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B2-1.3-04, Prohibited Refinancing Practices (08/04/2021)

This topic contains information on prohibited refinancing practices, including:

Lender Solicitation for Refinancing

Sellers/servicers may not:

  • specifically target Fannie Mae borrowers for offers to refinance;

  • treat loans they hold in their own portfolios and those sold to another investor or Fannie Mae as separate classes of loans for purposes of promoting refinancing.

Sellers/servicers may not, as a means of making a loan eligible for repurchase from an MBS pool (for future refinancing), encourage a borrower to refrain from making loan payments.

Prearranged Refinancing Agreements

Sellers/servicers may not deliver a loan to Fannie Mae that is in the process of being refinanced. Fannie Mae considers the delivery of a seasoned loan that is in the process of being refinanced as a form of targeting, and is therefore unacceptable, even if no agreement for future refinancing was entered into at the time of origination. The seller/servicer must have in place procedures to ensure that it does not deliver to Fannie Mae any loan that it is in the process of refinancing or acquiring from, or funding for, a third-party originator.

Similarly, a seller/servicer may not deliver a loan to Fannie Mae if the seller/servicer (or any affiliate or third-party originator) and the borrower have entered into an arrangement:

  • for special terms (such as reduced fees) for a future refinance of the loan - unless the seller/servicer obtains a negotiated contract from Fannie Mae that allows delivery of the loan in spite of its shortened prepayment expectation. If the seller/servicer believes that there might be such a refinance agreement, the seller/servicer should contact its Fannie Mae customer account team to determine whether the loan is eligible for delivery.
  • to complete a refinance transaction that circumvents Fannie Mae's cash-out refinance policies and pricing. A transaction is not eligible as a limited cash-out refinance if the borrower completed a cash-out refinance transaction with a note date 30 days or less prior to the application date of a new refinance secured by the same property.

Agreements to Advance Borrower Payments

Refinancing arrangements that call for the seller/servicer to advance a number of payments on the borrower’s behalf and then to refinance the mortgage once the agreed-upon payments have been advanced are not permitted.

Fannie Mae also restricts refinancing practices that affect prepayment patterns. Fannie Mae analyzes MBS pools that have high levels of prepayments. If such analysis raises concerns about a seller/servicer’s practices, Fannie Mae may review the seller/servicer’s origination and refinancing activities to ensure compliance with our requirements. With respect to any mortgage loan that pays off within 120 days from the whole loan purchase date or the MBS issue date, Fannie Mae in its sole discretion may require reimbursements by the seller/servicer for any premium paid or buyup proceeds paid in connection with the purchase of the mortgage loan. (For mortgage loans repurchased by a seller/servicer, Fannie Mae may require reimbursement in its sole discretion, without regard to the 120-day limitation.) See C1-1-01, Execution OptionsC1-1-01, Execution Options and C3-3-02, Accessing Buyup and Buydown Ratios and Calculating Payments or ChargesC3-3-02, Accessing Buyup and Buydown Ratios and Calculating Payments or Charges for specific requirements.

Conditional Tenders of Payment

Conditional tenders of payment are not an acceptable alternative to refinancing for Fannie Mae loans, regardless of whether they relate to a loan being serviced for Fannie Mae or to a loan that is being delivered to it. Fannie Mae does not consider a refinancing to have occurred unless the mortgage debt is satisfied and the lien against the property is released. The only exceptions to this are

  • negotiated transactions involving seasoned loans held in a seller/servicer’s portfolio that have been modified since they were originated; and

  • transactions involving loans secured by properties in New York that are originated under the statutory provisions that permit refinanced loan to be documented by a consolidation, extension, and modification agreement.

If the transaction that permits the refinance to be documented by a consolidation, extension and modification agreement is related to an eMortgage, the seller/servicer must follow the applicable procedures in the Servicing Guide.

The seller/servicer must not

  • use conditional tenders of payment as a refinancing alternative, or

  • honor requests it receives for conditional tenders of payment for any loan that it services for Fannie Mae.

The seller/servicer that offers conditional tenders of payment as a refinancing alternative must not deliver any refinanced loan to Fannie Mae unless it is documented by a new note and a new loan, unless it is one of the previously mentioned authorized exceptions.

If Fannie Mae’s post-purchase underwriting performance review of a refinanced loan reveals that the conditional tender of payment procedure was used as an alternative to refinancing the loan, Fannie Mae will require the seller/servicer to repurchase the loan in question and, if multiple occurrences of this practice are identified, Fannie Mae may take other appropriate action against the seller/servicer.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2021-07 August 04, 2021
Announcement SEL-2020-05 September 02, 2020
Announcement SEL-2019-07 August 07, 2019