Servicing Guide

Published September 9, 2020

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Fannie Mae Single-Family Balloon Mortgage Loan Servicing Manual 11/12/2014 (Chapter 3, Performing Final Accounting and Reporting for a Balloon Mortgage Loan)

See below for Chapter 3, Performing Final Accounting and Reporting for a Balloon Mortgage Loan 

To see other Chapters of the Fannie Mae Single-Family Balloon Mortgage Loan Servicing Manual,  please click on any of the chapters below:

Chapter 1, Notifying the  Borrower of Balloon Mortgage Loan Maturity

Chapter 2, Processing the Refinancing of a Matured Balloon Mortgage Loan 

 

This Chapter contains the following Sections: 

3.1, Remitting and Reporting Payoff Proceeds 

  • 3.1-01, Collecting the Balloon Payment, Accrued Interest, and Unpaid Late Charges When the Borrower Exercises the Refinance Option
  • 3.1-02, Determining and Collecting Allowable Transaction Costs
  • 3.1-03, Removing the Balloon Mortgage Loan from Fannie Mae's Accounting Records 

3.2, Processing Alternatives to Mature Balloon Mortgage Loan Refinance Transactions

  • 3.2-01, When the Balloon Payment Is Not Received by the Balloon Maturity Date
  • 3.2-02, Determining Why the Balloon Payment Was Not Made
  • 3.2-03, Granting

3.1, Remitting and Reporting Payoff Proceeds (11/12/2014)

3.1-01, Collecting the Balloon Payment, Accrued Interest, and Unpaid Late Charges

The final accounting for a matured balloon mortgage loan entails

  • remitting the proceeds received to satisfy the balloon mortgage loan (when they are received from the borrower or from the proceeds of a refinancing),
  • advancing funds for the balloon payment (as required by the applicable remittance type), if the mortgage loan is not paid off or refinanced on or before the balloon maturity date, and
  • reporting a removal transaction through the Fannie Mae investor reporting system when the mortgage loan is either paid off or refinanced or otherwise removed from an MBS pool.

The specific procedures for the servicer’s final accounting differ based on

  • whether the borrower elects to exercise the refinance option or to otherwise pay off the balloon mortgage loan,
  • the type of option exercised,
  • whether a refinancing or payoff of the mortgage loan occurs before, on, or after the balloon maturity date; and
  • the remittance type for the mortgage loan.

For specific remitting instructions, the servicer must follow the procedures for Remitting Payoff Proceeds that can be found in Fannie Mae’s Investor Reporting Manual.

The balloon payment (including accrued interest and any unpaid late charges) must be made on or before the balloon maturity date, unless the servicer agrees to a forbearance period. If the mortgage loan is in an MBS pool issued on or after June 1, 2007, the forbearance period cannot be extended beyond the balloon maturity date. See also 3.2-03 Granting the Borrower Temporary Forbearance to Allow Them to Make the Balloon Payment Post-Maturity for additional information.

Funds for the ballooon payment generally must be remitted to Fannie Mae under its standard procedures for remitting payoffs for mortgage loans that have the same remittance type as the balloon mortgage loan.

3.1-02, Determining and Collecting Allowable Transaction Costs

Transaction costs for borrowers who are approved for refinancing using one or more authorized variances to the eligibility conditions depend on whether the borrower is considered an “eligible” borrower or an “ineligible” borrower. The following table provides additional information for transaction costs.

Transaction Cost

Notes

Accrued but unpaid interest

On the effective date of the refinancing, the borrower will owe accrued interest on the mortgage loan.

  • The interest covers the period from the LPI date up to, but not including, the effective date of refinancing.
  • If the balloon mortgage loan has a conditional refinance option, the borrower can choose to
    • pay some or all of the accrued interest directly, or
    • have some or all of the accrued interest added to the UPB of the new refinance mortgage loan.

