Servicing Guide

Published September 9, 2020

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Where can I find Lender Letter LL-2020-07, COVID-19 Payment Deferral?

Lender Letter (LL-2020-07)

Updated Aug. 27, 2020

Jul. 15, 2020

Jun. 10, 2020

May 27, 2020

May 13, 2020

To: All Fannie Mae Single-Family Servicers
COVID-19 Payment Deferral

With Lender Letter LL-2020-05, Payment Deferral, we announced payment deferral, a new retention workout option jointly developed with Freddie Mac at the direction of the Federal Housing Finance Agency (FHFA). That workout option was created to assist borrowers who became delinquent due to a short-term hardship that has since been resolved. 

In response to the COVID-19 pandemic and servicer feedback, we are introducing COVID-19 payment deferral, a new workout option specifically designed to help borrowers impacted by a hardship related to COVID-19 return their mortgage to a current status after up to 12 months of missed payments. Designed to be simple and efficient for both servicers and borrowers, this solution is for borrowers who have completed a COVID-19 related forbearance plan, or who have a confirmed but resolved COVID-19 financial hardship. COVID-19 payment deferral was jointly developed with Freddie Mac at the direction of FHFA. COVID-19 payment deferral offers servicers: 

  • A solution that is simple to explain to borrowers, as the amount of their delinquency moves into a non-interest bearing balance, due and payable at maturity of the mortgage loan or earlier payoff; and all other terms of the mortgage remain unchanged.
  • No trial period, resulting in fewer borrower touchpoints than required for modifications.
  • An efficient automated process through Servicing Management Default Underwriter™ for evaluation and decisioning case submissions.

While COVID-19 payment deferral is similar to the recently announced payment deferral, we have made several enhancements to assist borrowers who have a COVID-19 related hardship. Key differences include:

  • The borrower has experienced a financial hardship resulting from COVID-19 that impacted their ability to make their monthly mortgage loan payment, which has been resolved.
  • The mortgage loan must have been current or less than two months delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19.
  • The mortgage loan must be equal to or greater than one month delinquent but less than or equal to 12 months delinquent as of the date of evaluation.
  • Certain eligibility criteria are not applicable, such as time from mortgage loan origination and rolling delinquency parameters.
  • The servicer must defer the delinquent principal and interest payments (P&I) together with any allowable servicing advances paid to third parties as a result of the delinquency into the non-interest bearing balance.

Update to Lender Letter on Aug. 27, 2020

  • Incorporating minor revisions to better clarify the intent of certain requirements in response to servicer inquiries.

Updates to Lender Letter on Jul. 15, 2020 

  • Updating the requirements for repayment of any escrow shortage amount identified in connection with a COVID-19 payment deferral or as part of the next annual analysis
  • Clarifying how servicing fees, guaranty fees, and excess servicing fees (if applicable) will be reimbursed for mortgage loans that receive a COVID-19 payment deferral 
  • Clarifying that the servicer must evaluate the borrower for a Flex Modification in accordance with the reduced eligibility criteria when the borrower becomes 60 days delinquent within six months of the COVID-19 related payment deferral’s effective date and the servicer is unable to achieve QRPC

Updates to Lender Letter on June 10, 2020 

  • Communicating the incentive fee and providing reference to the updates to the workout option incentive fee structure introduced in Lender Letter LL-2020-09, Incentive Fees for Retention Workout Options
  • Clarifying when a COVID-19 impacted borrower whose mortgage loan was modified pursuant to HAMP loses good standing 
  • Clarification on continued solicitation for a Fannie Mae Flex Modification based on reduced eligibility criteria when a borrower has defaulted on a COVID-19 payment deferral 
  • A revised COVID-19 payment deferral agreement updated in reference to the Coronavirus Aid, Relief, and Economic Security (CARES) Act 

Additions and Updates to Lender Letter on May 27, 2020

  • Operational requirements related to reporting and completing a COVID-19 payment deferral 
  • The process for obtaining reimbursement for expenses related to a COVID-19 payment deferral

Lender Letter content published on May 13, 2020, updated May 27, 2020, Jun. 10, 2020

Effective: Beginning Jul. 1, 2020, servicers must evaluate borrowers for COVID-19 payment deferral in accordance with this Lender Letter for borrowers whose hardships related to COVID-19 have been resolved and who are able to continue making their full monthly contractual payment, but cannot afford full reinstatement or a repayment plan to bring their mortgage loan current.

