Part II
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| Section 101 | |
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Requirements
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. to be eligible for purchase, it must be secured by a multifamily residential property that meets all of the following:
- contains at least 5 dwelling units;
- does not include a stand-alone building containing less than 5 dwelling units (e.g., a single-family structure), unless it:
- was originally constructed as part of a single multifamily development; or
- is situated on the same tax parcel, or shares a tax parcel boundary, with a
- multifamily property, or
- MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. ;
- has suitable bathroom and cooking facilities within each unit;
- is located in 1 of the 50 states of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or Guam;
- is located on a publicly dedicated, all-weather road, or is accessible by a satisfactory easement from this type of road;
- consists of either a single parcel or multiple parcels per Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership;
- any commercial space is:
- physically part of, and connected to, the multifamily space; or
- a stand-alone building that is on the same tax parcel;
- has adequate water and sewer service, which may be delivered by a public utility or, where commercially acceptable for the market area, by a private system or utility;
- offers a suitable level of utility service (e.g., electrical, natural gas, refuse removal, etc.) for the market area;
- either complies with all applicable statutes, rules, regulations, and housing and building codes, or is being appropriately remediated;
- does not contain any Modular HousingModular HousingProperty on which the multifamily Improvements are constructed of sections built off-site, such as modular, prefabricated, panelized, or sectional housing, and then assembled and installed on-site on a permanent foundation (and not a chassis). ; and
- has access to police and emergency services.
You must search the internet to confirm, and justify in the Transaction Approval Memo, if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has:
- any negative press;
- current or prior lawsuits;
- fair housing violations or other sanctions; and/or
- association with bad actors.
Guidance
To determine if a single-family structure was originally constructed as part of a single multifamily development, you should consider if all buildings:
- were originally constructed at the same time;
- were historically bought, operated, and sold as 1 ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. since originally constructed;
- are generally consistent in physical appearance, with distinct boundaries such as
- signage,
- gates/fencing,
- shared parking, or
- dedicated streets;
- are located on a single tax parcel or adjacent tax parcels;
- are configured without any non-BorrowerBorrowerPerson who is the obligor per the Note. owned parcels or buildings separating/splitting or within the multifamily development; and
- are not part of a predominately homeowner development.
| Section 102 | |
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| 102.01 | |
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Requirements
If more than 1 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). secures 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 determine if all multifamily buildings are part of the same ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. . Buildings on multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). are a single ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. if all PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). :
- are only separated by publicly dedicated or private streets primarily intended for local residents or access to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and not by major arteries or thoroughfares (i.e., streets primarily intended for traffic traveling through the area); and
- have the following characteristics:
- all buildings have been operated as a single complex (e.g., no buildings are marketed separately to tenants);
- the PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
are within
- 0.5 miles or less of each other, and
- the same submarket;
- amenities at any building are available to tenants in other buildings;
- amenities located in one building do not materially, adversely affect the rents at other buildings without similar amenities; and
- the overall building configuration across the PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). does not result in elevated vacancy levels at any building.
If multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). are not part of the same ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. , you must:
- collect detailed individual data for each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
, including separate
- rent rolls, and
- operating statements;
- enter each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in the “Properties” section of DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. ;
- complete a Multifamily Affordability Estimator (MAE) for each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). per Part I, Chapter 2: Mortgage Loan, Section 201: Registration and Multifamily Affordability Estimator;
- require every third-party report to assess
- the PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in each ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. separately, and
- all PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in the aggregate; and
- enter each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). as a separate PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). CollateralCollateralProperty, Personal Property, or other property securing a Mortgage Loan. record in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. .
When 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. not in a Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. is secured by multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). (whether in the same or multiple ProjectsProjectsMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. ), each multifamily PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). must individually:
- comply with the minimum occupancy requirements in
- be located in the same MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. ; and
- have an acceptable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
condition based on
- your site inspection, and
- any required PCAPCAAssessment of the Property's physical condition and historical operation. .
Guidance
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. secured by multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). not part of the same ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. , you may:
- accept a consolidated third-party report for multiple ProjectsProjectsMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. , if each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is identified and assessed separately; and
- consolidate the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. and overall underwriting in a single Transaction Approval Memo.
Requirements
| If... | Then... |
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A Mortgage Loan
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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. and each BorrowerBorrowerPerson who is the obligor per the Note. must comply with
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| Section 103 | |
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Requirements
You must ensure that the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is owned in fee simple, unless the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is held under an acceptable LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate.
| Section 104 | |
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| 104.01 | |
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Requirements
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. , 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. collateral must include a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate.
You must ensure that the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. complies with the Ground Lease Review Checklist (Form 6479), unless
- the ground lessor joins with the BorrowerBorrowerPerson who is the obligor per the Note. in executing the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. and grants a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the ground lessor's fee estate, or
- the absence of the LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate would not have a material adverse effect on the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operation or value.
| 104.02 | |
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Requirements
You must:
- establish an escrow for ground rents;
- ensure the BorrowerBorrowerPerson who is the obligor per the Note. deposits sufficient funds; and
- make all payments due per the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. .
Requirements
You must obtain an executed Ground Lessor Estoppel Certificate (Form 6495).
| 104.04 | |
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Requirements
You must:
- review and analyze the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. to ensure compliance with the requirements of this Section; and
- retain the completed Form 6479 in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
| Section 105 | |
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| 105.01 | |
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Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). meets these minimum occupancy levels:
- 85% physical occupancy; and
- 70% economic occupancy.
These minimum levels apply on the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. and for the preceding 3-month period.
| 105.02 | |
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Requirements
When calculating physical occupancy, you must only include tenants who
- physically occupy the unit, and
- have commenced paying rent.
Guidance
You may include any tenant who:
- was under a standard lease for at least 6 months, then converted to a month-to-month lease when the lease expired; or
- is under a lease with a term of less than 6 months, if shorter-term leases
- are commonly accepted in the market area, and
- do not reflect weakness in the market.
You may include non-revenue producing units such as
- management units,
- employee occupied units,
- maintenance units, and
- model units.
Such units should not exceed what is usual and customary for stabilized properties in the market.
| Section 106 | |
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Requirements
| Certificates of Occupancy | |
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| For any... | You must... |
| Property with construction or rehabilitation work completed within the last 12 months |
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| Other Property |
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Guidance
| No Certificate of Occupancy | |
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| If you cannot obtain... | You should... |
| Copies of certificates of occupancy for a Property (for example, because of the Property's age, or the records of the jurisdiction where the Property is located) |
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| Copies or other sufficient evidence of a certificate of occupancy |
Analyze the risk to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). if one had never been issued, by considering if:
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| Section 107 | |
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Requirements
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. , you must evaluate
- how the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). will be affected by other phases, and
- if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). can succeed independently from other phases.
Guidance
In determining if a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. is viable as a separate PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , you should consider if:
- its ownership and operation are separate from all other phases of the complex;
- the BorrowerBorrowerPerson who is the obligor per the Note. is able to provide a separate leasing office;
- your underwriting has discounted any benefits derived from staff or facilities shared with other phases;
- the records and accounts used to underwrite the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). are separate from those of other phases;
- any cross-easements for the complex will survive an adverse action against another phase;
- any development of a future phase could materially interfere with or disturb the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- occupancy,
- marketability,
- or living environment; and
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
is:
- marketable to tenants or a new owner, separately from other phases;
- visible to the public without passing through another phase of the complex; and
- accessible from a public roadway.
In assessing the impact of future phases on a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , you should consider:
- the short-term impact of construction activity; and
- long-term implications for the continued economic viability of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , taking into account the allocation of costs for shared facilities (such as roadways).
Requirements
You may only DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. on a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. if Fannie Mae holds all other Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. secured by other phases of the complex.
When the Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. is owned or ControlledControlledPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). by the same BorrowerBorrowerPerson who is the obligor per the Note. or PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… as the other phases in the complex:
- all Fannie Mae Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. on each phase must be cross-defaulted and cross-collateralized;
- when any new Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities.
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.
is underwritten, the actual amortizing DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of: principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments.
(per Form 4254.DEF) and current LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.
for all existing Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by
the Loan Documents, or
a mortgage debt obligation with a Fannie Mae credit enhancement.
on each phase must comply with Form 4660 for the same loan term, product, and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660).
, where each property value is determined by
- dividing the current NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… by the capitalization rate (i.e., a Direct Cap with Sales Comparables analysis),
- broker's opinion of value, or
- most recent AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. ; and
- the new Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. 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. must have a Prepayment Premium Period End DatePrepayment Premium Period End DateLast date when a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. on or before the Prepayment Premium Period End DatePrepayment Premium Period End DateLast date when a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. of the Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. on the other phases.
Guidance
If a future phase is expected, consider issuing the first phase MBSMBSMortgage-Backed Security with a potential future cross.
| Section 108 | |
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| 108.01 | |
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Requirements
This section does not apply to
- CondominiumCondominiumStatutorily established Property ownership regime where Condominium Documents designate: individual units for separate ownership; and common areas for shared use and joint ownership by the unit owners. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
- CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
| Shared Use Property Delivery Eligibility for Essential Elements Not Located on the Property | |
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| Topic | A Shared Use Property Mortgage Loan is eligible for Delivery if... |
| Documents |
you determine the Shared Use DocumentsShared Use DocumentsAgreements benefiting and/or burdening a Shared Use Property, such as: reciprocal easement agreements (REA); declaration of covenants; conditions and restrictions (CCR); development agreements; shared use agreements; joint ownership agreement or similar agreements governing… do not explicitly prohibit the Essential ElementsEssential ElementsA Shared Use Property’s amenities, common areas or infrastructure: impacting or essential to the: operation, use, value and marketability, leasing, refinancing, and/or zoning or legal compliance; and examples of Essential Elements may include: parking, … from being rebuilt or repaired after any casualty or condemnation. |
| Property |
the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). benefits from Essential ElementsEssential ElementsA Shared Use Property’s amenities, common areas or infrastructure: impacting or essential to the: operation, use, value and marketability, leasing, refinancing, and/or zoning or legal compliance; and examples of Essential Elements may include: parking, … per Shared Use DocumentsShared Use DocumentsAgreements benefiting and/or burdening a Shared Use Property, such as: reciprocal easement agreements (REA); declaration of covenants; conditions and restrictions (CCR); development agreements; shared use agreements; joint ownership agreement or similar agreements governing… that:
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| Split Ownership of Units and Essential Elements |
when the BorrowerBorrowerPerson who is the obligor per the Note. owns all units subject to the Shared Use DocumentsShared Use DocumentsAgreements benefiting and/or burdening a Shared Use Property, such as: reciprocal easement agreements (REA); declaration of covenants; conditions and restrictions (CCR); development agreements; shared use agreements; joint ownership agreement or similar agreements governing…, and 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. or Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. directly or indirectly owns the Essential ElementsEssential ElementsA Shared Use Property’s amenities, common areas or infrastructure: impacting or essential to the: operation, use, value and marketability, leasing, refinancing, and/or zoning or legal compliance; and examples of Essential Elements may include: parking, … that benefit only the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , such 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… joins the:
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| Shared Use Property Delivery Eligibility for All Essential Elements | |
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| Topic | A Shared Use Property Mortgage Loan is eligible for Delivery if... |
| Financial |
all:
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| Borrower Status |
the BorrowerBorrowerPerson who is the obligor per the Note. :
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| 108.02 | |
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| 108.02A | |
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Requirements
You must:
- ensure the BorrowerBorrowerPerson who is the obligor per the Note. executes the Modification to Multifamily Loan and Security Agreement Shared Use of Essential ElementsEssential ElementsA Shared Use Property’s amenities, common areas or infrastructure: impacting or essential to the: operation, use, value and marketability, leasing, refinancing, and/or zoning or legal compliance; and examples of Essential Elements may include: parking, … (Form 6276); and
- if appropriate per the conditions described in the Estoppel Certificate attached to Form 6276, use reasonable efforts to obtain from the association or other appropriate party:
- the Estoppel Certificate attached to Form 6276; or
- other form providing similar representations.
| 108.02B | |
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Requirements
You must:
- evaluate the Shared Use DocumentsShared Use DocumentsAgreements benefiting and/or burdening a Shared Use Property, such as: reciprocal easement agreements (REA); declaration of covenants; conditions and restrictions (CCR); development agreements; shared use agreements; joint ownership agreement or similar agreements governing…;
- document your evaluation in the Transaction Approval Memo; and
- obtain:
- an ALTAALTAAmerican Land Title Association title policy per Part II, Chapter 3: Legal Compliance, Section 304: Title Insurance; and
- ALTA Endorsements (i.e., 5-06, 28-06, and 9-06) if available in the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). jurisdiction.
Guidance
| Shared Use Document Evaluation | |
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| Topic | You should review the Shared Use Documents to evaluate... |
| Ownership and Control |
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| Responsibilities and Enforcement |
how an association or governing body:
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| Fees |
the assessment fee structure, including
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| Budget |
the association’s current
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| Mandates |
how the association dictates:
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| Insurance |
the association’s coverage for:
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| Section 109 | |
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Requirements
You must only underwrite actual income from occupied commercial space with an executed lease or lease extension agreement, if:
- the remaining lease term is at least 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
- the tenant is
- paying rent, and
- not delinquent on rent due outside the lease’s cure period; and
- the underwritten commercial income includes the actual commercial rent due under the lease within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
, including any
- discounts, or
- concessions.
Guidance
Your evaluation of any commercial space's viability should include:
- AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. sub-market comparable commercial space rents supporting the underwritten rents;
- sub-market data confirming a low commercial space vacancy rate;
- existing sustainable demand for the tenant’s business type; and
- evidence that the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). location has sufficient foot traffic to support the tenant’s business.
| 109.01 | |
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| 109.01A | |
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Requirements
You must analyze all aspects of each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… and its
- tenants,
- grantees, or
- other beneficiaries.
If Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… approval is required per Part II, Chapter 1: Attributes and Characteristics, Section 109.01B: Lease Approval you must:
- prepare a written summary of the material terms of the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other…; and
- keep a copy of your summary in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
Guidance
As you analyze the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other…, you should consider if:
- each tenant has the ability to fulfill its financial and other performance obligations under the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other…;
- the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… insurance provisions are consistent with the insurance requirements in the applicable Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. or otherwise prescribed by Fannie Mae;
- each tenant is required to obtain the Lender'sLender'sPerson Fannie Mae approved to sell or service Mortgage Loans.
consent before the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest
for commercial purposes comprising 5% or more of the Property's annual EGI, or
relating to:
solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… is
- assigned,
- subleased,
- subcontracted, or
- otherwise transferred; and
- the tenant
- has early termination clauses, and
- understands the conditions under which they can terminate, including
- a material casualty or condemnation, or
- if the landlord cannot substantially restore the premises in a reasonable period of time following a casualty or condemnation.
| 109.01B | |
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Requirements
|
Material Commercial Lease Type |
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Lease with Property Assessed Clean Energy (PACE) Financing |
You must not approve any Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… that includes PACE financing. |
|
Renewable Energy Generation Lease |
You must only approve leases for renewable energy systems that comply with Part II, Chapter 1: Attributes and Characteristics, Section 110: Renewable Energy Generation Systems. |
|
Other Material Commercial Leases |
You must only approve other Material Commercial LeasesMaterial Commercial LeasesLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… that comply with Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases. |
| 109.01C | |
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Requirements
As you review each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… modification, you must consider if it:
- violates any of the requirements of this Section;
- contains terms that are inconsistent with 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
- presents risks that are inappropriate for 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. .
If any of these conditions are present you must:
- require the BorrowerBorrowerPerson who is the obligor per the Note. to modify the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… appropriately; or
- address the items in the Tenant Estoppel Certificate (Form 6413) and/or the Subordination, Non-Disturbance, and Attornment Agreement (Form 6415).
| 109.01D | |
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Requirements
You must obtain a Tenant Estoppel Certificate (Form 6413) for each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other….
