F-1-27, Processing a Fannie Mae Flex Modification (05/10/2023)

The servicer must obtain a property valuation in accordance with Determining the Fannie Mae Flex Modification Terms in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification.

The servicer must obtain a property valuation, which must not be more than 90 days old at the time the servicer evaluates the borrower for the mortgage loan modification, using one of the following:

• an exterior BPO;

• an appraisal;

• Fannie Mae’s servicing solutions system;

• Freddie Mac’s AVM;

• a third-party AVM; or

• the servicer’s own internal AVM, provided that

  • the servicer is subject to supervision by a federal regulatory agency, and

    other servicer’s primary federal regulatory agency has reviewed the model.

If Fannie Mae's servicing solutions system, Freddie Mac's AVM, the third-party AVM, or the servicer’s internal AVM does not render a reliable confidence score, the servicer must obtain an assessment of the property value utilizing an exterior BPO, an appraisal, or a property valuation method documented as acceptable to the servicer’s federal regulatory supervisor. The property value assessment must be rendered in accordance with the FDIC's Interagency Appraisal and Evaluation Guidelines regardless of whether such guidelines apply to mortgage loan modifications.

The servicer must attach the valuation and documentation when submitting its proposed recommendation to Fannie Mae through its servicing solutions system.

The servicer must determine the borrower's new modified mortgage loan terms in accordance with Determining the Fannie Mae Flex Modification Terms in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification, and the requirements below.

The servicer must determine the post-modification MTMLTV ratio, which is defined as the gross UPB of the mortgage loan including capitalized arrearages, divided by the current value of the property.

The servicer must complete all the steps in the order shown in the following table, unless prohibited by applicable law, to determine the borrower's new modified mortgage loan terms.

Note: Interest must not accrue on any principal forbearance. Principal forbearance is payable upon the earliest of the maturity of the mortgage loan modification, sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB.

If the 20% payment reduction or 40% HTI targets are not achieved as described above, the mortgage loan remains eligible for a Fannie Mae Flex Modification if the monthly P&I payment satisfies the requirements in Determining the Fannie Mae Flex Modification Terms in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification.

The servicer must ensure that the mortgage loan modification meets the requirements in accordance with Determining the Fannie Mae Flex Modification Terms in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification, and the requirements above.

The borrower's monthly gross income is defined as the borrower's monthly income amount before any payroll deductions and includes the following items, as applicable:

• wages and salaries;

• overtime pay;

• commissions;

• fees;

• tips;

• bonuses;

• housing allowances;

• other compensation for personal services;

• Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and

• monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance.

Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to employment (such as severance payments), as part of the monthly gross income for mortgage loans being evaluated for a mortgage loan 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.

The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification.

The servicer must prepare the Loan Modification Agreement (Form 3179) early enough in the Trial Period Plan to allow sufficient processing time so that the mortgage loan modification becomes effective on the first day of the month following the Trial Period Plan (modification effective date). The servicer is authorized to, at its discretion, complete the Loan Modification Agreement so the mortgage loan modification becomes effective on the first day of the second month following the final Trial Period Plan payment to allow for sufficient processing time. However, the servicer must treat all borrowers the same in applying this option by selecting, at its discretion and as evidenced by a written policy, the date by which the final Trial Period Plan payment must be submitted before the servicer applies this option ("cut-off date"). The cut-off date must be after the due date for the final Trial Period Plan payment as set forth in the Evaluation Notice.

Note: If the servicer elects this option, the borrower will not be required to make an additional Trial Period Plan payment during the month (the "interim month") in between the final Trial Period Plan month and the month in which the mortgage loan modification becomes effective. For example, if the last Trial Period Plan month is March and the servicer elects the option described above, the borrower is not required to make any payment during April, and the mortgage loan modification becomes effective, and the first payment under the Loan Modification Agreement is due, on May 1.

The servicer must incorporate into the Form 3179 the applicable provisions in accordance with the requirements in Summary: Modification Agreement (Form 3179).

The servicer is responsible for ensuring that the mortgage loan as modified complies with applicable laws, preserves Fannie Mae's first lien position, and is enforceable against the borrower(s) in accordance with its terms. The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification in D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification.

In order to ensure that the modified mortgage loan retains its first lien position and is fully enforceable, the servicer must take the actions described in the following table.

If the mortgage loan is for a manufactured home, and the lien was created, evidenced, or perfected by collateral documents that are not recorded in the land records, the servicer must also take such action as may be necessary, including any amendment, recording, and/or filing that may be required, to ensure that the collateral documents reflect the mortgage loan modification, in order to preserve Fannie Mae's lien status for the entire amount owed. See Selling Guide A2-4.1-01, Establishing Loan Files for additional information regarding collateral documents required to be retained for manufactured homes.

The servicer must execute and record the Loan Modification Agreement based upon the entity that is the mortgagee of record in accordance with A2-1-04, Execution of Legal DocumentsA2-1-04, Execution of Legal Documents. In addition, the servicer must send the Loan Modification Agreement to the document custodian if the mortgagee of record is

• the servicer;

• MERs; or

• Fannie Mae, and Fannie Mae has given the servicer an LPOA that allows it to execute this type of document on Fannie Mae's behalf.

When the servicer is required to send the Loan Modification Agreement to the document custodian, the servicer must follow the requirements outlined in the following table.

The servicer must complete the mortgage loan modification in accordance with Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification in  D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification.

After a mortgage loan modification is executed, the servicer must adjust the mortgage loan as described in the following table.