Does Freddie Mac Require Charge Offs to Be Paid Off?
Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, is a government-sponsored enterprise that plays a crucial role in the secondary mortgage market. As a mortgage investor, Freddie Mac purchases mortgages from lenders, thereby providing liquidity to the mortgage market. One common question among mortgage lenders and borrowers is whether Freddie Mac requires charge-offs to be paid off before they can refinance or sell a mortgage. In this article, we will explore this topic and provide an overview of Freddie Mac’s policies regarding charge-offs.
Understanding Charge-Offs
Before delving into Freddie Mac’s requirements, it’s essential to understand what a charge-off is. A charge-off occurs when a lender writes off a debt as uncollectible. This typically happens when a borrower has missed payments for an extended period and the lender has exhausted all collection efforts. Once a loan is charged off, the lender is no longer legally entitled to recover the debt.
Freddie Mac’s Policy on Charge-Offs
Freddie Mac does require charge-offs to be paid off before they will consider purchasing a mortgage. This policy is in place to ensure that the mortgages they purchase are of high quality and have a lower risk of default. According to Freddie Mac’s Selling Guide, lenders must pay off any charge-offs on a mortgage before selling it to Freddie Mac.
Exceptions to the Rule
While Freddie Mac generally requires charge-offs to be paid off, there are some exceptions. For example, if the charge-off is due to circumstances beyond the borrower’s control, such as a natural disaster or medical emergency, Freddie Mac may consider waiving the requirement. Additionally, Freddie Mac may allow lenders to pay off charge-offs in certain cases, such as when the charge-off is a small percentage of the total loan amount.
Impact on Lenders and Borrowers
Freddie Mac’s policy on charge-offs can have a significant impact on both lenders and borrowers. For lenders, it means that they must ensure that charge-offs are paid off before selling mortgages to Freddie Mac, which can be a time-consuming and costly process. For borrowers, it means that they may need to pay off any charge-offs before refinancing or selling their homes.
Conclusion
In conclusion, Freddie Mac does require charge-offs to be paid off before they will consider purchasing a mortgage. While there are exceptions to this rule, lenders and borrowers should be aware of this policy and plan accordingly. By understanding Freddie Mac’s requirements, lenders can ensure a smoother process when selling mortgages, and borrowers can better navigate the refinancing or selling process.
