Skip to content
Home
DUS Navigate®

Log In

  • Print/Download Guide
HIDE MENU SHOW MENU
Part I
Mortgage Loan
  • Chapter 1
    Overview
    • Section 101
      Using the Guide
      • 101.01 Organization
      • 101.02 References
    • Section 102
      Delegation and Underwriting
    • Section 103
      Transaction Approval Memo
    • Section 104
      Representations
  • Chapter 2
    Mortgage Loan
    • Section 201
      Registration
    • Section 202
      Delegated Mortgage Loans
    • Section 203
      Pre-Review Mortgage Loans
    • Section 204
      Letters of Credit
      • 204.01 Generally
      • 204.02 Issuers and Ratings
      • 204.03 Verifying Issuer Ratings
      • 204.04 Restrictions on Issuer Collateral
      • 204.05 Drawing on Letter of Credit
  • Chapter 3
    Borrower, Guarantor, Key Principals, and Principals
    • Section 301
      Generally
    • Section 302
      Borrower Organizational Structure
      • 302.01 Single-Asset Entity
      • 302.02 Co-Tenant Borrowers
        • 302.02 A Tenancy-in-Common Agreement
        • 302.02 B Key Principal Execution of Guaranty
    • Section 303
      Key Principals, Principals, and Guarantors
      • 303.01 Entity Review
      • 303.02 Fund
    • Section 304
      Financial Statements
    • Section 305
      Multifamily Underwriting Certificate
    • Section 306
      Fraudulent Conveyance
    • Section 307
      Applicant Experience Check
    • Section 308
      Compliance
    • Section 309
      Execution of Non-Recourse Guaranty
    • Section 310
      Conflict Mortgage Loans
      • 310.01 Description
      • 310.02 Restrictions
        • 310.02 A Underwriting
        • 310.02 B Servicing
        • 310.02 C No First Right of Refusal
        • 310.02 D Additional Disclosure
        • 310.02 E Notifications
Part II
Property
  • Chapter 1
    Attributes and Characteristics
    • Section 101
      Generally
    • Section 102
      Property Ownership; Leasehold
    • Section 103
      Ground Leased Properties
      • 103.01 Generally
      • 103.02 Ground Lease Rents
      • 103.03 Ground Lease Estoppel Certificate
      • 103.04 Ground Lease Review
    • Section 104
      Minimum Occupancy
      • 104.01 Residential Occupancy
      • 104.02 Qualified Occupants
    • Section 105
      Certificates of Occupancy
    • Section 106
      Phased Properties
    • Section 107
      Commercial Leases
      • 107.01 Material Commercial Leases
        • 107.01 A Lease Review
        • 107.01 B Lease Approval
        • 107.01 C Lease Modifications
        • 107.01 D Tenant Estoppel Certificate
        • 107.01 E Subordination, Non-Disturbance and Attornment
      • 107.02 Non-Material Commercial Leases
        • 107.02 A Tenant Estoppel Certificate; Lease Modification
        • 107.02 B Non-Material Commercial Lease Types
      • 107.03 Short Term Rentals
    • Section 108
      Property Management and Agreement
      • 108.01 Property Management
      • 108.02 Property Management Agreement
  • Chapter 2
    Valuation and Income
    • Section 201
      Market and Valuation
      • 201.01 Market Analysis
      • 201.02 Appraisal
        • 201.02 A Appraiser Role and Qualifications
        • 201.02 B Valuation Date
        • 201.02 C Appraised Value
      • 201.03 Underwriting Value
    • Section 202
      Income Analysis
      • 202.01 Underwritten Net Cash Flow (Underwritten NCF)
      • 202.02 Underwritten DSCR
    • Section 203
      Refinance Risk Analysis
      • 203.01 Base Assumptions
      • 203.02 Alternative Assumptions
    • Section 204
      Cash Out Analysis
    • Section 205
      Rent-Stabilized Properties
  • Chapter 3
    Legal Compliance
    • Section 301
      Zoning and Legal Non-Conforming Uses
    • Section 302
      Easements
    • Section 303
      Liens and Encumbrances
      • 303.01 Generally
      • 303.02 Property Previously Secured Bond Financing
    • Section 304
      Title Insurance
      • 304.01 Title Insurance Company
      • 304.02 Policy Form
      • 304.03 Electronic Policies
      • 304.04 Insured
      • 304.05 Effective Date
      • 304.06 Survey Exception
      • 304.07 Exception for Taxes, Assessments, or Other Lienable Items
      • 304.08 Financing Statements
      • 304.09 Endorsements
        • 304.09 A Generally
        • 304.09 B Environmental Protection Lien Endorsement
        • 304.09 C Comprehensive Endorsement
      • 304.10 Document Retention
    • Section 305
      Survey
      • 305.01 Decision to Obtain a Survey
      • 305.02 Survey
