Get Ready for Higher GSE Modification Rate By Brian Honea

Mortgage rates appear to be on the decline, falling for the second week in a row (the average 30-year FRM was down to 4.12 percent on Thursday, according to Freddie Mac) after hitting a two-year high at the end of 2016.

Fannie Mae and Freddie Mac, however, have raised their standard modification interest rates for the second time in a month, according to releases from both of the GSEs.

The GSEs announced their standard modification rates will both increase to 4.25o percent, the highest level since July through September 2015. The new higher rates for both GSEs will go into effect on Friday, January 13, 2017.

Servicers must use the standard modification rate, which is a fixed interest rate, when determining the terms of a conventional loan modification trial period plan, a streamlined modification trial period plan, or a disaster relief modification trial period plan for a mortgage backed by Fannie Mae or Freddie Mac.

The GSEs make periodic adjustments to the standard modification rate based on prevailing market interest rates. The standard modification rate was adjusted five times in 2016 but remained below 4 percent for most of the year as average FRM rates hovered above historic lows reached in late 2012.

On December 14, 2016, the GSEs raised the standard modification rate from its historic low of 3.50o percent, where it had been since August, up to 3.875 percent. The rate has been below 4 percent since February 2016, when it was lowered to 3.875 percent from 4.00o percent.

Neither Fannie Mae nor Freddie Mac immediately responded to a request for a comment on the latest increases.

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