Announcement December 29, Amends these Guides: Selling and Servicing

Transcription

1 Announcement December 29, 2006 Introduction of the Fannie Mae Single-Family MBS Master Trust Agreement Amends these Guides: Selling and Servicing Introduction Fannie Mae is pleased to announce the introduction of a new Single-Family MBS Master Trust Agreement (the Trust Agreement ) that will be used for both fixed and adjustable rate MBS pools. We are also announcing servicing clarifications and requirements for MBS mortgage loans; these standards will generally apply to all mortgage loans in a Fannie Mae MBS, regardless of whether the security is based on the current Fixed-Rate or ARM Trust Indenture (either, the Trust Indenture ) or the Trust Agreement. A Trust Indenture or Trust Agreement is the legal document that contains the terms and conditions of an MBS trust and describes the roles of various parties. Effective Date We have not yet set an effective date for the Trust Agreement and related servicing enhancements. We first want to give servicers an opportunity to fully understand the enhancements, consider the impact to their business processes, and determine how much time will be necessary to implement them. We will also be completing our own plans and timelines for systems development work that we will be making in order to effectively support the enhancements. We anticipate completing this work early next year and in the first quarter of 2007 we will announce an effective date for the Trust Agreement (We expect that effective date to be on or before June 1, 2007). That announcement will also include additional information regarding how we will support some of the servicing changes noted below. The Trust Agreement is available on our Web site, Announcement Page 1

2 Discussion Our Trust Indenture has been in use for about 25 years and relies on the Servicing Guide for key servicing requirements. Accordingly, we have been working for several months on a comprehensive review of our MBS documents and related servicing requirements. One result of this review is the development of the new Trust Agreement which accomplishes several objectives: It incorporates key servicing requirements; It more clearly describes Fannie Mae s roles as issuer, master servicer, guarantor, and trustee; It clarifies the servicer s role as the Direct Servicer; and Overall, it better reflects current market practices. Servicing Requirements In general, the new Trust Agreement retains the basic approach of the Trust Indenture. Servicers will service MBS mortgage loans to Fannie Mae specifications, which delegate certain administrative decisions to the servicer. There are some areas in which the new Trust Agreement will require servicing practices that differ from current Servicing Guide provisions. In addition, we are clarifying certain policies to ensure that all mortgage loans in MBS pools are serviced in a consistent manner, including the handling and remittance of custodial funds. These changes and clarifications are as follows: Eligible Custodial Depositories Servicing Guide Part IX: Custodial and Remittance Accounting; Chapter 1, Custodial Accounting; Section 103, Eligible Custodial Depositories. Principal and interest received by our servicer in connection with mortgage loans in our MBS are held for the benefit of the MBS investors; funds collected by the servicer for payment of taxes and insurance premiums belong to the borrower until payment is made. These funds are not assets of Fannie Mae or the servicer. Consequently, Fannie Mae requires that these custodial funds be held in financial institutions that meet certain requirements, that servicers deposit custodial funds in custodial accounts immediately upon receipt, and that these funds not be commingled with the servicer s own funds or those of any other investor. We will be revising our requirements for custodial depositories, as noted below. MBS custodial accounts may be held in a Federal Reserve Bank, a Federal Home Loan Bank, or another depository institution provided that such other depository institution meets the following requirements: Announcement Page 2

