Fannie Mae Issues New Servicing Rules For Temporary Buydowns

Fannie Mae has updated its servicing guidelines for temporary interest-rate buydowns, calling for immediate adoption ahead of a Nov. 1 mandate.

The changes outline how to apply buydown funds in different workout scenarios, along with updated borrower notification requirements.

The guidance, posted to Fannie’s site on Aug. 13 in a bulletin, comes as secondary market attention to temporary buydowns has prompted new directives from Ginnie Mae and Freddie Mac.

Fannie Mae, which purchases a large share of U.S. mortgages, said it expects servicers to give borrowers advance notice before a buydown ends and their interest rate rises.

“For mortgage loans subject to a temporary interest rate buydown plan, servicers must send notification to the borrower detailing a pending interest rate increase 90 days prior to the payment change,” the government-sponsored enterprise said in its bulletin.

Fannie also issued specific directions for workout situations, subject to the terms of the buydown agreement:

• Flex modifications: Servicers should “apply interest-rate buydown funds to reduce the arrearages” and use Fannie’s updated loan-modification agreement form to show the change.
• Late payments: Servicers “must not apply interest rate buydown funds to reduce the delinquency amount in connection with a reinstatement, repayment plan, or payment deferral” unless the agreement specifically permits it.
• Mortgage release: Servicers must “ensure that the borrower waives reimbursement of any interest rate buydown funds” tied to the release.

Other changes in the servicing update include expanded flexibility for payment reminders by “extending the time to send such notices from the 17th day of delinquency to the 20th day of the month,” with some exceptions.

That rule takes effect immediately and becomes formal Dec. 1.