Servicing Guide

Published June 13, 2018

A2-7-02: Pledge of Servicing Rights and Transfer of Interest in Servicing Income (11/25/2015)

Fannie Mae will permit the seller/servicer to enter into one of the following transactions, provided that the purpose for the transaction is a purpose permitted by Fannie Mae, as described below, and the seller/servicer obtains the prior written consent of Fannie Mae, in its sole discretion:

1. a pledge or grant of a security interest in the servicing rights to all or part of its Fannie Mae servicing portfolio, including mortgage loans in MBS pools (a “pledge of servicing”);

2. a sale, assignment, transfer, pledge, or hypothecation of all or any portion of its compensation in excess of the amount needed to service mortgage loans for Fannie Mae (“excess servicing compensation”); or

3. a sale, assignment, transfer, pledge, or hypothecation of all or any portion of its right to receive reimbursement of servicing advances.

Note: A transaction described in item 2 or 3 is referred to as a “transfer of an interest in servicing income.”

The seller/servicer is authorized to enter into a pledge of servicing or a transfer of an interest in servicing income for the following purposes only:

  • to fund the acquisition of and performance of required servicing activities for additional servicing and/or servicing portfolios;

  • to provide collateral for warehouse lines of credit; or

  • to effect the purchase of all or substantially all of the assets of a mortgage banking company, including a management buyout of its existing company or a buyout of the controlling ownership interests of existing shareholders.

The seller/servicer must request Fannie Mae’s prior approval of a specific pledging transaction or transfer of an interest in servicing income at least 30 days prior to the proposed effective date.

This topic contains the following:

Pledges of Servicing Rights

A pledge of servicing transaction between the seller/servicer and the secured creditor must be documented by a security agreement determined by the seller/servicer and the secured creditor. The seller/servicer, the secured creditor, and Fannie Mae must also execute an acknowledgment agreement acceptable to Fannie Mae which sets forth the rights and responsibilities of the seller/servicer, the secured creditor, and Fannie Mae.

Security Agreement

The seller/servicer pledging its servicing rights and the secured party to whom the rights are pledged must enter into a legally binding security agreement. Fannie Mae does not specify the precise terms or provisions that must be included in the security agreement. However, since the terms and provisions of the acknowledgment agreement (which is executed by the seller/servicer, the secured creditor, and Fannie Mae) will prevail if there are any conflicts or inconsistencies between the security agreement and the acknowledgment agreement, both parties executing the security agreement should make every effort to ensure that there are no conflicts or inconsistencies between the two agreements.

Each request for approval of a proposed pledge of servicing must include a copy of the related proposed security agreement. The seller/servicer and the secured creditor may amend the security agreement after Fannie Mae approves the transaction without obtaining Fannie Mae's prior consent, as long as

  • all representations and warranties made by the seller/servicer and the secured party in the acknowledgment agreement will apply to such amendment, and

  • the acknowledgment agreement does not specify that Fannie Mae’s prior written consent is required prior to any change in particular provisions of the security agreement.

The secured creditor must include in any financing statement it files for recordation in connection with the security agreement a statement, in the form set forth in the acknowledgment agreement, that the security interest described in the financing statement is subject and subordinate to all rights, powers, and prerogatives of Fannie Mae under, and in connection with the terms of the acknowledgment agreement, and the Lender Contract, which rights, powers, and prerogatives include, without limitation, the right of Fannie Mae to terminate the seller/servicer’s Lender Contract with or without cause and the right to sell, or have transferred, the seller/servicer’s Fannie Mae servicing rights as therein provided.

The secured creditor must also adhere to the requirements listed in the following table.

The secured creditor must...

Provide copies of the executed security agreement and any recorded financing statement to Fannie Mae’s Mortgage Servicing Rights Pledges division (see F-4-03, List of Contacts).

File for recording a proper release of the recorded financing statement within five business days after the effective date of the termination, transfer, or extinguishment of the security interest, and must notify Fannie Mae’s Mortgage Servicing Rights Pledges division (see F-4-03, List of Contacts) of the filing if

• the security interest is released or extinguished, or

• the pledged servicing rights are transferred to the secured creditor as a result of the seller/servicer’s default under the security agreement or in accordance with the terms of the acknowledgment agreement.

Acknowledgment Agreement

Fannie Mae will not approve any request for a pledge of servicing unless the seller/servicer, the secured creditor, and Fannie Mae execute an acknowledgment agreement. The servicer may request the basic form of acknowledgment agreement (which may be modified by Fannie Mae to describe the particular pledge transaction and include any other terms and conditions to Fannie Mae’s approval of such transaction, in its sole discretion), from Fannie Mae’s Mortgage Servicing Rights Pledges division (see F-4-03, List of Contacts).

