Freddie Mac Single-Family Seller/Servicer Guide 9202.1 — Delinquency and Borrower hardship assessment

This section contains requirements related to: ■ Delinquency, default and imminent danger of default ■ Verifying a Borrower’s hardship ■ Borrower income documentation for workout or relief options ■ Analyze the Mortgage characteristics and terms ■ Analyze the reason for Delinquency ■ Determine the best course of action for Delinquency

(a) Delinquency, default and imminent danger of default Throughout this chapter, Chapters 9203 through 9210 and 9301, Freddie Mac will use the term Delinquency, which is defined in the Glossary, rather than the term default. Many of the specific requirements for workout options are tied to the severity of the Delinquency. Except as set forth in Sections 9206.1(e), 9208.1(c) and 9209.2, a Borrower is considered to be in imminent danger of default, if, based upon the facts and circumstances of the particular Mortgage and using prudent business judgment, it appears more likely than not that the Borrower will default on his or her Mortgage payments within the next 12 months. A Borrower must be delinquent in his or her Mortgage payments, or be in imminent danger of default, to be considered for an alternative to foreclosure. The Borrower must document an eligible hardship to be eligible for certain workout and relief options. Additional requirements related to delinquency, default and imminent danger of default Topic Guide location Verifying a Borrower's hardship Section 9202.1

(b) Reinstatements and Relief Options Freddie Mac Workout Options Modifications Workout Mortgage Assumption Freddie Mac Standard Short Sale Freddie Mac Standard Deed-in-Lieu of Foreclosure Charge-off (b) Verifying a Borrower’s hardship A Borrower must have one or more of the eligible hardships identified below in order to be eligible for certain relief or workout options. The Borrower must document the financial hardship by: ■ Signing and submitting to the Servicer a completed Form 710, Mortgage Assistance Application; and ■ Providing to the Servicer the applicable hardship documentation described below. Applicable hardship documentation Hardship Required hardship documentation Unemployment Not required Reduction in income: a hardship that has caused a decrease in the Borrower’s income due to circumstances outside the Borrower’s control (e.g., elimination of overtime, reduction in regular working hours, or a reduction in base pay) Not required Increase in housing expenses: a hardship that has caused an increase in the Borrower’s housing expense due to circumstances outside the Borrower’s control (e.g., uninsured losses, increased property taxes, or an HOA special assessment) Not required Applicable hardship documentation Hardship Required hardship documentation Disaster (natural or man-made) impacting the property or Borrower’s place of employment Not required Long-term or permanent disability; serious illness of a Borrower/co-Borrower or dependent family member ■ Written statement from the Borrower, or other documentation verifying disability or illness Note: Detailed medical information is not required, and information from a medical provider is not required Divorce or legal separation ■ Final divorce decree or final separation agreement; OR ■ Recorded quitclaim deed Separation of Borrowers unrelated by marriage, civil union or similar domestic partnership under applicable law ■ Recorded quitclaim deed; OR ■ Legally binding agreement evidencing that the non-occupying Borrower or co-Borrower has relinquished all rights to the property Death of a Borrower or death of either the primary or secondary wage earner ■ Death certificate; OR ■ Obituary or newspaper article reporting the death Distant employment transfer/ Relocation (transfer or relocation must be greater than 50 miles one-way from Borrower’s current Primary Residence) For active-duty service members: Permanent Change of Station (PCS) orders or letter showing transfer For employment transfers/new employment: ■ Copy of signed offer letter or notice from employer showing transfer to a new location or notice from employer showing transfer to a new location or written explanation if employer documentation is not applicable; AND Applicable hardship documentation Hardship Required hardship documentation ■ Documentation that reflects the amount of any relocation assistance provided (not required for those with PCS orders) Other hardship that is not covered above Written explanation describing the details of the hardship and relevant documentation