3 1. The accounts must be insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund; 2. The depository institution must be rated as well capitalized by its applicable federal or state regulator; and 3. The depository institution must have a financial rating that meets at least one of the following criteria: Institutions with assets of $30 billion or more must have either: a. a short-term issuer rating by Standard & Poor's Inc.(S&P) of A-3 (or better), or if no short-term issuer rating is available, a long-term issuer rating of BBB- (or better); or b. a short-term bank deposit rating by Moody's Investors Service (Moody s) of P-3 (or better), or if no short-term bank deposit rating is available, a long-term bank deposit rating of Baa3 (or better); or Institutions with assets of less than $30 billion must have a financial rating of either: a. 125 (or better) by IDC Financial Publishing, Inc. (IDC) or b. C+ (or better) by Lace Financial Corporation (LACE). If a depository institution satisfies the standards in (1) and (2) and has a rating that meets or exceeds at least one of the applicable ratings specified in (3) above, it will be an eligible depository even if it is rated by another organization below the minimum level specified in (3). These custodial depository requirements will apply whenever a servicer is servicing mortgages for Fannie Mae that include Scheduled/Scheduled (S/S) (whether S/S MBS or S/S Cash) remittance types (or any combination of remittance types that includes S/S). A servicer servicing S/S mortgage loans that has custodial funds in a depository institution that does not meet our eligible custodial depository requirements will have to move the custodial funds to an eligible depository institution. The time period during which the servicer must transfer the accounts to a Federal Reserve Bank, a Federal Home Loan Bank or an acceptably rated depository institution will vary depending on our assessment of the risk, but in no event may the transfer be made more than 120 days after the date on which the depository institution first fails to meet the minimum rating requirement. However, if the institution receives an acceptable rating during this 120-day period we may permit the servicer to retain the accounts at the existing depository. A servicer that is only servicing mortgage loans for Fannie Mae with either Actual/Actual (A/A) or Scheduled/Actual (S/A) remittance types (or both) must keep its custodial accounts in a Federal Reserve Bank, a Federal Home Loan Bank, or a depository institution that satisfies the standards in (1) and (2) above, and has a financial rating of either: a. 75 (or better) by IDC or b. C (or better) by LACE. As always, we may require a servicer to transfer funds out of a depository institution even if the institution satisfies our financial rating criteria or more quickly than indicated above if we decide that it is in our best interests or the interests of MBS investors to do so. Announcement Page 3

4 Funds in Custodial Accounts Servicing Guide Part IX: Custodial and Remittance Accounting; Chapter 1, Custodial Accounting; Section 101, Custodial Bank Accounts, Section , P&I Accounts; Section , T&I Accounts; and Section , Subservicer Custodial Accounts. Servicers are required to hold payments of principal and interest on all mortgage loans serviced for Fannie Mae in custodial accounts prior to remittance to Fannie Mae. We are reminding all servicers that: A servicer must maintain separate custodial accounts for P&I funds for each remittance type under which the servicer reports. Funds in these accounts may not be commingled with the servicer s general corporate funds or with funds held by the servicer for other investors, although all Fannie Mae MBS P&I funds for a specific remittance type may be held in a common account, regardless of the number of MBS pools to which the funds pertain. This ensures that P&I funds for mortgage loans in MBS pools are not commingled with P&I funds for our portfolio mortgage loans or with other funds that the servicer collects; T&I escrow funds for all remittance types for Fannie Mae mortgage loans may be commingled in the same custodial account, although a servicer may establish separate accounts for T&I payments for each remittance type if it chooses to do so. Funds in these accounts may not be commingled with the servicer s general corporate funds or with funds held by the servicer for other investors; P&I and T&I funds cannot be commingled in the same custodial account, regardless of the remittance type; A servicer must deposit all funds related to P&I payments, such as prepayments, repurchases, and liquidations for an MBS mortgage loan into a P&I custodial account as quickly as possible, but no later than the second business day after they are received; Any funds received that are not yet allocable to P&I payments and are not T&I funds must be held in a T&I custodial account prior to passing such funds through as payments on the loan. For example, good faith payments in a work-out that previously would have been held in suspense must be held in a T&I custodial account pending application to the borrower s debt; Any investment of P&I custodial account funds must be limited to specified investment categories and to investments that mature prior to the date that remittance is due to Fannie Mae. Mortgage Loans Purchased for Cash and Subsequently Pooled ( Pooled from Portfolio ) Selling and Servicing Guides Part I: Lender Relationships; Chapter 2, Contractual Relationship; Section 202, Servicer s Basic Duties and Responsibilities. Servicing Guide Part VII: Delinquent Mortgages; Chapter 5, Loss Mitigation Alternatives; Section , Modifying Government Mortgages; and Section , Modifying Conventional Mortgages. Announcement Page 4