Requirements
You must use Form 6415 if:
- the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… contains provisions for the BorrowerBorrowerPerson who is the obligor per the Note. to assume liability or other risks as landlord that would be unacceptable to the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. in case of a Foreclosure EventForeclosure EventAny of the following: Foreclosure per the Security Instrument; Fannie Mae's exercise of rights and remedies per the Security Instrument or applicable law (including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, where Fannie Mae (or its designee or nominee),…; or
- the form
- is necessary for subordination and attornment, or
- would otherwise be beneficial.
You must ensure that each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… (including any renewal or extension):
- is subordinate to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ; and
- requires the tenant to attorn to the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. 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. .
Requirements
You must make reasonable efforts to get a Form 6413 for each non-Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other…, other than leases relating only to equipment or maintenance services.
If a non-Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… has terms that are inconsistent with the terms of 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 present inappropriate risks for 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. , then you must:
Requirements
|
Non-Material Commercial Lease Type |
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Telecommunications and Cell Tower Leases |
You must review any telecommunications and cell tower lease to ensure it does not:
|
| Communications Service Agreement |
You do not need to subordinate the service agreement to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. if:
If a communications service agreement is accompanied by a lease or easement, then the lease or easement must end automatically when the service agreement expires, unless the service agreement is subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. . |
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Mineral Rights; Oil and Natural Gas Leases |
You must review each agreement or lease of mineral rights or rights relating to subsurface oil and natural gas to ensure that it does not:
The BorrowerBorrowerPerson who is the obligor per the Note. must execute Form 6262 if a lease or deed reservation of rights allows for the subsurface exploration of oil, natural gas, or minerals, but no evidence of active or planned exploration or drilling exists on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). . |
|
Laundry Lease |
You do not need to subordinate the lease to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. if you confirm that the lease:
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Equipment or Related Maintenance Services Lease |
You must ensure that the lease:
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Guidance
|
Non-Material Commercial Lease Type |
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Storage Unit Lease |
You do not need to subordinate the lease to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. if you determine the unit is being leased pursuant to a residential LeaseLeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent. . |
| 109.03 | |
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Requirements
You must ensure that:
- the residential nature of any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
with units available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… is maintained, even though any LeaseLeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent.
of an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… unit will be
- classified as a commercial lease, and
- subject to the space and income limitations per Form 4660;
- no more than 5% of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). units (not counting recreational vehicle sites) are available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…; and
- the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. accurately incorporates all STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income.
You must include the following information in your underwriting analysis:
- Borrower'sBorrower'sPerson who is the obligor per the Note. strategy for implementing STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…;
- a description of the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… arrangement;
- length of time the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… has been in place;
- Borrower'sBorrower'sPerson who is the obligor per the Note.
action plan for handling liability issues for
- STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… tenants at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
- safety concerns for non-STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… tenants;
- if the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… units are furnished or unfurnished; and
- confirmation that the
- STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… is legally permissible and in compliance with applicable laws and zoning,
- Borrower'sBorrower'sPerson who is the obligor per the Note. or master tenant’s insurance covers any STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…, and
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is residential in nature (i.e., not operated as a hotel or other single room occupancy arrangement).
Guidance
Examples of an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… arrangement include an arrangement between the BorrowerBorrowerPerson who is the obligor per the Note. and:
- a tenant/master tenant, where the tenant/master tenant has an agreement with an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… provider or platform (such as Airbnb, VRBO®, etc.); or
- an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… provider or platform, where the Borrower'sBorrower'sPerson who is the obligor per the Note. tenants may make their units available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer….
You should seek to establish a leasing history of at least 12 months for any STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… unit.
| Section 110 | |
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Requirements
Any operational renewable energy generation system benefitting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). or the BorrowerBorrowerPerson who is the obligor per the Note. must be:
- located on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- comprised of a Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored…;
- BorrowerBorrowerPerson who is the obligor per the Note. -owned; and
- installed, or installation will begin, on or before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
| 110.02 | |
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Requirements
For any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with an acceptable Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored…, you must ensure:
- All equipment, including energy storage, is located on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and owned by the BorrowerBorrowerPerson who is the obligor per the Note. .
- The BorrowerBorrowerPerson who is the obligor per the Note.
has all required permits, licenses, and certificates to comply with all utility tariffs and laws governing the
- generation,
- storage,
- transmission, and
- distribution of electricity.
- The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). will remain connected to the utility grid even if the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… output is sufficient for all of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). energy needs.
- The BorrowerBorrowerPerson who is the obligor per the Note. will not be characterized or regulated as a public utility.
- Any power generated from the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… that is not consumed or stored on-site is only sold to the local utility, not to any other third party.
- Any battery storage system is designed only for on-site uses (e.g., peak shaving), and the BorrowerBorrowerPerson who is the obligor per the Note. has not arranged for ancillary services with any utility or third party.
- The BorrowerBorrowerPerson who is the obligor per the Note. executes Modifications to Multifamily Loan and Security Agreement (Mortgage Loan with installed Solar Photovoltaic System) (Form 6270).
Guidance
You should engage legal counsel with solar photovoltaic system experience and state-specific knowledge to review all applicable local laws, contracts, and agreements regarding the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… installation and operation, including:
- the interconnection agreement with local distribution company or utility;
- any net metering agreements;
- engineering, procurement, and construction contracts or agreements;
- any Operating and Maintenance Agreements;
- notice of Permission to Operate (or similar document) provided by local distribution company or utility;
- any supplemental financing or financing incentives (e.g., grants, tax credits, etc.) used by the BorrowerBorrowerPerson who is the obligor per the Note. to finance the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… to determine if any competing liens or other restrictions might result;
- any leases or contractual arrangements, such as agreements for
- renewable energy certificates,
- solar renewable energy certificates, or
- purchasing power; and
- confirming that BorrowerBorrowerPerson who is the obligor per the Note. will not be deemed a public utility.
| 110.03 | |
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Requirements
The PCAPCAAssessment of the Property's physical condition and historical operation. must include an evaluation of the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… equipment and roofs/structures where the equipment is mounted per the Solar PV Module of Form 4099.
| 110.04 | |
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Requirements
When calculating Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. :
- do not include any income derived from the Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored…, except for tenant utility reimbursement;
- any utility reimbursement income must
- not exceed the trailing 12-month period, and
- consider any decrease from the lower utility expense;
- utility expense must be supported by the trailing 12-month operating history; and
- include all additional Solar PV SystemSolar PV SystemA renewable energy system located on the Property that converts sunlight into electricity and/or a battery storage system containing lithium ion batteries or equivalent technology capable of storing electricity received from the electric grid or a renewable energy system and delivering stored… operating expenses such as:
- operating and maintenance contract fees;
- fixed utility fees;
- incremental real estate taxes;
- insurance coverage; and
- Replacement ReservesReplacement ReservesCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. for equipment replacement and/or system removal and reinstallation upon roof replacement.
| Section 111 | |
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| 111.01 | |
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Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has no evidence of any surface entry related to active mineral, oil, or gas activities.
For PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with mineral, oil, or gas exploration on an adjacent property, you must:
- Identify whether the exploration is active or inactive.
- DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. a Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). reporting no Recognized Environmental Conditions.
- Confirm all mineral, oil, or gas:
- equipment is located more than 600 feet from any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). boundary line; and
- exploration on the adjacent property does not impact the health or safety of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). tenants or have a material adverse impact to its marketability.
- Confirm:
- the adjacent property is not owned by 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. ; and
- either:
- no history of spills or leaks exists; or
- if spills or leaks have occurred, all applicable permits are in place.
Guidance
Evidence of active mineral, oil, or gas activities on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). may include:
- wells associated with production, exploration, or extraction;
- active storage or processing; or
- associated pits, ponds, or lagoons.
| 111.02 | |
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Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has no evidence of inactive mineral, oil, or gas equipment, unless:
- the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. is acceptable;
- if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is subject to an oil and gas lease, the lease complies with Part II, Chapter 1: Attributes and Characteristics, Section 109.02B: Non-Material Commercial Lease Types; and
- for a refinance, all mineral, oil, or gas equipment has been removed, capped, and closed per regulatory requirements before closing, and you have a permit or closure letter from the governing authority; or
- for an AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
, you:
- require the mineral, oil, or gas equipment/wells to be removed, capped, and closed per regulatory requirements within 180 days after 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. closing;
- escrow the applicable cost to remove equipment, close wells, and remediate the site per regulatory requirements;
- receive a permit or closure letter from the governing authority; and
- modify the Environmental Indemnity Agreement as required by Fannie Mae.
| Section 112 | |
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| 112.01 | |
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Requirements
You must confirm the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management team or company:
- manages other assets in the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). same geographic area; and
- has adequate staffing and expertise
- managing similar
- multifamily assets, and
- regulatory restrictions, and
- to ensure effective
- administration,
- leasing,
- marketing, and
- maintenance.
- managing similar
Guidance
An independent, professional PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management company is not required.
Requirements
If the BorrowerBorrowerPerson who is the obligor per the Note. is not the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). manager, you must ensure the:
- BorrowerBorrowerPerson who is the obligor per the Note. has a written management agreement with a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management company allowing LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. cancellation without penalty or prior notice in case of a BorrowerBorrowerPerson who is the obligor per the Note. default per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. ; or
- BorrowerBorrowerPerson who is the obligor per the Note. and PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). manager complete the Assignment of Management Agreement (Form 6405).
Guidance
You should ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management agreement clearly states the
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). manager's responsibilities, and
- amount of the management fee (or fee determination methodology).
| Chapter 2 | |
| Section 201 | |
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Requirements
When structuring 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. , you must:
- evaluate the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). market; and
- using objective factors, consider its
- strengths, and
- weaknesses.
| Section 202 | |
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| 202.01 | |
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Requirements
You must not allow your:
- Lender Loan Origination FunctionsLender Loan Origination FunctionsAny:
Lender internal roles or job functions reporting up to the Chief Production Officer;
Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor;
Mortgage Loan… to be involved or participate in any of your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender:
internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities:
engaging the Appraiser;
defining the Appraisal’s scope…, including:
- selecting an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or ordering an AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. for a specific 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
- maintaining lists of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. approved or forbidden to perform AppraisalsAppraisalsWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. for you; and
- Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… to be involved in, or combined with, any Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan….
Your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… are considered to be “Restricted Parties” who are prohibited from:
- ordering, managing, or defining the scope of work for an AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. assignment;
- selecting, retaining, recommending, or influencing whether an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
is selected for:
- a particular AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. assignment; or
- a list of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. approved or forbidden to perform AppraisalsAppraisalsWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. for you; and
- communicating with an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. management company without the Lender Appraisal FunctionLender Appraisal FunctionThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… included.
| 202.02 | |
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| 202.02A | |
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Requirements
You must:
- maintain a list of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. generally approved to perform AppraisalsAppraisalsWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. ;
- document the selection and approval of an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
, per your Lender Appraisal FunctionLender Appraisal FunctionThe Lender:
internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities:
engaging the Appraiser;
defining the Appraisal’s scope… processes, who is:
- a Certified General Appraiser (or licensed or certified per state law, if that state does not use the Certified General Appraiser designation);
- listed in good standing on the state roster per Title XI of FIRREAFIRREAFinancial Institutions Reform, Recovery, and Enforcement Act of 1989. ; and
- actively prepares multifamily appraisals in the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). market;
- if an in-house AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
is used, ensure your Lender Loan Origination FunctionLender Loan Origination FunctionAny:
Lender internal roles or job functions reporting up to the Chief Production Officer;
Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor;
Mortgage Loan… is separated from and cannot in any way influence (i.e., an ethical wall) the in-house AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
to:
- prevent conflicts of interest; and
- maintain AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. independence;
- require the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
to:
- be in a narrative format, using only objective factors;
- be signed by the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ;
- be certified by the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. to conform with current USPAPUSPAPUniform Standards of Professional Appraisal Practice requirements; and
- comply with:
- Instructions for Appraisers (Form 4827); and
- any governmental regulations in effect when 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.
was originated, including
- FIRREAFIRREAFinancial Institutions Reform, Recovery, and Enforcement Act of 1989. ,
- all fair lending laws, and
- all fair housing laws;
- provide the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
all applicable documents needed to accurately assess Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
value, including:
- the most recent PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. , or any other inspection reports (e.g., a structural engineering report);
- a rent roll dated within 60 days of the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. inspection date;
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
operating statements detailing
- income and expenses for the previous year (if available, for the previous 2 years), and
- year-to-date income and expenses;
- copies of:
- the Borrower'sBorrower'sPerson who is the obligor per the Note. standard form of residential lease;
- any executed commercial leases, including all amendments and attachments;
- any ground leases;
- any easements or regulatory agreements; and
- any purchase/sales contracts executed within 3 years before the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. date;
- any Environmental Site AssessmentsEnvironmental Site AssessmentsInvestigation and resulting report (Phase I ESA or Phase II ESA) conducted per Environmental Due Diligence Requirements (Form 4251), identifying if a Property has Recognized Environmental Conditions or Business Environmental Risks. ;
- architectural plans, if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is not yet completed;
- site plans/surveys, if available;
- for a Moderate Rehabilitation PropertyModerate Rehabilitation PropertyProperty that will undergo at least $8,000 per unit of Rehabilitation Work.
, details of the
- capital expenditures incurred, and
- total construction costs; and
- any information that may affect the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. estimate of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value; and
- not accept any AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
completed by an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
selected, retained, or compensated by:
- the BorrowerBorrowerPerson who is the obligor per the Note. ;
- the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). ;
- any Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ;
- any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ;
- for an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , the seller or any related party; or
- any third party, including 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.
- BrokersBrokersThird-party Person who arranges Mortgage Loan financing on the Borrower’s behalf, or Transfers/Assumptions on behalf of the new Borrower for an assumption, or transferee for a transfer. , or
- Correspondents.
Guidance
If final reports are unavailable, you may send draft versions of the
- PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. , and
- Environmental Site AssessmentsEnvironmental Site AssessmentsInvestigation and resulting report (Phase I ESA or Phase II ESA) conducted per Environmental Due Diligence Requirements (Form 4251), identifying if a Property has Recognized Environmental Conditions or Business Environmental Risks. .
If the final reports differ materially from the drafts sent to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , you must:
- forward the final reports to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ; and
- inquire whether the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. should be updated based on the final reports.
Requirements
When communicating with an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , you must comply with the Appraiser Communications table.
| Appraiser Communications | |
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| You may... | You must not... |
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provide any 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. data, such as
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| 202.02C | |
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Requirements
You must ensure no PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). influences, or attempts to influence, the development, reporting, result, or review of an AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or any other manner including:
- withholding, or threatening to withhold:
- timely payment; or
- future business;
- demoting or terminating, or threatening to demote or terminate, the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. employee;
- promising, either expressly or implicitly, the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
or any PersonPersonLegal person, including an
individual,
estate,
trust,
corporation,
partnership,
limited liability company,
financial institution,
joint venture,
association, or
other organization or entity (whether governmental or private).
related to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
:
- future business;
- promotions; or
- increased compensation, including
- financial benefits, or
- non-financial benefits;
- conditioning the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
order, or any bonus payment on
- the Appraisal’sAppraisal’sWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. opinion of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value, or
- a requested preliminary value estimate;
- any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
communications (other than providing a copy of the purchase/sales contract for an AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
) regarding the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
anticipated, estimated, encouraged, or desired:
- comparable properties;
- capitalization rates; or
- value or value range;
- providing the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. a proposed or targeted loan amount;
- impairing, or attempting to impair, through any other act or practice, the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP.
