D2-3.2-06, Fannie Mae Flex Modification (10/11/2023)

If the mortgage loan is current or less than 90 days delinquent, the borrower must submit a complete BRP except as described below.

If the borrower submitted a complete BRP prior to the 90th day of delinquency, the servicer must

• use the information from the Mortgage Assistance Application(Form 710), or equivalent, to determine the borrower's hardship, total income and assets; and
• evaluate the borrower for all workout options in accordance with D2-3.1-01, Determining the Appropriate Workout OptionD2-3.1-01, Determining the Appropriate Workout Option .

A complete BRP is not required and the servicer may solicit an eligible borrower as described in Soliciting the Borrower for a Fannie Mae Flex Modification if the mortgage loan

• is 90 or more days delinquent; or
• was previously modified into a mortgage loan with a step-rate feature, an interest rate adjustment occurred within the last 12 months, and the mortgage loan became 60 days delinquent after the interest rate adjustment.

Note: For purposes of determining the submission date in connection with the borrower's submission of a complete BRP, the servicer must use the date of the postmark or other independent indicator such as date and time stamp (electronic or otherwise).

Determining Eligibility for a Fannie Mae Flex Modification

In order to be eligible for a Fannie Mae Flex Modification, all of the criteria in the following table must be met.

Note: The property securing the mortgage loan may be vacant or condemned.

• a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
• an approved liquidation workout option,
• an active and performing repayment plan,
• a current offer for another retention workout option, or
• an active and performing modification Trial Period Plan.

Note: A payment deferral does not count as a mortgage loan modification when determining the number of times the mortgage loan has previously been modified for purposes of determining eligibility for a Fannie Mae Flex Modification.

Note: Converting from a Trial Period Plan to a forbearance plan is not considered a failed Trial Period Plan.

If the borrower has experienced a disaster-related hardship, the servicer must follow the requirements described in Evaluating or Soliciting a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification.

If the eligibility criteria for a Fannie Mae Flex Modification is not satisfied, but the servicer determines there are acceptable mitigating circumstances, the servicer is authorized to offer a mortgage loan modification outside of these requirements by submitting a request through Fannie Mae's servicing solutions system for review and obtaining prior approval from Fannie Mae. Generally, the servicer's determination of acceptable mitigating circumstances is based on a review of the borrower's complete BRP.

If the borrower converts from a Trial Period Plan to a forbearance plan, the borrower may subsequently be eligible for a Fannie Mae Flex Modification upon successful completion of the forbearance plan and, if eligible, must be placed in a new Fannie Mae Flex Modification Trial Period Plan based on the delinquency status at the time of the evaluation for the Fannie Mae Flex Modification.

Determining Eligibility for a Fannie Mae Flex Modification for a Texas Section 50(a)(6) Loan

A Texas Section 50(a)(6) loan is eligible for a Fannie Mae Flex Modification if

• the requirements described in Determining Eligibility for a Fannie Mae Flex Modification are satisfied, and
• the mortgage loan is modified in accordance with applicable law.

If the servicer receives a notice from the borrower that a mortgage loan modification fails to comply with Texas Constitution Section 50(a)(6) requirements, the servicer must immediately, but no later than seven business days after receipt, take the actions listed in the following table.

Performing an Escrow Analysis

The servicer must perform an escrow analysis prior to offering a Trial Period Plan. See Administering an Escrow Account in Connection With a Mortgage Loan Modification in B-1-01, Administering an Escrow Account and Paying ExpensesB-1-01, Administering an Escrow Account and Paying Expenses for additional information.

Any escrow account shortage that is identified at the time of the mortgage loan modification must not be capitalized and the servicer is not required to fund any existing escrow account shortage.

If applicable law prohibits the establishment of the escrow account, the servicer must ensure that the T&I payments are paid to date.

Determining the Fannie Mae Flex Modification Terms

The servicer must follow the procedures in Obtaining a Property Valuation in F-1-27, Processing a Fannie Mae Flex ModificationF-1-27, Processing a Fannie Mae Flex Modification for determining the property value. The servicer must determine the post-modification MTMLTV ratio, which must include capitalized arrearages. The following table describes the servicer's action depending on the post-modification MTMLTV ratio and the delinquency of the mortgage loan.

The servicer must follow the procedures in Determining the New Modified Mortgage Loan Terms in F-1-27, Processing a Fannie Mae Flex ModificationF-1-27, Processing a Fannie Mae Flex Modification for determining the borrower's new modified mortgage loan terms. The servicer must request Fannie Mae's prior written approval through Fannie Mae's servicing solutions system to deviate from the prescribed steps for determining the new modified mortgage payment terms, unless a certain step is prohibited by applicable state law.

The following table lists additional Fannie Mae Flex Modification requirements.

