Servicing Guide

The Servicing Guide is organized into parts that reflect how lenders generally categorize various aspects of their business relationship with Fannie Mae. To begin browsing, select from any of the sections below. You may also download the entire Servicing Guide in PDF format.

View All Servicing Policy Updates

Download PDF

Hint: Ask in a form of a question.

E-2.3-05: Bankruptcies Involving Balloon Mortgage Loans (11/12/2014)

When a borrower who has a balloon mortgage loan files for bankruptcy before the balloon maturity date, the servicer’s ability to ensure the continuation of MI coverage by offering a conditional refinancing to the borrower prior to the balloon maturity date may be affected.

The following table lists actions to be completed by the servicer when referring a balloon mortgage loan to a law firm for bankruptcy proceedings.

The servicer must…

Determine whether the balloon maturity date will occur while the bankruptcy action is pending. This includes any repayment period under a confirmed reorganization plan.


Inform the law firm of the approaching balloon maturity date when it refers the case.


Contact the applicable mortgage insurer to confirm whether the bankruptcy proceedings will have any effect on the MI coverage if they continue beyond the balloon maturity date.


Note: This is particularly important in connection with a Chapter 13 bankruptcy since the confirmed reorganization plan may permit the mortgage debt to be paid over a five-year period.


The servicer must ensure the law firm thoroughly reviews the proposed reorganization plan for either a Chapter 11 or a Chapter 13 bankruptcy to determine whether the plan includes any objectionable terms.

An objection must be filed if either

  • a Chapter 11 reorganization plan modifies the terms of the mortgage loan to extend beyond the balloon maturity date, or

  • a Chapter 13 reorganization plan extends the mortgage loan beyond the balloon maturity date and does not call for the borrower to satisfy any additional obligations for accrued interest and escrow deposits beyond the balloon maturity date.

For proposed plans that extend beyond the balloon maturity date, the servicer must ask the law firm to ensure any additional expenses that may accrue after the balloon maturity date are appropriately treated in the plan.

If a Chapter 13 reorganization plan involving a balloon mortgage loan is confirmed and it is later discovered that the balloon note would have matured during the life of the plan, the servicer must notify Fannie Mae’s Legal department (see F-4-03, List of Contacts).

See also Fannie Mae’s Balloon Mortgage Loan Servicing Manual for additional information.

Related Articles

Have guide questions? Get answers to all of your policy questions, straight from the source.

Get Started
Having Issues with Seeing this Page Correctly?

Use Firefox or Chrome   How to do a hard refresh in Internet Explorer
We recommend that you use the latest version of FireFox or Chrome.

Download Firefox
Download Chrome
  A hard refresh will clear the browsers cache for a specific page and force the most recent version of a page.
    Hold the Ctrl key and press the F5 key.

Email Us
If you still have Technical Support questions, feel free to