Fannie Mae Servicing Guide F-1-12 — Preparing to Implement a Workout Option

Fannie Mae Servicing Guide F-1-12 — Preparing to Implement a Workout Option

F-1-12, Preparing to Implement a Workout Option (05/10/2023) Introduction This Servicing Guide Procedure contains the following: Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Conventional Mortgage Loan Modification Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Fannie Mae Short Sale or Fannie Mae Mortgage Release Processing the IRS IVES Form 4506-C Notifying Fannie Mae of Lead-Based Paint Citations Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Conventional Mortgage Loan Modification The servicer must determine the borrower’s pre-modification housing expense-to-income ratio as outlined in Evaluating a Borrower for Imminent Default for Conventional Mortgage Loan Modification Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default. The borrower’s monthly gross income is defined as the borrower’s monthly income amount before any payroll deductions and includes the following items, as applicable: wages and salaries; overtime pay; Published May 13, 2026 605 commissions; fees; tips; bonuses; housing allowances; other compensation for personal services; Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance. Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to employment (such as severance payments) as part of the monthly gross income for mortgage loans being evaluated for a mortgage loan modification. The servicer must then divide the borrower’s pre-modification monthly housing expense on the property securing the mortgage loan, which includes the following items (as applicable), by the borrower’s monthly gross income: P&I; property and flood insurance premiums; real estate taxes; ground rent; fees paid in accordance with a resale restriction agreement or a shared equity transaction agreement, as applicable; special assessments; HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit); co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit); and any escrow shortage currently included as part of the full monthly contractual payment. Note: The servicer must exclude monthly mortgage insurance premiums from the monthly housing expense-to-income calculation. Published May 13, 2026 606 Calculating the Housing Expense-to-Income Ratio for Imminent Default for a Fannie Mae Short Sale or Fannie Mae Mortgage Release The servicer must determine the borrower’s housing expense-to-income ratio as outlined in Evaluating a Borrower for Imminent Default for a Fannie Mae Short Sale or Fannie Mae Mortgage Release Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default. The borrower’s monthly gross income is defined as the borrower’s monthly income amount before any payroll deductions and includes the following items, as applicable: wages and salaries; overtime pay; commissions; fees; tips; bonuses; housing allowances; other compensation for personal services; Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance. Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to employment (such as severance payments) as part of the monthly gross income for mortgage loans being evaluated for a mortgage loan modification The servicer must then divide the borrower’s monthly housing expense on the property securing the mortgage loan, which includes the following items (as applicable), by the borrower’s monthly gross income: P&I; property and flood insurance premiums; real estate taxes; ground rent; fees paid in accordance with a resale restriction agreement or a shared equity transaction agreement, as Published May 13, 2026 607 applicable; special assessments; HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit); co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit); and any escrow shortage currently included as part of the full monthly contractual payment. Note: The servicer must exclude monthly mortgage insurance premiums from the monthly housing expense-to-income calculation. Processing the IRS IVES Form 4506-C The servicer must obtain the IRS IVES Request for Transcript of Tax Return (IRS IVES Form 4506-C) in accordance with Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package. The servicer must submit the form to the IRS to obtain a copy of the borrower’s tax transcript in the following instances: to reconcile inconsistencies between other information the borrower provided [e.g., information the borrower provided in the Mortgage Assistance Application (Form 710)] and the income documentation; when the borrower is self-employed, and they do not provide the documentation that is outlined in the Form 710; or if Fannie Mae requests it. The servicer is encouraged to use the IRS Income Verification Express Service, which uses secure email to deliver tax return transcripts to servicers. Note: For borrowers in the USTs (also known as U.S. Possessions), IRS IVES Form 4506-C may not be accepted. Depending on the borrower’s UST classification of residency, the borrower may be required to file in the UST or the U.S or may have to file in both the UST and U.S. The servicer must adhere to all applicable processes for eligible borrowers filing tax returns in UST and obtain all applicable forms when required. Notifying Fannie Mae of Lead-Based Paint Citations The following table lists the documentation that the servicer must provide when notifying Fannie Mae of lead- based paint citations in accordance with D2-3.1-06, Notifying Fannie Mae of Lead-Based Paint Citations. Published May 13, 2026 608 ✓ The servicer must provide to Fannie Mae… A copy of any document related to lead-based paint law violations or threatened or pending lead- based paint litigation. The current value of the property. The amount of the outstanding debt secured by the property. The number and exact age of each child under eight years of age who are residing in the property. