Part III

Products and Features

Chapter 1

Student Housing Properties
Section 101

Description
101.01

Student Housing Property

Requirements

  • A Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. is a multifamily rental property in which 40% or more, but less than 80%, of the units are leased to undergraduate or graduate students.
  • A student with sufficient income to pay rent does not count toward the student unit concentration required for a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. .
101.02

Dedicated Student Housing Property

Requirements

A Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. is a multifamily rental property in which 80% or more of the units are leased to undergraduate or graduate students.

Guidance

A Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. typically:

  • caters to a student population due to its location;
  • was specifically constructed as a student property or, although built as conventional multifamily housing, is now leased primarily to students; or
  • is not readily rentable as conventional multifamily housing.
Section 102

Generally

Guidance

When underwriting a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. or Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. , you should consider the following questions:

  • What percentage of units are leased to graduate students versus undergraduate students?
  • Has the ratio of student to non-student tenants changed over the past several years?
  • Is 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). marketable to non-student tenants, given the size, mix, and quality of the units?
  • What is the rent structure?  For example, are rents charged on a by unit basis or by bed basis?
  • Who are the parties to the lease agreements?  For example, are they typically signed by 1 tenant or all tenants, and/or co-signed by parents?
  • What is the typical lease term?
  • What is the enrollment outlook at the college/university?
  • What is the student composition (i.e., full-time versus part-time) at the college/university?
  • What are the current and forecasted supply and demand for student housing at the college/university?  Will there be any college/university-sponsored construction?
  • What is the Key Principal’sKey Principal’sPerson 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. experience with operating Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. 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 Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?
  • What is 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). proximity to campus?  Can students walk to class and other campus locations?
  • Is 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). conveniently located to a college/university-sponsored transportation line?
  • Is 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). subject to a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. ?  If so, what are the structure and terms of the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. ?

Requirements

If a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. or Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. is subject to a master lease, you must complete the Master Lease Review Checklist (Form 6480).

Section 103

Dedicated Student Housing Property
103.01

Eligible Property Characteristics

Requirements

You must ensure that a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. :

  • caters to a campus with at least 10,000 students, the majority of whom are full-time students;
  • is
    • located within 2 miles of a campus boundary line, as determined by the local municipality, or
    • near a college/university-sponsored transportation line; and
  • has operated for at least 1 full school year (i.e., August/September through April/May).

Guidance

The Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. should have stabilized occupancy no later than the month preceding the start of the first semester/quarter of the second full school year.

103.02

Ineligible Property Characteristics

Requirements

Fannie Mae will not purchase 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 Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. that offers food service.

103.03

Residential Leases

Requirements

You must ensure that at least 80% of the units in a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. are leased for a minimum term of 12 months.

Guidance

Each student lease agreement should have

  • a parental guarantee of the rent, or
  • student tenants with sufficient income or other documented financial means to pay the rent.
103.04

Properties on College/University Land

Requirements

You must ensure that a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. located on college/university land meets the following:

  • the BorrowerBorrowerPerson who is the obligor per the Note. has control over all economic decisions 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). (such as financing, leasing, and management);
  • the 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.
    • has at least 5 years of operating experience with Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. , and
    • operates at least 1 other Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. located on college/university land; and
  • any Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. complies with Part II, Chapter 1: Attributes and Characteristics, Section 104: Ground Leased Properties.
103.05

Additional Underwriting Documentation

Requirements

Your underwriting must include the following:

  • name of the college/university and its current total enrollment;
  • current enrollment percentages of full-time graduate and undergraduate students;
  • location 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). relative to the campus;
  • whether 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 part of the college/university’s housing referral program;
  • details 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). amenity package;
  • whether 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 convenient to a college/university-sponsored transportation line;
  • detailed description of the related rental housing market, including
    • the amount of on-campus rental housing space occupied or available, and
    • any future on- or off-campus rental housing planned or under construction;
  • percentage 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 pre-leased for the semester/quarter;
  • percentage 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 who are students;
  • percentage 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). leases that have a term of less than 12-months;
  • whether 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 a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. or master lease and, if so, the structure and terms of the lease; and
  • whether parental guaranties are required for leases 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). .
Section 104

Underwritten NCF

Requirements

You must 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 Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. 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 Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

For Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , Fannie Mae will permit “by-the-bed” income and valuation for units occupied by students 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 at least 2 years of operating statements using that method, and
  • rental rates are comparable to similar Student HousingStudent HousingA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

REQUIRED UNDERWRITTEN NCF
(STUDENT OR DEDICATED STUDENT HOUSING PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

  

GROSS RENTAL INCOME (GRI) – market rents for vacant units based on a current rent roll (multiplied by 12), plus:

 

  • for a Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students. – the lower of
    • actual rents in place for occupied units on a per unit basis, or
    • market rents that would be available 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 not leased to students; and
  • for a Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. – the lower of
    • actual rents in place for occupied units on a per unit or “by the bed” basis, or
    • market rents for comparable Dedicated Student HousingDedicated Student HousingMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

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).
 

EQUALS

GROSS POTENTIAL RENT (GPR)

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

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

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
 

EQUALS

NET RENTAL INCOME (NRI)

1 The total of Items 4, 5, and 6 must equal or exceed the greater of

 

  • the difference between the trailing 12-month net rental collections (annualized) and GPR, or
  • 5% of GPR.

If trailing 12-month NRI is not available, use a minimum 10% of GPR.

CALCULATION OF OTHER INCOME

7

PLUS

Actual other income (except premiums and corporate premiums) generated through ongoing operations.  The income must:

 

  • be stable;
  • be common in the market;
  • exclude one-time extraordinary non-recurring items; and
  • be supported by prior years.

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.

CALCULATION OF COMMERCIAL INCOME

8

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

9

MINUS

10% of the actual commercial space income.2

10

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.2

2 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.

11

PLUS

Premiums3, provided that the income must:

 

  • be stable or increasing;
  • be typical (in type and amount) in the market;
  • be supported by prior years; and
  • not exceed the income generated over the most recent year or trailing 12-month period.

12

PLUS

Corporate premiums3, provided that this income must:

 

  • not be included for more than 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). units;
  • be stable or increasing;
  • be typical (in type and amount) in the market;
  • be supported by prior years; and
  • not exceed the income generated over the most recent year or trailing 12-month period.

13

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

3 Premium or corporate premium income cannot exceed 3% of GRI.

CALCULATION OF OPERATING EXPENSES

14

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

 

  • lease-up,
  • rehabilitation, or
  • other short-term positive or negative factors. 

 

Non-recurring, extraordinary expenses must not be included.

 

You must assess:

 

  • past operating history;
  • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (in the case of an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. ). 

 

You must:

 

  • analyze historical operations 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
  • apply an appropriate increase over the prior year’s operations in determining an estimate.

15

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:

 

  • 4% of 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. ;
  • actual property management fee, provided you
    • exclude any portion of a non-arm’s length property management fee that is subordinated 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. , and
    • include any known contractual fee increases occurring over the next 24 months; or
  • Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

16

MINUS

Real estate taxes per Item 17(b) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

17

MINUS

Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

18

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

19

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part III, Chapter 1: Student Housing Properties, Section 105: Replacement Reserve.
 

EQUALS

UNDERWRITTEN NCF
Section 105

Replacement Reserve
105.01

Determining Replacement Reserve

Requirements

The minimum Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. amount must equal the greater of

105.02

Replacement Reserve Funding

Requirements

You must ensure full funding of the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .

Chapter 2

Military Housing Properties
Section 201

Description

Requirements

A Military Housing PropertyMilitary Housing PropertyMultifamily rental Property in which 40% or more of the units are occupied by individuals serving in, or employed by, the United States military. is any multifamily rental 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 which 40% or more of the units are occupied by individuals serving in, or employed by, the United States military.

Section 202

Ineligible Property Types

Requirements

Fannie Mae will not purchase 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). located on a military base or installation.

Section 203

Generally

Guidance

When underwriting a Military Housing PropertyMilitary Housing PropertyMultifamily rental Property in which 40% or more of the units are occupied by individuals serving in, or employed by, the United States military. , you should consider:

  • the stability of nearby bases, including deployment/base closing risks;
  • historical performance 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). during a deployment;
  • any impact of military housing plans; and
  • ability 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). to be re-tenanted if the base closes.
Chapter 3

Moderate Rehabilitation Mortgage Loans
Section 301

Description

Requirements

A Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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 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 will undergo at least $8,000 per unit of 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. .  This Chapter does not apply to 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 a lesser amount of rehabilitation work.

Product Description
Minimum Per Unit Cost for Rehabilitation Work

$8,000 per unit:

 

  • based on the total number of residential units 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). , not the number of units being rehabilitated; and
  • includes the estimated cost of 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. identified in the PCAPCAAssessment of the Property's physical condition and historical operation. (or MBAMBAMortgage Bankers Association Standard Inspection Form, if applicable).
Rehabilitation Timing

The 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. must be completed as follows:

 

  • items identified as 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. , per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405: Completion/Repairs;
  • Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. qualifying for a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. , per Part III, Chapter 4: Green Mortgage Loans;
  • if the Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work.  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. meets the requirements for using 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. on an “as completed” basis (per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation), then the 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. may be completed after the 12-month period, but not later than 36 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
  • 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. , in a timely manner, but not later than 36 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
Completion/Repair Escrows For 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. identified in a PCAPCAAssessment of the Property's physical condition and historical operation. , if you require full or partial funding of a Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. , any higher funding amount you require above the estimated cost of 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. must be funded.
Mezzanine Financing If the 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. is funded through Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , you must also comply with Part III, Chapter 16: Mezzanine Financing and Preferred Equity.
Section 302

Underwriting

Requirements

For all Moderate Rehabilitation Mortgage Loans...

Rent or Income Restrictions

For Multifamily Affordable HousingMultifamily Affordable HousingProperty 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. PropertiesPropertiesMultifamily 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 ensure that the rents expected to be charged after 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. is completed are consistent with any rent or income restrictions.

Tenants, Guests, and Employees

You must identify and mitigate any risks that the 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. may have during the renovation period on

 

  • the health and safety of tenants, guests, or employees at any time, and
  • tenant displacement, and consider a relocation plan to minimize the effects of the displacement.

Guidance

For all Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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 should consider the following questions about the 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. :

  • Are at least 60% of the budgeted improvements for interior unit upgrades?
  • Are the projected cost estimates reasonable and sufficient to complete the entire scope of work?
  • Does the budget, including the sources, uses, and schedule, provide adequate capital availability during the term of the work?
  • Are construction contracts guaranteed maximum price contracts that specify a completion date?
  • Given the scope of work, is a fully-funded Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or 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.  appropriate?
  • Is 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). net worth and liquidity adequate to fund any unexpected cost overruns or operating deficits?
  • Does the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). have demonstrated experience with the scope of work in the same or similar real estate markets?
  • Does the BorrowerBorrowerPerson who is the obligor per the Note. have sufficient economic incentive to complete the entire scope of work, including the feasibility of achieving projected post-rehabilitation rents sufficient to meet the target effective gross income?
  • Should 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. execute a Completion Guaranty (Form 6018) that covers a portion or the entire scope of the 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. ?
  • Should additional collateral (e.g., deposits into 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. that are greater than the budget for the 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. , operating deficit reserve, Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , etc.) be required?
Section 303

Rehabilitation Work Costing More than $20,000 Per Unit
303.01

Rehabilitation Work Evaluation Report

Requirements

If the 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. will cost more than $20,000 per unit and includes structural additions or modifications, then in addition to the other requirements in this Chapter, you must obtain a rehabilitation work evaluation report from either the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. or a licensed architect or engineer.

This rehabilitation work evaluation report must include:

  • a review and evaluation 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 scope of 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. ; and
  • all significant construction contracts related to the 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. .

The report must also address, and you must evaluate, the following:

  • Is the planned 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. structurally sound and physically feasible?
  • Is the estimated cost of the 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. reasonable?
  • Will the work be completed within the Borrower’sBorrower’sPerson who is the obligor per the Note. scheduled time frame, but not later than 36 months after the anticipated Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ?
  • Will the work comply with all zoning, building, and fire code regulations?
  • Is there any additional work that is not already planned but that should be undertaken?
303.02

Rehabilitation Reserve Agreement

Requirements

You must ensure that the BorrowerBorrowerPerson who is the obligor per the Note. :

  • Executes a Modifications to Multifamily Loan and Security Agreement (Rehabilitation Reserve – Moderate Rehabilitation) (Form 6222) that identifies the planned scope of the 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. on the Rehabilitation Work Schedule, including
    • all of the 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. items,
    • estimated costs,
    • allowance for cost overruns, and
    • completion dates.
  • Completes a budget for the planned 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. .
  • Funds a 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. with the:
    • entire budgeted amount (or a higher amount that you require) for all 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. that is not identified as 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. by the PCAPCAAssessment of the Property's physical condition and historical operation. ; and
    • estimated cost (or a higher amount that you require per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405: Completion/Repairs) for 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. .
Section 304

Supplemental Mortgage Loans

Requirements

Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. must comply with Part III, Chapter 14: Supplemental Mortgage Loans, except as modified by this Section.

Supplemental Mortgage Loans

Origination Date
  • Must be originated within 36 months of the Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. Mortgage Loan's Origination DateMortgage Loan's Origination DateDate you fund a Mortgage Loan to the Borrower. .
  • Require no minimum period to elapse provided the minimum 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. is completed 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). after origination of the Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. .

Loan Term

Must be coterminous with the Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. .

Completed Rehabilitation Work
  • Completed 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. or other repairs, replacements, or improvements must comply with this Chapter.
  • You must document evidence of the
    • qualifying scope of work completed 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
    • cost of work and improvements 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). verified by you.

Site inspection

You must perform a site inspection if the qualifying work was not completed pursuant to a 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 a 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). .  This requirement may be satisfied if the most recent asset management site inspection was conducted after the required work was completed 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). .

Rate Lock

Are not eligible for the Streamlined Rate Lock option.
Chapter 4

Green Mortgage Loans
Section 401

Generally
401.01

Description

Requirements

A Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization… is 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). that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a property, generating energy, or meeting criteria set by a third-party green building certification organization.

A Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. is 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). on which the BorrowerBorrowerPerson who is the obligor per the Note. agrees to undertake 1 or more Energy- and Water-Efficiency Measures (Efficiency Measures or EWEM) that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans.

401.02

High Performance Building Module

Requirements

For a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. , you must:

  • retain a consultant to provide either:
    • a High Performance Building (HPB) module (HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. ), including Appendix H:  HPB Module Report Tables (Form 4099.H) as part of a required PCA; or
    • a standalone HPBHPBHigh Performance Building report (HPB Report), including Form 4099.H; and
  • complete the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. or HPB Report and Form 4099.H per the requirements of Form 4099.

 Guidance

Notwithstanding the prohibition in the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features.  regarding a LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. paying third-party costs, you may use the Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. to reimburse the BorrowerBorrowerPerson who is the obligor per the Note. for

  • the cost of a standalone HPB Report, or
  • the incremental cost of the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. over the cost of the base PCAPCAAssessment of the Property's physical condition and historical operation. .

If you use the Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. to pay the Borrower'sBorrower'sPerson who is the obligor per the Note. costs for the HPB Report or HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , Fannie Mae will reimburse you when you deliver the Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization….

Operating Procedures

To submit the invoice for the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. or HPB Report for reimbursement, use the Green Mortgage Loan Job Aid.

401.03

Technical Solar Report

Requirements

For a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. where the BorrowerBorrowerPerson who is the obligor per the Note. wants to install a Solar Photovoltaic SystemSolar Photovoltaic 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… (Solar PV System) as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , you must retain a Solar Technical Consultant that is certified by the North American Board of Certified Energy Practitioners (NABCEP) to complete a Technical Solar Report, including Appendix I: Analysis Tool for a Technical Solar Assessment (Form 4099.I), per the Instructions for Performing a Multifamily Property Condition Assessment (Form 4099).

Guidance

If you use the Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. to pay the Borrower’sBorrower’sPerson who is the obligor per the Note. costs for the Technical Solar Report, Fannie Mae will reimburse you when you deliver the Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization… if 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… is selected as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. .

Operating Procedure

You must ensure:

  1. The HPB Consultant completes the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. .
  2. The Solar Technical Consultant completes a Technical Solar Report, including Form 4099.I, that
    • identifies and quantifies the renewable energy generation potential 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
    • details the system design specifications of any recommended 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….
  3. If the Technical Solar Report confirms 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 suitable for 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…, and the BorrowerBorrowerPerson who is the obligor per the Note. elects to install 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… 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). as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , the HPB Consultant incorporates 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… design specifications, and any required roof replacement or additional structural support, from the Technical Solar Assessment (Form 4099.I) into Form 4099.H.
  4. For reimbursement, you submit the Technical Solar Report invoice per the Green Mortgage Loan Job Aid.

 

401.04

Green MBS

Requirements

You must disclose as a Green MBS any Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization… that you deliver as an MBS Mortgage LoanMBS Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. .

401.05

Committing and Delivery

Operating Procedures

To commit and deliver a Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization…, you must follow the Green Mortgage Loan Job Aid.

Section 402

Green Building Certification

Requirements

To qualify as a Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization…, 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 a Green Building CertificationGreen Building CertificationDesignation awarded by a third-party organization that is recognized by Fannie Mae and listed in the Green Building Certifications (Form 4250) for multifamily properties constructed or maintained to meet specified energy and water efficiency standards or other sustainability criteria. that complies with with Green Building Certifications (Form 4250); and
  • review and approve a Green Building CertificationGreen Building CertificationDesignation awarded by a third-party organization that is recognized by Fannie Mae and listed in the Green Building Certifications (Form 4250) for multifamily properties constructed or maintained to meet specified energy and water efficiency standards or other sustainability criteria. prior to
    • 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 you are not using the Streamlined Rate Lock option, or
    • the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , if you are using the Streamlined Rate Lock option.
Section 403

Green Rewards Mortgage Loans
403.01

Eligibility
403.01A

Generally

Requirements

For a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. 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 be eligible, 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 at least 12 months of 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. ;
  • the BorrowerBorrowerPerson who is the obligor per the Note. selects Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. from the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. or HPB Report projected to result in an annual reduction for the whole PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). of at least 30% in combined energy and/or water consumption of which at least 15% must be attributable to savings in energy consumption; and
  • for a 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. ,
    • the 15% energy consumption savings is achieved only through the installation 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… or other renewable energy system,
    • all Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , including 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…, are made only to BorrowerBorrowerPerson who is the obligor per the Note. -owned property,
    • electricity is metered at the whole PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). level (master-metered) by the utility 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). owner (even if reimbursed by the tenants), and
    • the energy or water consumption reduction is based only on utilities that are metered at the whole PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). level (master-metered).

Energy consumption savings may represent reductions in whole-PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). consumption of energy supplied by utilities or energy suppliers (including delivered energy such as fuel oil or propane) compared to the previous 12-month baseline through a combination of the installation of an onsite renewable energy system and energy efficiency measures.

403.01B

HPB Module, HPB Report, and Technical Solar Report Scoring

Requirements

You must score each HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , HPB Report, and Technical Solar Report per the following 3-point system:

Score

Quality of HPB Module, HPB Report, and Technical Solar Report

1

Either you or Fannie Mae may approve as is.  No further corrections.

2

The consultant must address minor issues or clarify content before you or Fannie Mae approve it.  Minor corrections.

3

The consultant must make major changes or multiple revisions before you or Fannie Mae approve it.  Substantial issues.

The final HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , HPB Report, and Technical Solar Report must be scored as a "1" before you approve the report or submit it to Fannie Mae for approval, if required.

403.01C

HPB Module, HPB Report, and Technical Solar Report Approval

Requirements

You must submit an HPB Report or HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. to Fannie Mae for approval if:

  • you have delivered less than 8 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. that included an HPB Report (or a PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. 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
  • your HPB Consultant has not been designated as “Pre-Qualified” by Fannie Mae at https://multifamily.fanniemae.com/financing-options/specialty-financing/green-financing.

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 submit any Technical Solar Report to Fannie Mae for approval.

Operating Procedures

If Fannie Mae’s approval of an HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , HPB Report, or Technical Solar Report is required, you must:

  • Submit 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. , per the Green Mortgage Loan Job Aid, the
    • HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. or HPB Report and Form 4099.H, or
    • Technical Solar Report and Form 4099.I.
  • Follow this submission timing:
    • For the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. or HPB Report,
      • at least 5 days 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 not using the Streamlined Rate Lock option, or
      • at least 10 days before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , if using the Streamlined Rate Lock option.
    • For the Technical Solar Report, at least 10 days 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. .
403.01D

Non-Contiguous Parcels

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. secured by Non-Contiguous ParcelsNon-Contiguous ParcelsMultiple parcels of land securing a Mortgage Loan that do not share common boundaries or that are separated by dedicated or private streets that are major arterials. , a separate HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , HPB Report, or Technical Solar Report is required for each Collateral Record in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. .

403.02

Implementing Efficiency Measures
403.02A

Generally

Requirements

After the BorrowerBorrowerPerson who is the obligor per the Note. selects the Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , you must:

  • Include the selected Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. on the Addendum to Schedule 6 to the applicable
    • Modifications to Multifamily Loan and Security Agreement (Green Mortgage Loan) (Form 6241), or
    • Modifications to Multifamily Loan and Security Agreement (Green/Solar Mortgage Loan) (Form 6264).
  • Add the Addendum to Schedule 6 to the applicable:
    • 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 Work Schedule to the Rehabilitation Reserve Agreement.
  • Describe each Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. in enough detail to ensure that any specific products or equipment are installed, including quantities and applicable performance specifications.
  • Ensure funds to complete the selected Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. are deposited 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. 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. , in an amount equal to 125% of the estimated cost of all capital improvements identified by the HPB ModuleHPB ModulePCA High Performance Building Module assessing cost effective opportunities to increase a Property’s energy and water efficiency and reduce costs. , HPB Report, or Technical Solar Report for the selected Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. .
  • Require all Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. be completed in a timely manner and no later than
403.02B

Solar PV System

Requirements

For a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. , if the BorrowerBorrowerPerson who is the obligor per the Note. elects to install 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… as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , you must ensure:

  • All 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, including energy storage, will be BorrowerBorrowerPerson who is the obligor per the Note. -owned and 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). .
  • 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.
  • The BorrowerBorrowerPerson who is the obligor per the Note. enters into an Operations and Maintenance PlanOperations and Maintenance PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251).  covering 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 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… has a minimum manufacturer performance warranty of 25-years for the solar panels, and a minimum 10-year product warranty for:
  • solar panels;
  • inverters;
  • racking systems; and
  • batteries for energy storage.
  • Roof age and condition support 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… design and installation, and any roof replacement specified in the Technical Solar Report is included as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. .
  • A performance guaranty that covers the full 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. is required for systems over 500kW;
  • Battery storage is for on-site use only and does not commit 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). to an arrangement with any utility, third-party, or off-site use.
  • Outside counsel with 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… experience and state-specific knowledge reviews all applicable local laws and any contracts or agreements related to 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.
  • 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… installer has a team member or subcontractor who is NABCEP certified.
403.03

Underwritten NCF

Requirements

You must ensure that 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 a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. is calculated per Part II, Chapter 2: Valuation and Income or the applicable Part III Chapter.

For any Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. where the BorrowerBorrowerPerson who is the obligor per the Note. elects to install 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… as an Efficiency MeasureEfficiency MeasureEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. , 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. must include all new or increased operating expenses associated with 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…, such as:

  • Operations and Maintenance PlanOperations and Maintenance PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251).  fees;
  • real estate taxes;
  • property and liability insurance;
  • utility fees; and
  • replacement reserves.

Guidance

You may include projected energy and water cost savings from implementing selected Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. 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. , up to:

  • 75% of any cost savings projected to accrue to the BorrowerBorrowerPerson who is the obligor per the Note. ; plus
  • 25% of any cost savings projected to accrue to the tenants, but only if the projections are based on whole-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 sampled (not modeled) consumption as defined by Form 4099.
403.04

Maximum Amount

Requirements

The maximum amount of a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. that includes projected cost savings in 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. must not exceed 105% 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. amount 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. excluding the projected cost savings.

403.05

Supplemental Mortgage Loans

Requirements

You must base the maximum Green RewardsGreen RewardsMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. 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. amount on the aggregate UPBUPBUnpaid Principal Balance of all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. secured by 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). , plus the amount of the Green RewardsGreen RewardsMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. 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. .

Guidance

Certain Green RewardsGreen RewardsMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. 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. may not count toward the limit on the number of 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. (see Part III, Chapter 14: Supplemental Mortgage Loans, Section 1402: Supplemental Mortgage Loans).

Section 404

Annual Energy Reporting

Requirements

You must use the following forms requiring the BorrowerBorrowerPerson who is the obligor per the Note. to report 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). annual energy and water use:

  • for a Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. where the BorrowerBorrowerPerson who is the obligor per the Note. elects to install 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…, Modifications to Multifamily Loan and Security Agreement (Green/Solar Mortgage Loan) (Form 6264);
  • for any other Green Rewards Mortgage LoanGreen Rewards Mortgage LoanMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. , Modifications to Multifamily Loan and Security Agreement (Green Mortgage Loan) (Form 6241); or
  • for any Green Mortgage LoanGreen Mortgage LoanMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization… 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 Green Building CertificationGreen Building CertificationDesignation awarded by a third-party organization that is recognized by Fannie Mae and listed in the Green Building Certifications (Form 4250) for multifamily properties constructed or maintained to meet specified energy and water efficiency standards or other sustainability criteria. , Modifications to Multifamily Loan and Security Agreement (Green Building Certification) (Form 6267).

For all Green Mortgage LoansGreen Mortgage LoansMortgage Loan secured by a Property that incorporates features expected to have a positive environmental outcome including, but not limited to, reducing energy and water consumption at a Property, generating energy, or meeting criteria set by a third-party green building certification organization…, you must ensure the BorrowerBorrowerPerson who is the obligor per the Note. has enrolled with Fannie Mae’s Green Measurement and Verification Consultant within 60 days after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Chapter 5

Seniors Housing Properties
Section 501

Generally
501.01

Description

Requirements

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. is a multifamily residential rental property with 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. , 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.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

501.02

Eligible Lenders

Requirements

You must be approved in writing to 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. Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. 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. .

501.03

Key Principal/Sponsor Experience

Requirements

You must ensure that the 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. or SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has owned or operated Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. of commensurate type, size, and service level as 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

Eligible Properties
502.01

Eligible Properties

Requirements

You must ensure that 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. has the following design features:

  • convenience features for the elderly in all units, such as grab bars in the bathrooms and emergency pull-cords or equivalent safety items;
  • a fully operational sprinkler system throughout each level of each building (including all units and common areas), regardless of local building code or other governmental requirements;
  • a commercial kitchen for preparing meals for residents;
  • kitchens or kitchenettes containing a refrigerator, microwave or comparable cooking element, and sink in each 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. unit, and also in, each 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.  unit if consistent with the market; and
  • bathrooms in each 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. and 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.  unit.
502.02

Ineligible Properties

Requirements

Fannie Mae will not purchase 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 Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. :

  • comprised of only Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units;
  • that does not meet the Skilled Nursing NCF Test per Part III, Chapter 5: Seniors Housing Properties, Section 504.02: Skilled Nursing NCF Test; or
  • if the original Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. 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 exceeds 100% of the portion 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.
    • attributed to land and 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). , but
    • excluding any portion attributed to goodwill, business value, intangibles, and/or furniture, fixtures, and equipment.
Section 503

Continuing Care Retirement Communities (CCRCs)

Requirements

You must ensure that a CCRCCCRCSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. has:

  • had at least 90% physical occupancy for each of the past 5 fiscal years;
  • debt service reserves equal to at least 1 year of P&IP&IPrincipal and interest ; and
  • a 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. of at least 1.00 based on annualized rent collections and operating expenses, excluding net entrance fees.

For any CCRCCCRCSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. with an entrance fee, your underwriting must include a summary and analysis of the following:

  • actuarial report (including a copy of the report);
  • range and weighted average of entrance fees offered 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). , which must be within the range of median home values in the local market;
  • entrance fee refund plans (for example, full, partial, declining, non-refundable);
  • required entrance fee reserve;
  • whether the entrance fee reserve can be assigned as collateral 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. ;
  • net entrance fee income (collections minus refunds) for the past 5 years;
  • sufficiency of the entrance fee reserve;
  • market analysis of entrance fees;
  • underwritten net entrance fee income;
  • historical annual resident turnover;
  • required operating reserves;
  • whether the operating reserves can be assigned as collateral 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. ;
  • identity of all governmental authorities that license 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 Seniors Housing Operator; and 
  • status of each required license.
Section 504

Seniors Housing Property Income
504.01

Underwritten NCF

Requirements

You must 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 Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. .

REQUIRED UNDERWRITTEN NCF
(SENIORS HOUSING PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

 

GROSS RENTAL INCOME per Item 1 in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

2

PLUS

Medicaid income (does not include Medicare, which is included in Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income).

3

PLUS

Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income – actual trailing 12-month collections for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units (if 12-month collections are not available, then actual trailing 6-month collections (annualized)).1

4

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).

 

EQUALS

GROSS POTENTIAL RENT (GPR)

5

MINUS

Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).2

6

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.2

7

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.2

 

EQUALS

NET RENTAL INCOME (NRI)1

1 Skilled Nursing income must not be grossed up to 100% before the 20% deduction is applied.  An additional 20% is taken off the Skilled Nursing income.

 

2 The total of Items 5, 6, and 7 must equal the greater of:

 

  • the difference between the trailing 3-month net rental collections (annualized) and the GPR; or
  • the following percentages:
    • Independent Living:  if the percentage of Independent Living units is greater than 50%, then use 5% of GPR.
    • Assisted Living (60 total units or more):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 5% of GPR.
    • Assisted Living (less than 60 total units):  if the percentage of Assisted Living units or the combined percentage of Assisted Living and Alzheimer’s/Dementia Care units is 50% or greater, then use 10% of GPR.
    • Alzheimer’s/Dementia Care:  if the percentage of Alzheimer’s/Dementia Care units is 100%, then use 10% of GPR.
    • Skilled Nursing units:  use 20% of collections based on the trailing period used in determining Skilled Nursing income in Item 3.

You must determine if NRI declined per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and adjust Underwritten NRI as required.

CALCULATION OF ASSISTED LIVING SERVICE INCOME AND OTHER INCOME

8

PLUS

Trailing 12-month nursing/medical income (includes 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.  service income).

9

PLUS

Trailing 12-month ancillary income attributable to Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units, if applicable.

10

PLUS

Trailing 12-month other income for second resident fees, meals, tray service, laundry, special transportation, community fees, parking revenue, and any other income.

CALCULATION OF NET ENTRANCE FEE INCOME

11

PLUS

Net entrance fee income associated with CCRCsCCRCsSeniors Housing Property that provides a continuum of care on a single campus, including any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. – resident entrance fee collections minus entrance fee refunds, but not more than the annualized average of the trailing 60-months of net entrance fee income.

CALCULATION OF COMMERCIAL INCOME

12

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

13

MINUS

10% of the actual commercial space income.3

14

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.3

 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

3 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.

CALCULATION OF OPERATING EXPENSES

15

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

 

  • lease-up,
  • rehabilitation, or
  • other short-term positive or negative factors. 

 

Non-recurring, extraordinary operating expenses must not be included.

 

 

You must assess:

 

  • past operating history;
  • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (in the case of an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. ).

 

You must:

 

  • analyze historical operations 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
  • apply an appropriate increase over the prior year’s operations in determining an estimate.

16

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:

 

  • 5% of 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. ;
  • actual property management fee, including any known contractual fee increases occurring over the next 24 months; or
  • Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

17

MINUS

Real estate taxes per Item 17(b) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

18

MINUS

Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

19

MINUS

Room expense – housekeeping, if applicable.

20

MINUS

Meals expense, if applicable.

21

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

22

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part III, Chapter 5: Seniors Housing Properties, Section 505: Replacement Reserve.

