Servicing Guide

Published June 13, 2018

F-1-20: Processing a Transfer of Ownership (11/08/2017)

This Servicing Guide Procedure contains the following:

Obtaining MI Approval for a Conventional Mortgage Loan

The servicer must process a transfer of ownership in accordance with Chapter D1-4, Transfers of Ownership.

When a transfer of ownership occurs for a mortgage loan, obtaining the mortgage insurer’s approval is either

  • part of the credit review process, or

  • not required unless the borrower requests a release of liability.

The servicer must review the MI policy for the specific provision regarding transfers of ownership, assumptions and releases of liability.

Responding to a Title Transferred via Grant Deed

The servicer must evaluate all transfers of ownership as required in Chapter D1-4, Transfers of Ownership. When the servicer becomes aware of a property transfer through Grant Deed, it must complete the actions shown in the following table.

The servicer must…

Continue to report credit information related to a mortgage loan delinquency (including the acceptance of a Mortgage Release or the initiation of foreclosure proceedings) to credit bureaus in the borrower’s name.

Determine that the title to the property is clear and marketable (by obtaining a title bring-down).

File an Acquisition or Abandonment of Secured Property (IRS Form 1099-A) if it accepts a Mortgage Release or acquires title to the property through foreclosure, using the borrower’s name and social security number (rather than a third-party company’s name and tax identification number). The servicer should not file a Cancellation of Debt (IRS Form 1099-C) since no debt is being canceled because Fannie Mae will not accept a short payoff from the third-party company and will continue to hold the borrower liable.

Completing a Transfer of Ownership

The servicer must process any transfer of ownership in accordance with Chapter D1-4, Transfers of Ownership. The servicer must complete the applicable procedure in the following table depending on the type of transaction.

Type of Transaction Servicer Action

An Exempt Transaction

The servicer must process the transfer of ownership as described in the following table.

If... Then the servicer must...

Fannie Mae is the owner of record for the mortgage loan

  • prepare an assumption and release agreement and either

    • execute the agreement on Fannie Mae’s behalf if it has an assignment of mortgage, or

    • prepare the assignment of mortgage and send it to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

      Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send a copy of the recorded assumption agreement to its document custodian.

the servicer is the owner of record for the mortgage loan

  • execute the assumption and release agreement, and

  • send a copy of the executed agreement to the applicable document custodian, either

    • Fannie Mae’s DDC, or

    • an approved third-party custodian that holds the original mortgage note on Fannie Mae’s behalf.

A Transfer Subject to State Law Restrictions

The servicer must process the transfer of ownership as described in the following table. The servicer must include a release of liability provision in the transfer instruments if the borrower requested a release of liability and the mortgage insurer agreed to it.

If... Then...

Fannie Mae is the owner of record for the mortgage loan

the servicer must either

  • execute the appropriate transfer documents on Fannie Mae’s behalf if it has an assignment of mortgage

    • an assumption agreement if there is no change in the interest rate, or

    • a mortgage loan modification and assumption agreement if the interest rate changes; or

  • prepare the assignment of mortgage and send it to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

    Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send the original recorded assumption agreement to its document custodian.

the servicer is the owner of record for the mortgage loan

  • the servicer is authorized to execute the appropriate documents, and

  • the servicer must send a copy of the recorded agreement to the applicable document custodian, either

    • Fannie Mae’s DDC, or

    • an approved third-party custodian that holds the original mortgage note on Fannie Mae’s behalf.

Regardless of the owner of record for the mortgage loan, the servicer must have the executed transfer documents recorded and should request a title bring-down from the title insurer. The bring-down must

  • change the effective date of the mortgage title policy to the date the transfer instruments were recorded, and

  • insure the mortgage loan as modified by the recorded agreement.

A Conventional Mortgage Loan With No Due-on-Sale Provision

The servicer must process the transfer of ownership as described in the following table, if the release of liability is approved.

If... Then the servicer must...

