Servicing Guide

Published September 18, 2018

D2-1-01: Determining if the Borrower’s Mortgage Payment is in Imminent Default (06/13/2018)

This topic contains the following:

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:

3900 Wisconsin Ave, NW,

Washington, DC, 20016-2892

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.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2018-04 June 13, 2018