Servicing Guide

Published September 9, 2020

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How should payments be treated once a bankruptcy reorganization plan has been confirmed which provides for a cramdown?

Once the bankruptcy court confirms a reorganization plan that provides for a cramdown of the mortgage debt, the servicer must separately account for payments to the secured and unsecured portions of the debt made under the repayment plan. The servicer must not make any permanent changes to the mortgage terms by actually modifying the mortgage loan documents. For additional information on reporting the terms of a confirmed cramdown to Fannie Mae, see Servicing the Mortgage Loan After Confirmation of a Chapter 11 Plan in E-2.2-02, Managing 11 Bankruptcies.

The following table lists payment details the servicer must maintain record of in its accounting system for funds applied under the terms of a confirmed cramdown.

Payment details required for a confirmed cramdown
 

Interest rate, monthly payment, and due date for the secured portion of the debt.

 

Interest rate, monthly payment, and due date for the unsecured portion of the debt.

 

The original terms of the mortgage note and the application of payments under those terms.

If the court rules upon confirmation of the plan that any payments made during the confirmation process be credited against the secured claim, the servicer may need to adjust both its and Fannie Mae’s records to reallocate the payments between the secured and unsecured portions of the debt.

The servicer must track the payment of ongoing taxes and applicable property insurance for non-escrowed mortgage loans and must notify the law firm and request that a Motion for Relief from Stay or a Motion to Dismiss be filed if the borrower fails to maintain current tax or property insurance obligations.

The servicer must work with Fannie Mae to make appropriate changes to Fannie Mae’s investor reporting system records.

For more information please see: E-2.3-03: Handling Cramdowns of the Mortgage Debt 

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If you have additional questions, Fannie Mae customers can visit Ask Poli to get information from other Fannie Mae published sources.

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