Freddie Mac Single-Family Seller/Servicer Guide Section 4204.1 — Mortgages with secondary financing

Freddie Mac Single-Family Seller/Servicer Guide Section 4204.1 — Mortgages with secondary financing

4204.1: Mortgages with secondary financing (03/05/25) This section contains information related to: ■ Requirements for all secondary financing ■ Additional requirements for new secondary financing ■ Additional requirements for existing secondary financing ■ Credit Fees and other delivery instructions for Mortgages with secondary financing (a) Requirements for all secondary financing Secondary financing means any financing that is subordinate in lien priority to the First Lien Mortgage. Freddie Mac will purchase First Lien Mortgages with secondary financing under the terms of the Purchase Documents and this section. The terms of any secondary financing must be disclosed to the appraiser and to the MI. The secondary financing terms that must be disclosed include the Note Rate and the name of the institution or individual providing the financing. The Seller may not indicate a value needed to support the transaction, or provide to the appraiser any information about an expected loan-to- value (LTV) ratio. Except as specifically stated in Section 4204.2 with respect to Affordable Seconds®, the terms of secondary financing must not permit the provider or any other party to share in the appreciation of the Mortgaged Premises (equity sharing). Secondary financing is not eligible for sale to Freddie Mac. Note: For special requirements for Affordable Seconds, refer to Section 4204.2. Freddie Mac Single-Family Seller/Servicer Guide Chapter 4204 As of 04/12/26 Page 4204-2 (b) Additional requirements for new secondary financing Requirements for new secondary financing (i.e., the First Lien Mortgage and the secondary financing originated on the same day) Topic Requirements Amortization period The amortization period for the secondary financing must run for at least five years after the Note Date, unless the secondary financing is fully amortizing or is a Home Equity Line of Credit (HELOC). Call provision The secondary financing must not contain a call provision that is exercisable within the first five years after the Note Date, unless the secondary financing is a HELOC. Maturity date The maturity date of the secondary financing must be at least five years after the Note Date, unless the secondary financing is fully amortizing or a HELOC. Scheduled payments The terms of the secondary financing must provide for regular monthly payments that cover at least the interest that accrues during the previous month. Documentation requirements The Seller must include a copy of the following documentation in the Mortgage file: ■ Note or other evidence of secondary financing terms ■ Settlement/Closing Disclosure Statement or an alternative form required by law that evidences the fees and costs related to the secondary financing paid by the Borrower at closing ■ For HELOCs, the HELOC agreement showing all fees and costs paid by the Borrower at closing, and the maximum permitted credit advance Note: Refer to Section 4302.5 for special requirements for Refi Possible® Mortgages with new secondary financing. Additional requirements for Employer Assisted Homeownership (EAH) Benefit If the secondary financing is an EAH Benefit: ■ The terms of the secondary financing must not require repayment in full unless: ❑ The Borrower terminates their employment for any reason, or ❑ The employer terminates the Borrower’s employment for any reason other than the Borrower’s long-term disability, Freddie Mac Single-Family Seller/Servicer Guide Chapter 4204 As of 04/12/26 Page 4204-3 elimination of the Borrower’s position or a reduction-in- force ■ The amount of the monthly payment may be excluded from the monthly housing expense-to-income ratio and the monthly debt payment-to-income ratio when: ❑ The monthly payments of principal and interest or interest only begin on or after the due date of the 61st monthly payment under the First Lien Mortgage, or ❑ Repayment of principal is due only upon sale or default (c) Additional requirements for existing secondary financing Freddie Mac will purchase First Lien refinance Mortgages with existing secondary financing (including HELOCs) that is not paid off from the proceeds of the refinance Mortgage if: ■ The Seller includes in the Mortgage file evidence of the subordination of all outstanding secondary financing, and ■ The secondary financing has scheduled payments sufficient to meet the interest due (d) Credit Fees and other delivery instructions for Mortgages with secondary financing Refer to Exhibit 19, Credit Fees, for Credit Fees related to Mortgages with secondary financing. Credit Fees are paid in accordance with the Credit Fee provisions stated in Chapter 6303. Note: Refer to Section 6302.34 for delivery instructions for Mortgages with secondary financing.

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