Late charges

On the effective date of the refinancing, the borrower will owe any unpaid late charges for the balloon mortgage loan.

  • If the borrower cannot afford to pay late charges directly, the servicer must still finalize the refinance transaction.
  • The servicer is authorized to continue to reflect these charges in its records as a due and payable item for the new refinance mortgage loan.
  • If the borrower subsequently fails to pay the past-due late charges, but the past-due late charges are the only delinquency, the servicer cannot initiate foreclosure proceedings on the new refinance mortgage loan.

Escrow accruals

On the effective date of the refinancing, the borrower will owe escrow accruals for the mortgage loan.

  • The accruals cover the period from the LPI date to the effective date of refinancing.
  • The funds must be deposited into an escrow deposit account.
  • The servicer is authorized to keep the borrower’s existing escrow deposit account in place for the new refinance mortgage loan (if permitted by applicable law).

Processing fees and title policy charges

If the balloon mortgage was closed on Fannie Mae’s standard balloon mortgage loan documents, the servicer

  • may charge an eligible borrower a $250 processing fee for an approved transaction, or
  • may charge an ineligible borrower a $350 processing fee to compensate for the additional work involved with approving the borrower under Fannie Mae’s authorized variances process.

Both eligible and ineligible borrowers may be charged for the costs of updating the title insurance coverage, including:

  • a title report, and either;
  • an endorsement to existing title insurance policy, or
  • a new title insurance policy.

NOTE: When multiple methods for providing required title insurance coverage are available, the servicer must use the least expensive method.

 

If the balloon mortgage documents were revised at origination to allow for “reasonable fees and costs associated with exercising the refinance option,” the servicer is authorized to charge an eligible borrower those fees and charges specifically covered in the documents. If the fees and charges are not itemized, the servicer can charge only those “reasonable” fees and charges that are customarily charged in the jurisdiction for the particular type of transaction. The following table describes such costs.

Cost

Notes

Recordation costs

The servicer may charge an eligible borrower for recordation costs only if the language in the balloon mortgage loan documents was changed at origination to allow the servicer to charge “reasonable fees and costs” or “specific itemized costs, including recordation costs” in connection with the refinancing of a balloon mortgage.

If the borrower is ineligible, the servicer is authorized to charge the borrower for any necessary recordation costs, including those for the recordation of a subordination agreement.

Flood insurance

When the servicer must obtain a flood zone certification to determine if flood insurance is required for the new refinance mortgage loan, the servicer may be able to charge the borrower for

  • the certification, and
  • the flood insurance premium, if required.

To determine if such costs can be charged to the borrower, the servicer must consult Section 526 or the National Flood Insurance Reform Act of 1984. See 42 USC, Sections 4012(a) and (h).

Investment property LLPA

The borrower who uses a property as an investment property must be approved using one of Fannie Mae’s authorized variances. To offset the increased risk of an investment property, the servicer is authorized to charge this ineligible borrower a 1.5% LLPA. This LLPA is calculated against the original unpaid balance of a new refinance mortgage loan.

3.1-03, Removing the Balloon Mortgage Loan from Fannie Mae’s Accounting Records

To remove a refinanced balloon mortgage loan from Fannie Mae’s accounting records, the servicer must report an Action Code 60 through the Fannie Mae investor reporting system by the second business day of the month following the effective date of the refinancing and using the effective date of refinancing as the related Action Date.

Also see the Investor Reporting Manual for more information. 

3.2, Processing Alternatives to Mature Balloon Mortgage Loan Refinance Transactions (11/12/2014)

3.2-01, When the Balloon Payment Is Not Received by the Balloon Maturity Date 

The following table describes the actions the servicer must take when the balloon payment is not received by the balloon maturity date, and varies based on mortgage loan type.