(c) Borrower income documentation for workout or relief options (i) Verification of income A Servicer must verify the income for all Borrowers on the Note when evaluating a Borrower for certain workout or relief options. The Borrower’s income must be supported by documentation that is not more than 90 days old as of the date the Servicer first determines that the Borrower submitted a complete Borrower Response Package. (Refer to Section 9102.5 for information on the Borrower Response Package.) In addition to the income documentation required in Section 9202.1(c)(ii), in the following circumstances, a Servicer must obtain a Borrower’s tax transcript by processing Internal Revenue Service (IRS) Form 4506-C, Request for Transcript of Tax Return. • There are inconsistencies in the information the Borrower provided (e.g., information the Borrower provided in Form 710, Mortgage Assistance Application, and the income documentation); The Borrower is self-employed or is a fiscal year tax filer (i.e., files federal income tax returns based on a fiscal year – a tax year beginning in one calendar year and ending in the following year) and the Borrower has not provided any of the required documentation specified in Section 9202.1(c)(ii) to support the income type; or • As otherwise requested by Freddie Mac IRS Form 4506-C is available at http://www.irs.gov. Servicers are encouraged to use the IRS Income Verification Express Service (IVES), which uses secure e-mail to deliver tax return transcripts to Servicers. (ii) Required income documentation The Borrower must document all types of income by providing the following income documentation as part of the Borrower Response Package: Borrower Response Package documentation requirements Income types Required documentation Income that requires IRS Form 4506-C to be obtained and processed Borrowers who (i) are self-employed or (ii) are fiscal year tax filers and who have not provided any of the required documentation specified below, must provide IRS Form 4506-C, Request for Transcript of Tax Return. Gross (pre-tax) wages, salaries and overtime pay, commissions, tips, and bonuses ■ Most recent pay stub and documentation of year-to-date earnings if not on paystub; OR ■ Two most recent bank statements showing income deposit amounts (Note: When bank statements provide net income, for this and subsequent income types, refer to Section 9202.1(c)(iii), below, for instructions on how to calculate gross income) Self-employment income ■ Two most recent bank statements showing self-employed income deposits amounts; OR ■ Most recent signed and dated quarterly or year-to-date profit/loss statement; OR ■ Most recent complete and signed business tax return; OR ■ Most recent complete and signed individual federal income tax return Rental income ■ Two most recent bank statements demonstrating receipt of rent; OR ■ Two most recent deposited rent checks Borrower Response Package documentation requirements Income types Required documentation Taxable Social Security, disability or death benefits, pension, public assistance, housing allowance or adoption assistance ■ Two most recent bank statements showing deposit amounts; OR ■ Award letter or other documentation showing the amount and frequency of the benefits such as letters, exhibits, a disability policy or benefits statement from the provider Non-taxable Social Security or disability income ■ Two most recent bank statements showing deposit amounts; OR ■ Award letter or other documentation showing the amount and frequency of the benefits such as letters, exhibits, a disability policy or benefits statement from the provider Unemployment benefits ■ Not required Non-Borrower income Servicers must include non-Borrower household income in the monthly gross income if: ■ It is voluntarily provided by the Borrower ■ The Servicer verifies that the non-Borrower occupies the subject property as a Primary Residence based on a review of a credit report or other documentation (e.g., utility bills, paystubs, benefits statements); and ■ There is documentary evidence to support that the income has been, and reasonably can continue to be, relied upon to support the Mortgage payment A Servicer should not consider expenses of non-Borrower household members, but may only consider the percentage of his or her income that the non-Borrower routinely contributes to the household. Borrower Response Package documentation requirements Income types Required documentation Investment or insurance income ■ Two most recent investment or insurance income statements showing receipt of income; OR ■ Two most recent bank statements supporting receipt of the income Other types of income not listed above (Note: Only include alimony, child support, or separate maintenance income if the Borrower chooses to have it considered for repaying the Mortgage) ■ Two most recent bank statements showing receipt of income; OR ■ Other documentation showing the amount and frequency of the income As outlined in Section 5302.4, the following are acceptable alternatives for the Borrower’s signature on the tax return(s): ■ Evidence the tax returns were filed electronically (e.g., signed Form 8879, IRS e-file Signature Authorization or equivalent), or ■ Tax transcripts that validate the information on the unsigned tax returns, or ■ A completed IRS Form 4506-C signed by the Borrower, or alternate form acceptable to the IRS that authorizes the release of comparable tax information to a third party Note: All income must comply with all applicable federal, State and local laws, ordinances, regulations, orders and regulatory guidance in accordance with Section 1301.2. (iii)Determining gross monthly income The Borrower’s gross income includes all taxable and non-taxable income, before any payroll deductions, including, but not limited to: ■ Base wages and salaries, overtime pay, commissions ■ Fees, tips, bonuses, housing allowances ■ Other compensation for personal services, Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support ■ Payments from annuities, insurance policies, retirement funds, and pensions ■ Disability or death benefits, and positive net rental income, except that the Borrower may, but is not required to, provide alimony, child support or separation maintenance income The Servicer must gross up all non-taxable income received by the Borrower only if the Borrower is able to provide documentation verifying that the income is not taxable. The Servicer must maintain such documentation in the Mortgage file. To gross up non-taxable income, the Servicer must multiply the amount of the non-taxable income by 1.25; if the actual amount of federal or State taxes that would be paid is more than 25% of the Borrower’s nontaxable income, the Servicer may use the actual percentage. The Servicer must gross up all net income when the Borrower submits bank statements to support the income type. To gross up net income, the Servicer must: 1. Establish the Borrower’s monthly net income in accordance with this Section 9202.1(c); and 2. Multiply the amount of the monthly net income by 1.25 to determine the Borrower’s monthly gross income Refer to Exhibit 101, Income Calculation Guidelines for Alternative to Foreclosure Options, for additional instructions on calculating income. (iv) Substitution of income documents When a Borrower is in an active Chapter 7 or Chapter 13 bankruptcy, the Servicer may accept copies of the bankruptcy schedules and tax returns (if returns are required to be filed) in lieu of Form 710, and IRS Form 4506-C, and may use this information to determine Borrower eligibility (with the income documentation). Servicers should request the schedules and tax returns from the Borrower, Borrower’s counsel or bankruptcy court. If the bankruptcy schedules are more than 90 days old as of the date that such schedules are received by the Servicer, the Borrower must provide updated evidence of income in accordance with this section. (v) Use of Third Party Vendors Servicers are reminded that per existing guidance around the use of outsourced vendors in Section 8102.1(f), they may utilize Third Party Vendors for the verification of income as outlined in Section 9202.1(c) above as long as they comply with all requirements in the Guide.