 

EQUALS

UNDERWRITTEN NCF

 

504.02

Skilled Nursing NCF Test

Requirements

Fannie Mae will not purchase 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. if the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. 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… is more than 20% 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).  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….

You must:

  • Calculate the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. 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… at underwriting to 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). will meet this Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. 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… test.
  • Retest 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). with Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units annually after closing to ensure compliance.
  • Contact the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. to ensure the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. for any transaction with Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units include appropriate modifications.

The Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. 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… test is 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). -specific test.  You must separately test 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 Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units, 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 PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , or
  • cross-defaulted or cross-collateralized with another 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 following table to calculate the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. 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….

REQUIRED SKILLED NURSING NCF AND PERCENTAGE
(SENIORS HOUSING PROPERTY)

Item

Function

Description

SKILLED NURSING EFFECTIVE GROSS INCOME

1

 

SKILLED NURSING INCOME – actual trailing 12-month collections for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units (if 12-month collections are not available, then actual trailing 6-month collections (annualized)).

2

MINUS

20% of collections based on the trailing period used in determining the Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. income.

3

PLUS

Ancillary income attributable to Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

 

EQUALS

SKILLED NURSING EFFECTIVE GROSS INCOME (EGI)

SKILLED NURSING EXPENSES

4

MINUS

Fixed expenses – greater of actual or allocated fixed expenses (e.g., real estate taxes, liability insurance, etc.) for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

5

MINUS

Variable operating expenses for Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

 

EQUALS

SKILLED NURSING NCF

6

DIVIDED BY

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 III, Chapter 5: Seniors Housing Properties, Section 504.01: Underwritten NCF.

 

EQUALS

SKILLED NURSING NCF PERCENTAGE
504.03

Operating Lease Ratios

Requirements

If the Seniors Housing Operator

  • does not have any direct or indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. or the 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. , or
  • is not a 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). 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, under common ControlControlPossessing, 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). with, or which ControlsControlsPossessing, 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). , 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. , then 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). meets the following ratios:

Ratios

Requirements

Operating Lease Coverage Ratio

The minimum underwriting ratios for 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. to current year operating lease payments are:

 

  • 1.10 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. where more than 50% of the units are 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. units; and
  • 1.15 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. where 50% or more of the units are 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.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.

Operating Lease Payment to Debt Service Payment Ratio

The minimum underwriting ratios of the current year operating lease payments to the underwritten fixed rate debt service payments are:

 

  • 1.15 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. where more than 50% of the units are 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. units; and
  • 1.20 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. where 50% or more of the units are 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.  , Alzheimer’s/Dementia CareAlzheimer’s/Dementia CareSeniors Housing Property with units and beds for residents with significant cognitive impairment resulting from Alzheimer’s disease or other dementia, which are typically licensed and regulated by a state or local government authority.  , or Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units. 
504.04

Operating Lease Analysis

Requirements

Before finalizing the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , you must:

  • Obtain a copy of each management agreement, operating lease, master lease, and sublease including all exhibits and amendments.
  • Upload 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. a completed Seniors Housing Operating Lease Review Checklist (Form 6487.SRS) that analyzes the
    • underwriting and legal aspects of each lease and its impact on the operations 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
    • obligations of the BorrowerBorrowerPerson who is the obligor per the Note. , each GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and the Seniors Housing Operator under the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Section 505

Replacement Reserve

Requirements

The minimum Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. amount must equal the greatest of:

  • the amount calculated per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406: Replacement Reserve;
  • $300 per unit per year 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 no Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units; or
  • $450 per unit per year 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 any Skilled NursingSkilled NursingSeniors Housing Property with units that are highly regulated and provide 24-hour resident supervision and registered nursing care services. units.
Section 506

Medicaid Funds
506.01

Dependency and Medicaid Transition Reserve

Requirements

You must analyze the 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. to determine the percentage derived from payments under a Medicaid provider agreement with a government authority or managed care organization (Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. ).

Operating Procedures

If more than 20% of the 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. is derived from Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. , Fannie Mae may require that you

  • establish a Medicaid transition reserve account, and/or
  • enter into an account control agreement with the BorrowerBorrowerPerson who is the obligor per the Note. .

If Fannie Mae requires a Medicaid transition reserve, you must:

  • determine the appropriate amount of the reserve by considering the
    • reimbursement rates of the government authority or managed care organization, and
    • percentage of Medicaid-supported residents 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). ;
  • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. sufficiently funds the reserve; and
  • use the Modifications to Multifamily Loan and Security Agreement (Medicaid Transition Reserve) (Form 6237.SRS) and Modifications to Multifamily Loan and Security Agreement – Addenda to Schedule 2 – Summary of Loan Terms (Medicaid Transition Reserve) (Form 6102.21.SRS).

If Fannie Mae requires an account control agreement, you must

  • require the BorrowerBorrowerPerson who is the obligor per the Note. to deposit the Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. into a controlled account,
  • include in the agreement an acknowledgement of Fannie Mae’s first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on, and control over, the Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. , and
  • obtain Fannie Mae's approval if you elect not to use Fannie Mae's form.
506.02

State Medicaid

Requirements

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 be located in a state that has a

  • Medicaid waiver in place, or
  • Medicaid plan that allows for the payment of services and housing costs from Medicaid FundsMedicaid FundsFunds paid to a provider by governmental authorities or managed care organizations, under Medicaid provider agreements. .

You must document the Medicaid waiver or plan and demonstrate that it allows for the payment of services performed, and housing costs incurred, 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). .

Section 507

Consultant Reports
507.01

Management, Operations, and Regulatory Compliance

Requirements

You must engage a third-party professional to 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). management, operations, and regulatory compliance.

The third-party professional you select must have:

  • been in good standing for the past 5 years as a licensed administrator, licensed practical nurse, or registered nurse; and
  • at least 5 years of experience with
    • the operation of Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. , and
    • regulatory matters affecting Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. .

You must assess and summarize the information presented and conclusions reached by the third-party professional.

507.02

Management and Operations Reports

Requirements

You must obtain management and operations reports 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). that assess:

  • competency, performance, and experience of management at the corporate, regional, 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). levels;
  • qualifications of key personnel,
    • noting their experience and length of time in current positions 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
    • including copies of available resumes;
  • hiring and screening practices and personnel policies (such as employee handbooks, orientation materials, initial and in-service training materials, available resources);
  • staffing levels, composition, and qualifications;
  • risk management policies and procedures, including an analysis of the backgrounds of individuals employed to handle insurance and risk management matters;
  • policies and procedures supporting and aligning resident services;
  • availability and use of home health services, including whether
    • home health services are available,
    • home health services are provided by the BorrowerBorrowerPerson who is the obligor per the Note. , the Seniors Housing Operator, 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 the operator, or a third party, and
    • the home services provider leases space 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). ;
  • policies and procedures for documenting residents’ well-being (such as periodic resident assessments, tracking the general health condition of each resident, resident safety and evacuation plans);
  • content of the admission application and the residency or lease agreement;
  • resident turnover data;
  • availability of replacements for the Seniors Housing Operator; and
  • overall management and operations, including an analysis and detailed recommendations for any other matters material to the ownership, operation, or management 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). .
507.03

Regulatory Compliance Report

Requirements

You must obtain a Regulatory Compliance Report for all licensed Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. .  The report must include the following information as of the date of the report:

  • identity of all government authorities with jurisdiction 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). and each authority’s definition of the level of care permitted 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). ;
  • summary and copies of all government surveys conducted during the past 3 years, including
    • a summary and analysis of all deficiencies identified in the surveys,
    • the severity of these deficiencies, and
    • the correction plans for all deficiencies, whether corrected or outstanding;
  • summary and analysis of all enforcement actions during the past 3 years resulting from a state survey inspection (such as a probationary license or ban on admissions), together with a summary and analysis of any remedial plan of action;
  • photocopies of all regulatory permits, licenses, and certificates;
  • state staffing requirements;
  • summary of the status of any federal, state, or local proposed regulations (or amendments to existing regulations) that could affect 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 any aspect of the Seniors HousingSeniors HousingMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. industry;
  • summary of the regulatory and licensing procedures required to change PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ownership, any service provider, the authority to operate, or the management 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 this summary must
    • identify the changes that require advance notice and/or prior approval from the relevant government authority, and
    • describe any advance notice requirements, such as timing, required recipients, and required notice content;
  • if the BorrowerBorrowerPerson who is the obligor per the Note. or Seniors Housing Operator participates in
    • the state’s Medicaid waiver program, or
    • another third-party subsidy program,
    • an assessment of the risk 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). operations if the program is discontinued;
  • identification and analysis of any special insurance requirements of government authorities (such as workers compensation insurance or medical director professional liability insurance);
  • copies of the sources and references used to complete this report; and
  • overall assessment of regulatory matters 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). , including an analysis and detailed recommendations for any other matters material to the ownership, operation, or management 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). .
Chapter 6

Manufactured Housing Communities
Section 601

Description

Requirements

An MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. is a residential real estate development with lots on which Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are located, together with amenities, utility services, landscaping, roads, and other infrastructure.

Section 602

Lender Eligibility

Requirements

You must be approved in writing to 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. MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. 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. .

Section 603

Legal and Property Compliance
603.01

Borrower and the MH Community
603.01A

Borrower Ownership

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is a non-profit entity, then you must ensure that each of the following complies with Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals:

  • the BorrowerBorrowerPerson who is the obligor per the Note. ;
  • Key PrincipalsKey PrincipalsPerson 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. ;
  • GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; and
  • 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,….

Guidance

If the BorrowerBorrowerPerson who is the obligor per the Note. is a non-profit entity, you may reimburse the BorrowerBorrowerPerson who is the obligor per the Note. from the Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. for up to a combined total of $10,000 for the cost of any required MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. 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. third-party reports (e.g., 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. , Environmental Site AssessmentEnvironmental Site AssessmentInvestigation 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. ).

Operating Procedures

Fannie Mae will reimburse the cost of any third-party report within 2 months after the delivery 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. .  To receive reimbursement, you must:

  • request an invoice from the vendor with the report cost listed as a separate line item from any ancillary charges (Fannie Mae will not reimburse other costs such as fees for expediting a report);
  • within 1 month after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. :
    • complete Form 4829, detailing the Lender’sLender’sPerson Fannie Mae approved to sell or service Mortgage Loans. information, the commitment number or loan number, 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, wiring instructions, and listing the third-party cost as “Other” (note that any fields related to servicing may be left blank); and
    • manually sign or e-sign Form 4829, scan or save it as a PDF file, and email the signed PDF Form 4829 and the third-party report invoice to: [email protected].
603.01B

Collateral; Tenant-Occupied and Affiliate-Owned Homes

Requirements

The collateral for an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. 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. consists of

  • the MH Community'sMH Community'sResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. land and infrastructure,
  • the rents for the MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. , and
  • any other BorrowerBorrowerPerson who is the obligor per the Note. -owned property used for the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. .

The percentage of tenant-occupied Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. must not exceed 35%.  If the percentage of tenant-occupied Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. is greater than 25%, then:

  • the Borrower’sBorrower’sPerson who is the obligor per the Note. business plan must reflect the conversion of tenant-occupied Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. to owner-occupied over time; and
  • ongoing business related to the sale, financing, or rental of a Manufactured HomeManufactured HomeFactory-built home complying with the Manufactured Home HUD Code. 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). must be performed 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….

If any Affiliate-Owned Manufactured HomesAffiliate-Owned Manufactured HomesManufactured Home or park model home located on an MH Site that is owned by an Affiliate of the Borrower. are leased to tenants 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 either 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. , then:

  • The MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. lease must be at a market rate rent.
  • If the tenant’s rent payment includes both the rent for the Affiliate-Owned Manufactured HomeAffiliate-Owned Manufactured HomeManufactured Home or park model home located on an MH Site that is owned by an Affiliate of the Borrower. and the rent for the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. , then either:
    • the check must be payable to and deposited by the BorrowerBorrowerPerson who is the obligor per the Note. , which must pay all required P&IP&IPrincipal and interest , and escrows before remitting the rent payment to the 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…; or
    • you must consider whether it is appropriate to require a lockbox arrangement with the BorrowerBorrowerPerson who is the obligor per the Note. and the 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…
      • into which all rent checks for the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. and MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. must be deposited, and
      • from which you can control the disbursement of funds for P&IP&IPrincipal and interest , required escrows, and the Manufactured HomeManufactured HomeFactory-built home complying with the Manufactured Home HUD Code. rentals, with the remainder disbursed to the BorrowerBorrowerPerson who is the obligor per the Note. .
603.01C

MH Community

Requirements

An eligible MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. must:

  • have a minimum of 50 MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. ;
  • consist of contiguous parcels or, if the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. is made up of Non-Contiguous ParcelsNon-Contiguous ParcelsMultiple parcels of land securing a Mortgage Loan that do not share common boundaries or that are separated by dedicated or private streets that are major arterials. :
    • all parcels must be located within the same MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. ; and
    • each separate parcel (individually), and all Non-Contiguous ParcelsNon-Contiguous ParcelsMultiple parcels of land securing a Mortgage Loan that do not share common boundaries or that are separated by dedicated or private streets that are major arterials.  (together), must comply with the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. ; and
  • achieve at least a Level 3 Quality Rating per the Manufactured Housing Community Quality Rating Standards table in Part III, Chapter 6: Manufactured Housing Communities, Section 603.02: MH Community Score.

An MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. must be served by either

  • public underground utilities, or
  • private sewage treatment plants, septic systems, and private water wells which are:
    • common for the market;
    • owned by the BorrowerBorrowerPerson who is the obligor per the Note. or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key…; and
    • in compliance with all applicable government requirements.

Guidance

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 secured by either an Age-Restricted MH CommunityAge-Restricted MH CommunityMH Community that limits residents to those who are over a particular age (e.g., persons who are age 62 or older, or at least 80% of the Manufactured Homes occupied by at least 1 person who is age 55 or older). or an All-Age MH CommunityAll-Age MH CommunityMH Community that accepts residents of any age. .

You should consider the following:

  • For an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. that is more than 25 years old, does the BorrowerBorrowerPerson who is the obligor per the Note. have a plan for placing new Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. in the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. as MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. with older Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are vacated?
  • Are the landscaping and entrance signage high quality and well maintained?
  • For an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. served by a private sewage treatment plant, septic system, or a private water well, then:
    • Address the availability and cost of obtaining a backup source for water if the 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 a private water well.
    • Ensure that the operator of the facility, including its employees and contractors, meet all applicable government requirements to perform ongoing operation and maintenance.
    • If the operator is an employee of the BorrowerBorrowerPerson who is the obligor per the Note. , identify a local, qualified vendor that could be retained if substitute services are needed.
    • Exercise reasonable due diligence, including contacting municipal agencies, to confirm that
      • the MH Community’sMH Community’sResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. connection to a municipal system has not been mandated, and
      • no mandate is expected to occur 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. .
    • If hookup is imminent, determine if an escrow for the cost is appropriate.
603.02

MH Community Score

Requirements

You must determine the MH Community ScoreMH Community ScoreScore of 3 through 5 based on characteristics of the MH Community per Part III, Chapter 6: Manufactured Housing Communities, Section 603.02: MH Community Score. using the MH Community Quality Rating Standards table.  The overall MH Community Quality Rating is based on the lowest rating for any 1 characteristic.  

The MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. must:

  • meet a Level 3 Quality Rating; or
  • achieve most of the minimum Quality Rating characteristics and either
    • the unsatisfactory characteristics are not materially detrimental to the performance, overall appearance, desirability, and quality of the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. , or
    • any failed characteristic must be remediated as a Completion/RepairCompletion/RepairRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. item.

Manufactured Housing Community Quality Rating Standards

Characteristic

Level 3 Quality Rating

Level 4 Quality Rating

Level 5 Quality Rating

 

Minimum Standard

Minimum Standard applies

(except as detailed)

Level 4 applies

(except as detailed)

Streets

Paved Roads.

Same as Level 3.

Rolled curbs (if warranted by layout/drainage needs).

Home Sites
  • Area under the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. consists of concrete, crushed rock, or dirt.
  • Entry to the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. is through a patio or porch.
  • Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are supported by stacks of hollow concrete block or steel pier systems along the main beams (with ground anchors and steel straps holding the frame against movement) that meet local and state requirements.

Same as Level 3 with at least 60% of MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. having commercial grade porch/cabanas or patios.

Same as Level 3 with all MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. having commercial grade porch/cabanas or patios.

Site Size

Preference for 50% doublewide MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. , however you have delegated discretion on the percentage of doublewide sites as long as the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. is competitive with a clear market demand for singlewide MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. .

Same as Level 3.

Minimum 50% doublewide MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. .

Density

Density reflects the norm 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). market.  Generally, maximum density is 12 MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. per acre, however you have delegated discretion to determine the typical density in your market.

Density reflects the norm 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). market.  Generally, maximum density is 7 MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. per acre, or 10 MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. per acre if developed before 2000.

Same as Level 4.

Skirts/Hitches

100% of the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are professionally skirted, with hitches covered or removed.

You can meet this requirement through a 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….

Same as Level 3.

All of the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are professionally skirted, with hitches removed.

Parking

Minimum of 2 on- or off-street parking spaces per MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. that are properly maintained, paved, concrete, or gravel (if common in the market).  You have delegated discretion to determine compliance based on prevailing market conditions, subject to local ordinances.

Same as Level 3.

2 paved off-street parking spaces per MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. .

Amenities

Not required, but amenity package should be competitive based on market comparables.

Competitive amenity package required.

High quality amenity package competitive with other high-quality MH CommunitiesMH CommunitiesResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. .
603.03

Code Standards

Requirements

You must:

  • determine if all Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. in the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. meet the requirements of the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. ; and 
  • ensure the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. require BorrowerBorrowerPerson who is the obligor per the Note. certification that no additional Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. predating the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. will be added to the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. 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.

Guidance

Fannie Mae may allow Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. predating the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. if

  • they are BorrowerBorrowerPerson who is the obligor per the Note. -owned Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. or Affiliate-Owned HomesAffiliate-Owned HomesManufactured Home or park model home located on an MH Site that is owned by an Affiliate of the Borrower.  that comply with local codes with no identified life safety issues, and
  • you document the number of Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. predating the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. . 

Fannie Mae may allow rental units that do not comply with the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. (e.g., certain park model recreational vehicles) if the rental income is included as commercial income in Part III, Chapter 6: Manufactured Housing Communities, Section 606: Property Income and Underwritten NCF.

603.04

Flood Zone
603.04A

Rising Water

Requirements

For an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. located in a flood zone with rising water (e.g., flood water that quickly dissipates and flood zone A or AE) you must ensure the BorrowerBorrowerPerson who is the obligor per the Note.  notifies all HomeownersHomeownersFor an MH Community, a tenant of the Borrower who pays ground rent to the owner for use and occupancy of the MH Site and for use of the MH Community’s utilities and amenities. and all tenants of BorrowerBorrowerPerson who is the obligor per the Note. -owned or Affiliate-Owned HomesAffiliate-Owned HomesManufactured Home or park model home located on an MH Site that is owned by an Affiliate of the Borrower. occupying an MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. located in the flood zone before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

For Manufactured Homes located in a rising water flood zone...

If you

 
  • do not know the base flood elevation for the flood zone (e.g., flood zone A), or
  • know that the living floor levels are below the base flood elevation

Then:

 

  • you must calculate the 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… excluding the site rent for Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. with living floor levels within the flood zone; and
  • if the resulting 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… decreases to more than 10 basis points below the minimum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 standard, you cannot underwrite the site rent for those Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. .
603.04B

Moving Water

Requirements

For an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. located in a flood zone with the potential for flooding due to moving water (e.g., typically in flood zone A and AE and located next to a stream, river, etc.), you must ensure:

  • your underwriting assumes that MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. located in the flood zone are considered non-income producing MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. ; and
  • the BorrowerBorrowerPerson who is the obligor per the Note. notifies all HomeownersHomeownersFor an MH Community, a tenant of the Borrower who pays ground rent to the owner for use and occupancy of the MH Site and for use of the MH Community’s utilities and amenities. and all tenants of BorrowerBorrowerPerson who is the obligor per the Note. -owned or Affiliate-Owned HomesAffiliate-Owned HomesManufactured Home or park model home located on an MH Site that is owned by an Affiliate of the Borrower. occupying an MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. located in the flood zone before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
603.05

Lease Terms
603.05A

Master Leases

Requirements

You must ensure there are no master lease arrangements affecting any of the MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. .

603.05B

MH Site Leases

Requirements

MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. LeasesLeasesWritten 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. must

  • be in writing, and
  • not contain an option to purchase the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. .

The BorrowerBorrowerPerson who is the obligor per the Note. must agree to implement the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… for all MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. by the end of the first loan year.

Operating Procedures

The Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… may be incorporated

  • by amending each MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. 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. ; or 
  • within the MH Community’sMH Community’sResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. rules and regulations, if the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. 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. incorporates the rules and regulations by reference.

The Multifamily Loan AgreementMultifamily Loan AgreementAgreement evidencing Mortgage Loan terms using Form 6001 series Loan Documents, or another Fannie Mae-approved form. must include a:

  • covenant to implement the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… by the end of the first loan year;
  • requirement that, if the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… were implemented within the MH Community’sMH Community’sResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. rules and regulations:
    • the rules and regulations are publicly posted; and 
    • each lessee of an MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. 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. receives written notice of the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,…; and
  • BorrowerBorrowerPerson who is the obligor per the Note. :
    • representation stating the percentage of MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. LeasesLeasesWritten 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. with the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,…;
    • covenant to continue the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… over 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; and
    • requirement to annually submit to you a:
      • certified copy of the MH Community’sMH Community’sResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. current Rules and Regulations;
      • certified copy of the notice sent to all MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. 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. tenants if the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,… were implemented by the Rules and Regulations;
      • certified copy of the current form of Residential Leases for MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. ;
      • copy of any requested MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. LeasesLeasesWritten 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. ; and
      • certification of the percentage of MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. LeasesLeasesWritten 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. with the Tenant Site Lease ProtectionsTenant Site Lease ProtectionsMH Site Lease with the Homeowner or tenant of a Manufactured Home with: a 1-year renewable (at the MH Site Lease tenant’s election) lease term, unless good cause for nonrenewal exists; a minimum 30-day written notice of rent increases; 5-day minimum grace period for non-payment of rent,….

Guidance

You may allow

  • month-to-month lease terms,
  • lease terms for up to 2 years, and
  • lease terms longer than 2 years, but only if the lease provides for:
    • an annual rent increase sufficient to cover the current and/or projected Consumer Price Index (CPI);
    • the pass-through of real estate taxes over a base year;
    • the pass-through of any utilities provided by the BorrowerBorrowerPerson who is the obligor per the Note. ; and
    • cannot result in the Manufactured HomeManufactured HomeFactory-built home complying with the Manufactured Home HUD Code. on the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. being titled as real estate.
603.05C

Loan Document Modification

Requirements

You must modify the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan.  to reflect the use of short-term or long-term leases.

Section 604

Property Insurance

Requirements

You must ensure that the security for an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. 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. (per Part III, Chapter 6: Manufactured Housing Communities, Section 603.01B: Collateral; Tenant-Occupied and Affiliate-Owned Homes) complies with Part II, Chapter 5: Property and Liability Insurance.

Section 605

Survey

Requirements

If you obtain an acceptable as-built survey 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). , it must comply with Part II, Chapter 3: Legal Compliance, Section 305: Survey.

Guidance

You should ensure that the survey only shows the location or dimensions of

  • the individual MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. ,
  • any individual Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. or recreational vehicles, and/or
  • the related MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. or recreational vehicle site, piers, and/or foundations, that constitute encroachments.
605.01

Public Roadways, Private Interior Roadways, and Drives

Guidance

You should ensure that the survey accurately shows all public roadways.

For any private interior access roads, streets, drives, parking areas, visible utilities, and structures without foundations, the survey:

  • does not need to show them accurately from field measurements, unless they constitute encroachments;
  • should include a sketch showing their approximate location; and
  • may locate them by photogrammetric or other approximate methods.
605.02

Setbacks

Guidance

You should identify and show 2 different types of setbacks on the survey:

  • setback restrictions shown in documents of record; and
  • setbacks imposed by applicable zoning ordinances or building codes.

You should ensure that the survey:

  • states that the zoning setbacks apply only to permanent buildings and not to the Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. ; and
  • includes recorded references or citations to authority for the zoning setbacks, or gives the reason why this information is not available.
605.03

Encroachments

Guidance

You may show the following encroachments by a simple indicating mark (i.e., a distinctive mark or symbol identified in the legend), without indicating dimensions:

  • nonpermanent outbuildings or other structures; and
  • recreational vehicles that are not set upon a supporting foundation, MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. , or pier.
Section 606

Property Income and Underwritten NCF

Requirements

You must 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. .

REQUIRED UNDERWRITTEN NCF
(MANUFACTURED HOUSING COMMUNITY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

 

GROSS RENTAL INCOME1 – actual MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rents in place where Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. are installed under leases with residents in occupancy, plus market rents for vacant MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. and MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. with vacant Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. based on a current rent roll (multiplied by 12).

2

PLUS

To the extent deducted as an operating expense, MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rents for other non-revenue MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. , such as:

 

  • MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. with model Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. deducted in the “model apartment” operating expense in the “general and administrative” category; and
  • actual MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rent from employee Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. deducted in the “employee” operating expense in the “payroll and benefits” category.

 

EQUALS

GROSS POTENTIAL RENT (GPR)

3

MINUS

Physical vacancy2 –

 

  • market rents for vacant MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. based on a current rent roll (multiplied by 12); and
  • net rental collections for occupied MH SitesMH SitesDeveloped lot within an MH Community on which a Manufactured Home can be located. where the Manufactured HomeManufactured HomeFactory-built home complying with the Manufactured Home HUD Code. is vacant, and the MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rent is paid by the MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. owner, prior occupants, or a third party (e.g., a retail creditor).
4

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.2

5

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.2

 

EQUALS

NET RENTAL INCOME (NRI)3,4

1 Includes the MH Site rent for any Affiliate-Owned Manufactured Home or Borrower-owned Manufactured Homes, but excludes the rent (or that portion of the rent) for the Manufactured Home.

 

2 The total of Items 3, 4, and 5 must equal the greater of

 

  • the difference between the trailing 3-month net rental collections (annualized) and GPR, or
  • 5% of GPR.

If a rent increase with verified actual collections was instituted within the trailing 3 months, then NRI may be calculated based on the trailing 1-month net rental collections (annualized).

 

3 If NRI is greater than the trailing 1-month of actual NRI (annualized), then reduce to actual NRI.

 

4 You must assess any decline in NRI per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, and adjust Underwritten NRI as required.

CALCULATION OF OTHER INCOME

6

PLUS

Actual other income generated through ongoing operations.  The income must:

 

  • be stable;
  • be common in the market;
  • exclude one-time extraordinary non-recurring items; and
  • be supported by prior years.

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.

7

PLUS

For RV Sites with lease terms of 30 days or more, the lesser of

 

  • actual average net collections for the past 3 years, or
  • the current trailing 12-month RV Site rents, minus a 10% vacancy.5

CALCULATION OF COMMERCIAL INCOME6

8

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

9

PLUS

Actual average RV Site rental income for RV Sites with lease terms of less than 30 days.
10 PLUS Actual MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. rental income for Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. that predate the Manufactured Home HUD CodeManufactured Home HUD CodeNational Manufactured Home Construction and Safety Standards Act of 1974 (HUD Code) (42 USC 5401 et seq) and the Manufactured Home Construction and Safety Standards (24 CFR Part 3280), as amended. .

11

MINUS

10% of the actual commercial space income (total of Items 8, 9, and 10).

12

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.6

5 If the average RV Site rental income for RV Sites with lease terms of 30 days or more is greater than 20% of EGI, then reduce to 20% of EGI.

 

6 If net commercial income is greater than 10% of EGI, then reduce to 10% of EGI.  Additionally, total RV Site income from Items 7 and 9 (less 10% vacancy) cannot exceed 20% of EGI.

13

PLUS

Laundry and, vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

14

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

 

  • lease-up,
  • rehabilitation, or
  • other short-term positive or negative factors. 

Non-recurring, extraordinary operating expenses must not be included.

 

You must assess:

 

  • past operating history;
  • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (in the case of an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. ).

 

You must:

 

  • analyze historical operations 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
  • apply an appropriate increase over the prior year’s operations in determining an estimate.

15

MINUS

Property management fee equal to the greatest of:

 

  • 3% of 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. ;
  • actual property management fee, provided you
    • exclude any portion of a non-arm’s length property management fee that is subordinated 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. , and
    • include any known contractual fee increases occurring over the next 24 months; or
  • Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

16

MINUS

Real estate taxes based on the greatest of:

 

  • actual future tax bill(s) covering a full calendar year;
  • prior full year’s taxes multiplied by 103%; or
  • in California, the sum of:
    • any special assessments; plus
    • the millage rate multiplied by the greater 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. amount, or
      • assessed value.

 

You must, for:

 

  • BorrowerBorrowerPerson who is the obligor per the Note. -owned Manufactured HomesManufactured HomesFactory-built home complying with the Manufactured Home HUD Code. , include ad valorum taxes; 
  • any tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. expiring within 36 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , include fully assessed real estate taxes;
  • 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). whose sale would trigger an automatic reassessment, include any expected increase;
  • 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 annual or scheduled reassessment within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , include any expected increase; 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). :
    • use the most recently available assessed value (even if preliminary); and
    • do not use expected results from a protest, unless the protest is legally binding on the BorrowerBorrowerPerson who is the obligor per the Note. and taxing authority.

 

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:

 

  • be in effect at closing, per written documentation from the state or local tax assessor; and
  • survive a foreclosure 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. (i.e., it is tied 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 the owner).

 

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:

 

  • a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. );
  • an amortization schedule that accommodates the elimination of the abatement; or
  • providing clear justification and support in the refinance analysis.

17

MINUS

Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

18

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

19

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406: Replacement Reserve, with a minimum annual amount of $25 per MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. .

 

EQUALS

UNDERWRITTEN NCF
 
Section 607

Replacement Reserve

Requirements

If the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. determined by the Property Condition AssessmentProperty Condition AssessmentAssessment of the Property's physical condition and historical operation. is more than $75 per MH SiteMH SiteDeveloped lot within an MH Community on which a Manufactured Home can be located. , full funding of the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. is required per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406: Replacement Reserve.

Chapter 7

Multifamily Affordable Housing Properties
Section 701

Generally
701.01

Description

Requirements

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. is 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 is encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction (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…) that

  • limits rents that can be charged to tenants, or
  • imposes income limits on tenants.

An Affordable Preservation Transaction is any transaction involving 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. that:

  • currently has rent or income restrictions meeting the eligibility criteria of 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. , 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). is potentially at risk of being lost from the affordable housing inventory through conversion to market-rate housing;
  • is not receiving new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. ; and
  • is being acquired or refinanced, but excludes 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. paying off the initial construction loan.
701.02

Eligible Lenders

Requirements

You must be approved in writing to 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. MAHMAHProperty 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. 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. .

