A new Lender Letter (LLC-2020-05) has been issued by Fannie Mae introducing payment deferrals designed to assist eligible borrowers who have recently resolved a temporary hardship and resumed payments, but cannot afford the full reinstatement. This new home retention workout was jointly developed with Freddie Mac under the direction of the Federal Housing Finance Agency (FHFA).

Doeren Mayhew has summarized the letter below.

Determining Eligibility

Servicers are authorized to evaluate the borrower for payment deferral without receiving a complete Borrower Response Package (BRP). Additionally, the servicer is not required to complete an Evaluation Notice. If the borrower has already submitted a complete BRP, the servicer must use an Evaluation Notice.

To understand all the eligibility criteria, we recommend reviewing the matrix outlined in the letter for more details. It is important to note, there are additional eligibility criteria for Texas Section 50(a)(6) loans. If the servicer receives notice from the borrower that a payment deferral fails to comply with Texas Section 50(a)(6) requirements, the servicer must immediately, but no later than seven business days after receipt, take additional actions identified.

Determining the Payment Deferral Terms

The servicer must defer past-due principal and interest payments as a non-interest bearing balance due and payable at maturity of the mortgage loan. It may be due earlier upon the sale or transfer of the property, refinance of the mortgage loan or payoff of the interest-bearing unpaid principal balance. All other terms of the mortgage loan must remain unchanged.

Careful review of the letter is recommended, as there is a note to servicers regarding escrow analysis related to the following:

  • Shortages identified at the time of the deferral must not be capitalized.
  • Servicers not being required to fund any existing escrow shortage.
  • Services not being required to revoke any escrow waivers.

Completing a Payment Deferral

Servicers are required to submit the case via FNMA’s Servicing Solutions System in the same month in which it determines the borrower is eligible. However, the servicer is authorized to use an additional month to allow for sufficient processing time. In this situation, the borrower must continue to make the full contractual payment during the processing month with the servicers completing the payment within the processing month after receipt of the borrower’s full payment due during that month. Servicers must be sure to treat all borrowers equally in applying the processing month. Other guidelines for completing a payment deferral are outlined below:

  • The payment deferral agreement must be sent to the borrower no later than five days after the completion of the payment deferral.
  • The payment deferral agreement is optional, however if a different document will be used, it must reflect the same level of information and comply with applicable law.
  • Application of a payment deferral to the mortgage must not impair first lien position or enforceability against the borrower.
  • The payment deferral agreement must be recorded if the servicer determines required to comply with law and ensure mortgage loan retains first lien position. In the event of a recording agreement, the servicer must obtain a title endorsement.
  • Payment deferrals must be documented in accordance with the following:
If the payment deferral agreement is… Then the servicer must send…
not required to be signed by the borrower a copy of the payment deferral agreement signed by the servicer to the document custodian within 25 days of the effective date of the payment deferral.
required to be signed by the borrower but not recorded the fully executed original payment deferral agreement to the document custodian within 25 days of the effective date of the payment deferral.
required to be recorded
  • a certified copy of the fully executed payment deferral agreement to the document custodian within 25 days of the effective date of the payment deferral, and
  • the original payment deferral agreement that is returned from the recorder’s office to the document custodian within 5 business days of receipt.

Processing a Payment Deferral for An MBS Mortgage Loan

Manual reclassification is not required and loans subject to a payment deferral will not be scheduled for automatic reclassification.

Processing a Payment Deferral for A Mortgage with Mortgage Insurance

Delegation authority has been obtained on behalf of all servicers from the mortgage insurers for payment deferral.

Handling, Incentive and Servicing Fees; Late Charges and Reimbursements

  • All late charges, penalties, stop payment fees or similar charges must be waived upon completion of the payment deferral. No administrative fees can be charged.
  • Servicer is eligible for a $500 incentive fee upon completion of the payment deferral.
  • Servicer will continue to receive the servicing fee it was receiving prior to completing a payment deferral after a payment deferral bonus becomes effective.
  • Servicer must pay any actual out-of-pocket expenses associated with the execution of the payment deferral, FNMA will reimburse the servicer in accordance with F-01-05, Expense Reimbursement.

Fannie Mae’s Workout Hierarchy

Updates to the hierarchy have been made to include the payment deferral. Details, along with an updated version of the Borrower Solicitation Letter, can be reviewed within the Lender Letter (LL-2020-05).

If you have questions regarding payment deferrals and their impact on your institutions’ operations contact our compliance specialists:

Heather Feltner | Lending and Compliance Specialist | feltner@doeren.com 

Lindsey Becker | Internal Audit and Compliance Manager | becker@doeren.com

Jeni Butler | Senior Compliance Specialist | butler@doeren.com

Marcia Baker | Senior Compliance Specialist | baker3@doeren.com

Debbie Rodriguez | Senior Compliance Specialist | drodriguez@doeren.com

Joe Zito | Shareholder | zito@doeren.com

Author

Heather Feltner, Lending and Compliance Specialist – Financial Institutions Group