The following content was published May 13, 2020, Updated May 27, 2020, Jun. 10, 2020, Jul. 15, 2020, Aug. 27, 2020.  

Determining eligibility for a COVID-19 payment deferral  UPDATED Jun. 10, 2020

The servicer must not require a complete Borrower Response Package (BRP) to evaluate the borrower for a COVID-19 payment deferral if the eligibility criteria are satisfied. 

In order to be eligible for a COVID-19 payment deferral, the criteria in the following table must be met.   

Eligibility Criteria for a COVID-19 Payment Deferral

 

The borrower must

  •  be on a COVID-19 related forbearance plan, or
  •  have experienced a financial hardship resulting from COVID-19 (for example, unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member) that has impacted their ability to make their full monthly contractual payment.
NOTE: The servicer is not required to obtain documentation of the borrower’s hardship.
 

The servicer must achieve Quality Right Party Contact (QRPC) to

  •  determine the reason for the delinquency and whether it is temporary or permanent in nature;
  •  determine whether or not the borrower has the ability to repay the mortgage debt;
  •  educate the borrower on the availability of workout options, as appropriate; and
  •  obtain a commitment from the borrower to resolve the delinquency.

Additionally, the servicer must confirm that the borrower  

  •  has resolved the hardship,
  •  is able to continue making the full monthly contractual payment, and
  •  is unable to reinstate the mortgage loan or afford a repayment plan to cure the delinquency.
NOTE: If the mortgage loan was previously modified pursuant to a Fannie Mae Home Affordable Modification Program (HAMP) Modification under which the borrower remains in “good standing,” then the mortgage loan will not lose good standing and the borrower will not lose any “pay for performance” incentives in the following circumstances:
• the borrower was on a COVID-19 related forbearance plan immediately preceding the COVID-19 payment deferral, or
• the borrower has a COVID-19 related hardship and the mortgage loan is less than three months delinquent.
 

The mortgage loan must be a conventional first lien mortgage loan, and may be a fixed-rate, a step-rate, or an ARM.

NOTE: The property securing the mortgage loan may be vacant or condemned.
 

The mortgage loan must

  •  have been current or less than two months delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19; and
  •  be equal to or greater than one month delinquent but less than or equal to 12 months delinquent as of the date of evaluation.
NOTE: If a borrower's hardship is related to COVID-19 but he or she was two or more months delinquent as of the effective date of the National Emergency declaration, and the servicer determines the borrower can maintain his or her full monthly contractual payment, then the servicer must submit a request for a COVID-19 payment deferral through Fannie Mae’s servicing solutions system for review and obtain prior approval from Fannie Mae.
 

The mortgage loan must not have previously received a COVID-19 payment deferral.

NOTE: The mortgage loan may have previously received a non-COVID-19 payment deferral.
 

The mortgage loan must not be subject to

  • a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
  •  an approved liquidation workout option,
  •  an active and performing repayment plan or other non-COVID-19 related forbearance plan,
  •  a current offer for another retention workout option, or
  •  an active and performing mortgage loan modification Trial Period Plan.

Determining eligibility for a COVID-19 payment deferral for a Texas Section 50(a)(6) loan

A Texas Section 50(a)(6) loan is eligible for a COVID-19 payment deferral if 

If the servicer receives notice from the borrower that a COVID-19 payment deferral fails to comply with Texas Section 50(a)(6) requirements, the servicer must immediately, but no later than seven business days after receipt, take the actions listed in the following table. 

The servicer must...

 

Inform our Legal department by submitting a Non-Routine Litigation Form (Form 20) and include the borrower notice in its submission.

 

Collaborate with us on the appropriate response, including any cure that may be necessary, within the 60-day time frame provided by the requirements of Texas Section 50(a)(6).

 

Performing an escrow analysis UPDATED Jul 15, 2020

If the servicer chooses to perform an escrow analysis, any escrow account shortage that is identified at the time of the COVID-19 payment deferral must not be included in the non-interest bearing balance, and the servicer is not required to fund any existing escrow account shortage. In addition, the servicer is not required to revoke any escrow deposit account waiver. 