      • 305.03 Decision Not to Obtain a Survey
      • 305.04 Location of Improvements
    • Section 306
      Security Interests in Personal Property
      • 306.01 Uniform Commercial Code (UCC) Financing Statements
      • 306.02 Creating and Perfecting the Security Interest
  • Chapter 4
    Inspections and Reserves
    • Section 401
      Site Inspection
    • Section 402
      Property Condition Assessment (PCA)
      • 402.01 When to Perform a PCA
      • 402.02 Date of PCA Report and PCA Site Visit
      • 402.03 Conducting the PCA
    • Section 403
      Completion/Repairs
      • 403.01 Property Evaluation
      • 403.02 Completion/Repairs Funding
      • 403.03 Life Safety Issues
      • 403.04 Verifying Completion/Repairs
    • Section 404
      Replacement Reserve
      • 404.01 Determining Replacement Reserve
      • 404.02 Replacement Reserve Funding
      • 404.03 Alternative Replacement Reserve Funding
    • Section 405
      Escrow Requirements for Taxes and Insurance
      • 405.01 Escrows
      • 405.02 Real Estate Tax Escrow Funding
      • 405.03 Insurance Escrow Funding
  • Chapter 5
    Property and Liability Insurance
    • Section 501
      Property and Liability Insurance
      • 501.01 General Insurance – Applies to All Policies
        • 501.01 A Generally
        • 501.01 B Blanket and Other Policies Covering Multiple Properties
        • 501.01 C Insurance Carrier Rating
        • 501.01 D Term
        • 501.01 E Payment of Premium
        • 501.01 F Evidence of Insurance
        • 501.01 G Insurance Compliance and Data
        • 501.01 H Post Closing Insurance Exceptions
      • 501.02 Property Insurance
        • 501.02 A Minimum Coverage Amounts
        • 501.02 B Business Income (including Rental Value) Insurance
        • 501.02 C Ordinance or Law Insurance
        • 501.02 D Boiler and Machinery / Equipment / Mechanical Breakdown Insurance
        • 501.02 E Builder’s Risk Insurance
        • 501.02 F Fidelity Bond / Crime Insurance
        • 501.02 G Regional Perils Insurance
      • 501.03 Catastrophic Risk Insurance
        • 501.03 A Generally
        • 501.03 B Windstorm Insurance
        • 501.03 C Flood Insurance
        • 501.03 D Earthquake Insurance
        • 501.03 E Terrorism Insurance
      • 501.04 Liability Insurance
        • 501.04 A Commercial General Liability Insurance
        • 501.04 B Professional Liability Insurance
        • 501.04 C Risk Retention Groups and Captive Insurance
        • 501.04 D Workers’ Compensation Insurance
        • 501.04 E Directors’ and Officers’ Liability Insurance
        • 501.04 F Commercial Auto Liability Insurance
      • 501.05 Small Loans
        • 501.05 A Permanent Evidence
        • 501.05 B Excess/Umbrella Insurance
        • 501.05 C Terrorism Insurance
    • Section 502
      Environmental Matters
      • 502.01 Environmental Site Assessments
      • 502.02 Lender’s Responsibilities
      • 502.03 Environmental Indemnity Agreement
    • Section 503
      Seismic Risk
      • 503.01 Seismic Hazard and Risk Factors
      • 503.02 Seismic Risk Assessment (SRA)
      • 503.03 Acceptable Levels of Seismic Risk
      • 503.04 Seismic Retrofit Ordinances
      • 503.05 Seismic Risk Mitigants
Part III
Products and Features
  • Chapter 1
    Student Housing Properties
    • Section 101
      Description
      • 101.01 Student Housing Property
      • 101.02 Dedicated Student Housing Property
    • Section 102
      Generally
    • Section 103
      Dedicated Student Housing Property
      • 103.01 Eligible Property Characteristics
      • 103.02 Ineligible Property Characteristics
      • 103.03 Residential Leases
      • 103.04 Properties on College/University Land
      • 103.05 Additional Underwriting Documentation
    • Section 104
      Underwritten NCF
    • Section 105
      Replacement Reserve
      • 105.01 Determining Replacement Reserve
      • 105.02 Replacement Reserve Funding
  • Chapter 2
    Military Housing Properties
    • Section 201
      Description
    • Section 202
      Ineligible Property Types
    • Section 203
      Generally
  • Chapter 3
    Moderate Rehabilitation Mortgage Loans
    • Section 301
      Description
    • Section 302
      Underwriting
    • Section 303
      Rehabilitation Work Costing More than $20,000 Per Unit
      • 303.01 Rehabilitation Work Evaluation Report
      • 303.02 Rehabilitation Reserve Agreement
    • Section 304
      Supplemental Mortgage Loans
  • Chapter 4
    Green Mortgage Loans
    • Section 401
      Generally
