The servicer services Fannie Mae mortgage loans as an independent contractor and not as an agent, assignee, or representative of Fannie Mae. Most of the policies and standards described in the Servicing Guide are intended to set forth the broad parameters under which the servicer must exercise sound and professional judgment as a mortgage loan servicer in the performance of its duties. As a result, in most instances Fannie Mae has not set forth absolute requirements because it believes that the servicer needs to maintain the discretion to apply appropriate judgment in dealing with borrowers and mortgage loans on a case by case basis, consistent with Fannie Mae’s servicing policies. Further, even where Fannie Mae has set forth a “requirement,” it has not enumerated specifically how the servicer should implement it. Fannie Mae generally will not object to the practices the servicer regularly applies so long as they are carried out in accordance with established written procedures that are consistent with Fannie Mae’s servicing policies. The servicer may apply practices used on its own portfolio of mortgage loans to Fannie Mae mortgage loans as long as the practices are in accordance with the servicer’s established written procedures and are consistent with Fannie Mae’s servicing policies.
As a general matter, the servicer must have sufficient staffing levels and properly trained staff (including third-party providers of its outsourced servicing activities) to
carry out all aspects of their servicing duties in accordance with the timing requirements of the Servicing Guide,
maintain acceptable performance standards, and
provide borrowers with assistance when it is requested.
Furthermore, the servicer (or master servicer) must
require the subservicer/outsource vendor to have policies and procedures for the contracted servicing activities;
conduct audits and QC reviews on subservicer/outsource vendor for contracted servicing activities, including services performed outside the United States, to ensure compliance with Fannie Mae requirements; and
conduct operational assessments and reviews that measure the subservicer/outsource vendor performance in various departments.
The servicer must have effective processes to promptly address borrower inquiries (relating to both current and delinquent mortgage loans) and provide timely payoff quotes and refunds of escrow deposits after payoff. To the extent consistent with the borrower’s mortgage loan documents and applicable laws and regulations, Fannie Mae encourages the servicer to adopt servicing practices that allow for an appropriate level of discretion to take into account the facts of a particular mortgage loan and the circumstances of the borrower.
In performing the services and duties incident to the servicing of mortgage loans, the servicer must take whatever action necessary to protect the beneficial interest of Fannie Mae and an MBS trust in the security property as long as it is authorized to do so by the terms of the mortgage loan. Among other things, this generally includes, but is not limited to:
monitoring and paying property taxes, HOA assessments, and related expenses to avoid possible tax liens or other liens that may take priority over Fannie Mae’s mortgage lien (see B-1-01, Administering an Escrow Account and Paying Expenses for additional information);
maintaining adequate property insurance to cover damage from unforeseen casualty losses;
establishing and maintaining accounts for the deposit of borrowers’ funds;
responding to borrowers’ inquiries (relating to both current and delinquent mortgage loans) about the terms of their mortgage loans or the actions the servicer has (or has not) taken in its servicing of the mortgage loans;
making periodic property inspections to ensure that the physical condition of the property is satisfactory, that there are no apparent hazardous conditions (such as the presence of hazardous wastes or toxic substances) affecting the property, and that there are no apparent violations of applicable law that might result in a seizure or forfeiture of the property, and to determine and initiate the needed responsive actions (see D2-2-10, Requirements for Performing Property Inspections and E-3.3-03, Inspecting Properties Prior to Foreclosure Sale for additional information);
maintaining accurate mortgage loan servicing and accounting records, including proper coding of mortgage loans to ensure that proper MBS mortgage loan servicing guidelines are followed;
collecting and promptly remitting any and all amounts due Fannie Mae;
taking prompt and appropriate action to resolve or prevent a delinquency, including any action necessary to liquidate a defaulted mortgage loan (see Parts D and E for additional information);
performing certain administrative functions related to an acquired property when Fannie Mae so requests (see E-4.3-01, Managing the Property Post-Foreclosure Sale for additional information);
advancing reasonable amounts, if necessary, to cover expenses arising in connection with any of the duties described above; and
providing timely payoff quotes and refunds of escrow deposits after payoff.
The servicer must use good judgment and take the actions described in the following table.
|✓||The servicer must...|
Exercise sound professional judgment as the mortgage loan servicer in the performance of its duties.
Use its discretion to apply appropriate judgment in dealing with borrowers and mortgage loans on a case-by-case basis, consistent with Fannie Mae’s servicing policies.