In the event the servicer identifies an escrow shortage as the result of an escrow analysis in connection with a COVID-19 payment deferral or as part of the next annual analysis, then the servicer must spread repayment of the escrow shortage amount in equal monthly payments over a term of up to 60 months, unless the borrower decides to pay the shortage up-front.

Determining the COVID-19 payment deferral terms UPDATED Jul 15, 2020

The servicer must defer the following amounts as a non-interest bearing balance, due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB: 

  • up to 12 months of past-due principal and interest (P&I) payments; 
  • out-of-pocket escrow advances paid to third parties, provided they are paid prior to the effective date of the COVID-19 payment deferral; and
  • servicing advances paid to third parties in the ordinary course of business and not retained by the servicer, provided they are paid prior to the effective date of the COVID-19 payment deferral, if allowed by state law.  

All other terms of the mortgage loan must remain unchanged. 

Any existing non-interest bearing balance amount on the mortgage loan remains due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB. 

Completing a COVID-19 payment deferral 

The servicer must complete (i.e., submit the case via Fannie Mae’s servicing solutions system) a COVID-19 payment deferral in the same month in which it determines the borrower is eligible.

The servicer is authorized to use an additional month to allow for sufficient processing time (a “processing month”) to complete a COVID-19 payment deferral. The servicer must treat all borrowers equally in applying the processing month, as evidenced by a written policy. 

NOTE: If the mortgage loan is 12 months delinquent as of the date of evaluation, the borrower must make his or her full monthly contractual payment during the processing month. In this circumstance, the servicer must complete the COVID-19 payment deferral within the processing month after receipt of the borrower’s full monthly contractual payment due during that month.

The servicer must send the COVID-19 payment deferral agreement, or equivalent, to the borrower no later than five days after the completion of the COVID-19 payment deferral.

While use of the COVID-19 payment deferral agreement is optional, it reflects the minimum level of information that the servicer must communicate and illustrates a level of specificity that complies with the requirements of the Servicing Guide. Also, the servicer must ensure the COVID-19 payment deferral agreement complies with applicable law.

NOTE:  If the servicer determines the borrower’s signature is required on the COVID-19 payment deferral agreement, it must receive the executed agreement prior to completing the COVID-19 payment deferral.

The servicer’s application of a COVID-19 payment deferral to the mortgage loan must not impair our first lien position or enforceability against the borrower(s) in accordance with its terms. 

The servicer must record the COVID-19 payment deferral agreement if the servicer determines that recordation is required to comply with law and ensure that the mortgage loan retains its first lien position. The servicer must obtain a title endorsement or similar title insurance product issued by a title insurance company if the COVID-19 payment deferral agreement will be recorded.

The servicer must also provide documents to the document custodian in accordance with the following table. 

If the COVID-19 payment deferral agreement is…

Then the servicer must send…

not required to be signed by the borrower

a copy of the COVID-19 payment deferral agreement signed by the servicer to the document custodian within 25 days of the effective date of the COVID-19 payment deferral.

required to be signed by the borrower but not recorded

the fully executed original COVID-19 payment deferral agreement to the document custodian within 25 days of the effective date of the COVID-19 payment deferral.

required to be recorded

  •  a certified copy of the fully executed COVID-19 payment deferral agreement to the document custodian within 25 days of the effective date of the COVID-19 payment deferral, and
  •  the original COVID-19 payment deferral agreement that is returned from the recorder’s office to the document custodian within 5 business days of receipt.

Soliciting the borrower for a post-forbearance COVID-19 payment deferral 

If the servicer is unable to establish QRPC as described in Determining eligibility for a COVID-19 payment deferral with a borrower on a COVID-19 related forbearance plan and the borrower is otherwise eligible for a COVID-19 payment deferral, the servicer must send an offer for a COVID-19 payment deferral within 15 days after expiration of the forbearance plan.

The servicer must solicit the borrower using the Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter with the COVID-19 payment deferral agreement or the equivalent, making any appropriate changes to comply with applicable law.

While use of the Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter and COVID-19 payment deferral agreement is optional, it reflects the minimum level of information that the servicer must communicate and illustrates a level of specificity that complies with the requirements of the Servicing Guide. 

