General Requirements When Processing a Fannie Mae Mortgage Release

The following table provides some of the servicer’s responsibilities in connection with processing a Fannie Mae Mortgage Release for a first lien mortgage loan.

The servicer must...

Ensure that the borrower is not involved in or party to litigation other than foreclosure or bankruptcy involving the subject property or mortgage loan.

Evaluate the borrower’s eligibility and contribution requirements, if any, based on the status of the mortgage loan at the time of the respective evaluation.

Inform the borrower of the three exit options:

1. Immediate move.

2. A three-month transition lease with no rent payment required.

3. A twelve-month lease at market rent payment.

See Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options for information on options #2 and #3.

Advise the borrower that there may be possible tax consequences if any portion of the outstanding debt is forgiven, and refer the borrower to IRS Publication 544, Sales and Other Dispositions of Assets, particularly the section captioned “Foreclosure, Repossession, or Abandonment.”

Work with the borrower to complete all requirements associated with completing and executing the Mortgage Release and ensure that there is sufficient time to complete the processing of the Mortgage Release, including sending the Mortgage Release offer to the borrower, so that an executed deed can be received no later than 30 days prior to the foreclosure sale date.

Work with the title company to resolve any issues that may delay the closing, including assisting the borrower in subordinate lien releases, and ensure that the borrower can convey clear and marketable title. The servicer must follow the procedures in Verifying Clear and Marketable Title in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for ensuring that clear and marketable title can be conveyed.

Note: While the servicer is not required to order a title insurance policy, the servicer is authorized to do so if it deems it necessary to complete the Mortgage Release. Fannie Mae will reimburse the servicer for title insurance costs in accordance with E-5-07, Other Reimbursable Default-Related Legal Expenses.

Submit the deed for recordation within five business days of the servicer’s acceptance of the executed deed from the borrower.

Ensure the property is vacant and broom swept, unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options.

Release the first lien mortgage loan within the time required by applicable state or local law or, if state or local law does not require release of the first lien mortgage loan within a specific time frame, within 30 business days after the occurrence of the following:

  • the acceptance of the Mortgage Release by the servicer, and

  • confirmation by the interior property inspection that the subject property is vacant and secured (unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options).

Appropriately manage liquidation workout options that involve the borrower’s relinquishing ownership of the property to ensure that the borrower’s rights are appropriately protected.

Provide evidence of the borrower’s indication of intent to pursue a Mortgage Release to Fannie Mae upon request.

When Fannie Mae’s approval of a Mortgage Release is required, the servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval of a Mortgage Release. The servicer must refer to the Property Preservation Matrix and Reference Guide for further clarification on handling delinquent and vacant or abandoned properties during the Mortgage Release process.

Evaluating a Borrower’s Hardship

The following table provides the eligibility requirements related to hardship depending upon the status of the mortgage loan.

Mortgage Loan Status Hardship Requirements

Current or less than 90 days delinquent

The borrower must document one of the following hardships in accordance with Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package:

  • death of a borrower or co-borrower,

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

  • the borrower was previously discharged from the debt obligation through a Chapter 7 bankruptcy and did not reaffirm the mortgage loan.

Note: If the borrower faces a hardship other than those listed and he or she provides all relevant documentation to the servicer for consideration for a Mortgage Release, the servicer must still review the complete BRP. If the servicer determines that the request is warranted, it must submit its recommendation to Fannie Mae to obtain prior written approval.

90 days or more delinquent

The borrower must document one of the hardships listed on the Mortgage Assistance Application(Form 710), or equivalent, in accordance with Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package.

The servicer must develop written procedures to review the evidence of hardship and determine when it is appropriate to offer a Mortgage Release when the borrower selects “other” as the hardship.

The following table provides the servicing requirements when a borrower is an active duty military servicemember of the U.S. Armed Forces with PCS orders relocating the borrower from his or her principal residence and the servicer determines that a Mortgage Release is the appropriate workout option.

If the mortgage loan is... Then the servicer must...

Current or less than 90 days delinquent

submit the recommendation to Fannie Mae to obtain prior written approval.

90 days or more delinquent

proceed with evaluating the borrower for consideration of a Mortgage Release without obtaining Fannie Mae’s prior approval.

Evaluating a Borrower Whose Mortgage Loan Is Current or Less Than 31 Days Delinquent

The following table lists all of the requirements that must be satisfied for the servicer to approve a Fannie Mae Mortgage Release when the mortgage loan is current or less than 31 days delinquent.