Perform specific administrative responsibilities and business obligations in the overall conduct of its mortgage loan operations as described in the Servicing Guide.
Service all mortgage loans in a sound, businesslike manner.
Protect against fraud, misrepresentation, or negligence by any parties involved in the mortgage loan servicing process.
Have adequate controls and QC procedures in place.
Fannie Mae’s basic servicing policies do not change on the basis of its lien position.
The servicer’s authorization to receive, handle, or dispose of funds representing mortgage loan payments (for principal, interest, and tax and insurance escrow deposits) or of other funds or assets related to the mortgage loans it services for Fannie Mae or to the properties secured by those mortgage loans is limited to those servicing actions that are expressly authorized in the Servicing Guide or in the Lender Contract.
Because these funds and assets are owned by Fannie Mae and other parties (such as the borrower, a participating seller/servicer, or an MBS holder, if applicable), the servicer, in its handling of these funds, is acting on behalf of and as a fiduciary for, Fannie Mae and other parties, as their respective interests may appear; the servicer is not acting as a debtor of Fannie Mae.
If the servicer takes any action with respect to these funds or assets that is not expressly authorized, such as the withdrawal or retention of mortgage loan payment funds Fannie Mae is due as an offset against any claim the servicer may have against Fannie Mae, the servicer is not only violating the provisions of the Servicing Guide and the Lender Contract, but also is violating the rights of any and all other parties that have a beneficial interest in the funds. Such action is therefore prohibited and will be considered a breach of the Lender Contract.
Because the servicer of scheduled/actual and scheduled/scheduled remittance types must remit funds to Fannie Mae when they are scheduled to be remitted rather than when they are actually collected, there may be times when the funds collected are not sufficient to make the servicer’s required payment. In those cases, the servicer must advance its own funds to cover funds due for delinquent mortgage loans if the funds have not been collected. Funds advanced for this purpose are referred to as “delinquency advances.” See C-3-01, Responsibilities Related to Remitting P&I Funds to Fannie Maefor additional requirements related to delinquency advances.
The servicer of portfolio and participation pool mortgage loans that are scheduled/actual remittance types is required to advance scheduled interest only through the third month of delinquency, except for concurrent sales participation pool mortgage loans, which require that interest be advanced through the foreclosure sale date. To avoid advancing interest from its own funds to pass through the interest due Fannie Mae, the servicer may use the funds it has on hand for any prepaid P&I installments, curtailments, or payments-in-full to offset interest shortfalls that occur as the result of mortgage loan delinquencies. However, if the servicer has no collections on hand that represent funds not yet due for remittance to Fannie Mae, it must make the delinquency advance from its own funds. The servicer may reimburse itself for its delinquency advances from borrower collections that are subsequently deposited to the P&I custodial account.
The servicer of portfolio and MBS mortgage loans that are scheduled/scheduled remittance types, regardless of the applicable servicing option, is required to advance scheduled P&I until the delinquent mortgage loan is removed from Fannie Mae’s active accounting records or the MBS pool. The servicer must make a delinquency advance if the funds on deposit in the servicer’s P&I custodial account on the day the monthly remittance is due to Fannie Mae are less than the amount of the required monthly remittance. The servicer may reimburse itself for its delinquency advances from borrower collections that are subsequently deposited to the P&I custodial account.
The servicer must pay all out-of-pocket costs and expenses incurred in performing its servicing obligations, such as those related to the following:
preservation and protection of the security property (see the Property Preservation Matrix and Reference Guide for additional information),
enforcement of judicial proceedings, and
management and disposition of acquired properties.
Funds advanced for this purpose are referred to as “servicing advances.”
Servicing advances may be recovered from the borrower, insurance proceeds, claims settlements, or other available sources, except as described below. Fannie Mae will reimburse the servicer for certain unrecovered losses under the following circumstances:
when the expense relates to protection of the security or foreclosure costs for a portfolio mortgage loan, or
for an MBS mortgage loan serviced under the special servicing option.
Fannie Mae will not reimburse the servicer for unrecovered losses for costs, losses, or other items that the servicer agreed to hold Fannie Mae harmless against under its warranties or indemnification agreements or for advances made in connection with litigation or proceedings that Fannie Mae did not approve (if its approval was specifically required).
In no event may the servicer recover its servicing advances for a specific mortgage loan from the P&I payments for another mortgage loan or from the T&I deposits in another borrower’s account.
The following table provides references to Announcements that are related to this topic.