Section 702

MAH Property Eligibility
702.01

Eligible Characteristics and Underwriting

Requirements

You must ensure that 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. has rent or income restrictions that meet or exceed 1 of the following:

  • 20% @ 50%:  at least 20% of all units have rent or income restrictions in place making them affordable to households earning no more than 50% of AMI as adjusted for family size.
  • 40% @ 60%:  at least 40% of all units have rent or income restrictions in place making them affordable to households earning no more than 60% of AMI as adjusted for family size (except for New York City, where at least 25% of all units have rent or income restrictions in place, making them affordable to households earning no more than 60% of AMI as adjusted for family size).
  • HAP contract:  at least 20% of all units are subject to a project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract.
  • Special Public Purpose:  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 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… imposed by a government entity, containing other rent and/or income restrictions,
    • has rent or income restrictions that meet or exceed 20% @ 80%:  at least 20% of all units have rent or income restrictions in place making them affordable to households earning no more than 80% of AMI as adjusted for family size, and
    • meets a noteworthy special public purpose.
  • Sponsor-Initiated Affordability:  the BorrowerBorrowerPerson who is the obligor per the Note. may voluntarily self-impose rent and income restrictions to preserve or create multifamily affordable housing.  These restrictions must:
    • 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). to have
      • rent and income restrictions that meet or exceed 20% @ 80%:  at least 20% of all units have rent and income restrictions in place making them affordable to households earning no more than 80% of AMI as adjusted for family size, and
      • restricted unit rent limits not exceeding 30% of the adjusted AMI;
    • be placed on record 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). by executing the Sponsor-Initiated Affordability Agreement (Form 6490);
    • be in place 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). by the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • 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). to comply with the Sponsor-Initiated Affordability Agreement (Form 6490) within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • remain in place 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; and
    • be certified annually by the BorrowerBorrowerPerson who is the obligor per the Note. and monitored by an Administering AgentAdministering AgentThird-party compliance monitoring company. for compliance with the Sponsor-Initiated Affordability Agreement (Form 6490).

Guidance

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. may also:

  • be subject to FHAFHAFederal Housing Administration  Risk Sharing;
  • be financed using tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. ;
  • receive LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. under Section 42 of the Internal Revenue Code, and its related U.S. Treasury regulations;
  • be subject to inclusionary zoning (e.g., targeting certain income levels or employees of certain firms or institutions, etc.) or resale restrictions; or
  • receive other state, local or federal subsidies which are conditioned on the affordability of some or all of the units in 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 Rural Housing Service (RHS) Section 515 Loans, and Loans insured under Section 202 or Section 236 of the National Housing Act. 

Requirements

You must:

  • Reflect the impact of the rent or income restrictions in your underwriting.
  • Maintain a copy of the applicable 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… 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). restrictions in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

Operating Procedures

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 Sponsor-Initiated AffordabilitySponsor-Initiated AffordabilityVoluntary rent and income restrictions recorded against the Property by the Borrower to preserve or create multifamily affordable housing. , the BorrowerBorrowerPerson who is the obligor per the Note. must execute the:

  • Sponsor-Initiated Affordability Agreement (Form 6490); and
  • Modifications to Multifamily Loan and Security Agreement (Sponsor-Initiated Affordability Restrictions) (Form 6271).

To commit and 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. that qualifies as Special Public Purpose or Sponsor-Initiated AffordabilitySponsor-Initiated AffordabilityVoluntary rent and income restrictions recorded against the Property by the Borrower to preserve or create multifamily affordable housing. , refer to:

702.02

Ineligible Characteristics and Underwriting

Requirements

You must not underwrite or price 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). as 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. if it has:

  • less than 3 years of rent or income restrictions remaining on the 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… and is expected to transition to market rents 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. ; or
  • 3 or more years of LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. restrictions remaining, but the BorrowerBorrowerPerson who is the obligor per the Note. intends to enter into the Qualified Contract Process (per Section 42 of the Internal Revenue Code) within 3 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Operating Procedures

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). will have existing rent, income, and/or occupancy restrictions when 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 indicate the “MAH type” in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. under “Other Attributes”, even if you cannot 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). as 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. or Affordable Preservation Transaction per this Section 702.02: Ineligible Characteristics and Underwriting.

Section 703

Property Income and Underwriting
703.01

Underwritten NCF

Requirements

You must 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. .

REQUIRED UNDERWRITTEN NCF
(MULTIFAMILY AFFORDABLE PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

  

GROSS RENTAL INCOME – the least of:

 

  • rents permitted under any federal, state, or local subsidy program applicable 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). , as adjusted for AMI, family size, and number of bedrooms in a unit, and reductions for the applicable utility allowances1;
  • rents permitted under any restrictive covenants, subordinate financing requirements, or 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… recorded 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). ; or
  •  based on a current rent roll,
    • actual rents in place for occupied units, plus
    • for vacant units, the lowest of: 
      • actual rents in place for comparable occupied units;
      • market rents; and
      • permitted rents, described above (multiplied by 12).2

Rent from non-project based Housing Choice VouchersHousing Choice VouchersAny rental assistance payment or voucher to an eligible tenant under Section 8 of the United States Housing Act of 1938, 42 U.S.C. § 1437f, as amended. must not exceed the average rent for comparable units without non-project based Housing Choice VouchersHousing Choice VouchersAny rental assistance payment or voucher to an eligible tenant under Section 8 of the United States Housing Act of 1938, 42 U.S.C. § 1437f, as amended. .

 

You must include incremental HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract income per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 707.01: Properties with Both HAP Contracts and LIHTC Units.

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).
 

EQUALS

GROSS POTENTIAL RENT (GPR)1

3

MINUS

Physical vacancy – applicable actual rents for vacant units and MAHMAHProperty 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. unit type (e.g., 20% @ 50%, 40% @ 60%, or HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract) based on a current rent roll (multiplied by 12).3

4

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.3

5

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.3
 

EQUALS

NET RENTAL INCOME (NRI)2, 3, 4

1 For Properties with HAP contracts, you

 

  • may use newly approved rents if they are effective by the first day of the month after the Mortgage Loan Origination Date, even if the rents exceed trailing GPR, but
  • may not use rents based on
    • an agreement to enter into a HAP contract (AHAP),
    • commitment to enter into a Housing Assistance Payment contract (CHAP), or
    • a "comfort letter".

 

2 You may underwrite HAP contract rents up to:

 

  • 5% above market rents if the MAH Property is located in an Eligible MSA; or
  • 10% above market rents if the MAH Property is located in a Strong Market, provided the Property's
    • HAP contract expires after the Maturity Date, and
    • current and average 3-year physical occupancy is greater than or equal to 95%.

 

3 The total of Items 3, 4, and 5 must equal the greater of

 

  • the GPR including any permitted HAP contract rent increases multiplied by the percentage difference between
    • the trailing 3-month net rental collections (annualized), and
    • trailing GPR excluding any HAP contract rent increases not in effect before the Mortgage Loan Origination Date; and
  • either
    • 5% of GPR, including any permitted HAP contract rent increases, or
    • 3% of GPR, including any permitted HAP contract rent increases, if:
      • the Property is located in a Strong or Nationwide Market per Form 4660;
      • for a Property without a HAP contract, the actual rents for restricted units are at least 10% below comparable market rents; and
      • the economic vacancy (i.e., the total of Items 3, 4, and 5) is supported by current and 3 years of historical economic vacancy data.

4 You must assess the NRI, including any declines, and make adjustments per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

CALCULATION OF OTHER INCOME5

6

PLUS

Actual other income (except premiums and corporate premiums) generated through ongoing operations. The income must:

 

  • be stable;
  • be common in the market;
  • exclude one-time extraordinary non-recurring items; and
  • be supported by prior years.

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.

5 If premiums or corporate premiums are applicable for a particular MAH Property, inclusion of premium income is permitted consistent with Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

CALCULATION OF COMMERCIAL INCOME

7

PLUS

Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.
8 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.

9

MINUS

10% of the actual commercial space income.6

10

PLUS

Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.6

11

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
6 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.
 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

12

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

 

  • lease-up,
  • rehabilitation,
  • or other short-term positive or negative factors. 

Non-recurring, extraordinary operating expenses must not be included.

 

 

You must assess:

 

  • the past operating history;
  • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (for AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. ).

 

You must:

 

  • analyze historical operations 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). ;
  • apply an appropriate increase over the prior year’s operations in determining an estimate; and
  • include 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…-related expenses n their respective expense line items, including
    • cleaning,
    • furnishing, and
    • repairs.

13

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:

 

  • 4% of 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. 7;
  • actual property management fee, provided you
    • exclude any portion of a non-arm’s length property management fee that is subordinated 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. , and
    • include any known contractual fee increases occurring over the next 24 months; or
  • Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

7 Minimum management fee may be 3.5% of EGI (rather than 4% of EGI) if the:

 

  • underwritten management fee is at least $400 per unit;
  • actual management fee is equal to or less than the underwritten management fee (provided you exclude any portion of a non-arm's length property management fee that is subordinated to the Mortgage Loan); and
  • market management fees support the underwritten management fee for similarly sized MAH properties.

If the MAH Property is located in a Strong Market or Eligible MSA and the Mortgage Loan's original UPB is greater than $9 million, the minimum management fee may be the greatest of

 

  • 2.5%,
  • $500 per unit,
  • the actual management fee, or
  • market management fees for similarly sized MAH properties.

14

MINUS

Real estate taxes based on the greatest of:

 

  • actual future tax bill(s) covering a full calendar year;
  • prior full year’s taxes multiplied by 103%; or
  • in California, the sum of:
    • any special assessments; plus
    • the millage rate multiplied by the greater 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. amount, or
      • assessed value.

 

You must:

 

  • consider any automatic reassessment upon AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. in the next 12-month period; and
  • for any tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. expiring within 36 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , underwrite fully assessed real estate taxes.

14

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 MINUS

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:

 

  • be in effect at closing (or at conversion in the case of a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ), per written documentation from the state or local tax assessor;
  • survive a foreclosure 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. as long as the rent, income, or other restrictions are maintained (i.e., it is tied 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 the owner); and
  • if governed under the California Welfare Tax Exemption Program, meet the following:
    • if a refinance, the BorrowerBorrowerPerson who is the obligor per the Note. must be in and remain in compliance with the California Welfare Tax Exemption program; or
    • if an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. or a Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. where the 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… with ControlControlPossessing, 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). of the BorrowerBorrowerPerson who is the obligor per the Note. (which is typically a non-profit entity), or the non-profit entity itself, is changing you must:
      • escrow at least 6 months of full real estate taxes at closing which will be released after confirming that the California Welfare Tax Abatement is approved and in place 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). ;
      • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. has demonstrated experience with the California Welfare Tax Abatement Program; and
      • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. is and remains eligible for the California Welfare Tax Abatement Program.

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 MINUS

If governed under the Florida affordable housing property exemption (per Sections 196.1978(1) and (2) of the Florida Statutes),

 

  • for a refinance, the BorrowerBorrowerPerson who is the obligor per the Note. must initially be in compliance, and remain in compliance, with the Florida affordable housing property exemption; 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. or a Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. , you must:
    • confirm the BorrowerBorrowerPerson who is the obligor per the Note. applies to the county taxing authority within 60 days after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • escrow full taxes until you confirm the Florida affordable housing property exemption is approved and in place 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
    • after confirmation, refund the escrowed taxes to the BorrowerBorrowerPerson who is the obligor per the Note. .

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). benefits from real estate tax abatements, exemptions, deferrals, or a PILOTPILOTPayment In Lieu Of Taxes. that will not survive 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),…, then you may use a reduced real estate tax payment only if:

 

  • upon reapplying for the original underwritten tax abatement or an alternative tax abatement, Fannie Mae or a subsequent 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 would qualify for the tax abatement;
  • the rent or income restrictions 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 maintained; and
  • you have ensured that:
    • if a qualified non-profit entity is required to participate in the ownership structure of the 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. in order to qualify for the tax abatement, exemption, or deferral, a sufficient number of qualified non-profits currently operate in the market (at least 3 for an MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. with a population of less than 1 million and at least 5 for an MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. with a population of 1 million or greater), and in the event of a foreclosure, could serve in the replacement ownership structure to qualify for the tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. ; and
    • the original or alternative tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. has
      • been established in the state’s statutes,
      • been in effect for at least 10 years, and
      • the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. conducted all appropriate due diligence and confirmed that there is no material risk that the tax abatement, exemption, or deferral legislation will be repealed or revised in a manner that would affect 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). ability to continue to qualify for the tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. .

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 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:

 

  • a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. );
  • an amortization schedule that accommodates the elimination of the abatement; or
  • providing clear justification and support in the refinance analysis.

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 tax abatement, the Modifications to Multifamily Loan and Security Agreement (Tax Abatement or Exemption) (Form 6251) must be executed even if you do not underwrite the tax abatement.

15

MINUS

Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

16

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

17

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).
 

EQUALS

UNDERWRITTEN NCF
703.02

Underwriting
703.02A

Appraised Value and Underwriting Value

Requirements

In addition to 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. requirements in Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation, you must:

  • Include 2 separate opinions 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. based on:
    • Restricted ValueRestricted ValueAppraised Value assuming a Property's Affordable Regulatory Agreement is in effect.  from the 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…, using
      • comparable multifamily rental properties,
      • 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). submarket,
      • properties with similar rent or income restrictions, and
      • any tax abatements or exemptions.
    • Unrestricted ValueUnrestricted ValueAppraised Value assuming a Property's Affordable Regulatory Agreement is not in effect. 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 without the 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… (e.g., market rents, occupancy, and operating expenses), using
      • comparable multifamily market rate rental properties,
      • 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). submarket, and
      • full taxes if rental income restrictions are required by a tax abatement or exemption.
  • Ensure that each 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. is based on a market cap rate without any upward or downward adjustment for:
    • special financing (other than adjusted cap rates for Credit Enhancement Mortgage LoansCredit Enhancement Mortgage LoansMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. ); or
    • tax credit benefits.
  • Determine the appropriate 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. for 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. per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation.
703.02B

Market Study

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 subject to a HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract that will expire before 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must include a market study (which can be part of 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. ) that:

  • is prepared by a qualified real estate professional; and
  • identifies the absorption rate, lease-up period, and rent level for comparable market rate rental properties in the submarket.
703.02C

Affordable Regulatory Agreement Restrictions

Guidance

To underwrite 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. as 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. , the 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… restrictions should remain in effect for 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. .

Requirements

When the 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… restrictions have 3 or more years remaining but will expire before 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must provide support to underwrite to the MAHMAHProperty 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. PreservationPreservationRenewal or continuation of rent, income and/or occupancy restrictions on multifamily rental housing eligible as an MAH Property, but is potentially at risk of being lost from the affordable housing inventory through conversion to market-rate housing, and is not receiving new LIHTCs. standards in the Form 4660, taking into account factors such as:

  • restricted rents below market rate rents;
  • 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). history of operating as 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. ;
  • the Borrower’sBorrower’sPerson who is the obligor per the Note. history and experience owning and operating MAHMAHProperty 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. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
  • the Borrower’sBorrower’sPerson who is the obligor per the Note. intention to renew the 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…;
  • the amount of time between the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. and when the 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… restrictions expire;
  • market strength; and
  • 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). compares to comparable market rate properties in terms of occupancy, condition, and amenities if the BorrowerBorrowerPerson who is the obligor per the Note. intends to convert 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). to market rate rents and if no rent advantage exists.

See Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702.01: Eligible Characteristics and Underwriting regarding self-imposed restrictions.

703.02D

35-Year Amortization

Requirements

If you use a 35-year amortization term, 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 LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. with at least 8 years remaining in the initial 15-year compliance period; and
  • minimum MAHMAHProperty 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. 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 must equal the greater of
    • the remaining initial compliance period, and
    • 10 years.
703.02E

LIHTC Income Averaging

Guidance

When a SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). elects LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… 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 new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , you should consider:

  • Will LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… impact other non-LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. regulatory agreements?
  • Is LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… compatible with other funding and subsidy source requirements, including any project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract?
  • Has LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… been approved by the
    • state agency, and
    • LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor or syndicator?
  • Will the on-site 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 staff have sufficient experience?
  • Will the unit mix be impacted, including
    • unit parity,
    • multi-building election,
    • floating units, and
    • market rate units?
  • What is the rent advantage, especially for units above 60% of AMI?
  • For a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ,
    • is 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). not a resyndication of a property previously developed or preserved using LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. and subject to an existing extended use agreement, or
    • 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 resyndication, have you confirmed the property has completed its extended use period?
  • Does the market study include capture rates for each unit designation supporting LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the…?

Requirements

You must identify and mitigate any risks from electing LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the…. 

703.02F

Initial LIHTC Equity

Requirements

For any 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. with new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , you must ensure at least 20% of the aggregate LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity that the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor or syndicator must contribute into the limited partnership is received on or before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

703.02G

Developer Fees

Guidance

You should analyze the development budget, including the

  • developer fee due the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or any 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…, and
  • any deferred developer fee (i.e., the portion of the developer fee shown as a source in the sources and uses statement).

If the deferred developer fee is greater than 50% of the total developer fee, you should confirm there are sufficient

  • hard and soft contingency budgets, and
  • projected surplus cash flows to repay the deferred developer fee within the initial compliance period.
703.02H

Rent-Stabilized Units

Guidance

Refer to Part II, Chapter 2: Valuation and Income, Section 207: Rent-Stabilized Properties regarding rent-stabilized 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. units.

Section 704

Subordinate Financing
704.01

Interest Rate and Payments

Requirements

You must ensure any subordinate loan:

  • has a fixed rate; and
  • any non-Soft Financing has:
    • interest payable on a current basis; and
    • no deferrals or accruals.
704.02

Loan Term

Requirements

You must ensure any non-fully amortizing subordinate loan, including any Soft Financing, matures at least 180 days 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. and any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

Guidance

A fully amortizing subordinate loan may mature at any time regardless 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .  A subordinate loan may also be fully or partially forgiven at any time per its loan documents.

704.03

Collateral and Credit Support

Requirements

You must ensure 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. obtains the same credit support and collateral as any subordinate loan, including any

  • recourse to the BorrowerBorrowerPerson who is the obligor per the Note. or any guarantor, or
  • additional collateral.

You may secure the subordinate loan with a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. 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). if the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. :

704.04

Soft Financing

Requirements

Provision To be considered Soft Financing...
Financing Terms Subordinate loan terms must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704: Subordinate Financing.
Payments
  • Any subordinate loan payments due 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, including any fees, must be payable only from the surplus 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… remaining after all other payments (due and owing) are made 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. or any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .
  • No more than 75% of the surplus 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… must be available for payments on all Soft Financing unless the note is payable to the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key….
Events of Default

Failure to pay principal and/or interest due to lack of surplus 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… must not be an event of default.
Subordination Subordination must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.07: Subordination Agreement.

Guidance

Soft Financing may have:

  • a nominal interest rate (e.g., 1% or 2%);
  • interest that does not accrue;
  • principal payments that do not fully amortize the subordinate loan over its term; or
  • a loan term significantly longer 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, with the subordinate loan either
    • being forgiven over time or at its maturity date, or
    • due only upon the sale 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). .
704.05

Subordinate Lender

Requirements

If the Lender type is...

 Then...

Public / Quasi-Public / Not-for-Profit Lender

A subordinate loan provided by a public, quasi-public, or not-for-profit LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. may

 

  • be Soft Financing, or
  • require mandatory payments of P&IP&IPrincipal and interest , or interest-only.

Private Lender

You must ensure that any subordinate financing originated by a private, for-profit LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.04: Soft Financing.
704.06

Developer's Notes

Requirements

You must ensure any developer note or advance due the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.04: Soft Financing.

704.07

Subordination Agreement

Requirements

For all subordinate financing, including Soft Financing, you, the BorrowerBorrowerPerson who is the obligor per the Note. , and the subordinate LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. must enter into either:

  • Fannie Mae form Subordination Agreement (Affordable) (Form 6456), if the subordinate LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. is a government entity; or
  • Fannie Mae form Subordination Agreement (Conventional) (Form 6414), if the subordinate LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. is not a government entity.
704.08

Lien Priority and Title Insurance Policy

Requirements

You must ensure:

  • The subordinate loan, along with any LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. securing the subordinate loan, remains at all times, subordinate to the Security Instrument'sSecurity Instrument'sInstrument 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. , including any refinancing.
  • The Subordination Agreement is recorded in the land records immediately after the subordinate security instrument is recorded.
  • The lender's title insurance policy reflects the recordation of the Subordination Agreement.
704.09

Form of Subordinate Loan Documents

Requirements

You must confirm that the subordinate loan documents:

  • comply with this Chapter;
  • include the specific provisions required by the Subordination Agreement; and
  • do not require the BorrowerBorrowerPerson who is the obligor per the Note. to maximize rents 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). (even 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 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…).
704.10

Prepayment

Requirements

The BorrowerBorrowerPerson who is the obligor per the Note. may not prepay or redeem the subordinate loan without Fannie Mae’s consent.

704.11

LIHTC Equity Bridge Loans

Requirements

LIHTC Equity Bridge Loan Requirements
Lender Eligibility The LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity bridge lender must not be on ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. .
Repayment Must be completely repaid on or before the final LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity payment associated 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). placed-in-service date.
Amount Maximum of 80% of aggregate LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity contribution.
Funding Conditions No performance hurdles 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). performance benchmarks tied to bridge loan payments.
Note
  • Non-recourse to BorrowerBorrowerPerson who is the obligor per the Note. .
  • Fixed or variable rate.
Guaranty (Repayment or Completion) Must be subordinated to any GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. in favor of Fannie Mae.

 

Bridge Loan Collateral Types (multiple types allowed) Bridge Lender Affiliated with You or LIHTC Investor Bridge Lender Unaffiliated with You, LIHTC Investor, or Sponsor Bridge Lender Affiliated with Sponsor
Assignment of Rights to Capital Contribution from LIHTC Equity Investor Acceptable Acceptable Unacceptable
Assignment of Development Fee Acceptable Acceptable Acceptable
Subordinate Security Instrument

Unacceptable

 Unacceptable Unacceptable
Assignment of General or Limited Partnership Interests Acceptable if Bridge Lender has LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. experience Acceptable if Bridge Lender has LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. experience
  • Acceptable for general partnership Interests
  • Unacceptable for limited partnership Interests
Subordination Agreement Conventional Form Conventional Form Affordable Form
Section 705

Restrictive Covenants and Affordable Regulatory Agreements

Requirements

For MAHMAHProperty 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. 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 non-MAHMAHProperty 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. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , the 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…, except for a HUD Use AgreementHUD Use AgreementContract between HUD and the Borrower identifying Property use restrictions and default remedies for HUD programs such as Housing Assistance Payments and Rental Assistance Demonstration. , must be 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. if the agreement:

  • grants rights, remedies, or powers similar to that of a secured creditor to any aggrieved party;
  • impairs the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. rights or priority of 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. ;
  • contains any BorrowerBorrowerPerson who is the obligor per the Note. obligations other than the affordability restrictions; 
  • contains any rights or remedies to enforce the affordability restrictions other than specific performance or injunctive relief; or
  • does not terminate upon 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. foreclosure.

To subordinate the 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… 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.

  • use an approved Subordination Agreement, or
  • for 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… with a subordinate loan, use Subordination Agreement (Affordable) (Form 6456).

Guidance

The rights, remedies, and powers of a secured creditor would typically include:

  • the ability to appoint a receiver;
  • the right to collect rents directly from the mortgaged property;
  • the right to take possession of the mortgaged property;
  • limitations on transferring title to you or to a subsequent transferee by foreclosure or deed in lieu;
  • no requirement to give you notice of violations of or amendments to the 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…; and
  • the ability to remove or replace 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 without your prior consent.
Section 706

ROAR Loan
706.01

Generally

Requirements

You must ensure any ROAR LoanROAR LoanReduced Occupancy Affordable Rehabilitation Loan :

  • is 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. or Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. using a Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. ;
  • has a fixed rate;
  • has a minimum 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 of $5 million; and
  • is secured by 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. that:
    • currently has 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. , but will likely experience tenant displacement significant enough to lower the 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…, calculated using the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. , below the required 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. set forth in Form 4660; and
    • will undergo repairs, replacements, or improvements costing $10,000 per unit or more (based on the total number of residential units 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). ), or qualifies as a Moderate Rehabilitation PropertyModerate Rehabilitation PropertyProperty that will undergo at least $8,000 per unit of Rehabilitation Work. .
706.02

Timing

Requirements

Within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.

  • the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. must be completed, and
  • Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. must be achieved.
706.03

General Underwriting

Guidance

In addition to complying with Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans, you should also review and evaluate:

  • the reasonableness of the estimated cost of the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. and the completion schedule;
  • whether the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. can be completed and the Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. achieved within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
  • the Borrower’sBorrower’sPerson who is the obligor per the Note. experience in developing or rehabilitating properties similar to the ROAR Property;
  • the tenant relocation plan, including budget and schedule;
  • the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. budget, including monthly sources and uses during the rehabilitation period;
  • any construction risks;
  • the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investors’ financial strength, experience, and reputation; and
  • the projected rent levels relative to market rents.
706.04

Additional Underwriting and Loan Documents

Requirements

You must underwrite the ROAR LoanROAR LoanReduced Occupancy Affordable Rehabilitation Loan per the following table.

Topic Description

Underwritten NCF

GPRGPROn an annual basis or any specified period, the total actual and potential rent for a Property per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.01: Underwritten NCF; 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. can be based on the Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. and normalized operating expenses achievable within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Appraisal

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. must include 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 both an “as is” and an “as completed” basis that incorporates the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. to be completed after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Occupancy During ROAR Work

Physical Occupancy:  minimum of 50%; and

Economic Occupancy:  minimum of 50%.

Minimum DSCR During ROAR Work

Using the ROAR Stressed NCFROAR Stressed NCFMinimum Underwritten NCF projected to occur during the ROAR Work period at a ROAR Property. , actual fixed interest rate, and maximum loan amount based on the “as completed” value

 

  • 0.75 on an amortizing basis, or
  • 1.00 on an interest-only basis, if applicable.

Rehabilitation Reserve Agreement

Required.

Key Principal Guaranties

The 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. must execute a

 

  • Completion Guaranty (Form 6018), and
  • an operating deficit guaranty.

Letter of Credit

Any Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. must:

 

  • comply with Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit; and
  • equal at least 125% of the difference between the maximum 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 based on
    • the “as completed” value, and
    • the “as is” value.

Additional Credit Support

May be required.

Underwriting Fee

You must:

 

  • charge the BorrowerBorrowerPerson who is the obligor per the Note. an underwriting fee equal 3 basis points 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. amount; and
  • pay that amount to Fannie Mae.
Section 707

HAP Contract Properties
707.01

Properties with Both HAP Contracts and LIHTC Units

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. secured by 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. or a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , 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 both HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts and LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. units, you must underwrite 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. using 1 of the following options.

Choice

Requirements

Option 1

Underwrite the rents from HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract units using the lowest of

 

  • market rents,
  • HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract rents, and
  • applicable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents.

Applicable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents are the lower of

 

  • maximum allowable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents minus utility allowances, and
  • actual rents in place for occupied units subject to a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. 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….

Option 2

Underwrite the rents from HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract units using the additional income above the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents (LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. overage) if:

 

  • at least 20% 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 are subject to a project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract;
  • the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract rents are less than or equal to market rents;
  • the weighted average LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. unit rents are least 10% below market;
  • the 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. is located in a market or submarket with 90% or greater economic occupancy, both for market rate and MAHMAHProperty 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. 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
  • the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has experience and success owning and operating properties with HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts.

If the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract expires before 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must ensure 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 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… is greater than or equal to

 

  • 1.05 based on the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents, and
  • 1.10 based on the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents after the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract expires.
707.02

Restabilization Reserve

Requirements

For all TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 and TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 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 must establish a Restabilization Reserve 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. that has a HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract if the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract term (excluding any annual or incremental government appropriation conditions) expires before 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

The Restabilization Reserve must:

  • equal the monthly 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. P&IP&IPrincipal and interest , multiplied by the greater of
  • remain in place until
    • 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). achieves underwritten occupancy for 90 days at market rate rents, or
    • the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract is renewed with an expiration date 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. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

You may eliminate the Restabilization Reserve if the:

  • weighted average LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. unit rents are at least 10% below market;
  • 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. is located in a market or submarket with 90% or greater economic occupancy, both for market rate and MAHMAHProperty 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. 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
  • SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has experience and success owning and operating properties with HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts.
707.03

HAP Contract Review Sheet

Requirements

Before 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:

  • complete the Section 8 Housing Assistance Payments (HAP) Contract Review Sheet and Certification (Form 6422); and
  • confirm that all conditions for approval are met.
Section 708

Refinancing Section 236 Properties – IRP is Maintained

Requirements

For Fannie Mae to consider the cash flow from an IRPIRPInterest Reduction Payment , the BorrowerBorrowerPerson who is the obligor per the Note. must decouple the IRPIRPInterest Reduction Payment from the existing Section 236 note and mortgage by

  • prepaying the Section 236 Loan, and
  • having the IRPIRPInterest Reduction Payment transferred to a 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. (which will be then considered a Section 236 Loan for purposes of continuing the IRPIRPInterest Reduction Payment ).
708.01

No Additional Proceeds

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is not seeking additional proceeds based on the IRPIRPInterest Reduction Payment , you must exclude the amount of the IRPIRPInterest Reduction Payment from the 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.  and 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….

708.02

Additional Proceeds from Mortgage Loan

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is seeking additional proceeds from 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. based on the IRPIRPInterest Reduction Payment , then you must ensure that:

  • 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 equal monthly payments of P&IP&IPrincipal and interest .
  • The portion 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. sized 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. meets Fannie Mae's 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.  and 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… requirements without considering the IRPIRPInterest Reduction Payment cash flow.
  • The portion 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. sized based on the IRPIRPInterest Reduction Payment cash flow has an 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… of at least 1.00.
  • The financing structure reflects the remaining term of the IRPIRPInterest Reduction Payment through a bifurcated note or amortization structure.

In a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. transaction, if the IRPIRPInterest Reduction Payment is decoupled from the original Section 236 Loan, you do not need to ensure principal amortization during the construction phase.

708.03

Additional Proceeds from Other Sources

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is seeking additional proceeds from sources other 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. based on the IRPIRPInterest Reduction Payment , you must:

  • factor the debt into 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). overall 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.  ; and
  • comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704: Subordinate Financing.
Section 709

LIHTC Properties – Lender Equity Interest

Requirements

Fannie Mae will only purchase 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 LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. 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 which you are an equity investor (directly or indirectly) in the BorrowerBorrowerPerson who is the obligor per the Note. if the following conditions are met:

  • Your equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. is solely for obtaining the LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. in 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 you have no
    • management authority 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). , or
    • equity interest (other than the LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. ) in
      • the BorrowerBorrowerPerson who is the obligor per the Note. ,
      • 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 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). holding 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 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. ,
      • any 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,…, or
      • any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .
  • You and the equity syndicator are organized to ensure independent analysis and decision making occurs in the
    • underwriting and approval of the debt,
    • equity investments, and
    • servicing 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. .
  • Your underwriting submission includes:
    • a description of the relationship among the
      • LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. ,
      • BorrowerBorrowerPerson who is the obligor per the Note. , and
      • applicable Lender AffiliateLender AffiliateOther Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. ; and
    • an organizational chart or diagram showing:
      • the complete BorrowerBorrowerPerson who is the obligor per the Note. ownership structure, including any LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. or Lender AffiliateLender AffiliateOther Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. equity interest; and
      • each entity's ownership interest.
Section 710

Transactions with Fannie Mae Debt and Equity Interests
710.01

Transactions Funded with Tax-Exempt Bond Proceeds

Requirements

If 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. will be funded with tax-exempt bond proceeds 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). securing 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. qualifies for LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , you must confirm:

  • If Fannie Mae owns or plans to acquire a direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. , it does not own or intend to acquire an interest in the tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .
  • If Fannie Mae owns or plans to acquire an interest in the tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , it does not own or intend to acquire a direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. .
710.02

Fannie Mae Credit-Enhanced Tax-Exempt Bond Issuance

Requirements

You must confirm that if Fannie Mae credit enhances tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. issued to fund 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. , it does not also own or intend to acquire a direct equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. .

