Selling Guide

Published June 5, 2018

A2-1-03: Indemnification for Losses (08/29/2017)

This topic contains information on indemnification for losses, including:

General Requirements

The responsible party must indemnify and hold Fannie Mae (including its successors and assigns and its employees, officers, and directors individually when they are acting in their corporate capacity) harmless against all losses, damages, penalties, settlements, liabilities, judgments, claims, counterclaims, defenses, actions, costs, expenses, attorneys’ fees, and other legal fees (collectively, “Fannie Mae losses” or “losses incurred by Fannie Mae”), that are based on, or result or arise from, the events described below.

If the responsible party is responsible for selling representations, warranties and other obligations: If the responsible party is responsible for servicing obligations and liabilities:
  • the breach or alleged breach of selling representations, warranties, or obligations;

  • the failure or alleged failure to satisfy the servicing duties and responsibilities for loans or MBS pools serviced for Fannie Mae; and

  • origination, delivering, selling, or trading activities related to Fannie Mae-owned or Fannie Mae-securitized mortgage loans;

  • the breach or alleged breach of securities disclosure or settlement requirements;

  • A breach or alleged breach of obligations owed to the borrower by the manufacturer of the manufactured home or by any party that sells the manufactured home to the borrower, delivers it to the site, or installs it at the site: and

  • any third-party claim relating to any breach or alleged breach described above; and

If the responsible party is a licensee of any Fannie Mae technology pursuant to the Software Subscription Agreement:
  • any third-party claim relating to:

    • any breach, act or omission of any license of Fannie Mae technology (and the licensee’s authorized users) in connection with the Software Subscription Agreement or materials licensed pursuant to the Software Subscription Agreement (except to the extent that Fannie Mae or its third-party licensors caused such Fannie Mae Losses). See E-2-04, Software Subscription Agreement Master Terms and Conditions;

    • any software, information or data provided by or on behalf of a licensee of Fannie Mae technology;

    • a licensee’s use of the Licensed Materials in conjunction with any third-party system; or

    • allegations that licensee (or any person or entity that gains access to the licensed application through licensee or pursuant to the Software Subscription Agreement) has transmitted material that is defamatory or violates any right of a third party.

Fannie Mae losses include losses related to the loans and the servicing of them prior to their delivery to Fannie Mae.

The requirements described above

The indemnities set forth above...
Apply regardless of whether
  • Fannie Mae is a party to the lawsuit or other proceeding; or

  • the claim, suit or proceeding has merit.

Are not limited to Fannie Mae Losses related to claims by or against third parties and include Fannie Mae Losses related to claims between Fannie Mae and the indemnifying party (sometimes known as indemnification of first-party or intra-party claims or losses), with the following exception: the indemnities set forth above that are related to Fannie Mae technology are limited to Fannie Mae Losses related to claims by or against third parties.
Do not include Fannie Mae Losses resulting solely from the indemnifying party following the written instructions of Fannie Mae relating to a claim, suit, or proceeding.
Do not modify or otherwise affect Fannie Mae’s right to manage its defense for any claim, suit, or proceeding in accordance with its own judgment.
  • If Fannie Mae chooses its own counsel, the indemnifying party will still be obligated to the full extent of the indemnities set forth above, including paying the attorney’s fees and costs of counsel selected by Fannie Mae.

  • If Fannie Mae decides that its interests and the indemnifying party’s coincide, Fannie Mae may decide to cooperate with the indemnifying party in a joint defense.

Application After Enforcement Relief

If the loan with the breach or alleged breach has achieved enforcement relief, then the obligation to indemnify Fannie Mae is limited to Fannie Mae Losses that are based on or related to:

Indemnification Process

The table below describes the process applicable to a responsible party’s indemnificaiton obligations, whether incurred under this topic or pursuant to an indemnification obligation included in any other portion of the Lender Contract.

Unless otherwise expressly provided in the Lender Contract

  • Fannie Mae will determine without regard to “materiality” or similar limitations if there are any Fannie Mae Losses and the amount of all Fannie Mae Losses; and

  • The responsible party may not dispute the selling price Fannie Mae receives for any foreclosed property.

All payments for indemnification are due within 60 days after written demand or if appealed, within 15 days after an appeal is denied. Fannie Mae may offset the amount of any unpaid indemnification payment due from an indemnifying party against amounts Fannie Mae owes to the indemnifying party. The responsible party must pay for all Fannie Mae Losses for which Fannie Mae bills the responsible party (without regard to any mortgage insurance claim or payment).

Unless otherwise provided in the separate agreement, the responsible party’s obligations under any indemnification provisions contained in a separate agreement signed by responsible party

  • are effective as of the date on which the responsible party and Fannie Mae sign the separate agreement;

  • if with respect to a loan, continue in full force and effect until such loan covered by the indemnification provisions has been paid in full or otherwise satisfied and the indemnification obligations have been performed in full; and

  • if with respect to a product, service or technology, survive the termination of such separate agreement.

General Terms and Conditions Applicable to Indemnification Agreements
Topic Unless otherwise provided in the separate agreement, by entering into a separate indemnification agreement in lieu of immediate repurchase
No Waiver of right and remedies
  • Fannie Mae is not waiving any rights or remedies that Fannie Mae now has or may have in the future, except for postponing immediately exercising the remedies Fannie Mae has because of the breach described in the separate indemnification agreement;

  • Fannie Mae reserves all other rights and remedies under the Lender Contract, at law, or in equity; and

  • The responsible party’s obligations under the indemnification agreement are separate and in addition to any other obligations it may have in the Lender Contract.

Copy must be maintained in loan file The responsible part will include a copy of the indemnification agreement in the individual loan file (and at its option, the responsible party may redact any loan-level information that does not apply to a covered loan).
Immediate repurchase if a default occurs If a default occurs under the Lender Contract, Fannie Mae may immediately demand repurchase of the loan and the responsible party will have no right of appeal.
Voluntary resolution
  • The resolution of the matters described in the separate agreement in voluntary and applies only to the covered loans; and

  • Fannie Mae’s offer of an indemnification agreement may not be used as a precedent or otherwise be deemed to establish a course of conduct between the parties in resolving any past, present or future claim.

Choice of law The indemnification agreement is subject to the choice of law prvisions in the Lender Contract.
Responsible Party Representations and Warranties The responsible party represents and warrants that:
  • the indemnification agreement has been duly executed and delivered by the responsible party and is enforceable against the responsible party in accordance with its terms;

  • the indemnification agreement will not require any consent or approval of any person, entity or governmental authority except the consents and approvals as have been obtained and are in full force and effect;

  • no insolvency, bankruptcy, receivership or similar proceeding is threatened or pending by or against the responsible party; and

  • if the responsible party is a federally insured institution or an affiliate of a federally insured institution,

    • the execution of the indemnification has been specifically approved by the Board of Directors of the responsible party and such approval is reflected in the minutes of the meetings of such Board of Directors, or approved by an officer of responsible party who was duly authorized by the Board of Directors to enter into transactions of the type set forth in the indemnification agreement and such authorization is reflected in the minutes of the Board of Directors’ meetings;

    • the indemnification agreement is the written agreement governing the responsible party’s rights and obligations pursuant to the indemnification agreement, and the responsible party will continuously maintain all components of the written agreement as an official record of the responsible party.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcement Issue Date
Announcement SEL-2017-07 August 29, 2017
Announcement SEL-2016–07 August 30, 2016
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2011–10 September 27, 2011