Guide Update 24-10
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SARM Underwriting and Escrows
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HIGHLIGHTS |
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Effective for Mortgage Loans Committed as of October 25, 2024, due to high interest rates and volatility, Structured Adjustable Rate Mortgage (SARM) Loan criteria were updated. |
Primary Changes
Updated:
- Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans to:
- revise the underwriting criteria for a SARM Loan, including using the Maximum Note Rate instead of the Variable Underwriting Rate to determine the
- minimum Underwritten DSCR, and
- maximum SARM Loan amount; and
- require an Interest Rate Cap reserve equal to at least 110% of the current replacement cap cost if the Interest Rate Cap term expires before the SARM Loan Maturity Date;
- revise the underwriting criteria for a SARM Loan, including using the Maximum Note Rate instead of the Variable Underwriting Rate to determine the
- Part III, Chapter 14: Supplemental Mortgage Loans to calculate the loan amount for an adjustable rate Supplemental Mortgage Loan based on the combined debt service amounts using the Maximum Note Rate for the Pre-Existing Mortgage Loan;
- Part III, Chapter 19: Bond Transactions and Credit Enhancement Mortgage Loans to use:
- the Maximum Note Rate instead of the Variable Underwriting Rate for determining amortization; and
- a cap cost factor to determine the Maximum Note Rate;
- Part V, Chapter 4: Asset Management: Loan Document Administration for Interest Rate Hedge requirements; and
- Glossary terms to
- add Maximum Note Rate, and
- delete Variable Underwriting Rate.
Questions
Please contact Jarrodd Davis at (202) 752-0849, or [email protected], with any questions.