Servicing Guide

Published September 18, 2018

Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Conventional Mortgage Loan Modification

The servicer must determine the borrower’s pre-modification housing expense-to-income ratio as outlined in Evaluating a Borrower for Imminent Default for Conventional Mortgage Loan Modification Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default.

The borrower’s monthly gross income is defined as the borrower’s monthly income amount before any payroll deductions and includes the following items, as applicable:

  • wages and salaries;

  • overtime pay;

  • commissions;

  • fees;

  • tips;

  • bonuses;

  • housing allowances;

  • other compensation for personal services;

  • Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and

  • monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance.

Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to employment (such as severance payments) as part of the monthly gross income for mortgage loans being evaluated for a mortgage loan modification.

The servicer must then divide the borrower’s pre-modification monthly housing expense on the property securing the mortgage loan, which includes the following items (as applicable), by the borrower’s monthly gross income:

  • P&I;

  • property and flood insurance premiums;

  • real estate taxes;

  • ground rent;

  • special assessments;

  • HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit); and

  • co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit).

    Note: The servicer must exclude monthly mortgage insurance premiums form the monthly housing expense-to-income calculation.

Processing the IRS Form 4506T-EZ or IRS Form 4506–T

The servicer must obtain the Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or the Request for Transcript of Tax Return (IRS Form 4506-T) in accordance with Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package.

The servicer must submit the form to the IRS to obtain a copy of the borrower’s tax transcript in the following instances:

  • to reconcile inconsistencies between other information the borrower provided [ e.g., information the borrower provided in the Mortgage Assistance Application (Form 710)] and the income documentation;

  • when the borrower is self-employed, and he or she does not provide the documentation that is outlined in the Form 710; or

  • if Fannie Mae requests it.

The servicer is encouraged to use the IRS Income Verification Express Service, which uses secure email to deliver tax return transcripts to servicers.

Note: For borrowers in the USTs (also known as U.S. Possessions), IRS Form 4506T-EZ and IRS Form 4506-T may not be accepted. Depending on the borrower’s UST classification of residency, the borrower may be required to file in the UST or the U.S or may have to file in both the UST and U.S.

The servicer must adhere to all applicable processes for eligible borrowers filing tax returns in UST and obtain all applicable forms when required.

Notifying Fannie Mae of Lead-Based Paint Citations

The following table lists the documentation that the servicer must provide when notifying Fannie Mae of lead-based paint citations in accordance with D2-3.1-06, Notifying Fannie Mae of Lead-Based Paint Citations.

The servicer must provide to Fannie Mae…

A copy of any document related to lead-based paint law violations or threatened or pending lead-based paint litigation.

The current value of the property.

The amount of the outstanding debt secured by the property.

The number and exact age of each child under eight years of age who are residing in the property.

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
Announcement SVC-2017-08 September 13, 2017
Announcement SVC–2017–02 February 15, 2017
Announcement SVC–2015–04 March 18, 2015