Servicing Guide

Published December 12, 2018

Evaluating a Borrower Facing Imminent Default

The servicer must consider available workout options when the servicer is notified or otherwise becomes aware of events or factors that are expected to cause the borrower’s monthly payment to be in default within the next 90 days (“imminent default”). In determining whether a borrower’s monthly payment is in imminent default, the servicer must take the actions described in the following table.

The servicer must...

Evaluate the borrower’s financial and hardship condition. See D2-2-05, Receiving a Borrower Response Package for information on evaluating the borrower for workout options when the borrower submits a complete BRP.

Evaluate the condition of and the circumstances affecting the property securing the mortgage loan by consulting with the borrower.

The servicer must not solicit borrowers who are current or less than 30 days delinquent for a workout option.

If the servicer determines that a borrower whose mortgage loan was less than 60 days delinquent did not qualify for any workout options, and the borrower’s mortgage loan subsequently becomes 60 or more days delinquent, the servicer must continue its solicitation and collection efforts with the borrower in accordance with D2-2, Requirements for Contacting a Borrower.

Evaluating a Borrower for Imminent Default for Conventional Mortgage Loan Modification Eligibility

For a borrower’s monthly payment to be considered in imminent default for the purpose of determining eligibility for a conventional mortgage loan modification, the borrower must satisfy

  • the initial eligibility criteria, and

  • either the credit or hardship eligibility criteria.

The servicer must take the steps in the following table to perform the imminent default evaluation.

Step Servicer Action
1 Determine if all initial eligibility criteria are satisfied.

Initial Eligibility Criteria
The mortgage loan is current or less than 60 days delinquent as of the evaluation date.
The property securing the mortgage loan is occupied as a principal residence by at least one borrower.
The borrower submits a complete BRP (see D2-2-05, Receiving a Borrower Response Package for additional information).
The borrower’s non-retirement cash reserves are less than $25,000 based on information provided in the Mortgage Assistance Application (Form 710), or equivalent.
The borrower has a hardship as documented in accordance with Form 710, or equivalent.

Note:An increased monthly P&I payment that has occurred as a result of an interest rate adjustment within the last 12 months for a previously modified mortgage loan with a step-rate feature is an acceptable hardship.

2 Determine if either the credit or hardship eligibility criteria is satisfied.

Review Eligibility Criteria
Credit A FICO credit score less than or equal to 620, and either
  • two or more 30-day delinquencies on the mortgage loan in the six months immediately preceding the month of the evaluation, or

    Note: The servicer must not consider a missed contractual payment that becomes 60 or more days delinquent as having two or more 30-day delinquencies in the six-month period immediately preceding the month of the evaluation.

  • a pre-modification housing expense-to-income ratio greater than 40% calculated in accordance with the procedures in Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Conventional Mortgage Loan Modification in F-1-12, Preparing to Implement a Workout Option.

Note: The FICO credit score must be no more than 90 days old as of the date of evaluation. If the servicer obtains multiple credit scores for a single borrower, it must select a representative credit score using the lower of two or the middle of three credit scores. If there are multiple borrowers, the servicer must determine the representative score for each borrower and use the lowest representative score as the credit score for the evaluation.

Hardship The borrower has one of the following hardships as documented in accordance with Form 710, or equivalent:
  • death of a borrower or death of either the primary or secondary wage earner in the household;

  • long-term or permanent disability, or serious illness of a borrower, co-borrower, or dependent family member;

  • divorce or legal separation;

  • separation of borrowers unrelated by marriage, civil union, or similar domestic partnership under applicable law; or

  • an increased monthly P&I payment occurred as result of an interest rate adjustment within the last 12 months for a mortgage loan previously modified with a step-rate feature.

If the servicer requests Fannie Mae’s approval of a conventional mortgage loan modification through Fannie Mae’s servicing solutions system and the mortgage loan is current (i.e., not delinquent or in default) and Fannie Mae declines the borrower’s request, the servicer must send an Adverse Action Notice (Form 182) to the borrower within 30 days of receipt of Fannie Mae’s decision, unless the servicer offers the borrower another retention workout option and the borrower accepts the counteroffer within the 30-day period.

While use of Form 182 is optional, it reflects the minimum level of information the servicer must communicate and illustrates a level of specificity that complies with the requirements of this Guide. The following table provides requirements for the adverse action notice.