5 From time to time, we securitize mortgage loans that we purchased for our investment portfolio (cash deliveries). All mortgage loans that have been (or may be in the future) sold to us for cash and subsequently securitized into MBS pools have to be serviced as MBS mortgage loans. (This requirement does not change a servicer s existing reporting and remitting requirements for these mortgage loans.) To provide servicers with the tools they need to comply with this requirement, Fannie Mae has begun notifying servicers of all mortgage loans that they are currently servicing for Fannie Mae that were delivered for cash and that were subsequently pooled into an MBS. As we work toward finalizing the requirements for an automated process, we are asking servicers to use their best efforts to code all of these mortgages in their records as MBS mortgage loans as soon as possible and service them in accordance with the provisions of the Servicing Guide applicable to MBS mortgage loans. In order to ensure compliance with our requirements regarding MBS mortgage loans, we are revoking any prior delegations of authority with respect to loss mitigation actions for these mortgage loans. Servicers of Fannie Mae mortgage loans that have been pooled from portfolio must submit all loss mitigation requests to us through the Home Saver Solutions Network for consideration before executing any workout option. We will ensure that the mortgage loan is appropriately removed from the MBS pool before providing our approval. Full Payoffs Servicing Guide Part VI: Loan Removals or Reclassifications; Chapter 1, Payments-in-Full; Section , Scheduled/Scheduled Remittance Types. The Servicing Guide provides that when a full payoff (or receipt of funds from the borrower) takes place on the first business day of a month, the mortgage loan can be considered as being paid off as of the last day of the previous month, since that is the date through which the borrower will be charged interest. We will be changing this requirement to ensure consistent treatment of the processing of payoffs for all S/S remittance type mortgage loans that a servicer is servicing for Fannie Mae. Each servicer must decide whether it will consider any full payoff received on the first business day of a month as though it was received in the prior calendar month (rather than on the day of actual receipt) or whether it will consider any full payoff received on the first business day of a month as being received in the calendar month in which receipt actually occurs. If a servicer elects to pass through first business day payoffs as though received in the prior calendar month, it must continue to do so for all S/S remittance type mortgage loans serviced for Fannie Mae. If a servicer currently uses the actual date of receipt to determine the pass-through date, it may continue that practice or it may make a one-time election to consider such first business day payoffs as being received on the last day of the preceding calendar month. Once such an election is made, the servicer must continue to follow the method selected. Payoffs on any mortgage loans that are subject to a servicing transfer will be serviced in accordance with the preference of the applicable transferee servicer for processing payoffs received on the first business day of a month. A subservicer will be required to handle first of the month payoffs in accordance with the subservicer s election, rather than that of the Direct Servicer. Announcement Page 5

6 This requirement will apply to all S/S MBS and S/S Cash remittance type mortgage loans that a servicer is servicing for Fannie Mae now and in the future. A servicer will be required to notify us of its first day of the month payoff election. A servicer may begin submitting its election on all S/S MBS and S/S Cash remittance type mortgage loans that the servicer is servicing for Fannie Mae to the following address: Firstbusinessdaypayoffelection@fanniemae.com. We will be updating the Lender Record Information (Fannie Mae Form 582) to require annual certification of a servicer s first day of the month payoff election. Forbearance Servicing Guide Part III: General Servicing Functions; Chapter 8, Balloon Mortgage Maturity; Section , Temporary Forbearance; and Part VII: Delinquent Mortgages; Chapter 3, Special Relief Measures; Section 302, Special Forbearance. Under the provisions of the Trust Agreement, mortgage loans in MBS pools may be granted forbearance (a temporary suspension or reduction in borrower payments) for no more than four consecutive months (not to exceed the last scheduled payment date of the mortgage loan). For a mortgage loan to remain in an MBS pool after four consecutive months of forbearance, the mortgage loan must have become current, be under a repayment plan, be in probate, be under military indulgence under the provisions of the Servicemembers Civil Relief Act or applicable state law, be referred to foreclosure, or be in bankruptcy. This requirement will apply to all MBS mortgage loans regardless of whether they are pooled under the Trust Indenture or the new Trust Agreement. Repayment Plans Servicing Guide Part III: General Servicing; Chapter 1, Mortgage Payments; Section , Repayment Plans; and Part VII: Delinquent Mortgages; Chapter 3, Special Relief Measures; Section 303, Repayment Plan. Repayment plans on all MBS mortgage loans will have to provide for all delinquent or past due payments of principal and interest to be brought current within a period of not more than 18 months from the first day of the month in which the adjusted payment schedule begins (including any month in which no repayment amount is to be paid). We are also reminding servicers that when the delinquency involves fewer than three monthly payments, repayment plans may be oral agreements. However, the servicer should document (and keep in the mortgage files it maintains for Fannie Mae) the terms of the agreement with the borrower. Formal written agreements are required if the delinquency is three months or longer. Each agreement should clearly state the amount and due date of each payment, and the date by which the total delinquency is scheduled to be cured. Announcement Page 6