- independence,
- objectivity, or
- impartiality; or
- violating compliance with any law or regulation, including the USPAPUSPAPUniform Standards of Professional Appraisal Practice .
To ensure the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. independence, you must:
- implement written policies and procedures;
- ensure any Outside PartiesOutside PartiesPerson you retain to perform services for multifamily Mortgage Loans (e.g., Appraisers, inspectors, Correspondents, law firms, engineers, environmental consultants, and Brokers, title companies, or title agents). involved in your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… maintain AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. independence by confirming they do not also participate in your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan…; and
- if requested, provide evidence confirming your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… are separate from your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope….
Guidance
| Appraisal Independence | |
|---|---|
| To ensure compliance, your written policies should include... | That describe... |
| Procedures |
how you maintain independence between the Lender Appraisal FunctionLender Appraisal FunctionThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… and Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… through
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| Disciplinary Rules |
the consequences for not complying with the requirements, including
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| Training Programs |
in-person or online training:
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Requirements
| Valuation Date | |
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| If the Appraisal Date is more than... | You must... |
| 6 months before the Commitment Date | Instruct the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. to update the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. per Instructions for Appraisers (Form 4827). |
| 12 months before the Commitment Date | Order a new AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. . |
Guidance
You may be required to obtain a new or updated AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. if Fannie Mae determines the market deteriorated between the
- Appraisal DateAppraisal DateEffective date of value in the Appraisal. , and
- Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
Requirements
If you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. with an AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. prepared by an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. selected by another lender, you must:
- make all representations and warranties to Fannie Mae regarding the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. ; and
- confirm it complies with this GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
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Requirements
Your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must:
- review and approve each AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. for adequacy and compliance; and
- ensure the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
includes:
- an accurate description of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
and the market, including:
- the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). complete legal description;
- any information you provided the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ;
- color photographs of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- exterior,
- interior common areas,
- typical unit interiors,
- surrounding area,
- rental comparables,
- sales comparables, and
- commercial rental comparables;
- maps showing the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
location relative to the location of the
- land comparables,
- current rental comparables,
- future rental comparables, and
- sales comparables;
- qualifications of the
- a copy of your
- complete signed engagement letter with the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , and
- communications with the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. regarding the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. scope;
- an opinion of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
value per Part II, Chapter 2: Valuation and Income, Section 202.03A: Appraised Value, and supported by
- market data,
- logical analysis, and
- sound professional judgment;
- an opinion of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value; and
- an industry standard form of AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
appropriate for the Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by
the Loan Documents, or
a mortgage debt obligation with a Fannie Mae credit enhancement.
- size, and
- structure.
- an accurate description of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
and the market, including:
Your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must:
- return any report to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
that:
- is incomplete; or
- lacks credibility; and
- ensure your AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
review:
- is documented in the Transaction Approval Memo;
- is accompanied by all other AppraisalsAppraisalsWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. you ordered on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). during the past 3 years; and
- includes all information per the following Appraisal Analysis table.
| Appraisal Analysis | |
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| For... | You must... |
| Market Conditions |
Confirm the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. accounts for current market conditions, including
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| Data Accuracy |
Verify the Appraisal’sAppraisal’sWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. data accuracy, including
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| Property Inspections | Determine if the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. conducted a thorough inspection of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , including random sampling of occupied and vacant units per Instructions for Appraisers (Form 4827). |
| Sales/Rental Comparable Analysis |
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| Market Rents and Expense Analysis | If the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. proforma income or expenses substantially differ from the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). income and expenses used to calculate the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. , provide additional supporting comparable property data or rationale supporting your conclusions. |
| Capitalization Rate Analysis |
Provide your assessment that the capitalization rate:
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| Value Reconciliation |
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For each AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. , your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must ensure all:
- Potential Red Flags for Mortgage Fraud and Other Suspicious Activity were considered and the review documented in the Transaction Approval Memo; and
- unresolved red flags were reported per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 310: Compliance.
| 202.02G | |
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Requirements
For any 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 not order, obtain, use, or pay for a subsequent AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. unless:
- you document in your Transaction Approval Memo that the initial AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
:
- was not credible; or
- violated legal and/or professional standards related to
- USPAPUSPAPUniform Standards of Professional Appraisal Practice , or
- nondiscrimination; and
- the subsequent AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value
as of a specific date, and
supported by the presentation and analysis of relevant market information.
:
- is required per your pre-established written pre- or post-funding AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. review policy;
- adheres to a policy of selecting the most reliable AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. rather than the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. with the highest value; or
- is required by law.
Requirements
You must promptly notify:
- Fannie Mae if you discontinue using any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. who completed AppraisalsAppraisalsWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. within the past 12 months for Mortgage LoansMortgage LoansMortgage 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 DeliveredDeliveredSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. ; and
- Fannie Mae and the applicable state AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. certifying and licensing agency, or other regulatory body, if you believe an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. is:
| 202.03 | |
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| 202.03A | |
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Requirements
You must ensure:
- the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. engagement letter requires compliance with Instructions for Appraisers (Form 4827);
- the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provides an opinion of the market value on an "as is" basis;
- the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP.
opinion of the market value covers:
- each separate ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. per Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership; and
- the aggregate market value of all ProjectsProjectsMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. ; and
- regardless of any allocation in the purchase/sales agreement, the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP.
opinion of the market value excludes any value from
- goodwill,
- business value (permitted for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. ),
- intangibles,
- furniture,
- fixtures (unless customary in the market), or
- equipment.
You may also request the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provide an opinion of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). market value on an "as completed" basis, but you must only use an "as completed" value if all of the following apply:
- less than 12 months have passed between the
- Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , and
- Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ;
- for any capital improvements completed after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to be considered in an "as completed" value, they must be:
- Immediate Repairs listed in the PCAPCAAssessment of the Property's physical condition and historical operation. ; or
- improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , if you agree the improvements will add PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- all capital improvements are included in either the
- Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion…, or
- Rehabilitation Reserve AgreementRehabilitation Reserve AgreementBorrower’s agreement to undertake identified Rehabilitation Work, the terms for funding the Rehabilitation Work, and the disbursement of funds from the Rehabilitation Reserve Account (e.g., Form 6222 or Form 4523). ;
- sufficient funds to complete all capital improvements are deposited into either the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents.
or the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work.
:
- for capital improvements identified as Immediate Repairs, the funds must cover any higher funding percentage you require; and
- for capital improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , the funds must cover the estimated cost (including a cost overrun allowance); and
- all capital improvements must be completed within:
- 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , if identified by the BorrowerBorrowerPerson who is the obligor per the Note. ; or
- any shorter time period per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405: Completion/Repairs, if listed as Immediate Repairs.
| 202.03B | |
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Requirements
You must:
- analyze the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). sale history for the last 3 years, including any transfer of a Controlling InterestControlling InterestFor any entity, ownership or control of 50% or more of the ownership interests in the entity or the power or right to control or modify, directly or indirectly, the management and operations of the entity. in the owner;
- address the following in your Transaction Approval Memo:
- if a sale occurred within the last 24 months, document the
- circumstances of the sale, and
- support for any increased Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide.
by analyzing any
- Net Cash FlowNet Cash FlowOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… increases,
- capitalization rate compression, and
- value-add market drivers; and
- if any stated sales price per the purchase/sales agreement differs from the transfer price per the public records or third-party reports, investigate and document the discrepancy;
- if a sale occurred within the last 24 months, document the
- for any AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , confirm the seller was the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owner in the real estate records when the purchase/sales agreement was signed;
- evaluate the purchase/sale contracts to
- clearly identify the
- seller, and
- purchaser, and
- confirm the sale was an arm's length transaction;
- clearly identify the
- review the final settlement statement before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to confirm accuracy of the
- purchase price,
- closing costs, and
- any cash in/out to the seller and purchaser; and
- submit a copy of:
- the final settlement statement at DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. ; and
- all purchase/sales contracts and amendments to
- the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , and
- Fannie Mae.
| 202.03C | |
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Requirements
Your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. , as reduced by any adjustments you deem necessary, accounting for:
- your analysis of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). sales history; and/or
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deficiencies that cannot be cured within 6 months after the Appraisal DateAppraisal DateEffective date of value in the Appraisal. .
If less than 12 months have passed between the Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. and the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the lower of the
- Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. , or
- sum of the:
- Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price per the title company settlement statement, with no allocations to:
- goodwill,
- business value (permitted for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. ),
- intangibles,
- furniture,
- fixtures (unless customary in the market), or
- equipment;
- cost of capital improvements or repairs that increase the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
value, if
- completed and fully paid, or
- sufficient funds for completion are deposited in the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or reserve account; and
- actual AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
costs, not exceeding 3% of the AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price (but excluding all costs or fees paid to a BorrowerBorrowerPerson who is the obligor per the Note.
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…), including:
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. ;
- arm's length AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. fee (generally 1% - 2%) paid to an unrelated PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). if documented in the Settlement Statement;
- third-party report fees;
- BorrowerBorrowerPerson who is the obligor per the Note. -paid legal fees incurred on your behalf;
- title search and title insurance fees;
- survey fees;
- real estate and stamp taxes;
- deed-recording fees; and
- credit report charges.
- Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price per the title company settlement statement, with no allocations to:
Guidance
Actual AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. costs should exclude any prepaid operating expenses or deposits applied toward future operating expenses or PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). improvements, including:
- prepaid or escrowed
- real estate taxes, or
- insurance premiums;
- prepaid
- utilities,
- 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. interest, including any interest rate buydown expense,
- rents, or
- security deposits;
- funded
- Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. (including any initial deposit),
- 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. cost,
- operating or Restabilization Reserve, or
- BorrowerBorrowerPerson who is the obligor per the Note. -controlled PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating or capital accounts;
- fees included in the Gross Note RateGross Note RateInterest rate stated in the Loan Documents.
, including any
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. , or
- broker fee; and
- for an MAH PropertyMAH PropertyProperty encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction that limits rents that can be charged to tenants, or imposes income limits on tenants. , pre-paid 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. -related and compliance monitoring fees.
| Section 203 | |
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Guidance
When calculating the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. , you should:
- use objective measures to determine the revenue generated and the expenses incurred;
- use the best information available, including
- historical performance, and
- anticipated operations;
- use best efforts to obtain operating statements for the prior 3 years;
- obtain the prior full-year operating statement or, at a minimum, one covering the trailing 6 months (annualized);
- request trailing 3-month physical and economic vacancy history if not included on the operating statement provided;
- use best efforts to obtain a current aged receivables report, listing rent delinquencies at day
- 30,
- 60, and
- 90;
- review operating statement and rent roll updates, ensuring no inexplicable variances compared to previously provided statements;
- if variances are identified compared to previously provided statements, they should be
- investigated,
- reconciled, and
- documented in the Transaction Approval Memo; and
- consider if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
can achieve the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III.
within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
, absent
- unexpected market conditions, or
- other unforeseen events.
You may, for:
- AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. only, rely on the Borrower'sBorrower'sPerson who is the obligor per the Note. budgeted operating statements; and
- all Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , calculate the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. more conservatively, if warranted by specific PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). circumstances.
Requirements
You must:
- determine the reasonableness of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). current income and expenses based on historical data from external real estate data aggregator services;
- if adjustments were made to any reviewed historical operating statement:
- document and reconcile each individually adjusted line item; and
- provide supporting detail in the Transaction Approval Memo; and
- use the following table to calculate Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. for all Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. unless another table is provided in the applicable Part III chapter based on the specific product.
|
REQUIRED UNDERWRITTEN NCF (CONVENTIONAL LOANS) |
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|---|---|---|
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Item |
Function |
Description |
|
CALCULATION OF NET RENTAL INCOME |
||
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1 |
|
GROSS RENTAL INCOME – actual rents in place for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12). The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). must have Stabilized Residential OccupancyStabilized Residential OccupancyPercentage of Property units physically occupied by Qualified Occupants, per Part II, Chapter 1: Attributes and Characteristics, Section 105.02: Qualified Occupants as adjusted for the applicable Part III products and features. by Qualified TenantsQualified TenantsParty occupying a dwelling unit in a Property in full compliance with a lease. .
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in New York City and subject to the J-51 Tax Incentive Program where the BorrowerBorrowerPerson who is the obligor per the Note. has decontrolled rent-stabilized units (a Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. ), you must adjust the current rents to reflect no rent decontrol benefits:
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2 |
PLUS |
To the extent deducted as an operating expense, rents for other non-revenue units (e.g., model units deducted in the “model apartment” operating expense in the “general and administrative” category, or actual rent from employee units deducted in the “employee” operating expense in the “payroll and benefits” category). |
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EQUALS |
GROSS POTENTIAL RENT (GPR) |
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3 |
MINUS |
Premiums (e.g., identifiable additional income from furnished units or short term leases) and/or corporate premiums (e.g., identifiable additional income from corporate units, housekeeping services, etc.). |
|
4 |
MINUS |
Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).1 |
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5 |
MINUS |
Concessions - the aggregate amount of forgone residential rental income from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.1 |
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6 |
MINUS |
Bad debt - the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.1 |
|
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EQUALS |
NET RENTAL INCOME (NRI)2 |
|
1 The total of Items 4, 5, and 6 must equal the greater of
2 NRI must reflect projected operations for the underwriting period.
a. You must assess the NRI using these parameters and fully support any changes:
b. You must assess declines in NRI using these parameters:
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CALCULATION OF OTHER INCOME |
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7 |
PLUS |
Actual other income (except premiums and corporate premiums) generated through ongoing operations. The income must:
You must assess the individual month's other income within the prior full-year operating statement or, at a minimum, an operating statement covering at least the trailing 6 months (annualized).
If there are fluctuations, you may use other income that exceeds the trailing 3-month other income (annualized), provided it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.
When determining the other income, you must
|
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CALCULATION OF COMMERCIAL INCOME |
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8 |
PLUS |
Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases. |
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9 |
PLUS |
Actual income from STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… units. |
|
10 |
MINUS |
10% of the actual commercial space income (total of Items 8 plus 9).3 |
|
11 |
PLUS |
Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.3 |
|
3 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI. |
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12 |
PLUS |
Premiums, provided that the income must:
|
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13 |
PLUS |
Corporate premiums, provided that this income must:
|
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14 |
PLUS |
Laundry and vending. |
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15 |
PLUS |
Parking - income from residential parking/garage spaces. |
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16 |
PLUS |
All other income, including the following:
The following must not be included:
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|
EQUALS |
EFFECTIVE GROSS INCOME (EGI) |
| CALCULATION OF OPERATING EXPENSES | ||
|
17 |
MINUS |
Line-by-line stabilized operating expenses.
Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations, not affected by a
Non-recurring, extraordinary expenses must not be included.
You must access:
You must:
|
|
17(a) |
MINUS |
PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management fee equal to the greatest of:
|
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4 Minimum property management fee may be 2.5% of EGI (rather than 3% of EGI) provided that the:
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||
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17(b) |
MINUS |
Real estate taxes based on the greatest of:
You must, for:
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has real estate tax abatements, exemptions, deferrals, or PILOTsPILOTsPayment In Lieu Of Taxes. , they must:
|
| 17 (b) continued | MINUS |
If the timeframe for the real estate tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. is shorter than 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. term, or begins phasing out or expires within 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must consider:
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17(c) |
MINUS |
Insurance equal to:
For an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. :
If the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). area is prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. , ensure the expense aligns with the market. |
|
17(d) |
MINUS |
Utilities, including the following:
|
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17(e) |
MINUS |
Water and sewer. |
|
17(f) |
MINUS |
Repairs and maintenance, including the following:
|
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17(g) |
MINUS |
Payroll and benefits, including the following:
|
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17(h) |
MINUS |
Advertising and marketing, including the following:
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17(i) |
MINUS |
Professional fees, including the following:
|
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17(j) |
MINUS |
General and administrative, including the following:
|
| 17 (j) continued | MINUS |
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17(k) |
MINUS |
Other expenses, including the following:
For example, if actual lease STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income for a unit is $1,000 and market rate residential rent for that unit is $900, then deduct $1,200 ($1,000 - $900 = $100 x 12 months) as an "other" expense.
