Servicing Guide

Published September 9, 2020

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What requirements must be followed when requesting Fannie Mae's approval for a Charge-Off of a Second Lien Mortgage Loan?

The servicer must evaluate a second lien mortgage loan for a charge-off in accordance with D1-1-03: Evaluating a Second Lien Mortgage Charge-Off.   

Fannie Mae’s decision on whether or not to charge off the second lien mortgage loan debt will depend on the circumstances outlined in the following table.

If... Then...

Fannie Mae has an interest in both the first and second lien mortgage loans

Fannie Mae may choose to consolidate the two mortgage loans and modify the borrower’s payments instead of charging off the debt.

Fannie Mae does not have an interest in the first lien mortgage loan

Fannie Mae may decide to either

  • pursue a workout for the second lien mortgage loan,

  • pay off the first lien mortgage loan and foreclose the second lien mortgage loan, or

  • charge off the second lien mortgage loan debt.

The following table outlines the required servicer actions to request Fannie Mae’s prior written approval for the charge-off of a second lien mortgage loan.  

Step Servicer Action
1

Measure Fannie Mae’s outstanding debt against

  • the estimated cost of continued collection efforts;

  • the estimated cost of any required legal actions;

  • the status, UPB, and ownership of the first lien mortgage loan;

  • the mortgage insurer’s policy regarding the filing of an insurance claim when the debt is abandoned (if the mortgage loan is insured);

  • the condition of the property and the estimated market value for the property; and

  • the borrower’s ability to reinstate the mortgage loan(s).

2

If, based on the results of step 1 above, the servicer still recommends a charge-off, submit its recommendation through Fannie Mae’s servicing solutions system.

3

Obtain the letter including the terms and conditions of Fannie Mae's decision about charging-off the mortgage loan through Fannie Mae’s servicing solutions system. This letter will be available shortly after Fannie Mae receives the servicer’s recommendation.

For more information please see Servicing Guide F-1-25: Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System. 

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