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Lender Letter LL-2021-02, Impact of Covid-19 on Servicing

Lender Letter (LL-2021-02)  

Updated: May 4, 2022

 

To: All Fannie Mae Single-Family Servicers                                  
Impact of COVID-19 on Servicing 

 

This Lender Letter contains the policies previously published in LL-2020-02 on Dec. 9, 2020, with the changes noted below and in the provided Change Control Log. As we continue to monitor the COVID-19 pandemic and collaborate with FHFA and Freddie Mac (as applicable) on COVID-19 related servicing policies, we will update and republish this Lender Letter as necessary. The policies in this Lender Letter are effective immediately and until Fannie Mae provides further notice, unless otherwise stated.

May 4, 2022

  • Increasing our expense reimbursement limits for interior and exterior property inspections.

 

Impact of the Homeowner Assistance Fund Program on Foreclosure-Related Activities Apr. 6, 2022

To allow a borrower who has experienced a COVID-19 related hardship time to obtain assistance offered through the Homeowner Assistance Fund (HAF) program, the servicer must delay initiating any judicial or non-judicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure sale up to 60 days if

  • the servicer receives notification from a mortgage assistance fund program provider participating in the HAF program, such as an HFA or other designee, that the borrower has applied for mortgage assistance;
  • the servicer
    • has sufficient time to delay initiation of the foreclosure process or moving for a foreclosure judgment or order of sale; or
    • in the case of a foreclosure sale, is notified at least 7 days before the sale; and
  • any foreclosure trial or execution of a foreclosure sale can be delayed without dismissal of the action.

If the servicer determines that it did not have sufficient time to delay initiation of the foreclosure process or moving for a foreclosure judgment or order of sale, the servicer must document in the loan file why it was unable to delay the action and make any supporting documentation available to Fannie Mae upon request.

If the approved funds do not fully reinstate the mortgage loan, the servicer must attempt to contact the borrower to achieve QRPC in accordance with Servicing Guide Chapter D2-2, Requirements for Contacting a Borrower to resolve the remaining delinquency.

The servicer must obtain Fannie Mae’s prior approval to suspend foreclosure-related activities beyond 60 days by submitting a request to the Loss Mitigation Mailbox at Loss_Mitigation@fanniemae.com.

Also see Servicing Guide D2-3.1-05, Interacting with Mortgage Assistance Fund Program Providers for additional information.

 

Mortgage Insurance Termination 

When verifying an acceptable payment record for a borrower that has had a financial hardship related to COVID-19 in which the servicer provided 

  • a COVID-19 related forbearance plan, repayment plan, or Trial Period Plan and the borrower complied with the terms of such plan; 
  • a payment deferral; or 
  • a COVID-19 payment deferral and the borrower made three consecutive monthly payments following completion of the payment deferral,

the servicer must not consider any payment that is 30 or more days past due in the last 12 months, or 60 or more days past due in the last 24 months that is attributable to the COVID-19 financial hardship. The mortgage loan must be current when the termination is requested, which means the mortgage loan payment for the month preceding the date of the termination request was paid.  

NOTE:    These requirements apply when reviewing the borrower’s request for termination of conventional MI based on either original or current value of the property.  

Disbursing insurance loss proceeds 

In response to servicer inquiries and in an effort to repair properties that experience an insured loss event as expeditiously as possible, we are updating our requirements for determining the mortgage loan status for disbursing insurance loss proceeds for a borrower impacted by COVID-19. The servicer must consider the loan to be current or less than 31 days delinquent for purposes of disbursing insurance loss proceeds if

  • the borrower experienced a COVID-19 related hardship;
  • the mortgage loan was 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 
  •  at the time of the loss event, the borrower is performing on a COVID-19 related forbearance plan, repayment plan, or Trial Period Plan.

The servicer must otherwise disburse the proceeds in accordance with Servicing Guide B-5-01, Insured Loss Events.  

The servicer must document in the mortgage loan servicing file the date that the COVID related hardship began and the date of the insured loss event.  

Impact of COVID-19 on Fannie Mae Home Affordable Modification Program ”Pay for Performance” incentives 

In LL-2021-07, COVID-19 Payment Deferral and Fannie Mae Flex Modification for COVID-19 Impacted Borrowers, we clarified that if the mortgage loan was previously modified pursuant to a Home Affordable Modification Program (HAMP) modification under which the borrower remains in “good standing,” then the borrower will not lose any “pay for performance” incentives if the borrower was on a COVID-19 related forbearance plan or had a COVID-19 related hardship immediately preceding the COVID-19 payment deferral. We are clarifying that, additionally, the borrower will not lose any  future HAMP “pay for performance” incentives if the borrower 

  • immediately reinstates the mortgage loan upon expiration of the COVID-19 related forbearance plan, or
  • transitions directly from a COVID-19 related forbearance plan to a repayment plan.

