source:
  type: guide
  id: fnma-svc-f-1-27
  authority: Fannie Mae Servicing Guide F-1-27 — Processing a Fannie Mae Flex Modification
  description: Fannie Mae Servicing Guide F-1-27 — Processing a Fannie Mae Flex Modification.
  coverage_tier: operative
obligations:
- id: fnma-svc-f-1-27-full
  canonical_id: fnma-svc-f-1-27-full
  section: Fannie Mae Servicing Guide F-1-27 — Processing a Fannie Mae Flex Modification
  type: do
  tags:
  - regulator-direct
  - fnma
  - servicing-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Servicing Guide F-1-27 — Processing a Fannie Mae Flex Modification
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/servicing-guide
    snapshot_id: cf63a82bbb4adfba
    fetched_at: '2026-05-22T23:53:19Z'
    content_hash: sha256:89df66c43baad07f8a8dd9d224492fff7d15e8839edba02ad0e74c7e50fe5da3
    paragraph_quote: 'F-1-27, Processing a Fannie Mae Flex Modiﬁcation (08/13/2025)
      Introduction This Servicing Guide Procedure contains the following: Obtaining
      a Property Valuation Determining the New Modiﬁed Mortgage Loan Terms Preparing
      the Loan Modiﬁcation Agreement Executing and Recording the Loan Modiﬁcation
      Agreement Adjusting the Mortgage Loan Account Post-Mortgage Loan Modiﬁcation
      Published May 13, 2026 688 Obtaining a Property Valuation The servicer must
      obtain a property valuation in accordance with Determining the Fannie Mae Flex
      Modiﬁcation Terms in D2-3.2-06, Fannie Mae Flex Modiﬁcation. The servicer must
      obtain a property valuation, which must not be more than 90 days old at the
      time the servicer evaluates the borrower for the mortgage loan modiﬁcation,
      using one of the following: an exterior BPO; an appraisal; Fannie Mae’s servicing
      solutions system; Freddie Mac’s AVM; a third-party AVM; or the servicer’s own
      internal AVM, provided that the servicer is subject to supervision by a federal
      regulatory agency, and the servicer’s primary federal regulatory agency has
      reviewed the model. If Fannie Mae''s servicing solutions system, Freddie Mac''s
      AVM, the third-party AVM, or the servicer’s internal AVM does not render a reliable
      conﬁdence score, the servicer must obtain an assessment of the property value
      utilizing an exterior BPO, an appraisal, or a property valuation method documented
      as acceptable to the servicer’s federal regulatory supervisor. The property
      value assessment must be rendered in accordance with the FDIC''s Interagency
      Appraisal and Evaluation Guidelines regardless of whether such guidelines apply
      to mortgage loan modiﬁcations. The servicer must attach the valuation and documentation
      when submitting its proposed recommendation to Fannie Mae through its servicing
      solutions system. Determining the New Modiﬁed Mortgage Loan Terms The servicer
      must determine the borrower''s new modiﬁed mortgage loan terms in accordance
      with Determining the Fannie Mae Flex Modiﬁcation Terms in D2-3.2-06, Fannie
      Mae Flex Modiﬁcation, and the requirements below. The servicer must determine
      the post-modiﬁcation MTMLTV ratio, which is deﬁned as the gross UPB of the mortgage
      loan including capitalized arrearages, divided by the current value of the property.
