The Mortgage Selling and Servicing Contract requires the lender to warrant for each mortgage loan it delivers to Fannie Mae that the property is not damaged by fire, wind, or other cause of loss and that there are no proceedings pending for the partial or total condemnation of the property. The lender also warrants that the mortgage conforms to all applicable requirements in the Selling Guide, including the requirement that the mortgage is an acceptable investment. Finally, the lender represents and warrants that it knows of nothing involving the mortgage or the property that can reasonably be expected to cause the mortgage to become delinquent or adversely affect the mortgage's value or marketability.
The lender must be able to make the warranties that are described above. Therefore, before delivery of a mortgage loan to Fannie Mae where the property may have been damaged by a disaster, the lender is expected to take prudent and reasonable actions to determine whether the condition of the property may have materially changed since the effective date of the appraisal report. The lender is responsible for determining if an inspection of the property and/or new appraisal is necessary to support this warranty.
Lenders should use the following criteria when determining if the mortgage loan can be delivered to Fannie Mae:
If the property has been damaged and the damage does not affect the safety, soundness, or structural integrity of the property and the repair items are covered by insurance, the lender may deliver the mortgage to Fannie Mae. In these circumstances, the lender must obtain documentation of the professional estimates of the repair costs and must ensure that sufficient insurance proceeds are available for the borrower's benefit to guarantee the completion of the repairs.
If the property was damaged and the damage is uninsured or the damage affects the safety, soundness, or structural integrity of the property, the property must be repaired before the mortgage loan is delivered to Fannie Mae.
See B5-4-02, Disaster-Related Limited Cash-Out Refinance Flexibilities, for information related to certain flexibilities offered for a disaster related limited cash-out transaction. Additionally, see B5-5.2-01, DU Refi Plus and Refi Plus Eligibility, for eligibility requirements with respect to DU Refi Plus and Refi Plus mortgage loans.
The table below provides references to the Announcements that have been issued that are related to this topic.