If Fannie Mae owns or intends to acquire an indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. through a fund, you must confirm:

  • Fannie Mae’s indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. is less than 50%;
  • in the case of a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. transaction:
    • the IRS documentation filed in connection with the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. issuance shows that none of the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. proceeds were applied to pay any portion of Fannie Mae’s credit enhancement fee;
    • the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. issuer and the BorrowerBorrowerPerson who is the obligor per the Note. have either
      • entered into a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. agreement that acknowledges Fannie Mae’s equity interest, or
      • consented in writing to Fannie Mae’s equity interest; and
    • any required notices to the BorrowerBorrowerPerson who is the obligor per the Note. and the issuer under a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. agreement have been provided; and
  • in the case of a non-LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. transaction, the issuer and the BorrowerBorrowerPerson who is the obligor per the Note. have consented in writing to Fannie Mae’s equity interest.
Section 711

FHA Risk Sharing
711.01

Description

Guidance

Fannie Mae and the HUDHUDU.S. Department of Housing and Urban Development  have a risk sharing agreement to share risk on 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. for certain MAHMAHProperty 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. transactions.  HUD’sHUD’sU.S. Department of Housing and Urban Development risk sharing is in the form of mortgage insurance from FHAFHAFederal Housing Administration .  HUDHUDU.S. Department of Housing and Urban Development takes 50% of the risk of loss, and the remaining 50% of the loss is shared by you and Fannie Mae.

711.02

Eligibility
711.02A

Borrowers, Key Principals, Guarantors, and Principals

Requirements

You must ensure that the BorrowerBorrowerPerson who is the obligor per the Note. (and each 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. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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,…) is not on the most current “List of Parties Excluded from Federal Procurement or Nonprocurement Programs”.

711.02B

Generally

Requirements

You must ensure:

  • All FHA Risk SharingFHA Risk SharingMAH Mortgage Loan with mortgage insurance from FHA. 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. are fixed rate with no interest-only period.  
  • The minimum 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 is 15 years.
  • 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 affordability restriction where
    • at least 20% of the units are rent-restricted and occupied by families with incomes no more than 50% of AMI as adjusted for family size, or
    • at least 40% (25% in New York City) of the units are rent-restricted and occupied by families with incomes no more than 60% of AMI as adjusted for family size.
  • The residential unit's gross rent is restricted to no more than 30% of the unit's Imputed Income Limitation per Section 42 of the Internal Revenue Code.
  • Rent, income, and/or occupancy restrictions are in effect for at least 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. .  For MAHMAHProperty 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. 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 remaining affordability restrictions of less than 18 years, the affordability restrictions will be considered senior to the 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. when enforcing restrictions.

Guidance

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 located in:

  • a 500-year floodplain and likely occupied by tenants who may not be sufficiently mobile to avoid injury or death during floods or storms;
  • a Federal Emergency Management Agency-mapped Special Flood Hazard AreaSpecial Flood Hazard AreaSpecial Flood Hazard Area designated by FEMA. 100-year floodplain (except where no buildings or 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). other than minor grubbing) will be in the floodplain and the floodplain area will be permanently dedicated to non-development;
  • the Coastal Barrier Resources System per the Coastal Barrier Resources Act, 16.U.S.C.3501; and
  • a Runway Clear Zone (at a civil airport) or Clear Zone (at a military airfield) 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 newly constructed or substantially rehabilitated.
711.02C

Cash Out

Guidance

There is no limit on the amount of cash out in an FHA Risk SharingFHA Risk SharingMAH Mortgage Loan with mortgage insurance from FHA. transaction.

711.03

Mortgage Insurance Premium

Requirements

Your pricing for an FHA Risk SharingFHA Risk SharingMAH Mortgage Loan with mortgage insurance from FHA. 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 include a sufficient amount to pay the mortgage insurance premium due to FHAFHAFederal Housing Administration .

Guidance

Fannie Mae will make this FHAFHAFederal Housing Administration premium payment on or before its due date.

711.04

Subsidy Layering Review

Requirements

You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. obtains a subsidy layering review when required by federal laws.  FHA Risk Sharing Mortgage Loans are a source of federal government assistance. 

Operating Procedures

After the subsidy layering review is complete, the applicable reviewing office will issue a certification to the BorrowerBorrowerPerson who is the obligor per the Note. stating the total amount of governmental assistance is not more than is necessary to provide affordable housing after taking into account other government assistance.  You must receive the certification 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. , or
  • obtaining a CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. for a tax-exempt 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. transaction.
711.05

Lender FHA Risk Sharing Reserve and Loss Sharing Modifications

Operating Procedures

If 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. was approved for FHA Risk SharingFHA Risk SharingMAH Mortgage Loan with mortgage insurance from FHA. , you must indicate an "FHA risk sharing" Mortgage Loan Type on the Mortgage Loan Certificate (Form 6505).

Chapter 8

Cooperative Properties
Section 801

Description

Requirements

A Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. is a multifamily residential property 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. .

Section 802

Eligible Mortgage Loans

Requirements

Fannie Mae will only purchase a CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. 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 each shareholder or other equity owner in the 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. is granted the right to occupy a unit in 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). under a proprietary lease or other occupancy agreement.

You must:

  • Examine the organizational documents of the 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. .
  • Ensure that the terms of these documents allow you to originate a Loan secured by 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 compliance with the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
  • Review the composition and experience of the 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. ’s Board of Directors or managers.
802.01

Basic Conditions

Requirements

You must ensure all the following:

  • 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 a fixed rate.
  • Any commercial lease is determined to be a 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… based on 5% or more of total gross income calculated on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. .
  • 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 Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. Eligible Market per Form 4660.
  • 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 Property Condition RatingProperty Condition RatingAn assessment of the Property’s overall condition per the MBA Standard Inspection Form, expressed on a scale from 1 (the best Property Condition Rating) to 5 (lowest Property Condition Rating). of 2 or better, per the MBAMBAMortgage Bankers Association Standard Inspection Form.
802.02

Financial Conditions

Requirements

You must ensure all of the following:

  • You have reviewed at least 3 years 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). financial operations.
  • 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). financial operations achieved at least a 0.90 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. on an Actual Cooperative Property BasisActual Cooperative Property BasisFinancial analysis or valuation of a Cooperative Property conducted based on its actual operating performance. for 2 of the previous 3 years.
  • The Board of Directors or managers of the 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. approve any increase in the Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. prior to closing; and any scheduled annual increase cannot exceed 10%.
  • A Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. may not own interests to occupy or lease more than 40% of the units in the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. , unless the following criteria are met:
    • You deem the financial strength, experience, qualifications, and credit history of the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization.  acceptable, per the applicable provisions for Key PrincipalsKey PrincipalsPerson 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. in Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals or Part III, Chapter 9: Small Mortgage Loans.
    • The 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. consistently demonstrates sound financial operations and market acceptability.
    • There is no ongoing litigation between the 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. and the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. .
    • The aggregate annual rental income from the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. -owned units is greater than the aggregate annual 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. on those units.
802.03

Property Management Conditions

Requirements

You must ensure all of the following:

  • Except for Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , 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 be managed by a property management company that currently manages:
    • at least 3 other 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). in the same market as 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). ;
    • a minimum of 350 Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. units in the aggregate; and
    • another Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size 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). .
  • For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , 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 more than 25 units must be managed by a property management company with at least 3 years of experience managing a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size.

Guidance

The BorrowerBorrowerPerson who is the obligor per the Note. may manage 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). securing a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. with 25 units or less.

802.04

Other Considerations

Guidance

A CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. 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. does not have to comply with the following:

Section 803

Underwriting
803.01

Financial Operation

Requirements

As part of your underwriting analysis, you must:

  • Examine the year-to-date operational budget.
  • Collect, review, and analyze audited financial/operating statements for the last 3 years of operations.
  • Ensure that the average Cooperative Maintenance Fee Accounts ReceivableCooperative Maintenance Fee Accounts ReceivableCooperative Maintenance Fees due the Cooperative Organization that are more than 30 days past due. for the last 3 years is less than 3% of the annual 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. .
  • Ensure that the Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. at closing is at least 10% of the annual 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. .
803.02

Property Valuation

Requirements

You must obtain 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.  per Part II, Chapter 2: Valuation and Income that provides a value of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. for determining the LTV RatioLTV RatioRatio 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.  per Form 4660.

Guidance

You may obtain 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. per Part II, Chapter 2: Valuation and Income that provides a value of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Gross Sellout ValueCooperative Gross Sellout ValueValue based upon the sum of the gross sales prices of all units (subject to discounts on rent restricted units) plus the aggregate UPB of all existing Mortgage Loans (prior to any proposed refinancing) secured by a Lien on the Cooperative Property. basis.

803.03

Subordinate Debt

Requirements

You must ensure that any existing debt secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization.  complies with Part III, Chapter 14: Supplemental Mortgage Loans, Section 1402: Supplemental Mortgage Loans.  You must also calculate the

Section 804

Income Analysis
804.01

Cooperative Market Rental Basis NCF (Underwritten NCF)

Requirements

You must review the projected operations of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. (as reflected in 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. ).

You must ensure the Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. 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… includes the minimum economic vacancy and Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per the applicable 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. calculation in Part II, Chapter 2: Valuation and Income or Part III, Chapter 9: Small Mortgage Loans.

804.02

Cooperative Market Rental Basis DSCR (Underwritten DSCR)

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.

UNDERWRITTEN DSCR
(COOPERATIVE PROPERTIES – COOPERATIVE MARKET RENTAL BASIS)

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. as calculated on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. .

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 actual note rate, or
  • the required Underwriting Interest Rate Floor per Form 4660.

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 subordinate debt, the debt service must include P&IP&IPrincipal and interest to cover the maximum principal amount of the outstanding subordinate debt.
804.03

Actual Cooperative Property NCF

Requirements

You must use the following table to calculate Actual Cooperative Property NCF.

REQUIRED ACTUAL COOPERATIVE PROPERTY NET CASH FLOW

Item

Function

Description

CALCULATION OF NET RENTAL INCOME

1

 

GROSS RENTAL INCOME – current scheduled monthly 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 all units (multiplied by 12).

2

PLUS

Income from 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. -owned units equal to the lesser of

 

  • actual rents in place for occupied units, plus market rents for vacant units, or
  • an equivalent Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. based on similar units in 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). (multiplied by 12).

3

PLUS

Proposed increase in annual Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. income.

 

EQUALS

GROSS POTENTIAL RENT (GPR)

4

MINUS

Vacancy – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .

 

EQUALS

NET RENTAL INCOME (NRI)

CALCULATION OF OTHER INCOME

5

PLUS

Actual other income (including any flip fees, sales fees, or any special assessments collected for operational expenses) as described in the applicable 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. calculation detailed in Part II, Chapter 2: Valuation and Income, or Part III, Chapter 9: Small Mortgage Loans.

CALCULATION OF COMMERCIAL INCOME

6

PLUS

Actual income from occupied commercial space (and parking revenue for commercial spaces, if applicable).

7

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.

8

MINUS

Commercial income economic vacancy – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .  A 10% vacancy rate must be applied to 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… income.1

1 If net commercial income is greater than 20% of EGI on a Cooperative Market Rental Basis, then reduce to 20% of EGI on a Cooperative Market Rental Basis.
  EQUALS EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

9

MINUS

Line-by-line stabilized operating expenses, including management fee and insurance.  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 short-term positive or negative factors.  Non-recurring, extraordinary expenses must not be included.

 

You must assess:

 

  • past operating history;
  • market expenses;
  • actual service contracts in place; 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). budget.

All expenses associated with 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… should be underwritten in their respective expense line items.

10

MINUS

Real estate taxes based on the greatest of:

 

  • actual future tax bill(s) covering a full calendar year;
  • prior full year’s taxes multiplied by 103%; or
  • in California, the greater of the assessed value 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. amount, multiplied by the millage rate, plus any special assessments.

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, or deferrals, they must:

 

  • be in effect at closing, per written documentation from the state or local tax assessor; and
  • survive a foreclosure 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, or deferral benefit (e.g., it is tied to the operation 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 not the identity or structure of the owner).

If the timeframe for the real estate tax abatement, exemption, or deferral 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, you must consider

 

  • a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ),
  • an amortization schedule that accommodates the elimination of the abatement, or
  • providing clear justification and support in the refinance analysis.

11

MINUS

All other expenses as described in 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. calculation detailed in the applicable Part II, Chapter 2: Valuation and Income, or Part III, Chapter 9: Small Mortgage Loans, except for property insurance and management fees.

 

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…:

 

  • any taxes or fees imposed by the local jurisdiction; and
  • if applicable, the difference in 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 and the Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for similar units in 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). with a term of more than 30 days.

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 the comparable Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for that unit is $900, then deduct $1,200 ($1,000 - $900 = $100 X 12 months) as an other expense.

 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

12

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .

 

EQUALS

ACTUAL COOPERATIVE PROPERTY NET CASH FLOW (ACTUAL COOPERATIVE NCF)
804.04

Actual Cooperative Property DSCR

Requirements

You must calculate the Actual Cooperative Property DSCR per the following table.

ACTUAL COOPERATIVE PROPERTY DSCR

Item

Function

Description

1

 

Actual Cooperative NCF per Part III, Chapter 8: Cooperative Properties, Section 804.03: Actual Cooperative Property 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 at the actual note rate, including amortization.

 

Use interest-only payments only for a full-term interest-only 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 subordinate debt, the debt service must include P&IP&IPrincipal and interest to cover the actual UPBUPBUnpaid Principal Balance  of the outstanding subordinate debt.  Use interest-only payments only for full-term interest-only subordinate debt.
Section 805

Limited Equity Cooperative Properties

Requirements

In addition to the rest of this Chapter, you must ensure that Limited Equity Cooperative PropertiesLimited Equity Cooperative PropertiesCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. meet the following:

  • 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. :  You must ensure that:
    • monthly 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. are not more than 90% of comparable unit market rents; and
    • if there are restrictions from the HUDHUDU.S. Department of Housing and Urban Development or others, then both HUDHUDU.S. Department of Housing and Urban Development and the Limited Equity Cooperative PropertyLimited Equity Cooperative PropertyCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. ’s Board of Directors or managers must approve all Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. increases before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
  • Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. :  You must require a reserve equal to at least 6 months of P&IP&IPrincipal and interest  payments 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. .
  • HUDHUDU.S. Department of Housing and Urban Development IRPIRPInterest Reduction Payment Loan:  You must require an IRPIRPInterest Reduction Payment reserve equal to 2 months of IRPIRPInterest Reduction Payment payments for the life of the IRPIRPInterest Reduction Payment Loan.  The funds in the IRPIRPInterest Reduction Payment reserve may only be used to compensate for late IRPIRPInterest Reduction Payment payments.
  • Actual Cooperative Property NCF:  You must calculate Actual Cooperative Property NCF perPart III, Chapter 8: Cooperative Properties, Section 804.03: Actual Cooperative Property NCF, but the following exceptions apply:
    • Economic vacancy:  Use the greater of
      • 5%, or
      • the highest level experienced by 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 last 3 years.
    • Actual operating expenses:  Equal to 103% of the previous year's operating expenses.
    • Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. :  Use the greater of
      • the scheduled Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. per unit as determined by a PCAPCAAssessment of the Property's physical condition and historical operation. , or
      • $250 per unit per year.
  • Unit Turnover:  Total unit turnover must not be greater than 20%.
  • Escrows:  You must require monthly deposits for real estate taxes, insurance, and the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .
  • Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. :  There must be no SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). -owned units.
  • 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 experience:  The property management company must have Limited Equity Cooperative PropertyLimited Equity Cooperative PropertyCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. management experience.  If HUDHUDU.S. Department of Housing and Urban Development restrictions are in-place, the firm must also have a history of successfully complying with HUDHUDU.S. Department of Housing and Urban Development restrictions and reporting requirements.

Guidance

You should consider the following:

  • Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. :  You may include a similar reserve held by another independent lender if the funds are released to you.
  • Actual Cooperative Property NCF:  3% trending is not required for trailing 12-month or year-to-date annualized operating expenses.
  • Unit Turnover:  Unit turnover occurs when a shareholder or tenant chooses to vacate a unit or terminate a lease during the past 3 years.
Chapter 9

Small Mortgage Loans
Section 901

Generally
901.01

Description

Requirements

A Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. is 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 original loan amount of less than or equal to $9 million.

Guidance

A Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. may be underwritten per:

  • Part I and this Chapter; or
  • Part I and Part II, as for a conventional 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. .
901.02

Applicability

Requirements

You may use this Chapter to underwrite conventional 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. and the following products:

  • MH CommunitiesMH CommunitiesResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. ;
  • MAHMAHProperty 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. 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
  • market rate 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). that are not Limited Equity Cooperative PropertiesLimited Equity Cooperative PropertiesCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. .
Section 902

Key Principal Guaranty Obligation

Requirements

You must obtain a Non-Recourse GuarantyNon-Recourse GuarantyGuaranty executed by a Key Principal on Form 4501 series or Form 6015 series, or approved by Fannie Mae.  (Form 6015) from each 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. .

Section 903

Occupancy

Requirements

Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. must achieve 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. as follows:

If the Property contains...

Then it must have...

10 or more units

at least 90% physical occupancy by Qualified OccupantsQualified OccupantsParty occupying a dwelling unit in a Property in full compliance with a lease. for the 90 days immediately before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .

Less than 10 units
  • no more than 1 vacant unit as of the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , and
  • an average occupancy by Qualified OccupantsQualified OccupantsParty occupying a dwelling unit in a Property in full compliance with a lease. of at least 90% for the 12-month period immediately 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 a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. is secured by an MH CommunityMH CommunityResidential real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. , then 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. must comply with Part II, Chapter 1: Attributes and Characteristics, Section 105: Minimum Occupancy.

Section 904

Corporate Leases; Leases to One Entity

Guidance

Entity leases are permitted; but you should analyze the effect of leasing

  • more than 10% of the total residential units in 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). to corporations, partnerships, trusts, and other entities, or
  • more than 5% of the total residential units to any single corporation, partnership, trust, or other entity.

Entity leases of residential units for residential purposes are considered residential space.

Section 905

Property Income Analysis
905.01

Small Mortgage Loan Underwritten NCF (Underwritten NCF)

Requirements

You must 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. as follows:

REQUIRED UNDERWRITTEN NET CASH FLOW
(SMALL MORTGAGE LOANS)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

  

GROSS RENTAL INCOME – the lesser of

 

  • actual rents in place, or
  • market rents for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12).1

2

PLUS

To the extent deducted as an operating expense, rents for other non-revenue units.  For example:

 

  • model units deducted in the “model apartment” operating expense in the “general and administrative” category;
  • owner-occupied units2  deducted in the “general and administrative” category; and
  • employee units3 deducted in the “employee” operating expense in the “payroll and benefits” category.
 

EQUALS

GROSS POTENTIAL RENT (GPR)

3

MINUS

Premiums and corporate premiums.

4

MINUS

Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).4

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.4

6

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.4
 

EQUALS

NET RENTAL INCOME (NRI)

1 (a) In the New York-Northern New Jersey-Long Island, NY-NJ-PA MSA, you may use actual rents in place plus projected increases for rent-regulated units that have rent increases scheduled before, or through, the first 12 months of the loan term.  Any units subject to rent regulation on the Commitment Date must be treated as rent-regulated for this calculation even if converting to market rate after origination.

 

(b) For Properties located in New York City that are currently subject to the J51 Tax Incentive Program, you must ensure that the Gross Rental Income is calculated per Item 1 in Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.

 

2 You must deduct owner-occupied units as an expense unless

 

  • the Mortgage Loan is Tier 3 or Tier 4, or
  • the Property contains 24 or more units.

 

    3 You must deduct as an expense the portion of the market rent used as employee compensation.

     

    4 The total of Items 4, 5, and 6 must be greater than or equal to

     

    • 3% of GPR for the New York-Northern New Jersey-Long Island, NY-NJ-PA and San Francisco-Oakland-Fremont, CA, Metropolitan Statistical Areas (MSAs), if supported by market and property operations, or
    • 5% of GPR for all other MSAs.

    CALCULATION OF OTHER INCOME

    7

    PLUS

    Actual other income (except premiums and corporate premiums) generated through ongoing operations.  The income must:

     

    • be stable;
    • be common in the market;
    • exclude one-time extraordinary, non-recurring items; and
    • be supported by prior years.

    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 month's (annualized).

    CALCULATION OF COMMERCIAL INCOME

    8

    PLUS

    Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases.

    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).5

    11

    PLUS

    Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.5

    12

    PLUS

    Laundry and vending, and all other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
    5 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.
     

    EQUALS

    EFFECTIVE GROSS INCOME (EGI)

    CALCULATION OF OPERATING EXPENSES

    13

    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

     

    • lease-up,
    • rehabilitation, or
    • other short-term positive or negative factors. 

     

    Non-recurring, extraordinary operating expenses must not be included.

     

     

    You must assess:

     

    • past operating history;
    • the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. expense analysis;
    • all information available to you (including PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
    • the Borrower'sBorrower'sPerson who is the obligor per the Note. budget (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 must:

     

    • analyze historical operations 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). ;
    • apply an appropriate increase over the prior year’s operations in determining an estimate; and
    • include 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…-related expenses in their respective expense line items, including
      • cleaning,
      • furnishing, and
      • repairs.

     

    You cannot include any operating expense that reflects blanket or bulk discounts that benefit 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. (e.g., blanket property or casualty insurance policies, or utilities purchased in bulk).  Operating expenses must reflect 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). expenses on a stand-alone basis.

    14

    MINUS

    Property management fee equal to the greatest of:

     

    • 3% of 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. ;
    • actual property management fee, provided you
      • exclude any portion of a property management fee that is subordinated 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. , and
      • include any known contractual fee increases occurring over the next 24 months; or
    • Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. concluded market property management fee.

    15

    MINUS

    Real estate taxes per Item 17(b) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

     

    16

    MINUS

    Insurance per Item 17(c) in Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).

    17

    MINUS

    Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses as detailed in Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
     

    EQUALS

    UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

    18

    MINUS

    Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense equal to the greatest of

     

    • $200 per unit, if the Property Condition RatingProperty Condition RatingAn assessment of the Property’s overall condition per the MBA Standard Inspection Form, expressed on a scale from 1 (the best Property Condition Rating) to 5 (lowest Property Condition Rating). is 1,
    • $250 per unit, if the Property Condition RatingProperty Condition RatingAn assessment of the Property’s overall condition per the MBA Standard Inspection Form, expressed on a scale from 1 (the best Property Condition Rating) to 5 (lowest Property Condition Rating). is 2,  
    • $300 per unit, if the Property Condition RatingProperty Condition RatingAn assessment of the Property’s overall condition per the MBA Standard Inspection Form, expressed on a scale from 1 (the best Property Condition Rating) to 5 (lowest Property Condition Rating). is 3, or
    • the amount required per Part II, Chapter 4: Lease Audits, Inspections, and Reserves.
     

    EQUALS

    UNDERWRITTEN NET CASH FLOW (UNDERWRITTEN NCF)
    905.02

    Underwritten DSCR

    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.

    UNDERWRITTEN DSCR1,2
    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. as calculated in Part III, Chapter 9: Small Mortgage Loans, Section 905.01: Small Mortgage Loan Underwritten NCF (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 actual note rate, or
    • the required Underwriting Interest Rate Floor.3

    1 For a Small Mortgage Loan secured by an MAH Property underwritten per this Chapter, you must comply with the minimum DSCR requirement for an MAH Property per Form 4660.

     

    2 For shorter amortization terms, you must

     

    • calculate the Underwritten DSCR based on the shorter period, and
    • comply with the minimum DSCR requirement per Form 4660.

    The mandatory NRI adjustments in Part II, Chapter 2: Valuation and Income, for Properties with declining NRI do not apply.

     

    3 For a Small Mortgage Loan secured by an MAH Property underwritten per this Chapter, you must comply with the required Underwriting Interest Rate Floor for an MAH Property per Form 4660.
    Section 906

    Property Management

    Requirements

    To ascertain the property management requirements, you must determine how many years of experience, as of the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , the BorrowerBorrowerPerson who is the obligor per the Note. or 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. has owning or managing residential rental properties, based on the following:

    Similar in Size

    Unit Range

    Small Properties
    • 1 multifamily property with 5 – 50 units, or
    • concurrently owning or managing at least 10 single-family rental units.

    Medium Properties

    1 multifamily property with 51 – 100 units.

    Large Properties

    1 multifamily property with 101 or more units.

    As of the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , a non-Local BorrowerLocal BorrowerFor Small Mortgage Loans, a Borrower or at least 1 Key Principal of the Borrower that has a primary residence located within 200 miles of the Property. must have at least 2 years of multifamily ownership or property management experience with a property similar in size or larger than 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). .

    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 requirements are as follows.

    Property Size

    Professional property management or qualified on-site manager required if...

    Less than 10 residential units
    • non-Local BorrowerLocal BorrowerFor Small Mortgage Loans, a Borrower or at least 1 Key Principal of the Borrower that has a primary residence located within 200 miles of the Property. , or
    • Local BorrowerLocal BorrowerFor Small Mortgage Loans, a Borrower or at least 1 Key Principal of the Borrower that has a primary residence located within 200 miles of the Property. resides more than 100 miles from 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). .

    10 or more residential units
    • non-Local BorrowerLocal BorrowerFor Small Mortgage Loans, a Borrower or at least 1 Key Principal of the Borrower that has a primary residence located within 200 miles of the Property. , or
    • Local BorrowerLocal BorrowerFor Small Mortgage Loans, a Borrower or at least 1 Key Principal of the Borrower that has a primary residence located within 200 miles of the Property. with less than 2 years of experience with a property similar in size or larger.

     A professional property management company must have an office within 100 miles 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). when the BorrowerBorrowerPerson who is the obligor per the Note. or all Key PrincipalsKey PrincipalsPerson 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.  primarily reside more than 100 miles from 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). .

     Guidance

    A professional property management company should use a written management agreement that complies with Part II, Chapter 1: Attributes and Characteristics, Section 112: Property Management and Agreement.

    A qualified on-site manager

    • is not required to be 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). resident,
    • should generally be on-site during normal business hours, and
    • for at least 2 years the before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , should have either successfully managed 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 have demonstrated management experience with a property similar in size or larger than 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 907

    Property Condition
    907.01

    Lender's Site Inspection and Lease Audit

    Requirements

    You must:

    • comply with Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 401: Lease Audit; 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 Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. 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). estimated Completion/RepairCompletion/RepairRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. costs are greater than 10% of the UPBUPBUnpaid Principal Balance .
    907.02

    Site Inspection by Borrower

    Requirements

    You must ensure that the BorrowerBorrowerPerson who is the obligor per the Note. or the 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. :

    • Conducts a physical 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). .
    • Certifies in the Multifamily Underwriting Certificate (Form 6460) that the physical inspection has been performed.
    907.03

    PCA

    Requirements

    You must comply with Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 404: Property Condition Assessment (PCA).

    Section 908

    Replacement Reserve

    Requirements

    You must require either full funding or alternative funding (per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406.03: Alternative Replacement Reserve Funding) of the 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). 2 Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. 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). not located in an Eligible MSA per Form 4660, or
    • Rent-Stabilized PropertyRent-Stabilized PropertyProperty 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. located in the New York-Newark-Jersey City, NY-NJ-PA MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. .

    For all other Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , you must determine whether to require funding of the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .

    If you do not require full funding, then you and the BorrowerBorrowerPerson who is the obligor per the Note. must execute either

    • the appropriate Modifications to Multifamily Loan and Security Agreement (Replacement Reserve – Partially or Fully Waived) (Form 6220), or
    • the Modifications to Multifamily Loan and Security Agreement (Replacement Reserve – Alternative Funding) (Form 6221).
    Section 909

    Environmental Matters and Inspections

    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:

    • Obtain an Environmental Screening 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). using the ASTMASTMAmerican Society for Testing Materials E-1528 protocol.
    • Perform a physical site 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). .
    • Notify the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. of any Recognized Environmental Condition or “non-scope considerations” that would impact the 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). .
    • Determine if an O&MO&MRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). plan is appropriate to address a Recognized Environmental Condition.
    • Determine if the state 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 an environmental super-lien statute, and 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). conditions are not likely to result in such a lien.
    • Disclose any actual or suspected environmental conditions not disclosed in the ESAESAInvestigation 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. .
    • Evaluate the potential risk posed by any Recognized Environmental Conditions that could result in loss or liability to you, the BorrowerBorrowerPerson who is the obligor per the Note. , 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 Fannie Mae.
    • Obtain a copy of any Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. that the BorrowerBorrowerPerson who is the obligor per the Note. has in its possession or can obtain.
    • Determine, based on the findings of the environmental screening and analysis, whether a Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. is required and, if so, contract for the report.
    • When indicated, contract for a Phase II ESAPhase II ESAEnvironmental Site Assessment conducted per the current ASTM E-1903 standard, or any other post-Phase I ESA, and the resulting report. .
    • Disclose any knowledge of actual or suspected environmental problems.

    Guidance

    You may contract portions of your environmental responsibilities to qualified parties.  The environmental screening and analysis may be completed by:

    • the engineer conducting the PCAPCAAssessment of the Property's physical condition and historical operation. ;
    • a qualified employee; or
    • a qualified non-employee.

    Operating Procedures

    If a qualified individual performs the environmental screening and analysis, you must:

    • Identify the individual.
    • Ensure that the individual certifies each environmental analysis.
    • Submit a certified copy of each environmental analysis with Folder II of the Multifamily Mortgage Loan Delivery Package Table of Contents (Form 6502.Folder.II).
    Section 910

    Borrower, Key Principals, Guarantors, and Principals

    Requirements

    Except as described below, you must comply with all requirements for the BorrowerBorrowerPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson 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. , GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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,… in Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals.

    910.01

    Borrower Organizational Structure

    Requirements

    Any individual BorrowerBorrowerPerson who is the obligor per the Note. must not be a Foreign PersonForeign PersonPerson who is not: a United States citizen; a legal permanent resident of the United States; or an entity organized and existing under the laws of the United States of America, or its states or territories.  .

    Although a single asset entity is preferred, the BorrowerBorrowerPerson who is the obligor per the Note. may be a multi-asset entity.

    Guidance

    If the BorrowerBorrowerPerson who is the obligor per the Note. owns multiple assets, then you should obtain and underwrite the Borrower’sBorrower’sPerson who is the obligor per the Note. complete schedule of owned real estate assets.  Your underwriting should include the nature, location, cash flows, outstanding mortgage debt, and contingent liabilities of each asset.

    910.02

    Co-Tenant Borrowers

    Requirements

    If a Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. is not an individual or a trust holding title to assets of an individual, each 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. must execute the applicable GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. per Part III, Chapter 9: Small Mortgage Loans, Section 902: Key Principal Guaranty Obligation.

    A Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares.  must be

    • an individual who is not a Foreign PersonForeign PersonPerson who is not: a United States citizen; a legal permanent resident of the United States; or an entity organized and existing under the laws of the United States of America, or its states or territories.  ,
    • a single-asset entity, or
    • a multi-asset entity.
    910.03

    Key Principals

    Requirements

    You must ensure that any individual 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. is not a Foreign PersonForeign PersonPerson who is not: a United States citizen; a legal permanent resident of the United States; or an entity organized and existing under the laws of the United States of America, or its states or territories.  .

    910.04

    Principals

    Requirements

    For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , a 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,… is any person or entity that holds direct or indirect interests of 50% or more in the BorrowerBorrowerPerson who is the obligor per the Note. .

    910.05

    Financial Statements

    Requirements

    You must:

    • obtain
      • a schedule of owned real estate assets, and
      • signed financial statements; and
    • verify liquid assets for the 3-months immediately before the Borrower'sBorrower'sPerson who is the obligor per the Note. loan application by obtaining copies complying with the aging requirements per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals of all
      • bank statements, and
      • investment portfolio statements.
    910.06

    Net Worth and Liquid Assets

    Requirements

    You must ensure that:

    • the combined net worth of the BorrowerBorrowerPerson who is the obligor per the Note. and all Key PrincipalsKey PrincipalsPerson 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. equals or exceeds the original principal amount of the Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. ; and
    • the combined post-closing liquid assets (excluding any Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. cash-out proceeds) of the BorrowerBorrowerPerson who is the obligor per the Note. and all Key PrincipalsKey PrincipalsPerson 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. equal at least 9 monthly payments of P&IP&IPrincipal and interest on the Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. .