      If the borrower has previously made additional principal payments (referred
      to as a principal curtailment), the servicer must ﬁrst calculate the remaining
      mortgage loan term based on the interest-bearing portion of the borrower''s
      pre-modiﬁcation UPB and the contractual P&I payment amount prior to proceeding
      with the steps in the following table. In order to determine the borrower''s
      new modiﬁed mortgage loan terms, the servicer must apply the steps in the order
      shown in the following table, unless prohibited by applicable law, until the
      earlier of achieving a 20% P&I payment reduction target, or exhausting the steps
      for determining the Fannie Mae Flex Modiﬁcation terms. Published May 13, 2026
      689 Note: With regard to achieving the 20% P&I payment reduction target, the
      servicer must apply the increment or amount as described in each step of the
      following table to result in a payment reduction that exceeds but is as close
      as possible to 20% (for example, 20.01%). Note: When determining the ﬁnal Fannie
      Mae Flex Modiﬁcation terms prior to granting the permanent mortgage loan modiﬁcation,
      the servicer must use the same interest rate as established when determining
      the terms for the Trial Period Plan. Step Servicer Action 1 Capitalize eligible
      arrearages. The following are considered as acceptable arrearages for capitalization:
      • accrued interest; • out-of-pocket escrow advances to third parties, provided
      they are paid prior to the eﬀective date of the mortgage loan modiﬁcation; •
      servicing advances paid to third parties in the ordinary course of business
      and not retained by the servicer, provided they are paid prior to the eﬀective
      date of the mortgage loan modiﬁcation, if allowed by state laws; and • any outstanding
      non-interest bearing balance from a previously completed loan modiﬁcation or
      a previously completed payment deferral. Note: If applicable state law prohibits
      capitalization of past due interest or any other amount, the servicer must collect
      such funds from the borrower over a period not to exceed 60 months unless the
      borrower decides to pay the amount up-front. Late charges may not be capitalized
      and must be waived if the borrower satisﬁes all conditions of the Trial Period
      Plan. See Administering an Escrow Account in Connection With a Mortgage Loan
      in B-1-01, Administering an Escrow Account and Paying Expenses for additional
      information. 2 Set the interest rate to a ﬁxed rate based on the requirements
      in the following table. If the mortgage loan is... Then the servicer must...
      a ﬁxed rate (including an ARM or step-rate that has reached its ﬁnal interest
      rate) set the modiﬁed interest rate to the contractual interest rate in eﬀect
      for the periodic payment due in the month of the evaluation date. an ARM or
      step-rate that has not reached its ﬁnal interest rate set the interest rate
      to the greater of • the contractual interest rate in eﬀect for the periodic
      payment due in the month of the evaluation date, or • the Fannie Mae Modiﬁcation
      Interest Rate. Note: If the Fannie Mae Modiﬁcation Interest Rate exceeds the
      lifetime interest rate cap of the ARM or the ﬁnal interest rate for the step-rate,
      then the servicer must set the contractual interest rate to the lifetime interest
      rate cap for the ARM or the ﬁnal interest rate for the step-rate, as applicable.
      Published May 13, 2026 690 Step Servicer Action 3 If the mortgage loan has a
      post-modiﬁcation MTMLTV greater than or equal to 50% and the interest rate as
      determined in step 2 is greater than the Fannie Mae Modiﬁcation Interest Rate,
      then the servicer must reduce the rate in 0.125% increments until the earlier
      of • achieving the 20% P&I payment reduction target, or • reaching the Fannie
      Mae Modiﬁcation Interest Rate. Note: In instances where the 20% P&I payment
      reduction target has not yet been achieved but applying a full 0.125% increment
      would set the modiﬁed interest rate to a rate below the Fannie Mae Modiﬁcation
      Interest Rate, then the servicer must apply a partial rate reduction increment
      (that is, an amount less than 0.125%) to reach the Fannie Mae Modiﬁcation Interest
      Rate. 4 Extend the remaining mortgage loan term in monthly increments until
      the earlier of • achieving the 20% P&I payment reduction target, or • reaching
      a term that is 480 months from the mortgage loan modiﬁcation eﬀective date.
