Servicing Guide

Published November 10, 2020

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D2-3.2-07: Fannie Mae Flex Modification (09/09/2020)

This topic contains the following:


Documentation Requirements

If the mortgage loan is current or less than 90 days delinquent, the borrower must submit a complete BRP except as described below.

If the borrower submitted a complete BRP prior to the 90th day of delinquency, the servicer must

A complete BRP is not required and the servicer may solicit an eligible borrower as described in Soliciting the Borrower for a Fannie Mae Flex Modification if the mortgage loan

  • is 90 or more days delinquent; or

  • was previously modified into a mortgage loan with a step-rate feature, an interest rate adjustment occurred within the last 12 months, and the mortgage loan became 60 days delinquent after the interest rate adjustment.

Note: For purposes of determining the submission date in connection with the borrower's submission of a complete BRP, the servicer must use the date of the postmark or other independent indicator such as date and time stamp (electronic or otherwise).


Determining Eligibility for a Fannie Mae Flex Modification

In order to be eligible for a Fannie Mae Flex Modification, all of the criteria in the following table must be met.

Eligibility Criteria for a Fannie Mae Flex Modification
The mortgage loan must be a conventional first lien mortgage loan.

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

The mortgage loan must be at least 60 days delinquent or the servicer has determined that the borrower's monthly payment is in imminent default in accordance with Evaluating a Borrower for Imminent Default for Conventional Mortgage Loan Modification Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default.
The mortgage loan must have been originated at least 12 months prior to the evaluation date for the mortgage loan modification.
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 forbearance plan or repayment plan, unless otherwise directed by Fannie Mae;

  • a current offer for another mortgage loan modification or other workout option; or

  • an active and performing modification Trial Period Plan.

The mortgage loan must not have been modified three or more times previously, regardless of the mortgage loan modification program or dates of prior mortgage loan modifications.

Note: A 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.

The borrower must not have failed a Fannie Mae Flex Modification Trial Period Plan within 12 months of being evaluated for eligibility for another Fannie Mae Flex Modification.

Note: Converting from a Trial Period Plan to a forbearance plan is not considered a failed Trial Period Plan.

The mortgage loan must not have received a Fannie Mae Flex Modification and become 60 days or more delinquent within the first 12 months of the effective date of the mortgage loan modification without being reinstated.

If the borrower has experienced a disaster-related hardship, the servicer must follow the requirements described in Soliciting a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification and Evaluating a Borrower Who Defaulted After Completing a Disaster Payment Deferral for a Fannie Mae Flex Modification.

If the eligibility criteria for a Fannie Mae Flex Modification is not satisfied, but the servicer determines there are acceptable mitigating circumstances, the servicer is authorized to offer a mortgage loan modification outside of these requirements by submitting a request through Fannie Mae's servicing solutions system for review and obtaining prior approval from Fannie Mae. Generally, the servicer's determination of acceptable mitigating circumstances is based on a review of the borrower's complete BRP.

If the borrower converts from a Trial Period Plan to a forbearance plan, the borrower may subsequently be eligible for a Fannie Mae Flex Modification upon successful completion of the forbearance plan and, if eligible, must be placed in a new Fannie Mae Flex Modification Trial Period Plan based on the delinquency status at the time of the evaluation for the Fannie Mae Flex Modification.


Determining Eligibility for a Fannie Mae Flex Modification for a Texas Section 50(a)(6) Loan

A Texas Section 50(a)(6) loan is eligible for a Fannie Mae Flex Modification if

  • the requirements described in Determining Eligibility for a Fannie Mae Flex Modification are satisfied, and

  • the mortgage loan is modified in accordance with applicable law.

If the servicer receives a notice from the borrower that a mortgage loan modification fails to comply with Texas Constitution 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 Fannie Mae's Legal department by submitting a Non-Routine Litigation Form (Form 20) and include the borrower notice in its submission.
Collaborate with Fannie Mae on the appropriate response, including any cure that may be necessary, within the 60-day time frame provided by the requirements of Texas Constitution Section 50(a)(6).


Performing an Escrow Analysis

The servicer must perform an escrow analysis prior to offering a Trial Period Plan. See Administering an Escrow Account in Connection With a Mortgage Loan Modification in B-1-01, Administering an Escrow Account and Paying Expenses for additional information.