Modifying seller/servicer financial liquidity requirements for mortgage loans in forbearance

In response to the national emergency, we are announcing a temporary modification of the non-depository seller/servicer minimum liquidity requirement for seriously delinquent (SDQ) mortgage loans. The changes indicated below were implemented beginning with the financial quarter ending Jun. 30, 2020.

As stated in Selling Guide A4-1-01, Maintaining Seller/Servicer Eligibility, the minimum liquidity requirement is equal to 0.035% of the unpaid principal balance (UPB) of mortgage loans serviced by a non-depository seller/servicer for Fannie Mae, Freddie Mac, and Ginnie Mae if the Agency SDQ rate is 6% or less.  If the Agency SDQ rate is above 6%, the seller/servicer must also maintain at least an SDQ add-on of 2% of the UPB of Agency SDQ rate over 6%.  

Under the existing seller/servicer eligibility requirements, the Agency SDQ Rate is defined as 100 multiplied by (the UPB of mortgage loans 90 days or more delinquent or in foreclosure for Fannie Mae, Freddie Mac, and Ginnie Mae/Total UPB of mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae).  Beginning with the financial quarter ending Jun. 30, 2020, the Agency SDQ Rate will include an adjustment for mortgage loans in a COVID-19 related forbearance plan that are 90 days or more delinquent and were current at the inception of the COVID-19 related forbearance plan. The UPB of such mortgage loans shall be multiplied by .30 and added to the UPB for SDQ mortgage loans for the purposes of determining the numerator in the calculation of the Agency SDQ Rate.  Refer to the Appendix link for examples. 

When the COVID-19 related forbearance period ends for a mortgage loan, the mortgage loan’s status will become subject to, by the end of the quarter following the end of the COVID-19 related forbearance period, the minimum financial seller/servicer eligibility requirements in place at that time.

To accommodate these changes, the Mortgage Bankers Financial Reporting Form (MBFRF Form 1002) was modified to capture forbearance activity.

Reclassification of MBS mortgage loans

The Amended and Restated 2007 Single-Family Master Trust Agreement (the “2007 Trust Agreement”) applies to MBS mortgage loans with pool issue dates on or after Jun. 1, 2007 through Dec. 1, 2008.  As described in Servicing Guide F-1-25, Reclassifying or Voluntary  Repurchasing an MBS Mortgage Loan, and in accordance with the 2007 Trust Agreement, we remove such mortgage loans from the  MBS pool after the sixth consecutive month of continuing forbearance.  Selection for reclassification is based on the servicer’s  monthly delinquency status reporting to Fannie Mae.  

In response to the CARES Act, we are updating our reclassification process for mortgage loans in these MBS pools when a borrower  impacted by COVID-19 is provided a forbearance plan.  Such mortgage loans will not be removed from the MBS pool for the duration of  the forbearance plan under the CARES Act, in accordance with the 2007 Trust Agreement, which permits mortgage loans to remain in  trust longer than six consecutive months when the forbearance plan is required by applicable law.  

These changes became effective with the Jun. 2020 monthly delinquency status reporting cycle and will apply when the  servicer reports delinquency status code 09 (Forbearance) and reason for delinquency code 022 (Energy-Environment Costs), as  reassigned pursuant to this Lender Letter for reporting a hardship associated with COVID-19.

Complying with law

Servicers are reminded that in accordance with Servicing Guide A2-1-08, Compliance with Requirements and Laws, they must comply with applicable law even where a provision of the Servicing Guide may conflict with applicable law.

Attempting to establish quality right party contact

As described in Servicing Guide D2-2-01, Achieving Quality Right Party Contact with a Borrower, quality right party contact (QRPC) is a uniform standard for communicating with the borrower, co-borrower, or a trusted advisor (collectively referred to as “borrower”) about resolution of the mortgage loan delinquency. We reaffirm the applicability of QRPC when working with a borrower impacted by COVID-19 to ensure the servicer understands the borrower’s circumstances and determines the best possible workout option for resolving the borrower’s delinquency. In the event that the servicer is unable to achieve full QRPC and offers a forbearance plan to a borrower impacted by COVID-19 in compliance with applicable law, the servicer is considered to be in compliance with our Servicing Guide.

In accordance with Servicing Guide A4-2.1-04, Establishing Contact with the Borrower, among other requirements, the servicer is authorized to use various outreach methods to contact the borrower as permitted by applicable law, including, but not limited to:

▪    mail,
▪    email,
▪    texting, and
▪    voice response unit technology.

