1907.08

Interest Rate Cap Contract Documentation and Delivery

Requirements

For credit enhancements using:

an MBSMBSMortgage-Backed Security , you must comply with Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans, Section 1205.04: Interest Rate Cap Contract Documentation and Delivery; or
a Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , this Section applies.

Operating Procedures

Topic	Process
Cap Provider Payment	You must ensure the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. provider pays you or the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. directly on the 1st or 15th day of the month corresponding with the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. payment dates, and when the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate index is greater than the average Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for a month. Only disburse a provider payment to the BorrowerBorrowerPerson who is the obligor per the Note. if there is no 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. default, and you received all payments due under the IndentureIndentureBond issuer trust indenture or resolution listing Bond terms. and BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. for that month. If the BorrowerBorrowerPerson who is the obligor per the Note. defaults under 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. or Reimbursement Agreement, you must promptly notify Fannie Mae and any applicable Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. , and direct the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. to suspend its payment to the BorrowerBorrowerPerson who is the obligor per the Note. .
Timing	The BorrowerBorrowerPerson who is the obligor per the Note. must accept a bid for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. in writing from a Fannie Mae approved provider before you request a CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. .
Purchase Price	The BorrowerBorrowerPerson who is the obligor per the Note. must pay the entire purchase price for an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. to the provider when the Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. is issued.
Pledge to Fannie Mae	The BorrowerBorrowerPerson who is the obligor per the Note. must pledge its interest in the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. and any reserve to Fannie Mae using the documentation provided by Fannie Mae’s counsel.