Modified Loans
A modified loan is a loan that was legally modified after loan closing in a way that changed any of the loan terms or attributes reflected in the original note. In general, loans with material modifications, such as changes to the original loan amount, interest rate, final maturity, or product structure, are not eligible for delivery to Fannie Mae.
A loan whose note was corrected to effect technical or typographical corrections is not considered to be a modified loan and is eligible for delivery. All of the changes must correct errors in the executed documents, which reflect the terms of the original loan transaction. None of the changes can be the result of a subsequent modification or amendment to the original loan amount, interest rate, or other material loan term. The correction may not result in a change to, or create any inconsistencies with, other legal documents.
Fannie Mae permits the delivery of certain other modified loans based primarily on whether the loan was owned or securitized by Fannie Mae prior to the modification, or the modification of the loan was done in accordance with a standard product or is common and customary in a certain area.
The table below provides a comprehensive overview of Fannie Mae requirements applicable to the delivery of modified loans. If the loan is not eligible in accordance with standard Selling Guide provisions, it may be eligible in accordance with a variance. Such variances may be subject to additional terms and conditions.
| Category of Modification | Owned or Securitized by Fannie Mae Prior to or at Time of Modification? | Eligible for Delivery to Fannie Mae After Modification? | Selling Guide or Servicing Guide Reference |
|---|---|---|---|
| Converted ARMs | Yes | Yes | Selling Guide: See B2-1.4-03, Convertible ARMs, for convertible ARMs that are redelivered to Fannie Mae after their removal from an MBS pool |
| No | No | N/A | |
| Maturing Balloon with Conditional Right to Refinance or Modify | No | No | N/A |
| Borrower Principal Curtailment and Recast Over Remaining Term | Yes | N/A — No redelivery required | Servicing Guide: See Chapter C-1, Processing Mortgage Loan Payments |
| No | No | N/A | |
| Changes to Borrowers Due to Death, Marriage, or Other Allowable Property Transfers | Yes | N/A — No redelivery required | Servicing Guide: See Chapter D1–4, Transfers of Ownership |
| No | No | N/A | |
| Single-Closing Construction-to-Permanent Financing | No | Yes | Selling Guide: See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions |
| New York Consolidation, Extension, and Modification | No | Yes | Selling Guide: See B8-2-02, Special-Purpose Security Instruments |
| Modifications that Result in Material Changes to Loan Terms | No | No | Selling Guide: See Modified Loans, above |
For additional information, see B2-1.5-02, Loan Eligibility.