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SVC-2023-03 May 10, 2023 Announcement SVC-2020-02 June 10, 2020 F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) (05/10/2023) Introduction This Servicing Guide Procedure contains the following: Verifying Clear and Marketable Title Calculating the Borrower’s Housing Expense-to-Income Ratio Obtaining a Property Valuation Processing a Mortgage Release Transition Option Verifying Clear and Marketable Title The servicer must adhere to General Requirements When Processing a Fannie Mae Mortgage Release in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure). Published May 13, 2026 609 The servicer must order a title search. In addition to the title search, the servicer must review the following to determine if the borrower will be able to deliver clear and marketable title: readily available information provided by the borrower, the borrower’s credit report, the mortgage loan servicing file, and other sources identifying subordinate liens and other claims on title. Calculating the Borrower’s Housing Expense-to-Income Ratio The servicer must determine the borrower’s housing expense-to-income ratio as outlined in Evaluating a Borrower’s Ability to Make a Cash Contribution in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure). The borrower’s monthly gross income is defined as the borrower’s monthly income amount before any payroll deductions and includes the following items, as applicable: wages and salaries; overtime pay; commissions; fees; tips; bonuses; housing allowances; other compensation for personal services; Social Security payments (including Social Security received by adults on behalf of minors or by minors intended for their own support); and monthly income from annuities, insurance policies, retirement funds, pensions, disability or death benefits, rental income, and other income such as adoption assistance. Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to unemployment (such as severance payments), as part of the monthly gross income for mortgage loans being evaluated for a Mortgage Release. The servicer must then divide the borrower’s monthly housing expense on the property securing the mortgage loan, which includes the following items (as applicable), by the borrower’s monthly gross income: P&I; property and flood insurance premiums; Published May 13, 2026 610 real estate taxes; ground rent; fees paid in accordance with a resale restriction agreement or a shared equity transaction agreement, as applicable; special assessments; HOA dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit); co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit); and any escrow shortage currently included as part of the full monthly contractual payment. Note: The servicer must exclude monthly mortgage insurance premiums from the monthly housing expense-to-income calculation. Obtaining a Property Valuation The servicer must obtain a property valuation for a Mortgage Release or a Mortgage Release transition option in accordance with Obtaining a Property Valuation and Evaluating the Condition of the Property in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure). The property valuation for a Mortgage Release can be an interior and exterior inspection of the property in the form of a BPO; an interior and exterior inspection of the property in the form of a an appraisal, which must be performed in accordance with USPAP; or an AVM. Note: For a Mortgage Release transition option, the property valuation must be an interior and exterior inspection of the property in the form of a BPO; or an appraisal, which must be performed in accordance with USPAP. The property valuation must be dated or have been refreshed by Fannie Mae within 90 calendar days of the servicer approving the borrower for a Mortgage Release. The following table provides additional requirements for all property valuations for a Mortgage Release. Published May 13, 2026 611 ✓ The servicer must… Request the property valuation order through the Fannie Mae's servicing solution system. Include the cost of the property valuation order in the MI claim, when applicable. Obtain the results of the property valuation order through Fannie Mae's servicing solutions system within 10 calendar days from the date the servicer submits the request. Note: Property valuation results may take longer in the event of unusual market conditions or if access to the property is delayed. Processing a Mortgage Release Transition Option The servicer must evaluate the borrower for Mortgage Release transition options and refer the