Servicer Outreach: Updated Requirements for Deferred Balance Loans
Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant
Why This Matters: Certain servicers with loans carrying non-interest bearing balances on mortgages must follow updated outreach requirements prior to maturity or anticipated payoff to ensure affordability in repayment of the deferred balance.
In the spring of 2023, servicers of Fannie/Freddie/FHLB Xtra loans received notice of policy updates outlining additional outreach requirements that went into effect October 1, 2023. Under the updates, servicers of loans with a non-interest bearing balance (most notably obtained through the acceptance of loan modification/payment deferrals including COVID-related deferrals) are required to provide a written notice as early as 180 days, but no later than 150 days prior to the loan’s anticipated payoff or maturity date.
This notice must inform or remind the borrower of the outstanding balance coming due and provide an opportunity to reach out if they are concerned about their ability to satisfy the outstanding balance on the anticipated date. A template is available for the notification, detailing the level of specificity that must be achieved and minimum requirements for the notification.
It is expected that through this process, the servicer will attempt QRPC to discuss and determine the borrower’s ability to repay the balance. If it is determined that the borrower may not be able to repay the balance on the maturity or projected payoff date, an exception request must be submitted to the investor to review possible resolutions.
Furthermore, if direct contact is not made from the first outreach attempt, a second notice is required to be sent between 60 and 75 days before the maturity or projected payoff date. Additional notices leading up to the maturity/payoff date are permitted at the servicer’s discretion but cannot be sent prior to the 180-day mark.
Servicers need to evaluate a number of aspects when implementing these requirements, including:
How many loans are outstanding with deferred or other non-interest bearing UPBs? Do I have the appropriate staff to handle this?
Does our current process identify loans that are 150-180 days away from not only maturity date, but also, from an anticipated payoff date if paying down sooner?
Does our current core servicing platform provide any automation functionality in performing this review, providing reports, and/or generating the required notices?
Are the appropriate team members trained and familiar with the steps required to make contact, determine ability to repay, and submit exception requests when required?
Does it make sense for us to apply this process (or a modified version of it) to other loans such as those in our own portfolio?
Is our process formalized through procedure documents, updated and distributed to all key players?
SCA stands ready to support you through this process. For help implementing any of the above steps to achieve success with these outreach requirements, contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617.
Resources:
Fannie Mae Guide: https://guide.freddiemac.com/app/guide/section/8504.1
FNMA Exhibit: https://guide.freddiemac.com/app/guide/exhibit/1104
Freddie Mac Guide: https://servicing-guide.fanniemae.com/svc/a4-2.1-07/servicers-duties-and-responsibilities-related-mortgage-loans-outstanding-non-interest-bearing
FHLB Xtra: https://www.fhlbmpf.com/about-us/news/details/2023/05/02/mpf-announcement-2023-27