Reporting a reason for delinquency code  

The servicer must report delinquency status information to Fannie Mae through Fannie Mae’s servicing solutions system in accordance with Servicing Guide D2-4-01, Reporting a Delinquent Mortgage Loan to Fannie Mae and F-1-21, Reporting a Delinquent Mortgage Loan via Fannie Mae’s Servicing Solutions System. 

In an effort to enable us to identify mortgage loans where the borrower has experienced a hardship associated with COVID-19 while not resulting in a systems impact for us or you, the servicer must report reason for delinquency code 022, Energy- Environment Costs, when reporting the delinquency status of such mortgage loans to us . If the borrower’s COVID-19 related hardship remains unresolved and the borrower experiences another hardship concurrently (for example, a disaster event), the servicer must continue to report reason for delinquency code 022, Energy- Environment Costs, regardless of the reason for delinquency associated with the concurrent hardship.

For mortgage loans where the servicer would have otherwise reported reason for delinquency code 022 due to Energy-Environment Costs, the servicer must now use reason for delinquency code 007, Excessive Obligations. 

Property inspections and preservation  Updated May 4, 2022

As a result of the impact of COVID-19, we are temporarily providing flexibility with respect to the completion of property inspections and preservation, including:

▪   inspections for properties securing a delinquent mortgage loan as described in Servicing Guide D2-2-10, Requirements for  Performing Property Inspections;
▪    inspections related to hazard loss repairs as described in Servicing Guide B-5-01, Insured Loss Events, and
▪    property preservation activities as described in Servicing Guide E-3.2-12, Performing Property Preservation During Foreclosure Proceedings. 

The following table describes when the servicer must not conduct property inspections and property preservation activities for a property securing a mortgage loan where the borrower is experiencing a hardship related to COVID-19, depending on the status of the mortgage loan at the time of the effective date of the National Emergency declaration related to COVID-19.

If on Mar. 1, 2020, the mortgage loan was…

Then the servicer must…

current or less than 30 days delinquent and the borrower becomes delinquent

not complete property inspections during the forbearance plan or an active post-forbearance plan workout option.

 

delinquent and the property was not vacant or abandoned

delinquent and the property was reported as vacant or abandoned

follow the property inspection requirements in Inspecting a Property Securing a Delinquent Mortgage Loan in Servicing Guide D2-2-10, Requirements for Performing Property Inspections and property preservation requirements in Servicing Guide E-3.2-12, Performing Property Preservation During Foreclosure Proceedings.

NOTE:    For mortgage loans that are delinquent and not on a forbearance plan, servicers must continue to follow the inspection requirements in in Inspecting a Property Securing a Delinquent Mortgage Loan in D2-2-10.

If the mortgage loan is not brought current upon expiration of the forbearance plan, or if the borrower is not approved for a post-forbearance workout option as determined based on QRPC, the servicer must follow the property inspection requirements in Inspecting a Property Securing a Delinquent Mortgage Loan in D2-2-10

If the servicer is unable to complete a property inspection or property preservation activity in accordance with the Servicing Guide, it must document their efforts and the reason for any exception in the mortgage loan file.

NOTE: The servicer’s inability to complete property inspections due to COVID-19 related impacts must not impact the servicer’s disbursement of insurance loss proceeds.

As a reminder, D2-2-10 authorizes a curbside (drive-by) inspection if there is potential danger to the inspector. Additionally, the Property Preservation Matrix and Reference Guide authorizes servicers to utilize alternative data or other means available to determine occupancy status when inspection results are unknown due to lack of access.

For interior and exterior property inspections completed on and after May 4, 2022, we are increasing our expense reimbursement limit, as described in Servicing Guide F-1-05 , Expense Reimbursement, by $5 to the amounts described in the following table.

Description Maximum Reimbursement Amount
Interior Property Inspection $25/inspection
Exterior Property Inspection $20/inspection

For additional questions, contact
▪    Property_Preservation@fanniemae.com regarding property inspections for delinquent mortgage loans
▪    Hazard_Loss@fanniemae.com regarding hazard loss inspections

Forbearance plan terms 

The servicer must follow the requirements in Servicing Guide D2-3.2-01, Forbearance Plan, when evaluating the borrower for and offering a forbearance plan, including achieving QRPC with the borrower, unless otherwise stated in this Lender Letter.

The following flexibilities apply to a forbearance plan for a borrower with a financial hardship resulting from COVID-19:

  • The property securing the mortgage loan may be either a principal residence, a second home, or an  investment property.
  • The servicer is authorized to permit a cumulative forbearance plan term of up to 12 months as measured from the start date of the initial forbearance plan regardless of the delinquency status of the mortgage loan.