If the mortgage loan is…

Then the servicer must…

in an MBS pool

  • advance the balloon payment (P&I),
  • remit it to Fannie Mae as a scheduled payment on the applicable remittance date for the month in which the balloon maturity date occurs,
  • submit a  Loan Activity Report (LAR) with Action Code 60 in the format applicable for scheduled/scheduled mortgage loans, and
  • reflect the application of the balloon payment in the security balance reported for the balloon maturity month.

a portfolio mortgage loan

  • advance scheduled interest until the mortgage loan is paid off, refinanced, or modified, (only if the loan is a scheduled/actual remittance type); and
  • submit a LAR with an Action Code 60 in the format applicable for the remittance type of the balloon mortgage loan.

NOTE: The servicer must always determine whether a workout plan can be developed to cure the default before initiating foreclosure proceedings. 

3.2-02, Determining Why the Balloon Payment Was Not Made

If a borrower does not elect to exercise the conditional refinance option for a balloon mortgage loan for any reason, he or she must pay off the mortgage loan by sending the servicer the amount of the required balloon payment on or before the balloon maturity date. The servicer must make every effort to contact the borrower during the first five business days after the balloon maturity date to determine why the balloon payment was not made.

The following table describes the additional actions the servicer must complete by the tenth business day following the balloon maturity date.

If the servicer…

Then the servicer must…

continues to receive regular monthly mortgage payments from the borrower

hold the funds as unapplied and notify the borrower that the full balloon payment is due.

is not able to contact the borrower, or finds that the borrower is unwilling to make the balloon payment

determine whether a workout plan can be developed to cure the default, or initiate foreclosure proceedings.

determines that the borrower intends to make the balloon payments

grant temporary forbearance, agree to accept the balloon payment and treat it as a mortgage loan payoff.

finds that the borrower is unable to make the balloon payment, but is eligible for a refinance, or can be approved using Fannie Mae's allowable exceptions

grant temporary forbearance to enable the borrower to complete the refinance transaction.

NOTE: The refinancing can be made effective as of the balloon maturity date as long as the transaction can be completed by the end of the balloon maturity month.

 

3.2-03, Granting the Borrower Temporary Forbearance to Allow Them to Make the Balloon Payment Post-Maturity

The servicer must not agree to extend a forbearance period offer to the borrower to pay off or to refinance the mortgage loan beyond the balloon maturity date if the mortgage loan is in an MBS pool issued on or after June 1, 2007.

Otherwise, the servicer is authorized to grant the borrower a forbearance (not to exceed 90 days), without obtaining Fannie Mae’s prior approval, in the following circumstances:

  • the borrower provides proof of an executed sales contract to show the property has been sold and is scheduled for settlement,
  • the borrower provides proof of an unconditional loan commitment to show other financing has been secured, or
  • the servicer's other follow-up efforts have confirmed the need for forbearance.

For a mortgage loan in an MBS pool issued before June 1, 2007, the forbearance period must end no later than 90 days after the original balloon maturity date. The servicer and the borrower must execute a written forbearance agreement that includes all of the provisions cited in the following table.

The forbearance agreement provisions must include…

 

The granting of a forbearance that will enable the borrower to either

  • pay the full amount required to satisfy the balloon mortgage loan, or
  • complete the refinancing, even though the maturity date has passed.

 

The accrual of interest on the balloon payment at the interest rate of the balloon mortgage loan for the period from the date of the borrower’s LPI up to, but not including:

  • the date the balloon mortgage loan is paid off, or
  • the effective date of the refinancing; if the conditional refinance option is exercised.

 

An acknowledgment that the servicer is authorized to initiate foreclosure proceedings immediately upon expiration of the forbearance period if the refinancing has not been completed or the full amount required to satisfy the balloon mortgage loan has not been received.

 

To see other Chapters of the Fannie Mae Single-Family Balloon Mortgage Loan Servicing Manual, please click on any of the chapters below:

Chapter 1, Notifying the Borrower of Balloon Mortgage Loan Maturity

Chapter 2, Processing the Refinancing of a Matured Balloon Mortgage Loan


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