Servicing Guide

Published September 11, 2019

B-1-01: Administering an Escrow Account and Paying Expenses (07/10/2019)

Without regard to whether the mortgage loan has an escrow account, the servicer must protect Fannie Mae’s mortgage lien and the property securing the mortgage loan by

  • monitoring the status of all escrow and related charges, which may include but are not limited to

      • property and flood insurance premiums;

      • mortgage insurance premiums;

      • real estate taxes;

      • ground rents;

      • regular and special assessments for condominiums, homeowners associations (HOA), and Planned Unit Developments (PUD);

      • co-op corporation fees and assessments;

      • local government and public utility assessments; and

      • any other charges, fines, and imposition attributable to the property which can attain priority over Fannie Mae’s mortgage lien; and

  • maintaining accurate records on the status of all escrow and related charges.

Unless otherwise noted, the requirements in this section apply whether the mortgage loan is a first lien mortgage loan that has an escrow account or a second lien mortgage loan where the servicer chooses to require an escrow account.

When the mortgage loan has an escrow account, the servicer must

  • ensure the timely payment of all escrow and related charges before any applicable penalty or termination date, and

  • make payments for escrow-related expenses early enough to take advantage of any discount period to obtain the maximum discounts allowed whenever funds are available in the escrow account.

This topic contains the following:

Paying Interest on an Escrow Account

Fannie Mae will not reimburse the servicer when the servicer pays interest on an escrow account, whether required by law or voluntary.

Waiving Escrow Account Requirements

The servicer must not solicit a borrower with an offer to waive the escrow account requirements but is authorized to evaluate a borrower’s request subject to the requirements in the following table.

The servicer must...

Evaluate whether it is appropriate to waive the escrow account requirement based on the mortgage loan documents and applicable law.

Deny a request to waive escrow requirement for a mortgage loan if

  • the borrower has received a prior mortgage loan modification, or previously been approved for an escrow waiver and failed to make all payments timely, as required,

  • the borrower has experienced any delinquency in the 12 months immediately preceding the request,

  • the borrower has experienced a 60+ day delinquency in the 24 months immediately preceding the request, or

  • the principal balance for the mortgage loan is greater than or equal to 80% of the original appraised value.

Maintain the basis for the waiver decision and any disclosures provided to the borrower, if applicable, in the mortgage loan servicing file. The servicer must make this information available to Fannie Mae upon request.

The servicer may not waive the individual escrow requirement for MIPs when the premiums are paid monthly.

Administering an Escrow Account in Connection With a Mortgage Loan Modification

The following table outlines the escrow requirements when a servicer enters a mortgage loan modification.

The servicer must...

Revoke any escrow deposit account waiver and establish an escrow deposit account prior to the beginning of the trial payment period in accordance with Fannie Mae’s requirements, unless the borrower is current on the payments for taxes, special assessments, property and flood insurance premiums, premiums for borrower-purchased MI, ground rents, and similar items and the mortgage loan modification is a

Analyze an existing escrow account to estimate the periodic escrow deposit required to ensure adequate funds are available to pay future charges, taking into consideration T&I premiums that may come due during any trial period. In the event the initial escrow analysis or next annual analysis identifies an escrow shortage, the servicer is authorized to collect such funds from the borrower over a term of up to 60 months, unless the borrower decides to pay the shortage up-front.

Ensure the borrower’s monthly mortgage loan payments, including trial period payments, include an escrow payment. See the applicable mortgage loan modification program in Section D2–3.2, Home Retention Workout Options for additional information.

Manufactured Home Tax Requirements

When the property securing the mortgage loan is a manufactured home, the servicer must ensure the manufactured home and land are taxed as real property and a single tax bill is issued.

If this is not possible, the dwelling must be taxed separately as personal property and the servicer must adjust its system to escrow for both real and personal property taxes. Fannie Mae’s requirements for real estate taxes apply equally to personal property taxes applicable to the dwelling.

Paying Assessments and Related Expenses to Protect the Priority of Fannie Mae’s Mortgage Lien

The following table outlines the servicer’s responsibilities for addressing a regular or special assessment, including for an HOA, PUD, or condo association or a related expense, prior to the foreclosure sale date when applicable law creates a lien that is superior in priority over Fannie Mae’s mortgage lien and that if foreclosed, would extinguish Fannie Mae’s mortgage lien.

The servicer must...
Determine the minimum amount necessary to clear the association’s claim of lien in order to prevent the extinguishment of Fannie Mae’s mortgage lien.
Negotiate with the association, as needed and with reasonable effort, to minimize the amount necessary to clear the association’s lien against the property.
Pay the necessary amount prior to the foreclosure sale date or closing of a Mortgage Release.

Note: The servicer must notify Fannie Mae’s Legal department by submitting a Non-Routine Form (Form 20) when

  • the association refuses to issue a statement of the amount due showing only the priority amounts,

  • the association continues to assert lien priority after the servicer has paid the priority amounts,

  • litigation is filed by the association to foreclose a Fannie Mae-owned mortgage lien or to establish lien priority, or

  • efforts to settle a dispute with the association fail.

The servicer must follow the procedures in General Expense Reimbursement Requirements in F-1-05, Expense Reimbursementto determine the timing and amount of advances, if any, Fannie Mae will reimburse.

The servicer must follow the procedures in Allowable Payments to Subordinate Lienholders in D2-3.3-01, Fannie Mae Short Sale to determine the type and amount of payments to subordinate lienholders, if any, Fannie Mae will allow to be paid from the short sale proceeds.

Advancing Funds to Cover Expenses

The servicer must promptly advance the funds to cover an expense when an escrow account has insufficient funds to pay an expense in a timely manner. The servicer must require the borrower to reimburse it for advances because the escrow deposit account did not have sufficient funds to cover an expense or emergency repairs to the property. Any funds the servicer advances must stay in the T&I custodial account until the borrower remits funds sufficient to cure the deficit.

The following table outlines the requirements when the servicer waives the escrow account requirement and the borrower fails to pay the insurance premiums, taxes, or other related charges.

The servicer must...

Advance the payment, including any late payment penalties, from its own funds.

Revoke any escrow waiver and establish an escrow account in accordance with Fannie Mae’s requirements to collect funds to repay the advances and pay future bills.

The servicer must follow the procedures in General Expense Reimbursement Requirements in F-1-05, Expense Reimbursement to determine how to obtain reimbursement from future payments, and how to obtain reimbursement from Fannie Mae.

Related Announcements

Announcements Issue Date
Announcement SVC-2019-05 July 10, 2019
Announcement SVC-2018-04 June 13, 2018
Announcement SVC-2018-03 April 11, 2018
Announcement SVC-2017-09 October 11, 2017
Announcement SVC-2017-04 May 10, 2017