    Guidance

    You should:

    • for net worth, consider the impact of current, long-term, and contingent liabilities compared to the Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. amount; and
    • for liquidity, exclude the following unless you have reasonable justification:
      • retirement funds (such as IRAs and 401Ks); and
      • promissory notes payable to 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. , whether secured or unsecured.
    Section 911

    Credit Reports
    911.01

    Credit Report

    Requirements

    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. , you must obtain credit reports for all individual

    • BorrowersBorrowersPerson who is the obligor per the Note. ,
    • Key PrincipalsKey PrincipalsPerson 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. ,
    • GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and
    • 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,…. 

    The credit reports must be from at least 2 of the following credit information services:

    • Equifax;
    • Experian; or
    • TransUnion.
    911.02

    FICO Scoring

    Requirements

    You must ensure that all individual BorrowersBorrowersPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson 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. , GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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,… meet the Minimum FICO Requirement in Form 4660.

    Guidance

    To determine that the Minimum FICO Requirement is met, follow these guidelines:

    If…

    Then…

    You obtain credit reports from 2 of the 3 credit information services for a Borrower, Key Principal, Guarantor, or Principal

    Use the lower of the 2 scores.

    You obtain credit reports from all 3 credit information services, for a Borrower, Key Principal, Guarantor, or Principal

    Use the middle score.
    A Small Mortgage Loan has multiple individual Borrowers, Key Principals, Guarantors, or Principals Use the average of their respective FICO scores.
    911.03

    Reviewing the Credit Report

    Requirements

    You must analyze the credit report for each individual BorrowerBorrowerPerson who is the obligor per the Note. , 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. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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,…. 

    If the answer to any of the following Guidance questions is “yes”, then the BorrowerBorrowerPerson who is the obligor per the Note. , 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. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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,… must give you satisfactory explanations, even if they meet the Minimum FICO Requirement.

    Guidance

    As you analyze the credit report, consider the following questions:

    • Have any mortgage late payments occurred in the previous 36 months?
    • Have any revolving or installment late payments occurred within the previous 12 months?
    • Did you consider any of the credit card or other unsecured debt balances?
    • Have any tax liens been filed or reported within the previous 5 years?
    • Have any discharged bankruptcies or mortgage foreclosures occurred within the previous 10 years?
    • Are there any outstanding judgments or collections higher than $5,000?
    Chapter 10

    Healthy Housing Rewards
    Section 1001

    Healthy Housing Rewards

    Requirements

    Healthy Housing RewardsTM provides incentives for BorrowersBorrowersPerson who is the obligor per the Note. who incorporate healthy design features or provide enhanced resident services that improve the health and stability of residents 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). .

    You must not combine the Healthy Design product with the Enhanced Resident Services product.

    Section 1002

    Healthy Design

    Requirements

    Product Description

    Eligibility

    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 rent or income restrictions where at least 50% of the units serve tenants with incomes of 80% of AMI or less.
    • 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). received a Fannie Mae recognized Healthy Design certification per Form 4248 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. .
    • The BorrowerBorrowerPerson who is the obligor per the Note. did not previously receive this benefit for 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). .

    Certification Cost

    Borrower'sBorrower'sPerson who is the obligor per the Note. responsibility.

    Guidance

    You may choose to pay the Borrower'sBorrower'sPerson who is the obligor per the Note. certification cost.  Fannie Mae will reimburse you for the certification cost after 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. per the How to: Register, Quote, Close, and Deliver a Healthy Housing Rewards Mortgage Loan.

    Section 1003

    Enhanced Resident Services

    Requirements

    Product Description

    Description

    For BorrowersBorrowersPerson who is the obligor per the Note. who provide resident services that improve the health and well-being of 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). .  Services must correspond to the needs of the tenant population.

    Eligibility

    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 rent or income restrictions where at least 50% of the units serve tenants with incomes of 80% of AMI or less.
    • 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). received an Enhanced Resident Services (ERSERSEnhanced Resident Services ) certification 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. .
    • 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). resident services provider received a Certified Organization for Resident Engagement & Services (CORES) certification 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. .
    • The resident service provider is a CORES-certified:
      • BorrowerBorrowerPerson who is the obligor per the Note. ;
      • 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…; or
      • third-party.
    • The BorrowerBorrowerPerson who is the obligor per the Note. did not previously receive this benefit for 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). .

    Certification Cost

    The BorrowerBorrowerPerson who is the obligor per the Note. is responsible for any cost of initial and ongoing certifications.

    Underwriting

    You must ensure:

     

    • 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). operating budget includes the costs of providing the services.
    • The underwritten expenses:
      • are equal to or greater than the annual dollar amount of the Healthy Housing Rewards ERSERSEnhanced Resident Services pricing reduction; and
      • include the pricing reduction and costs of providing the services.
    • A Payment Guaranty (Pricing Incentive Recapture) (Form 6020.PIR) is executed.

    Guidance

    You may choose to pay 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). initial ERSERSEnhanced Resident Services certification cost on behalf of the BorrowerBorrowerPerson who is the obligor per the Note. . Fannie Mae will reimburse you for 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). initial ERSERSEnhanced Resident Services certification cost after 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. per the How to: Register, Quote, Close, and Deliver a Healthy Housing Rewards Mortgage Loan.

    Stewards of Affordable Housing for the Future (SAHF) refers to the service provider certification as a CORES certification and the property-level certification as an Enhanced Resident Services Property certification.

    To meet project timelines, you may permit the BorrowerBorrowerPerson who is the obligor per the Note. to obtain the

    • service provider certification before identifying the property, 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). -level certification in conjunction with underwriting 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. .

    Both existing and proposed new services may be included to meet certification 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). offers sufficient existing services to receive the required certifications, the BorrowerBorrowerPerson who is the obligor per the Note. does not need to provide additional services.

     Operating Procedures

    You calculate the Healthy Housing Rewards Enhanced Resident Services price reduction by multiplying 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 by the ERSERSEnhanced Resident Services price incentive granted by Fannie Mae.

    Chapter 11

    Adjustable Rate Mortgage (ARM) Loans
    Section 1101

    Description

    Requirements

    An ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. has

    • an interest rate that is adjusted periodically based on a specified
      • IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. , and
      • interest period,
    • payments that are adjusted to repay the UPBUPBUnpaid Principal Balance  in substantially equal payments over the remaining amortization period, and
    • a term of 5, 7, or 10 years, depending on the plan.

    Product Description

    Plan Number
    • 04931 - ARM 5/5 Loan:  30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.
    • 04933 - ARM 7/6 Loan:  30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Terms
    • ARM 5/5 Loan:  Initial 5-year term with an optional second 5-year adjustable rate term
    • ARM 7/6 Loan:  7-year term
    Index
    • ARM 5/5 Loan:  30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.
    • ARM 7/6 Loan:  30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Interest Rate Floor

    Must not be less than the combined

     

    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.

    Lockout Period
    • 1st 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. ; and
    • 1st 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. of the second 5-year adjustable rate term (typically the 6th 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. ), when an ARM 5/5 Loan renews for an additional 5-year adjustable rate term.  

    Prepayment Availability

    May be voluntarily prepaid after each lockout period with a 1% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. , but no Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is due

     

    • during the "open period" (typically the last 3 months of the loan term),
    • when an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. converts to a fixed rate 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
    • when an ARM 5/5 Loan renews for an additional 5-year adjustable rate term. 

    Rate Change Date

    Date the interest rate changes based on changes in the selected IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. .

    Interest Rate Change Frequency

    Monthly

    Maximum Interest Rate Change

    Plus or minus 1% of the then-current interest rate.

    Maximum Lifetime Interest Rate Limit
    • For an ARM 5/5 Loan,
      • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
      • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
      • 5%.
    • For an ARM 7/6 Loan,
      • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
      • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
      • 6%.

    Index Look-Back Period

    1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held.  before the Rate Change Date.

    Interest Accrual Method

    Actual/360

    Interest Rate Cap

    Not required; interest rate adjustments are subject to an embedded cap.

    Conversion to Fixed Rate

    Permitted, with no prepayment penalty and minimal re-underwriting, after the lockout period and before the "open period" (typically the last day of the 4th month preceding the end 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. term). 
    Investors
    • For an ARM 5/5 Loan,
      • the Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. , or
      • Third Party MBS InvestorThird Party MBS InvestorMBS Investor for an MBS Mortgage Loan that is not the Multifamily Trading Desk. .
    • For an ARM 7/6 Loan, the Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. .
    Rate Lock
    • Maximum 45-day 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. .
    • No rate change may occur 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. . 
    ARM 5/5 Loan Options at Maturity

    Before the end of the initial 5-year term for an ARM 5/5 Loan, BorrowerBorrowerPerson who is the obligor per the Note. must elect to:

    • convert the ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. to a fixed rate;
    • fully repay the ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. ; or
    • renew the adjustable rate term for an additional 5-year term. 
    Section 1102

    Underwriting

    Requirements

    You must ensure that the maximum ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. amount is the lowest of the amount:

    • calculated applying the applicable 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. per Form 4660 for both the
      • maximum lifetime interest rate limit, and
      • Fixed Rate Test per Form 4660;
    • calculated using the applicable 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.   per Form 4660; and
    • you determined is appropriate.

    You must use the Fixed Rate Test interest rate to determine the UPBUPBUnpaid Principal Balance for the refinance risk analysis per Part II, Chapter 2: Valuation and Income, Section 204: Refinance Risk Analysis.

    For an ARM 5/5 Loan, you must:

    • instruct the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. to determine all required PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). capital improvements over a 12-year period (i.e., the initial 5-year adjustable rate term, plus the optional 5-year adjustable rate term, plus 2 years); and
    • calculate the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. based on the required capital improvements during the first 5-year adjustable rate term, plus 2 years. 
    Section 1103

    Prepayment Terms
    1103.01

    Generally

    Requirements

    The following table describes various situations and the applicable prepayment provisions; see Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing for Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. calculations and sharing between you and Fannie Mae.

    Situation

    Prepayment Provisions

    Borrower attempts to make a voluntary prepayment during the lockout period.

    BorrowerBorrowerPerson who is the obligor per the Note. may not make a voluntary prepayment during the lockout period.

    ARM Loan is accelerated during the prepayment lockout period.

    BorrowerBorrowerPerson who is the obligor per the Note. owes a 5% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes a voluntary prepayment after the lockout period and before the "open period" (typically 3 months prior to the Maturity Date) for any reason other than a casualty or condemnation.

    BorrowerBorrowerPerson who is the obligor per the Note. owes a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    ARM Loan converts to a fixed rate Mortgage Loan.

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes any prepayment during the "open period" (typically 3 months before the Maturity Date).

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes a prepayment at any time due to casualty or condemnation.

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .
    1103.02

    1% Prepayment Premium Schedule

    Requirements

    After the 1st 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. , the Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. will be 1% for any reason other than a casualty or condemnation.

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    1 (Locked Out)1

    N/A

    N/A

    N/A

    2

    1%

    1%

    1%

    3

    1%

    1%

    1%

    4

    1%

    1%

    1%

    5

    1%

    1%

    1%

    62

    N/A

    1%

    1%

    7

    N/A

    1%

    1%

    8

    N/A

    N/A

    1%

    9

    N/A

    N/A

    1%

    10

    N/A

    N/A

    1%

    1 During the lockout period, the Borrower may not voluntarily prepay the ARM Loan.  If the ARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.

     

    2 If an ARM 5/5 Loan is renewed for the optional 5-year adjustable rate term, the Borrower may not voluntarily prepay during the lockout period at the beginning of the second 5-year adjustable rate term (typically the 6th Loan Year).  If the ARM 5/5 Loan is accelerated during the 6th Loan Year, the Borrower owes a 5% Prepayment Premium. 
    Section 1104

    ARM 5/5 Loan Optional 5-Year Adjustable Rate Term Renewal Eligibility

    Requirements

    A performing ARM 5/5 Loan is eligible to renew the adjustable rate term for an additional 5-year adjustable rate term if:

    • Fannie Mae offers the ARM 5/5 Loan.
    • The Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. require a  second lockout period at the beginning of the second 5-year adjustable rate term (typically the 6th 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. ), prohibiting any voluntary prepayment.
    • You comply with the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , including calculating an updated:
      • 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. , using 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… and the Maximum Lifetime Interest Rate Limit, at least equal to the 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 4660 based on the same TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the initial 5-year adjustable rate term; and
      • 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.  less than or equal to the 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.  per Form 4660 based on the same TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the initial 5-year adjustable rate term.
    Chapter 12

    Structured Adjustable Rate Mortgage (SARM) Loans
    Section 1201

    Description

    Requirements

    A SARM Loan is an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. with an external 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. .

    Product Description

    Plan Number

    04932 - 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Term

    5 to 10 years

    Funding Type

    MBSMBSMortgage-Backed Security or Cash

    Index

    30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Rate Change Date Date the interest rate changes based on changes in the selected IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. . 
    Index Look-Back Period 1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before the Rate Change Date.

    Interest Rate Floor

    Must be equal to or greater than the sum of the

     

    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , 
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , and
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.
    Lockout Period 1st 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.

    Prepayment Availability

    After the lockout period, voluntary prepayments permitted per the selected prepayment option.

    Minimum Loan Amount

    $25 million

    Interest Rate

    Equals the sum of the

     

    • IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. , 
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , 
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , and
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.

    Interest Rate  Adjustment
    • Occurs every month.
    • Except for the Interest Rate Floor, has no limit on number or size of rate changes.

    Interest Rate Cap

    Required for the entire SARM Loan term.
    Interest Accrual Method Actual/360

    Amortization

    Amortizes with fixed monthly principal installments based on a calculated actual/360 fixed rate payment.

    Conversion to Fixed Rate

    Permitted per Part IV, Chapter 7: Variable Rate Conversions and Renewals, Section 702: ARM Loan and SARM Loan Conversions.
    Investors
    • Third Party MBS InvestorThird Party MBS InvestorMBS Investor for an MBS Mortgage Loan that is not the Multifamily Trading Desk. , or
    • Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. .

    Rate Lock
    • Maximum 45-day 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. . 
    • No rate change permitted 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. .
    Section 1202

    Underwriting

    Requirements

    You must calculate the minimum 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… based on an amortizing debt service constant.

    Minimum Underwritten DSCR
    Term Equals the sum of the...

    Maximum Note Rate
    • minimum Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. as set by 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. , plus
    • 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. margin equal to the sum of the
      • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread,
      • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , and
      • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. .
    Debt Service Constant
    • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   , plus
    • applicable amortization factor based on the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   .

    You must ensure the maximum SARM Loan amount is the lesser of the amount:

    • calculated using 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. per Form 4660 for both the
        • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   for the adjustable interest rate, and
        • Fixed Rate Test described in Form 4660; and
      • maximum LTV RatioLTV RatioRatio 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.  per Form 4660; or
    • you determined is appropriate.

    You must use the Fixed Rate Test interest rate to determine the UPBUPBUnpaid Principal Balance for the refinance risk analysis per Part II, Chapter 2: Valuation and Income, Section 204: Refinance Risk Analysis.

    Guidance

    The amortization used to underwrite the SARM Loan is different than the actual SARM Loan amortization schedule, which uses fixed monthly principal installments.

    Section 1203

    Actual Amortization Calculation

    Requirements

    You must amortize SARM Loans on a straight-line basis over the total loan term.  The amount of amortization due 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 is the same amount that would be due, in total, for a comparable fixed rate loan.  When you calculate the amortization due, you must consider

    • the loan term,
    • the amortization schedule,
    • any interest only period, and
    • the Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). .

    To calculate SARM Loan amortization, you must use fixed rate pricing with an interest rate equal to:

    • an indicative MBSMBSMortgage-Backed Security investor yield; plus
    • the lower of the:
      • lowest Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. in the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. for a hypothetical actual/360 fixed rate 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 the same loan term and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the SARM Loan; or
      • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. quoted by the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. for a fixed rate 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. when you request pricing for the SARM Loan.

    Operating Procedures

    You must... Process
    Obtain Fixed Rate Quote
    • Obtain a quote for a hypothetical actual/360 fixed rate 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. .
    • Use the quoted fixed interest rate to calculate the amortization for the SARM Loan.
    Calculate the Fixed Monthly Principal Installment Over the SARM Loan Term
    • Step 1:  Using an actual/360 interest accrual method, calculate the aggregate amortization amount to be collected over the SARM Loan term based on the:
      • SARM Loan principal amount;
      • lowest interest rate for a hypothetical actual/360 fixed rate 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 the same loan term and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660).  as the SARM Loan, rounded to 3 decimal places; and
      • required amortization period.
    • Step 2:  Divide the aggregate amortization amount from Step 1 by the number of amortizing monthly installments in the SARM Loan term.  The result is the fixed monthly principal installment.

           For example, the number of monthly installments would be:

     

    • 120, for a 10-year amortizing 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
    • 108, for a 10-year 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 1 year of interest-only.

     

    Guidance

    The following is an example for calculating the fixed monthly principal installment for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 SARM Loan with a

    • 10-year term,
    • 30-year amortization period,
    • actual/360 interest accrual method, and
    • $25 million 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.
    Example:  Hypothetical Actual/360 Fixed Rate Quote 
    Guaranty Fee quoted by Fannie Mae 0.95%
    Servicing Fee quoted by Fannie Mae + 0.55%
    U.S. Treasury and Investor spread (quoted by Fannie Mae or Third Party MBS Investor) + 4.00%
    Gross Note Rate = 5.50%

    Step 1:  Calculate the aggregate principal amortization amount collected 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 if it had a fixed rate.

    Determine the... Assuming... Result
    • Month and year when the first full monthly loan payment would be made, based on an actual/360 amortization schedule.
    • Total amortization amount depends on:
      • the number of days (i.e., 28, 29, 30, or 31) in the month before each loan payment date; and
      • when the next leap year occurs.
    • a debt service constant calculated using the hypothetical fixed Gross Note RateGross Note RateInterest rate stated in the Loan Documents.  of 5.500% (6.8134680% debt service constant);
    • an issue date of December 1, 2018; and
    • a first loan payment date of January 1, 2019.
    		 The aggregate principal amortization amount over 120 payments is $4,114,494.17.

    Step 2:  Calculate the fixed monthly principal installment by dividing the aggregate amortization amount by the total number of amortizing payments during the SARM Loan term.

    Calculate the Fixed Monthly Principal Installment
    Aggregate amortization $4,114,494.17
    Divided by total payments 120
    Equals fixed monthly principal $34,287.45

     

    Section 1204

    Prepayment Terms
    1204.01

    Generally

    Requirements

    The following table describes various situations and the applicable prepayment provisions; see Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing for Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. calculations and sharing between you and Fannie Mae.

    Situation

    Prepayment Provisions

    Borrower attempts to make a voluntary prepayment during the lockout period.

    BorrowerBorrowerPerson who is the obligor per the Note. cannot make a voluntary prepayment during the lockout period.

    SARM Loan is accelerated during the prepayment lockout period.

    BorrowerBorrowerPerson who is the obligor per the Note. owes a 5% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes a prepayment sometime after the lockout period and before the "open period" (typically 3 months before Maturity Date) for any reason other than a casualty or condemnation.

    BorrowerBorrowerPerson who is the obligor per the Note. owes a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    SARM Loan converts to a fixed rate Mortgage Loan.

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes a prepayment during the "open period" (typically 3 months before the Maturity Date).

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Borrower makes a prepayment due to casualty or condemnation.

    BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .
    1204.02

    Prepayment Option 1 – Declining Prepayment Premium Schedule

    Requirements

    For a voluntary prepayment after the lockout period using Prepayment Option 1, you must use Schedule 4 of the Multifamily Loan and Security Agreement - Prepayment Premium Schedule (Graduated Prepayment Premium – ARM, SARM) (Form 6104.10) with the applicable Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. percentage listed in this table.

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    1 (Locked Out)1

    N/A

    N/A

    N/A

    2

    4%

    4%

    4%

    3

    3%

    3%

    3%

    4

    2%

    2%

    2%

    5

    1%

    1%

    1%

    6

    N/A

    1%

    1%

    7

    N/A

    1%

    1%

    8

    N/A

    N/A

    1%

    9

    N/A

    N/A

    1%

    10

    N/A

    N/A

    1%

    1 During the lockout period, the Borrower cannot voluntarily prepay the SARM Loan.  If the SARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.
    1204.03

    Prepayment Option 2 - 1% Prepayment Premium Schedule

    Requirements

    For a voluntary prepayment after the lockout period using Prepayment Option 2, you must use Schedule 4 to Multifamily Loan and Security Agreement (Prepayment Premium Schedule-1% Prepayment Premium – ARM, SARM) (Form 6104.11) to document the required 1% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    1 (Locked Out)1

    N/A

    N/A

    N/A

    2

    1%

    1%

    1%

    3

    1%

    1%

    1%

    4

    1%

    1%

    1%

    5

    1%

    1%

    1%

    6

    N/A

    1%

    1%

    7

    N/A

    1%

    1%

    8

    N/A

    N/A

    1%

    9

    N/A

    N/A

    1%

    10

    N/A

    N/A

    1%

    1 During the lockout period, the Borrower cannot voluntarily prepay the SARM Loan.  If the SARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.
    Section 1205

    Interest Rate Caps
    1205.01

    Generally

    Requirements

    Description
    Interest Rate Cap

    BorrowerBorrowerPerson who is the obligor per the Note. must:

     

    • purchase a third-party Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; and
    • keep an Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. in place continually until the earlier of the
      • effective date of any permitted conversion to a fixed rate 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
      • SARM Loan Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    Interest Rate Cap Provider BorrowerBorrowerPerson who is the obligor per the Note. must only obtain bids from Fannie Mae-approved providers listed on https://multifamily.fanniemae.com.
    Interest Rate Cap Documentation Must be on forms acceptable to Fannie Mae.
    Minimum Interest Rate Cap Term 5 years.
    Replacement Interest Rate Cap You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. purchases a replacement 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. if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term expires before the SARM Loan conversion or Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    Interest Rate Cap Reserves BorrowerBorrowerPerson who is the obligor per the Note. must fund a cash reserve equal to at least 110% of the current replacement cap cost if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term expires before the SARM Loan Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    Interest Rate Cap Contract Process and Documentation

    You must deliver all 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. -related documentation, including the

     

    • Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. , and
    • Interest Rate Cap Reserve and Security Agreement (Form 6442 series).
    Fannie Mae will engage outside counsel at your expense to review all cap-related documentation.
    Initial Interest Rate Cap Notional Amount

    Must equal the original principal amount of the SARM Loan throughout the Interest Rate Cap’sInterest Rate Cap’sInterest 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. term.

    Guidance

    You may require the BorrowerBorrowerPerson who is the obligor per the Note. to:

    • pay Fannie Mae's costs, including legal fees; and
    • fund a reserve to pay these expenses. 
    1205.02

    Determining the Cap Strike Rate

    Requirements

    You must:

    • determine the maximum Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. permitted for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; and
    • ensure the sum of the following is less than or equal to the rate (calculated using an underwritten debt service constant that includes amortization) that produces the minimum required 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 the SARM Loan's Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). :
      • the Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; plus
      • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. ; plus
      • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. ; plus
      • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.

    Guidance

    You should enter “0” in the C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. “Cap Cost Factor” field if the replacement 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. escrow was fully funded on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

    You may calculate the initial Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. based on an interest-only underwritten debt service constant if the approved interest-only term is greater than or equal to the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term.

    1205.03

    Establishing Interest Rate Cap Reserves

    Requirements

    You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. funds a cash reserve to purchase a replacement 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. if the the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term is less than the SARM Loan term.

    If the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term is less than the SARM Loan term, the BorrowerBorrowerPerson who is the obligor per the Note. must:

    • fully fund the cash reserve on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
    • escrow at least 110% of the current replacement cap cost.
    1205.04

    Interest Rate Cap Contract Documentation and Delivery

    Operating Procedures

    Interest Rate Cap Contract Documentation and Delivery
    For Actions
    Cap Provider Payment

    The Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. provider must:

     

    • pay you directly if, on the 1st day of the month corresponding with the monthly loan payment date, the 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days. IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. exceeds the Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for a monthly settlement; and
    • only disburse a provider payment to the BorrowerBorrowerPerson who is the obligor per the Note. if
      • there is no Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. default, and
      • you have received all payments due per the NoteNoteInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  for that month.
    Timing
    • BorrowerBorrowerPerson who is the obligor per the Note. must accept a bid for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. in writing from a Fannie Mae-approved provider before you 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 SARM Loan.
    • You must submit copies of all cap-related documentation when 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 SARM Loan.
    Purchase Price BorrowerBorrowerPerson who is the obligor per the Note. must pay the entire purchase price for an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. to the provider when the Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. is issued.
    Pledge to Fannie Mae BorrowerBorrowerPerson who is the obligor per the Note. must execute Form 6442 series to pledge its interest in the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. and any reserve to Fannie Mae as additional SARM Loan collateral.
    Chapter 13

    Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans
    Section 1301

    Description

    Requirements

    A Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. combines the features of fixed rate and ARM LoansARM LoansMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. , and has a total term of 30 years, consisting of

    • an initial term when interest accrues at a fixed rate, followed by
    • the remaining term, during which interest accrues at an adjustable rate.

    Product Description

    Plan Number

    04934 - 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Terms

    Permitted combinations of fixed rate and adjustable rate terms:

     

    • 5-year fixed rate term, followed by automatic conversion to a 25-year adjustable rate term;
    • 7-year fixed rate term, followed by automatic conversion to a 23-year adjustable rate term; or
    • 10-year fixed rate term, followed by automatic conversion to a 20-year adjustable rate term.

    Maximum Loan Amount

    Per Part III, Chapter 9: Small Mortgage Loans, Section 901.01: Description.

    Ineligible Products
    • Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization.
    • Military Housing PropertyMilitary Housing PropertyMultifamily rental Property in which 40% or more of the units are occupied by individuals serving in, or employed by, the United States military.
    • 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.
    • 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.
    • Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units.
    • Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students.
    • Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students.
    • 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.

    Prepayment Premium Options

    Either

     

    • standard yield maintenance, or
    • graduated Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

    Prepayment Premium Period End Date / Yield Maintenance Period End Date

    Final day of the last 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. during the fixed rate term per the applicable Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. option.

    Conversion to Adjustable Rate

    Automatic conversion from a fixed rate to an adjustable rate on the 1st day of the 1st 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. following the applicable fixed rate term.

    Index During Adjustable Rate Term

    30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

    Interest Rate Floor

    Must not be less than the combined

     

    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread (per Form 4660).

    Gross Note Rate During Adjustable Rate Term

    Equals the

     

    • IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. , plus
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread (per Form 4660).
    Rate Change Date Date the interest rate changes based on changes in the selected IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. . 

    Interest Rate Change Frequency During Adjustable Rate Term

    Every 6 months, based on the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. in effect as of the Rate Change Date.

    Frequency of Payment Change During Adjustable Rate Term

    P&IP&IPrincipal and interest payments are recalculated for every Rate Change Date.

    Maximum Interest Rate Change

    Plus or minus 1% of the then-current interest rate both

     

    • at conversion from fixed rate to adjustable rate, and
    • during the adjustable rate term.

    Maximum Interest Rate During Adjustable Rate Term

    5% over the fixed rate.

    Index Look-Back Period

    1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before the Rate Change Date.

    Interest Accrual Method

    Must be actual/360.

    Payments

    Calculated using a 30/360 interest accrual method.

    Interest-Only

    Must not exceed the fixed rate term.

    You must rate lock the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. with the Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. (MBSMBSMortgage-Backed Security or cash).

    You must underwrite the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. based on the applicable fixed rate terms.

    Section 1302

    Interest Rate Conversion Date

    Requirements

    The conversion of the interest rate from fixed to adjustable is mandatory and automatic.  After Fannie Mae confirms the 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. for the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. , it may not be modified.

    After the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. , interest will accrue at the applicable adjustable rate, up to and including the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

    Operating Procedures

    As an example of the conversion to adjustable rate date calculation in Part III, Chapter 13: Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans, Section 1301: Description:

    • If the effective date of the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. is July 1, 2019, and the fixed rate term is 7 years, then the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. would be July 1, 2026.
    • If the fixed rate term is 7 years and the effective date is any other date in July 2019, then the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. would be August 1, 2026.
    Section 1303

    Prepayment Terms

    Requirements

    You must select from 3 Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. options.

    PREPAYMENT Option 1 – 5% Declining Prepayment Premium Schedule

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    1

    5%

    5%

    5%

    2

    4%

    5%

    5%

    3

    3%

    4%

    4%

    4

    2%

    4%

    4%

    5

    1%

    3%

    3%

    6

    N/A

    2%

    3%

    7

    N/A

    1%

    2%

    8

    N/A

    N/A

    2%

    9

    N/A

    N/A

    1%

    10

    N/A

    N/A

    1%

    PREPAYMENT Option 2 – 3% Declining Prepayment Premium Schedule

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    1

    3%

    3%

    3%

    2

    2%

    3%

    3%

    3

    1%

    2%

    3%

    4

    1%

    2%

    2%

    5

    1%

    1%

    2%

    6

    N/A

    1%

    2%

    7

    N/A

    1%

    1%

    8

    N/A

    N/A

    1%

    9

    N/A

    N/A

    1%

    10

    N/A

    N/A

    1%

    PREPAYMENT Option 3 – Standard Yield Maintenance

    Loan Year

    5-Year Term

    7-Year Term

    10-Year Term

    Yield Maintenance Ends

    Last day of the 5th 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.

    Last day of the 7th 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.

    Last day of the 10th 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.

    If the BorrowerBorrowerPerson who is the obligor per the Note. makes a prepayment due to casualty or condemnation, no Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is due.  For all other prepayments, the BorrowerBorrowerPerson who is the obligor per the Note. must pay a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. if the prepayment occurs 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. .

    The BorrowerBorrowerPerson who is the obligor per the Note. may prepay the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. without any Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. :

    • on the last day of the fixed rate term; or
    • at any time during the adjustable rate term.

    The Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is shared with Fannie Mae per Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing using the applicable Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. schedule for a fixed rate 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 1304

    Monthly Principal and Interest Payments
    1304.01

    During the Fixed Rate Term

    Requirements

    The monthly installments of P&IP&IPrincipal and interest  must equal the amount needed to repay the UPBUPBUnpaid Principal Balance

    • in substantially equal payments over the amortization term at the fixed rate, and
    • based on a 30/360 interest accrual method.

    To calculate loan payments at the end of an interest only period, refer to the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .

    1304.02

    On the Hybrid ARM Loan Conversion Date

    Requirements

    On the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. , the BorrowerBorrowerPerson who is the obligor per the Note. must make the last regularly scheduled payment of P&IP&IPrincipal and interest for the fixed rate term.

    1304.03

    During the Adjustable Rate Term

    Requirements

    The BorrowerBorrowerPerson who is the obligor per the Note. must make payments of P&IP&IPrincipal and interest based on changes to the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. :

    • on the 1st day of the month immediately following the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. ; and
    • on the 1st day of each month thereafter, until the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

    On the Rate Change Date, a new P&IP&IPrincipal and interest installment will be calculated to be in effect on the 1st day of the following month.

    Monthly installments of P&IP&IPrincipal and interest , due on each payment date during the adjustable rate term, must equal the amount needed to repay the UPBUPBUnpaid Principal Balance

    • in substantially equal payments over the amortization term at the variable rate,
    • based on a 30/360 interest accrual method.

    Operating Procedures

    To determine the amount of each monthly installment allocated to principal, subtract the amount allocated to interest following each rate change.

