The servicer must obtain a property valuation in accordance
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;
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
other 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 its servicing solutions system.
The servicer must determine the borrower's new modified mortgage loan terms in accordance with Determining the Fannie Mae Flex Modification Terms in D2-3.2-09, Fannie Mae Flex Modification, and the requirements below.
The servicer must determine the post-modification MTMLTV ratio, which is defined as the gross UPB of the mortgage loan including capitalized arrearages, divided by the current value of the property.
The servicer must complete all the steps in the order shown in the following table, unless prohibited by applicable law, to determine the borrower's new modified mortgage loan terms.
|1||Capitalize eligible arrearages.
The following are considered as acceptable arrearages for capitalization:
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 up-front. Late charges may not be capitalized and must be waived if the borrower satisfies all conditions of the Trial Period Plan.
|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…||Then 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
|an ARM or step-rate that has not reached its final interest rate||set the interest rate to the lesser of
|3||Extend the term to 480 months
from the mortgage loan modification effective date.
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 mortgage loan to be eligible for the mortgage loan modification.
|4||Forbear principal if the post-modification
MTMLTV ratio is greater than 100%, in an amount that is
the lesser of
|5||Provide or increase principal
forbearance until a 20% P&I payment reduction is achieved;
however, the servicer must not forbear more than
Note: Fannie Mae If the mortgage loan was previously modified into a mortgage loan with a step-rate feature, an interest rate adjustment occurred within the last 12 months, the mortgage loan became 60 days delinquent after the interest rate adjustment and the borrower did not submit a complete BRP, the servicer must not proceed to step 6.
|6||Continue to forbear principal
if the mortgage loan is less than 90 days past due when the borrower submitted
a complete BRP until a 40% Housing Expense-to-Income Ratio
(HTI) is achieved; however, the servicer must not forbear more than:
Note: Calculating the Housing Expense-to-Income Ratio later in this topic provides instructions on the HTI calculation.
Note: Interest must not accrue on any principal forbearance. Principal forbearance is payable upon the earliest of the maturity of the mortgage loan modification, sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB.
If the 20% payment reduction or 40% HTI
targets are not achieved as described above, the mortgage loan remains
eligible for a Fannie Mae Flex Modification if the monthly P&I
payment satisfies the requirements in
The servicer must ensure that the mortgage loan modification
meets the requirements in accordance with
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;
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 calculate the post-modification housing expense-to-income ratio depending upon the type of property, as described in the following table.
|If the mortgage loan is secured by...||Then the servicer must...|
|a principal residence||divide the borrower's monthly housing expense, which
includes the following items (as applicable), by the borrower's
monthly gross income:
|a second home||add the monthly housing expense of the second home to the monthly housing expense on the borrower's principal residence and divide this amount by the borrower's monthly gross income.|
|an investment property||add any monthly net rental income on the subject property
to the borrower's gross monthly income for purposes of calculating
the post-modification housing expense-to-income ratio.
The servicer must complete the mortgage loan modification
in accordance with
The servicer must prepare the
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 is responsible for ensuring that the mortgage
loan as modified complies with applicable laws, preserves Fannie Mae's
first lien position, and is enforceable against the borrower(s)
in accordance with its terms. The servicer must complete the mortgage
loan modification in accordance with
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 Loan Modification Agreement will be recorded.|
|Record the executed Loan Modification Agreement
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, 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
Fannie Mae, and Fannie Mae has given the servicer an 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
|If the Loan Modification Agreement.||Then the servicer must...|
|is required to be recorded||
|is not required to be recorded||send the fully executed original
The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification in D2-3.2-09, Fannie Mae Flex Modification.
After a mortgage loan modification is executed, the servicer must adjust the mortgage loan 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 may request reimbursement from Fannie Mae when any of its costs are capitalized (see F-1-05, Expense Reimbursement).
|Revise the borrower's payment records to provide for collection of the modified payment.|
|Apply any funds that
|Determine if it must change the servicing fee in accordance with A2-3-02, Servicing Fees for Portfolio and MBS Mortgage Loans.|
The following table provides references to Announcements that are related to this topic.
|Announcement SVC-2017-08||September 13, 2017|