Servicing Guide

Published September 18, 2018

Obtaining a Property Valuation

The servicer must obtain a property valuation in accordance with Determining the Fannie Mae Cap and Extend Modification for Disaster Relief Terms in D2-3.2-07, Fannie Mae Cap and Extend Modification for Disaster Relief.

The servicer must obtain a property valuation, which must not be more than 90 days old at the time the servicer evaluates the borrower for the mortgage loan modification, using one of the following:

  • an exterior BPO;

  • an appraisal;

  • Fannie Mae's APS;

  • Freddie Mac's AVM;

  • a third-party AVM; or

  • the servicer's own internal AVM, provided that

    • the servicer is subject to supervision by a federal regulatory agency, and

    • the servicer's primary federal regulatory agency has reviewed the model.

If Fannie Mae’s APS, Freddie Mac’s AVM, the third-party AVM, or the servicer’s internal AVM does not render a reliable confidence score, the servicer must obtain an assessment of the property value utilizing an exterior BPO, an appraisal, or a property valuation method documented as acceptable to the servicer’s federal regulatory supervisor. The property value assessment must be rendered in accordance with the FDIC’s Interagency Appraisal and Evaluation Guidelines regardless of whether such guidelines apply to mortgage loan modifications.

The servicer must attach the valuation and documentation when submitting its proposed recommendation to Fannie Mae through Fannie Mae’s servicing solutions system.

Determining the New Modified Mortgage Loan Terms

The servicer must determine the borrower’s new modified mortgage loan terms in accordance with Determining the Fannie Mae Cap and Extend Modification for Disaster Relief Terms in D2-3.2-07, Fannie Mae Cap and Extend Modification for Disaster Relief.

The servicer must follow all of the steps in the order provided in the following table to determine the borrower’s new modified mortgage loan terms.

Step Servicer Action
1

Capitalize the arrearage.

The following are considered as acceptable arrearages for capitalization:

  • accrued interest;

  • out-of-pocket escrow advances to third parties;

  • any required escrow advances that will be paid to third parties by the servicer during the Trial Period Plan; and

  • servicing advances paid to third parties in the ordinary course of business and not retained by the servicer, if allowed by state laws.

Note: If applicable state law prohibits capitalization of past due interest or any other amount, the servicer must collect such funds from the borrower over a period not to exceed 60 months unless the borrower decides to pay the amount upfront. Late charges may not be capitalized and must be waived if the borrower satisfies all conditions of the Trial Period Plan.

See Administering an Escrow Account in Connection With a Mortgage Loan Modification in B-1-01, Administering an Escrow Account and Paying Expenses for additional information.

2

Set the modification interest rate to a fixed rate based on the requirements in the following table using the contractual interest rate in effect for the periodic payment due in the month of the evaluation date.

If the mortgage loan is…

The servicer must…

a fixed rate (including an ARM or step-rate that has reached its final interest rate) with a post-modification MTMLTV less than 80%

set the modified interest rate to the borrower’s contractual interest rate.

a fixed rate (including an ARM or step-rate that has reached its final interest rate) with a post-modification MTMLTV greater than or equal to 80% set the modified interest rate to the lesser of
  • the Fannie Mae Modification Interest Rate, or

  • the borrower’s contractual interest rate.

an ARM or a step-rate that has not reached its final interest rate

set the interest rate to the lesser of

  • the Fannie Mae Modification Interest Rate,

  • the final interest rate for the step-rate modification, or

  • the lifetime interest rate cap for the ARM.

Note: If after step 1 - capitalizing the arrearage, and step 2 - setting the modification interest rate, the mortgage loan is re-amortized over the current term and results in a P&I payment that is less than the current pre-modification P&I payment, the servicer must not continue to step 3 - adjust the maturity date. The servicer must offer the lower modified monthly P&I payment based on steps 1 and 2.

3

Extend the term in monthly increments up to 480 months from the mortgage loan modification effective date and re-amortize the mortgage loan over a term needed to achieve a new modified monthly P&I payment that is as close to the current pre-modification P&I payment as possible, without exceeding the pre-modification P&I payment amount.

Note: When the mortgage loan is secured by a property where the title is held as a leasehold estate, the term of the leasehold estate must not expire prior to the date that is five years beyond the new maturity date of the modified mortgage loan. In the event that the current term of the leasehold estate would expire prior to such date, the term of the leasehold estate must be renegotiated to satisfy this requirement for the loan to be eligible for the mortgage loan modification.

If the mortgage loan has deferred principal (principal forbearance amount), the servicer must not capitalize this amount into the interest-bearing UPB as part of the Cap and Extend Modification for Disaster Relief. Deferred principal must continue to be deferred and be payable upon maturity of the mortgage loan modification, sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB. Interest must not accrue on any deferred principal.

Preparing the Loan Modification Agreement

The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Cap and Extend Modification for Disaster Relief in D2-3.2-07, Fannie Mae Cap and Extend Modification for Disaster Relief.

The servicer must prepare the Loan Modification Agreement early enough in the Trial Period Plan to allow sufficient processing time so that the mortgage loan modification becomes effective on the first day of the month following the Trial Period Plan (modification effective date). The servicer is authorized to, at its discretion, complete the Loan Modification Agreement so the mortgage loan modification becomes effective on the first day of the second month following the final Trial Period Plan payment to allow for sufficient processing time. However, the servicer must treat all borrowers the same in applying this option by selecting, at its discretion and evidenced by a written policy, the date by which the final Trial Period Plan payment must be submitted before the servicer applies this option (“cut-off date”). The cut-off date must be after the due date for the final Trial Period Plan payment set forth in the Evaluation Notice.