    For example:

    A 5-year Hybrid ARM Loan with the following terms:

    Loan Amount

    $2,500,000

    Fixed Rate

    5.25%

    Fixed Rate Term

    60 months

    Amortization Term

    360 months

    Fixed Rate Period

    Standard fixed payment amortization

    Monthly Payment

    $13,805.09

    UPB at End of Month 60

    $2,303,737.20

    Upon conversion to adjustable rate in month 61, amortization is recalculated using the following terms:

    Loan Amount

    $2,303,737.20

    Variable Rate

    4.25%

    Amortization Term

    300 months

    Monthly Payment

    $12,480.22

    Interest Payment

    (4.25% / 360 months) x 30 days x UPBUPBUnpaid Principal Balance

    Principal Payment

    Monthly Payment – Interest Payment

    UPB at End of Month 66

    $2,277,579.64

    At rate change in month 67, amortization is recalculated using the following terms:

    Loan Amount

    $2,277,579.64

    Variable Rate

    4.50%

    Amortization Term

    294 months

    Monthly Payment

    $12,799.71

    Interest Payment

    (4.50% / 360 months) x 30 days x UPBUPBUnpaid Principal Balance

    Principal Payment

    Monthly Payment – Interest Payment

    UPB at End of Month 72

    $2,251,786.15
    Chapter 14

    Supplemental Mortgage Loans
    Section 1401

    Description

    Requirements

    A Fannie Mae 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. is available 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 a Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. . 

    A non-Fannie Mae Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. is only permitted for MAHMAHProperty 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. PropertiesPropertiesMultifamily 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 III, Chapter 7: Multifamily Affordable Housing Properties.

    For Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. , see Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans.

    Section 1402

    Supplemental Mortgage Loans
    1402.01

    Description

    Requirements

    Product Description

    Lender Eligibility

    You must be the ServicerServicerPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. of all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. 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). .

    Ineligible Products

    Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate.

    Loan History Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. is not on the current Fannie Mae WatchlistWatchlistThe risk rating classification if you or Fannie Mae determine the Mortgage Loan has heightened credit risk. .

    Origination Date

    At least 12 months must elapse between the origination dates of the most recent Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. and the 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. , unless the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. expressly permit a shorter time.

    Maximum Number of Supplemental Mortgage Loans

    Only 1 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. is permitted during the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. term unless:

     

    • it is a Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. ;
    • it is a Green RewardsGreen RewardsMortgage Loan secured by a Property where the Borrower agrees to undertake 1 or more Energy- and Water-Efficiency Measures that comply with Part III, Chapter 4: Green Mortgage Loans, Section 403: Green Rewards Mortgage Loans. 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. where 100% of the proceeds are used to implement selected Efficiency MeasuresEfficiency MeasuresEnergy- and water-efficiency measures that the Borrower agrees to implement per the Multifamily Loan Agreement to qualify as a Green Rewards Mortgage Loan, and which project a reduction in the Property's annual energy or water consumption. ; 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 sold to an unrelated new BorrowerBorrowerPerson who is the obligor per the Note. who assumes the Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. , and the closing and funding of the new 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. occurs concurrently with 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). sale and Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. assumption.

    Minimum Supplemental Loan Term

    5 years provided that:

     

    • for Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. with a balloon payment at the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of the 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. must not be before that of any Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. ; and
    • for fully amortizing Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. , the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of the 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. must not be before the latest Prepayment Premium Period End DatePrepayment Premium Period End DateLast date when a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. of any Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

    Mortgage Loan Amount

    Except per Part III, Chapter 14: Supplemental Mortgage Loans, Section 1402.03: Loan Amount, you must determine 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. , 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…, and 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.  per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products in Part III.

    Replacement Reserve, Tax, and Insurance Escrows

    You must:

     

    • Calculate the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. , tax, and insurance escrows on the resulting TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). of the combined Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. and 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. .
    • Ensure escrow funding established with the Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. does not cease.
    • Adjust the funding when necessary to meet current TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 requirements for any Tier Dropping Supplemental Mortgage LoanTier Dropping Supplemental Mortgage LoanA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan… if the combined TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). is TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2.

    Cross-Default

    Must be cross-defaulted with all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

    Interest Rate Type
    • Fixed rate, if the Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. has a fixed rate.
    • Fixed or variable rate, if the Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. has a variable rate. 

    UCC Financing Statements

    No new UCCUCCUniform Commercial Code Financing Statement is required for the 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. .

     

    If the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. is released before the 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. is repaid in full, you must file a UCCUCCUniform Commercial Code Financing Statement for the 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. in the appropriate public records office.

    Guidance

    You may increase Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. , tax, and insurance escrow funding 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. if the TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). is unchanged from the Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

    1402.02

    Coterminous and Non-Coterminous

    Guidance

    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. may have a Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. that is either coterminous or non-coterminous with the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. . 

    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 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. need not coincide with 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 any Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

    Requirements

    You must resubordinate any existing, non-coterminous 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. when refinancing a maturing Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. with Fannie Mae.

    1402.03

    Loan Amount
    1402.03A

    Maximum Loan Amount

    Requirements

    The maximum 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. amount equals the lowest 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 calculated per Sections 1402.03.B - 1402.03.D of this Chapter.

    1402.03B

    Calculating the Debt Service

    Requirements

    You must calculate the 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. amount based on the combined debt service amounts of all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. plus the 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. , as outlined in the following tables.

    Pre-Existing Mortgage Loans

    If the Interest Rate Type is…

    Use an amortizing Debt Service Amount based on the…

    Fixed Rate

    Gross Note RateGross Note RateInterest rate stated in the Loan Documents. .

    Adjustable Rate
    • 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. 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;
    • amortization term; and
    • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   per the applicable Part III Chapters.

    Supplemental Mortgage Loan

    If the Interest Rate Type is…

    Use an amortizing Debt Service Amount based on the greater of the Gross Note Rate or the…

    Fixed Rate

    applicable Underwriting Interest Rate Floor per Form 4660.

    Adjustable Rate

    Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   per the applicable Part III Chapters.
    1402.03C

    Calculating the DSCR and LTV

    Requirements

    To determine the 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. amount, you must apply the Form 4660 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 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.  requirements as follows:

    Supplemental Mortgage Loan

    DSCR

    The combined debt service of

     

    • all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. , plus
    • the 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. .

    LTV

    The combined

     

    • aggregate UPBUPBUnpaid Principal Balance of all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. , plus
    • the principal amount of the 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. .
    1402.03D

    New Loan Test

    Requirements

    For a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. , if the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. is 5 years or less after the 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. Origination DateOrigination DateDate you fund a Mortgage Loan to the Borrower. , you must perform a New Loan Test to confirm the combined UPBUPBUnpaid Principal Balance of all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. plus the 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. does not exceed the maximum loan amount for a new fixed rate, first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. , cash-out 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 New Loan Test Requirement
    Underwriting Tier TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2
    Minimum DSCR Per Form 4660
    Maximum LTV Per Form 4660
    Maturity 10 years
    Market Classification Based on 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
    Interest Rate

    Higher of:

     

    • an interest rate using the highest Total Credit Fees Range in the current "Indicative Pricing" table 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. minus any applicable "Optional Reduction"; or
    • the Underwriting Interest Rate Floor per Form 4660, if applicable.
    1402.04

    Tier Dropping
    1402.04A

    Designating

    Requirements

    If you designated a Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. as eligible for a Tier Dropping Supplemental Mortgage LoanTier Dropping Supplemental Mortgage LoanA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan…, then you must also designate all 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. secured by that 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 eligible for Tier Dropping Supplemental Mortgage LoansTier Dropping Supplemental Mortgage LoansA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan….

    Operating Procedures

    • For an MBS Mortgage LoanMBS Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. originated before September 1, 2007, you must have designated it as eligible for a Tier Dropping Supplemental Mortgage LoanTier Dropping Supplemental Mortgage LoanA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan… at the time of 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. of each Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .
    • For Pools issued on or after August 1, 2001, the designation for Tier Dropping Supplemental Mortgage LoansTier Dropping Supplemental Mortgage LoansA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan… eligibility must be disclosed on Annex A to the Prospectus.
    1402.04B

    Eligibility

    Requirements

    Tier Dropping Eligibility

    If the Pre-Existing Mortgage Loan is...

    		 It is eligible for a Tier Dropping Supplemental Mortgage Loan if...

    Cash

    the combined Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. and 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. meet the Form 4660

     

    • minimum applicable 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 TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. , and
    • maximum applicable 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 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. .

    MBS
    • it was designated as eligible for a Tier Dropping Supplemental Mortgage LoanTier Dropping Supplemental Mortgage LoanA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan…; and
    • the combined Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. and 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. meet the Form 4660
      • minimum applicable 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 TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. , and
      • maximum applicable 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 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. .
    1402.04C

    Ineligible Mortgage Loans

    Requirements

    ARM LoansARM LoansMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. cannot be Tier Dropping Supplemental Mortgage LoansTier Dropping Supplemental Mortgage LoansA Supplemental Mortgage Loan where the combined Underwritten DSCR of the Supplemental Mortgage Loan and all Pre-Existing Mortgage Loans is below the minimum Underwritten DSCR of the original underwriting Tier of the Senior Mortgage Loan, or the combined LTV of the Supplemental Mortgage Loan….

    1402.05

    Streamlined Underwriting
    1402.05A

    Property

    Requirements

    Streamlined Underwriting

    Appraisal

    You must obtain 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. .

    Property Management

    If there has been or will be 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 change, you must comply with Part II, Chapter 1: Attributes and Characteristics, Section 112.01: Property Management.

    Property Condition Assessment Report

    You must obtain a PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. if the 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. 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 reveals any adverse change in property condition or life safety issues.

     

    A PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. is not required if:

     

    • there has been no adverse change;
    • the existing PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. is less than 3 years old;
    • all Immediate Repairs identified in the existing PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. have been satisfactorily completed; and
    • the most recent 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 indicates an overall rating of 1 or 2.

    Replacement Reserves
    • If the PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. indicates a need to modify the existing or fund an initial Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. , you must ensure the funding by amending 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….
    • Even if there is no funding or only partial funding for a Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. , you must fully fund the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. if the combined 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 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 Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. and the 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. is TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2.

    Environmental Site Assessment (ESA)

    You must obtain a new or updated ESAESAInvestigation 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. and comply with Part II, Chapter 5: Property and Liability Insurance, Section 503: Environmental Matters unless all the following are met:

     

    • an ESAESAInvestigation 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. was performed for a Pre-Existing Mortgage LoanPre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. ;
    • an Environmental Professional performs an environmental database review and identifies no
      • potential environmental concerns (as defined in ASTMASTMAmerican Society for Testing Materials E1528 - Standard Practice for Limited Environmental Due Diligence: Transaction Screen), or 
      • adverse conditions requiring further due diligence;
    • the BorrowerBorrowerPerson who is the obligor per the Note. executes an Environmental Indemnity Agreement (Form 6085);
    • you confirm that any disclosed Prohibited Activities or Conditions per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. are adequately addressed through an 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). being implemented 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
    • the BorrowerBorrowerPerson who is the obligor per the Note. certifies, and you confirm, that all appropriate O&M PlansO&M PlansRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). are in place and being fully and properly implemented.

    Property and Liability Insurance

    You must base the required amounts and coverages of all property and liability insurance on the combined UPBUPBUnpaid Principal Balance of the 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. and all Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .

    Title Insurance

    You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. obtains a new title insurance policy.
    1402.05B

    Borrower, Guarantor, Key Principals, and Principals

    Requirements

    You must:

    • identify all Key PrincipalsKey PrincipalsPerson 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.  and 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,… of the BorrowerBorrowerPerson who is the obligor per the Note.  and GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ;
    • confirm the original underwriting of the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and each 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.  and 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,… per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals;
    • obtain updates to the:
      • financial statements for all parties relevant to the transaction;
      • Multifamily Underwriting Certificates (Form 6460 series) for the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and each 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. ;
      • organizational documents of the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and each 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. ; and
      • good standing certificate from the jurisdiction where an entity BorrowerBorrowerPerson who is the obligor per the Note. and GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. are organized;
    • confirm that the organizational structure of the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and each 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.  complies with Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals; and
    • confirm that no unauthorized change has been made to the organizational structure or organizational documents of the BorrowerBorrowerPerson who is the obligor per the Note.  or the GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .

    Operating Procedures

    If there was... You must...
    • an unauthorized Transfer/Assumption; or
    • any change in the organizational structure of the Borrower, Guarantor, or any Key Principal or Principal

    notify Fannie Mae per:

     

    • Part VI, Chapter 3: Non-Performing Primary Risk Mortgage Loans, Section 305: Notice of Default; or
    • Part VI, Chapter 5: Non-Performing Secondary Risk Mortgage Loans, Section 505: Notice of Default.
    Chapter 15

    Split Mortgage Loans and Bifurcated Mortgage Loans
    Section 1501

    Description

    Requirements

    A Split Mortgage Loan consists of 2 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 Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae.  and a Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. , that are underwritten concurrently.  A Split Mortgage Loan allows the BorrowerBorrowerPerson who is the obligor per the Note.  to divide the debt or increase the leverage on a property.

    A Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority.  is a single Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae.  that is evidenced by 2 NotesNotesInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.   with the same payment and collateral priority.  A Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority.  allows the BorrowerBorrowerPerson who is the obligor per the Note.  to deleverage a portion of the debt.

    Split Mortgage Loans and Bifurcated Mortgage LoansBifurcated Mortgage LoansSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority.  are sometimes referred to as A/B Structures.  Split Mortgage Loans and Bifurcated Mortgage LoansBifurcated Mortgage LoansSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority.  are not the same as the Dual Commitment OptionDual Commitment OptionFor a Streamlined Rate Lock Mortgage Loan trade with the Multifamily Trading Desk, your ability to increase the Mortgage Loan Rate Lock amount.  described in Part IV, Chapter 3: Streamlined Rate Lock, Section 307: Dual Commitment Option.

    Section 1502

    Characteristics

    Requirements

    Topic

    Split Mortgage Loans

    Bifurcated Mortgage Loans

    Closing

    Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. closing must occur on, or within 12 months after, the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. closing.

    Must occur on the same date.

    Loan Amount

    Aggregate original principal amounts of the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and the Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. .

    Aggregate original principal amounts of the 2 NotesNotesInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  . 

     

    If any proceeds are based on an IRPIRPInterest Reduction Payment , Part III, Chapter 7: Multifamily Affordable Housing Properties applies.

    Purpose

    Either AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. or refinancing.

    Either AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. or refinancing.

    Underwriting

    The 2 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. must:

     

    • not have a combined 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.  higher than the maximum standard for a Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. ;
    • not have a combined 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. lower than the minimum standard for a Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. ; and
    • be cross-defaulted.

    Must not have a combined:

     

    • 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.  higher than the maximum standard for a Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. ; and
    • 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. lower than the minimum standard for a Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. .

     

    Interest Rate Structures

    Either a fixed or variable interest rate.

     

    If you use a combination of fixed and variable interest rates, you must comply with Part III, Chapter 14: Supplemental Mortgage Loans.

    Either a fixed or variable interest rate. 

     

    If you use a combination of fixed and variable interest rates, each NoteNoteInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  must have its own MBSMBSMortgage-Backed Security .

    Documentation

    2 separate sets of Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. :  1 for the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and 1 for the Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. .

    1 set of Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , but evidenced by 2 separate NotesNotesInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  . 

     

    The NotesNotesInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  must be pari passu.

    Securitization

    2 separate MBSMBSMortgage-Backed Security :  1 for the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and 1 for the Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. .

     

    Additional DisclosureAdditional DisclosureInformation you provide that is published as an addendum to the disclosure documents when an MBS is issued and describes special Security, Mortgage Loan, or Property characteristics or terms that differ from those described in the standard Multifamily MBS Prospectus. per Form 4098 will be required if a partial release of collateral is permitted for either 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. .

    1 MBSMBSMortgage-Backed Security unless multiple Interest Rate Structures.

     

    Additional DisclosureAdditional DisclosureInformation you provide that is published as an addendum to the disclosure documents when an MBS is issued and describes special Security, Mortgage Loan, or Property characteristics or terms that differ from those described in the standard Multifamily MBS Prospectus. per Form 4098 must be required if a partial release of collateral is permitted for either NoteNoteInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  .

    Hazard Insurance

    Coverage based on the combined UPBUPBUnpaid Principal Balance of the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and the Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. .

    Consistent with Senior Mortgage LoansSenior Mortgage LoansSenior loan purchased by Fannie Mae. .

    Title Insurance

    Separate title insurance policies for the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. , in the respective amounts of each loan.

    Consistent with Senior Mortgage LoansSenior Mortgage LoansSenior loan purchased by Fannie Mae. .

    UCC Financing Statements

    Filings for both the Senior Mortgage LoanSenior Mortgage LoanSenior loan purchased by Fannie Mae. and Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. .

    Consistent with Senior Mortgage LoansSenior Mortgage LoansSenior loan purchased by Fannie Mae. .

    Guidance

    Topic

    Split Mortgage Loans

    Bifurcated Mortgage Loans

    Maturity Date

    2 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. may have different Maturity DatesMaturity DatesDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. if the Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. is resubordinated per Part III, Chapter 14: Supplemental Mortgage Loans.

    2 NotesNotesInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  may have different Maturity DatesMaturity DatesDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. and Yield Maintenance Period End DatesYield Maintenance Period End DatesLast day on which a Borrower owes yield maintenance for a voluntary Mortgage Loan prepayment. .
    Chapter 16

    Mezzanine Financing and Preferred Equity
    Section 1601

    Mezzanine Financing
    1601.01

    Description

    Requirements

    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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is permitted only if

    • the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is originated by an approved DUS LenderDUS LenderLender approved to Deliver loans under the Delegated Underwriting and Servicing program. 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… (DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ), or
    • Fannie Mae approves the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. from another source (non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ) on a case-by-case basis. 

    Before underwriting non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , you must contact the Deal TeamDeal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. .

    1601.01A

    Eligible Mortgage Loans

    Requirements

    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. with Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. must:

    • be newly originated;
    • have an original principal balance of at least
      • $10 million, for DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , or
      • $50 million, for non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ;
    • be fixed rate; and
    • be flagged for MBSMBSMortgage-Backed Security additional disclosure per Form 4098.
    1601.01B

    Eligible Terms

    Requirements

    Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. must:

    • have a fixed rate or fixed mezzanine rate of return without escalations;
    • not have a maturity date, redemption date, trigger date, or require repayment of the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. 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. ; and
    • have a minimum $1 million origination balance.
    1601.01C

    Loss Sharing

    Requirements

    Loss sharing is required on 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. with Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

    1601.01D

    Lender's Loan Application

    Requirements

    Your loan application form must:

    • require the BorrowerBorrowerPerson who is the obligor per the Note. to indicate whether it has or intends to obtain Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. as part of its organizational or capital structure; and
    • inform the BorrowerBorrowerPerson who is the obligor per the Note. that you may delay approval or revoke any prior approval if the BorrowerBorrowerPerson who is the obligor per the Note. changes its intention to obtain Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .
    1601.02

    Underwriting

    Requirements

    You must comply with the following table.

    Topic

    Requirements

    Income Projections
    • Provide support for the income projections used to determine the aggregate 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. and Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .
    • Demonstrate that the local economics are sufficient and sustainable to support both loans.

    Underwritten NCF

    Use the same 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. to determine the loan amount 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. , and
    • the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

    Refinance Analysis

    Prepare a refinance analysis that:

     

    • incorporates the terms of both 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 the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. ;
    • demonstrates that the BorrowerBorrowerPerson who is the obligor per the Note. will
      • maintain a positive equity position in 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). throughout 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. , or
      • have some other incentive (e.g., continuing cash flow) to remain committed 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 its successful operation; and
    • concludes that there will be sufficient cash flow, 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, and residual value to pay off 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 the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. at maturity (as fully extended, if applicable).

    Experience

    Ensure that the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). and each 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. have sufficient net worth, liquidity, and experience with 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). type and market to justify 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. and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

     

    If upgrades or rehabilitation are being financed by the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , then ensure that the BorrowerBorrowerPerson who is the obligor per the Note. , each 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. , and the mezzanine borrower also have

     

    • sufficient experience managing the scope of the proposed rehabilitation, and
    • strong property management experience in the local market.

    Mezzanine Borrower Structure

    Ensure the mezzanine borrower is

     

    • a newly-formed, special purpose, bankruptcy-remote limited liability company or limited partnership,
    • the sole owner of the BorrowerBorrowerPerson who is the obligor per the Note. , and
    • wholly-owned by the 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,… of the BorrowerBorrowerPerson who is the obligor per the Note. .

    Appraisal

    If the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is funding rehabilitation, 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. states 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 is” and “as completed” values.

    Third-Party Reports

    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. with DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , include in the underwriting submission, on behalf of your DLDLLender approved to Deliver loans under the Delegated Underwriting and Servicing program. Mezzanine 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… any:

     

    • internal or third-party inspection reports;
    • PCAsPCAsAssessment of the Property's physical condition and historical operation. ; and
    • architect’s or engineer’s reports (or other similar reports) related to the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

    Guidance

    You may require a Completion Guaranty (Form 6018). 

    The DUS Lender Mezzanine Affiliate may also require a completion guaranty from the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. borrower.

    1601.03

    Submission
    1601.03A

    Materials

    Operating Procedures

    You must submit the following 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.  when you submit 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. underwriting:

    • the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. sizing model;
    • a sources and uses of funds reflecting the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. proceeds;
    • any approvals associated with the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. ; and
    • for any Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. that finances rehabilitation:
      • a description of the proposed rehabilitation;
      • the approved rehabilitation budget;
      • the rehabilitation timeline; and
      • the construction or rehabilitation documents.
    1601.03B

    Data

    Operating Procedures

    To obtain a CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. , you must complete the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. fields 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. .

    1601.04

    Intercreditor Agreement

    Requirements

    For each 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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , you and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. lender must execute an intercreditor agreement approved by Fannie Mae.

    Operating Procedures

    The BorrowerBorrowerPerson who is the obligor per the Note. must pay the legal fees if Fannie Mae engages outside counsel to review any intercreditor agreements.  These fees are non-refundable, and you must pay the counsel retainer when you submit the underwriting. 

    Guidance

    You may charge the BorrowerBorrowerPerson who is the obligor per the Note. your own legal and due diligence fees.

    1601.05

    Servicing

    Operating Procedures

    You must service, report, and remit on the DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. per Part V.

    In all cases, you, as servicer of the DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , must promptly notify Fannie Mae of any default on the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

    Section 1602

    Preferred Equity

    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. with Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with preferred rights to receive dividends, distributions, payments, or returns relative to other equity owners. in the Borrower’sBorrower’sPerson who is the obligor per the Note. ownership structure, you must comply with the

    Guidance

    This Section does not apply to any BorrowerBorrowerPerson who is the obligor per the Note. organizational or capital structures relating solely to the allocation of LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. .

    Operating Procedures

    You must submit:

    • a completed Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with preferred rights to receive dividends, distributions, payments, or returns relative to other equity owners. Checklist (Form 6441) using:
      • 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. if the Borrower’sBorrower’sPerson who is the obligor per the Note. ownership structure includes any Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with preferred rights to receive dividends, distributions, payments, or returns relative to other equity owners. requiring Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. per Form 6441; or
      • DUSDUSDelegated Underwriting and Servicing DocWayDocWayBusiness-to-business electronic documentation delivery application, or any successor system. with the Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. in Folder II if the Borrower’sBorrower’sPerson who is the obligor per the Note. ownership structure does not include Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with preferred rights to receive dividends, distributions, payments, or returns relative to other equity owners. requiring Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. per Form 6441; and
    • Multifamily Underwriting CertificateMultifamily Underwriting CertificateMultifamily Underwriting Certificate (Form 6460 series) , and/or other agreement approved by Fannie Mae that provides underwriting information for a Mortgage Loan. (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. ) (Form 6460.Key Principal) for all Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with preferred rights to receive dividends, distributions, payments, or returns relative to other equity owners. investors identified as Key PrincipalsKey PrincipalsPerson 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. per Form 6441 with the Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. in Folder II in DUSDUSDelegated Underwriting and Servicing DocWayDocWayBusiness-to-business electronic documentation delivery application, or any successor system. .
    Chapter 17

    Structured Transactions
    Section 1701

    Description

    Requirements

    Structured Transactions consist of 1 or more 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. governed by a master agreement, regardless of individual loan size or cross-collateralization.

    There are 2 types of Structured Transactions:  Credit FacilitiesCredit FacilitiesStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. and Bulk DeliveriesBulk DeliveriesStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. .  The terms for each Structured Transaction vary and are negotiated based on the specific 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 SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). needs.

    Section 1702

    Credit Facilities

    Requirements

    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 a Structured Transaction that

    • is governed by a Master Credit Facility AgreementMaster Credit Facility AgreementAgreement evidencing the terms and conditions of a Credit Facility. , and
    • includes cross-collateralized and cross-defaulted 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. and PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .

    Guidance

    A Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. may also include:

    • variable rate debt, fixed rate debt, or a combination of both;
    • varied loan maturities and repayment terms;
    • the ability to increase borrowing based on
      • increases in the aggregate 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
      • decreases in the aggregate 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.   of 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). ;
    • the ability to increase the amount of the Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. by delivering additional PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). as collateral; or
    • collateral substitutions and releases.

    Requirements

    Product Description
    Transaction Size

    Credit FacilitiesCredit FacilitiesStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. must:

     

    • have at least $100 million UPBUPBUnpaid Principal Balance at the initial 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; and
    • not exceed any applicable Maximum Facility Limitations per the Master Credit Facility AgreementMaster Credit Facility AgreementAgreement evidencing the terms and conditions of a Credit Facility. .
    Borrowers

    Must have:

     

    • common ControlControlPossessing, 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). per the Master Credit Facility AgreementMaster Credit Facility AgreementAgreement evidencing the terms and conditions of a Credit Facility. ; and
    • identical ownership, although ownership percentage may vary.
    Fannie Mae Due Diligence Fee

    Equals $1,500 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). :

     

    • in the initial Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. funding; and
    • added or substituted post-closing.

    Operating Procedures

    Credit FacilitiesCredit FacilitiesStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. require intensive Fannie Mae involvement, including the assignment of an in-house legal lead who will direct outside counsel services. 

    Fannie Mae will engage outside counsel at your expense to prepare all related documentation.

    You may require the BorrowerBorrowerPerson who is the obligor per the Note. to

    • pay these legal fees and expenses, and
    • fund a deposit for their payment.
    Section 1703

    Bulk Deliveries

    Requirements

    A Bulk DeliveryBulk DeliveryStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. is a Structured Transaction that:

    • consists of multiple single-asset MBS Mortgage LoansMBS Mortgage LoansMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. with the same SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). that are governed by a Bulk Delivery Agreement; and
    • includes the ability to
      • add 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. in the future, or
      • substitute a new PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). for an 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). as collateral.
    Product Description
    Minimum Initial Transaction Size

    At least:

     

    • $100 million; or
    • $75 million combined with at least 3 PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; or
    • $55 million combined with at least 6 PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
    Loss Sharing Must be the same 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. , regardless of when they are added to the Bulk DeliveryBulk DeliveryStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. .
    Loan Structure
    • 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). collateralizes 1 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. .
    • 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. are uncrossed.
    Borrowers Must be SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). AffiliatesAffiliatesWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… per the Bulk Delivery AgreementBulk Delivery AgreementAgreement evidencing the terms and conditions of a Bulk Delivery. .
    Fannie Mae Due Diligence Fee

    $1,500 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).

     

    • in the initial Bulk DeliveryBulk DeliveryStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. , and
    • added or substituted after the Bulk Delivery Agreement effective date. 
    Additions PropertiesPropertiesMultifamily 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 for up to 3 years after the Bulk Delivery Agreement effective date.
    Substitutions
    • Each 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 only have 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). substitution.
    • PropertiesPropertiesMultifamily 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:
      • simultaneously released and added; and
      • substituted only after the first 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. until 1 year before the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    Substitution Test

    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 substituted if the substitute 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). :

     

    • 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. is at least the greater of the released 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).
      • original 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. , or
      • 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. immediately before the release; and
    • 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.  does not exceed the lesser of the released 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).
      • original 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.  , or
      • 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.  immediately before the release. 
    Substitution Fee

    On or before the release date, you must collect a fee 

     

    • that will be equally shared between you and Fannie Mae, and
    • equals the greater of
      • 50 bps multiplied by 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. current UPBUPBUnpaid Principal Balance , or
      • $50,000.
    Releases

    Occur 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

     

    • fully repaid, or
    • assumed.
    MBS Disclosure 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. must have Additional DisclosureAdditional DisclosureInformation you provide that is published as an addendum to the disclosure documents when an MBS is issued and describes special Security, Mortgage Loan, or Property characteristics or terms that differ from those described in the standard Multifamily MBS Prospectus. .
    Supplemental Mortgage Loans 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. are eligible 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. .
    Assumptions
    • A Bulk DeliveryBulk DeliveryStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. may be assumed in its entirety.
    • Each 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 only be assumed after it is released from the Bulk DeliveryBulk DeliveryStructured Transaction governed by a Bulk Delivery Agreement that allows future: Mortgage Loan additions; and/or Property substitutions. .

    Operating Procedures

    You must use

    • the Bulk Delivery Agreement, and
    • Fannie Mae's Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .

    Fannie Mae may engage outside counsel at your expense to prepare the Bulk Delivery Agreement.

    You may require the BorrowerBorrowerPerson who is the obligor per the Note. to

    • pay these legal fees, and
    • fund a deposit for their payment.
    Chapter 18

    Choice Refinance Loans
    Section 1801

    Eligibility

    Requirements

    A Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. is a Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. that is eligible for a streamlined underwriting process which reduces origination costs.

    To use the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. streamlined underwriting, you must ensure:

    Topic

    Requirements

    Prerequisites
    • You have been the ServicerServicerPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. of the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. for the last 12 months.
    • The Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. complies with Form 4660.
    • The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. is not in default.
    • The BorrowerBorrowerPerson who is the obligor per the Note. has demonstrated a commitment to its obligations under the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. by
      • maintaining 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 good physical condition,
      • providing competent 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 services, and
      • complying with the requirements under the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
    • You completed a full PCAPCAAssessment of the Property's physical condition and historical operation. per
    • 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 operating on a stabilized basis;
      • has a most recent overall inspection rating of 1 or 2; and
      • during the underwriting inspection, does not show any:
        • adverse change in 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, except normal wear and tear; or
        • life safety issues.

    Loan History
    • The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. :
      • has a good payment history, with no delinquencies of 60 days or more during the 3 years immediately preceding the proposed refinance;
      • is not on the current Fannie Mae WatchlistWatchlistThe risk rating classification if you or Fannie Mae determine the Mortgage Loan has heightened credit risk. ;
      • had no declared non-Payment DefaultsPayment DefaultsBorrower's failure to fully pay any required Mortgage Loan payment when due, including, principal, interest, late charges, default interest, fees, pricing incentive recapture, prepayment premium, escrows, or other collateral accounts for taxes, insurance, … that remained uncured for more than 120 days;
      • was underwritten and delivered per then-applicable GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. provisions; and
      • is serviced per the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
    • There were no unauthorized assumptions or changes in ownership, and no unauthorized LiensLiensLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. filed 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). .

    Additional Collateral

    The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. does not have a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. or additional cash collateral.

    Pricing

    The pricing that was approved for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. does not apply to the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. .

    Underwriting

    The Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. , regardless of the 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…, must be of sufficient credit quality to repay the refinanced 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. without individually negotiated debt relief.
    Section 1802

    Lender Delegation

    Requirements

    You are delegated to underwrite the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. if:

    • the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. and the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. fall under the same Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. categories in the Form 4660, and Fannie Mae approved those same Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. categories for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. ; or
    • the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. falls under the Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. categories in the Form 4660, and has the same structure as the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. , even though the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. was not a Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. when it was CommittedCommittedContractual 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. .

    In addition, you are delegated to approve a Non-Contiguous ParcelNon-Contiguous ParcelMultiple parcels of land securing a Mortgage Loan that do not share common boundaries or that are separated by dedicated or private streets that are major arterials. structure if the same structure was approved for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. . 