Eligibility criteria for a Fannie Mae Mortgage Release when the mortgage loan is current or less than 31 days delinquent

The borrower must meet the hardship requirements described previously.

The property securing the mortgage must be the borrower’s principal residence.

Note: If the subject property was the borrower’s principal residence, but is vacant at the time of the evaluation, the servicer must submit the Mortgage Release to Fannie Mae to obtain prior written approval.

The borrower’s current monthly debt-to-income ratio must be greater than 55%. The servicer must follow the procedures in Calculating the Borrower’s Current Monthly Debt-to-Income Ratio When the Mortgage Loan Is Current or Less Than 31 Days Delinquent in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for calculating the borrower’s current monthly debt-to-income ratio.

Note: Active duty military servicemembers of the U.S. Armed Forces with PCS orders relocating from a principal residence, whether or not the servicemember currently occupies the property, purchased on or before June 30, 2012 are exempt from the current monthly debt-to-income ratio requirement.

The servicer must not approve a Mortgage Release when the borrower has non-retirement liquid assets greater than $50,000. In such cases, the servicer must submit a recommendation to Fannie Mae for review. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

Determining if a Borrower Qualifies for Streamlined Documentation

The servicer must evaluate the borrower for a Mortgage Release without receiving a complete BRP or verifying the borrower’s hardship if

  • the mortgage loan is 90 days or more delinquent as of the date of the servicer evaluation;

  • the mortgage loan is not secured by an investment property, as identified at origination; and

  • one of the following criteria is met:

    • the borrower’s classic FICO credit score, which must be no more than 90 days old as of the date of evaluation, is less than 620. The servicer must follow the procedures in Obtaining and Reviewing the Borrower’s Credit Score in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for obtaining and reviewing the FICO credit score; or

    • the borrower’s debt has been discharged pursuant to Chapter 7 of the U.S. Bankruptcy Code. The servicer must obtain proof that the mortgage loan was included in the borrower’s Chapter 7 bankruptcy filing, such as notification from the court or a copy of the order of discharge showing the mortgage loan as discharged.

If the borrower originally qualified for a Fannie Mae short sale in accordance with Determining if a Borrower Qualifies for Streamlined Documentation in D2-3.3-01, Fannie Mae Short Sale, and subsequently works with the servicer to transition to a Mortgage Release, the servicer must use the borrower’s initial Streamlined Documentation qualification for the Mortgage Release.

If the borrower fully reinstates the mortgage loan, bringing the mortgage loan current, after the initial Mortgage Release qualification, the borrower is no longer eligible for a Mortgage Release without the servicer receiving and evaluating a complete BRP and verifying the borrower’s hardship in accordance with D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

Evaluating a Borrower Whose Mortgage Loan is Greater Than 30 Days Delinquent

For the servicer to approve a Fannie Mae Mortgage Release when the mortgage loan is greater than 30 days delinquent, the borrower must meet the hardship requirements described in Evaluating a Borrower’s Hardship. The servicer must not approve a Mortgage Release when the borrower has non-retirement liquid assets greater than $50,000. In such cases, the servicer must submit a recommendation to Fannie Mae for review. No property types are excluded. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options

Once the servicer determines that the borrower is eligible for a Mortgage Release and the borrower expresses interest in a Mortgage Release transition option, the servicer must screen the borrower for eligibility for a Mortgage Release transition option (exit options #2 and #3 as described in General Requirements When Processing a Fannie Mae Mortgage Release). The servicer must refer the Mortgage Release to Fannie Mae when both the mortgage loan and borrower meet the eligibility criteria described in the following table.

Mortgage loan and borrower eligibility criteria for Mortgage Release transition options

The mortgage loan must be a first lien mortgage loan secured by a single-family property.

The mortgage loan must not be guaranteed, insured, or held by FHA, HUD, VA, or the RD.

The subject property must be

  • the borrower’s principal residence, or

  • an investment property which has been leased to a tenant(s) who uses the property as a principal residence.

Note: For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the subject property must be the borrower’s principal residence.

At least three monthly payments must have been made since origination or since the last mortgage loan modification, if applicable.

Note: This is only applicable for the Mortgage Release transition option that allows the borrower to execute a twelve-month lease agreement with a market rent payment.

The mortgage loan must not have 12 or more payments past due when referred to Fannie Mae for consideration for a Mortgage Release transition option.

Note: This is only applicable for the Mortgage Release transition option that allows the borrower to execute a twelve-month lease agreement with a market rent payment.