7 Disaster Relief Servicing Guide Part III: General Servicing Functions; Chapter 11, Assistance in Natural Disasters; Section 1101, Evaluating the Damage; and Section 1102, Special Relief Measures. Under the Trust Agreement, Fannie Mae will have the option to repurchase mortgage loans out of MBS pools at any time, regardless of their delinquency status, if the property has been damaged by a disaster, terrorist attack, or other natural or manmade catastrophe not caused by the borrower, which causes a reduction in value of at least five percent. Additional information for applying this provision will be provided to our servicers in early This option will not apply to mortgage loans pooled under the current Trust Indenture. Foreclosure Proceedings Servicing Guide Part VIII: Foreclosures, Conveyances, and Claims; Chapter 1, Foreclosures; Section , Conventional and RHS First Mortgages. The Servicing Guide requires foreclosure to begin for most loans within 105 days of delinquency, but permits postponements to facilitate loss mitigation. It does not provide a specific outside date by which foreclosure must begin. Under the Trust Agreement, servicers will have to begin foreclosure proceedings no later than the 200th day after commencement of delinquency or as soon thereafter as applicable law permits. Foreclosure is considered to have begun on the date when the servicer delivers all necessary documentation to the foreclosure attorney or trustee. The Servicing Guide will be amended to require this standard for all Fannie Mae MBS mortgage loans. Mortgage Loans Contractually Delinquent for 24 Consecutive Months Selling and Servicing Guides Part I: Lender Relationships; Chapter 2, Contractual Relationship; Section 208, Repurchase or Mortgage Substitution Requirements; and Section , Lender s Mandatory Repurchase of Certain MBS Pool Mortgages. Selling Guide Part II: Delivery Options; Chapter 2, MBS Pool Deliveries; Section 201, Servicing Options. Servicers are reminded that they must repurchase from an MBS pool any mortgage that has 24 payments past due, and the repurchase must be reported to Fannie Mae as an activity occurring in the month that contains the due date of the 24th past-due payment. This repurchase requirement applies to all delinquent MBS pool mortgages, regardless of the servicing option or recourse arrangement under which they were purchased or securitized. It also will apply to mortgages pooled pursuant to the new Trust Agreement. However, a special servicing option delinquent MBS pool mortgage normally will be removed from its MBS pool much earlier pursuant to our procedures for automatic reclassification of delinquent MBS mortgage loans to our portfolio. Announcement Page 7

8 Due-on-Transfer Clause Servicing Guide Part I: Lender Relationships; Chapter 2, Contractual Relationship; Section , Servicer s Optional Repurchase of Certain MBS Pool Mortgages; and Part III: General Servicing Functions; Chapter 4, Transfers of Ownership. Servicers are reminded that they must enforce the due-on-transfer clause when the mortgage documents include a due-on-transfer clause and the servicer has knowledge that a mortgaged property has been or is about to be conveyed by the borrower in violation thereof, and none of the permitted transfer exceptions contained in the Servicing Guide applies. An example of a due-on-transfer violation is when a borrower sells or transfers a property to an unrelated third party. Mortgage Loan Modifications Servicing Guide Part VII: Delinquent Mortgages; Chapter 5, Loss Mitigation Alternatives; Section , Modifying Conventional Mortgages. Servicers are reminded that all loan modifications must be in writing on the appropriate form and signed by both the servicer and the borrower(s) in order to be effective. Servicers are also reminded that while a mortgage loan is in an MBS pool, they must not agree (sign and date a written agreement) to any modification that would affect the term, interest rate, unpaid principal balance, or other major characteristic of the mortgage loan. Further, loans may be removed from an MBS pool only under very limited, specified circumstances, such as after any delinquency for four consecutive months. Loan modification may be a loss mitigation alternative for a loan in default, but may not occur until after the loan has been removed from the MBS pool in accordance with our requirements. The servicer must ensure that its communications with the borrower clearly convey that the loan modification will not be binding, enforceable, or effective unless and until the borrower delivers the executed loan modification agreement and any required payments to the servicer and the servicer signs the loan modification agreement. This applies to all mortgage loans in MBS pools, including all mortgage loans purchased for our portfolio that we subsequently securitize. It also will apply to mortgages pooled pursuant to the new Trust Agreement. A mortgage loan in an MBS pool can only be modified after it has been removed from the MBS pool. Servicers are also reminded that mortgage loan modifications must be signed by an authorized representative of the servicer and must reflect the actual date of signature by the servicer s representative. Signature by the servicer s authorized representative must not occur until after the mortgage loan has been removed from the MBS pool and either reclassified as a Fannie Mae portfolio mortgage or repurchased by the servicer. Although a servicer may not agree (sign and date a written agreement) to a mortgage loan modification with a borrower prior to the mortgage loan being removed from the MBS pool, the servicer can begin the process leading up to a mortgage loan modification prior to the removal of the mortgage loan from the MBS pool. For example, during the period prior to Announcement Page 8