Any escrow account shortage that is identified at the time of the mortgage loan modification must not be capitalized and the servicer is not required to fund any existing escrow account shortage.

If applicable law prohibits the establishment of the escrow account, the servicer must ensure that the T&I premiums are paid to date.


Determining the Fannie Mae Flex Modification Terms

The servicer must follow the procedures in Obtaining a Property Valuation in F-1-28, Processing a Fannie Mae Flex Modification for determining the property value. The servicer must determine the post-modification MTMLTV ratio, which must include capitalized arrearages. The following table describes the servicer's action depending on the post-modification MTMLTV ratio and the delinquency of the mortgage loan.

Step Action
1 Capitalize arrearages.
2 Set the interest rate to a fixed interest rate that is based on the existing mortgage loan amortization type and interest rate.
3 Extend the term to 480 months from the mortgage loan modification effective date.
4 through 6 Provide or increase principal forbearance, if applicable as indicated in F-1-28, Processing a Fannie Mae Flex Modification.

The servicer must follow the procedures in Determining the New Modified Mortgage Loan Terms in F-1-28, Processing a Fannie Mae Flex Modification for determining the borrower's new modified mortgage loan terms. The servicer must request Fannie Mae's prior written approval through Fannie Mae's servicing solutions system to deviate from the prescribed steps for determining the new modified mortgage payment terms, unless a certain step is prohibited by applicable state law.

The following table lists additional Fannie Mae Flex Modification requirements.

The Fannie Mae Flex Modification must result in...
A fixed rate mortgage loan.

Note: An ARM or interest-only mortgage loan must be converted to a fully amortizing mortgage loan and may not be a bi-weekly or daily simple interest mortgage loan.

A monthly P&I payment as described in the following table.
If, at the time of evaluation, the mortgage loan is... Then the monthly P&I payment must be...
current or less than 31 days delinquent less than the borrower's pre-modification P&I payment.
31 or more days delinquent less than or equal to the pre-modification P&I payment.

When the servicer submits a request through Fannie Mae's servicing solutions system for Fannie Mae's approval of a Fannie Mae Flex Modification based on the borrower's submission of a BRP, in accordance with applicable law it must:

  • immediately provide the borrower with notice of the right to receive a copy of all appraisals and other valuations developed in connection with the mortgage loan modification, and

  • provide the borrower a copy of all appraisals and other valuations developed in connection with the mortgage loan modification.

Prior to granting a permanent mortgage loan modification, the servicer must place the borrower in a Trial Period Plan using the new modified mortgage loan terms.


Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification

For an MBS mortgage loan, the servicer must also see Conditions of a First and Second Lien Mortgage Loan Modification for an MBS Mortgage Loan in D2-3.1-02, Conditions of a First and Second Lien Mortgage Loan Modification for an MBS Mortgage Loan.

The servicer must communicate with the borrower that the mortgage loan modification will not be binding, enforceable, or effective unless all conditions of the mortgage loan modification have been satisfied, which is when all of the following have occurred:

  • the borrower has satisfied all of the requirements of the Trial Period Plan,

  • the borrower has executed and returned a copy of the Loan Modification Agreement (Form 3179), and

  • the servicer or Fannie Mae (depending upon the entity that is the mortgagee of record) executes and dates (Form 3179).

The servicer must use the applicable Evaluation Notice to document the borrower's Trial Period Plan. See Sending a Notice of Decision on a Workout Option in D2-2-05, Receiving a Borrower Response Package for requirements relating to the Evaluation Notice, and the additional requirements provided in the table below.

If the servicer sends the Evaluation Notice… Then the servicer must use...
on or before the 15th day of a calendar month the first day of the following month as the first Trial Period Plan payment due date.
after the 15th day of a calendar month the first day of the month after the next month as the first Trial Period Plan payment due date.

The following table provides the requirements for the length of the Trial Period Plan, which must not change even if the borrower makes scheduled payments earlier than required.

If the mortgage loan at the time of evaluation is... Then the Trial Period Plan must be…
current or less than 31 days delinquent four months long.
31 or more days delinquent three months long.

If the borrower fails to make a Trial Period Plan payment by the last day of the month in which it is due, the borrower is considered to have failed the Trial Period Plan and the servicer must not grant the borrower a permanent Fannie Mae Flex Modification.