The borrower must not be involved in an active bankruptcy proceeding or party to litigation involving the subject property or mortgage loan.

Note: For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the borrower may be involved in an active bankruptcy proceeding.

Clear and marketable title must be able to be conveyed.

Subordinate lien releases must be able to be obtained, if applicable.

The occupant must have verifiable income.

Note: Unemployed occupants with no source of income are not eligible. For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the occupant is not required to have verifiable income.

The servicer must follow the procedures in Processing a Mortgage Release Transition Option in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for processing a Mortgage Release transition option.

Evaluating the Credit Report for New Mortgage Loans Obtained

For all Mortgage Release cases except those that are eligible in accordance with Determining if a Borrower Qualifies for Streamlined Documentation, the servicer must review each borrower’s credit report to determine

  • if the borrower(s) obtained a new mortgage loan in the six months preceding the delinquency on the mortgage loan secured by the subject property; or

  • in the case of a current mortgage loan, in the six months preceding the evaluation for a Mortgage Release.

If the servicer determines that the borrower obtained a new mortgage loan in the six months preceding the delinquency, or preceding the evaluation for a Mortgage Release, as applicable, the servicer is authorized to approve the case only if the hardship was due to

  • a distant employment transfer,

  • new employment, or

  • receipt of PCS orders.

If the borrower has a hardship other than these, the servicer must submit the case to Fannie Mae for written approval.

Obtaining a Property Valuation and Evaluating the Condition of the Property

If the servicer determines that the borrower meets the eligibility criteria stated above for a Fannie Mae Mortgage Release, it must place a property valuation order directly with Fannie Mae to determine the market value of the property securing the mortgage loan, if required by Fannie Mae or the mortgage insurer. The servicer must follow the procedures in Obtaining a Property Valuation in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for obtaining a property valuation.

Prior to the borrower executing a Fannie Mae Mortgage Release, the servicer must schedule property inspections to ensure that the property is undamaged, properly maintained, and free from structural problems, environmental contamination, or existing or potential legal concerns. See the Property Preservation Matrix and Reference Guide for additional information. The servicer’s action will depend on whether the servicer previously ordered an interior BPO, as described in the following table.

If the servicer has… Then the servicer…

previously ordered an interior BPO

is authorized to use the interior BPO to determine whether the property condition is acceptable prior to final execution of the Mortgage Release, as long as the BPO is dated within 90 days of the borrower’s approval for a Mortgage Release.

not previously ordered an interior BPO

must order an interior inspection of the property and verify the property is in acceptable condition within 60 days of the borrower’s acceptance of the Mortgage Release.

See E-3.3-03, Inspecting Properties Prior to Foreclosure Saleand D2-2-10, Requirements for Performing Property Inspections for the requirements related to performing property inspections.

The servicer must submit the Mortgage Release request to Fannie Mae to receive prior written approval if the property inspection or property valuation reveals any of the following about the subject property and the servicer determines that a Mortgage Release is the appropriate workout option:

  • the subject property has been poorly maintained,

  • the subject property requires major repairs,

  • the subject property has structural property has structural or foundation problems,

  • the subject property contains environmental contamination, or

  • the subject property poses potential legal risk.

Allowable Payments to Subordinate Lienholders

The following table provides the requirements that apply to allowable payments to subordinate lienholders for a Mortgage Release.

Requirements for payment to subordinate lienholders

Payments to subordinate lienholders must be in exchange for

  • a lien release,

  • a full release of liability for the borrower, and

  • extinguishment of the indebtedness secured by the subject property.

Payments to all subordinate lienholders to facilitate lien releases must not exceed $6,000 in aggregate. If an individual subordinate lien or total subordinate liens are less than $6,000, the payoff must not exceed the subordinate lien amount owed. If there are multiple subordinate lienholders, the servicer has discretion to divide the subordinate lien payments among the subordinate lienholders.

Funds must only be used for subordinate mortgage liens or deeds of trust recorded in the land records that constitute a valid lien against the subject property.

Examples of other types of liens which funds must not be used for include, but are not limited to, the following:

  • HOA liens,

  • judgments,

  • mechanic’s liens, and

  • materialmen’s liens.

Note: If other liens impede the closing of a Mortgage Release, the servicer must submit the case to Fannie Mae for prior written approval.

Prior to releasing any funds to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder that it will

  • release the borrower from all claims and liability relating to the subordinate lien in exchange for receiving the agreed-upon payoff amount,

  • waive all rights to seek a deficiency judgment against the borrower, and

  • not require a contribution in addition to any funds provided by Fannie Mae as a condition for releasing its lien and releasing the borrower from personal liability.