The Payment Deferral Post COVID-19 Forbearance Solicitation Cover Letter must include language that additional forbearance may be available if the borrower's hardship is not resolved, and that a mortgage loan modification may be available if the borrower needs payment relief.

The servicer must include instruction on how to accept the offer in the COVID-19 payment deferral agreement. The servicer is authorized to consider the following as acceptance by the borrower, subject to applicable law:

  •  the borrower contacting the servicer directly in accordance with any acceptable outreach and communication method, 
  •  the borrower returning an executed COVID-19 payment deferral agreement, or
  •  any other method evidencing the borrower's acceptance as determined by the servicer.

Soliciting the borrower for a Fannie Mae Flex Modification 

If the servicer is unable to establish QRPC as described in Determining eligibility for a COVID-19 payment deferral with a borrower on a COVID-19 related forbearance plan and the borrower is ineligible for a COVID-19 payment deferral, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table in Evaluation hierarchy for a borrower impacted by COVID-19 and, if eligible, the servicer must send an offer for a Fannie Mae Flex Modification within 15 days after expiration of the forbearance plan.

In addition, if a borrower is eligible for a COVID-19 payment deferral but does not respond to the COVID-19 payment deferral offer as described in Soliciting the borrower for a post-forbearance COVID-19 payment deferral by the acceptance date provided in the COVID-19 payment deferral agreement, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table in Evaluation hierarchy for a borrower impacted by COVID-19 and, if eligible, solicit the borrower for a Fannie Mae Flex Modification within 15 days after the expiration of the COVID-19 payment deferral offer.

NOTE: In either case, the servicer is authorized to continue proactive solicitation for a Fannie Mae Flex Modification at its discretion.

The servicer must not solicit a borrower for a Fannie Mae Flex Modification if the property has a scheduled foreclosure sale date within

  •  60 days of the evaluation date if the property is in a judicial state, or
  •  30 days of the evaluation date if the property is in a non-judicial state.

The servicer must send the borrower the applicable Flex Modification Solicitation Cover Letter with the Flex Modification Trial Period Plan Solicitation Offer — Not Based on an Evaluation of a BRP Evaluation Notice, or the equivalent, and make appropriate changes to these documents, including the applicable Frequently Asked Questions and as needed to comply with applicable law. 

Processing a COVID-19 payment deferral for an MBS mortgage loan

MBS mortgage loans subject to a COVID-19 payment deferral will not be subject to automatic reclassification as described in A1-3-06, Automatic Reclassification of MBS Mortgage Loans. In addition, the servicer must not make a manual reclassification request for mortgage loans subject to a COVID-19 payment deferral. 

Reporting a delinquency status code for a COVID-19 payment deferral NEW May 27, 2020

The servicer must report delinquency status information to Fannie Mae through Fannie Mae’s servicing solutions system in accordance with D2-4-01, Reporting a Delinquent Mortgage Loan to Fannie Mae .

In circumstances where the servicer chooses to use a processing month to complete a COVID-19 payment deferral, then for the processing month it must report the same delinquency status code used when reporting the previous month’s delinquency status information (i.e., delinquency status code 09 – Forbearance or 42 – Delinquent, No Action).

As a reminder, in accordance with LL-2020-02, Impact of COVID-19 on Servicing, Impact of COVID-19 on Servicing, the servicer must report reason for delinquency code 022, Energy- Environment Costs, when reporting the delinquency status of such mortgage loans to Fannie Mae.

Reporting a COVID-19 payment deferral to Fannie Mae 

The servicer must submit an eligible COVID-19 payment deferral case to Fannie Mae’s servicing solutions system by entering loan-level information, including the applicable campaign ID to identify a COVID-19 payment deferral. The case must be entered by the last day of the month in which the evaluation took place.

If the servicer chooses to use a processing month, the servicer must enter the COVID-19 payment deferral case within the processing month, but no later than the last day of such month. If a full monthly contractual payment is required in the processing month because the mortgage loan is 12 months delinquent as of the date of the evaluation, then the servicer must remit and report via a Loan Activity Record (LAR) to Fannie Mae the borrower’s full monthly contractual payment due in the processing month prior to completing the COVID-19 payment deferral in Fannie Mae’s servicing solutions system. 

