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C1-2-03, Ownership of Mortgage Loans Prior to Purchase or Securitization and Third-Party Security Interests (04/06/2022)

This topic provides information on the following:

Mortgage Loan Certification Overview

The Fannie Mae certification processes for whole loan and MBS deliveries are designed to assure Fannie Mae and the marketplace that all mortgage loans purchased or securitized by Fannie Mae conform to Fannie Mae’s requirements and are not subject to any liens or claims of any third parties. Therefore, it is in Fannie Mae’s interest that liens and claims in and to such notes are properly resolved as part of the loan pooling, certification, and acquisition processes.

It is critical to Fannie Mae’s purchase or securitization of mortgage loans that Fannie Mae receives good delivery of loans that conform to Fannie Mae’s requirements and, if applicable, meet the characteristics attributed to them in MBS disclosures. Therefore, Fannie Mae requires that mortgage sellers deliver mortgage documents to document custodians for review and certification prior to Fannie Mae’s purchase or securitization of the loans. Document custodians must review all documents to ensure that all of the required documentation has been received and conform to Fannie Mae’s requirements. Fannie Mae will not purchase whole loans or issue MBS until after it has received the document custodian’s certification. The certification will state that the custodian has examined and maintains physical custody and control of the required documents for the mortgages.

Control of Mortgage Notes During the Loan Certification Processes

Fannie Mae recognizes that possession of notes is an important element of a note owner’s or secured lender’s protection of its rights. However, the nature of the whole loan purchase and MBS pooling and securitization processes requires that Fannie Mae, through its document custodian, obtains control of the notes as part of the certification review process and maintains control through the completion of the purchase or securitization process. Fannie Mae cannot purchase whole loans or permit pools to close and securities to be issued without being assured of continued control of the underlying notes.

Fannie Mae does not assert that it obtains ownership or title to the notes during the certification processes until such time as the purchase proceeds (cash or securities) for the certified loans are remitted pursuant to the terms of the purchase or securitization transaction. Any modifications or revisions to the terms of the notes or further physical movement of the notes during these processes are restricted; the certified documents must be “locked down” under the document custodian’s control prior to Fannie Mae’s remittance of the purchase proceeds. Fannie Mae recognizes that the legal rights of the mortgage seller delivering the notes (or, as applicable, of its warehouse lender) are unaffected by the certification processes until Fannie Mae has remitted purchase proceeds.

Ownership Interest and Title to Mortgage Notes

Effective upon the remittance of the purchase proceeds, Fannie Mae and/or its MBS trusts obtains and holds ownership and title to the notes and the notes will then be held by the document custodian on behalf of Fannie Mae. If the transaction fails to close as contemplated by the contract between Fannie Mae and the mortgage seller and purchase proceeds are not wired, Fannie Mae claims no ownership interest in the notes and requires that the document custodian return the notes to the mortgage seller or its warehouse lender, as applicable.

Conflicts Regarding Rights in Mortgages

If Fannie Mae becomes aware of any issues in which the rights of another party might impair its unqualified title to any mortgages that are delivered to Fannie Mae (including but not limited to a bailee letter), then Fannie Mae will not be required to deliver the related purchase proceeds in accordance with the lender’s delivery instructions until the issue is resolved to Fannie Mae’s satisfaction and Fannie Mae receives adequate assurances that it will have unqualified title to the mortgages.

Fannie Mae will not be responsible for the consequences of any delay in the delivery of the proceeds that results from its having to resolve an issue related to title to the mortgages.

Fannie Mae has established procedures for resolving title issues presented by its receipt of a bailee letter. See  C1-2-05, Bailee LettersC1-2-05, Bailee Letters for lender requirements and Fannie Mae’s Requirements for Document Custodians (RDC guide) for document custodian requirements.

These processes are intended solely to verify the accuracy of certain loan information delivered by the mortgage seller (and not to benefit any third party). These procedures do not apply when the same corporate entity is both the warehouse lender claiming an interest and the document custodian because, by its execution of Fannie Mae’s Master Custodial Agreement, (Form 2017), the lender releases any interest it may have in the mortgage notes when it takes possession of them as Fannie Mae’s document custodian.

Recent Related Announcements

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

Announcements Issue Date
Announcement SEL-2022-03 April 06, 2022