Do not include the following:
|
| 18 | MINUS |
For a CondominiumCondominiumStatutorily established Property ownership regime where Condominium Documents designate: individual units for separate ownership; and common areas for shared use and joint ownership by the unit owners. PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). or a Shared Use PropertyShared Use PropertyProperty subject to Shared Use Documents: benefiting the Property by granting the right to use Essential Elements on common areas created by, or other properties subject to, the Shared Use Documents, and/or burdening the Property by: subjecting it to: property-use or other…:
|
| 19 |
MINUS |
Ground rent for any Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. or any master lease. Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. bonus rent and/or escalations during the term of 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. must be considered when calculating Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. and analyzing refinance risk. |
|
|
EQUALS |
UNDERWRITTEN NOI |
|
20 |
MINUS |
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense, including a
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense must be included whether the escrow is funded or not. |
|
|
EQUALS |
UNDERWRITTEN NCF |
| 203.02 | |
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Requirements
You must calculate Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, as adjusted for the applicable products and… per the following table.
|
Item |
Function |
Description |
|---|---|---|
|
1 |
|
Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF). |
|
2 |
DIVIDED BY |
Annual debt service for 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. amount.
You must base debt service on a level debt service payment, including amortization, and the greater of the
|
When calculating Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, as adjusted for the applicable products and… 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. with an interest-only period, you must use the same level debt service payment, including amortization, regardless of the length of the interest-only period.
The Underwriting Interest Rate Floor, if applicable, is the lowest interest rate you may use to determine 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. amount.
If the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. is below the required Underwriting Interest Rate Floor, per Form 4660, you must use the Underwriting Interest Rate Floor to establish the permitted 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. amount.
All underwriting TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). requirements must be based on the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. .
| Section 204 | |
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Requirements
You must prepare an exit strategy analyzing the Borrower'sBorrower'sPerson who is the obligor per the Note. ability to refinance 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. in the year after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. (e.g., use the projected NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… in year 11 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. with a 10-year term), by calculating a:
- “reversion” cap rate, which is the expected capitalization rate able to be supported per the projected NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and…; and
- Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. .
| 204.01 | |
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Requirements
For Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 1, use the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. . For all subsequent Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. , you must derive proforma NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… as follows:
| Factor | For... | Use... |
|---|---|---|
| Income Growth Rate |
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2%. |
| All other Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. | the growth rates published in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). . | |
| Economic Vacancy | All Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. | the underwritten economic vacancy rate. |
| Real Estate Taxes | California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
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| Non-California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
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| Real Estate Tax Abatements, Exemptions, Deferrals, or PILOTs | All Mortgage LoansMortgage LoansMortgage 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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| Management Fee | All Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. | the underwritten rate. |
| Replacement Reserves | All Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. | the underwritten value. |
| Insurance and Other Expenses |
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3%. |
| All other Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. | the growth rates published in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). . |
You must estimate 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. UPBUPBUnpaid Principal Balance at the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. as follows:
| For... | Use... |
|---|---|
| Amortization |
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| DSCR | The minimum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of: principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. for the applicable product or features, per Form 4660. |
| LTV | The maximum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage. for the applicable product or features, per Form 4660. |
Guidance
In most cases, the combined effect of principal amortization and NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… growth should result in a refinancing at the minimum DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of: principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. and maximum LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage. for TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2, using a reasonable interest rate.
You should consider the following refinance parameters:
- A target reversion capitalization rate at least 2.0% greater than the initial capitalization rate used for determining Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. .
- A Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. at least 2.25% greater than the current 10-year Amortizing Nationwide Underwriting Floor rate, per Form 4660.
| 204.02 | |
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Requirements
You must:
- present an alternative risk analysis using assumptions that deviate from the base assumptions if:
- you determine the base assumptions do not appropriately estimate the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… over 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. term; or
- third-party data providers project rent growth materially below Fannie Mae growth rates published in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. ;
- identify and support any deviations with
- reliable evidence, and
- historical and projected market trends; and
- state your conclusions, discussing any mitigating factors, such as the:
- strength of the
- SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , or
- submarket; and
- Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- characteristics,
- operating history, and
- performance.
- strength of the
Guidance
Income and Expense Growth Rates: Income and expense trending should incorporate projected market rates based on general economic, market, and submarket conditions from reliable sources, as well as the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). characteristics. For example:
- Rents on recently signed leases should only be used for estimating income growth in Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 1 and 2.
- Rent projections greater than the Base Assumption Income Growth Rate should not be used beyond Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 4.
- When improvements in market economic occupancy or sustained market rental rate increases are widely anticipated, growth trends above the Base Assumption Income Growth Rate may be supported.
- Projections of income growth resulting from PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). renovations or improved operations should be limited to the first 3 Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. .
- When a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is subject to a scheduled reassessment or a tax abatement phase-in period, tax expense should be adjusted appropriately.
- If a tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes.
begins phase out or expires more than 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
, consider if the increased expense within 10 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
may affect the Borrower'sBorrower'sPerson who is the obligor per the Note.
ability to refinance, and warrants
- a lower 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. amount,
- faster amortization, or
- a reduced interest only period.
- When you expect to incur costs for tenant improvement allowances and leasing commissions, or to realize rent increases from the rollover of tenants, commercial income should be adjusted appropriately.
- A substantially renovated PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , with improved in-unit finishes and/or new/renovated amenities, may experience different income and expense growth rates than properties of the same age; therefore, growth trends differing from the Base Assumption Income Growth Rate may be supported.
Economic Vacancy: PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in submarkets with depressed economic conditions due to temporary demand or supply issues may be modeled to reflect the economic vacancy projected by a reliable source. If you expect a decrease in vacancy to achieve stabilized levels, you should consider
- the anticipated timing, and
- effect of decreased economic vacancy on projected income growth over the same time period.
| Section 205 | |
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Requirements
You must:
- examine the risk of allowing cash out to the BorrowerBorrowerPerson who is the obligor per the Note. (see Form 4660 for a description of cash out transactions); and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , consider 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. amount relative to the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). total development cost basis.
When underwriting a cash-out transaction, you must consider and document in the Transaction Approval Memo:
- the amount of hard equity remaining in the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). debt structure, excluding prior permanent financing costs, such as interest or prepayment premium;
- the length of time the BorrowerBorrowerPerson who is the obligor per the Note. has owned the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- effective age, and
- current physical condition;
- over the ownership period, any improvement in
- asset quality,
- the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations (i.e., its NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and…), or
- value;
- if the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value increased due to an increase in NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and…, rather than a decrease in the capitalization rate; and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). total development costs basis per the New Construction table:
| New Construction | |
|---|---|
| For... | The Property's total development cost basis includes... |
| Land |
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| Hard Costs |
Expenses for:
|
| Soft Costs |
Fees for:
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| Construction Financing Costs |
Expenses for:
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| HUD or LIHTC New Construction | Amount supported by the Cost CertificationCost CertificationIndependent third-party audit report itemizing the Property's construction and development costs, including a statement of eligible and qualified basis, submitted to the state housing finance agency to obtain IRS Form 8609(s). . |
| Cash Out Transaction Support | |
|---|---|
| Factor... | Must... |
| Cash Out Proceeds | Be commensurate with the length of the ownership period. |
| Property Condition | Have improved or been good over the ownership period. |
| Property NCF | Have improved over the ownership period. |
| Property Value | Have increased due to higher NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… over the ownership period. |
| Section 206 | |
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Requirements
For AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. or refinances where the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is being repositioned through a substantial capital improvement plan, you must analyze (and document in your Transaction Approval Memo) the:
- Sponsor’sSponsor’sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
:
- business plan (either through a written plan or by a conversation with the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
), including
- market rent growth expectations,
- any planned capital improvements,
- any expected rent premiums after renovations,
- operating expense management, and
- value appreciation through capitalization rate compression;
- expected ownership period for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). relative to 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. term; and
- expected investment returns from owning/operating the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
, assuming
- AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. at the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. , and
- a hypothetical disposition at the Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. ;
- business plan (either through a written plan or by a conversation with the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
), including
- Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. Underwritten Capitalization RateUnderwritten Capitalization RateRatio, expressed as a percentage, of the Underwritten Net Cash Flow, divided by Underwriting Value. ; and
- motivation in the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). investment compared to the Borrower’sBorrower’sPerson who is the obligor per the Note. other investment alternatives.
| Section 207 | |
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Guidance
For Rent-Stabilized PropertiesRent-Stabilized PropertiesProperty where rent increases on more than 50% of the residential units are limited by state or local statutory controls, not by an Affordable Regulatory Agreement. (e.g., located in New York State), you should:
- underwrite PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). income based on current rents;
- exclude any potential rent increase for units converting to market rate from the projected NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… in the refinance risk analysis;
- assess and stress the cap rate used to determine the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. , and consider obtaining an AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. ;
- for fund SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or other SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). requiring minimum investment returns, consider whether the Sponsor'sSponsor'sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). interests are aligned with the limited rent increases allowed under the law; and
- fund the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. to maintain the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). physical condition.
| Chapter 3 | |
| Section 301 | |
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| 301.01 | |
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Requirements
For each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , you must:
- identify the current zoning or land use designation;
- determine if the existing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). use (e.g., multifamily, single-family, mixed use, Manufactured Housing CommunityManufactured Housing CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. , etc.) is expressly permitted per current zoning and land use laws and regulations; and
- confirm the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
characteristics (e.g., building height, density, set-back lines, etc.):
- conform to current zoning requirements and land use designations; or
- are legally non-conforming per applicable zoning or land use laws and regulations.
If you order a Zoning Report from a zoning consultant, you must:
- upload the zoning report to DUS Docway in Folder II; and
- deliver structured data per the Zoning Report Data Supplement (Form 4089).
| 301.02 | |
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Requirements
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is a legal non-conforming use, you must:
- ensure the BorrowerBorrowerPerson who is the obligor per the Note. executes Modifications to Multifamily Loan and Security Agreement (Legal Non-Conforming Status) (Form 6275);
- confirm, following a casualty, the percentage of damage to the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
(i.e., the destruction threshold) at which the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
jurisdiction would prohibit the rebuilding of all impacted ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
to the pre-casualty use and condition under current
- laws,
- zoning requirements, and
- building codes; and
- if the destruction threshold is less than 50%, not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. .
Requirements
If the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). characteristics are legally non-conforming, you must:
- ensure the BorrowerBorrowerPerson who is the obligor per the Note. executes the Modifications to Multifamily Loan and Security Agreement (Legal Non-Conforming Status) (Form 6275);
- confirm whether, if fully or partially destroyed, the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
can be fully rebuilt to the pre-casualty condition per current
- laws,
- zoning requirements, and
- building codes; and
- if the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
cannot be fully rebuilt to the pre-casualty condition,
- evaluate if the as-rebuilt PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). will support 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. at the current TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). , and
- document your analysis in the Transaction Approval Memo.
Guidance
To assess the Borrower'sBorrower'sPerson who is the obligor per the Note. ability to rebuild ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). on a non-conforming PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). to a level that will support 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. at the current TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). , you should consider:
- conducting a threshold analysis to determine the resulting actual amortizing DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of: principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. if the reconstructed ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). cannot be rebuilt as-is per current law;
- the likelihood of a casualty event (e.g., wind, earthquake, fire, flood, mine subsidence, etc.);
- the percentage of damage to the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). at which the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). jurisdiction will require the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). be rebuilt to current zoning and land use requirements (i.e., the destruction threshold);
- which PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
characteristics the destruction threshold percentage applies to, such as
- market value,
- assessed value,
- replacement cost, or
- unit count;
- for PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
with multiple buildings, if the destruction threshold percentage applies to
- each building, or
- all buildings as a whole;
- the replacement cost to rebuild per current requirements for
- zoning, and
- land use;
- the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
continued
- marketability, and
- economic viability;
- the amount and type of BorrowerBorrowerPerson who is the obligor per the Note. -maintained insurance coverage required per Part II, Chapter 5: Property and Liability Insurance, Section 501.02D: Ordinance or Law Insurance;
- insurance loss proceeds payout, compared to increased rebuilding costs, including from
- building code changes,
- Americans with Disabilities Act compliance, and
- the municipality's local zoning requirements (e.g., green compliance for new buildings, etc.);
- the sufficiency of estimated insurance proceeds from ordinance or law insurance and other coverages to repay 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.
in the event of partial or full
- casualty, or
- condemnation; and
- for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 4 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. , if requiring execution of the Limited Payment Guaranty (Form 6020.LPG) would mitigate the risk of the as-rebuilt PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). not supporting a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. .
| Section 302 | |
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Requirements
You must evaluate the impact of all easements (public and private), including their effect on:
- the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value and marketability; and
- life safety issues, environmental risks, and acceptability in the market area for certain types of easements, such as for
- transcontinental pipelines,
- high power electric transmission lines, or
- drainage channels.
Guidance
Easements for normal utilities are generally acceptable, including those that provide natural gas, water, sewer, electricity, or telephone service to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
Easements that serve other properties will generally be acceptable if they
- do not interfere with ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ,
- are limited to residential and reasonable commercial use, and
- are covered by appropriate insurance.
| Section 303 | |
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| 303.01 | |
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Requirements
You must ensure that the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is free of all LiensLiensLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. and rights of others, except for
- Permitted EncumbrancesPermitted EncumbrancesThe following permitted title exceptions: lien of current real property taxes, water charges, sewer rents and assessments not yet due and payable; covenants, conditions and restrictions, rights of way, easements and other matters of public record acceptable to the Lender and specifically…, and
- cable and laundry leases per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.
You must analyze any restrictions on ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). or the use of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , in order to
- determine whether the restrictions are acceptable, and
- make recommendations for addressing the restrictions.
Examples of restrictions that must be analyzed include restrictive covenants and any restrictions that have been offered, or accepted, in order to obtain a zoning approval or building permit.
If a non-MAH PropertyMAH PropertyProperty encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction that limits rents that can be charged to tenants, or imposes income limits on tenants. has an Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…, it must be subordinated to the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 705: Restrictive Covenants and Affordable Regulatory Agreements.
Guidance
When determining whether a restriction is acceptable, you should consider whether a restriction could negatively impact the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code).
- value,
- use,
- security,
- marketability, or
- ability to generate NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… sufficient to pay debt service.
Requirements
You must analyze the impact of any restriction on the conversion of a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). to a condominium or similar development.
Guidance
A restrictive covenant on condominium conversions will generally not have a negative impact if all of the following apply:
- The conversion restriction is for a period of 10 years or less.
- Any repurchase option or right of reversion in favor of a benefitted party:
- is unconditionally subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. and to 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. ;
- includes an unconditional “standstill” provision prohibiting the exercise of such option or right while 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. is outstanding; and
- automatically ends if a Foreclosure EventForeclosure EventAny of the following: Foreclosure per the Security Instrument; Fannie Mae's exercise of rights and remedies per the Security Instrument or applicable law (including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, where Fannie Mae (or its designee or nominee),… occurs.
- The covenant provides that no mortgagee, trustee, or beneficiary under any mortgage or deed of trust will be liable for any act, omission, or indemnification obligation of the BorrowerBorrowerPerson who is the obligor per the Note. or any prior or subsequent owner of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
- The covenant does not require any mortgagee, trustee, or beneficiary under a mortgage or deed of trust to execute an assumption or similar agreement if a Foreclosure EventForeclosure EventAny of the following: Foreclosure per the Security Instrument; Fannie Mae's exercise of rights and remedies per the Security Instrument or applicable law (including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, where Fannie Mae (or its designee or nominee),… occurs.
