220.127.116.11.5 The Fannie Mae Flex Modification in the COVID-19 context
Borrowers who cannot afford the current payment, do not accept a COVID-19 Deferral, or are otherwise ineligible to receive the deferral should be evaluated for a Fannie Mae Flex Modification. The Flex Modification seeks to provide payment relief to borrowers, and the method for calculating the financial terms of a Fannie Mae Flex Modification is discussed in § 7.3.1, supra.314
Fannie Mae made one important adjustment to the calculation of Flex Modification terms for borrowers facing COVID-19 hardships. In June of 2021, Fannie Mae announced an important update to the Flex Modification calculation rules that only applies to borrowers with COVID-19 hardships. Under Fannie Mae’s updated policy, borrowers with COVID-19 hardships may receive the Fannie Mae Modification Interest Rate in Step 2 of the Flex Modification calculation regardless of their loan-to-value ratios.315 Prior to the update, borrowers with loan-to-value ratios of less than 80% were not eligible for the Fannie Mae Modification Interest Rate.
Under Fannie Mae’s rules, borrowers facing COVID-19 related hardships will not have to satisfy particular Flex Modification eligibility requirements unless they were more than two months behind on their loans as of March 1, 2020, or the loan is less than three months behind on payments when they apply. Borrowers who fit either of those categories will be reviewed under standard Flex Modification guidelines.
Although not directly stated in the Fannie Mae lender letters, the eligibility requirements that do not apply include the requirements that: 1) the mortgage was originated more than twelve months from the time of evaluation, 2) the mortgage loan must not have been modified three or more times, 3) the borrower had not failed a Flex Modification Trial Plan within twelve months of review, and 4) the borrower must not have become sixty days behind within the first twelve months of a Flex Modification without reinstatement.316
As with the COVID-19 Deferral, even if the servicer fails to obtain QRPC or does not respond to the deferral, the servicer should evaluate the borrower for a Flex Modification.
314 Fannie Mae Servicing Guide F-1-27: Processing a Fannie Mae Flex Modification (June 9, 2021), available at https://singlefamily.fanniemae.com.
315 Fannie Mae Lender Letter 2021-07 (updated June 30, 2021), available at https://singlefamily.fanniemae.com
316 Compare Fannie Mae Lender Letter 2021-07 (updated June 30, 2021), available at https://singlefamily.fanniemae.com, with Fannie Mae Servicing Guide D2-3.2-07: Fannie Mae Flex Modification (Sept. 9, 2020).
317 Fannie Mae Payment Deferrals Matrix (Feb. 26, 2021), available at https://singlefamily.fanniemae.com.