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D1-4.2-02, Conventional Mortgage Loans That Include a Due- on-Sale (or Due-on-Transfer) Provision (11/08/2017)

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Determining When to Refer to the Participating Lender’s Policy

The servicer must refer to the participating lender’s policies for the following mortgage loans as Fannie Mae’s policies do not apply:

  • Participation pool mortgage loans held in portfolio that were purchased from a supervised lender under commitments dated before August 1, 1983.

  • Concurrent sales participation pool mortgage loans in which it holds a majority interest.

Non-Exempt Transactions: Exceptions for Certain Loan Types if the Purchaser is Creditworthy

The servicer is authorized to allow transfers of ownership for the following first lien mortgage loans if all of the criteria listed below are satisfied:

  • All ARMs and GPARMs, except for the following:

    • those closed under ARM Plans 975, 1029, and 1103;

    • those that have extended fixed-rate periods (ARM Plans 659, 660, 661, 750, 751, 1423, 1437, 2724, 2725, 2726, 2727, 2728, 2729, 3223, 3224, 3225, 3226, 3227, 3228, 3252 (except as limited for those plans that may be used for Texas Section 50(a)(6) loans), if the transfer would take place during the fixed-rate period); and

    • those that have been converted to fixed-rate mortgage loans.

  • Fixed-rate portfolio mortgage loans that Fannie Mae purchased under commitment contracts dated before November 10, 1980 unless

    • the purchase of the property is financed directly or indirectly with wraparound or secondary financing from an institutional lender, or

    • Fannie Mae has pooled a mortgage loan originally held as a portfolio mortgage loan to back an MBS. Fannie Mae will notify the servicer when it does this.

The servicer must determine that all of the criteria listed in the following table are satisfied to approve a transfer of ownership.

Criteria required to approve a transfer of ownership to a creditworthy purchaser

The purchaser’s credit and financial capacity are acceptable under Fannie Mae’s current underwriting guidelines. See F-1-28, Reviewing a Transfer of Ownership for Credit and Financial CapacityF-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity for additional information.


The mortgage insurer approves the transfer and the mortgage insurer’s specified conditions are satisfied, if applicable. The servicer must follow the procedures in Obtaining MI Approval for a Conventional Mortgage Loan in F-1-17, Processing a Transfer of OwnershipF-1-17, Processing a Transfer of Ownership for information on obtaining mortgage insurer approval.

Note: If the mortgage insurer denies the transfer or imposes conditions for approval, the servicer must inform the parties involved in the transaction of the mortgage insurer’s decision as its reason for not approving the request or the imposition of conditions for approval.

Before approving a transfer of ownership for a pledged-asset mortgage loan, the servicer must determine that the pledged asset will remain in place through the assignment of the original pledged asset or the substitution of a new asset of equivalent value. The servicer must contact its Fannie Mae Servicing Representative (see F-4-02, List of ContactsF-4-02, List of Contacts) to discuss the acceptability of a substitute asset or any other alternative the purchaser proposes.

As second lien mortgage loans are not assumable under the existing terms, if the servicer of a second lien mortgage loan is notified that a prospective purchaser wishes to assume a second lien mortgage loan, it must advise the servicer of the first lien mortgage loan, the borrower, and the proposed property purchaser that the second lien mortgage loan debt will be accelerated if the transfer takes place. This is true even if Fannie Mae holds the first lien mortgage loan and allows it to be assumed under its existing terms. If the servicer learns of the transfer after the fact, it should notify all parties that the second lien mortgage loan is in default and that steps will be taken to accelerate the debt. The servicer must then contact its Fannie Mae Servicing Representative (see F-4-02, List of ContactsF-4-02, List of Contacts) for approval of the acceleration.

If the transfer of ownership is not approved or the required eligibility criteria are not satisfied and the transfer of ownership occurs, the servicer must take all steps necessary to enforce the due-on-sale (or due-on-transfer) provision. If the funds required to satisfy the mortgage loan debt are not received after the mortgage loan is accelerated, the servicer must initiate foreclosure proceedings.

The servicer must follow the procedures in Completing a Transfer of Ownership in F-1-17, Processing a Transfer of OwnershipF-1-17, Processing a Transfer of Ownership for detailed requirements related to executing the assumption (or assumption and release) agreement.

The servicer must notify the applicable property insurance companies, tax authorities, and any other interested parties. If the purchaser did not provide a new property insurance policy, the servicer must request the insurer to prepare an endorsement to the existing property insurance policy to name the new borrower.

Recent Related Announcements

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