We are providing the following additional flexibilities for a mortgage loan actively performing on a COVID-19 related forbearance plan as of February 28, 2021:

  • If upon reaching a cumulative forbearance plan term of 12 months as measured from the start date of the initial forbearance plan the servicer determines the borrower’s hardship has not been resolved, the servicer is authorized to 
    • grant an extension of the forbearance plan term of up to 3 months, and
    • grant one or more forbearance plan term extensions of up to 3 months.
  • The servicer must receive Fannie Mae’s prior written approval for a forbearance plan to
    • exceed a cumulative term of 18 months as measured from the start date of the initial forbearance plan, or 
    • result in the mortgage loan becoming greater than 18 months delinquent.

NOTE: The servicer’s determination to extend the forbearance plan as described above must be as a result of achieving QRPC.

As stated in D2-3.2-01, the forbearance plan terms must be provided to the borrower using the appropriate Evaluation Notice, which must be revised in accordance with applicable law. In addition, the servicer must document in the individual mortgage loan file the borrower’s request for a forbearance plan and the terms of the initial and any extended forbearance plan, including the duration of the forbearance period.

Evaluating the borrower for a workout option after a forbearance plan

For borrowers who have received a forbearance plan in response to COVID-19, the servicer must begin attempts to contact the borrower no later than 30 days prior to the expiration of the forbearance plan term, and must continue outreach attempts until either QRPC is achieved or the forbearance plan term has expired. When evaluating the borrower for a workout option prior to expiration of the forbearance plan, we are providing flexibility with regard to achieving QRPC. We are eliminating the requirement that the servicer determine the occupancy status of the property and will consider the servicer obtaining the following as achieving QRPC for purposes of evaluating a borrower who has experienced a hardship resulting from COVID-19:

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

In Lender Letter LL-2020-07, COVID-19 Payment Deferral (now LL-2021-07, COVID-19 Payment Deferral and Fannie Mae Flex Modification for Covid-19 Impacted Borrowers) we introduced COVID-19 payment deferral, a new home retention workout option jointly developed with Freddie Mac at the direction of FHFA, to assist borrowers who have resolved their COVID-19 related hardship. The servicer must evaluate borrowers for a COVID-19 payment deferral in accordance with the eligibility requirements and evaluation hierarchy described in the Lender Letter.

Credit bureau reporting 

The servicer must report the status of the mortgage loan to the credit bureaus in accordance with Servicing Guide C-4.1-01, Notifying Credit Repositories, and applicable law, including the Fair Credit Reporting Act (FCRA) as amended by the CARES Act, for borrowers affected by the COVID-19 emergency. 

Use of Fannie Mae’s Disaster Response Network

Our Disaster Response Network (DRN) is operational and can be used to assist borrowers who are financially impacted by COVID-19. The DRN has trained financial counselors who will work with borrowers to create a workable budget based upon the borrower’s present financial situation and assist in explaining options including obtaining unemployment benefits and any new special assistance. We encourage servicers to refer Fannie Mae borrowers to our DRN at 1-877-542-9723.

Additional resources

We offer a wealth of information and resources for servicers to help borrowers deal with the challenges associated with COVID-19:

 

We will continue to monitor the situation and alert you of any additional policy updates. 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). 
Have Guide questions?  Get answers to all your policy questions, straight from the source. Ask Poli.

 

Appendix

Refer to the examples below related to calculating the non-depository seller/servicer minimum liquidity requirement.

Example #1

Example #2

1COVID-19 SDQ refers to mortgage loans in a COVID-19 related forbearance plan that are 90 days or more delinquent and were current at the inception of the COVID-19 related forbearance plan.

 

Change Control Log

The following table provides a description of the updates that have been made to this Lender Letter.

Date of Update Description of Update
Apr. 6, 2022
  • Instructed servicers to postpone foreclosure-related activities in connection with the  HAF program
  • Removed provisions regarding the suspension of foreclosure-related activities and filing motions for relief from the automatic stay in certain bankruptcy cases
Jun. 30, 2021 Updated the provisions regarding the suspension of foreclosure-related activities and filing motions for relief from the automatic stay in certain bankruptcy cases
Jun. 24, 2021 Extended the suspension of foreclosure-related activities
Feb. 25, 2021
  • Extended the suspension of foreclosure-related activities 
  • Updated our requirements related to forbearance plans for borrowers impacted by COVID-19
Feb. 10, 2021
  • Extended the suspension of foreclosure-related activities 
  • Updated our requirements related to forbearance plans for borrowers impacted by COVID-19
Jan. 20, 2021 Extended the suspension of foreclosure-related activities
Slightly reorganized content, with the policy impacted by an explicit expiration date showing first, and removed the following policies that have been superseded:
  • Sending a payment reminder notice
  • Principal & interest advances on delinquent mortgage loans
  • Submission of financial statements and reports
  • Reference to the post-disaster forbearance mortgage loan modifications when evaluating a borrower for a workout option after a forbearance plan

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