B-1-01, Administering an Escrow Account and Paying Expenses (09/11/2024)

Without regard to whether the mortgage loan has an escrow account, the servicer must protect Fannie Mae’s mortgage lien and the property securing the mortgage loan by 

• monitoring the status of all escrow and related charges, which may include but are not limited to

  • property and flood insurance premiums;

  • mortgage insurance premiums;

  • real estate taxes;

  • ground rents;

  • regular and special assessments for condominiums, homeowners’ associations (HOA), and Planned Unit Developments (PUD);

  • co-op corporation fees and assessments;

  • local government and public utility assessments; and

  • any other charges, fines, and imposition attributable to the property which can attain priority over Fannie Mae’s mortgage lien; and

• maintaining accurate records on the status of all escrow and related charges.

Unless otherwise noted, the requirements in this section apply whether the mortgage loan is a first lien mortgage loan that has an escrow account or a second lien mortgage loan where the servicer chooses to require an escrow account.

When the mortgage loan has an escrow account, the servicer must

• ensure the timely payment of all escrow and related charges before any applicable penalty or termination date, and

• make payments for escrow-related expenses early enough to take advantage of any discount period to obtain the maximum discounts allowed whenever funds are available in the escrow account.

Fannie Mae will not reimburse the servicer when the servicer pays interest on an escrow account, whether required by law or voluntary.

The servicer must not solicit a borrower with an offer to waive the escrow account requirements but is authorized to evaluate a borrower’s request subject to the requirements in the following table.

The servicer may not waive the individual escrow requirement for MIPs when the premiums are paid monthly.

When a borrower is eligible for a payment deferral and the servicer was not collecting escrows on the existing mortgage loan, the servicer is not required to revoke any escrow deposit account waiver and establish an escrow deposit account as a condition of the payment deferral if the servicer confirms the borrower is current on the payments for taxes, special assessments, property and flood insurance premiums, premiums for borrower-purchased MI, ground rents, and similar items.

Prior to offering a payment deferral, the servicer must analyze an existing escrow account to estimate the periodic escrow deposit required to ensure adequate funds are available to pay future charges, taking into consideration T&I payments that may come due during the processing month, if applicable. In the event the initial escrow analysis identifies an escrow shortage, the servicer must spread any escrow shortage repayment amount in equal monthly payments over a period of 60 months, unless the borrower decides to pay the escrow shortage amount in a lump sum up-front or over a shorter period, not less than 12 months. Any subsequent escrow shortage that may be identified in the next annual analysis cycle must be spread out over either the remaining term of the initial escrow shortage repayment period or another period of up to 60 months.

See Performing an Escrow Analysis in D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral and Performing an Escrow Analysis in D2-3.2-05, Disaster Payment DeferralD2-3.2-05, Disaster Payment Deferral for additional information.

The following table outlines the escrow requirements when a servicer is evaluating a borrower for a mortgage loan modification.

See Performing an Escrow Analysis in D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, Fannie Mae Flex Modification for additional information.

When the property securing the mortgage loan is a manufactured home, the servicer must ensure the manufactured home and land are taxed as real property and a single tax bill is issued.

If this is not possible, the dwelling must be taxed separately as personal property and the servicer must adjust its system to escrow for both real and personal property taxes. Fannie Mae’s requirements for real estate taxes apply equally to personal property taxes applicable to the dwelling.

The following table outlines the servicer’s responsibilities for addressing a regular or special assessment, including for an HOA, PUD, or condo association or a related expense, prior to the foreclosure sale date when applicable law creates a lien that is superior in priority over Fannie Mae’s mortgage lien and that if foreclosed, would extinguish Fannie Mae’s mortgage lien.

Note: The servicer must notify Fannie Mae’s Legal department by submitting a Non-Routine Form (Form 20) when

• the association refuses to issue a statement of the amount due showing only the priority amounts,

• the association continues to assert lien priority after the servicer has paid the priority amounts,

• litigation is filed by the association to foreclose a Fannie Mae-owned mortgage lien or to establish lien priority, or

• efforts to settle a dispute with the association fail.

The servicer must follow the procedures in General Expense Reimbursement Requirements in F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement  to determine the timing and amount of advances, if any, Fannie Mae will reimburse.

The servicer must follow the procedures in Allowable Payments to Subordinate Lienholders in D2-3.3-01, Fannie Mae Short SaleD2-3.3-01, Fannie Mae Short Sale  to determine the type and amount of payments to subordinate lienholders, if any, Fannie Mae will allow to be paid from the short sale proceeds.

The servicer must follow the procedures in accordance with D1-1-02, Evaluating a First Lien Mortgage Loan for Charge-Off and Release of LienD1-1-02, Evaluating a First Lien Mortgage Loan for Charge-Off and Release of Lien and  D1-1-03, Evaluating a Second Lien Consideration of a Second Lien Mortgage LoanD1-1-03, Evaluating a Second Lien Consideration of a Second Lien Mortgage Loan to determine if the loan is eligible for charge-off prior to advances.

The servicer must promptly advance the funds to cover an expense when an escrow account has insufficient funds to pay an expense in a timely manner. The servicer must require the borrower to reimburse it for advances because the escrow deposit account did not have sufficient funds to cover an expense or emergency repairs to the property. Any funds the servicer advances must stay in the T&I custodial account until the borrower remits funds sufficient to cure the deficit.

The following table outlines the requirements when the servicer waives the escrow account requirement and the borrower fails to pay the insurance premiums, taxes, or other related charges.

The servicer must follow the procedures in General Expense Reimbursement Requirements in F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement to determine how to obtain reimbursement from future payments, and how to obtain reimbursement from Fannie Mae.