Requirements
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If the Property... |
You must... |
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Previously secured taxable or tax-exempt bonds |
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Currently secures taxable or tax-exempt bonds that are being retired with proceeds of the Mortgage Loan |
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Guidance
A PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). that secures, or has secured, bonds may be subject to certain requirements, restrictions, or other features that survive repayment of the bonds such as:
- rent, income, transfer, or other restrictions;
- master lease requirements that support such restrictions; and
- indemnification or other requirements that could
- burden a future owner,
- depress the value or marketability of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , or
- prevent or inhibit foreclosure of a lien securing new financing.
For any bonds being retired with the proceeds of 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 prepare a written summary of the bond documents that:
- explains why any surviving features of the financing will not have a materially adverse effect on 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. , the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , you, or Fannie Mae;
- gives an overview of the redemption process for retiring the bonds; and
- is uploaded into DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. prior to 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. .
| Section 304 | |
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Requirements
You must ensure that every 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. is covered by an ALTAALTAAmerican Land Title Association title policy or comparable title policy approved for use in the applicable jurisdiction.
The title policy must:
- be issued by a title company that is authorized to issue title policies where the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located;
- be in the original amount of 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. , including all advances held in escrow or reserves;
- be no less than the amount of 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. allocated to each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , if 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. is secured by multiple properties;
- insure for the benefit of Fannie Mae;
- insure the first priority LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of 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. , subject only to the Permitted EncumbrancesPermitted EncumbrancesThe following permitted title exceptions: lien of current real property taxes, water charges, sewer rents and assessments not yet due and payable; covenants, conditions and restrictions, rights of way, easements and other matters of public record acceptable to the Lender and specifically…, unless it is a Supplemental Mortgage LoanSupplemental Mortgage LoanMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. ;
- be in full force and effect with
- all premiums paid,
- no claims made by you or another lender, and
- no claims paid;
- insure the legal description of the insured property is identical to the legal description of the property shown on any required survey;
- contain:
- a Comprehensive Endorsement (ALTAALTAAmerican Land Title Association Form 9 or equivalent);
- an Environmental Protection Lien Endorsement (ALTAALTAAmerican Land Title Association Form 8 or equivalent) that only takes exception for a statute that could give an environmental protection LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. priority over 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. ;
- a Mortgage Tax Endorsement (ALTAALTAAmerican Land Title Association Form 38.06 or equivalent) if 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. is secured by an amended and restated Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. , such as a New York Consolidation, Extension, and Modification Agreement (Form 6025.NY.CEMA), or a Florida Consolidated, Amended, and Restated Mortgage (Form 6025.FL.AR); and
- appropriate Endorsements such as:
- Zoning (where available);
- CondominiumCondominiumStatutorily established Property ownership regime where Condominium Documents designate: individual units for separate ownership; and common areas for shared use and joint ownership by the unit owners. ;
- PUD;
- Variable Rate;
- Leasehold Mortgage;
- Location;
- Unlocated Easements; and/or
- Contiguity-Multiple Parcel;
- delete the standard survey exception;
- include a note on Schedule B, Part II listing you as the secured party and Fannie Mae as the assignee, for any financing statement filed in the recording office;
- not list any financing statement as an exception on Schedule B, Part I; and
- insure that any taxes, assessments, or other lienable items are not yet due and payable.
| 304.01 | |
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Guidance
The title company should have a satisfactory rating and adequate reserves.
| 304.02 | |
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Guidance
If the policy form meets all requirements of this Section, Fannie Mae will accept the standard 2021 or 2006 ALTAALTAAmerican Land Title Association forms of title insurance policies.
In those states where ALTAALTAAmerican Land Title Association forms of coverage are not approved by the state insurance board or commission, you should get the closest equivalent alternative coverage.
| 304.03 | |
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Guidance
You may use electronically issued title policies if the coverage is enforceable against the insurer.
| 304.04 | |
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Guidance
The title policy should
- name you as the insured, and
- insure Fannie Mae when 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. is delivered (either by reference to your “successors and assigns, as their interests may appear” or by direct reference to Fannie Mae).
| 304.05 | |
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Requirements
You must have title coverage in effect (i.e., the date of the signed pro forma policy or marked-up commitment) when you fund 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. .
Guidance
The issued title policy should be later-dated to cover the Assignment of Security Instrument’s recording date.
| 304.06 | |
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Guidance
If the title policy includes exceptions to matters shown on a recorded map or plat, the exceptions should be specifically described.
Guidance
If any taxes could become delinquent within 60 days after closing, you should require payment at closing.
| 304.08 | |
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Guidance
Any financing statement not filed in the recording office (such as a Uniform Commercial Code filing) may be shown as an informational note on Schedule B, Part II.
| 304.09 | |
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| 304.09A | |
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Guidance
You should get an appropriate ALTAALTAAmerican Land Title Association form of endorsement that is incorporated into the “base” title policy. In jurisdictions where an ALTAALTAAmerican Land Title Association form is not available, you may include in Schedule B an equivalent form of endorsement or affirmative coverage.
| 304.09C | |
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Guidance
You should consider whether an adverse circumstance affecting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). would be an acceptable exception on Schedule B, Part I. Examples include:
- encroachments onto the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- easements or rights of way over the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- encroachments by the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). onto adjoining land; and
- violations of existing covenants, conditions, and restrictions.
| 304.10 | |
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Guidance
You should keep copies of any restrictions shown as exceptions in the title policy (such as easements and encumbrances) in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
| Section 305 | |
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| 305.01 | |
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Requirements
You must decide whether to get an as-built survey and comply with:
- Part II, Chapter 3: Legal Compliance, Section 305.02: Survey, if you require a survey; or
- Part II, Chapter 3: Legal Compliance, Section 305.03: Decision Not to Obtain a Survey, if you do not require a survey.
| 305.02 | |
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Requirements
If you require an as-built survey, it must:
- meet the requirements of an ALTAALTAAmerican Land Title Association /NSPSNSPSNational Society of Professional Surveyors Land Title Survey (made per the 2021 Minimum Standard Detail Requirements), including the required certification; and
- allow the title company to delete the standard survey exception from the title policy.
Guidance
An acceptable as-built survey:
- should include these items from Table A to all the ALTAALTAAmerican Land Title Association /NSPSNSPSNational Society of Professional Surveyors Minimum Standard Detail Requirements: 1, 2, 3, 4, 6(a) and (b), 7(a), 8, 9, 10, 13, 16, and 18;
- may omit the following from Table A:
- item 1 for a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with a lot and block legal description; and/or
- item 10, if there are no party walls; and
- should be dated within 360 days before recording the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .
Requirements
If an existing survey dated more than 360 days before the effective date of the title insurance policy is used, it must satisfy all Title Insurance Company requirements for the deletion of the standard survey exception.
Guidance
The Title Insurance Company may require a “no new improvements” affidavit from the BorrowerBorrowerPerson who is the obligor per the Note. certifying that no changes have been made to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). since the date of the survey. An existing survey dated within 360 days before the effective date of the title insurance policy, but not prepared in connection with the origination of 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. , may be recertified to you, the Title Insurance Company, and Fannie Mae for 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. .
You should consider whether an adverse circumstance found by a survey would be acceptable. Examples include:
- encroachments over boundary lines, setback lines, or easements; and
- the absence of necessary appurtenant easements, such as a storm or sanitary sewer easement.
Requirements
If you do not require an as-built survey:
- either you or the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. must conduct a visual inspection of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- any visible site condition (such as an easement, right-of-way, or encroachment) must be disclosed and insured under the title policy; and
- the title company must delete the standard survey exception from the title policy.
| 305.04 | |
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Requirements
Whether or not you decide to get an as-built survey, Part II, Chapter 5: Property and Liability Insurance, Section 501.03: Catastrophic Risk Insurance requires you to determine if any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are located in an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. A or Zone V.
| Section 306 | |
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Requirements
You must:
- Ensure that the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. creates a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on all Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. .
- Ensure that the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. is a perfected first priority LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. .
- Assign each UCCUCCUniform Commercial Code security interest to Fannie Mae.
Guidance
Article 9 of the UCCUCCUniform Commercial Code covers the perfection of a security interest in Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. .
The following table describes how to create and perfect a security interest.
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Do the following… |
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Establish whether the Borrower or a third party owns the Personal Property |
Confirm that the BorrowerBorrowerPerson who is the obligor per the Note. has provided a representation of ownership in the Underwriting Certificate (Borrower) (Form 6460.Borrower). |
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Verify that no other party has a Lien on the Personal Property |
Conduct searches for UCCUCCUniform Commercial Code financing statements, tax LiensLiensLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. , and judgments on all relevant parties to the transaction. |
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Obtain a perfected first security interest in the Personal Property |
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Assign the security interest from you to Fannie Mae |
File an appropriate assignment (e.g., UCCUCCUniform Commercial Code -1Ad; UCCUCCUniform Commercial Code -3) in the same office(s) where the UCCUCCUniform Commercial Code -1 is filed or recorded. |
| Chapter 4 | |
| Section 401 | |
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| 401.01 | |
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Requirements
Before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , you must:
- complete a thorough lease audit to reconcile the rent roll with the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). signed leases; and
- comply with the following table.
| Lease Audit Review | |
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| For Properties with... | You must review at least... |
| 5 - 9 units | all available leases. |
| 10 - 100 units |
the greater of
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| 101 - 300 units | 10% of all leases. |
| 301 - 900 units | 40 leases. |
| 901+ units | 50 leases. |
When auditing the leases, you must:
- analyze the entire tenant file, including, whenever available
- identification records,
- verification of employment and income, and
- credit verifications;
- audit leases for all inspected units;
- include new and recently renewed leases to verify rent trends;
- increase the number of leases reviewed if you find
- material discrepancies, or
- lack of adequate documentation in the files;
- document your results in a lease audit form; and
- summarize the results in your Transaction Approval Memo, including any documents that were unavailable for review, and why.
If the management company engages a third party to review and approve the tenant qualification documents, you must:
- review the documents; and
- explain your rationale in the Transaction Approval Memo if any documents are unavailable for review (e.g., a national tenant qualification firm completed and documented the review, etc.).
| 401.02 | |
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Requirements
Before the inspection, you must email the BorrowerBorrowerPerson who is the obligor per the Note. and management company:
- specifying the minimum lease audit requirements; and
- requesting full records access to ensure your ability to perform additional due diligence for any identified critical issues.
Requirements
When validating rent collections, you must:
- review 1 of the following:
- a cash ledger;
- receipts journal;
- at least 3 months of bank statements confirming the rent deposits; or
- similar documents;
- meet with the site manager to obtain and discuss:
- an accounts receivable report; or
- past rent due report;
- compile a lease audit form or record to validate the lease terms against the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). rent roll;
- include your lease audit form with your underwriting documents delivered to DocWayDocWayBusiness-to-business electronic documentation delivery application, or any successor system. ; and
- document your findings in the Transaction Approval Memo.
You must use the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. , other comparable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). information, or third-party data sources to validate secondary income related to:
- ratio utility billing system (RUBS);
- cable;
- laundry;
- parking; or
- any other tenant income.
Guidance
You should confirm the management company uses:
- acceptable practices for day-to-day operations; and
- industry-standard software systems to generate detailed reports.
You may obtain sample management company reports, such as
- rent rolls,
- operating statements,
- operating budgets,
- capital improvement plans, and
- marketing.
| Section 402 | |
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| 402.01 | |
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| 402.01A | |
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Requirements
You must:
- before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments.
, ensure your qualified employee per Part V, Chapter 5: Surveillance, Section 502.05A: Qualifications:
- performs a physical PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). inspection;
- confirms the status of all units selected for inspection below (e.g., whether occupied or vacant), per a current rent roll;
- completes the MBAMBAMortgage Bankers Association Standard Inspection Form using their own photos; and
- compares the consistency of their photos with the
- PCAPCAAssessment of the Property's physical condition and historical operation. , and
- AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. ; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. any 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. secured by a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with an overall condition rating of 4 or 5 per the Comprehensive Assessment tab of the MBAMBAMortgage Bankers Association Standard Inspection Form.
| 402.01B | |
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Requirements
To determine the minimum number of units to inspect, you must:
- use the Physical Property Inspection table; and
- increase the number by 25% if some units are not accessible.
| Physical Property Inspection | |
|---|---|
| For Properties with... | You must inspect at least... |
| 5 - 9 units | all available units. |
| 10 - 100 units |
the greater of
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| 101 - 300 units | 10% of all units. |
| 301 - 900 units | 40 units. |
| 901+ units | 50 units. |
When choosing which units to inspect, you must:
- randomly select floors and units;
- include:
- all unit types and as many different floors as possible;
- units from all buildings;
- all units vacant for more than 90 days, unless the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is a Near Stabilized PropertyNear Stabilized PropertyNewly constructed or recently rehabilitated Property, with all construction or rehabilitation complete, which is expected to achieve Stabilized Residential Occupancy and the applicable required Underwritten Debt Service Coverage Ratio within 120 days after the Mortgage Loan Origination Date. ;
- all down units (i.e., units that cannot currently be rented in the normal course of business); and
- any additional units you deem appropriate based on
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). type,
- other factors, or
- the results of your initial inspection.
| 402.01C | |
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Reqiurements
Before the inspection, you must email the BorrowerBorrowerPerson who is the obligor per the Note. and management company to:
- request access to units selected for inspection; and
- notify them that, if any selected units are unavailable, an additional 25% of the units required to be sampled per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 402.01B: Selecting Units must be inspected (e.g., for a 500 unit building requiring 40 units to be inspected, if selected units are unavailable, an additional 10 units must be inspected).
| 402.02 | |
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Requirements
For replacement of capital items, you must:
- for refinances, obtain:
- an itemized list of capital items completed within the last 24 months; and
- for any capital item replacements you cannot independently confirm were completed, the invoices showing the associated actual costs;
- use best efforts to obtain the PCA Consultant’sPCA Consultant’sIndividual or firm conducting a PCA and preparing a PCA Report. written confirmation that capital items were completed;
- evaluate the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
actual condition, considering:
- the list of capital items reportedly completed within the last 24 months; and
- their associated actual costs;
- confirm with the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. that the actual cost of capital items completed within the last 12 months was factored into the Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. ; and
- document your analysis in the Transaction Approval Memo.
| Transaction Approval Memo Documentation | |
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| For... | You must document the... |
| Interior Unit Renovations |
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| Replacements of capital items for refinances |
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| Section 403 | |
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Requirements
For any Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely…, you must order:
- all third-party underwriting reports; and
- a Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection per Form 4229, unless the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
had an overall rating of 1 on your most recent inspection per Part V, Chapter 5: Surveillance, Section 502: Property Inspections, for a
- Supplemental Mortgage LoanSupplemental Mortgage LoanMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. , or
- Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. .
Operating Procedures
To obtain a Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection, you must:
- use a Fannie Mae-approved Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… inspector per Form 4229;
- request an exterior inspection; and
- not discuss the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). rating with the Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… inspector.
Requirements
After receiving the Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection report, you must:
- review
- the Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection report,
- any required PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. , and
- the MBAMBAMortgage Bankers Association Standard Inspection Form;
- ensure all rating differences among these 3 reports are:
- reconciled;
- approved by your Chief Underwriter; and
- documented in your Transaction Approval Memo; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. if the Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection’s overall rating is 4 or 5.
You must:
- determine if any of these reports identifies
- deferred maintenance,
- near-term capital item replacement,
- necessary life safety or critical repairs, or
- major components exhibiting a declining trend;
- incorporate all associated costs into the
- Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion…, or
- Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement (or other agreement approved by Fannie Mae), that evidence the: Borrower’s agreement to replace identified capital items and perform required…; and
- document the items in your Transaction Approval Memo.