    Section 1803

    Prepayment Premiums

    Requirements

    You must not waive any:

    • Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. based on required yield maintenance; or
    • portion of the Minimum 1% Prepayment PremiumMinimum 1% Prepayment PremiumFor a prepayment, an amount equal to 1% of the UPB. above the required yield maintenance if the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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.
      • has a minimum Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. other than 1%,
      • will be refinanced before the Yield Maintenance Period End DateYield Maintenance Period End DateLast day on which a Borrower owes yield maintenance for a voluntary Mortgage Loan prepayment. , or
      • is a fixed rate MBS Mortgage LoanMBS Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. with an Issue DateIssue DateFirst day of the month a Security is issued.  before April 1, 1999.

    Guidance

    For all other Choice Refinance LoansChoice Refinance LoansMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. :

    Cash or MBS You may waive the Minimum 1% Prepayment Premium...
    Fixed Rate
    • after the Yield Maintenance Period End DateYield Maintenance Period End DateLast day on which a Borrower owes yield maintenance for a voluntary Mortgage Loan prepayment. , or 
    • for declining Prepayment PremiumsPrepayment PremiumsFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. during the 6 months before the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    ARM and SARM

    after any lockout if the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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.

     

    • is being refinanced with a fixed rate 7- or 10-year term, and
    • was either
      • an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. with a Plan NumberPlan NumberNumber identifying the applicable loan characteristics for any Mortgage Loan that accrues interest at a variable rate at any time during the loan term. of 02160, 02254, 02255, 03471, or
      • a SARM Loan with a Plan NumberPlan NumberNumber identifying the applicable loan characteristics for any Mortgage Loan that accrues interest at a variable rate at any time during the loan term. of 03488.
    Section 1804

    Streamlined Underwriting
    1804.01

    Environmental Site Assessment

    Requirements

    A Phase I Environmental Site AssessmentPhase I Environmental Site AssessmentEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. is not required if:

    • an Environmental Professional performs an environmental database review and identifies no
      • potential environmental concerns (as defined in ASTMASTMAmerican Society for Testing Materials E1528 - Standard Practice for Limited Environmental Due Diligence: Transaction Screen), or 
      • adverse conditions requiring further due diligence; 
    • the BorrowerBorrowerPerson who is the obligor per the Note. enters into an Environmental Indemnity Agreement (Form 6085); and
    • you confirm that the BorrowerBorrowerPerson who is the obligor per the Note. is appropriately implementing any existing O&M PlansO&M PlansRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). 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). .
    1804.02

    Radon Testing

    Requirements

    You must ensure any radon testing required per Environmental Due Diligence Requirements (Form 4251) is performed, unless testing meeting the current requirements of Form 4251 was performed when the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. was originated.

    1804.03

    Survey

    Requirements

    Part II, Chapter 3: Legal Compliance, Section 305: Survey does not apply if the:

    • new mortgagee title insurance policy includes all title exceptions, including those that would appear based upon the most recent survey provided by the BorrowerBorrowerPerson who is the obligor per the Note. (whether it is the original survey for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. or a subsequent one);
    • BorrowerBorrowerPerson who is the obligor per the Note. certifies that there have been no changes or improvements 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 later of the date of the survey
      • referenced in the original title policy, or
      • most recently completed; 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). inspection report reveals no evidence of new construction or encroachments on the site from construction on adjoining properties. 
    1804.04

    Borrower Structure and Experience

    Requirements

    You must:

    • Obtain a new Multifamily Underwriting CertificateMultifamily Underwriting CertificateMultifamily Underwriting Certificate (Form 6460 series) , and/or other agreement approved by Fannie Mae that provides underwriting information for a Mortgage Loan. (Form 6460 series) from the BorrowerBorrowerPerson who is the obligor per the Note. , any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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. . 
    • Obtain updated copies of the organizational documents of the BorrowerBorrowerPerson who is the obligor per the Note. and the 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. , and confirm that the Borrower’sBorrower’sPerson who is the obligor per the Note. organizational structure complies with Part II, Chapter 3: Legal Compliance.
    • Confirm that no unauthorized change has been made to the Borrower’sBorrower’sPerson who is the obligor per the Note. organizational structure or documents.
    • Obtain a new good standing certificate from the jurisdiction where the BorrowerBorrowerPerson who is the obligor per the Note. is organized. 
    1804.05

    Borrower Credit

    Requirements

    You must obtain and review new financial statements for all parties relevant to the transaction.

    For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , you must:

    Guidance

    If the BorrowerBorrowerPerson who is the obligor per the Note. or 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. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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,… submitted financial statements within the past 12 months, then in lieu of new financial statements, you may accept a certification that there has been no material adverse change from the financial condition or credit standing reflected in the financial statements.

    1804.06

    Property Management

    Guidance

    You may elect not to review 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 or agreement per Part II, Chapter 1: Attributes and Characteristics, Section 112: Property Management and Agreement.

    1804.07

    Replacement Reserve

    Requirements

    You must ensure the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. is funded as follows:

    If...

    Then...

    The Property

     

    • is located in a Pre-Review Market that is not eligible for delegation at any Tier per Section II of Form 4660, and
    • the market was a Pre-Review Market when the Portfolio Mortgage Loan was originated.

    The BorrowerBorrowerPerson who is the obligor per the Note. must fully fund the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .

    The Property

     

    • is located in a Pre-Review Market that is not eligible for delegation at any Tier per Section II of Form 4660, and
    • the market was not a Pre-Review Market when the Portfolio Mortgage Loan was originated.

    You must determine the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. funding per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406: Replacement Reserve.

     

    The Property is located in

     

    • a Strong Market,
    • a Nationwide Market, or
    • a Pre-Review Market that is eligible for Tier 3 and Tier 4 Mortgage Loans on a delegated basis per Section II of Form 4660.

    You must determine the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. funding per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 406: Replacement Reserve.
    1804.08

    Real Estate Tax and Insurance Escrows

    Requirements

    You must require T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow deposits for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. unless Fannie Mae waived the T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. .  If you do not require T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow deposits, then you must comply with Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 407: Escrow Requirements for Taxes and Insurance.

    Section 1805

    Property Ownership Change

    Guidance

    If at the time of the refinance of the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage 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. 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 sold to a new owner, then you may use the streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans, Section 1804.01: Environmental Site Assessment provided that you comply with Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals for underwriting the BorrowerBorrowerPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson 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. , GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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,…. 

    You may also use the streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans, Section 1801: Eligibility 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. that were assumed before being refinanced as a Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. .

    Chapter 19

    Bond Transactions and Credit Enhancement Mortgage Loans
    Section 1901

    Description

    Guidance

    A 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. credit enhancement may involve

    • a StandbyStandbyCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) if the Borrower fails to make required mortgage note payments or if a bankruptcy event has occurred. Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. ,
    • a Direct PayDirect PayCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) regardless of whether the Borrower has reimbursed Fannie Mae for such payments. Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , 
    • a secondary market Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , or
    • an MBSMBSMortgage-Backed Security .

    In addition to credit enhancing the BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , both the StandbyStandbyCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) if the Borrower fails to make required mortgage note payments or if a bankruptcy event has occurred. Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. and the Direct PayDirect PayCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) regardless of whether the Borrower has reimbursed Fannie Mae for such payments. Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. may provide

    • liquidity support, and
    • if the BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. are issued under an Open IndentureOpen IndentureIndenture for a Bond transaction where a portion of the Bond proceeds finance projects in addition to the Property securing the Mortgage Loan. , credit enhancement 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. .

    Requirements

    You must coordinate all aspects of a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. transaction with your counsel and Fannie Mae’s counsel.

    For BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. that are privately placed or purchased directly, you must consult with the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. and Fannie Mae’s counsel for pricing and disclosure requirements.

    For a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , you must also comply with Part III, Chapter 20: Forward Commitments.

    Terms Credit Enhancement Instrument MBS for Bonds
    Fannie Mae Guarantees
    • 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. P&IP&IPrincipal and interest for Closed IndentureClosed IndentureIndenture for a Bond transaction where all of the Bond proceeds finance only the Property securing the Mortgage Loan. BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .
    • 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. P&IP&IPrincipal and interest for Open IndentureOpen IndentureIndenture for a Bond transaction where a portion of the Bond proceeds finance projects in addition to the Property securing the Mortgage Loan. BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .
    • Up to 25 basis points of 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. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. fees.
    		 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. P&IP&IPrincipal and interest .
    Basis

    Either

     

    • StandbyStandbyCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) if the Borrower fails to make required mortgage note payments or if a bankruptcy event has occurred. , or
    • Direct PayDirect PayCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) regardless of whether the Borrower has reimbursed Fannie Mae for such payments. .
    		 Direct PayDirect PayCredit enhancement under which Fannie Mae makes principal and interest payments directly to the Bond Trustee (for payment to bondholders) regardless of whether the Borrower has reimbursed Fannie Mae for such payments. .
    Interest Rate Type

    Either

     

    • fixed rate, or
    • variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .

    Either

     

    • fixed rate, or
    • variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. with a SARM Loan.
    Documents
    • Any new 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. issued must be documented on Fannie Mae 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. and Loan DocumentLoan DocumentAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. forms.
    • For substitute credit enhancements where the existing BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. remain outstanding, the existing 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. and Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. must be:
      • amended and restated on Fannie Mae form documents; or
      • amended only as necessary per Fannie Mae.
    Credit Enhancement Timing

    Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. is delivered

     

    • on the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. issuance date for a new 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. , or 
    • when Fannie Mae provides new or substitute credit enhancement.
    		 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 originated with 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. issuance and the MBSMBSMortgage-Backed Security , when issued, is deposited with the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. .
    Section 1902

    Outside Counsel
    1902.01

    Engagement

    Requirements

    You must request Fannie Mae’s outside counsel assignment before any transaction structuring discussions begin.

    Operating Procedures

    To request Fannie Mae’s outside counsel assignment, submit a Counsel Designation Request (Form 4625.B) to [email protected].

    Fannie Mae selects its own outside counsel but may consider your request for a specific counsel.

    1902.02

    Fees

    Requirements

    You must pay Fannie Mae's outside counsel fees and costs regardless of whether the transaction closes.

    Guidance

    You may charge the BorrowerBorrowerPerson who is the obligor per the Note. for Fannie Mae’s outside counsel fees and costs.

    For a Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , you may choose to have Fannie Mae’s outside counsel

    • prepare the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , and
    • review title insurance and survey matters.

    If Fannie Mae’s outside counsel performs these services:

    • the counsel will only represent Fannie Mae, not you; and
    • you will be responsible for the additional fees.
    Section 1903

    Third Parties
    1903.01

    Generally

    Requirements

    You must coordinate with all third parties and their counsels to ensure the transaction complies with their requirements.

    Fannie Mae reserves the right, in its sole discretion, to reject any third party’s involvement, including:

    • 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. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. ;
    • Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. ;
    • 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. underwriter;
    • any Remarketing AgentRemarketing AgentPerson selected by the Issuer to reset the interest rate on the Bonds in order to resell any Bonds tendered by investors on the interest rate reset date. ;
    • any 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. liquidity provider; and
    • any Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. provider.
    1903.02

    Remarketing Agent

    Requirements

    You must ensure any Remarketing AgentRemarketing AgentPerson selected by the Issuer to reset the interest rate on the Bonds in order to resell any Bonds tendered by investors on the interest rate reset date. :

    • currently remarkets at least $250 million of weekly variable rate demand BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. ;
    • has continuously remarketed weekly variable rate demand BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. for the past 3 years;
    • has a minimum net worth of $5 million; and
    • has a minimum broker line of credit sufficient for warehousing $100 million of rated BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. at any time.

    Operating Procedures

    Fannie Mae’s counsel must confirm that the Remarketing Agreement terms comply with Fannie Mae requirements.

    Section 1904

    Legal Documents
    1904.01

    Generally

    Operating Procedures

    Fannie Mae’s counsel will advise your counsel regarding the appropriate Fannie Mae Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. for the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. structure.

    Immediately after 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. closing, you must:

    • obtain a final 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. transcript from 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. counsel; 
    • submit it via CD to Multifamily Certification and CustodyMultifamily Certification and CustodyTeam responsible for taking custody of and certifying Mortgage Loans that can be contacted at  [email protected], (800) 940-4646, or for submissions:  Fannie Mae (Multifamily) Certification and Custody 21240 Ridgetop Circle Suite 125-130 Sterling, VA  20166. ; and
    • maintain a copy in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. . 
    1904.02

    Credit Enhancement Instrument

    Guidance

    Fannie Mae’s Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. presume the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. will:

    • be the initial lender and secured party under the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ; and
    • immediately assign the Multifamily Bond Note and Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. to Fannie Mae and the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. , as co-assignees.

    Requirements

    You must ensure that Fannie Mae (not you or the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. ) is named as the counterparty or beneficiary in the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. agreements and collateral assignments.

    Operating Procedures

    Fannie Mae and its counsel will:

    • prepare the
      • Credit Enhancement Commitment Letter,
      • credit enhancement documents,
      • multifamily NoteNoteInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  ; and
    • review and approve all 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. documents.

    You may ask Fannie Mae’s counsel to also prepare other Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , or your counsel may prepare these documents.

    1904.03

    MBS for Bonds

    Operating Procedures

    The MBS for BondsMBS for BondsFannie Mae MBS: issued to credit enhance tax-exempt Bonds; or exchanged for Bonds redeemed at MBS issuance. loan structure is identical to a standard 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. .

    Your counsel must:

    • Prepare the standard 6000 series Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
    • Consult with Fannie Mae’s counsel to 
      • integrate the standard Loan DocumentLoan DocumentAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. provisions into the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. transaction structure, and 
      • incorporate any 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 modifications into the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
    1904.04

    Affordable Regulatory Agreements

    Operating Procedures

    1. If 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… must be recorded before the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. to ensure the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. ’s tax-exempt status, Fannie Mae’s counsel will provide 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… rider subordinating it to the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .  
    2. You must ensure the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. attaches the rider to the 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….
    Section 1905

    Fannie Mae LIHTC Investment in Credit-Enhanced Bonds

    Guidance

    Per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 710.02: Fannie Mae Credit-Enhanced Tax-Exempt Bond Issuance, Fannie Mae may be a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor in the BorrowerBorrowerPerson who is the obligor per the Note. for a project financed by tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. that Fannie Mae will also be credit enhancing.  To avoid potential adverse tax consequences, if Fannie Mae is a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor on a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , Fannie Mae’s counsel will prepare the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. agreement among the

    • BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. , 
    • BorrowerBorrowerPerson who is the obligor per the Note. , and 
    • Fannie Mae. 

    Requirements

    You must determine if Fannie Mae will be a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor on a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. .  If so, you must confirm:

    • Fannie Mae does not hold a direct equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. ;
    • Fannie Mae’s indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. is less than 50%;
    • the IRS documentation filed for the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. issuance shows that none of the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. proceeds were applied to pay any portion of Fannie Mae’s Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. ;
    • the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. , BorrowerBorrowerPerson who is the obligor per the Note. , and Fannie Mae enter into a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. agreement acknowledging Fannie Mae’s equity interest; and
    • any LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. agreement required notices to the BorrowerBorrowerPerson who is the obligor per the Note. and 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. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. were provided.
    Section 1906

    Credit Enhancing Fixed Rate Bonds
    1906.01

    Terms

    Requirements

    Terms Credit Enhancement Instrument MBS for Bonds
    Interest Rate Reset
    • Used if the BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties.
      • have a fixed rate for a specified period before maturity, and
      • require remarketing on scheduled mandatory tender dates.
    • Occurs after the fixed rate period per the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. and Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
    		 Not available.
    Loan Term

    Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must:

     

    • 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 new 4% LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , have a term of at least 10 years, with a maximum of 30 years; or
    • 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). without new 4% LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , have a term less than or equal to the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. term, with a maximum of 30 years.
    Fannie Mae Fees Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage.
    Trustee Fee and Bond Issuer Fee

    Underwritten as

     

    • an operating expense, or
    • part of the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. .
    		 Underwritten as an operating expense.
    Gross Note Rate

    Sum of the

     

    • BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate, 
    • Facility Fee (calculated per Part III, Chapter 19: Bond Transactions and Credit Enhancement Mortgage Loans, Section 1908: Facility Fee) divided by the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. UPBUPBUnpaid Principal Balance , and 
    • trustee fee and 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. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. fee, if they are not underwritten as an operating expense.

    Sum of the

     

    • BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate,
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , and
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. .
    1906.02

    Multiple Fixed Rate Bonds

    Operating Procedures

    If the fixed rate 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. issue has multiple BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. with different maturity dates and interest rates, the fixed rate for the entire 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. issue will be the weighted average of the individual 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. rates, and considering the different maturities.

    Section 1907

    Credit Enhancing Variable Rate Bonds
    1907.01

    Terms

    Guidance

    Fannie Mae does not provide liquidity support for variable rate demand BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .

    Requirements

    Terms Credit Enhancement Instrument MBS for Bonds
    Variable Interest Rate

    A 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. and Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must have an interest rate linked to

     

    • the SIFMA Municipal Swap Index,
    • an IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. that adjusts weekly, or
    • a SOFRSOFRFor any Business Day, the Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York, or any successor administrator, on the Federal Reserve Website. -based index. 
    • 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 comply with Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans.
    • BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. must have an interest rate linked to a SOFRSOFRFor any Business Day, the Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York, or any successor administrator, on the Federal Reserve Website. -based index.
    Bond Liquidity You must obtain Fannie Mae’s approval for any third party providing 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. liquidity support.
    No New 4% LIHTCs Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must have a term of at least 5 years, with a maximum of 30 years.

    Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must have a:

     

    • term of at least 5 years, with a maximum of 30 years; and
    • Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. coinciding with the
      • final 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. maturity date, adjusted for applicable payment timing differences, or
      • initial 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. tender and remarketing, if the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. has a scheduled mandatory tender date for remarketing.
    New 4% LIHTCs Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must have a term of at least 10 years, with a maximum of 30 years.

    Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. must have a:

     

    • term of at least 10 years, with a maximum of 30 years; and
    • Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. coinciding with the
      • final 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. maturity date, adjusted for applicable payment timing differences, or
      • initial 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. tender and remarketing, if the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. has a scheduled mandatory tender date for remarketing.
    Maximum Note Rate Determined by Fannie Mae. Per Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans.
    Amortization

    For a variable rate Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. using an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. , use the greater of the

     

    • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   , or
    • actual Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. .
    		 Per Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans.
    Maximum SARM Loan Per Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans.
    PRF You must establish a PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. . Not applicable.
    Fannie Mae Fees Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. . Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. .
    Trustee Fee and Bond Issuer Fee

    Underwritten as

     

    • an operating expense, or
    • part of the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. .
    		 Underwritten as an operating expense.
    Gross Note Rate

    Sum of the

     

    • BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate, 
    • Facility Fee (calculated perPart III, Chapter 19: Bond Transactions and Credit Enhancement Mortgage Loans, Section 1908: Facility Fee) divided by the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. UPBUPBUnpaid Principal Balance , 
    • trustee fee and 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. IssuerIssuerEntity that: issues Bonds for a Credit Enhancement Mortgage Loan; packages mortgages for sale as a Security for an MBS; or issues a Letter of Credit. fee, if they are not underwritten as an operating expense, and
    • cap cost factor.

    Sum of the

     

    • BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate,
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , and
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. .
    1907.02

    Principal Reserve Fund

    Operating Procedures

    Topics Principal Reserve Fund Process
    Borrower Election

    Before 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. , the BorrowerBorrowerPerson who is the obligor per the Note. must select 1 of the following options to redeem BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. :

     

    • Minimum Dollar Balance:  
      • Required option for a non-single-asset entity BorrowerBorrowerPerson who is the obligor per the Note. .
      • PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. deposits accumulate until the balance is at least $100,000. 
      • BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. eligible for redemption are redeemed in $100,000 increments.
    • Minimum Percentage Balance: 
      • PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. deposits accumulate until the balance is at least $100,000 greater than 20% of the original 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. principal amount. 
      • BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. eligible for redemption are redeemed in $100,000 increments, but the redemption payments may not reduce the PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. balance below 20% of the original 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. principal amount.
    PRF Deposit Amount

    PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. deposits represent the principal amortization amount of the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. based on

     
    PRF Deposit Schedule On the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , you must calculate and attach the Schedule of Deposits to the Principal Reserve FundPrincipal Reserve FundAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. to the Reimbursement Agreement.

     

    1907.03

    Interest Rate Cap

    Requirements

    Terms You must ensure the third-party Interest Rate Cap...
    Interest Rate Cap For a variable rate Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. with variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , is purchased and maintained for the entire time the variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. are credit enhanced. 
    Index Has the same IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. as the variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .
    Interest Rate Cap Provider Is obtained from an approved provider listed on https://multifamily.fanniemae.com.
    Initial Interest Rate Cap Notional Amount equals the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. UPBUPBUnpaid Principal Balance when the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. is purchased.
    Minimum Interest Rate Cap Term

    Agreement remains continually in place until the earlier of

     

    • 5 years, or
    • the remaining 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. term.
    Replacement Interest Rate Cap ReplacementReplacementCapital item replacements and major maintenance needs identified by the Property Condition Assessment or otherwise required. is purchased if the existing 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. expires before the variable rate 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. conversion or Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
    Cap Strike Rate for Replacement Interest Rate Cap Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for the ReplacementReplacementCapital item replacements and major maintenance needs identified by the Property Condition Assessment or otherwise required. 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.  is the same or lower than that of the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. .
    Cap cost factor Cost factor is included in the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   per Part III, Chapter 19: Bond Transactions and Credit Enhancement Mortgage Loans, Section 1907.05: Cap Cost Factor Included in Maximum Note Rate.
    Interest Rate Cap Reserve Adjustment

    Cash reserve:

     

    • is evaluated at the end of each 6-month period to determine if the cost of the replacement 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. has increased, based on market conditions; and
    • future deposits are not decreased even if the future 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 has decreased.
    Documents

    Documents are:

     

    • on acceptable forms; and
    • delivered to Fannie Mae, including the
      • Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. , and
      • applicable Interest Rate Cap Reserve and Security Agreement (Form 6442 series).

    Operating Procedures

    Fannie Mae will engage outside counsel at your expense to review all 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. -related documents.

    1907.04

    Cap Strike Rate

    Operating Procedures

    The BorrowerBorrowerPerson who is the obligor per the Note. must purchase an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. with a Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. that is determined

    1907.05

    Cap Cost Factor Included in Maximum Note Rate

    Requirements

    When determining the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   used to calculate the minimum required 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…, you must include a cap cost factor based on the term of the

    • Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , and
    • initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. .

    You do not need to include a cap cost factor if the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term equals the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. term.

    You must ensure the cap cost factor equals the

    • estimated cost of the replacement cap (when the term of the initial cap expires), divided by
    • term of the initial cap.

    Operating Procedures

    For example, to calculate the cap cost factor assuming a 5-year Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. and 10-year Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. term:

    • You must include an annual cap cost factor in the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   .
    • If the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. term is 10 years and an initial cap is purchased for a 5-year term, the cap cost factor equals the estimated cost of a replacement cap divided by 5 (the number of years of the initial interest rate term).
    • The replacement cap has a 5-year term and a Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. equal to that of the initial cap.
    • If a 5-year 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. at the initial Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. costs 20 basis points, you must divide 20 by 5, then add the result (4 basis points) to the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   .
    1907.06

    Interest Rate Cap Reserve

    Requirements

    You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. fully funds a cash reserve to purchase replacement Interest Rate CapsInterest Rate CapsInterest 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. .

    Operating Procedures

    • If the initial Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. term is 5 years, you must ensure the BorrowerBorrowerPerson who is the obligor per the Note. funds the cash reserve with each monthly 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. payment during the term.
    • Calculate the monthly reserve payments for the first 6 months using the estimated cost of a replacement 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. with a 5-year term and the initial Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. .
    • If the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term is more than 5 years, you must ensure the Borrower'sBorrower'sPerson who is the obligor per the Note. monthly reserve payments for the replacement cap begin no later than 5 years before the existing 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. expires.

    Guidance

    For example, if 

    • a 5-year initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. is purchased with a 10-year term and a 6.00% Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. , and 
    • the cost of a replacement 5-year cap with a 6.00% Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. is $140,000, then
    • the monthly reserve for the first 6 months would be $2,333.33 ($140,000 cost ÷ 60 months).
    1907.07

    Interest Rate Cap Reserve Adjustments

    Requirements

    You must evaluate the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. reserve every 6 months.  If the replacement 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:

    • increased, you must raise the monthly reserve payment to purchase the replacement 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. before the existing 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. expires; or
    • decreased, do not adjust the reserve.

    When a replacement 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. is purchased, the reserve cycle resets to match the term of the new 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. .  Any amount remaining in the reserve after purchasing the replacement 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. must be used to fund the subsequent reserve.

    1907.08

    Interest Rate Cap Contract Documentation and Delivery

    Requirements

    For credit enhancements using:

    Operating Procedures

    Topic Process
    Cap Provider Payment

    You must ensure the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. provider pays you or the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. directly

     

    • on the 1st or 15th day of the month corresponding with the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. payment dates, and
    • when the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. interest rate index is greater than the average Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for a month.

     

    Only disburse a provider payment to the BorrowerBorrowerPerson who is the obligor per the Note. if

     

    • there is no Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. default, and
    • you received all payments due under the IndentureIndentureBond issuer trust indenture or resolution listing Bond terms. and BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. for that month.

     

    If the BorrowerBorrowerPerson who is the obligor per the Note. defaults under the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. or Reimbursement Agreement, you must

     

    • promptly notify Fannie Mae and any applicable Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. , and
    • direct the Bond TrusteeBond TrusteeTrustee for a Credit Enhancement Instrument. to suspend its payment to the BorrowerBorrowerPerson who is the obligor per the Note. .
    Timing The BorrowerBorrowerPerson who is the obligor per the Note. must accept a bid for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. in writing from a Fannie Mae approved provider before you request a CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. .
    Purchase Price The BorrowerBorrowerPerson who is the obligor per the Note. must pay the entire purchase price for an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. to the provider when the Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. is issued.
    Pledge to Fannie Mae The BorrowerBorrowerPerson who is the obligor per the Note. must pledge its interest in the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. and any reserve to Fannie Mae using the documentation provided by Fannie Mae’s counsel.
    Section 1908

    Facility Fee

    Operating Procedures

    For Credit Enhancement InstrumentsCredit Enhancement InstrumentsAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , you must calculate the Facility Fee as follows:

    FACILITY FEE CALCULATION
    Item Function Description
    CREDIT ENHANCEMENT FEE / GUARANTY FEE CALCULATION
    1  
    • Applicable Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. , or 
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage.

    MULTIPLIED BY

    		 Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. UPBUPBUnpaid Principal Balance
    MINUS PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. balance, excluding interest
    EQUALS Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. / Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage.
    SERVICING FEE CALCULATION
    2   Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage.
    MULTIPLED BY Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. UPBUPBUnpaid Principal Balance
    MINUS PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. balance, excluding interest
    EQUALS Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage.
    PRF FEE CALCULATION
    3   For variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , PRF Fee Rate
    MULTIPLIED BY PRFPRFAccount you hold accumulating principal amortization payments for variable rate Bond credit enhancements. balance, excluding interest
    EQUALS PRF Fee
    BOND LIQUIDITY FEE CALCULATION
    4   For variable rate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , Bond Liquidity Fee RateBond Liquidity Fee RateFee charged by the provider of a letter of credit, standby bond purchase agreement, or other arrangement providing liquidity to purchase securities (typically variable rate demand obligations), that were tendered to the Issuer but cannot be immediately remarketed to new investors, expressed as an…
    MULTIPLIED BY 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. UPBUPBUnpaid Principal Balance
    EQUALS Bond Liquidity Fee
    FACILITY FEE CALCULATION
    5   Credit Enhancement FeeCredit Enhancement FeeFee due to Fannie Mae for a Credit Enhancement Instrument. / Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage.
    PLUS Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage.
    PLUS any PRF Fee
    PLUS any Bond Liquidity Fee
    EQUALS Facility Fee
    Section 1909

    Taxable Tails and Supplemental Mortgage Loans
    1909.01

    Taxable Tails

    Requirements

    Terms A Taxable Tail must...
    Structure

    Be fixed or variable rate debt structured as

     

    • BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. ,
    • a Cash Mortgage LoanCash Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for cash. , or
    • an MBS Mortgage LoanMBS Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. .
    Underwriting and Loss Sharing

    Be treated with the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds.

     

    • as a single combined 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
    • with a blended weighted average 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…, 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.  , interest rate, etc., based on the combined UPBUPBUnpaid Principal Balance of the tax-exempt and taxable debt.
    Cross Provisions Be cross-collateralized and cross-defaulted with the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. .
    MBS Mortgage Loan Have Additional DisclosureAdditional DisclosureInformation you provide that is published as an addendum to the disclosure documents when an MBS is issued and describes special Security, Mortgage Loan, or Property characteristics or terms that differ from those described in the standard Multifamily MBS Prospectus. .
    Maturity and Prepayment
    • Mature no earlier than the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. .
    • Be fully repaid before the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. is prepaid.

    Operating Procedures

    A Taxable TailTaxable TailTaxable debt secured by the Property securing the Credit Enhancement Mortgage Loan. usually fully amortizes over its loan term.  This may require “hyper-amortization” where all principal payments are applied

    • first to the Taxable TailTaxable TailTaxable debt secured by the Property securing the Credit Enhancement Mortgage Loan. until it fully amortizes, and
    • then to the tax-exempt debt.
    1909.02

    Supplemental Mortgage Loans

    Requirements

    You must ensure any 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. :

    • is taxable debt that is cross-collateralized and cross-defaulted with the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. 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 originated after the Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. ;
    • complies with the BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. documents; and
    • is properly disclosed to InvestorsInvestorsMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. .
    Section 1910

    Third-Party Subordinate Financing

    Requirements

    For third-party subordinate financing, you must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704: Subordinate Financing.

    Section 1911

    Moderate Rehabilitation Mortgage Loan with Side-by-Side Bond Financing

    Guidance

    Fannie Mae may purchase a Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. 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. when the BorrowerBorrowerPerson who is the obligor per the Note. separately obtains side-by-side 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. financing.  Since Fannie Mae does not credit enhance the BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. , you may use your own outside counsel.

    Requirements

    For a Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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 side-by-side 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. financing, you must ensure the BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties.

    • have a shorter term 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. , 
    • are fixed rate, 
    • are tax-exempt,
    • are 100% secured by cash collateral, and
    • are not secured by the 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. .
    Chapter 20

    Forward Commitments
    Section 2001

    Generally
    2001.01

    Description

    Requirements

    You must 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 permanent 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. that complies with the Forward Commitment Confirmation.

    2001.02

    Eligible Properties

    Requirements

    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). undergoing new construction or substantial rehabilitation is eligible for a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .  PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). substitutions are not permitted.

    Section 2002

    Funded Forward Commitments

    Guidance

    You may contact the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. for funded Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. information.

    Section 2003

    Unfunded Forward Commitments
    2003.01

    Terms and Interest Rate Determination
    2003.01A

    Terms

    Requirements

    Terms Unfunded Forward Commitment Requirements
    Forward Commitment Term 30-month maximum for construction and lease up, unless extended per Part III, Chapter 20: Forward Commitments, Section 2003.05C: Forward Commitment Extensions.
    Borrower Commitment

    Must:

     

    • have the same terms as the Forward Commitment Confirmation;
    • comply with this Chapter; and
    • comply with all Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. documents.
    Loan Type

    Must be a fixed rate or variable rate:

     

    • 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
    • tax-exempt bond credit enhancement or associated Taxable TailTaxable TailTaxable debt secured by the Property securing the Credit Enhancement Mortgage Loan. .
    Expiration or Termination

    You must 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. as an immediate 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. if the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property.

     

    • expired, or
    • terminated.
    2003.01B

    Interest Rate Determination and Rate Lock

    Guidance

    The interest rate for a permanent 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 determined:

    • with 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. as of the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. date; or
    • for a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. on a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , at 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. pricing per Part IV, Chapter 8: Bond Transactions and Credit Enhancement Mortgage Loans, Section 801.04: Rate Lock.

