Fannie Mae has updated its servicing guidelines. They now include instructions for handling temporary interest-rate buydowns and provide important information for servicers that manage these loans. Fannie has asked servicers to adopt the rules immediate, though they don’t become mandatory until Nov. 1.
The guidelines explain how to apply funds in various workout situations, and clarify borrower notification requirements for related interest-rate changes.
Fannie’s guidance comes amid broader secondary market attention to buydowns that temporarily lower rates that also has been the catalyst for new directives at Ginnie Mae and Freddie Mac.
Fannie said it expects servicers to provide borrowers advanced warning when their buydown is coming to an end and their rate goes up.
“For mortgage loans subject to a temporary interest rate buydown plan, servicers must send notification to the borrower detailing a pending interest rate increase 90 days prior to the payment change,” Fannie Mae said.
The enterprise also gave the following instructions related to how or whether servicers should apply funds in various situations, with all directives subject to whether the buydown agreement allows it.
- Flex modifications: Servicers should “apply interest-rate buydown funds to reduce the arrearages” and use Fannie’s updated loan-modification agreement form to reflect that this has been done
- Late payments: Servicers “must not apply interest rate buydown funds to reduce the delinquency amount in connection with a reinstatement, repayment plan, or payment deferral” unless the buydown agreement calls for it.
- Mortgage release: Servicers must “ensure that the borrower waives reimbursement of any interest rate buydown funds” related to one.
Another change includes providing greater flexibility for payment reminders by “extending the time to send such notices from the 17th day of delinquency to the 20th day of the month,” which is subject to pre-existing exceptions. This rule becomes mandatory on Dec. 1, though can be enacted earlier.
