D1-4.2-01, Conventional Mortgage Loans that Do Not Include a Due-on-Sale (or Due-on-Transfer) Provision (09/09/2020)

Introduction

This topic contains information on conventional mortgage loans that do not include a due-on-sale (or due-on-transfer) provision.

The following table describes the servicer’s responsibility if a mortgage loan not subject to a due-on-sale (or due-on-transfer) provision is modified or subject to a payment deferral.

If the mortgage loan not subject to a due-on-sale (or due-on-transfer) provision is...	Then the servicer must...
modified	obtain the borrower’s agreement that the mortgage loan modification will cancel the assumability feature of that mortgage loan.
subject to a payment deferral	notify the borrower that the non-interest bearing balance must be paid in full at the time of any sale or transfer.

See D1-4.2-02, Conventional Mortgage Loans That Include a Due- on-Sale (or Due-on-Transfer) Provision D1-4.2-02, Conventional Mortgage Loans That Include a Due- on-Sale (or Due-on-Transfer) Provision for additional information.

For all other mortgage loans that are not subject to a due-on-sale (or due-on-transfer) provision, there are no restrictions on the transfer of ownership. However, the servicer must determine that the purchaser’s credit and financial capacity is acceptable under current Fannie Mae underwriting guidelines if the previous borrower requests a release of liability. See F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity for the servicer’s requirements for evaluating a request for a release of liability.

The servicer must follow Obtaining MI Approval for a Conventional Mortgage Loan in F-1-17, Processing a Transfer of Ownership F-1-17, Processing a Transfer of Ownership for information on obtaining mortgage insurer approval and in Completing a Transfer of Ownership in F-1-17, Processing a Transfer of Ownership F-1-17, Processing a Transfer of Ownership for detailed requirements related to executing the assumption (or assumption and release) agreement.

The servicer must notify the applicable property insurance companies, tax authorities, the mortgage insurer, and any other interested parties. If the purchaser did not provide a new property insurance policy, the servicer must request the insurer to prepare an endorsement to the existing property insurance policy to name the new borrower. The servicer must also obtain a new MI policy for an insured mortgage loan or an agreement that extends the previous coverage to the new borrower.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.