Section 204
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Requirements
You must comply with this Section for all Letters of CreditLetters of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. posted as CollateralCollateralProperty, Personal Property, or other property securing a Mortgage Loan. for a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .
You must obtain Fannie Mae’s approval for any new or renewal Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , regardless of whether the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. is required by you or Fannie Mae.
All Letters of CreditLetters of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. must:
- Name Fannie Mae as the sole beneficiary.
- Have a minimum term of 1 year.
- Be issued or confirmed by a financial institution that meets the eligibility criteria in Part I, Chapter 2: Mortgage Loan, Section 204.02: Issuers and Ratings.
All Letters of CreditLetters of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. must meet the requirements in the Irrevocable Letter of Credit Instructions (Form 4663), including the form of sight draft on the IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. .
Operating Procedures
How do you request approval to use a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. ?
Step 1: Complete the Letter of Credit Authorization and Certification Form (Form 4664B) that states
- whether the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. is new or will renew or confirm an existing Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , and
- that the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. is posted as CollateralCollateralProperty, Personal Property, or other property securing a Mortgage Loan. for a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .
Step 2: Indicate whether the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. is required by the GuideGuideMultifamily Selling and Servicing Guide and Delegated Underwriting and Servicing Guide, including any exhibits, appendices, or other referenced forms, as updated, amended, restated, modified, or supplemented; however, for any topic in the Multifamily Selling and Servicing Guide, that Guide shall… or is required by you as additional collateral. If you require the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , include the Loan DocumentLoan DocumentAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. imposing the requirement.
Step 3: Send the completed Form 4664B to LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. Risk Management.
What do you do after Fannie Mae has approved a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. ?
Step 1: Send the original Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. to Multifamily Operations to be delivered the following business day. The address is:
Multifamily Certification and Custody Team
13150 Worldgate Drive
Mailstop: 5H-2W/01
Herndon, VA 20170
Attention: Manager, Multifamily Operations - Recourse and Collateral.
Step 2: Include Form 4664B in the Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan.
Step 3: Retain a copy of Form 4664B in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .
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Who is eligible to issue a Letter of Credit?
A financial institution that satisfies the ratings criteria may issue or confirm a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. .
You, one of your AffiliatesAffiliatesWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key…, or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the BorrowerBorrowerPerson who is the obligor per the Note. may issue a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , but only if it is confirmed by a financial institution that is not an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of you or the BorrowerBorrowerPerson who is the obligor per the Note. .
Fannie Mae, in its sole discretion, may prohibit you from obtaining a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. (or confirming a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. ) from a specific financial institution.
What ratings do Issuers need to satisfy?
A financial institution is eligible to issue or confirm a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. if it satisfies the following ratings criteria:
- a Standard and Poor’s long-term issuer rating of
- "A+" or better, or
- “A” and the financial institution has a “stable” or “positive outlook” rating; OR
- a Moody’s long-term issuer rating of
- "A1" or better, or
- “A2” and the financial institution has a “stable” or “positive outlook” rating.
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Requirements
You must monitor and verify the rating of any financial institution issuing or confirming a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit.
- throughout the term of the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. ,
- on each anniversary of the date of issuance, and
- on the date of any renewal, replacement, or amendment.
If the ratings of the financial institution issuing or confirming the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. fall below the ratings criteria you must
- contact Multifamily Business OperationsMultifamily Business OperationsTeam that can be contacted at [email protected] promptly, and
- use a financial institution that satisfies the ratings criteria to replace or confirm the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. .
A change from “stable” or “positive outlook” to “negative outlook” or “on watch for downgrade” would represent a fall below the ratings criteria.
Requirements
You must ensure that the IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. does not collateralize the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. with a lien on
- the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , or
- any personal property that secures the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .
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You may, with Fannie Mae’s written approval, instruct the issuing bank to honor a draw on the Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. by depositing the proceeds into an account designated by Fannie Mae.