The servicer must see E-3.4-01, Suspending Foreclosure Proceedings for Workout Negotiations for the requirements for suspending foreclosure.

The servicer must use the Form Modification Cover Letter to communicate a borrower's eligibility for a permanent Fannie Mae Flex Modification, which must be accompanied by a completed (Form 3179).

The servicer must ensure that the modified mortgage loan retains its first lien position and is fully enforceable in accordance with its terms.

Electronic documents, signatures, and notarizations for Fannie Mae Flex Modifications are acceptable as long as the electronic record complies with Fannie Mae's requirements. See Selling Guide A2-4.1-03, Electronic Records, Signatures, and Transactions for Fannie Mae's requirements for electronic records.

The servicer must follow the procedures in Executing and Recording the Loan Modification Agreement and Adjusting the Mortgage Loan Account Post-Mortgage Loan Modification in F-1-28, Processing a Fannie Mae Flex Modification for preparing, executing, recording (Form 3179) and for adjusting the mortgage loan account upon completion of the mortgage loan modification. The servicer must also follow the procedures in Loan Modifications for an eMortgage in F-1-27, Servicing eMortgages for additional requirements when the modified mortgage loan is an eMortgage.


Soliciting the Borrower for a Fannie Mae Flex Modification

Except as specified in the note below, if the mortgage loan is 90 or more days delinquent and the servicer determines that the borrower is eligible for a Fannie Mae Flex Modification and at least one of the following circumstances are met, 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 between the 90th and 105th day of delinquency:

  • the borrower did not submit a complete BRP before the 90th day of delinquency;

  • prior to soliciting the borrower, the servicer previously conducted an evaluation of the complete BRP and determined that the borrower was not eligible for a workout option in accordance with this Guide; or

  • the borrower has rejected all other alternatives to foreclosure offered by the servicer.

Note: If the mortgage loan was previously modified into a mortgage loan with a step-rate feature, an interest rate adjustment occurred within the last 12 months and the mortgage loan became 60 days delinquent after the interest rate adjustment, and the servicer determines that the borrower is eligible for a Fannie Mae Flex Modification without having to evaluate a complete BRP, the servicer must send the solicitation to the borrower between the 60th and 75th day of delinquency.

If for any reason the servicer fails to send the solicitation within the prescribed time frame, it must send the solicitation as soon as possible thereafter.

While the borrower remains eligible for a Fannie Mae Flex Modification if a payment is received following the borrower evaluation or solicitation that results in the mortgage loan subsequently becoming less than 90 days delinquent (or less than 60 days delinquent if the mortgage loan was previously modified into a mortgage loan with a step-rate feature and an interest rate adjustment occurred within the last 12 months), the servicer must ensure that the mortgage loan is at least 30 days or more delinquent prior to the commencement of the Fannie Mae Flex Modification Trial Period Plan.

The servicer is authorized to continue proactive solicitation for a Fannie Mae Flex Modification at its discretion, but must not solicit a borrower 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.


Evaluating or Soliciting a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification

The following table provides the reduced eligibility criteria for evaluating a borrower with a disaster-related hardship for a Fannie Mae Flex Modification.

Reduced Eligibility Criteria When Evaluating a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification

The disaster event must result in

  • a financial hardship (e.g., a loss/reduction of income or increase in expenses) that impacts the borrower’s ability to pay his or her current contractual monthly payment, and

  • either

      • the property securing the mortgage loan experienced an insured loss,

      • the property securing the mortgage loan is located in a FEMA-Declared Disaster Area eligible for Individual Assistance, or

      • the borrower’s place o employment is located in a FEMA-Declared Disaster Area eligible for Individual Assistance.

Note: See Evaluating the Extent and Nature of the Property Damagein D1-3-01, Evaluating the Impact of a Disaster Event and Assisting a Borrower for additional information on what constitutes a disaster.

The mortgage loan must be a first-lien conventional mortgage loan.
The mortgage loan must
  • have been current or less than two months delinquent when the disaster occurred, and

  • be at least three months 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-disaster-related forbearance plan, or Trial Period Plan.

