Supplement 23-05
:  Interest Rate Caps
Effective:
Retired: 03/29/24

HIGHLIGHTS

Effective as of December 15, 2023, you are delegated the authority to approve the purchase of, and escrow for, shorter-term Interest Rate Caps than permitted per the Loan Documents for certain Portfolio SARM Loans.

 

Primary Changes

I.  Eligible SARM Loan Delegation Criteria

Due to the high cost of Interest Rate Caps, you are delegated the authority to allow the purchase of 2-year term Interest Rate Caps, regardless of the required Loan Document term, for a SARM Loan if:

  • it is a Portfolio Mortgage Loan Delivered before January 1, 2023; 
  • it is not part of a:
    • Credit Facility or Bulk Delivery; or
    • Variable Rate Bond Credit Enhancement Transaction; 
  • it does not have:
    • an existing Payment Default or Performance Default under the Loan Documents; or
    • a Borrower, Key Principal, or Principal on ACheck; and
  • no other Portfolio Mortgage Loans in your Fannie Mae portfolio with that Sponsor have an existing Payment or Performance Default.

 

If you use your delegated authority per this Supplement, you:

  • must ensure:
    • the Borrower purchases an Interest Rate Cap at the Cap Strike Rate required per the Loan Documents; and
    • any future Interest Rate Cap purchase complies with the Loan Documents; 
  • must re-calculate the future Interest Rate Cap Escrow payments at least every 6 months, regardless of the Loan Document recalculation timing requirements; 
  • must not re-calculate the Cap Strike Rate unless explicitly permitted by the Loan Documents; and
  • may use your delegation to purchase a 2-year Interest Rate Cap:
    • only once per SARM Loan; and
    • for a subsequent Interest Rate Cap replacement even if Fannie Mae previously approved the purchase of a 2-year Interest Rate Cap on a one-time basis. 

 

II.  SARM Loans Not in a Credit Facility or Bulk Delivery

For an eligible SARM Loan, you are delegated the authority to:

  • calculate escrow payments for purchasing a replacement Interest Rate Cap based on the cost of a 2-year term Interest Rate Cap; and
  • allow the Borrower to purchase a 2-year replacement Interest Rate Cap up to 120 days before the expiration date of the current Interest Rate Cap. 

 

III.  SARM Loans in Credit Facilities and Bulk Deliveries

For an otherwise eligible SARM Loan in a Credit Facility or Bulk Delivery, to purchase a replacement Interest Rate Cap with a 2-year term Interest Rate Cap, you: 

  • are delegated the authority to escrow payments based on the cost of a 2-year term Interest Rate Cap, provided the term of all future Interest Rate Cap replacements comply per the Loan Documents; and
  • must:
    • re-calculate the Cap Strike Rate; and
    • obtain Fannie Mae's approval:
      • of the re-calculated Cap Strike Rate; and
      • to allow the Borrower to purchase an Interest Rate Cap with a 2-year term.

 

IV:  Process and Documentation 

You must submit a waiver request in the Borrower Request module of the MAMP to:

  • document your delegated approval per this Supplement; or
  • request Fannie Mae's approval of
    • any recalculated Credit Facility Cap Strike Rate, or
    • non-delegated waiver.

 

MAMP Entries
SARM Loan Type Request Level Request Master Type Request Type Documentation
Not in a Credit Facility or Bulk Delivery

Loan / Property

Drawer Asset Management - Non-Delegated

 Hedge Waiver
  • Servicer Narrative
  • Interest Rate Cap and Security Agreement
In a Credit Facility or Bulk Delivery Deal Credit Facilities / Bulk Deliveries - Non-Delegated Hedge Waiver
  • Servicer Narrative
  • Interest Rate Cap and Security Agreement
  • Applicable Cap Strike Rate Calculations

 

Process and Documentation 

For SARM Loans...

 Process

Not in a Credit Facility or Bulk Delivery

In the Narrative, you must include affirmative statements that:

 

  • you are using your delegated authority per this Supplement; and
  • the SARM Loan complies with the terms of this Supplement.

 

Fannie Mae will manually update the MAMP status to Request Stage "Delegated - Waiver Approved".

In a Credit Facility or Bulk Delivery 

You must:

 

  • include detailed Cap Strike Rate calculations when you submit the 2-year Interest Rate Cap term waiver request; and
  • affirmatively state the SARM Loan complies with the terms of this Supplement. 

 

Fannie Mae will

 

  • review the Cap Strike Rate calculation and 2-year Interest Rate Cap waiver, and
  • document the decision in the MAMP per the standard process.

 

V:  Additional Data Fields 

You must submit the additional Interest Rate Cap data fields with all SARM Loan operating statements.

 

Questions

Please contact the following regarding: