Legal Alert

Fannie Mae Updates Guidance on the Limiting of Servicing Advance Obligations

by the Mortgage Banking Group
June 11, 2020

In a prior alert, we reported that in view of the ability of mortgage loan borrowers to obtain payment forbearances under the CARES Act, the Federal Housing Finance Agency (FHFA) limited the advance obligation of Fannie Mae servicers so that once a mortgage servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments on the loan. In a subsequent alert, we addressed initial Fannie Mae guidance on the limitation, and noted that Fannie Mae would follow up with additional guidance. On June 10, 2020, in Lender Letter 2020-08, Fannie Mae provides the additional guidance. The policy changes are effective for August 2020 remittance activity based on July 2020 reporting activity.

Fannie Mae developed a new investor reporting process for the discontinuance of servicer delinquency advances on eligible scheduled/schedule remittance type mortgages. The process is referred to as the “Stop Delinquency Advance Process.” The Lender Letter includes a chart that details the eligibility criteria for the Stop Delinquency Advance Process. 

In the Loan Reporting Cycle in which an eligible loan becomes 120 days delinquent, Fannie Mae will place the loan in a Stop Delinquency Advance Status and place a Loan Stop Advance Status Type and a Loan Stop Advance Start Date on the loan. The Loan Stop Advance Start Date reflects the start date of the Stop Delinquency Advance Process, and is the date from which Fannie Mae will suspend drafting delinquency advances from servicers. Fannie Mae notes that for the initial implementation of the Stop Delinquency Advance Process, there may be eligible loans that are greater than 120 days delinquent and for which servicers have already made more than four months of delinquency advances. Fannie Mae advises that it will not settle-up with servicers on such loans at the time of the initial implementation. Rather, Fannie Mae will reimburse previous advances the earlier of (1) when the mortgage loan goes through a reclass (S/S Swap only) or (2) in accordance with existing reimbursement policies for workout options, including payment deferral.

For loans in a Loan Stop Advance status, servicers must continue to report mortgage loan activity in accordance with the Servicing Guide section C-4.3-01. Servicers must continue to calculate and report the scheduled principal and interest, the last paid installment date, and the actual unpaid principal balance each month. Fannie Mae notes that the scheduled principal and interest reflects the delinquency advance. 

Fannie Mae also provides guidance regarding the receipt of a payment on a loan in the Stop Delinquency Advance Process, and exiting the Stop Delinquency Advance Process. 

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