If a subordinate a lienholder chooses to release its lien to allow the Mortgage Release to close, but does not agree to release the borrower from liability on the note, it cannot receive a payment from Fannie Mae. Regardless of whether payment is made to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder(s) to release the lien(s).

Borrower Incentive Payments

The servicer is authorized to pay the borrower an incentive following the successful completion of a Mortgage Release located in one of the following jurisdictions:

  • Connecticut

  • District of Columbia

  • Illinois

  • Maryland

  • Massachusetts

  • New Jersey

  • New York

  • Pennsylvania

Note: For a property in one of these jurisdictions, the property securing the mortgage loan does not need to be the borrower’s principal residence.

The amount of the incentive payment is based on the requirements in the following table.

If the property securing the mortgage loan... Then the borrower is entitled to...

is the borrower’s principal residence at the time of the Evaluation Notice

an incentive payment of up to $10,000 from Fannie Mae.

is not the borrower’s principal residence at the time of the Evaluation Notice

an incentive payment of up to $7,000 from Fannie Mae.

Note: The servicer must make the applicable change to the incentive payment amount in the Evaluation Notice.

If the property securing the mortgage loan is not located in the previously listed jurisdictions, then the property securing the mortgage loan must be the borrower’s principal residence at the time of the Evaluation Notice. The servicer is then authorized to pay the borrower an incentive payment of up to $3,000 from Fannie Mae following the successful completion of a Mortgage Release.

Regardless of the jurisdiction the property securing the mortgage loan is located in, the borrower is not eligible for an incentive payment if one of the following apply:

  • the borrower is required to contribute cash or execute a promissory note (even if the borrower fails to contribute), or

  • the borrower has PCS orders and receives a DLA or other government relocation assistance.

Note: If the servicer determines an incentive payment is warranted as an exception to these exclusions, the servicer must submit its incentive payment recommendation to Fannie Mae for prior written approval.

The servicer must adjust the amount of Fannie Mae’s incentive payment in accordance with the following table.

If... Then the servicer must...
the servicer elects to provide an additional incentive payment from its own funds not deduct that amount from Fannie Mae’s incentive payment amount.
another source provides assistance deduct that amount from Fannie Mae’s incentive payment amount.
the property inspection report indicates that the subject property is vacant, but that there is damage to the subject property caused by the borrower or that the subject property was not left in broom-swept condition reduce Fannie Mae’s incentive payment by the estimate or actual, if known, cost of remediating the issues.

The servicer must not

  • attempt to negotiate the incentive payment to a lesser amount, or

  • require the borrower to apply the incentive payment to obtain the release of other liens or non-real estate title impediments.

The timing and distribution for the payment of the borrower incentive is outlined in the following table.

If the borrower... Then...

is not participating in a Mortgage Release transition option

the servicer must distribute the incentive payment to the borrower within 30 days after the servicer’s acceptance of the executed deed from the borrower.

is participating in either a 3- or 12-month Mortgage Release transition option

Fannie Mae’s property management company must distribute the incentive payment to the borrower within 30 days after the property becomes vacant.

Evaluating a Borrower’s Ability to Make a Contribution

The servicer must evaluate the borrower’s ability to make a contribution based on the status of the mortgage loan at the time the servicer evaluated the borrower for eligibility for a Mortgage Release.

The servicer must not evaluate the borrower for a cash and/or promissory note contribution if

  • prohibited by applicable law;

  • the servicer approved a borrower for a Fannie Mae Mortgage Release in accordance with Determining if a Borrower Qualifies for Streamlined Documentation; or

  • the mortgage loan is 90 days or more delinquent and the borrower is an active duty military servicemember of the U.S. armed forces with PCS orders relocating the servicemember from the subject property, which is a principal residence, whether or not the servicemember currently occupies the property, purchased by the borrower on or before June 30, 2012.

The following table describes how the servicer must evaluate the borrower for a contribution depending on the status of the mortgage loan at the time that the borrower is evaluated for a Fannie Mae Mortgage Release.

If the mortgage loan is... Then the servicer must...

current or less than 31 days delinquent

evaluate the borrower’s ability to make a cash contribution using the Borrower Cash Contribution Test.

greater than 30 days delinquent

evaluate the borrower’s ability to make a cash and/or promissory note contribution using the Borrower Cash Contribution Test and the Promissory Note Test.

