On June 30 and July 1, 2020, Fannie Mae and Freddie Mac updated their COVID-19 selling FAQs and servicing FAQs, which can be accessed here: Fannie Mae selling FAQs and servicing FAQs; Freddie Mac selling FAQs and servicing FAQs.
In the selling FAQs, Fannie Mae and Freddie Mac address various issues, including assessment of self-employment income and variable or fluctuating income, and how to address a consumer with a gap in employment due to COVID-19.
With regard to the Paycheck Protection Program, Fannie Mae includes the following FAQs, and Freddie Mac has similar FAQs:
- If loan proceeds from a PPP are reflected in the business depository accounts, can these funds be used to support the business revenue reported on the year-to-date profit and loss statement?
- No. An SBA PPP or any other similar COVID-19 related loan or grant is not considered a source of business revenue.
- Is it acceptable to exclude the payroll and other expenses (e.g., utilities, business rent) covered by PPP loan proceeds when assessing current business cash flow?
- No. An SBA PPP or any other similar COVID-19 related loans are designed to provide short-term relief whereas the payroll, rent/mortgage payments and utilities are ongoing business expenses; therefore, those expenses must be considered in the analysis.
Fannie Mae also has this additional PPP FAQ:
- Can proceeds from an SBA PPP or any other similar COVID-19 related loans be considered business assets for the purpose of funding the transaction?
- No. Loan proceeds are not considered business assets for the purpose of qualifying the borrower and cannot be used to fund the down payment, closing costs or satisfy reserve requirements.
And Freddie Mae has this additional PPP FAQ:
- If the business rehired employees after receipt of PPP loan proceeds, but was operating at a reduced capacity due to factors such as state and/or local restrictions (e.g., restricted operations, social distancing, closure) and did not utilize the services of a certain number of these employees (e.g., placed on paid furlough), would those payroll expenses funded by the PPP proceeds be considered as ongoing?
- If the scenario described can be fully documented, in that the payroll was paid by PPP proceeds but the services were not used for a specified period of time, it may be possible to make a case for excluding only that portion of payroll expenses when comparing and using details from the YTD P&L statement, business account statements, and supplemental documentation to determine the current level of stable monthly income.
Among other FAQs, Fannie Mae includes the following FAQ regarding a borrower in a COVID-19 payment deferral, and Freddie Mac has a similar FAQ:
After receiving a COVID-19 payment deferral, can the borrower make additional principal payments (i.e., a curtailment) to lower or pay off the deferred non-interest bearing balance prior to paying off the interest-bearing unpaid principal balance?
- If the curtailment being applied is less than the interest-bearing UPB, the servicer must apply such curtailment to the interest-bearing UPB. If the principal curtailment is greater than or equal to the interest-bearing UPB, then the servicer must apply such curtailment in the following order:
1. to the non-interest bearing balance, if any; and
2. to the interest-bearing UPB.
Fannie Mae also includes the following FAQ regarding servicer incentives, and Freddie Mac has a similar FAQ:
- If the mortgage loan transfers to a new servicer after the previous servicer has received the full $1,000 in incentive fees under the cumulative incentive fee cap for retention workout options as set forth in Lender Letter LL-2020-09, Incentive Fees for Retention Workout Options, is the new servicer eligible to receive any incentive fees for completed repayment plans, payment deferrals, or Fannie Mae Flex Modifications?
- No. The transferee servicer is not eligible to receive any incentive fees for these retention workout options if the cumulative incentive fee cap has already been met due to workout options completed by the transferor servicer. Incentive fee eligibility is tied to the mortgage loan, not to the individual servicer.
And Fannie Mae includes the following FAQ regarding incentives:
- In Lender Letter LL-2020-09, Incentive Fees for Retention Workout Options, Fannie Mae introduced a $1,000 cumulative incentive fee cap for repayment plans, payment deferrals/COVID-19 payment deferrals, and Fannie Mae Flex Modifications, effective as of July 1, 2020. What incentive fee will the servicer receive for the completion of a Fannie Mae Extend Modification for Disaster Relief or a Fannie Mae Cap and Extend Modification for Disaster Relief?
- There are no changes to the incentive fees for completing a Fannie Mae Extend Modification for Disaster Relief or a Fannie Mae Cap and Extend Modification for Disaster Relief and the cap does not apply to incentive fees paid for these workout options. The servicer is eligible for the incentive fees for those workout options as set forth in the Servicing Guide and Lender Letter LL-2017-09R, Fannie Mae Extend Modification for Disaster Relief as long as the servicer meets the incentive fee eligibility criteria.
Freddie Mac confirms in an FAQ that the limited quality right party contact is allowed for all post forbearance options—reinstatement, repayment plan, COVID-19 payment deferral, and the Flex Modification.
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