NOTE: If the servicer does not remit and report via a LAR the full monthly contractual payment at least one business day prior to the last day of the month, the servicer will not be able to complete the COVID-19 payment deferral case. If the UPB or LPI reported in Fannie Mae’s servicing solutions system prior to application of a COVID-19 payment deferral does not agree with the last reported UPB or LPI in Fannie Mae’s investor reporting system, the COVID-19 payment deferral will not be processed in Fannie Mae’s investor reporting system until the discrepancy is resolved.

See Updates to the Investor Reporting Manual within this Lender Letter for additional information.

Processing a COVID-19 payment deferral for a mortgage loan with mortgage insurance   NEW May 27, 2020

We have obtained delegation of authority on behalf of all servicers from the following mortgage insurers for the COVID-19 payment deferral: Arch MI, Essent Guaranty, Genworth, MassHousing, MGIC, National Mortgage Insurance, Radian Guaranty, RMIC, and United Guaranty. 

If we have not obtained delegation of authority from the mortgage insurer for any particular workout option, the servicer must obtain this delegation or seek individual mortgage insurer approval.

Credit bureau reporting for a COVID-19 payment deferral 

The servicer must report the status of the mortgage loan to the credit bureaus in accordance with the Fair Credit Reporting Act, including as amended by the Coronavirus Aid, Relief, and Economic Security Act, for borrowers affected by the COVID-19 emergency. 

Handling fees and late charges in connection with a COVID-19 payment deferral

The servicer must not charge the borrower administrative fees. It must waive all late charges, penalties, stop payment fees, or similar charges upon completing a COVID-19 payment deferral.

Incentive fees UPDATED Jun. 10, 2020

The servicer is eligible for a $500 incentive fee upon completion of a COVID-19 payment deferral. See Lender Letter LL-2020-09, Incentive Fees for Retention Workout Options for the new temporary structure for incentive fees for completed repayment plans, payment deferrals/COVID-19 payment deferrals, and Fannie Mae Flex Modifications.

Servicing fees UPDATED Jul. 15, 2020
The servicer will continue to receive the servicing fee it was receiving prior to completing the COVID-19 payment deferral after the COVID-19 payment deferral becomes effective. 

Servicing fees, guaranty fees, and excess servicing fees (if applicable) will be reimbursed for mortgage loans that receive a COVID-19 payment deferral at the time the mortgage loan matures or is paid-in-full through a credit to the servicer’s custodial account.  

Paying expenses and requesting reimbursement related to a COVID-19 payment deferral  UPDATED May 27, 2020

The servicer must pay any necessary and actual out-of-pocket expenses in accordance with the Servicing Guide associated with the execution of a COVID-19 payment deferral, including, but not limited to: 

  • required notary fees,
  • recording costs,
  • title costs, or
  • any other allowable and documented expense.

NOTE: The above expenses must not be included in the non-interest bearing balance created by the COVID-19 payment deferral. 

We will reimburse the servicer for allowable out-of-pocket expenses in accordance with F-1-05, Expense Reimbursement.

With regard to expenses that are advanced to third-parties in accordance with our Servicing Guide and included in the non-interest bearing balance, the servicer will not automatically be reimbursed for expenses related to a COVID-19 payment deferral upon completion of the COVID-19 payment deferral, but instead must request reimbursement from Fannie Mae. The servicer must submit its request for expense reimbursement for expenses advanced and included in the non-interest bearing balance within 60 days of the completion of the COVID-19 payment deferral. See E-5-01, Requesting Reimbursement for Expenses for additional information. 

Default after completing a COVID-19 payment deferral  UPDATED Jun. 10, 2020, Jul 15, 2020

If the borrower becomes 60 days delinquent within 6 months of the COVID-19 related payment deferral’s effective date and the servicer is unable to achieve QRPC, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table below and if eligible, offer the Flex Modification to the borrower no later than the 75th day of delinquency. The servicer is not required to 

  •  receive a complete BRP from the borrower, or 
  •  have previously solicited the borrower for a workout option. 

NOTE:  The servicer is authorized to continue proactive solicitation for Fannie Mae Flex Modification based on reduced eligibility criteria at its discretion. The servicer must not solicit a borrower for a Fannie Mae Flex Modification based on reduced eligibility criteria if the property has a scheduled foreclosure sale date within 60 days of the evaluation date if the property is in a judicial state, or within 30 days of the evaluation date if the property is in a non-judicial state. 

