mortgage insurance (including, but not limited to, a certificate of insurance). Note: See Section 6302.21 for delivery requirements for Mortgages with lender-paid mortgage insurance.