F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) (05/10/2023)

The servicer must adhere to General Requirements When Processing a Fannie Mae Mortgage Release in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure)D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

The servicer must order a title search. In addition to the title search, the servicer must review the following to determine if the borrower will be able to deliver clear and marketable title:

• readily available information provided by the borrower,

• the borrower’s credit report,

• the mortgage loan servicing file, and

• other sources identifying subordinate liens and other claims on title.

The servicer must determine the borrower’s housing expense-to-income ratio as outlined in Evaluating a Borrower’s Ability to Make a Cash Contribution in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure)D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

The borrower’s monthly gross income is defined as the borrower’s monthly income amount before any payroll deductions and includes the following items, as applicable:

• wages and salaries;

• overtime pay;

• commissions;

• fees;

• tips;

• bonuses;

• housing allowances;

• other compensation for personal services;

• Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and

• monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance.

Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to unemployment (such as severance payments), as part of the monthly gross income for mortgage loans being evaluated for a Mortgage Release.

The servicer must then divide the borrower’s monthly housing expense on the property securing the mortgage loan, which includes the following items (as applicable), by the borrower’s monthly gross income:

• P&I;

• property and flood insurance premiums;

• real estate taxes;

• ground rent;

• fees paid in accordance with a resale restriction agreement or a shared equity transaction agreement, as applicable;

• special assessments;

• HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit);

• co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit); and

• any escrow shortage currently included as part of the full monthly contractual payment.

  Note: The servicer must exclude monthly mortgage insurance premiums from the monthly housing expense-to-income calculation.

The servicer must obtain a property valuation for a Mortgage Release or a Mortgage Release transition option in accordance with Obtaining a Property Valuation and Evaluating the Condition of the Property in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure)D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

The property valuation for a Mortgage Release can be

• an interior and exterior inspection of the property in the form of a BPO;

• an interior and exterior inspection of the property in the form of a an appraisal, which must be performed in accordance with USPAP; or

• an AVM.

  Note: For a Mortgage Release transition option, the property valuation must be an interior and exterior inspection of the property in the form of

  • a BPO; or

  • an appraisal, which must be performed in accordance with USPAP.

The property valuation must be dated or have been refreshed by Fannie Mae within 90 calendar days of the servicer approving the borrower for a Mortgage Release.

The following table provides additional requirements for all property valuations for a Mortgage Release.

The servicer must evaluate the borrower for Mortgage Release transition options and refer the case to Fannie Mae in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure)D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure).

When the servicer refers the case to Fannie Mae, it must provide the applicable form as outlined in the following table.

Fannie Mae, or its designee, will take the steps necessary to further verify subject property and occupant eligibility. The following table provides the subject property eligibility criteria for a Mortgage Release transition option.

The following table provides the occupant eligibility criteria for a Mortgage Release transition option.

Fannie Mae will inform the servicer whether or not a lease was finalized and whether the Mortgage Release is contingent on the property being vacant.

The servicer must then finalize the Mortgage Release accordingly.

Note: The servicer must notify Fannie Mae if a Mortgage Release is not successfully executed for any case that was approved for Mortgage Release transition options consideration. The servicer must use the Mortgage Release Program Cancellation Form (Form 188).

Prior to acceptance of a Mortgage Release in connection with the Mortgage Release transition options, the servicer must ensure that the borrowers execute (in favor of Fannie Mae, the servicer, and their agents) a general release of all claims arising prior to the acceptance of the Mortgage Release which relate in any way to the mortgage loan or the subject property.

For non-delegated cases, where Fannie Mae makes the decision, the servicer has five weeks from Fannie Mae’s approval of the Mortgage Release to complete the transaction to allow enough time for the lease approval process. Delegated servicers that might have a shorter processing time frame are instructed to allow time for the lease approval process when the borrower states an interest in the Mortgage Release transition options.