The servicer must follow the procedures in Evaluating the Borrower’s Ability to Make a Contribution in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for evaluating the borrower’s ability to make a contribution using the Borrower Cash Contribution Test and the Promissory Note Test.

The borrower’s total cash and/or promissory note contribution must not exceed the total amount of the deficiency.

Requirements for Accepting a Fannie Mae Mortgage Release

The servicer must obtain all of the items listed in the following table within 60 days of the borrower’s acceptance of the offer for a Fannie Mae Mortgage Release.

Documentation that must be obtained within 60 days of the borrower’s acceptance of a Mortgage Release

The deed and a personal property release executed by the borrower.

Note: While use of the Personal Property Release Form (Form 192) is optional, it reflects a minimum level of information that the servicer must include.

The mortgage insurer’s approval, if applicable, if Fannie Mae has not obtained a delegation of authority.

Agreement(s) that the subordinate lienholder(s) will release

  • the subordinate lien, and

  • the borrower from liability if accepting payment from Fannie Mae.

Clear and marketable title.

The cash contribution and/or executed promissory note, if applicable.

The final interior property inspection report indicating that there are no environmental hazards or legal concerns, and that the property is vacant, secure, and in broom swept condition, unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage ReleaseTransition Options.

Note: The servicer must conduct the final interior property inspection no more than two business days following the receipt of the executed deed and all related documents.

Note: For a Mortgage Release transition option, the servicer is not required to complete an interior property inspection prior to execution of the deed of conveyance. However, the servicer must review the interior property valuation to ensure the subject property’s habitability (see Obtaining a Property Valuation and Evaluating the Condition of the Property).

If the servicer is unable to resolve all issues within 60 days, an extension of 30 days is permitted as long as the servicer provides the borrower with written or verbal weekly status updates indicating the reason that the Mortgage Release is still pending.

The servicer must request Fannie Mae’s approval to accept the deed if it receives the executed deed less than 30 days prior to the foreclosure sale date. The servicer is responsible for any costs incurred due to the acceptance of a Mortgage Release that results in a delay in acquisition of the property.

The servicer must take the action described in the following table if it determines that the borrower has left personal property in the subject property.

If, at the time of the final property inspection, the servicer determines that the personal property left by the borrower has… Then the servicer…

an actual cash value less than $500

is authorized to proceed with the Mortgage Release.

an actual cash value equal to or greater than $500

must get Fannie Mae’s prior written approval before completing a Mortgage Release.

The servicer must follow the procedures in Requesting Reimbursement for Expenses Associated with Workout Options in F-1-05, Expense Reimbursement for requesting reimbursement of allowable fees.

Providing a Deficiency Waiver for Certain Mortgage Loans

The servicer must release the borrower from liability for any deficiency associated with the Fannie Mae mortgage loan upon successful completion of a Fannie Mae Mortgage Release for the following mortgage loans:

  • mortgage loans that do not have MI, and

  • mortgage loans that have MI, but the mortgage insurer has granted Fannie Mae delegation of authority (see Processing a Fannie Mae Mortgage Release for a Mortgage Loan With Mortgage Insurance).

The servicer must provide a deficiency waiver to the borrower after the servicer’s acceptance of the executed deed from the borrower, if applicable.

While use of the Deficiency Waiver Agreement (Form 189) is optional, it reflects a minimum level of information that the servicer must include.

Processing a Fannie Mae Mortgage Release for a Mortgage Loan with Mortgage Insurance

The servicer must see F-2-06, Mortgage Insurer Delegations for Workout Options for the list of mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae Mortgage Release in accordance with this Guide without obtaining separate mortgage insurer approval at the company or loan level.

For mortgage insurers from which Fannie Mae has not obtained delegation of authority, the servicer must not agree to a Fannie Mae Mortgage Release unless the mortgage insurer agrees in writing to the following:

  • to waive its property acquisition rights before the claim is filed, and

  • to settle the claim by paying the lesser of the full percentage option under the terms of the master policy or the amount required to make Fannie Mae whole.

Related Announcements

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

Announcements Issue Date
Announcement SVC–2017-06 July 12, 2017
Announcement SVC-2017–01 January 18, 2017
Announcement SVC–2016–05 June 8, 2016
Announcement SVC–2015–15 December 16, 2015
Announcement SVC–2015–12 September 9, 2015
Announcement SVC–2015–11 August 12, 2015
Announcement SVC–2015–05 April 8, 2015
Announcement SVC–2014–21 December 10, 2014