Fannie Mae has decided to stop providing lenders with free document custody services on mortgages it buys for its portfolio.

The government-sponsored enterprise said it has picked Bank of New York Mellon Corp. to provide these services to lenders for a fee beginning May 11.

In a letter to lenders dated Friday, Fannie said that it "wanted a document custodian that provides traditional trust services but does not originate, sell, or service mortgage loans."

The GSE also said that it "has negotiated competitive rates for custodian fees that lenders will be required to pay for portfolio mortgages."

Currently documents for loans that Fannie buys for its portfolio must be certified and held by the GSE "unless the mortgage seller has obtained a negotiated contract variance that allows the documents for portfolio mortgage deliveries to be certified and/or held in custody by either a third-party custodian or by a seller, servicer, or affiliated document custodian," according to the letter.

Under the new system, all such documents will have to be certified and held by Bank of New York Mellon. (Existing waivers will be grandfathered in.)

For loans that are pooled into mortgage-backed securities, lenders will still have the option of purchasing custody services from the GSE or from or another firm that meets Fannie's criteria.

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