Fannie Mae says conditional tenders of payment, a newly popular device being touted as an alternative to mortgage refinancings. are nothing of the sort.
"Services should neither use conditional tenders of payment as a refinancing alternative nor honor requests they receive for conditional tenders of payment for any mortgage that they service for Fannie Mae." the agency said in an announcement issued May 13.
A conditional tender of payment gives the borrower a chance to "refinance" a mortgage at low or no cost. The tender also requests written authorization to present the refinancing proposal to the mortgage's servicer. At that time, the lender offers the servicer to pay off that mortgage subject to an endorsement of the original mortgage note, assignment of the original mortgage, receipt of an "in-force" title policy and receipt of any applicable mortgage insurance certificate.
The mortgage servicer then repurchases the mortgage from the current mortgage holder--rather than pay it off and satisfy the debt--and sells it to the lender making the conditional tender. At that point, the new owner of the mortgage modifies the document, retains it in portfolio or sells it in the secondary market.
Fannie Mae doesn't like this deal.
"Conditional tenders of payment are not an acceptable alternative to refinancing for Fannie Mae-owned or -securitized mortgages--regardless of whether they relate to a mortgage being serviced for us or to a mortgage that is being delivered to us," the announcement from the Federal National Mortgage Association said. "We do not consider a refinancing to have occurred unless the mortgage debt is satisfied and the lien against the property is released."