(d) Analyze the Mortgage characteristics and terms The Servicer must review the Mortgage characteristics and terms to determine what effect they might have on determining a course of action to resolve the Delinquency. The Servicer must compare the UPB and any delinquent amounts to the probable sale price of the property to determine the Borrower’s equity position and Freddie Mac’s potential loss should Freddie Mac have to acquire the property, if the Delinquency cannot be cured or resolved. The Servicer must also review the Mortgage product type and the current interest rate compared to current market interest rates to identify potential roadblocks in curing a Delinquency. For example, if the Mortgage is an adjustable-rate Mortgage, the Borrower may be facing a new monthly payment that he or she cannot afford.

(e) Analyze the reason for Delinquency In the course of performing collection activities, the Servicer should have determined why the Borrower has not remitted its Mortgage payments. Additionally, the Servicer should have determined the Borrower’s willingness to resolve the Delinquency problem and have counseled the Borrower about the consequences of the Delinquency. If the Servicer has determined that the Borrower’s reason for not paying the Mortgage payment is temporary, it may consider whether a partial reinstatement, a repayment plan or forbearance plan may be a solution to cure the Delinquency. For the Servicer to consider such alternatives, the Borrower must have the ability to make payments and bring the Mortgage current within one year. If the Borrower’s financial situation and/or circumstances will not permit him or her to bring the Mortgage current within a year, the Servicer must analyze the Borrower’s financial situation and determine the Borrower’s desire to retain ownership of the home to determine the appropriate solution to the Delinquency. See Section 9201.2 for the sequence in which a Borrower must be evaluated for loss mitigation solutions.

(f) Determine the best course of action for Delinquency After evaluating the Borrower’s financial information and circumstances, the value and condition of the property, and the Mortgage characteristics and terms, the Servicer must begin to determine the best course of action to resolve the Delinquency. Based on the information provided by the Borrower, the Servicer must determine which of the various relief and workout options is appropriate. If the Borrower’s property has been damaged by a natural or man-made disaster, or the Borrower has an extraordinary circumstance, the Servicer should consider recommending a forbearance plan. If the Borrower wants to keep the property and has a source of stable monthly income, the Servicer should consider whether to consider a repayment plan, reinstatement or forbearance plan, or recommend a loan modification. If the Borrower cannot or does not want to retain ownership of the property, the Servicer should consider recommending workout options that allow the Borrower to sell or transfer the property. If a relief or workout option will not resolve the Delinquency, the Servicer must initiate foreclosure in accordance with the requirements in Chapter 9301. Note: Refer to Chapter 8404 for additional requirements for Mortgages secured by properties affected by a disaster.