Servicing Guide

Published July 15, 2020

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What are the servicer’s responsibilities for administering renovation escrow accounts for renovation mortgage loans?

The following table lists the servicer’s responsibilities for administering renovation escrow accounts for renovation mortgage loans.

The servicer must...
 

Deposit all of the applicable renovation costs into an interest-bearing renovation escrow account at the time that the mortgage loan is delivered. The servicer may commingle the renovation escrow accounts for different borrowers in the same custodial account.

Note: If there is an increase in costs during the renovation period, the borrower or the servicer must fund the amount of the increase. The servicer must ensure that the borrower obtains the additional funds in a manner that will not affect the priority of Fannie Mae’s lien.

 

Ensure that the renovation escrow account

  • is a custodial account that satisfies Fannie Mae’s criteria for custodial accounts and depositories as outlined in A4-1-02, Establishing Custodial Bank Accounts, and

  • includes all required funds previously described to pay for the renovation.

 

Pay or credit all interest earned on the renovation escrow account, less any administrative expenses involved in maintaining the account, to the borrower.

  If requested by the borrower, release an amount not to exceed 50% of total planned materials costs upon request, provided funds for materials were not released upon, or immediately following, loan closing.

Note: A portion of this initial draw may be used to pay for permits, architect fees, and design or planning expenses that were incurred during the initial planning phase of the project.

 

Release any additional funds from the renovation escrow account to the contractor and the borrower only when

  • requested in accordance with the agreed upon schedule; and

  • an inspection has occurred to validate that all work is being completed in accordance with the renovation plans (including any changes to the renovation plans submitted to Fannie Mae via HomeStyle Change Order Request (Form 1200), or a similar Form.

For more information please see Servicing Guide: D1-2-01, Renovation Mortgage Loans. 

 

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