Reduced eligibility criteria when soliciting a borrower who defaulted after completing a COVID-19 payment deferral

 

The mortgage loan must be a first-lien conventional mortgage loan.

 

The mortgage loan must not be subject to

  •  a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized;
  •  a current offer for another mortgage loan modification or other workout option;
  •  an approved liquidation workout option; or
  •  an active and performing repayment plan, forbearance plan, or Trial Period Plan.

The servicer must send the borrower the applicable Flex Modification Solicitation Cover Letter with the Flex Modification Trial Period Plan Solicitation Offer - Not Based on an Evaluation of a BRP Evaluation Notice, or the equivalent, and make appropriate changes to these documents, including the applicable Frequently Asked Questions and as needed to comply with applicable law.

If the servicer was not collecting escrows on the existing mortgage, the borrower is not required to establish an escrow deposit account as a condition of the mortgage loan modification unless otherwise required by applicable law, or the servicer confirms that the taxes and insurance premiums have not been paid and are past due.

Evaluation hierarchy for a borrower impacted by COVID-19 

Once the servicer implements COVID-19 payment deferral, it must evaluate borrowers impacted by COVID-19 for a COVID-19 payment deferral in accordance with the eligibility requirements and evaluation hierarchy described below rather than for the post-disaster forbearance mortgage loan modifications as made available in Lender Letter LL-2020-02, Impact of COVID-19 on Servicing. Until the servicer implements COVID-19 payment deferral, it must continue to evaluate the borrower for a post-forbearance mortgage loan modification in accordance with Lender Letter LL-2020-02, Impact of COVID-19 on Servicing.

If the servicer determines that the borrower is unable to resolve the delinquency through a reinstatement and cannot afford a repayment plan, the servicer must evaluate the borrower for a workout option in accordance with the evaluation hierarchy in the following table. 

If the servicer…

Then the servicer must evaluate the borrower impacted by COVID-19 for…

achieves QRPC with the borrower, regardless of whether the borrower was on a COVID-19 related forbearance plan

  •  a COVID-19 payment deferral in accordance with Determining eligibility for a COVID-19 payment deferral, and if eligible offer a COVID-19 payment deferral; unless
    •  the servicer determines that the borrower is not capable of maintaining the current contractual monthly PITI payment, or
    •  the mortgage loan is greater than 12 months delinquent; then the servicer must evaluate the borrower for
  •  a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table below, and if eligible offer a Fannie Mae Flex Modification; unless
    •  the mortgage loan is two or more months delinquent as of the effective date of the National Emergency declaration related to the COVID-19 emergency, or
    •  the mortgage loan is less than 90 days delinquent; then the servicer must evaluate the borrower for
  •  a Fannie Mae Flex Modification in accordance with D2-3.2-06, Fannie Mae Flex Modification, and if eligible offer a Fannie Mae Flex Modification.

does not achieve QRPC with a borrower who is on a COVID-19 related forbearance plan prior to the expiration of the plan

NOTE: If the borrower doesn't respond to the COVID-19 payment deferral offer as described in Soliciting the borrower for a post-forbearance COVID-19 payment deferral by the acceptance date provided in the COVID-19 payment deferral agreement, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table below and, if eligible, solicit the borrower for a Fannie Mae Flex Modification in accordance with Soliciting the borrower for a Fannie Mae Flex Modification.

does not achieve QRPC with a borrower who was not on a COVID-19 related forbearance plan

The following table provides the reduced eligibility criteria as referenced above for evaluating a borrower with a COVID-19 related hardship for a Fannie Mae Flex Modification. 

Reduced eligibility criteria when evaluating a borrower with a COVID-19 related hardship for a Fannie Mae Flex Modification

 

The mortgage loan must be a first-lien conventional mortgage loan.

 

The mortgage loan must

  •  have been current or less than two months delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19; and

 be at least 90 days delinquent.

 

The mortgage loan must not be subject to

  •  a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized;
  •  a current offer for another mortgage loan modification or other workout option;
  •  an approved liquidation workout option; or
  •  an active and performing repayment plan, other non COVID-19 related forbearance plan, or Trial Period Plan.