case to Fannie Mae in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options in D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure). When the servicer refers the case to Fannie Mae, it must provide the applicable form as outlined in the following table. If the servicer is referring the borrower for the Mortgage Release transition option that allows the borrower to execute… Then the servicer must submit a… a three-month transition option with no rent payment required Mortgage Release Program Transition Option Referral Form (Form 193). a twelve-month lease with a market rent payment Mortgage Release Program Lease Option Referral Form (Form 187). Fannie Mae, or its designee, will take the steps necessary to further verify subject property and occupant eligibility. The following table provides the subject property eligibility criteria for a Mortgage Release transition option. Published May 13, 2026 612 ✓ Subject Property Eligibility There are no zoning or HOA rental limitations that would prevent a Mortgage Release transition option. If a property inspection or property valuation reveals damage to the subject property, the estimated total cost to repair the subject property must be less than 10% of its estimated market value (estimated “As Is” sales price). Note: If the estimated total cost to repair the subject property is between 10% and 15% of its estimated market value, the servicer must submit the Mortgage Release transition option to Fannie Mae to obtain prior written approval. A subject property with an estimated total cost for repairs greater than 15% of the estimated market value is not eligible. The subject property does not have any environmental contaminations or pose any potential legal risk. The subject property is in compliance with local rules and laws, or can be brought into compliance within 30 days. The subject property is not within a target area for any corporate, government, or community neighborhood stabilization plan which may need the property as part of the plan for purposes other than residential. The rental income, if applicable, is anticipated to cover ongoing maintenance and management costs. The following table provides the occupant eligibility criteria for a Mortgage Release transition option. ✓ Occupant Eligibility Income is sufficient to cover rental payments of not more than 31% of the borrower/tenant’s monthly gross income. Note: If the current market rent, which will be set by Fannie Mae’s property management company, is greater than 31% of the borrower/ tenant's monthly gross income, a lease agreement will not be offered. For the Mortgage Release three-month transition option with no rent payment required, this income requirement is not applicable. Published May 13, 2026 613 ✓ Occupant Eligibility The occupant agrees to • be responsible for regular maintenance, • keep the property in good condition, and • permit marketing of the property for sale. Note: For the Mortgage Release three-month transition option with no rent payment required, the borrower must agree to allow the property to be marketed for sale beginning on the 30th day of the use and occupancy agreement. The number of occupants is appropriate for the home and in compliance with local laws and HOA rules, if applicable. If pets are present, renter's insurance is obtained, if required. The occupants signing the lease agreement must agree to a credit review, and all residents over 18 years of age must have an acceptable background check, including receiving clearance from OFAC. There are no signs or reports of illegal activities conducted at the property. The property is to be used as a principal residence. Fannie Mae will inform the servicer whether or not a lease was finalized and whether the Mortgage Release is contingent on the property being vacant. The servicer must then finalize the Mortgage Release accordingly. Note: The servicer must notify Fannie Mae if a Mortgage Release is not successfully executed for any case that was approved for Mortgage Release transition options consideration. The servicer must use the Mortgage Release Program Cancellation Form (Form 188). Prior to acceptance of a Mortgage Release in connection with the Mortgage Release transition options, the servicer must ensure that the borrowers execute (in favor of Fannie Mae, the servicer, and their agents) a general release of all claims arising prior to the acceptance of the Mortgage Release which relate in any way to the mortgage loan or the subject property. For non-delegated cases, where Fannie Mae makes the decision, the servicer has five weeks from Fannie Mae’s approval of the Mortgage Release to complete the transaction to allow enough time for the lease approval process. Delegated servicers that might have a shorter processing time frame are instructed to allow time for the lease approval process when the borrower states an interest in the Mortgage Release transition options. Recent Related Announcements Published May 13, 2026 614 The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SVC-2023-03 May 10, 2023 Announcement SVC-2022-04 June 8, 2022 Announcement SVC-2021-03 June 9, 2021 Announcement SVC-2020-02 June 10, 2020

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