Operating Procedures
At DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , upload the Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower. A Brokered Transaction does not include using an investment sale broker retained solely… Inspection report to DUSDUSDelegated Underwriting and Servicing DocWayDocWayBusiness-to-business electronic documentation delivery application, or any successor system. .
| Data Entry | |
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| For... | You must complete the following data fields... |
| DUS Gateway |
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| AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. Systems |
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| Section 404 | |
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| 404.01 | |
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Requirements
Before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , you must:
- complete a PCAPCAAssessment of the Property's physical condition and historical operation. for each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). unless it is a Supplemental Mortgage LoanSupplemental Mortgage LoanMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. that complies with Part III, Chapter 14: Supplemental Mortgage Loans, Section 1402.05: Streamlined Underwriting; and
- ensure all:
- Potential Red Flags for Mortgage Fraud and Other Suspicious Activity were considered; and
- unresolved red flags were reported per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 310: Compliance.
Requirements
A PCA Report (Form 4099) containing an HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. (or any standalone HPB Report) must be dated as of the date of the site visit by the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. , and must be less than 6 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
A PCAPCAAssessment of the Property's physical condition and historical operation. report that does not include an HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. may be dated up to 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. if you:
- ensure a site visit is performed within 90 days before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ; and
- confirm that there has been no material adverse change to the physical condition of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). since the date of the PCAPCAAssessment of the Property's physical condition and historical operation. report.
| 404.03 | |
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Requirements
When conducting the PCAPCAAssessment of the Property's physical condition and historical operation. , you must:
- comply with Form 4099, and order all applicable PCAPCAAssessment of the Property's physical condition and historical operation. modules;
- identify all conditions that impact resident safety, marketability, or value of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; and
- properly mitigate those conditions.
If you retain a PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. that does not meet the educational qualifications or professional certifications, registrations, or training required by Form 4099, you must:
- determine that the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. is qualified based on their alternative qualifications; and
- attach your description of the PCA Consultant’sPCA Consultant’sIndividual or firm conducting a PCA and preparing a PCA Report. qualifications to the final PCAPCAAssessment of the Property's physical condition and historical operation. .
You must have an annual quality control program to review
- the quality of the PCAsPCAsAssessment of the Property's physical condition and historical operation. performed by your PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. , and
- your compliance with the requirements in this Section and the Form 4099.
| Section 405 | |
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| 405.01 | |
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Requirements
You must:
- assess the
- Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). physical condition,
- Borrower'sBorrower'sPerson who is the obligor per the Note. financial condition, and
- life safety Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. ;
- aggregate all Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. expenses with the cost of all other Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. to determine if Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans also applies;
- include in the Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing:
the Borrower’s agreement to
fund the Completion/Repair Escrow, and
perform Completion…:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
needs identified as Immediate Repairs in the PCAPCAAssessment of the Property's physical condition and historical operation.
, including:
- life safety repairs;
- critical repairs;
- deferred maintenance; and
- short-term replacement of capital items; and
- any capital improvements not recommended by the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report.
that
- the BorrowerBorrowerPerson who is the obligor per the Note. will make after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , and
- you want the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. to include in the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). “as completed” market value; and
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
needs identified as Immediate Repairs in the PCAPCAAssessment of the Property's physical condition and historical operation.
, including:
- ensure the BorrowerBorrowerPerson who is the obligor per the Note.
completes the repairs and improvements identified on the Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing:
the Borrower’s agreement to
fund the Completion/Repair Escrow, and
perform Completion…:
- per the Completion/Repairs Timing table; and
- assess any code violations and include them in the relevant category.
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Completion/Repairs Timing |
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| For... | You must... |
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Life safety repairs in the PCA |
Comply with Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405.03: Life Safety Issues. |
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Critical repairs in the PCA |
Complete within 6 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , or sooner if recommended by the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. . |
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Repairs in the PCA required to:
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Complete within 90 days or less per
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Deferred maintenance or items of note in the PCA |
Complete within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , or sooner if recommended by the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. . |
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Short-term replacement of capital items in the PCA |
Complete by the specific date recommended by the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. , but may be longer than 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. . |
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Capital improvements that
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Comply with Part II, Chapter 2: Valuation and Income, Section 202.03A: Appraised Value. |
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Completion/Repairs in the PCA that require compliance with Part III, Chapter 3 for a Moderate Rehabilitation Property |
Comply with Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans. |
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All other Rehabilitation Work not identified as a Completion/Repair in the PCA |
Comply with Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans. |
| 405.02 | |
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Requirements
When full or partial funding of the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. is required, you must complete the Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion….
Guidance
The amount funded into the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. should be at least 125% of the estimated cost of the required Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. .
You may choose not to fund the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. entirely if you determine the BorrowerBorrowerPerson who is the obligor per the Note. has the financial capacity to fully address all Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. in the PCAPCAAssessment of the Property's physical condition and historical operation. .
Requirements
If you choose not to fund the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. entirely, you must obtain written assurances from the BorrowerBorrowerPerson who is the obligor per the Note. in the Multifamily Loan AgreementMultifamily Loan AgreementAgreement evidencing Mortgage Loan terms using Form 6001 series Loan Documents, or another Fannie Mae-approved form. that all necessary Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. will be completed within a stated period of time following the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
| 405.03 | |
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Requirements
All life safety repairs must be completed
- for an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , within 60 days after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , or
- in all other cases, before delivering 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. to Fannie Mae.
Guidance
You should consider requiring an escrow deposit (for at least 125% of estimated costs) to cover these required Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. .
| 405.04 | |
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Requirements
You must verify that the BorrowerBorrowerPerson who is the obligor per the Note. has made all required Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement.
- whether the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. was funded or not, and
- during your PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). inspections before the required completion date.
| Section 406 | |
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Requirements
You must ensure that the BorrowerBorrowerPerson who is the obligor per the Note. has sufficient reserves to cover anticipated capital replacement and major maintenance costs. The total amount in the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. should equal or exceed the anticipated costs (adjusted for inflation) of all necessary capital item replacements and major maintenance needs and repairs for the period from the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. to whichever is sooner:
- 2 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of 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
- 12 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
To determine the minimum amount of the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. , you must:
- obtain a PCAPCAAssessment of the Property's physical condition and historical operation. (Form 4099); and
- complete the schedule of items to be included in the Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement (or other agreement approved by Fannie Mae), that evidence the:
Borrower’s agreement to replace identified capital items and perform required…
- using the cost estimates in the PCAPCAAssessment of the Property's physical condition and historical operation. , and
- taking into account any items not already included on the Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion….
| 406.02 | |
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Requirements
You must ensure that the costs of all items included in the Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement (or other agreement approved by Fannie Mae), that evidence the: Borrower’s agreement to replace identified capital items and perform required… have been fully funded for
- any TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. , and
- any 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.
, regardless of TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660).
, that requires Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance:
identified per the Property Condition Assessment; and
required per the
Completion/Repair Schedule, or
Completion/Repair Agreement.
costing more than
- 4% of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. for refinances, or
- 6% of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. for AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. .
If you choose to modify the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. to not fund a Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 4 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 use the appropriate Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement (or other agreement approved by Fannie Mae), that evidence the: Borrower’s agreement to replace identified capital items and perform required….
Guidance
You may choose not to fund a Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. for any TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 4 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. if
- the required Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. do not exceed the levels specified in this Section, and
- you determine that the BorrowerBorrowerPerson who is the obligor per the Note. has the financial capacity to fully address future capital expenditures as outlined in the PCAPCAAssessment of the Property's physical condition and historical operation. .
Guidance
Instead of full funding, you may choose this alternative method for funding the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .
Requirements
If you choose this alternative funding, you must have the BorrowerBorrowerPerson who is the obligor per the Note. deposit the following amounts on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. :
- Monthly deposits for at least 2 years.
- For any significant capital item replacement or major maintenance need that you deem appropriate, an amount sufficient to cover anticipated costs for the period from the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to whichever is sooner:
- 2 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of 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
- 12 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
You must hold these amounts in the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. for the entire term of 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. , and may not make them available for refund to the BorrowerBorrowerPerson who is the obligor per the Note. until 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. has been paid in full.
| Section 407 | |
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| 407.01 | |
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Requirements
You must require any TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. BorrowerBorrowerPerson who is the obligor per the Note. to make monthly escrow deposits for real estate taxes and insurance premiums.
Guidance
You may choose not to fund monthly escrow deposits for real estate taxes for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 4 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. .
Requirements
If you choose not to fund monthly deposits for real estate taxes then you must ensure all taxes are paid timely.
| 407.03 | |
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Guidance
You may choose not to fund monthly escrow deposits for insurance premiums for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 4 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. .
Requirements
If you choose not to fund monthly deposits for insurance premiums, you must require the BorrowerBorrowerPerson who is the obligor per the Note. to provide annual proof of payment of all insurance premiums.
| Chapter 5 | |
| Section 501 | |
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| 501.01A | |
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Guidance
When terms or acronyms for insurance forms and policies are capitalized in this Chapter, they refer to Insurance Services Office (ISO) forms and policies or their equivalent. Other capitalized terms and acronyms have standard insurance industry meanings.
Requirements
As of the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , you must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is covered by compliant property insurance and liability insurance.
You must ensure all insurance policies:
- list the BorrowerBorrowerPerson who is the obligor per the Note. as a named insured;
- are written on a per occurrence basis, except the following, which may be written on a per occurrence or claims-made basis:
- earthquake insurance;
- directors' and officers' insurance;
- professional liability insurance; and
- general liability insurance for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. only when combined with professional liability insurance;
- unless the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan.
expressly state otherwise, require the carrier to notify the named Mortgagee and/or Additional Insured in writing
- at least 10 days before policy cancellation for non-payment of premium, and
- 30 days before cancellation for any other reason;
- except for professional liability insurance, name:
- Fannie Mae as Additional Insured on
- general liability insurance, and
- excess/umbrella insurance; and
- "Fannie Mae, its successors, and assigns" as Mortgagee and Loss Payee on property insurance; and
- Fannie Mae as Additional Insured on
- use Replacement Cost valuation; however, coverage for roofs may use
- Actual Cash Value, or
- Replacement Cost valuation.
Guidance
You should:
- obtain the advance cancellation notice for the benefit of each Mortgagee and Additional Insured from the insurance carriers whenever possible; or
- if the insurer will not provide advance cancellation notices, ensure the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan.
were not modified in any manner limiting:
- the Borrower’sBorrower’sPerson who is the obligor per the Note. obligation to promptly inform you of any notice of cancellation it receives from an insurance carrier; or
- any recourse liability of the BorrowerBorrowerPerson who is the obligor per the Note.
or any GuarantorGuarantorKey Principal or other Person executing a
Payment Guaranty,
Non-Recourse Guaranty, or
any other Mortgage Loan guaranty.
for failing to maintain all insurance coverages required by the
- Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , and
- GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
When a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management company provides insurance, you should confirm the BorrowerBorrowerPerson who is the obligor per the Note. is listed as an Additional Insured on the applicable policies.
An acceptable mortgagee clause is:
Fannie Mae, its successors and/or assigns, as their interest may appear
c/o [Lender Name]
Lender’s Street Address or PO Box
Lender’s City, State and Zip Code
If the insurer will not provide advance cancellation notices, your Servicing FileServicing FileYour file for each Mortgage Loan serviced. must include
- evidence of your attempts to obtain the notice provisions, and
- a copy of the state statute regarding cancelation notification.
Requirements
You must ensure:
- any blanket policy coverage is as good as, or better than, a single property insurance policy; and
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is listed and identified in the policy or associated schedules.
Guidance
A blanket policy may include
- blanket policies,
- blanket programs,
- first loss limit policies,
- first loss policies,
- layered programs,
- master policies,
- master programs,
- property programs,
- pooled insurance,
- scheduled limit policies,
- pooled programs,
- shared limit policies, and
- similar programs insuring multiple locations under the same insurance policy.
You may accept a blanket policy if
- all other requirements are met, and
- the Terms and Conditions endorsement does not reduce, limit, or exclude any required coverage.
When evaluating a blanket policy or multiple property policies, you should consider:
- Are the required coverages adequate for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?
- If the blanket policy limits are less than 100% of the total insurable value of the covered properties, is the shortfall warranted by high policy limits and geographic dispersion?
- If the blanket policy covers high catastrophic exposure in a geographically concentrated area, is the limit adequate for the exposure, or should the BorrowerBorrowerPerson who is the obligor per the Note. obtain additional coverage?
Programs insuring properties that are not under common ownership with the BorrowerBorrowerPerson who is the obligor per the Note. or a Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , or 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. , or managed by the same property management company, may provide evidence of insurance that appears to be a standard layered program.
You should look for red flags signaling that a program may not be a standard layered program, such as:
- the BorrowerBorrowerPerson who is the obligor per the Note. or SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). is not the first named insured;
- the premium significantly decreased when the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). was added to an existing policy; or
- having a large, rounded coverage limit for property insurance.
You may confirm common ownership through an insurance broker or agent. If the covered properties are not related by ownership or under the same PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). manager, you should also evaluate the insurance administrator, considering
- the acceptability of its business practices,
- possible payment of claims, and
- years in business, etc.
You must
- clearly document your analysis of any blanket policy (related or unrelated entities) in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. , and
- include supported conclusions.
Requirements
You must ensure any Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. has a rating of at least:
- A- / VI from A.M. Best Company; or
- A from Demotech, Inc.
For any Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. that is not satisfactorily rated, before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. , you must:
- obtain and review the applicable information in the Unrated Risk Retention Group or Captive Insurer table; and
- submit a
- written summary, and
- recommendation for approval, explaining
- any non-compliant requirements,
- any adverse findings, and
- your rationale for recommending approval.
| Unrated Risk Retention Group or Captive Insurer | |
|---|---|
| Document/Entity | Description |
| Certificate of Authority (CA) |
State-issued license to an insurance company to conduct business, and includes the
|
| State Examination Report |
Report covering a specific timeframe that:
|
| Actuarial Report |
Report culminating with a statement of actuarial opinion (minimum requirement) after evaluating, opining, and certifying the adequacy of the Captive Insurer'sCaptive Insurer'sInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits.
|
| Loss History | Frequency and severity of insurance losses covered by the Captive Insurer'sCaptive Insurer'sInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. policy during a specific timeframe. |
| Reinsurance and/or Fronting Company |
Reinsurance is when an insurer transfers all or part of a risk to another insurer to reduce the risk for the first insurance.
Fronting company is using a licensed, admitted insurer to issue an insurance policy on behalf of a self-insured organization or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. without intending to transfer any of the risk. The risk of loss is retained by the self-insured or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. with an indemnity or reinsurance agreement. |
| Captive Insurer |
Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. is either a:
|
Guidance
Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. (and similar arrangements):
- may have lower capitalization requirements than traditional insurance companies; and
- are not usually rated by a recognized rating agency.
For Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. , you should:
- confirm they
- are financially stable, and
- have adequate funds to cover potential losses; and
- review additional documents as warranted.
Operating Procedures
You must submit all documents for unrated Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. or Risk Retention GroupsRisk Retention GroupsState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. :
- through DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. , for new 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. submissions; and
- annually through the MAMPMAMPMultifamily Asset Management Portal used to submit Property inspections, operating statements, requested modifications, asset management reports, and data corrections for loan or property attributes. , for Portfolio Mortgage LoansPortfolio Mortgage LoansMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. .
| 501.01D | |
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Requirements
You do not need to rate
- State pools or funds, or
- NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policies.
| All Other Insurance Carrier Ratings | |
|---|---|
| You must ensure... | The insurance carrier... |
| For a new policy |
|
| For an existing policy (at origination or afterward) |
|
Guidance
A new policy is one that is
- not already in force, and
- most common for an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. .