      Note: When the mortgage loan is secured by a property where the title is held
      as a leasehold estate, the term of the leasehold estate must not expire prior
      to the date that is ﬁve years beyond the new maturity date of the modiﬁed mortgage
      loan. In the event that the current term of the leasehold estate would expire
      prior to such date, the term of the leasehold estate must be renegotiated to
      satisfy this requirement for the mortgage loan to be eligible for the mortgage
      loan modiﬁcation. 5 Forbear principal if the post-modiﬁcation MTMLTV ratio is
      greater than 50%, in an amount that is the lesser of • an amount that would
      achieve the 20% P&I payment reduction target, • amount that would create a post-modiﬁcation
      MTMLTV ratio of 50% using the interest-bearing principal balance, or • 30% of
      the gross post-modiﬁcation UPB of the mortgage loan. Note: Interest must not
      accrue on any principal forbearance. Principal forbearance is payable upon the
      earliest of the maturity of the mortgage loan modiﬁcation, sale or transfer
      of the property, reﬁnance of the mortgage loan, or payoﬀ of the interest-bearing
      UPB. If the steps above are exhausted without achieving the 20% P&I payment
      reduction target, then the servicer must oﬀer the resulting modiﬁed mortgage
      loan terms to the borrower provided the monthly P&I payment satisﬁes the P&I-speciﬁc
      requirements in Determining the Fannie Mae Flex Modiﬁcation Terms in D2-3.2-06,
      Fannie Mae Flex Modiﬁcation. Preparing the Loan Modiﬁcation Agreement The servicer
      must complete the mortgage loan modiﬁcation in accordance with Oﬀering a Trial
      Period Plan and Completing a Fannie Mae Flex Modiﬁcation in D2-3.2-06, Fannie
      Mae Flex Modiﬁcation. Published May 13, 2026 691 The servicer must prepare the
      Loan Modiﬁcation Agreement (Form 3179) early enough in the Trial Period Plan
      to allow suﬃcient processing time so that the mortgage loan modiﬁcation becomes
      eﬀective on the ﬁrst day of the month following the Trial Period Plan (modiﬁcation
      eﬀective date). The servicer is authorized to, at its discretion, complete the
      Loan Modiﬁcation Agreement so the mortgage loan modiﬁcation becomes eﬀective
      on the ﬁrst day of the second month following the ﬁnal Trial Period Plan payment
      to allow for suﬃcient processing time. However, the servicer must treat all
      borrowers the same in applying this option by selecting, at its discretion and
      as evidenced by a written policy, the date by which the ﬁnal Trial Period Plan
      payment must be submitted before the servicer applies this option ("cut-oﬀ date").
      The cut-oﬀ date must be after the due date for the ﬁnal Trial Period Plan payment
      as set forth in the Evaluation Notice. Note: If the servicer elects this option,
      the borrower will not be required to make an additional Trial Period Plan payment
      during the month (the "processing month") in between the ﬁnal Trial Period Plan
      month and the month in which the mortgage loan modiﬁcation becomes eﬀective.
      For example, if the last Trial Period Plan month is March and the servicer elects
      the option described above, the borrower is not required to make any payment
      during April, and the mortgage loan modiﬁcation becomes eﬀective, and the ﬁrst
      payment under the Loan Modiﬁcation Agreement is due, on May 1. The servicer
      must incorporate into the Form 3179 the applicable provisions in accordance
      with the requirements in Summary: Modiﬁcation Agreement (Form 3179). Executing
      and Recording the Loan Modiﬁcation Agreement The servicer is responsible for
      ensuring that the mortgage loan as modiﬁed complies with applicable laws, preserves
      Fannie Mae''s ﬁrst lien position, and is enforceable against the borrower(s)
      in accordance with its terms. The servicer must complete the mortgage loan modiﬁcation
      in accordance with Oﬀering a Trial Period Plan and Completing a Fannie Mae Flex
      Modiﬁcation in D2-3.2-06, Fannie Mae Flex Modiﬁcation. In order to ensure that
      the modiﬁed mortgage loan retains its ﬁrst lien position and is fully enforceable,
      the servicer must take the actions described in the following table. ✓ The servicer
      must... Ensure that the Loan Modiﬁcation Agreement is executed by the borrower(s).
