Servicing Guide

Published November 10, 2020

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How should the servicer calculate the post-modification housing expense-to-income ratio when processing a Fannie Mae Flex Modification?

The servicer must calculate the post-modification housing expense-to-income ratio depending upon the type of property, as described in the following table. 

If the mortgage loan is secured by... Then the servicer must...
a principal residence divide the borrower's monthly housing expense, which includes the following items (as applicable), by the borrower's monthly gross income:
  • P&I;

  • property and flood insurance premiums;

  • real estate taxes;

  • ground rent;

  • special assessments;

  • HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit);

  • co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower's unit); and

  • any projected monthly escrow shortage payment.

    Note: The servicer must exclude monthly MIPs from the monthly housing expense-to-income calculation.

a second home add the monthly housing expense of the second home to the monthly housing expense on the borrower's principal residence and divide this amount by the borrower's monthly gross income.
an investment property add any monthly net rental income on the subject property to the borrower's gross monthly income for purposes of calculating the post-modification housing expense-to-income ratio.
  • The net rental income (or net rental loss) on the subject property must be calculated as 75% of the monthly gross rental income, reduced by the monthly housing expense on the rental property

  • Any monthly negative net rental income ( i.e., net rental loss) on the subject property must be added to the monthly housing expense on the borrower's principal residence, and then divided by the borrower's monthly gross income.

  • If the borrower currently is not receiving rental income on the subject property, the monthly housing expense on the subject property must be added to the monthly housing expense on the borrower's principal residence and then divided by the borrower's monthly gross income.

For more information see Servicing Guide F-1-28, Processing a Fannie Mae Flex Modification.

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