If the servicer is unable to establish QRPC as described in Determining Eligibility for a Disaster Payment Deferralin D2-3.2-06, Disaster Payment Deferral, with a borrower on a disaster-related forbearance plan and the borrower is ineligible for a disaster 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 above 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 disaster payment deferral but does not respond to the disaster payment deferral offer as described in Soliciting the Borrower for a Post-Forbearance Disaster Payment Deferral in D2-3.2-06, Disaster Payment Deferral, by the acceptance date provided in the disaster 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 above and, if eligible, solicit the borrower for a Fannie Mae Flex Modification within 15 days after the expiration of the disaster payment deferral offer.

Note: In either case, the servicer is authorized to continue proactive solicitation for a Fannie Mae Flex Modification based on the reduced eligibility criteria in the table above at its discretion. The servicer must not solicit a borrower for a Fannie Mae Flex Modification based on the 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.

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.


Evaluating a Borrower Who Defaulted After Completing a Disaster Payment Deferral for a Fannie Mae Flex Modification

If a borrower who completes a disaster payment deferral (see D2-3.2-06, Disaster Payment Deferral for additional information) becomes 60 days delinquent within six months of the disaster 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 the reduced eligibility criteria in the table below 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 Disaster 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.


Handling a Complete Borrower Response Package

The servicer must acknowledge receipt of the BRP in accordance with Acknowledging Receipt of a Borrower Response Package in D2-2-05, Receiving a Borrower Response Package and provide any complete or incomplete information notice.

If the borrower submits a complete BRP when the mortgage loan is 90 or more days delinquent, the servicer must evaluate the borrower for all workout options in accordance with D2-3.1-01, Determining the Appropriate Workout Option.

If the borrower does not accept the Fannie Mae Flex Modification solicitation offer as described above, the servicer must resume follow-up solicitation for an incomplete BRP in accordance with this Guide and applicable law.

The following table provides the servicer's requirements if the borrower submitted a complete BRP prior to the 90th day of delinquency but the servicer is in the process of soliciting the borrower for a Fannie Mae Flex Modification in accordance with Soliciting the Borrower for a Fannie Mae Flex Modification. See Documentation Requirements to determine the submission date of a complete BRP.

If the borrower submitted a complete BRP prior to the 90th day of delinquency, and the servicer receives the complete BRP… Then the servicer must…
prior to soliciting the borrower for a Fannie Mae Flex Modification review the BRP in accordance with D2-2-05, Receiving a Borrower Response Package, and evaluate the borrower for all workout options in accordance with Chapter D2-3 Fannie Mae’s Home Retention and Liquidation Workout Options, including the Fannie Mae Flex Modification based on borrower submission of a complete BRP.
after soliciting the borrower for a Fannie Mae Flex Modification and prior to sending the Loan Modification Agreement to the borrower for signature either
  • evaluate the borrower for all workout options in accordance with Chapter D2-3 Fannie Mae’s Home Retention and Liquidation Workout Options, including the Fannie Mae Flex Modification based on borrower submission of a complete BRP, if the borrower has not accepted the Fannie Mae Flex Modification solicitation offer, or

  • re-evaluate the borrower for a Fannie Mae Flex modification based on borrower submission of a complete BRP if the borrower has accepted the Flex Modification solicitation offer.

    Note: If the P&I payment amount based on the submission of a complete BRP is less than the P&I payment amount reflected in the solicitation Trial Period Plan, inform the borrower that if he or she makes the Trial Period Plan payments in accordance with the plan, the mortgage loan will be permanently modified with the lower P&I payment amount which will be reflected in the Loan Modification Agreement.


Processing a Fannie Mae Flex Modification for a Mortgage Loan with Mortgage Insurance

The servicer must see F-2-06, Mortgage Insurer Delegations for Workout Options for the list of conventional mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae Flex Modification without obtaining separate mortgage insurer approval at the company or loan level.


Handling Fees and Late Charges in Connection with a Fannie Mae Flex Modification

The servicer must not charge the borrower administrative fees.

The servicer is authorized to assess late charges during the Trial Period Plan. The servicer must waive all late charges, penalties, stop payment fees, or similar charges upon the borrower's conversion to a permanent mortgage loan modification.

The servicer must follow the procedures in Reimbursement for Expenses Associated with Workout Options in F-1-05, Expense Reimbursement for advancing funds and requesting reimbursement.

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