Fannie Mae is the owner of record for the mortgage loan

  • prepare an assumption and release agreement and either

    • execute the agreement on Fannie Mae’s behalf if it has an assignment of mortgage, or

    • prepare the assignment of mortgage and send it to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

      Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send a copy of the recorded assumption agreement to its document custodian.

the servicer is the owner of record for the mortgage loan

  • execute the assumption and release agreement,

  • send a copy of the executed agreement to the applicable document custodian, either

    • Fannie Mae’s DDC, or

    • an approved third-party custodian that holds the original mortgage note on Fannie Mae’s behalf.

A Non-Exempt Transaction With an Exception due to the Loan Type and Creditworthy Purchaser

The servicer must process the transfer of ownership as described in the following table. The servicer must include a release of liability provision in the agreement if the borrower requested a release of liability and the mortgage insurer agreed to it.

If... Then the servicer must...

Fannie Mae is the owner of record for the mortgage loan

  • prepare an assumption and release agreement and either

    • execute the agreement on Fannie Mae’s behalf if it has an assignment of mortgage, or

    • prepare the assignment of mortgage and send it to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

      Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send a copy of the recorded assumption agreement to its document custodian.

the servicer is the owner of record for the mortgage loan

  • execute the assumption (and release) agreement,

  • record the executed transfer documents,

  • send the original recorded assumption (and release) agreement to Fannie Mae’s DDC, and

  • instruct its Fannie Mae investor reporting system representative to change Fannie Mae’s accounting records to reflect the addition of this lifetime interest rate change limitation.

Note: When the transfer of ownership involves an ARM that does not include a lifetime interest rate change limitation in its terms, the servicer must include the following language in the assumption (and release) agreement:

“The interest rate I am required to pay after I assume this mortgage obligation and for the entire term of this mortgage loan will never be greater than __ percent.”

In addition, if the mortgage loan is convertible to a fixed-rate mortgage loan, the servicer also must include the following sentence:

“This limitation also applies if I exercise my option to convert to a fixed-rate mortgage loan.”

To determine the appropriate interest rate to insert in this provision, the servicer should add 6% to the sum of the mortgage margin and the index that is in effect on the date that the assumption statement is prepared. If the transaction has not closed within 30 days, the servicer should establish a new rate based on the latest available index.

An Assumption of a Delinquent Mortgage Loan

The servicer must process the transfer of ownership as described in the following table.

If... Then the servicer must...

Fannie Mae is the mortgagee of record and the servicer does not have an assignment of mortgage

  • prepare the assignment of mortgage, and

  • send the assignment of mortgage to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

    Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send the original recorded assumption agreement to its document custodian.

the servicer (or MERS) is the mortgagee of record, or if Fannie Mae is the mortgagee of record and the servicer has an assignment of mortgage

  • execute the assumption, or assumption and release, agreement;

  • have the executed agreement recorded, if required;

  • send the recorded agreement to the document custodian.

    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 MIN, and mailed to The Bank of New York Trust Company, NA (see F-4-03, List of Contacts).

Regardless of the owner of record for the mortgage loan, the servicer must have the executed transfer documents recorded and should request a title bring-down from the title insurer. The bring-down must

  • change the effective date of the mortgage title policy to the date the transfer instruments were recorded, and

  • insure the mortgage loan as modified by the recorded agreement.

The servicer must provide the document custodian with the assumption agreement.

An FHA or VA Mortgage Loan

The servicer must process the transfer of ownership as described in the following table.

If... Then the servicer must...

Fannie Mae is the owner of record for the mortgage loan

  • prepare an assumption and release agreement and either

    • execute the agreement on Fannie Mae’s behalf if it has an assignment of mortgage; or

    • prepare the assignment of mortgage and send it, along with proof that FHA or VA, as applicable, approved the release of liability, if applicable, to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) for execution.

      Note: Once Fannie Mae returns the executed assignment of mortgage to the servicer, the servicer is authorized to execute the assumption agreement and must send the original recorded assumption agreement to its document custodian.

the servicer is the owner of record for the mortgage loan

  • execute the assumption and release agreement; and

  • send a copy of the executed agreement to the applicable document custodian, either

    • Fannie Mae’s DDC, or

    • an approved third-party custodian who holds the original mortgage not on Fannie Mae’s behalf.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2017-10 November 8, 2017