If the servicer was not collecting escrows on the existing mortgage, the borrower is not required to establish an escrow deposit account as a condition of the mortgage loan modification unless otherwise required by applicable law, or the servicer confirms that the taxes and insurance premiums have not been paid and are past due.

NOTE: With the exception of the reduced eligibility criteria, escrow administration, and solicitation requirements when evaluating a borrower for a Fannie Mae Flex Modification in this Lender Letter, the servicer must otherwise refer to the requirements in the Servicing Guide for processing and completing a Fannie Mae Flex Modification. 

Update to Fannie Mae Flex Modification eligibility criteria

A COVID-19 payment deferral does not count as a mortgage loan modification when determining the number of times the mortgage loan has previously been modified for purposes of determining eligibility for a Fannie Mae Flex Modification in accordance with Determining Eligibility for a Fannie Mae Flex Modification in D2-3.2-06, Fannie Mae Flex Modification

Updates to the Investor Reporting Manual  UPDATED May 27, 2020

Reporting a Mortgage Loan Eligible for a COVID-19 Payment Deferral 

Loan activity reporting must continue on a delinquent mortgage loan that is subject to a COVID-19 payment deferral. If the mortgage loan is in an MBS pool, then the servicer must not request a reclassification. 

The final “pre-payment deferral” UPB and LPI values in Fannie Mae’s servicing solutions system must match the last reported UPB and LPI in Fannie Mae’s investor reporting system. If the values do not match, this will cause an exception in Fannie Mae’s servicing solutions system and the COVID-19 payment deferral case cannot close until this discrepancy is resolved.

For a COVID-19 payment deferral, reporting a payment LAR with LPI and UPB movement is only required if the mortgage loan is 12 months delinquent as of the date of evaluation and the servicer has chosen to use a processing month. In this instance, the borrower must make his or her full monthly contractual payment during the processing month, and the servicer must report the payment LAR at least one business day prior to the last day of the processing month. Failure to do so will result in the COVID-19 payment deferral not being processed in Fannie Mae’s servicing solutions system.

The following table provides additional instructions based on what is processed in the current reporting month prior to acceptance of the payment deferral in Fannie Mae’s investor reporting system. 

If…

Then…

no LAR or a LAR without LPI and UPB movement is processed by CD22 in the current reporting month prior to the COVID-19 payment deferral’s acceptance

the servicer must report a subsequent LAR with LPI and UPB movement reflecting the “pre-COVID-19 payment deferral” activity. The payment LAR must be reported at least one business day prior to the last day of the calendar month.

NOTE: This is applicable only in instances where the mortgage loan is 12 months delinquent as of the date of evaluation and the servicer has chosen to use a processing month.

a LAR was successfully processed and the COVID-19 payment deferral is accepted in the current reporting month

any subsequent LAR received in the same reporting month will be deemed “Invalid” and will be reflected as such in the Loan Activity Summary Report. A detailed list can be obtained from your Investor Reporting analyst.

NOTE: The first LAR that Fannie Mae will accept after the COVID-19 payment deferral terms are reflected in the Fannie Mae’s investor reporting system will be in the next reporting month.

Reporting a Mortgage Loan After a COVID-19 Payment Deferral 

A COVID-19 payment deferral creates a non-interest bearing balance (referred to in the Investor Reporting Manual as “principal forbearance”) due and payable at the maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB. The servicer must not calculate interest on the principal forbearance amount.

In the reporting month following the acceptance of a COVID-19 payment deferral, the servicer must report the mortgage loan’s

  • net UPB (gross UPB minus the principal portion of the COVID-19 payment deferral amount) in the “Actual UPB” field on the LAR if there is no LPI movement; or
  • amortized UPB based on the net UPB minus the principal portion of the COVID-19 payment deferral amount) in the “Actual UPB” field on the LAR if there is LPI movement.

NOTE: The initial reduction in UPB caused by the principal forbearance must not be reported to Fannie Mae as a principal curtailment.

The following table provides additional instructions related to reporting requirements for mortgage loans that were subject to a payment deferral and have an outstanding principal forbearance at the time of a principal curtailment, a payoff, or a repurchase.

If...