Under the terms of the acknowledgment agreement, the secured creditor's security interest is subordinate to all of Fannie Mae’s rights, powers, and prerogatives under the acknowledgment agreement and the Lender Contract.

The secured creditor has no claim or entitlement as a secured creditor against Fannie Mae, and Fannie Mae has no duty or obligation to the secured creditor, except as otherwise expressly provided in the acknowledgment agreement. The acknowledgment agreement provides that if the secured party sells one or more participations in the loans made pursuant to the security agreement, the participants shall benefit under the security agreement and the acknowledgment agreement solely through the secured party.

The secured creditor may request that Fannie Mae transfer the servicing of the mortgage loans for which servicing rights have been pledged if the secured party elects to enforce its security interest or any remedy for the seller/servicer’s default under the security agreement, if the secured creditor has a valid power of attorney authorizing it to make the transfer request on the seller/servicer’s behalf. The secured creditor may request that the servicing be transferred to

  • the secured creditor (as long as it is an approved Fannie Mae servicer), or

  • such other Fannie Mae–approved servicer as the secured creditor designates.

The transfer of servicing request will be evaluated, processed, and documented under Fannie Mae’s general procedures for servicing transfers, unless Fannie Mae agrees to modify a specific requirement or amend a particular document. Fannie Mae will not unreasonably withhold its consent to a transfer that is proposed by the secured party. If Fannie Mae finds the proposed transferee servicer unacceptable, it will work with the secured party to find another transferee servicer that is acceptable; provided, however, that Fannie Mae shall retain the right to establish conditions to the approval of any such transfer in its sole discretion.

Fannie Mae has the right, under the terms of its contracts with the seller/servicer, to terminate, sell, or transfer the servicing that has been pledged. If Fannie Mae exercises that right, it may recognize a right of the secured creditor to request that it be retained to service the pledged servicing rights and assume the obligations and liabilities of the seller/servicer to Fannie Mae on such terms and conditions as may be prescribed by Fannie Mae. If Fannie Mae exercises its right to terminate, sell, or transfer the servicing that has been pledged, subject to any such right of assumption of the secured party, Fannie Mae will either

  • market and sell the pledged servicing in a manner it deems appropriate, or

  • retain the pledged servicing and have the market value (the “appraised market value”) established by a qualified market leader in servicing valuations selected by Fannie Mae.

Under the terms of the acknowledgment agreement, the servicing rights that have been pledged will be at all times after such termination, sale, or transfer effected by Fannie Mae in accordance with its contractual provisions with the seller/servicer, free and clear of the secured creditor's security interest.

When Fannie Mae exercises its right to terminate, sell, or transfer servicing that has been pledged, it may select the secured creditor or its designee to act as the new servicer or subservicer of the mortgage loans, or another Fannie Mae–approved servicer. Fannie Mae will notify the secured creditor after it terminates the seller/servicer’s servicing rights that have been pledged.

Fannie Mae will notify the secured creditor of its right to claim all or part of any remaining sales proceeds, appraised market value, or any applicable contract termination fees if it has a valid power of attorney from the seller/servicer authorizing it to request distribution of the sales proceeds, appraised market value, or any applicable contract termination fees, to the extent that Fannie Mae is fully reimbursed for all costs and expenses related to the determination of appraised market value or the sale or transfer and for any actual and projected amounts that are or may be due for obligations not met under the Lender Contract.

The secured creditor’s failure to execute the acknowledgment agreement may impair its ability to claim any portion of the sales proceeds, appraised market value, or any applicable contract termination fees if Fannie Mae terminates the servicer’s contract and sells the servicing portfolio and will impair its ability to request Fannie Mae to transfer the mortgage loans for which the servicing rights are pledged to another servicer if the servicer defaults under the security agreement. The servicer’s failure to seek Fannie Mae’s approval for a pledge of servicing or to execute the acknowledgment agreement could result in a suspension of its selling and servicing rights or in the termination of its Lender Contract, if it proceeds with an unauthorized pledge of its servicing rights.

Transfer of an Interest in Servicing Income

A transfer of an interest in servicing income transaction between the seller/servicer and the purchaser or financier must be documented by a purchase and sale, security, or financing agreement in a form determined by the seller/servicer and the purchaser or financier. The seller/servicer, the purchaser or financier, and Fannie Mae must also execute a subordination of interest agreement acceptable to Fannie Mae, which sets forth the rights and responsibilities of the seller/servicer, the purchaser or financier, and Fannie Mae.