9 the removal of a mortgage loan from an MBS pool, a servicer may analyze the borrower s suitability for a mortgage loan modification, may negotiate with the borrower regarding the terms of a mortgage loan modification, and may submit documentation to the borrower. We will provide further information to clarify for servicers when a loan is removed from a pool and thus may be modified. A related issue is the acceptance of payments from borrowers in anticipation of a mortgage loan modification being approved after the removal of the mortgage loan from an MBS pool. In accordance with Section of Part III of the Servicing Guide, and, if permitted by the applicable loan documents, servicers may accept and hold as unapplied funds (held in a T&I custodial account) amounts paid pending a proposed mortgage loan modification that is in negotiation and anticipated to be approved after removal of the mortgage loan from an MBS pool. Once the request for a mortgage loan modification is approved, the appropriate entry is made on Fannie Mae systems and the servicer has signed and dated the loan modification, the servicer immediately should apply any amounts held as unapplied funds as one or more scheduled payments and remit the funds to us. If the request is not approved, the servicer immediately should apply the unapplied funds to any scheduled installments that are due and should contact the borrower to determine what should be done with any remaining funds. Servicers must have appropriate policies, procedures, and controls to ensure compliance with our requirements regarding mortgage loan modifications. Roles of Fannie Mae and Servicers Servicing Guide Part I: Lender Relationships; Chapter 2, Contractual Relationship; Section 202, Servicer s Basic Duties and Responsibilities. The Trust Agreement clarifies the relationships between Fannie Mae and servicers of MBS mortgage loans, essentially documenting the basic relationship under the Trust Indenture. Under the Trust Agreement (or the Trust Indenture), mortgage loans and the proceeds of those loans are held by Fannie Mae as trustee for the benefit of the MBS Trusts and their beneficial owners, the MBS investors; the servicer is responsible for servicing MBS loans for the MBS Trusts that own the loans. Fannie Mae also is the master servicer for the MBS Trusts, and, in that capacity, contracts with the servicer as the direct servicer and has the responsibility for assuring that servicing is performed in accordance with the Trust Agreement or the Trust Indenture, as applicable. Daily servicing operations are performed by the direct servicers pursuant to the Mortgage Selling and Servicing Contract, any applicable Pool Purchase Contract or other agreement (such as a master agreement, if any) applicable to the purchase and servicing of loans in MBS. The Trust Agreement uses the term Servicing Contract to refer to any of the documents between a servicer and Fannie Mae relating to the servicing of MBS loans. By servicing MBS loans, the servicer agrees that (1) a successor to Fannie Mae as master servicer for the MBS Trusts automatically will succeed to the rights of Fannie Mae under any Announcement Page 9

10 Servicing Contract and will have authority to enforce the terms and conditions of the applicable Servicing Contract, including the authority to terminate the servicer (in accordance with the terms of the Servicing Contract) and to appoint a replacement servicer, and (2) the trustee (on behalf of the Trusts) and Fannie Mae as guarantor are third-party beneficiaries of the Servicing Contract between that servicer and Fannie Mae, with the authority to enforce such contract. ***** As Fannie Mae and our servicers prepare to implement these changes, we welcome any questions or comments from our servicers. Servicers should contact their Servicing Consultant or Customer Account Manager, or call our National Servicing Organization s Customer Care Center at if they have any questions on the information in this Announcement. Pamela S. Johnson Senior Vice President Announcement Page 10