An existing policy is
- most common for a refinance, or
- when the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is added to a policy that the BorrowerBorrowerPerson who is the obligor per the Note. already has in force.
| 501.01E | |
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Guidance
Policies should have a term of at least 12 months. For new Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). may be added mid-term to an existing 12-month policy.
You may accept a policy term of less than 12 months if, when it expires, the policy will be renewed for at least 12 months.
| 501.01F | |
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Requirements
You must:
- ensure premiums for all required insurance policies are either:
- paid in full annually; or
- payable in installments, for which you have receipts confirming timely payment;
- not provide premium financing to the BorrowerBorrowerPerson who is the obligor per the Note. ; and
- only permit third-party premium financing if the financing agreement:
- has no negative impact on
- you,
- Fannie Mae, or
- 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. collateral;
- does not include any conditions that could prevent you or Fannie Mae from receiving the insurance proceeds; and
- the Modifications to Multifamily Loan and Security Agreement (Financing of Insurance Premiums) (Form 6272) was executed.
- has no negative impact on
If the BorrowerBorrowerPerson who is the obligor per the Note. finances premiums, you must
- review the financing agreement,
- confirm timely payment of each premium was made, and
- retain in the Servicing file
- the financing agreement, and
- evidence of premium payments.
| 501.01G | |
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Requirements
You must have:
- temporary or permanent evidence of insurance when 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. closes; and
- permanent evidence of insurance within 90 days after 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. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. .
Guidance
| Acceptable Evidence of Insurance | |
|---|---|
| Acceptable Temporary Evidence Forms | Acceptable Permanent Evidence Forms |
|
|
The following are not acceptable forms of permanent evidence:
- insurance policy declarations pages (except for an NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy);
- single policy endorsement;
- insurance binders; and
- certificates of insurance.
Some insurance carriers use boilerplate policies that do not change from year to year. If so, you:
- should keep a specimen kit or library of such policies and endorsements; and
- may place only the renewal Declarations Page in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. as permanent evidence along with a list of endorsements.
| 501.01H | |
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Requirements
Post-closing exception request submissions must include current information.
All exceptions, including those delegated, must be documented in the applicable business application.
You must submit any insurance exception request:
- through DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. with all applicable data fields completed in the system, not via an attached waiver document;
- at least 72 hours before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. ; and
- with all supporting documentation.
Guidance
If the waiver is approved for the entire 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. term, it will be stated in the approval.
| 501.02 | |
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| 501.02A | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has property insurance throughout 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. term;
- the coverage is:
- written on a Special Causes of Loss Form, or its equivalent; and
- at least
- 100% of estimated insurable value for a single-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
- 90% of estimated insurable value for a multiple-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- if a blanket policy has scheduled limits per building, each building is insured to 100% of the estimated insurable value; and
- coinsurance does not exceed 90% on any coverage.
The maximum deductible:
- is based on the total insurable values of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurance policy;
- amounts, unless otherwise specified, apply to all insurance coverages required by:
- for the peril of wind/hail (unrelated to a catastrophic peril), must not exceed 3% of the insurable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value; and
- for all other perils, must comply with the following table.
|
If the insurable value is... |
The maximum deductible amount per occurrence is... |
|---|---|
|
Less than $5 million |
$25,000 |
|
Equal to or greater than $5 million, but less than $50 million |
$50,000 |
|
Equal to or greater than $50 million, but less than $100 million |
$100,000 |
|
Equal to or greater than $100 million |
$250,000 |
Guidance
100% coinsurance with the Agreed Value endorsement is acceptable. Renewal of the Agreed Value endorsement
- is not automatic, and
- must be confirmed at each renewal.
You should:
- assess the Borrower’sBorrower’sPerson who is the obligor per the Note.
ability to pay any deductible, even compliant ones:
- before accepting any deductibles; and
- throughout the policy term;
- determine the high deductible financial exposure by considering total out of pocket expenses rather than only the difference between the
- maximum allowable deductible, and
- requested/actual deductible; and
- if insurance coverage is provided on a management company’s or unrelated entities’ master property program, then only use the Borrower’sBorrower’sPerson who is the obligor per the Note. owned or related properties to determine the maximum deductible.
A margin clause:
- should not be used to determine compliant property insurance limits; and
- may contain provisions limiting additional coverage availability.
| 501.02B | |
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Guidance
You may accept a Property and Liability policy that includes aggregate deductibles. The aggregate deductible may be higher than the maximum deductible required per Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts.
Requirements
If you accept a Property and Liability policy that includes aggregate deductibles, you must:
- confirm the aggregate deductible amount is fully funded and held by:
- the BorrowerBorrowerPerson who is the obligor per the Note. in a segregated bank account;
- you in the Tax and InsuranceTax and InsuranceTaxes or assessments that may become a Lien on the Property and insurance premiums. escrow; or
- a third party for the Borrower'sBorrower'sPerson who is the obligor per the Note. benefit; and
- require any claim checks to:
- list you as payee c/o Fannie Mae; and
- be considered insurance loss proceeds per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has business income insurance (including rental value insurance), for all required coverages, including
- ordinance or law (Coverage D),
- windstorm,
- flood,
- earthquake, and
- terrorism, etc.;
- coverage is based on:
- Actual Loss Sustained for 12 months; or
- the most recent annual reported (or annualized if annual financial are unavailable):
- EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. ; or
- NOINOIAnnually or for any specified period, the total Effective Gross Income minus the Property’s operating expenses. plus continuing expenses, with a completed business income worksheet submitted by the Borrower'sBorrower'sPerson who is the obligor per the Note. agent/broker;
- the maximum deductible for business income insurance does not exceed the greater of
- the maximum deductible for the property insurance policy, or
- a waiting period up to 72 hours; and
- coverage 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. with a UPBUPBUnpaid Principal Balance of $25 million or more includes a 90-day Extended Period of Indemnity option.
| 501.02D | |
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Requirements
You must ensure every PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has ordinance or law insurance:
- for all perils, even if insured on a standalone policy; and
- if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- is non-conforming under any current land use law or ordinance, and cannot be rebuilt "as is", and/or
- was constructed 25 years or more before DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. .
Ordinance or law insurance is not required if the:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). was constructed 25 years or more before DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , but was substantially rehabilitated (i.e., all fixtures and building materials were removed down to the studs, then rebuilt to then current building codes); or
- Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. was before February 3, 2014 and the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). characteristics are legally conforming, regardless of the build date.
| Coverages | If ordinance or law insurance is required, you must ensure the Property has all of the following... |
|---|---|
| Coverage A |
Loss of Undamaged Portion, in an amount equal to
|
| Coverage B | Demolition/Debris Removal Cost equal to at least 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value. |
| Coverage C | Increased Cost of Construction equal to at least 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value. |
Guidance
Examples of ordinance or laws include
- bulk restrictions,
- building,
- zoning,
- energy management,
- green, or
- Fair Housing Act accessibility.
Rebuilding "as is" refers to the ability to build the same square footage within the same building footprint without increasing the non-conformity, as defined by the local ordinance. You should determine the feasibility of rebuilding within any time frame required by the ordinance.
Ordinance and law insurance maybe needed, even if it is legally conforming under current zoning law, because the construction cost will likely be significantly higher due to changes in building codes and construction requirements.
Some municipalities have no zoning districts. This primarily refers to use. Usually, buildings are still subject to building and safety codes; therefore, coverage is required.
| Required Limits Example | |
|---|---|
| If... | Then the required coverage is... |
|
A Property's insurable value equals
|
100% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value, minus the damage threshold specified by the local building ordinance (i.e., $10 million - $7.5 million = $2.5 million for Coverage A). |
| Coverages A, B, and C are combined | the Coverage A amount plus 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value for Coverage B plus 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value for Coverage C (i.e., $2.5 million + $1 million + $1 million = $4.5 million). |
| Coverages B and C are combined | 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value for Coverage B plus 10% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value for Coverage C (i.e., $1 million + $1 million = $2 million). |
If law and ordinance insurance is required, the Increased Period of Restoration endorsement (Coverage D) is required. Coverage D for law and ordinance insurance:
- extends the business:
- income and extra expense coverage; and
- additional time to restore operations when delayed due to enforcement of building or zoning laws; and
- is paid from the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). business income/rent loss coverage.
Without this Increased Period of Restoration endorsement, business income coverage does not include any “increased period” that may be necessary due to enforcement of an ordinance or law.
When evaluating this coverage you should ensure the business income/rent loss limit is adequate to reflect the increased period of restoration.
Requirements
You must ensure:
- a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with any high-pressure, centralized HVAC boiler, water heater, or other vessel that is in operation and regulated by the state or municipality where the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located has full boiler and machinery coverage; and
- the coverage equals at least 100% of the insurable value of each building housing the equipment.
| 501.02F | |
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Requirements
You must ensure:
- if property insurance coverage is excluded during construction or significant renovation or restoration, the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has builder's risk insurance during such activity; and
- the coverage equals at least 100% of the completed value, on a non-reporting basis.
| 501.02G | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. has fidelity bond/crime insurance in an amount covering scheduled Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for at least 3 months; and
- the fidelity bond/crime insurance deductible does not exceed $25,000.
| 501.02H | |
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Requirements
You must ensure:
- if a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to geological phenomena, the property insurance coverage includes those phenomena; and
- the coverage equals 100% of the insurable value.
Guidance
Examples of geological phenomena include
- sinkhole,
- mine subsidence,
- volcanic eruption, and
- avalanche.
| 501.03 | |
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| 501.03A | |
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Requirements
You must ensure:
- a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has the coverages required by Part II, Chapter 5: Property and Liability Insurance, Section 501.03: Catastrophic Risk Insurance for perils related to catastrophic loss if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ;
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has a separate insurance policy if the Special Causes of Loss Form excludes a Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. coverage that is required; and
- if ordinance or law coverage is required on the property policy, then coverage is obtained for catastrophic losses if the catastrophic peril is insured on a standalone policy.
| 501.03B | |
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Requirements
You must ensure the:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has separate windstorm insurance if the Special Causes of Loss Form excludes any type of wind-related Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ;
- coverage equals at least 100% of the insurable value;
- valuation does not rely solely on Probable Maximum Loss (PML) calculations; and
- deductible does not exceed the greatest of
- 10% of the insurable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value,
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts, and
- for business income insurance, the greater of
- the maximum deductible for the property insurance policy, or
- an amount equal to 15 days of business income or equivalent.
Guidance
If a business income insurance deductible is stated as a total dollar amount, you should:
- calculate the deductible on a per day basis; and
- ensure the aggregate per day amount does not exceed 15 days of income.
For example:
If the business income requirement is $1,000,000, and the policy indicates a business income deductible of $100,000, and the maximum deductible allowed for the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is the greater of (a) $25,000, or (b) an amount equal to 15 days of income, the policy is not compliant since:
- $1,000,000 divided by 365 equals $2,740 per day;
- $2,740 multiplied by 15 days equals $41,095; and
- $100,000 is higher than both the allowed $25,000 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deductible and the total 15-day calculation.
If catastrophic windstorm coverage is unavailable in the market, Fannie Mae will consider approving 1 of the following options:
- a state insurance plan; or
- state-managed insurance pool for
- windstorm, or
- beach erosion.
Catastrophic windstorm coverage:
- includes hurricane and tropical storm damage; and
- may be categorized or defined in the insurance policy using terms such as
- named storm, or
- tier one, etc.
If windstorm coverage is unavailable or is not economically feasible, you may submit the following for Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. :
- a recommendation for a reasonable coverage amount, given the exposure and based on your knowledge of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and BorrowerBorrowerPerson who is the obligor per the Note. ;
- all compelling reasons for approving the request;
- the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). precise location;
- blanket analysis per Part II, Chapter 5: Property and Liability Insurance, Section 501.01B: Blanket and Other Policies Covering Multiple Properties;
- construction analysis; and
- any financial mitigants available.
| 501.03C | |
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Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has flood insurance if:
- any income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that support amenities are in an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V; or
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located within a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA), regardless of if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
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. is ineligible for purchase if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in:
- an SFHASFHASpecial Flood Hazard Area designated by FEMA. ; and
- a community that does not participate in the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .
You must ensure the coverage:
- meets the mandatory purchase requirements identified in
- the Federal flood insurance statutes, and
- any applicable Federal agency rulemaking and publication;
- has a waiting period no more than 15 days; and
- equals at least 100% of the insurable value of
- the first 2 floors above grade and any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). below grade, plus
- all Fixtures and Goods (as defined in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ) located on the first 2 floors above grade and/or below grade.
You must ensure the deductible does not exceed the greatest of:
- 5% of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurable value;
- the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts; or
- for business income insurance,
- the maximum deductible for the property insurance, or
- a waiting period of up to 15 days or equivalent.
| NFIP and Excess Flood Coverage | |
|---|---|
| If... | Then... |
| Coverage available under the NFIP is insufficient | the BorrowerBorrowerPerson who is the obligor per the Note. must purchase excess flood insurance covering the difference, up to the required coverage amount. |
|
Per elevation certificates completed by a licensed land surveyor, engineer, or architect:
|
|
To remove a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). /building from an SFHASFHASpecial Flood Hazard Area designated by FEMA. , only an updated FEMAFEMAFederal Emergency Management Agency Standard Flood Hazard Determination Form (SFHDF) based on the following is acceptable:
- Letter of Map Amendment (LoMA);
- Letter of Map Revision (LoMR); or
- Letter of Determination Review (LoDR).
During the LoMA process,
- only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required, and
- the maximum term for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is 12 months.
If any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are reclassified as within an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V after you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. , you must require the BorrowerBorrowerPerson who is the obligor per the Note. to obtain compliant flood insurance.
Guidance
If all buildings do not require flood insurance, but the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ingress is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. , you should consider requiring business income insurance for excess flood to cover all buildings.
Flood insurance is not required if only unimproved portions of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , or non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that do not support amenities at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
| Non-Income Producing Improvements | |
|---|---|
| Supporting amenities include... | Not supporting amenities include... |
|
|
Business income insurance is not required for non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). .
You should consider that
- conditions may change over time, and
- flood zones may be remapped.
You or Fannie Mae may require flood insurance for ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). outside an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V, but within an area designated by FEMAFEMAFederal Emergency Management Agency as Zone X or Zone D (for example, if a Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). location is subject to flooding due to storm water, or within close proximity to an SFHASFHASpecial Flood Hazard Area designated by FEMA. boundary).
The acceptable deductible for excess flood insurance is the coverage limit of the underlying NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy.
Elevation certificates are not valid to determine if ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
You should:
- obtain flood zone determinations from qualified third-party flood-zone determination firms;
- exercise care and sound judgment when selecting the firm; and
- require the determination firm, and any monitoring company, to notify you whenever there is a flood zone change.
For business income insurance deductible, if a dollar amount is indicated, you should calculate the per day amount ensuring the deductible does not exceed the 15-day total amount allowed. See Part II, Chapter 5: Property and Liability Insurance, Section 501.03B: Windstorm Insurance for a deductible calculation example.
You must:
- obtain life-of-loan monitoring for each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). from a third-party flood-zone determination firm;
- complete FEMA'sFEMA'sFederal Emergency Management Agency Standard Flood Hazard Determination form to determine if any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. ; and
- retain in your Servicing FileServicing FileYour file for each Mortgage Loan serviced.
:
- a completed copy of the form;
- a signed copy of the Notice to Borrower of Special Flood Hazard and Federal Assistance (included in the Flood Determination Certificate); and
- if you permitted a reduced amount of excess flood insurance,
- your analysis, and
- related documentation supporting the economic feasibility and reduction amount.
| 501.03D | |
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Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has earthquake insurance if required by Fannie Mae. For any required coverage, ensure the:
- coverage is at least 100% of the insurable value;
- waiting period is no more than 15 days; and
- deductible does not exceed the greatest of:
- 10% of the insurable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts; and
- for business income insurance, the greater of
- the maximum deductible for the property insurance policy, or
- a 15-day waiting period.
