It is only a one line change in mame/machine/n64.c, line 1009
if (data & 0x00000008) current_status |= DP_STATUS_FREEZE;
if (data & 0x00000008) ; // Ignore DP FREEZE for now
The video 'VI' manager thread (and a few other bits) in Banjo Kazooie attempt to use setting/clearing the freeze bit as a means for a sort of 'VSYNC' for displaying frames. However, looking through a very exhaustive amount of the game, I have concluded that the only way this works is that the freeze bit gets cleared as a side effect of some other action (instead of explicitly clearing it).
And although completely ignoring the freeze bit may not be correct, I feel that for now it is more helpful to ignore it until a case arises that depends on it being set.