    Operating Procedures

    You must

    • set the Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. at 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 
    • ensure they are paid only on the permanent 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 Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. or Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. will be charged during the construction period.

    2003.02

    Good Faith Deposit and Fees
    2003.02A

    Good Faith Deposit

    Requirements

    You must collect the Good Faith DepositGood Faith DepositAmount you collect from the Borrower when originating a Mortgage Loan per ​Part IV, Chapter 2: Rate Lock and Committing, Section 203: Good Faith Deposits. from the BorrowerBorrowerPerson who is the obligor per the Note. per 

    2003.02B

    Fees

    Requirements

    The following fees apply to Forward CommitmentsForward CommitmentsCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .

    Fees Requirements
    Standby Fee

    For the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. term, the fee is:

     

    • per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ; and
    • due when the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. is confirmed.
    Standby Extension Fee

    For each extension contemplated in the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , the fee is:

     

    • per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ; and 
    • due when Fannie Mae processes the extension.
    Any additional extension terms and fees are at Fannie Mae’s discretion.
    Rate Lock Extension Fee For a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. not involving a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , per Part IV, Chapter 2: Rate Lock and Committing, Section 204.03B: Rate Lock Extensions and the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. .
    Non-Delivery Fee

    If the conversion conditions are not met or the permanent 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 not 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. per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , the fee is:

     

    • for: 
      • a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. involving a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , per the Credit Enhancement Commitment Letter; or 
      • all other Forward CommitmentsForward CommitmentsCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , per Form 4210; and
    • drafted from your account on the earlier of the Forward Commitment’sForward Commitment’sCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property.
      • expiration date, or
      • termination by Fannie Mae.
    Shortfall Fee

    For a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. not involving a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , if the permanent 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, but its original principal amount is less than 90% of the maximum 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, the fee is:

     

    • per Form 4210; and
    • drafted from your account by the permanent 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.
    Origination Fee; Construction Loan Administration Fee

    You must:

     

    • charge the BorrowerBorrowerPerson who is the obligor per the Note. :
      • an Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. per the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. ; and
      • a Construction Loan Administration Fee covering the actual loan administration costs, but no less than $500 per month; and
    • not pay these fees to Fannie Mae.
    2003.03

    Forward Commitment Underwriting
    2003.03A

    Generally

    Requirements

    You must:

    • Underwrite, originate, and service a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. 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. as if it were an immediate funding 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. .
    • Agree to issue the Borrower CommitmentBorrower CommitmentYour written commitment with the Borrower to originate a Mortgage Loan, and any separate written or oral rate lock agreements between you and the Borrower to rate lock the Mortgage Loan. .
    • Determine the construction lender has 
      • completed its underwriting, and 
      • agreed to issue a construction financing commitment.
    • Confirm the InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. will
      • issue its commitment to purchase the MBSMBSMortgage-Backed Security , and
      • meet the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. conditions, including timing.
    2003.03B

    Construction and Feasibility Review

    Guidance

    You should:

    • Assess the:
      • construction lender’s capacity to fund and monitor the construction loan; and
      • ability of the development team and general contractor to 
        • complete the project, and
        • post an acceptable bond or letter of credit for the construction lender.
    • Review and approve the:
      • project budget, including construction contingencies, and align any deferred development fee to market rates;
      • LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity funding schedule;
      • pro forma underwriting;
      • feasibility of repaying the construction loan at conversion, including:
        • evaluating several stress-test scenarios such as a decline in rents, an increase in operating expenses, or other circumstances; 
        • having the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor or construction lender retain an appropriate portion of the development fee until specified construction and lease up milestones are met; 
        • the sufficiency of the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor’s equity funding; and
        • the availability of other capital sources such as grants or subordinate debt; 
      • absorption schedule, including a capture band analysis of submarket income;
      • BorrowerBorrowerPerson who is the obligor per the Note. organizational documents;
      • Affordable Regulatory Agreements; and
      • Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. documents.
    • Ensure the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. term is sufficient to allow 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). to be completed and leased;
      • you to submit the conversion package;
      • Fannie Mae to approve the conversion; and
      • you to 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 permanent 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. .
    2003.03C

    Third-Party Reports

    Requirements

    If you and the construction lender use a single set of third-party reports for underwriting, the reports 

    • must be addressed to both lenders, but
    • can be contracted and paid for by either lender.

    Operating Procedures

    You must obtain the following reports.

    Report Timing You must...
    Property Condition Assessment Before Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. Complete a PCAPCAAssessment of the Property's physical condition and historical operation. for all substantial rehabilitation properties.
    Before conversion Obtain a PCAPCAAssessment of the Property's physical condition and historical operation. and complete 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… per Part II, Chapter 4: Lease Audits, Inspections, and Reserves.
    Environmental Site Assessment Before construction Obtain a Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
    Before conversion
    • Obtain a new Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. . 
    • Obtain a Phase II ESAPhase II ESAEnvironmental Site Assessment conducted per the current ASTM E-1903 standard, or any other post-Phase I ESA, and the resulting report. if recommended by the new Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
    • Ensure any required remediation is complete before 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 permanent 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. .
    Architectural Review Before Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property.

    From an independent consulting architect, obtain an architectural review assessing 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).

     

    • preliminary plans and specifications,
    • compliance with local building codes,
    • site characteristics, 
    • choice of building materials and finishes, 
    • asset quality, 
    • marketability, and 
    • overall design appropriateness for the intended use.
    During construction Use a consulting architect for in-field inspections.
    Final inspection

    Require the consulting architect to conduct a final inspection confirming 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 built according to the approved plans and specifications; and
    • meets all applicable building codes and zoning requirements. 
    Appraisal Before 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. Obtain 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. per Part II, Chapter 2: Valuation and Income.
    Before conversion

    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

     

    • you request an increase in the permanent 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 above the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. terms, or
    • Fannie Mae requires it.

    Guidance

    You may use the same consulting architect as the construction lender if the consulting architect:

    • is independent and not an employee of the construction lender;
    • is retained directly by you and engaged separately by the construction lender; and
    • acknowledges they may be required to make recommendations that do not align with those of the construction lender. 
    2003.04

    Commitment

    Requirements

    All:

    Operating Procedures

    You must

    • complete the steps in the following table, and 
    • submit the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. per the Committing & Delivery of Unfunded Forwards Job Aid.
    Step You must...
    For All Mortgage Loans
    1

    Obtain an executed Borrower CommitmentBorrower CommitmentYour written commitment with the Borrower to originate a Mortgage Loan, and any separate written or oral rate lock agreements between you and the Borrower to rate lock the Mortgage Loan. including:

     

    • BorrowerBorrowerPerson who is the obligor per the Note. covenants to 
      • close the permanent 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. per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. terms, and
      • pay all required fees and deposits; and 
    • all required Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. and third-party documents in final form, including
      • Affordable Regulatory Agreements (or other affordable housing restrictions), and
      • Subordinate LoanSubordinate LoanMultifamily residential real estate loan secured by a Lien against the Property having a lesser priority than the Lien securing another multifamily residential real estate loan on the same Property. documents and subordination agreements.  
    2 Pay all fees or submit acceptable collateral to Fannie Mae.
    3

    Ensure the BorrowerBorrowerPerson who is the obligor per the Note.

     

    • accepted the construction loan commitment, and 
    • complied with its conditions.
    4

    Obtain evidence that state and local authorities issued the BorrowerBorrowerPerson who is the obligor per the Note. all 

     

    • land disturbance, 
    • site, 
    • grading, 
    • foundation, and 
    • building permits, or their equivalents.
    Additionally, for all non-Credit Enhancement Mortgage Loans
    5 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. .
    6 Obtain the signed Delivery Assurance Agreement (Unfunded Forwards) (Form 6488).
    7 Ensure any Delivery Assurance Security InstrumentDelivery Assurance Security InstrumentThe applicable Security Instrument (Form 6025 series). covers any permitted Borrower CommitmentBorrower CommitmentYour written commitment with the Borrower to originate a Mortgage Loan, and any separate written or oral rate lock agreements between you and the Borrower to rate lock the Mortgage Loan. extension terms.
    8 Record any Delivery Assurance Security InstrumentDelivery Assurance Security InstrumentThe applicable Security Instrument (Form 6025 series). 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). before the construction loan closing.
    Additionally, for all Credit Enhancement Mortgage Loans
    9 Ensure 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. pricing complies with Part IV, Chapter 8: Bond Transactions and Credit Enhancement Mortgage Loans, Section 801.04: Rate Lock.
    10 Obtain the Credit Enhancement Commitment Letter.

    After you complete these steps, Fannie Mae will confirm the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. .  

    Within 30 days after the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. is confirmed, you must 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 documents listed in: 

    • steps 4, 6, 8, and 10; and 
    • the Pre-Construction Monitoring Package (Form 4543).
    2003.05

    Construction Period
    2003.05A

    Monitoring

    Requirements

    You must monitor the construction process to ensure that when the permanent 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 converted it will comply with the

    • Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , and
    • permanent 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. 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. .

    Guidance

    During the construction or substantial rehabilitation period:

    Responsible Party Activities
    You
    • Evaluate inspections and change orders.
    • Reject any change orders that would:
      • change 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).  main design or asset quality features;
      • make material changes; or
      • result in combined hard and contingency costs greater than the construction loan budget (i.e., the construction loan must remain in balance).
    • Review the consulting architect’s progress reports and provide them to Fannie Mae upon request.
    • Monitor the construction loan and lease-up status.
    Consulting Architect
    • Regularly perform on-site construction progress inspections.
    • Ensure the time between inspections is not more than 2 months.
    • Issue a progress report after each
      • inspection, and
      • whenever the construction lender approves a disbursement. 

    You and the construction lender may both use the same consulting architect for the

    • preliminary and final plans,
    • specification reviews, and
    • construction period inspections.
    2003.05B

    Reporting

    Requirements

    You must provide quarterly reports to Fannie Mae via 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. using Construction Period Monitoring (Form 4211).

    2003.05C

    Forward Commitment Extensions

    Requirements

    You must inform the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. and the Forwards TeamForwards TeamTeam that can be contacted at [email protected]. if conversion may be delayed.

    Guidance

    If the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. permits, you may approve a maximum delegated Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. extension up to:

    • for MBS for BondsMBS for BondsFannie Mae MBS: issued to credit enhance tax-exempt Bonds; or exchanged for Bonds redeemed at MBS issuance. , two 6-month periods; or
    • for any other 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. , one 6-month period.

    Operating Procedures

    The delegated Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. extension will become effective when all of the following occur:

    • you submit the following extension documentation to Fannie Mae at least 30 days before the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. expiration: 
      • the Borrower'sBorrower'sPerson who is the obligor per the Note. extension request;
      • a project status report, including reasons for the delay;
      • verification the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. is likely to convert to a permanent 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. within the extension period;
      • anticipated shortfall analysis 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. amount at conversion and the source of funds for filling the shortfall;
      • confirmation there has been no material adverse change in the BorrowerBorrowerPerson who is the obligor per the Note. 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). ; and
      • confirmation the Borrower'sBorrower'sPerson who is the obligor per the Note. construction loan will be extended by the same extension period as the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. term.
    • Fannie Mae processes the extension request; and
    • at least 1 business day before the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. expiration:
      • you enter all fees into C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. ;
      • Fannie Mae receives the fees;
      • you submit a C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. request to adjust the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. expiration date; and 
      • you are notified the adjustment has been completed. 

    Requirements

    Fannie Mae must approve all Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. extensions beyond the maximum delegated term.  To request Fannie Mae approval:

    • you must submit
      • all extension documentation required for a delegated extension, and
      • any requested revised stabilization analysis; and
    • the BorrowerBorrowerPerson who is the obligor per the Note. must pay any required fees.
    2003.06

    Construction Completion

    Reqiurements

    You must ensure that 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). 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 completed, including

    • amenities, 
    • landscaping, 
    • signage, 
    • parking, etc.

    If sufficient funds will be reserved in a Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. , minor punch list and weather-sensitive items may be incomplete.

    Guidance

    Use the following table for confirming construction completion and occupancy.

    Responsible Party Activities
    Consulting Architect
    • Conduct a final 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.
    • Certify 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 completed per this Section.
    You

    Ensure 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). :

     

    • were completed in a good and workmanlike manner per the approved plans and specifications;
    • are LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. -free; and
    • for all governmental authorities with jurisdiction 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). , comply with all
      • applicable laws,
      • building codes,
      • zoning requirements,
      • subdivision requirements,
      • fire and safety laws,
      • ADA requirements, and
      • design and construction requirements per the Fair Housing Act.

     

    Obtain: 

     

    • certificates and reports showing the BorrowerBorrowerPerson who is the obligor per the Note. completed 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). per the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. from the
      • architect, 
      • consulting architect, and 
      • other project consultants;
    • evidence of all public utilities 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). ;
    • copies of:
      • all 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 permits and licenses; and
      • either:
        • each unconditional certificate of occupancy (or the local equivalent) for all required 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
        • evidence 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). passed all inspections and received all approvals before occupancy, if local law does not require certificates of occupancy; and
    • a Certification of Substantial Completion (AIA Document G704) stating 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). were completed per the final plans and specifications, and executed by the appropriate parties, including the 
      • architect, 
      • general contractor, and 
      • BorrowerBorrowerPerson who is the obligor per the Note. .
    2003.07

    Permanent Loan Final Underwriting
    2003.07A

    Generally

    Requirements

    Before converting, you must complete the permanent 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. final underwriting.

    Topic You must...
    DSCR and LTV 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). complies with the committed 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 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.  .
    Eligibility

    Ensure:

     

    • The BorrowerBorrowerPerson who is the obligor per the Note. :
      • does not change;
      • remains eligible; and
      • still owns 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 Key PrincipalsKey PrincipalsPerson 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. :
      • do not change; and
      • have not reduced their direct or indirect ownership interest and control over 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). .
    • There is no material adverse change in the condition, financial or otherwise, of 
      • the BorrowerBorrowerPerson who is the obligor per the Note. , 
      • any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ,
      • 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. , 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). .
    Construction Loan Status

    Ensure the BorrowerBorrowerPerson who is the obligor per the Note.

     

    • is current on the construction loan payments and not in default, and
    • has not been delinquent during the previous 12 months.
    Certification of Rent Roll On the permanent Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , certify with the BorrowerBorrowerPerson who is the obligor per the Note. there has been no material adverse change in the Certification of 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.  Rent Roll.
    Equity Contributions

    As of the permanent 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. , obtain a BorrowerBorrowerPerson who is the obligor per the Note. certificate, or other Fannie Mae-accepted evidence, that all funds reflected on the Borrower'sBorrower'sPerson who is the obligor per the Note. sources and uses of funds statement were: 

     

    • received, including all equity contributions; and
    • properly invested in 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). .
    LIHTC Reservation or Allocation 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 eligible for LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , verify the Borrower'sBorrower'sPerson who is the obligor per the Note. IRS Form 8609 issued by the state housing finance agency reflects the required LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. amount.

    Guidance

    Fannie Mae may defer the requirement to obtain IRS Form 8609 before conversion based on factors such as whether:

    • 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). financials exceed the pro-forma underwriting per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
    • all other conversion criteria were met;
    • the BorrowerBorrowerPerson who is the obligor per the Note. certified 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). complies with the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. requirements;
    • you and the tax accountant approved the cost certification;
    • the BorrowerBorrowerPerson who is the obligor per the Note. submitted the cost certification to the state, with no anticipated significant adjustments;
    • the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor contributed at least 90% of their equity, with the remaining 10% withheld for any minor adjustments 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). tax depreciable basis, 
      • adjusters, or 
      • developer fee;
    • the sources and uses of funds are in balance, and all required funds were received to complete and lease-up 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 have documentation confirming the IRS Form 8609 application and the state’s acknowledgement of receipt;
    • you expect to receive the IRS Form 8609 timely post-conversion;
    • you will monitor receipt of IRS Form 8609 as a post-closing matter and deliver a copy to Fannie Mae; and
    • the BorrowerBorrowerPerson who is the obligor per the Note. has experience complying with IRS Form 8609 in the specific state. 
    2003.07B

    Stabilized NCF

    Requirements

    You must:

    • Confirm 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 qualify for the full 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. by
      • evaluating its performance, and
      • assessing whether it meets the projected 
        • income, 
        • expenses, 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….
    • Use the Forward Loan Conversion Analysis (Form 4212) to
      • annualize the certified project rent rolls,
      • compare pro forma and actual operating expenses, and
      • calculate 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). stabilized 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… per 
    • Submit the Forward Conversion Analysis Summary (Form 4618) that verifies your Chief Underwriter’s involvement and agreement with the analysis.

    The permanent Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. documentation must include:

    • the percentage 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). occupied units categorized by
      • bedroom configuration,
      • square footage, and
      • rent type (low income or market rate) delineating any Section 8 or other subsidized rental program tenants;
    • 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 Effective Gross IncomeEffective Gross IncomeOn 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. for each of the previous 3 months, including only rental income and permitted other income from the units less any 
      • rent concessions, 
      • reductions, 
      • inducements, or 
      • forbearance; and
    • rental income by rent type (low income or market rate).

    You must use the following table to calculate stabilized 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….

    STABILIZED NCF
    Item Function Description
    1  

    For each of the most recent trailing 3 months before conversion:

     

    • determine the Gross Potential RentGross Potential RentOn an annual basis or any specified period, the total actual and potential rent for a Property per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. from an executed Certification of 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.  Rent Roll; and
    • confirm that at least 90% of the units were physically occupied by a Qualified TenantQualified TenantParty occupying a dwelling unit in a Property in full compliance with a lease. with an acceptable 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. .
      EQUALS GROSS POTENTIAL RENT
    2 MINUS
    • Economic vacancy using the higher of
      • original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, or
      • actual annualized trailing 3-month operating statements.1
    • Include: 
      • concessions if they
        • are prevalent in the market, or
        • were used to achieve initial stabilization and will remain; and
      • a re-leasing cost allowance 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 short term leases.
    3 PLUS 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. , include annualized other income per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.01: Underwritten NCF.
    4 PLUS Commercial income per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).
      EQUALS EFFECTIVE GROSS INCOME
    5 MINUS

    Line-by-line operating expenses using the higher of:

     

    • actual annualized trailing 3-month operating statements; or
    • original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, adjusted by substituting the following actual expenses, if known:
      • real estate taxes;
      • property liability and other insurance; and
      • management fees.
    6 MINUS Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).
      EQUALS STABILIZED NCF
    1 Assess if there was any decline in NRI per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
    2003.07C

    Final Permanent Mortgage Loan Amount

    Requirements

    You must ensure the permanent 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 is less than or equal to the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .

    Operating Procedures

    Steps Actions
    1 You must determine the permanent 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 using the Forward Loan Conversion Analysis (Form 4212).
    2 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). actual stabilized 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… before permanent 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. is less than the original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, reduce the permanent 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 to comply with the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. 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 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.  .
    3 If the permanent 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 in Step 2 is less than the Forward Commitment Confirmation Mortgage Loan amount, verify the BorrowerBorrowerPerson who is the obligor per the Note. has secured a source of funds, whether debt or equity, to cover the difference.
    4

    Ensure any additional debt the BorrowerBorrowerPerson who is the obligor per the Note. incurs to cover the difference in Step 3, is only secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. 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). if

     
    5

    If the permanent 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 in Step 2 results in a loan curtailment,

     

    • the BorrowerBorrowerPerson who is the obligor per the Note. must close the permanent 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 reduced amount, and
    • you must 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 permanent 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 reduced amount.
    6

    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). qualifies for additional financing beyond the Forward Commitment Confirmation Mortgage Loan amount, submit via 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. :

     

    • a request for additional financing;
    • your conversion documentation; and
    • a comparative analysis showing the stabilized 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… is greater than the original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting.
    A new pre-conversion 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 not required if the pre-construction 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 permanent 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 comply with the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. 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.  .
    7

    Any increase in the permanent 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 approved by Fannie Mae will:

     

    • be limited to the Maximum Loan Amount Increase percentage per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
    • be made on the currently available terms and conditions; and
    • not be approved simply because construction costs, cost overruns, or change orders were higher than expected.
    2003.07D

    Third-Party Reports

    Requirements

    You must obtain third-party reports per Part III, Chapter 20: Forward Commitments, Section 2003.03C: Third-Party Reports.

    2003.08

    Conversion
    2003.08A

    Eligibility

    Requirements

    To convert to the permanent 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 confirm:

    • construction is complete;
    • 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). achieved the 
      • minimum occupancy, 
      • income, and 
      • debt service coverage;
    • the eligibility criteria in Part III, Chapter 20: Forward Commitments, Section 2003.07A: Generally have been met; and
    • the permanent 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 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. on Fannie Mae Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
    2003.08B

    Timeline

    Operating Procedures

    Timing You must...
    30 days before the Borrower's closing
    • Contact the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. and Forwards TeamForwards TeamTeam that can be contacted at [email protected]. , to provide the 
      • project development status, and 
      • anticipated conversion and 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. date.
    • Submit via 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. :
      • Preliminary Notice of Conversion:
        • for Credit Enhancement Mortgage LoansCredit Enhancement Mortgage LoansMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , using the form attached in the Credit Enhancement Commitment Letter; and
        • for 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. , using Form 4616;
      • Forward Loan Conversion Analysis (Form 4212); 
      • Forward Conversion Analysis Summary (Form 4618); and
      • compliance evidence required by Fannie Mae conditions.
    • Receive a conversion approval letter from the Forwards TeamForwards TeamTeam that can be contacted at [email protected]. after all Fannie Mae imposed conditions are met.
    At Conversion
    • Submit the permanent 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. 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. in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. per the Committing & Delivery of Unfunded Forwards Job Aid.
    • Document the permanent 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. using Fannie Mae Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. attached to the Borrower CommitmentBorrower CommitmentYour written commitment with the Borrower to originate a Mortgage Loan, and any separate written or oral rate lock agreements between you and the Borrower to rate lock the Mortgage Loan. .
    • For Credit Enhancement Mortgage LoansCredit Enhancement Mortgage LoansMortgage Loan financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. , submit via 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. the final conversion notice using the form attached in the Credit Enhancement Commitment Letter.
    By the Delivery Deadline
    • 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 permanent Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. and submit the permanent 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 per 
    • For a Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. , also submit applicable data on the Bond, Loan, Borrower, and Property pages in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. within 3 Business DaysBusiness DaysAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. 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. 
    2003.09

    MBS Issuance

    Operating Procedures

    The MBSMBSMortgage-Backed Security will be issued per your delivery instructions 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 permanent 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. .

    2003.10

    Forward Commitment Termination

    Guidance

    Fannie Mae may terminate the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. if:

    • You fail to 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 permanent 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. per the Forward Commitment Confirmation terms and conditions.
    • The BorrowerBorrowerPerson who is the obligor per the Note. does not begin PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). construction or substantial rehabilitation within 180 days after you accept the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .
    • A construction loan default occurs and is not cured within 90 days.
    • A substantial construction defect occurs that may threaten tenant life and safety unless:
      • the BorrowerBorrowerPerson who is the obligor per the Note. repairs the defect within 90 days;
      • the repairs satisfy both you and your consulting architect; and
      • after paying all repair costs, the available remaining funds are sufficient to pay for all
        • work performed,
        • materials used or ordered, and
        • other required unpaid project costs per the contract.

    Requirements

    If Fannie Mae terminates the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , all applicable fees must be paid per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. terms. 

    If the BorrowerBorrowerPerson who is the obligor per the Note. terminates the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. , you must:

    • submit a request to collapse the transaction to the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. and the Forwards TeamForwards TeamTeam that can be contacted at [email protected]. at least 30 days before the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. expiration;
    • for 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. transactions, coordinate with Fannie Mae’s counsel; and
    • contact Multifamily AcquisitionsMultifamily AcquisitionsTeam that can be contacted at [email protected]. to withdraw the transaction in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. . 
    Chapter 21

    Condominium Properties
    Section 2101

    Eligible Mortgage Loans

    Requirements

    For any 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). , you must:

    • evaluate the Condominium DocumentsCondominium DocumentsGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of… for compliance with the Condominium DocumentCondominium DocumentGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of… Review Checklist (Form 6498);
    • determine if it is a:
      • Residential CondominiumResidential CondominiumCondominium Property where all units are residential. where the BorrowerBorrowerPerson who is the obligor per the Note. owns:
        • 100% of the units (i.e., a Wholly-Owned CondominiumWholly-Owned CondominiumResidential Condominium Property where the Borrower owns 100% of the units. ); or
        • less than 100% but at least 80% of the units (i.e., a Fractured CondominiumFractured CondominiumResidential Condominium Property where the Borrower owns less than 100% of the units. ); or
      • Commercial CondominiumCommercial CondominiumMixed-use Condominium Property combining Borrower-owned multifamily residential units with 1 or more other uses (e.g., retail, hotel, office, etc.) which may not be Borrower-owned. where the BorrowerBorrowerPerson who is the obligor per the Note. owns 100% of the residential units but does not own any other unit;
    • ensure each 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). unit:
      • is a separate tax parcel; and
      • has a separate tax bill;
    • confirm:
      • 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). is subject to the 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. regime;
      • all assessments and payments due per the Condominium DocumentsCondominium DocumentsGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of… are current;
      • future assessments and payments from the BorrowerBorrowerPerson who is the obligor per the Note. are subordinate 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. ;
      • the BorrowerBorrowerPerson who is the obligor per the Note. is:
        • complying with all Condominium DocumentsCondominium DocumentsGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of…; and
        • not involved in any 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). disputes that may
          • result in material litigation, or
          • materially adversely impact 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
    • retain Form 6498 in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
    Section 2102

    Control

    Requirements

    Control Requirements
    For a... To be eligible for Delivery, you must ensure the Borrower has...
    Wholly-Owned CondominiumWholly-Owned CondominiumResidential Condominium Property where the Borrower owns 100% of the units.

    Complete control to directly or indirectly manage and operate the 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). , through voting rights, consent rights, or ownership, to control all:

     

    • voting outcomes; and
    • actions taken, including for:
      • 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. termination;
      • Condominium DocumentCondominium DocumentGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of… amendments;
      • assessments and budgets;
      • insurance requirements; and
      • post casualty or condemnation:
        • restoration and repair; and
        • proceeds or award application.
    Fractured Condominium or Commercial Condominium

    Material control (including the requisite votes in 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). directly or indirectly governing the 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. ), either individually or with its mortgagee, to:

     

    • prevent:
      • 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. termination; and
      • any Material AmendmentMaterial AmendmentChange to the Condominium Documents pertaining to: modifying, after a casualty or condemnation, insurance requirements, use of insurance proceeds, or rebuild requirements; altering or restricting the use of the Condominium units, common elements, or other… to the Condominium DocumentsCondominium DocumentsGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of…; and
    • require, either directly or per the Condominium DocumentsCondominium DocumentsGoverning documents: for the Condominium and owners’ association’s creation, operation, and management; and including Condominium instruments for Condominium governance, such as declarations, plats, bylaws, rules and regulations,  articles of…:
      • 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. repair and restoration, including common elements, for any casualty or condemnation damage equal to 80% or less of either the
        • common elements, or
        • BorrowerBorrowerPerson who is the obligor per the Note. -owned 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. units; and
      • for any casualty or condemnation neither repairable nor restorable, timely distribution of insurance or condemnation proceeds 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. unit owners.

    Guidance

    Condominium Document Review
    Topic You should review the Condominium Documents to evaluate...
    Governing Body

    Membership

     

    • composition,
    • appointment, and
    • removal.
    Voting

    Thresholds for

     

    • making decisions,
    • amending documents, and
    • terminating the condominium structure.
    Association
    • Responsibilities for
      • collecting fees,
      • managing maintenance tasks,
      • obtaining adequate insurance, and
      • mediating disputes.
    • Requirements and restrictions for
      • operations,
      • physical appearance,
      • common area alterations,
      • unit alterations, and
      • rebuilding.
    Assessment Fees

    Provisions for

     

    • establishment,
    • escalation, and
    • special assessments.
    Common Areas

    Use of

     

    • shared amenities, 
    • ingress/egress, and
    • parking.
    Financials

    Reasonableness of

     

    • annual budget,
    • 3 years 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. income/expense statements, and
    • reserves.
    Insurance Proceeds and Condemnation Awards

    How funds are

     

    • held,
    • applied, and
    • disbursed.
    Covenant Enforcement

    Ability to, and history of,

     

    • levying fines, 
    • collecting interest, and/or
    • placing and foreclosing liens.
    Insurance

    Coverage for

     

    • property (e.g., accidents, fire, equipment failure, flood, wind, etc.),
    • liability (personal injury), and
    • director’s and officer’s (e.g., theft, fraud, etc.).
    Section 2103

    Loan Documents

    Requirements

    Loan Documents
    For a... You must ensure execution of...
    Wholly-Owned CondominiumWholly-Owned CondominiumResidential Condominium Property where the Borrower owns 100% of the units.
    • Modifications to Multifamily Loan and Security Agreement (Condominium Provisions) (Form 6202); and
    • Modifications to Security Instrument (Condominium Subordination) (Form 6304).
    Fractured Condominium or Commercial Condominium
    • Modifications to Multifamily Loan and Security Agreement (Fractured/Commercial Condominium Provisions) (Form 6258);
    • Estoppel Certificate attached to Form 6258, executed by the condominium association;
    • Modifications to Security Instrument (Condominium Subordination) (Form 6304); and
    • Guaranty of Non-Recourse Obligations (Form 6015).
    Chapter 22

    Sponsor-Dedicated Workforce (SDW) Housing Properties
    Section 2201

    Description

    Requirements

    An SDW Housing Property is 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). where:

    • either
      • all rent restrictions are newly imposed by the BorrowerBorrowerPerson who is the obligor per the Note. , or
      • new rent restrictions are being added to existing rent restrictions; and
    • the aggregate rent restrictions:
      • meet or exceed 20% @ 80%:  at least 20% of all units have rent restrictions in place making them affordable to households earning up to the following as adjusted for family size: 
        • 80% of AMI; or
        • 100% of AMI in an FHFAFHFAFederal Housing Finance Agency. -designated “cost-burdened” market; or
        • 120% of AMI in an FHFAFHFAFederal Housing Finance Agency. -designated “very cost-burdened” market;
      • are in place 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). by the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
      • remain in place during 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.

    An SDW Housing Property is ineligible if:

    • 3 or more years of LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. restrictions remain; and
    • the BorrowerBorrowerPerson who is the obligor per the Note. intends to enter into the Qualified Contract Process (per Internal Revenue Code Section 42) within 3 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

    Guidance

    • FHFAFHFAFederal Housing Finance Agency. annually designates the “cost-burdened” and “very cost-burdened” markets.
    • As designated by FHFAFHFAFederal Housing Finance Agency. , the income threshold for affordability is:
      • 100% of AMI or below for “cost-burdened” markets; and
      • 120% of AMI or below for “very cost-burdened” markets.
    • This market designation is available in the:
    Section 2202

    Compliance

    Requirements

    You must:

    • ensure the Borrower’sBorrower’sPerson who is the obligor per the Note. execution of the:
      • Modifications to Multifamily Loan and Security Agreement (Sponsor-Dedicated Workforce Housing) (Form 6271.SDW); and
      • Modifications to Security Instrument (Sponsor-Dedicated Workforce Housing) (Form 6325);
    • require 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). compliance within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
    • ensure the SDW units are at least proportional 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). overall unit mix. 

    Guidance

    An example of an acceptable unit mix is:

    Sample 100-Unit Building
    Apartment Type Number of Units Minimum 20% Unit Mix
    Studio 10 2
    1 Bedroom 50 10
    2 Bedroom 30 6
    3 Bedroom 10 2
    Total 100 20

    Operating Procedures

    You must use the Sponsor-Dedicated Workforce (SDW) Housing Job Aid to commit and 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. qualifying for a Sponsor-Dedicated Workforce Housing pricing incentive.