COVID-19 FAQs Selling - Selling Loans In Forbearance
Last Updated: Jan. 14, 2021
In response to the COVID-19 national emergency, Fannie Mae and Freddie Mac have provided temporary guidance to lenders on several policy areas to support mortgage originations. These FAQs provide additional information on the temporary policies. We will be adding more FAQs, therefore we encourage you to check in frequently for updates - refer to the "NEW" or "UPDATED" notations after the question.
Does Fannie Mae purchase loans that are in forbearance?
Yes, certain loans that go into forbearance after loan closing and before sale to us became eligible for sale beginning May 1, 2020. All loans must have note dates on or before Dec. 31, 2020. Refer to LL-2020-06, Selling Loans in Forbearance Due to COVID-19 for eligible delivery dates, and all eligibility and delivery requirements. Note: These dates and the policies in this Lender Letter will not be extended further.
- What are the scenarios under which a lender should self-report a loan in forbearance?
If a lender discovers a loan was in forbearance after the loan data was submitted to Loan Delivery but prior to the sale date (the date funds or the security is swapped), the lender must self-report the loan. These situations include:
- The loan was sold before LL-2020-06 was published or prior to May 1.
- The loan data was delivered after May 1 but did not include the SFC 919 because the borrower went into forbearance while the loan was in Fannie Mae acquisitions processing.
- The loan data was delivered after May 1 and the sale was consummated, but the loan data did not include the SFC 919.
- How does a lender self-report loans to Fannie Mae?
All self-reporting takes place in Loan Quality Connect™. This includes creating and submitting the self-report, uploading all supporting documentation, and tracking a loan's status as we make a decision as to how to proceed. To facilitate the self-reporting process for COVID-19 loans, we added “COVID forbearance” to the self-report reason menu in Loan Quality Connect.
As a reminder, the lender must notify us within 30 days of identifying loans not eligible for delivery. Refer to D1-3-06, Lender Post-Closing Quality Control Reporting, Record Retention, and Audit, for all of our self-reporting requirements. A Job Aid on how to self-report is available to assist lenders with this process.
- Are loans in forbearance eligible for the concurrent sale of servicing through the Servicing Marketplace (SMP)?
Yes, but forbearance eligibility will vary by servicer. Some servicers may not purchase servicing for loans in forbearance. Lenders should confirm with their SMP servicers whether they are accepting servicing on loans in forbearance and review their servicer rate sheets for any adjustments or exclusions for SFC 919.
- Are loans in forbearance eligible for the concurrent sale of servicing through the Servicing Execution Tool (SET)?
Loans in forbearance are ineligible for sale through SET.
- If a loan goes into forbearance on the sale date of the loan, does the lender owe the LLPA?
Yes. If the forbearance begins any time on the sale date of the loan, the LLPA is due to Fannie Mae. (See the Job Aid for how to self-report this action to us.) For whole loans, the sale date is the date that Fannie Mae sends funds via wire transfer to the lender. For MBS, the sale date is the date that Fannie Mae issues MBS securities to the lender or to the investor designated by lender (also known as the settlement date) and takes ownership of, and title to, the loan. See Receiving Sale Proceeds or Securities in the C1-2-01, General Information on Delivering Loan Data and Documents. For additional guidance on loans or pools in an Early Funding transaction contact your Capital Markets’ representative.
- Is a loan subject to the temporary requirements of LL-2020-06, if the borrower went into forbearance after the note date, did not miss any mortgage payments, and the forbearance subsequently ended before the loan was sold to Fannie Mae?
The loan is not subject to the requirements of the Lender Letter and is eligible for standard sale terms and conditions if the lender verifies and documents in the loan file the following requirements:
- The forbearance plan ended or was terminated.
- The borrower did not miss any payments before sale to Fannie Mae.
- The borrower did not experience a change in circumstance or financial hardship after the note date.
As a reminder, the loan must meet all requirements of the Selling Guide.
- If, as a result of a QC review on a loan delivered under the temporary flexibilities described in LL-2020-06, Fannie Mae discovers that the borrower went into forbearance after closing but lost their employment on or before the day of closing, will the lender have to repurchase the loan?