Earthquake insurance may be required while the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is being retrofitted.
Guidance
For business income insurance deductible, if a dollar amount is indicated, you should calculate the per day amount ensuring the deductible does not exceed the 15-day total amount allowed. See Part II, Chapter 5: Property and Liability Insurance, Section 501.03B: Windstorm Insurance for a deductible calculation example.
Operating Procedures
If retrofitting is required and not completed within the agreed timeframe, you must not accept earthquake insurance as a substitute.
| 501.03E | |
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|
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has terrorism insurance for property damage/casualty and liability exposures, unless
- it secures 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. with a UPBUPBUnpaid Principal Balance less than $25 million, and
- you performed a risk assessment indicating no or low terrorism risk;
- the coverage is at least 100% of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). ' insurable value; and
- the deductible does not exceed the greatest of:
- 20% of the insurable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts; and
- for business income insurance,
- the maximum deductible for the property insurance policy, or
- a 15-day waiting period.
Guidance
You should ensure your risk assessment considers:
- concentrations of risk and overall exposures;
- the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
location relative to potential terrorist targets, such as
- tourist attractions,
- power grids,
- mass transportation facilities, and
- government buildings; and
- how far reaching a terrorist event could be, for example a:
- mass transit facility directly below the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and an airport 5 miles away; and
- biohazard or nuclear facility within the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). vicinity.
For business income insurance deductible, if a dollar amount is indicated, you should calculate the per day amount ensuring the deductible does not exceed the 15-day total amount allowed. See Part II, Chapter 5: Property and Liability Insurance, Section 501.03B: Windstorm Insurance for a deductible calculation example.
You must retain a copy of your risk assessment in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
| 501.04 | |
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Requirements
You must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and BorrowerBorrowerPerson who is the obligor per the Note. is covered, without exclusions, throughout 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. term by liability insurance for
- bodily injury,
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). damage, and
- personal injury.
Requirements
You must ensure the general liability insurance coverage is at least
- $1 million per occurrence/$2 million general aggregate limit, plus
- excess/umbrella insurance as follows:
|
If the number of stories in the building is... |
The minimum excess/umbrella insurance coverage is... |
|---|---|
|
1 - 4 |
$2 million |
|
5 - 10 |
$5 million |
|
11 - 20 |
$10 million |
|
Over 20 |
$20 million |
The maximum deductibles:
- apply to
- general liability,
- umbrella/excess liability, and
- professional liability; and
- must be based on the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). total insurable values of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurance policy as follows:
|
If the insurable value is... |
The maximum deductible amount per occurrence is... |
|---|---|
|
Less than $5 million |
$50,000 |
|
Equal to or greater than $5 million, but less than $50 million |
$100,000 |
|
Equal to or greater than $50 million, but less than $100 million |
$150,000 |
|
Equal to or greater than $100 million |
$275,000 |
Guidance
You may satisfy the insurance coverage requirements:
- with any combination of primary liability insurance and excess/umbrella insurance coverage, provided the aggregate coverage meets the required minimum limits; and
- for excess/umbrella insurance, when the coverage limit meets the requirement for the location with the most stories.
You should ensure that any liability policy does not contain exclusions for normal coverage that are normal and customary in the standard liability form, such as
- assault and battery,
- animal attacks, and
- firearms, etc.
The maximum deductible amount, per occurrence, is the combined deductible for both the
- underlying general or professional liability, and
- excess/umbrella liability.
For example, if the Borrower’sBorrower’sPerson who is the obligor per the Note. total insurable value is $45 million, then the maximum deductible is $100,000 combined for the underlying liability and excess/umbrella liability in any combination (e.g., $75,000 deductible/self-insured retention on the general liability and $25,000 on the excess/umbrella liability).
| 501.04B | |
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Requirements
If a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. provides any level of healthcare, you must ensure the:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has professional liability insurance covering
- professional errors and omissions,
- medical malpractice, and
- all types of abuse; and
- coverage is at least
- $1 million per occurrence/$2 million general aggregate limit, plus
- excess/umbrella insurance as follows:
|
If the number of licensed beds is... |
The minimum excess/umbrella insurance coverage is... |
|---|---|
|
1 - 100 |
$2 million |
|
101 - 500 |
$5 million |
|
501 - 1,000 |
$10 million |
|
Over 1,000 |
$20 million |
You must ensure:
- for a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority. beds, Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. beds are not counted when determining the minimum coverage limit;
- when general liability insurance and professional liability insurance coverages are combined under an excess/umbrella insurance policy, the coverage meets the higher minimum limit of the 2 underlying coverages; and
- the maximum deductible for professional liability insurance does not exceed the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.04A: Commercial General Liability Insurance.
Guidance
When using a claims-made policy, you should consider if an adequate “retroactive date” is in place providing coverage for acts that occurred before a specified date – usually before the effective date of the current policy. A retroactive date of 3 - 5 years before the current policy’s effective date is common.
If the BorrowerBorrowerPerson who is the obligor per the Note. changes carriers during 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. term, the addition of tail coverage or an extended reporting period endorsement, extending coverage after the cancellation or termination of a claims-made policy, is important to ensure no lapse in coverage occurs.
You may satisfy the coverage requirements:
- with any combination of primary liability insurance and excess/umbrella insurance coverage, provided the aggregate coverage meets the required minimum limits; and
- for excess/umbrella insurance when the coverage limit meets the requirement for the location with the most beds.
| 501.04C | |
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Requirements
You must ensure the:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has workers’ compensation and employer’s liability insurance (including terrorism coverage), if required in the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state; and
- coverage equals or exceeds the:
- statutory limits for injured employees; plus
- greatest of:
- employer’s liability limits of $1 million per occurrence for bodily injury;
- $1 million per occurrence and $1 million aggregate for employee disease; or
- any underlying limit required by the excess/umbrella insurance carrier.
Requirements
You must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. has:
- directors’ and officers’ liability insurance; and
- coverage equal to at least $1 million per occurrence.
Requirements
You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. has commercial auto liability insurance that:
- covers any motor vehicles that are:
- owned, leased, or hired by the BorrowerBorrowerPerson who is the obligor per the Note. ; or
- used by anyone for business on behalf of the BorrowerBorrowerPerson who is the obligor per the Note. or the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- includes personal injury protection required by the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state; and
- has coverage equaling the greater of
- $1 million per occurrence, or
- any underlying limit required by the excess/umbrella insurance carrier.
Guidance
As a secured real estate lender, you would not be named in a lawsuit alleging automobile negligence by an employee of the BorrowerBorrowerPerson who is the obligor per the Note. or management company. However, if a lawsuit involving negligence is successful, failure to maintain adequate insurance may result in a lien against the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
| Section 502 | |
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Guidance
Any environmental conditions or risks impacting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). should be fully understood and considered in the underwriting.
Requirements
You must:
- comply with the Environmental Due Diligence Requirements (Form 4251), including obtaining a Phase I Environmental Site AssessmentPhase I Environmental Site AssessmentEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. (Phase I ESA) of the entire PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- ensure the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report.
:
- is performed per the instructions in Form 4251, including meeting the current requirements of ASTMASTMAmerican Society for Testing Materials E1527;
- is prepared by an environmental professional as that term is defined in 40 C.F.R. § 312.10 (an Environmental Professional);
- identifies all environmental conditions and risks that may potentially impact
- resident safety,
- marketability, or
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value; and
- clearly identifies how to properly mitigate those conditions and risks, including where applicable:
- the Environmental Professional’s recommendations regarding additional investigation, or requirements of government authority or regulatory agency; or
- action to remediate or abate any Recognized Environmental Condition (REC)/Controlled Recognized Environmental Condition (CREC), as those terms are defined in ASTMASTMAmerican Society for Testing Materials E1527; and
- obtain Fannie Mae's approval before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. if the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. identified any RECs/CRECs.
Guidance
You may rely on a preliminary or draft Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. to obtain a Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. and 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. .
| 502.02 | |
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Requirements
You must:
- Obtain all investigations recommended or indicated by the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Conduct a thorough review and analysis of the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Provide the Environmental Professional with all available prior Phase I ESAsPhase I ESAsEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. , investigations, and any relevant and readily available environmental materials.
- Provide the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. with any documentation from the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. necessary to accurately assess the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value.
- Identify if the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state has an environmental Super Lien Statute and, if so, confirm PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). conditions are unlikely to result in the imposition of a super lien having priority over the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .
- Disclose to Fannie Mae your knowledge of any actual or suspected environmental conditions affecting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Ensure any required Operations and Maintenance Plans (O&M Plans) are obtained and located on the site throughout 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. term.
- Assess the Borrower’sBorrower’sPerson who is the obligor per the Note. ability to carry out any O&M PlanO&M PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). .
- Not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. if the BorrowerBorrowerPerson who is the obligor per the Note. or its agents are not financially or organizationally capable of satisfying the requirements of the O&M PlanO&M PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). .
- Evaluate the potential risk of loss and liability to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
, the BorrowerBorrowerPerson who is the obligor per the Note.
, you, or Fannie Mae posed by any
- REC/CREC,
- Business Environmental RiskBusiness Environmental RiskRisk of material environmental or environmentally-driven impact on the business or property associated with a Property or the past, current or planned use of a Property, including all “non-scope considerations” under current ASTM E 1527, asbestos or asbestos-containing materials, radon, lead-based…, or
- other environmental condition, whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
If you become aware of any REC/CREC, you must:
- Obtain a Remediation Plan from the BorrowerBorrowerPerson who is the obligor per the Note.
that
- is prepared by an Environmental Professional, as required by Form 4251,
- will protect the health and safety of the residents and bring the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). into regulatory compliance, and
- includes a cost estimate and schedule for completing the work.
- Add the estimated cost of the Remediation Plan to the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. requirement of the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Guidance
The amount funded into the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. should be at least 125% of the estimated cost of the Remediation Plan.
Requirements
You must:
- consider revisions to the Environmental Indemnity Agreement (Form 6085) to protect you and Fannie Mae from liability associated with any
- REC/CREC (including the cost to investigate/remediate any such condition), and
- violation of Environmental LawsEnvironmental LawsAll current federal, state, and local laws, ordinances, regulations, standards, rules, policies, and other governmental requirements, administrative rulings, court judgments, and decrees, and all amendments thereto, relating to pollution or protection of human health, wildlife, wetlands, natural… by the BorrowerBorrowerPerson who is the obligor per the Note. ;
- document your evaluation of potential revisions, including at a minimum, whether the following revisions are appropriate:
- additional representation and warranty where the BorrowerBorrowerPerson who is the obligor per the Note. disclaims responsibility for any REC/CREC, if appropriate and accurate; and
- additional covenant(s) requiring
- implementation of the Remediation Plan,
- compliance with any Environmental Activity and Use LimitationsEnvironmental Activity and Use LimitationsLegal or physical restrictions or limitations on the use of, or access to, all or any portion of a site, facility, groundwater, soils, or other media at, on, about or under a site or facility to reduce or eliminate potential exposure to Hazardous Materials or to prevent activities that could… and/or institutional or engineering controls, and
- maintenance of BorrowerBorrowerPerson who is the obligor per the Note. eligibility for applicable liability protection status;
- specifically identifying any liability associated with the REC/CREC in the indemnification provisions; and
- other required terms and conditions based on Fannie Mae environmental counsel review.
| Section 503 | |
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Requirements
You must:
- assess the seismic risk before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. by analyzing the PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. at the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). location;
- determine if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has an acceptable level of seismic risk;
- complete Form 4099.C if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in a High Seismic RiskHigh Seismic RiskArea or a specific site identified by the most recent USGS data (see United States Geological Survey (USGS) Peak Ground Acceleration (PGA) Calculator Tutorial) as having a PGA equal to or greater than 0.15g (i.e., 15% of the acceleration of gravity (g) using a 10% probability of exceedance in a 50… area;
- obtain a Seismic Risk Assessment (SRA) if a Structural Risk Factor is identified per Form 4099.C; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction.
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.
if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has
- a PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. equal to or greater than 0.15g, and
- 1 of these Structural Risk Factors:
- an unreinforced masonry building that has not been seismically retrofitted; or
- a building constructed on a slope with an angle exceeding 30 degrees (a 50% slope).
Guidance
After you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. , no additional seismic risk evaluation is needed.
Requirements
You must:
- obtain a Level 1 SRA dated within 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. for any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with one of the Structural Risk Factors listed in Form 4099.C; and
- ensure the SRA:
- meets the ASTMASTMAmerican Society for Testing Materials seismic standards (ASTMASTMAmerican Society for Testing Materials E2026 – Standard Guide for Seismic Risk Assessment of Buildings and ASTMASTMAmerican Society for Testing Materials E2557 – Standard Practice for Probable Maximum Loss (PML) Evaluations for Earthquake Due Diligence Assessments);
- includes estimates for the Scenario Expected Loss (SEL) and the Scenario Upper Loss (SUL);
- uses a 10% probability of exceedance in a 50-year period;
- meets ASTMASTMAmerican Society for Testing Materials seismic standard professional qualifications; and
- complies with Form 4099.C, including
- structured data per Seismic Risk Assessment Data Supplement (Form 4093), and
- a report narrative.
Guidance
For a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. :
- the SRA field investigation may be performed by a PCAPCAAssessment of the Property's physical condition and historical operation. consultant or field observer if that professional has at least 2 years of experience performing seismic risk assessments; and
- a new SRA is not required for Supplemental Mortgage LoansSupplemental Mortgage LoansMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. ; you may rely on the original underwriting seismic analysis.
Guidance
The Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). SEL percentage and the building stability assessment determines if the seismic risk is acceptable.
Requirements
You must:
- determine if the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
seismic risk is acceptable by confirming all income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
that support amenities:
- comply with Part II, Chapter 5: Property and Liability Insurance, Section 503.03: Acceptable Levels of Seismic Risk;
- have an SEL of 20% or less; and
- meet the current building stability requirements of ASTMASTMAmerican Society for Testing Materials E2026; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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. secured by a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). having any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). with an SEL greater than 40%.
Guidance
Your analysis should include:
- a Level 1 SRA, including Appendix X4 (ASTMASTMAmerican Society for Testing Materials E2557);
- your analysis of the seismic issues and recommendation, describing the:
- severity and pervasiveness of the conditions driving the SEL and stability issues;
- risks presented to
- building stability,
- building damageability,
- site stability, and
- life safety; and
- recommended retrofit or remediation requirements;
- a retrofit letter or the Borrower’sBorrower’sPerson who is the obligor per the Note.
retrofit plan, including the
- timetable, and
- cost estimate;
- Form 4099.C; and
- a minimum of 6 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
photos, including
- photos of areas significant to the seismic calculation or stability issue, and
- elevation views of any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
having
- an SEL over 20%, or
- a stability issue.
| 503.04 | |
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Requirements
You must ensure the SRA describes a proposed retrofit plan, including associated costs, if a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). must be retrofitted under any
- law,
- regulation, or
- ordinance.
| 503.05 | |
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Requirements
For any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). where any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). have an SEL greater than 20% or a building stability issue, you must contact Multifamily InsuranceMultifamily InsuranceTeam that can be contacted at [email protected]. to determine acceptable mitigants for 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. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , including:
- performing a seismic retrofit sufficient to resolve all stability issues and reduce the SEL of all ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). to 20% or below; and
- obtaining earthquake insurance coverage per Part II, Chapter 5: Property and Liability Insurance, Section 501.03D: Earthquake Insurance.
Earthquake insurance does not mitigate seismic risk.