The adverse action notice must include...
A statement that Fannie Mae, as the owner of the mortgage loan, reviewed the mortgage loan modification request.
Fannie Mae’s contact address shown as:

Midtown Center

1100 15th Street, NW

Washington, DC, 20005

The reason Fannie Mae did not approve the request.
The name and contact information of the credit reporting agency used to make the denial decision, if applicable.

When requesting Fannie Mae’s approval for a mortgage loan modification for a borrower facing imminent default, the servicer must either

  • include the draft adverse action notice in its submission to Fannie Mae’s servicing solutions system, or

  • certify it has a process to send the text pre-approved by Fannie Mae for every adverse action notice that is sent in accordance with the requirements of this Guide. See A4-2.1-06, Adverse Action Notification Certification for information on obtaining approval and certification.

Evaluating a Borrower for Imminent Default for Fannie Mae Short Sale or Fannie Mae Mortgage Release Eligibility

For a borrower’s monthly payment to be considered in imminent default for the purpose of determining eligibility for a Fannie Mae Short Sale or a Fannie Mae Mortgage Release, the borrower must satisfy

  • the initial eligibility criteria, and

  • either the credit or hardship eligibility criteria.

The servicer must take the steps in the following table to perform the imminent default evaluation, unless the borrower’s debt has been discharged pursuant to Chapter 7 of the U.S. bankruptcy code, in which case the servicer must evaluate the borrower for a Fannie Mae short sale in accordance with D2-3.3-01, Fannie Mae Short Sale or Fannie Mae Mortgage Release in accordance with D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

Step Servicer Action
1 Determine if all initial eligibility criteria are satisfied.
? Initial Eligibility Criteria
The mortgage loan is current or less than 60 days delinquent as of the evaluation date.
The property securing the mortgage loan is occupied as a principal residence by at least one borrower.

Note: If a servicemember receives a PCS order where the transfer or new employment location is greater than 50 miles one way from the property securing the mortgage loan, the property securing the mortgage loan must have been or currently be the servicemember’s principal residence.

The borrower submits a complete BRP (see D2-2-05, Receiving a Borrower Response Package for additional information).
The borrower’s non-retirement cash reserves are less than $25,000 based on information provided in the Mortgage Assistance Application (Form 710), or equivalent.

Note: If a servicemember receives a PCS order where the transfer or new employment location is greater than 50 miles one way from the property securing the mortgage loan, and the property securing the mortgage loan was or currently is the servicemember’s principal residence, he or she is exempt from the non-retirement cash reserves requirement.

The borrower has a hardship as documented in accordance with Form 710, or equivalent.
2 Determine if either the credit or hardship eligibility is satisfied.
Review Eligibility Criteria
Credit A FICO credit score less than or equal to 620, and either
  • two or more 30-day delinquencies on the mortgage loan in the six months immediately preceding the month of the evaluation, or

    Note: The servicer must not consider a missed contractual payment that becomes 60 or more days delinquent as having two or more 30-day delinquencies in the six-month period immediately preceding the month of the evaluation.

  • a housing expense-to-income ratio greater than 40% calculated in accordance with the procedures in Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Fannie Mae Short Sale or Fannie Mae Mortgage Release in F-1-12, Preparing to Implement a Workout Option.

    Note: The FICO credit score must be no more than 90 days old as of the date of evaluation. If the servicer obtains multiple credit scores for a single borrower, it must select a representative credit score using the lower of two or the middle of three credit scores. If there are multiple borrowers, the servicer must determine the representative score for each borrower and use the lowest representative score as the credit score for the evaluation.

Hardship The borrower has one of the following hardships as documented in accordance with Form 710, or equivalent:
  • death of a borrower or death of either the primary or secondary wage earner in the household;

  • long-term or permanent disability, or serious illness of a borrower, co-borrower, or dependent family member;

  • divorce or legal separation;

  • separation of borrowers unrelated by marriage, civil union, or similar domestic partnership under applicable law; or

  • distant employment transfer/relocation, including a PCS order, greater than 50 miles one way from the property securing the mortgage loan.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2018-09 December 12, 2018
Announcement SVC-2018-08 November 14, 2018
Announcement SVC-2018-04 June 13, 2018