Note: An ARM or interest-only mortgage loan must be converted to a fully amortizing mortgage loan and may not be a bi-weekly or daily simple interest mortgage loan.

When the servicer submits a request through Fannie Mae's servicing solutions system for Fannie Mae's approval of a Fannie Mae Flex Modification based on the borrower's submission of a BRP, in accordance with applicable law it must:

• immediately provide the borrower with notice of the right to receive a copy of all appraisals and other valuations developed in connection with the mortgage loan modification, and
• provide the borrower a copy of all appraisals and other valuations developed in connection with the mortgage loan modification.

Prior to granting a permanent mortgage loan modification, the servicer must place the borrower in a Trial Period Plan using the new modified mortgage loan terms.

Offering a Trial Period Plan and Completing a Fannie Mae Flex Modification

The servicer must communicate with the borrower that the mortgage loan modification will not be binding, enforceable, or effective unless all conditions of the mortgage loan modification have been satisfied, which is when all of the following have occurred:

• the borrower has satisfied all of the requirements of the Trial Period Plan,
• the borrower has executed and returned a copy of the Loan Modification Agreement (Form 3179), and
• the servicer or Fannie Mae (depending upon the entity that is the mortgagee of record) executes and dates Form 3179.

The servicer must use the applicable Evaluation Notice to document the borrower's Trial Period Plan. See Sending a Notice of Decision on a Workout Option in D2-2-05, Receiving a Borrower Response PackageD2-2-05, Receiving a Borrower Response Package for requirements relating to the Evaluation Notice, and the additional requirements provided in the table below.

The following table provides the requirements for the length of the Trial Period Plan, which must not change even if the borrower makes scheduled payments earlier than required.

If the borrower fails to make a Trial Period Plan payment by the last day of the month in which it is due, the borrower is considered to have failed the Trial Period Plan and the servicer must not grant the borrower a permanent Fannie Mae Flex Modification.

The servicer must use the Form Modification Cover Letter to communicate a borrower's eligibility for a permanent Fannie Mae Flex Modification, which must be accompanied by a completed Form 3179.

The servicer must ensure that the modified mortgage loan retains its first lien position and is fully enforceable in accordance with its terms.

Electronic documents, signatures, and notarizations for Fannie Mae Flex Modifications are acceptable as long as the electronic record complies with Fannie Mae's requirements. See Selling Guide A2-4.1-03, Electronic Records, Signatures, and Transactions for Fannie Mae's requirements for electronic records.

The servicer must follow the procedures in Executing and Recording the Loan Modification Agreement and Adjusting the Mortgage Loan Account Post-Mortgage Loan Modification in F-1-27, Processing a Fannie Mae Flex ModificationF-1-27, Processing a Fannie Mae Flex Modification for preparing, executing, recording Form 3179 and for adjusting the mortgage loan account upon completion of the mortgage loan modification. The servicer must also follow the procedures in Loan Modifications for an eMortgage in F-1-26, Servicing eMortgagesF-1-26, Servicing eMortgages for additional requirements when the modified mortgage loan is an eMortgage.

Soliciting the Borrower for a Fannie Mae Flex Modification

Except as specified in the note below, if the mortgage loan is 90 or more days delinquent and the servicer determines that the borrower is eligible for a Fannie Mae Flex Modification and at least one of the following circumstances are met, the servicer must solicit the borrower for a Fannie Mae Flex Modification between the 90th and 105th day of delinquency:

• the borrower did not submit a complete BRP before the 90th day of delinquency;
• prior to soliciting the borrower, the servicer previously conducted an evaluation of the complete BRP and determined that the borrower was not eligible for a workout option in accordance with this Guide; or
• the borrower has rejected all other alternatives to foreclosure offered by the servicer.

Note: If the mortgage loan was previously modified into a mortgage loan with a step-rate feature, an interest rate adjustment occurred within the last 12 months and the mortgage loan became 60 days delinquent after the interest rate adjustment, and the servicer determines that the borrower is eligible for a Fannie Mae Flex Modification without having to evaluate a complete BRP, the servicer must send the solicitation to the borrower between the 60th and 75th day of delinquency.

If for any reason the servicer fails to send the solicitation within the prescribed time frame, it must send the solicitation as soon as possible thereafter.

The following table outlines additional scenarios where the servicer must evaluate and then, if eligible, solicit a borrower for a Fannie Mae Flex Modification.

If the servicer is unable to achieve QRPC as described in Contacting a Borrower During a Forbearance Plan Term in D2-3.2-01, Forbearance PlanD2-3.2-01, Forbearance Plan and the borrower is ineligible for a payment deferral as described in Determining Eligibility for a Payment Deferral in D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and, if the mortgage loan is at least 90 days delinquent and the borrower is otherwise eligible, solicit the borrower within 15 days after expiration of the forbearance plan.

