Selling Guide

Published June 3, 2020

The Selling Guide is organized into parts that reflect how lenders generally categorize various aspects of their business relationship with Fannie Mae. To begin browsing, select from any of the sections below. You may also download the entire Selling Guide in PDF format.

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C1-2-04, Bailee Letters (04/03/2018)


This topic provides information on bailee letters, including:

Bailee Letters

Bailee letters typically state that:

  • the notes identified in the letter are pledged to the named third party,

  • the lien of the third party’s security interest will be released only if the proceeds from the transfer of the mortgages to Fannie Mae are delivered to the third party in accordance with the delivery instructions in the letter, and

  • the recipient holds the notes as a “bailee” (or in trust) for the third party until the third party either receives the proceeds (cash or securities) or receives back the notes for any mortgages that were not purchased or securitized.

The term “bailee letter” includes any communication that notifies a document custodian of any of the following:

  • the notes are pledged to a third party;

  • the notes are subject to a security interest or lien held by a third party;

  • the notes are owned by, or titled in the name of, a third party (for example, mortgages that are subject to a sale and repurchase arrangement); or

  • the notes are subject to some other claim or interest held by a third party that would, if it were not released, result in Fannie Mae’s acquiring less than clear, unencumbered, and exclusive title to the mortgage notes.

The requirements for processing bailee letters and other notification of third-party interests in mortgage loans will differ based on whether the loans are being certified by a document custodian operating under a Master Custodial Agreement (Form 2003), Designated Custodian Master Custodial Agreement (Form 2010), or Master Custodial Agreement (Form 2017). See Fannie Mae’s RDC guide for additional information.

Resolution of Mismatched Delivery Instructions

Fannie Mae will undertake to identify mismatches and to achieve matches in delivery instructions promptly, in good faith, and in accordance with reasonable business practices.

Liability for Losses Incurred by a Mortgage Seller or any Other Party

Fannie Mae will not be liable for any losses that a mortgage seller or any other party incurs as the result of Fannie Mae’s actions or omissions related to these procedures, including Fannie Mae’s execution of (or failure to execute) specific steps, and any resulting delay.

A mortgage seller is obligated to ensure that Fannie Mae takes free and clear title to the mortgages it delivers to Fannie Mae; therefore, it must make sure that its delivery instructions match those of its warehouse lender before it delivers the mortgage to Fannie Mae. Because of this obligation, the mortgage seller will be fully responsible for any trading or settlement delays (including those Fannie Mae experiences) that arise as the result of mismatches in delivery instructions. (See C3-7-06, Settling the Trade, for information on how to settle different delivery instructions.) Further, the execution of these procedures will not constitute a waiver of any of the rights and remedies Fannie Mae has under the mortgage seller’s representation and warranty that the title to any mortgage note it delivers to Fannie Mae is free and clear of any security interest, lien, pledge, or other encumbrance.

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