Note: If the servicer elects this option, the borrower will not be required to make an additional Trial Period Plan payment during the month (the “interim month”) in between the final Trial Period Plan month and the month in which the mortgage loan modification becomes effective. For example, if the last Trial Period Plan month is March and the servicer elects the option described above, the borrower is not required to make any payment during April, and the mortgage loan modification becomes effective, and the first payment under the Loan Modification Agreement is due, on May 1.

The servicer must incorporate into the Loan Modification Agreement (Form 3179) additional provisions required pursuant to its instructions.

Executing and Recording the Loan Modification Agreement

The servicer must ensure that the mortgage loan as modified complies with applicable laws, preserves Fannie Mae’s lien position, and is enforceable against the borrower(s). The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Cap and Extend Modification for Disaster Relief in D2-3.2-07, Fannie Mae Cap and Extend Modification for Disaster Relief.

In order to ensure that the modified mortgage loan retains its first lien position and is fully enforceable, the servicer must take the actions described in the following table.

The servicer must...

Ensure that the Loan Modification Agreement is executed by the borrower(s).

Note: The servicer may encounter circumstances where a co-borrower signature is not obtainable for the Loan Modification Agreement, for reasons such as mental incapacity or military deployment. When a co-borrower’s signature is not obtainable and the servicer decides to continue with the mortgage loan modification, the servicer must appropriately document the basis for the exception in the servicing records.

Ensure all real estate taxes and assessments that could become a first lien are current, especially those for manufactured homes taxed as personal property, personal property taxes, condo/HOA fees, utility assessments (such as water bills), ground rent, and other assessments.

Obtain a title endorsement or similar title insurance product issued by a title insurance company if the modification agreement will be recorded.

Record the executed Loan Modification Agreement if

  • recordation is necessary to ensure that the modified mortgage loan retains its first lien position and is enforceable in accordance with its terms at the time of the modification, throughout its modified term, and during any bankruptcy or foreclosure proceeding involving the modified mortgage loan; or

  • the Loan Modification Agreement includes assignment of leases and rents provisions.

If the mortgage loan is for a manufactured home, and the lien was created, evidenced, or perfected by collateral documents that are not recorded in the land records, the servicer must also take such action as may be necessary, including any amendment, recording, and/or filing that may be required, to ensure that the collateral documents reflect the mortgage loan modification, if necessary, in order to preserve Fannie Mae’s lien status for the entire amount owed. See Selling Guide A2-5.1-01, Establishing Loan Files for additional information regarding collateral documents required to be retained for manufactured homes.

The servicer must execute and record the Loan Modification Agreement based upon the entity that is the mortgagee of record in accordance with A2-1-03, Execution of Legal Documents. In addition, the servicer must send the Loan Modification Agreement to the document custodian if the mortgagee of record is

  • the servicer;

  • MERS; or

  • Fannie Mae, and Fannie Mae has given the servicer a LPOA that allows it to execute this type of document on Fannie Mae’s behalf.

Note: If Fannie Mae’s DDC is the custodian, the documents must be annotated with the Fannie Mae loan number and, if applicable, the MERS number, and mailed to The Bank of New York Mellon Trust Company, NA (see F-4-03, List of Contacts).

When the servicer is required to send the Loan Modification Agreement to the document custodian, the servicer must follow the requirements outlined in the following table.

If the Loan Modification Agreement... Then the servicer must...
is required to be recorded
  • send a certified copy of the fully executed Loan Modification Agreement to the document custodian within 25 days of receipt from the borrower, and

  • send the original Loan Modification Agreement that is returned from the recorder’s office to the document custodian within five business days of receipt.

is not required to be recorded

send the fully executed original Loan Modification Agreement to the document custodian within 25 days of receipt from the borrower.

Adjusting the Mortgage Loan Account Post-Mortgage Loan Modification

The servicer must execute the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Cap and Extend Modification for Disaster Relief in D2-3.2-07, Fannie Mae Cap and Extend Modification for Disaster Relief.

After a mortgage loan modification is executed, the servicer must adjust the mortgage loan account as described in the following table.

The servicer must...

For a portfolio mortgage loan, add any amounts to be capitalized to the UPB of the mortgage loan as of the date specified in the agreement. Usually, the capitalization date is one month before the new modified payment will be due.

Note: The servicer is authorized to request reimbursement from Fannie Mae when any of its costs are capitalized.

Revise the borrower’s payment records to provide for collection of the modified payment.

Apply any funds that

  • the borrower deposited with the servicer as a condition of the mortgage loan modification,

  • have been deposited on behalf of the borrower in connection with the mortgage loan modification, or

  • the mortgage insurer contributed in connection with the mortgage loan modification.

Note: Amounts due for repayment of principal, interest, or advances must be remitted promptly to Fannie Mae. The remaining funds may be used to clear any advances made by the servicer or to credit the borrower’s escrow deposit account.

Determine if it must change the servicing fee in accordance with A2-3-02, Servicing Fees for Portfolio and MBS Mortgage Loans.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2018-02 March 14, 2018
Announcement SVC-2017-08 September 13, 2017
Announcement SVC–2016–10 November 9, 2016
Announcement SVC–2015–15 December 16, 2015
Announcement SVC–2015–13 October 14, 2015