In addition, if a borrower does not respond to the payment deferral solicitation by the acceptance date provided in the payment deferral agreement as described in Soliciting the Borrower for a Payment Deferral in D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and, if the mortgage loan is at least 90 days delinquent and the borrower is otherwise eligible, solicit the borrower within 15 days after the expiration of the payment deferral solicitation.

If the borrower does not make their total monthly repayment plan payment by the end of the month in which it is due and the borrower is ineligible for a payment deferral as described in Determining Eligibility for a Payment Deferral in D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and, provided QRPC has not been achieved, the mortgage loan is at least 90 days delinquent, and the borrower is otherwise eligible, solicit the borrower by the 15th day of the following month.

In addition, if a borrower does not make their total monthly repayment plan payment by the end of the month in which it is due and does not respond to the payment deferral solicitation by the acceptance date provided in the payment deferral agreement as described in Soliciting the Borrower for a Payment Deferral in D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and, provided QRPC has not been achieved, the mortgage loan is at least 90 days delinquent, and the borrower is otherwise eligible, solicit the borrower within 15 days after the expiration of the payment deferral solicitation.

If the mortgage loan becomes 60 days delinquent within 6 months of the payment deferral's effective date (see D2-3.2-04, Payment DeferralD2-3.2-04, Payment Deferral for additional information) and the servicer is unable to achieve QRPC, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and, if eligible, solicit the borrower no later than the 75th day of delinquency. Additionally, the servicer is not required to

• receive a complete BRP from the borrower, or
• have previously solicited the borrower for a workout option.

When soliciting the borrower for a Fannie Mae Flex Modification, the servicer must send the borrower the applicable Flex Modification Solicitation Cover Letter with the Flex Modification Trial Period Plan Solicitation Offer - Not Based on an Evaluation of a BRP Evaluation Notice, or the equivalent, and make appropriate changes to these documents, including the applicable Frequently Asked Questions as needed to comply with applicable law.

The servicer is authorized to continue proactive solicitation for a Fannie Mae Flex Modification at its discretion, but must not solicit a borrower if the property has a scheduled foreclosure sale date within

• 60 days of the evaluation date if the property is in a judicial state, or
• 30 days of the evaluation date if the property is in a non-judicial state.

While the borrower remains eligible for a Fannie Mae Flex Modification if a payment is received following the borrower evaluation or solicitation that results in the mortgage loan subsequently becoming less than 90 days delinquent (or less than 60 days delinquent if the mortgage loan was previously modified into a mortgage loan with a step-rate feature and an interest rate adjustment occurred within the last 12 months), the servicer must ensure that the mortgage loan is at least 30 days or more delinquent prior to the commencement of the Fannie Mae Flex Modification Trial Period Plan.

Evaluating or Soliciting a Borrower with a Disaster-Related Hardship for a Fannie Mae Flex Modification

The following table provides the reduced eligibility criteria for evaluating a borrower with a disaster-related hardship for a Fannie Mae Flex Modification.

The disaster event must result in

• a financial hardship (e.g., a loss/reduction of income or increase in expenses) that impacts the borrower’s ability to pay their current contractual monthly payment, and
• either
  • the property securing the mortgage loan experienced an insured loss,
  • the property securing the mortgage loan is located in a FEMA-Declared Disaster Area eligible for Individual Assistance, or
  • the borrower’s place of employment is located in a FEMA-Declared Disaster Area eligible for Individual Assistance.
  • have been current or less than two months delinquent when the disaster occurred, and
  • be at least three months delinquent.
  • a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
  • an approved liquidation workout option,
  • an active and performing repayment plan,
  • a current offer for another workout option, or
  • an active and performing mortgage loan modification Trial Period Plan.

  The following table outlines additional scenarios where the servicer must evaluate and then, if eligible, solicit a borrower with a disaster-related hardship for a Fannie Mae Flex Modification.

  If the servicer is unable to achieve QRPC as described in Contacting a Borrower During a Forbearance Plan Term in D2-3.2-01, Forbearance PlanD2-3.2-01, Forbearance Plan and the borrower is ineligible for a disaster payment deferral, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table above and, if the borrower is otherwise eligible, solicit the borrower within 15 days after expiration of the forbearance plan.

  In addition, if a borrower does not respond to the disaster payment deferral solicitation by the acceptance date provided in the payment deferral agreement as described in Soliciting a Borrower for a Disaster Payment Deferral in D2-3.2-05, Disaster Payment DeferralD2-3.2-05, Disaster Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table above and, if the borrower is otherwise eligible, solicit the borrower within 15 days after the expiration of the disaster payment deferral solicitation.

