M.I. Requirements Revised by Fannie

Sellers are required to obtain mortgage insurance policies on loans before delivery to the secondary lender if the mortgage has a loan-to-value ratio in excess of 80 percent.

In addition, servicers are required to keep the coverage in effect during the life of the loan unless Fannie Mae’s conditions for canceling M.I. coverage are met.

The requirements were outlined in Announcement SVC-2011-12 issued Thursday by Fannie.

Lenders can only deliver high-LTV loans that are insurable.

Servicers are required to notify Fannie, on a monthly basis, of any mortgage insurance rescissions and mortgage insurer-initiated cancellations for active loans. They are also required to notify the secondary lender of M.I. rescissions, cancellations and claim denials on all liquidated mortgages including pre-foreclosure sales and real-estate-owned loans.

Servicers that chronically submit late reports or regularly fail to verify the accuracy of the reports are subject to compensatory fees or other remedies.

When M.I. coverage isn’t in place, Fannie said that it could require that the seller repurchase the loan or remit a “make-whole” payment — regardless if the lender is working to reinstate M.I. coverage.

However, lenders can secure a comparable replacement mortgage insurance policy at their own expense. They can also agree to repurchase the mortgage if it later becomes more than 120 days delinquent as long as they meet certain requirements.

But if the loan has been continuously delinquent for at least four consecutive months, then the lender must remove the loan from the MBS pool and repurchase it.

On loans that lost M.I. coverage before April 30, Fannie is requiring that the coverage must be resolved by Sept. 30. This can be done by getting coverage reinstated, submitting a “make-whole” payment or by repurchasing the loan.

But loans that lose coverage after April 30 are subject to the new rules.