Selling Guide

Published June 3, 2020

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B7-1-05, Government Mortgage Loan Guaranty or Insurance (02/23/2016)

Introduction

This topic contains information on government mortgage loan guaranty or insurance, including:


Evidence of Government Guaranty or Insurance

Lenders must obtain the required government guaranty or government insurance. The following table lists the acceptable forms of evidence of government guaranty or insurance:

Mortgage Type Evidence
FHA FHA Mortgage Insurance Certificate (HUD Form 59100)
VA VA Loan Guaranty Certificate (VA Form 26-1899)
RD RD Loan Note Guarantee (Form RD 1980-17)
HUD Section 184 Indian Loan Guarantee Certificate (HUD Form 53039)


Inability to Obtain Guaranty or Insurance Prior to Delivery

Evidence of the guaranty or insurance should be obtained before loan delivery, if possible. If this is not possible, the lender represents and warrants, by delivery of the loan, all of the following:

  • A complete and satisfactory mortgage guaranty or insurance application was submitted to the government agency within the required time frame, either based on an agency’s prior approval of the loan application and issuance of a commitment to insure or guarantee, or subject to an agency’s delegated or automatic loan approval processing, as applicable.

  • The mortgage insurance premiums, funding fee, or guarantee fees were paid to the government agency within the government agency’s required time frame.

  • The government agency has the legal authority to issue the guaranty or insurance and will have such authority for long enough to issue the guaranty or insurance within a time period that is consistent with its past practice.

After delivery of a mortgage loan, if a lender fails to obtain the guaranty or insurance in a timely manner, as determined by Fannie Mae, the lender must repurchase the mortgage and make Fannie Mae whole for any losses incurred by Fannie Mae. In addition, Fannie Mae may suspend or terminate the lender’s authority to deliver the following:

  • mortgages for which it has not already received the government mortgage guaranty or insurance,

  • any government mortgage or any particular category of government mortgage, or

  • any mortgage.

The lender must notify its Fannie Mae customer account team if the government agency declines to issue the mortgage guaranty or insurance for any reason for any loan delivered to Fannie Mae.

Fannie Mae may require the lender to provide periodic reports on the guaranty or insurance status for all government mortgages sold to Fannie Mae. Such reports must be provided within the requested time frame.


Lapse of Governmental Authority

Occasionally, a government agency’s guaranty or insurance authority may lapse. This occurrence is in contrast to ordinary circumstances in which there may be a delay in obtaining the government guaranty or insurance, but there is no reason to expect the government agency not to provide the guaranty or insurance within a time period that is consistent with its past practice.

Mortgages that are not yet guaranteed or insured due to a lapse of governmental authority must be delivered with the government loan identifier in accordance with Fannie Mae’s usual procedures. However, for credit enhancement purposes, Fannie Mae treats such mortgages as conventional mortgages, rather than as government mortgages.

Fannie Mae will accept delivery of such mortgages only if:

  • The government agency is continuing to accept applications and permit lenders to create direct endorsements or conditional commitments during the period of the lapse.

  • The delivery is for portfolio purchase rather than issuance of MBS.

  • The lender agrees to the repurchase requirements described below.

The lender must repurchase the mortgage and make Fannie Mae whole for any losses incurred by Fannie Mae in the following situations:

  • for whole loans in Fannie Mae's portfolio, if the mortgage becomes delinquent before the insurance or guaranty is issued;

  • the lender fails to notify Fannie Mae of its receipt of the guaranty or insurance within 60 days of when the government agency resumes issuance of the guaranty or insurance;

  • the lender delivers a mortgage that the government agency cannot insure or guarantee.


Special Feature Code for Lapse of Government Authority

When a lender delivers mortgages during a lapse in government authority, it must include the government loan identifier in accordance with Fannie Mae’s usual procedures and report SFC 001 at delivery, to indicate the existence of the lender’s repurchase obligation in lieu of the government guaranty or insurance.

Upon receipt of the guaranty or insurance, the lender must contact its Fannie Mae customer account team to request removal of SFC 001. Once it is removed, Fannie Mae’s record will reflect that the mortgage is government guaranteed or insured.

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