Then…

 a principal curtailment is received

  • if the principal curtailment being applied is less than the interest-bearing UPB, the servicer must apply such principal curtailment to the interest-bearing UPB.
  • if the principal curtailment is greater than or equal to the interest-bearing UPB, then the servicer must apply such curtailment in the following order:
  1.  to the non-interest bearing balance, if any; and
  2.  to the interest-bearing UPB.

 a payoff or a repurchase is received

the servicer must include the principal forbearance amount when reporting the principal remittance amount.

NOTE: Principal forbearance reported on the liquidation LAR consists of the deferred principal amount, the gross interest amount, escrow advances, servicing advances, and any prior principal forbearance on the mortgage loan. Attempting to report a payoff or a repurchase without including the principal forbearance amount will generate an exception (hard reject) upon submission of the LAR.

NOTEGenerally, servicer P&I advances will be reimbursed within three to four business days after a COVID-19 payment deferral has been accepted in Fannie Mae’s investor reporting system. 

 

Servicers who have questions about this Lender Letter should contact their Fannie Mae Account Team, Portfolio Manager, or Fannie Mae’s Single-Family Servicer Support Center at 1-800-2FANNIE (1-800-232-6643).
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Appendix

PAYMENT DEFERRAL POST COVID-19 FORBEARANCE SOLICITATION COVER LETTER

[Servicer Logo]

[BORROWER 1 NAME] [BORROWER 2 NAME]

[ADDRESS 1]

[ADDRESS 2]

[CITY, STATE ZIP CODE]

[DATE]

Reference: [LOAN NUMBER]

Subject:  Unable to Contact You During Your Forbearance Plan – Offer Enclosed

Dear [BORROWER NAME(S)]:

We have been trying to reach you during your forbearance plan to discuss your situation and to provide information on options that may be available to you to resolve your delinquency. We would like to offer you an opportunity to enter into a more permanent solution. You have options, but you must act now. We are here to help. If you have questions about the options listed below, please contact us immediately.

Can You Resume Your Regular Monthly Mortgage Payment?

You have been approved for a payment deferral. This is a solution that brings your mortgage current, prevents foreclosure, and delays repayment of the mortgage payments you missed during your forbearance plan. If your hardship has been resolved and you are able to resume making your mortgage payments following your forbearance plan, a payment deferral may be the best option to immediately bring your mortgage current. Please refer to the enclosed payment deferral agreement for more details on this offer and how to accept it.

Do You Need More Affordable Monthly Mortgage Payments?

If your hardship has been resolved but you are not able to continue making your mortgage payments following your forbearance plan, you may be eligible for a loan modification that could lower your monthly mortgage payment. The loan modification changes the terms of the loan and targets lowering your monthly mortgage payment by extending the loan term to 40 years from the date of the modification. If you complete a loan modification, it will bring your loan current and prevent foreclosure. Contact us if you would like to explore a loan modification.

[Use only if the borrower has been on forbearance for less than 12 months] Do You Need More Time to Resolve Your Hardship?

You may need more time to resolve your hardship before we can determine what long-term solution best works for you. If so, an extension of your forbearance plan may be available. To receive an extension, you must contact us to discuss your options.

Unable to Resolve the Delinquency or Prefer to Leave Your Home?

You may have other options to avoid foreclosure.

  • A short sale: the sale of your property for a price that is less than the amount you still owe on your mortgage.
  • A Mortgage ReleaseTM (deed-in-lieu of foreclosure): the transfer of ownership of your property to us in exchange for release of some or all of the amount you still owe on your mortgage.

If you are approved for a short sale or Mortgage Release and complete the necessary steps, we will cancel your remaining mortgage debt obligation. Cancellation of debt may have tax consequences. Please consult a tax advisor to discuss potential tax consequences.

QUESTIONS? CONTACT US

[SERVICER’S NAME]

Phone: [8XX-XXX-XXXX]

Email Address: [SERVICER’S EMAIL]

Website: [SERVICER’S WEBSITE]

We encourage you to review the enclosed payment deferral agreement which includes instruction on how to accept the offer. Thank you for your prompt attention to this matter. We are here to help you with your mortgage.

Sincerely,

Customer Support

[SERVICER NAME]

Fannie Mae Lender Letter (LL-2020-07), COVID-19 Payment Deferral can be found here.

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