If a borrower was not employed on the note date, the loan would be ineligible regardless of the temporary flexibilities in LL-2020-06. We would cite a significant defect and the loan would be subject to repurchase unless there was other eligible income documented and the loan satisfies our qualification requirements. Our standard QC process includes an opportunity for lenders to provide additional information or documentation in the rebuttal process.
- I delivered a loan that does not meet the sale requirements for a loan in forbearance outlined in LL-2020-06. How will these be handled?
Lenders must self-report any loan that did not meet the requirements for the sale of loan in forbearance set forth in the Lender Letter in accordance with self-reporting provisions set forth in D1-3-06, Lender Post-Closing Quality Control Reporting, Record Retention, and Audit. (Also see Q125. “How does a lender self-report loans to Fannie Mae?” for additional information about self-reporting.)
Fannie Mae will require the responsible party (“lender”) to remedy the loan as described below.
|Prior to 5/1/2020||The loan meets all of the eligibility requirements of LL-2020-06, including note date, loan purpose, and pay history requirements, except that the delivery date was prior to 5/1/20||The lender may elect to pay the applicable LLPA identified in LL-2020-06 or repurchase the loan.|
|Prior to 5/1/2020||The loan does not meet note date, loan purpose, or pay history requirements of LL-2020-06.||The lender must repurchase the loan.|
|On or after 5/1/2020||The loan does not meet note date, loan purpose, or pay history requirements of LL-2020-06.||The lender must repurchase the loan.|
The remedies set forth above are subject to the following conditions:
- In the scenario where the lender may elect a remedy, that remedy must be applied to all loans meeting those conditions and must be applied equally across both Fannie Mae and Freddie Mac.
- All whole loan deliveries are subject to the premium recapture requirements outlined in C1-1-01, Execution Options (Premium Pricing Recapture).
- For repurchased loans, Fannie Mae will require indemnification for losses arising from investor claims due to prepayment.
- I delivered a loan that meets the sale requirements for a loan in forbearance outlined in LL-2020-06, but I did not include SFC 919. How will this be handled?
The lender must self-report any loan in forbearance that meets the requirements of LL-2020-06 but did not contain SFC 919. Fannie Mae will work with you to make the necessary data corrections and apply the appropriate LLPA.
- Will Fannie Mae offer any repurchase alternatives for loans in forbearance that do not meet the eligibility requirements of LL-2020-06, where the only identified remedy is repurchase?
No. Other than the specific instances where an LLPA is identified as a remedy, there will be no repurchase alternatives offered.
- How do I make my election to repurchase or pay the LLPA?
Lenders should contact their Fannie Mae account team to make their respective election. Your account team will provide guidance on formalizing your remedy election.
- Can I change my election?
Given the need for close coordination of this decision between the GSE’s, once you have made your decision that will be your final election for loans impacted by LL-2020-06. Any loan that is self-reported subsequently or identified in a subsequent QC review is subject to your initial remedy election.
- In the instance where I may choose either repurchase or the LLPA to remedy the defect, am I able to elect different remedies for loans sold to Fannie Mae or Freddie Mac?
No. You must elect the same remedy for all loans in the scenario where an election is possible regardless of which GSE the loan was sold to.
- Will my election for self-reported loans apply to loans that are discovered by Fannie Mae through its QC process?
Yes. The same remedies will apply to loans identified by Fannie Mae though its QC process. If QC identifies other significant defects for loans sold prior to 5/1 and the lender elected to pay the LLPA, those significant defects could result in repurchase.
- How do I calculate potential investor claims if I decide to repurchase loans instead of paying an LLPA?
There is no pre-defined criteria or calculation for a claim amount from an investor. Investors can evaluate several factors on which they believe that they have been financially harmed due to an event, like a loan repurchase. You may contact your Fannie Mae account team to discuss.
- When does forbearance end?
Forbearance ends on the scheduled last day of the forbearance term, unless the servicer and borrower agree to shorten the forbearance term, in which case the forbearance ends on the agreed-upon date.