  If the borrower does not make their total monthly repayment plan payment by the end of the month in which it is due and the borrower is ineligible for a disaster payment deferral as described in Determining Eligibility for a Disaster Payment Deferral in D2-3.2-05, Disaster Payment DeferralD2-3.2-05, Disaster Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table above and, if the borrower is otherwise eligible, solicit the borrower by the 15th day of the following month.

  In addition, if a borrower does not make their total monthly repayment plan payment by the end of the month in which it is due and does not respond to the disaster payment deferral solicitation by the acceptance date provided in the payment deferral agreement as described in Soliciting the Borrower for a Disaster Payment Deferral in D2-3.2-05, Disaster Payment DeferralD2-3.2-05, Disaster Payment Deferral , then the servicer must evaluate the borrower for a Fannie Mae Flex Modification in accordance with the reduced eligibility criteria in the table above and, if the borrower is otherwise eligible, solicit the borrower within 15 days after the expiration of the disaster payment deferral solicitation.

  If the mortgage loan becomes 60 days delinquent within 6 months of the disaster payment deferral's effective date (see D2-3.2-05, Disaster Payment DeferralD2-3.2-05, Disaster Payment Deferral for additional information) and the servicer is unable to achieve QRPC, then the servicer must evaluate the borrower for a Fannie Mae Flex Modification and solicit the borrower no later than the 75th day of delinquency, provided that the mortgage loan is

  • a first-lien conventional mortgage loan, and
  • not subject to
    • a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
    • an approved liquidation workout option,
    • an active and performing repayment plan,
    • a current offer for another retention workout option, or
    • an active and performing mortgage loan modification Trial Period Plan.

    Additionally, the servicer is not required to

    • receive a complete BRP from the borrower, or
    • have previously solicited the borrower for a workout option.

    When soliciting the borrower for a Fannie Mae Flex Modification, the servicer must send the borrower the applicable Flex Modification Solicitation Cover Letter with the Flex Modification Trial Period Plan Solicitation Offer - Not Based on an Evaluation of a BRP Evaluation Notice, or the equivalent, and make appropriate changes to these documents, including the applicable Frequently Asked Questions and as needed to comply with applicable law.

    The servicer is authorized to continue proactive solicitation for a Fannie Mae Flex Modification based on the reduced eligibility criteria at its discretion, but must not solicit a borrower if the property has a scheduled foreclosure sale date within

    • 60 days of the evaluation date if the property is in a judicial state, or
    • 30 days of the evaluation date if the property is in a non-judicial state.

    Handling a Complete Borrower Response Package

    The servicer must acknowledge receipt of the BRP in accordance with Acknowledging Receipt of a Borrower Response Package in D2-2-05, Receiving a Borrower Response PackageD2-2-05, Receiving a Borrower Response Package and provide any complete or incomplete information notice.

    If the borrower submits a complete BRP when the mortgage loan is 90 or more days delinquent, the servicer must evaluate the borrower for all workout options in accordance with D2-3.1-01, Determining the Appropriate Workout OptionD2-3.1-01, Determining the Appropriate Workout Option .

    If the borrower does not accept the Fannie Mae Flex Modification solicitation offer as described above, the servicer must resume follow-up solicitation for an incomplete BRP in accordance with this Guide and applicable law.

    The following table provides the servicer's requirements if the borrower submitted a complete BRP prior to the 90th day of delinquency but the servicer is in the process of soliciting the borrower for a Fannie Mae Flex Modification in accordance with Soliciting the Borrower for a Fannie Mae Flex Modification . See Documentation Requirements to determine the submission date of a complete BRP.

    Note: If the P&I payment amount based on the submission of a complete BRP is less than the P&I payment amount reflected in the solicitation Trial Period Plan, inform the borrower that if they make the Trial Period Plan payments in accordance with the plan, the mortgage loan will be permanently modified with the lower P&I payment amount which will be reflected in the Loan Modification Agreement.

    Processing a Fannie Mae Flex Modification for a Mortgage Loan with Mortgage Insurance

    The servicer must see F-2-06, Mortgage Insurer Delegations for Workout OptionsF-2-06, Mortgage Insurer Delegations for Workout Options for the list of conventional mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae Flex Modification without obtaining separate mortgage insurer approval at the company or loan level.

    Handling Fees and Late Charges in Connection with a Fannie Mae Flex Modification

    The servicer must not charge the borrower administrative fees.

    The servicer is authorized to assess late charges during the Trial Period Plan. The servicer must waive all late charges, penalties, stop payment fees, or similar charges upon the borrower's conversion to a permanent mortgage loan modification.

    The servicer must follow the procedures in Reimbursement for Expenses Associated with Workout Options in F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement for advancing funds and requesting reimbursement.

    Recent Related Announcements

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

    Announcements	Issue Date
    Announcement SVC-2023-05	October 11, 2023
    Announcement SVC-2023-03	May 10, 2023
    Announcement SVC-2020-04	September 9, 2020