      Note: The servicer may encounter circumstances where a co-borrower signature
      is not obtainable for the Loan Modiﬁcation Agreement, for reasons such as mental
      incapacity or military deployment. When a co-borrower''s signature is not obtainable
      and the servicer decides to continue with the mortgage loan modiﬁcation, the
      servicer must appropriately document the basis for the exception in the servicing
      records. Ensure all real estate taxes and assessments that could become a ﬁrst
      lien are current, especially those for manufactured homes taxed as personal
      property, personal property taxes, condo/HOA fees, utility assessments (such
      as water bills), ground rent, and other assessments. Published May 13, 2026
      692 ✓ The servicer must... Obtain a title endorsement or similar title insurance
      product issued by a title insurance company if the Loan Modiﬁcation Agreement
      will be recorded. Record the executed Loan Modiﬁcation Agreement if: • recordation
      is necessary to ensure that the modiﬁed mortgage loan retains its ﬁrst lien
      position and is enforceable in accordance with its terms at the time of the
      modiﬁcation, throughout its modiﬁed term, and during any bankruptcy or foreclosure
      proceeding involving the modiﬁed mortgage loan; or • the Loan Modiﬁcation Agreement
      includes assignment of leases and rents provisions. If the mortgage loan is
      for a manufactured home, and the lien was created, evidenced, or perfected by
      collateral documents that are not recorded in the land records, the servicer
      must also take such action as may be necessary, including any amendment, recording,
      and/or ﬁling that may be required, to ensure that the collateral documents reﬂect
      the mortgage loan modiﬁcation, in order to preserve Fannie Mae''s lien status
      for the entire amount owed. See Selling Guide A2-4.1-01, Establishing Loan Files
      for additional information regarding collateral documents required to be retained
      for manufactured homes. The servicer must execute and record the Loan Modiﬁcation
      Agreement based upon the entity that is the mortgagee of record in accordance
      with A2-1-04, Execution of Legal Documents. In addition, the servicer must send
      the Loan Modiﬁcation Agreement to the document custodian if the mortgagee of
      record is the servicer; MERs; or Fannie Mae, and Fannie Mae has given the servicer
      an LPOA that allows it to execute this type of document on Fannie Mae''s behalf.
      When the servicer is required to send the Loan Modiﬁcation Agreement to the
      document custodian, the servicer must follow the requirements outlined in the
      following table. If the Loan Modiﬁcation Agreement... Then the servicer must...
      is required to be recorded • send a certiﬁed copy of the fully executed Loan
      Modiﬁcation Agreement to the document custodian within 25 days of receipt from
      the borrower, and • send the original Loan Modiﬁcation Agreement that is returned
      from the recorder''s oﬃce to the document custodian within 5 business days of
      receipt. is not required to be recorded send the fully executed original Loan
      Modiﬁcation Agreement to the document custodian within 25 days of receipt from
      the borrower. Published May 13, 2026 693 Adjusting the Mortgage Loan Account
      Post-Mortgage Loan Modiﬁcation The servicer must complete the mortgage loan
      modiﬁcation in accordance with Oﬀering a Trial Period Plan and Completing a
      Fannie Mae Flex Modiﬁcation in D2-3.2-06, Fannie Mae Flex Modiﬁcation. After
      a mortgage loan modiﬁcation is executed, the servicer must adjust the mortgage
      loan as described in the following table. ✓ The servicer must... For a portfolio
      mortgage loan, add any amounts to be capitalized to the UPB of the mortgage
      loan as of the date speciﬁed in the agreement. Usually, the capitalization date
      is one month before the new modiﬁed payment will be due. Note: The servicer
      may request reimbursement from Fannie Mae when any of its costs are capitalized
      (see F-1-05, Expense Reimbursement). Revise the borrower''s payment records
      to provide for collection of the modiﬁed payment. Apply any funds that • remain
      in a temporary interest rate buydown plan account, • the borrower deposited
      with the servicer as a condition of the mortgage loan modiﬁcation, • have been
      deposited on behalf of the borrower in connection with the mortgage loan modiﬁcation,
      or • the mortgage insurer contributed in connection with the mortgage loan modiﬁcation.
      Note: Amounts due for repayment of principal, interest, or advances must be
      remitted promptly to Fannie Mae. The remaining funds may be used to clear any
      advances made by the servicer or to credit the borrower''s escrow deposit account.
      Determine if it must change the servicing fee in accordance with A2-3-02, Servicing
      Fees for Portfolio and MBS Mortgage Loans. Recent Related Announcements The
      table below provides references to recently issued Announcements that are related
      to this topic. Announcements Issue Date Announcement SVC-2025-05 August 13,
      2025 Published May 13, 2026 694 Announcements Issue Date Announcement SVC-2025-02
      April 09, 2025 Announcement SVC-2024-06 November 13, 2024 Announcement SVC-2023-03
      May 10, 2023 Announcement SVC-2021-03 June 09, 2021 Announcement SVC-2019-03
      May 15, 2019'
  judgment: false
