Servicing Guide

Published September 9, 2020

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What are the requirements for processing a Mortgage Release transition option?

The servicer must evaluate the borrower for Mortgage Release transition options and refer the case to Fannie Mae in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

When the servicer refers the case to Fannie Mae, it must provide the applicable form as outlined in the following table.

If the servicer is referring the borrower for the Mortgage Release transition option that allows the borrower to execute… Then the servicer must submit a…

a three-month transition option with no rent payment required

Mortgage Release Program Transition Option Referral Form (Form 193).

a twelve-month lease with a market rent payment

Mortgage Release Program Lease Option Referral Form (Form 187).

Fannie Mae, or its designee, will take the steps necessary to further verify subject property and occupant eligibility. The following table provides the subject property eligibility criteria for a Mortgage Release transition option.

Subject Property Eligibility
 

There are no zoning or HOA rental limitations that would prevent a Mortgage Release transition option.

 

If a property inspection or property valuation reveals damage to the subject property, the estimated total cost to repair the subject property must be less than 10% of its estimated market value (estimated “As Is” sales price).

Note: If the estimated total cost to repair the subject property is between 10% and 15% of its estimated market value, the servicer must submit the Mortgage Release transition option to Fannie Mae to obtain prior written approval. A subject property with an estimated total cost for repairs greater than 15% of the estimated market value is not eligible.

 

The subject property does not have any environmental contaminations or pose any potential legal risk.

 

The subject property is in compliance with local rules and laws, or can be brought into compliance within 30 days.

 

The subject property is not within a target area for any corporate, government, or community neighborhood stabilization plan which may need the property as part of the plan for purposes other than residential.

 

The rental income, if applicable, is anticipated to cover ongoing maintenance and management costs.

The following table provides the occupant eligibility criteria for a Mortgage Release transition option.

Occupant Eligibility
 

Income is sufficient to cover rental payments of not more than 31% of the borrower/tenant’s monthly gross income.

Note: If the current market rent, which will be set by Fannie Mae’s property management company, is greater than 31% of the borrower/ tenant's monthly gross income, a lease agreement will not be offered. For the Mortgage Release three-month transition option with no rent payment required, this income requirement is not applicable.

 

The occupant agrees to

  • be responsible for regular maintenance,

  • keep the property in good condition, and

  • permit marketing of the property for sale.

    Note: For the Mortgage Release three-month transition option with no rent payment required, the borrower must agree to allow the property to be marketed for sale beginning on the 30th day of the use and occupancy agreement.

 

The number of occupants is appropriate for the home and in compliance with local laws and HOA rules, if applicable.

 

If pets are present, renter's insurance is obtained, if required.

 

The occupants signing the lease agreement must agree to a credit review, and all residents over 18 years of age must have an acceptable background check, including receiving clearance from OFAC.

 

There are no signs or reports of illegal activities conducted at the property.

 

The property is to be used as a principal residence.

Fannie Mae will inform the servicer whether or not a lease was finalized and whether the Mortgage Release is contingent on the property being vacant.

The servicer must then finalize the Mortgage Release accordingly.

Note: The servicer must notify Fannie Mae if a Mortgage Release is not successfully executed for any case that was approved for Mortgage Release transition options consideration. The servicer must use the Mortgage Release Program Cancellation Form (Form 188).

Prior to acceptance of a Mortgage Release in connection with the Mortgage Release transition options, the servicer must ensure that the borrowers execute (in favor of Fannie Mae, the servicer, and their agents) a general release of all claims arising prior to the acceptance of the Mortgage Release which relate in any way to the mortgage loan or the subject property.

For non-delegated cases, where Fannie Mae makes the decision, the servicer has five weeks from Fannie Mae’s approval of the Mortgage Release to complete the transaction to allow enough time for the lease approval process. Delegated servicers that might have a shorter processing time frame are instructed to allow time for the lease approval process when the borrower states an interest in the Mortgage Release transition options.

For more information please see: D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure) and F-1-14: Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure).

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