Servicing Guide

Published June 13, 2018

A1-2-02: Fannie Mae’s Termination of the Lender Contract without Cause (11/12/2014)

Fannie Mae may terminate the servicer’s contractual right to service without cause, in accordance with the MSSC.

Also, see A1-4.1-02, Fannie Mae’s Remedies for information on Fannie Mae’s right to terminate with cause.

Fannie Mae will give the servicer a termination notice. Any responsibilities or liabilities related to specific portfolio or MBS mortgage loans that the servicer had before the termination will continue to exist after the termination unless Fannie Mae expressly agrees in writing to release the servicer from those responsibilities and liabilities.

When Fannie Mae terminates the Lender Contract, the servicer must comply with instructions provided by Fannie Mae regarding requirements reasonably necessary to effectuate the transfer of servicing in connection with a termination.

The servicer is responsible for all reasonable and customary costs and expenses related to the transfer of servicing in connection with a termination.

This topic contains the following:

Servicer Options When the Termination without Cause Is Not Connected to the Sale of the Mortgage Loan

If Fannie Mae elects to terminate the servicing without cause and the termination is not in connection with the sale of Fannie Mae’s interest in the affected mortgage loans, the servicer may attempt to arrange for a sale of the servicing of the mortgage loans to another Fannie Mae-approved servicer within the 90-day period following the issuance of Fannie Mae’s termination notice. The servicing must be sold to another Fannie Mae-approved servicer in good standing that, in Fannie Mae’s judgment, will properly service the mortgage loans to be transferred. Before the end of the 90 days, the servicer must notify Fannie Mae of any proposed sale, providing related information for Fannie Mae’s consideration. Fannie Mae must approve the transfer before the sale can be completed. Fannie Mae’s approval will not be unreasonably withheld.

If Fannie Mae approves the transfer, it must be completed within 60 days after the date of approval and is subject to the following conditions:

  • The transferor servicer (seller) is entitled to all the proceeds of the sale of servicing, but it must pay all costs and expenses related to the transfer. Fannie Mae will not pay a termination fee.

  • The transferee servicer (purchaser) must assume

    • warranties that were made to Fannie Mae when Fannie Mae purchased or securitized the mortgage loans being transferred, and

    • all of the transferor servicer’s contractual obligations covering the servicing of the transferred mortgage loans, including (but not limited to) any outstanding claims.

Once the transfer becomes effective, the transferee servicer (purchaser) will be granted the same contractual rights and servicing compensation that the transferor servicer had received. The transferee servicer’s (purchaser’s) assumption of these warranties and obligations does not, in any way, release the transferor servicer from its obligations related to selling representations and warranties and servicing responsibilities or liabilities.

Fannie Mae may terminate the servicer’s Lender Contract on the 15th day following the end of the 90-day period if, at the end of the 90-day period following Fannie Mae’s termination notice without cause

  • the servicer has not arranged to sell its servicing and given Fannie Mae the required notice, or

  • Fannie Mae does not approve the proposed transfer.

Fannie Mae may then transfer the servicing to the servicer of its choice. If Fannie Mae decides to do so, it may publicly announce that it is soliciting bids for the purchase of the servicing rights from Fannie Mae–approved servicers that are in good standing. Within ten days after any public announcement, Fannie Mae may negotiate and effect the sale of the servicing rights to the highest satisfactory bidder.

Regardless of whether Fannie Mae publicly solicits bids, it must pay the transferor servicer a termination fee (reduced by reasonable and customary costs and expenses related to the transfer of servicing).

Termination Fee for Mortgage Loans Delivered Prior to January 1, 2013: For mortgage loans delivered prior to January 1, 2013, the termination fee is the amount equal to two times the servicer’s annualized servicing compensation—base servicing fee plus any excess yield—for the mortgage loan as of the termination date.

Termination Fee for Mortgage Loans Delivered On or After January 1, 2013: For mortgage loans delivered on or after January 1, 2013, the termination fee for a without cause termination is based on conditions existing as of the transfer date. The termination fee is an amount equal to the lesser of the following:

  • Two times the Net Servicing Rate multiplied by the UPB as of the date of transfer of those mortgage loans subject to termination that are not delinquent. For purposes of this calculation, a mortgage loan will be deemed to be delinquent if, as of a month end transfer date, any payment is outstanding. In the event of a servicing transfer date that takes place other than at month end, a mortgage loan will be deemed to be delinquent if there is any payment outstanding as of the month end immediately preceding the transfer date. No termination fee will be paid for a delinquent mortgage loan.

  • The market value of the contractual right to service the mortgage loans as established by a qualified market leader in servicing valuations using costs reflective of Fannie Mae’s cost to engage a subservicer, applying protocols appropriate for the risk of the portfolio as determined by Fannie Mae in its sole discretion.

For purposes of calculating the termination fee, the “Net Servicing Rate” means the note rate of the mortgage loan less all of the following: a) the PTR due Fannie Mae, b) any guaranty fee due Fannie Mae, c) any excess servicing not retained by the servicer, d) any lender paid MI, and e) any other component of the note rate the servicer is not entitled to retain for servicing the loan, expressed as an annualized fractional percentage.

When the Termination without Cause Is Connected to the Sale of the Mortgage Loan

When Fannie Mae terminates the servicer’s servicing arrangement without cause and in connection with a sale of all of Fannie Mae’s interest in the affected mortgages loans, the servicer will have no further rights in the servicing of the mortgage loans it had been servicing for Fannie Mae.

For mortgage loans delivered prior to January 1, 2013, the termination fee in such a situation will be an amount equal to two times the servicer’s annualized servicing compensation—base servicing fee plus any excess yield—for the mortgage loan as of the termination date.

For mortgage loans delivered on or after January 1, 2013 for which Fannie Mae terminates the servicer’s servicing arrangement without cause and in connection with a sale of Fannie Mae’s interest in the affected mortgages loans, Fannie Mae will apply the same termination fee calculation utilized for terminations without cause referenced above applicable to mortgage loans delivered on or after January 1, 2013. However, if the servicing responsibilities or liabilities for a mortgage loan are retained by the servicer in connection with the sale of Fannie Mae’s interest, no termination fee will be paid.

Transfer of Servicing Due to Delinquency Status

For mortgage loans delivered on or after January 1, 2013, Fannie Mae has the right to terminate and transfer the servicer’s servicing rights in a mortgage loan in the event the mortgage loan has two or more payments outstanding as of the “Determination Date,” which is defined as a day of a month designated by Fannie Mae, taking into account necessary compliance with all applicable laws and regulations, including, without limitation, the federal RESPA and Regulation X, as amended. For example, a mortgage loan for which a monthly payment is due and owing for August 1 will have two payments outstanding as of September 2.

In the event Fannie Mae intends to exercise its right to terminate and transfer the servicer’s servicing rights due to the delinquency status on mortgage loans delivered on or after January 1, 2013, Fannie Mae will give the servicer notice at least 90 days prior to the first applicable termination date. If Fannie Mae has given the servicer such 90 days notice, Fannie Mae may thereafter suspend its exercise of such termination and transfer rights at any time; provided, however that upon the written request of the servicer Fannie Mae will provide up to 180 days notice prior to suspending the exercise of such termination and transfer rights.

All terminations and transfers effectuated pursuant to delinquency status are effective as of the last day of the transfer month. Fannie Mae will not pay a termination fee in connection with a termination of the servicer’s servicing rights due to delinquency status. The mortgage loan servicing will transfer to and remain with the new servicer, even if the mortgage loan becomes current after the Determination Date.