Servicing Guide

Published October 14, 2020

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D1-5-01: Call Options and Cross-Default Provisions (11/12/2014)

The servicer must maintain the integrity of Fannie Mae’s rights under the mortgage loan by the appropriate enforcement of call options and cross-default provisions in the security instrument.

This topic contains the following:

 

Call Options

When a conventional mortgage loan includes a call option provision, the servicer must contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts) 90 days before the call date to obtain Fannie Mae’s decision on whether it intends to exercise its option and, if so, whether the mortgage loan must be paid in full or whether Fannie Mae is willing to refinance it.

Whenever possible, Fannie Mae will refinance the mortgage loan. If Fannie Mae decides to call a participation pool mortgage loan, the participating lender has the right to repurchase it, rather than exercise the call.

 

Cross-Default Provision

When a conventional first lien mortgage loan that involves a leasehold estate contains a cross-default provision and the borrower is delinquent on his or her lease payments, the servicer’s action depends on the status of the mortgage loan, as described in the following table.

If the lease payment is delinquent and the mortgage loan is... Then the servicer must...

current

either

  • advance its own funds to cure the lease default, or

     

    Note: The servicer may then bill the borrower for the funds it advanced. If the borrower does not repay the advance, the servicer may apply future mortgage loan payments toward the advance if the mortgage loan documents, local law, and government regulations do not prohibit it.

     

  • contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts) if it has determined that the cross-default provision should be exercised.

delinquent and the servicer has determined that the default cannot be cured

contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts) and recommend an appropriate action.

In reaching its recommendation, the servicer should consider the amount of Fannie Mae’s investment in the property, the current value of the property, the nature of the real estate market in the area, and the type of MI coverage in effect. The servicer may recommend any of the following:

  • purchase of the land from the leaseholder—at the purchase price stipulated in the lease (This will enable Fannie Mae to acquire both the land and the improvements through foreclosure proceedings),

  • assumption of the borrower’s interest in the lease estate—as long as the lease is assumable by the mortgagee without the leaseholder’s consent (Fannie Mae can then acquire the improvements by foreclosing on the mortgage loan and sell the acquired property subject to assumption of the lease), or

  • forfeiture of Fannie Mae’s interest in the improvements to the leaseholder—as long as Fannie Mae would not incur any penalty or liability.

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