Purchase and Sale, Security, or Financing Agreement

The seller/servicer that seeks to transfer an interest in servicing income and the purchaser or financier to whom the interest in servicing income is transferred must enter into a legally binding purchase and sale, security, or financing agreement. Fannie Mae does not specify the precise terms or provisions that must be included in the purchase and sale, security, or financing agreement. However, since the terms and provisions of the subordination of interest agreement (which is executed by the seller/servicer, the purchaser or financier, and Fannie Mae) will prevail if there are any conflicts or inconsistencies between the purchase and sale, security, or financing agreement and the subordination of interest agreement, both parties executing the purchase and sale, security, or financing agreement must make every effort to ensure that there are no conflicts or inconsistencies between the two agreements.

The seller/servicer must include with each request for approval of a proposed transfer of an interest in servicing income a copy of the related proposed purchase and sale, security, or financing agreement.

The seller/servicer and the purchaser or financier may amend the purchase and sale, security, or financing agreement after Fannie Mae approves the transaction without obtaining Fannie Mae’s prior consent, as long as

  • all representations and warranties made by the seller/servicer and the purchaser or financier in the subordination of interest agreement will apply to such amendment; and

  • the subordination of interest agreement does not specify that Fannie Mae’s prior written consent is required prior to any change in particular provisions of the purchase and sale, security, or financing agreement.

The purchaser or financier must include in any financing statement it files for recordation in connection with the purchase and sale, security, or financing agreement a statement, in the form set forth in the subordination of interest agreement, that the security interest described in the financing statement is subject and subordinate to all rights, powers, and prerogatives of Fannie Mae under, and in connection with the terms of the subordination of interest agreement and the Lender Contract. This includes, without limitation, the right of Fannie Mae to terminate the seller/servicer’s Lender Contract with or without cause and the right to sell, or have transferred, the seller/servicer’s Fannie Mae servicing rights as therein provided.

The following table provides further instructions to the purchaser or financier with regard to document submissions requirements.

The purchaser or financier must...

Provide copies of the executed purchase and sale, security, or financing agreement and any recorded financing statement to Fannie Mae’s Mortgage Servicing Rights Pledges division (see F-4-03, List of Contacts).

File for recording a proper release of the recorded financing statement within five business days after the effective date of the termination, transfer, or extinguishment of the security interest, notifying Fannie Mae’s Mortgage Servicing Rights Pledges division (see F-4-03, List of Contacts) of the filing if the security interest is released or extinguished.

Subordination of Interest Agreement

Fannie Mae will not approve any request for the transfer of an interest in servicing income unless Fannie Mae, the seller/servicer, and the purchaser or financier execute a subordination of interest agreement acceptable to Fannie Mae. Under the terms of the subordination of interest agreement, the purchaser or financier’s interest is subordinate to all of Fannie Mae’s rights, powers, and prerogatives under the subordination of interest agreement and the Lender Contract.

The purchaser or financier has no claim or entitlement as a secured creditor against Fannie Mae, and Fannie Mae has no duty or obligation to the purchaser or financier, except as otherwise expressly provided in the subordination of interest agreement. The subordination of interest agreement will provide that if the purchaser or financier sells one or more participations in the interests acquired pursuant to the purchase and sale, security, or financing agreement, the participants will benefit under the purchase and sale, security, or financing agreement and the subordination of interest agreement solely through the purchaser or financier. Fannie Mae has the right, under the terms of its contracts with the seller/servicer, to terminate, sell, or transfer the servicing which creates the interest in servicing income.

Under the terms of a subordination of interest agreement relating to the transfer of an interest in excess servicing compensation, the purchaser’s or financier’s right to any interest in such excess servicing compensation and any payments with respect thereto will exist only as long as the seller/servicer is the servicer of the mortgage loans as to which an interest in excess servicing compensation has been transferred and is not in default of its obligations to Fannie Mae.

In the case of a subordination of interest agreement relating to the transfer of an interest in the right to receive reimbursement of servicing advances, any servicing advances made by the seller/servicer prior to the termination, sale or transfer of the related servicing by Fannie Mae will be reimbursed by Fannie Mae in accordance with the terms of the seller/servicer’s Lender Contract.

If the transfer of an interest in servicing income is secured by the seller/servicer’s pledge of all or part of its Fannie Mae servicing portfolio, the subordination of interest agreement will also contain provisions, similar to those described in the Acknowledgment Agreement that set forth the rights and responsibilities of the seller/servicer, the purchaser or financier, and Fannie Mae with respect to the pledged servicing.

The servicer’s failure to seek Fannie Mae’s approval for a transfer of an interest in servicing income or to execute the subordination of interest agreement could result in a suspension of its selling and servicing rights or in the termination of its Lender Contract, if it proceeds with an unauthorized transfer of an interest in servicing income.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC–2015–14 November 25, 2015