Freddie Mac Custodial Agreement

Freddie Mac Custodial Agreement: An Overview

If you`re in the world of mortgage lending, you`re probably familiar with the term “custodial agreement.” In simple terms, a custodial agreement is a legal document that establishes a relationship between two parties: a custodian and a beneficiary. The custodian is responsible for holding and managing certain assets on behalf of the beneficiary, according to specific instructions outlined in the agreement.

Freddie Mac, one of the largest investors in the mortgage market, also requires custodial agreements for certain types of loans. In this article, we`ll take a closer look at the Freddie Mac custodial agreement and what it means for mortgage lenders.

What Is the Freddie Mac Custodial Agreement?

Freddie Mac`s custodial agreement is a contract between a custodian (usually a bank or other financial institution) and Freddie Mac. The purpose of the agreement is to establish specific requirements for how the custodian will hold and manage certain documents and funds related to mortgage loans that are being sold to Freddie Mac.

The documents and funds covered by the custodial agreement typically include:

– The original note and mortgage documents

– Any funds collected from borrower payments (such as principal, interest, and escrow)

– Any other documents required by Freddie Mac, such as title reports or appraisal reports

The custodian is responsible for safeguarding these documents and funds, as well as providing regular reports to Freddie Mac to ensure compliance with the agreement. This helps to ensure that the loans being sold to Freddie Mac are properly documented and accounted for.

Why Are Custodial Agreements Required?

Custodial agreements are required by Freddie Mac (and other investors in the mortgage market) to help protect against fraud and ensure compliance with various regulations. By requiring a custodian to hold and manage the loan documents and funds, Freddie Mac can verify that the loans being sold to them meet their specific requirements.

Additionally, custodial agreements help to protect against the loss of important loan documents or funds. If a custodian were to lose or mishandle these items, it could lead to legal disputes or other issues that would negatively impact the mortgage market.

How Does the Custodial Agreement Process Work?

The process of establishing a custodial agreement with Freddie Mac typically involves the following steps:

1. Select a Custodian: The mortgage lender must select a qualified custodian to hold and manage the loan documents and funds. The custodian must meet certain requirements established by Freddie Mac.

2. Negotiate the Agreement: The lender and custodian negotiate the specific terms of the custodial agreement, including the scope of the custodian`s responsibilities and the fees to be paid.

3. Submit the Agreement: Once the agreement is finalized, the lender submits it to Freddie Mac for review and approval. Freddie Mac will ensure that the agreement meets their specific requirements.

4. Implement the Agreement: Once the agreement is approved, the custodial relationship can begin. The custodian will begin holding and managing the loan documents and funds, and will provide regular reports to Freddie Mac to ensure compliance.

Conclusion

The Freddie Mac custodial agreement is a key part of the mortgage lending process for loans being sold to Freddie Mac. By requiring a custodian to hold and manage the loan documents and funds, Freddie Mac can help protect against fraud and ensure compliance with various regulations. If you`re a mortgage lender, it`s important to understand the requirements of the custodial agreement and work with a qualified custodian to ensure compliance.