      • 401.01 Description
      • 401.02 High Performance Building Module
      • 401.03 Green MBS
      • 401.04 Committing and Delivery
    • Section 402
      Green Building Certification
    • Section 403
      Green Rewards Mortgage Loans
      • 403.01 Eligibility
        • 403.01 A Generally
        • 403.01 B HPB Module/HPB Report Scoring
        • 403.01 C HPB Module/HPB Report Approval
        • 403.01 D Non-Contiguous Parcels
      • 403.02 Implementing Energy- and Water-Efficiency Measures
      • 403.03 Underwritten NCF
      • 403.04 Maximum Amount
      • 403.05 Supplemental Mortgage Loans
    • Section 404
      Annual Energy Reporting
  • Chapter 5
    Seniors Housing Properties
    • Section 501
      Generally
      • 501.01 Description
      • 501.02 Eligible Lenders
      • 501.03 Key Principal/Sponsor Experience
    • Section 502
      Eligible Properties
      • 502.01 Eligible Properties
      • 502.02 Ineligible Properties
    • Section 503
      Continuing Care Retirement Communities (CCRCs)
    • Section 504
      Seniors Housing Property Income
      • 504.01 Underwritten NCF
      • 504.02 Skilled Nursing NCF Test
      • 504.03 Operating Lease Ratios
      • 504.04 Operating Lease Analysis
    • Section 505
      Replacement Reserve
    • Section 506
      Medicaid Funds
      • 506.01 Dependency and Medicaid Transition Reserve
      • 506.02 State Medicaid
    • Section 507
      Consultant Reports
      • 507.01 Management, Operations, and Regulatory Compliance
      • 507.02 Management and Operations Reports
      • 507.03 Regulatory Compliance Report
  • Chapter 6
    Manufactured Housing Communities
    • Section 601
      Description
    • Section 602
      Lender Eligibility
    • Section 603
      Legal and Property Compliance
      • 603.01 Borrower and the MH Community
        • 603.01 A Borrower Ownership
        • 603.01 B Collateral; Borrower-Owned Homes and Affiliate-Owned Homes
        • 603.01 C MH Community
      • 603.02 MH Community Score
      • 603.03 Code Standards
      • 603.04 Flood Zone
        • 603.04 A Rising Water
        • 603.04 B Moving Water
      • 603.05 Lease Terms
        • 603.05 A Master Leases
        • 603.05 B MH Site Leases
        • 603.05 C Security Instrument Modification
    • Section 604
      Property Insurance
    • Section 605
      Survey
      • 605.01 Public Roadways, Private Interior Roadways, and Drives
      • 605.02 Setbacks
      • 605.03 Encroachments
    • Section 606
      Property Income and Underwritten NCF
    • Section 607
      Replacement Reserve
  • Chapter 7
    Multifamily Affordable Housing Properties
    • Section 701
      Generally
      • 701.01 Description
      • 701.02 Eligible Lenders
    • Section 702
      MAH Property Eligibility
      • 702.01 Eligible Characteristics and Underwriting
      • 702.02 Ineligible Characteristics and Underwriting
    • Section 703
      Property Income and Underwriting
      • 703.01 Underwritten NCF
      • 703.02 Underwriting
        • 703.02 A Not-for-Profit (IRC §501[c][3]) Borrower may be a Multi-Asset Borrower
        • 703.02 B Appraised Value and Underwriting Value
        • 703.02 C Market Study
        • 703.02 D Restabilization Reserve
        • 703.02 E Affordable Regulatory Agreement Restrictions
    • Section 704
      Subordinate Financing
      • 704.01 Interest Rate and Payments
      • 704.02 Loan Term
      • 704.03 Collateral
      • 704.04 Credit Support
      • 704.05 Soft Financing
      • 704.06 Subordinate Lender
      • 704.07 Developer's Notes
      • 704.08 Subordination Agreement
      • 704.09 Lien Priority and Title Insurance Policy
      • 704.10 Form of Subordinate Loan Documents
      • 704.11 Prepayment
    • Section 705
      Restrictive Covenants and Affordable Regulatory Agreements
    • Section 706
      ROAR Loan
      • 706.01 Generally
      • 706.02 Timing
      • 706.03 General Underwriting
      • 706.04 Additional Underwriting and Loan Documents
    • Section 707
      HAP Contract Properties
      • 707.01 Properties with Both HAP Contracts and LIHTC Units
      • 707.02 HAP Contract Review Sheet
    • Section 708
      Refinancing Section 236 Properties – IRP is Maintained
      • 708.01 No Additional Proceeds
      • 708.02 Additional Proceeds from Mortgage Loan
      • 708.03 Additional Proceeds from Other Sources
    • Section 709
      LIHTC Properties – Lender Equity Interest
    • Section 710
      Transactions with Fannie Mae Debt and Equity Interests
      • 710.01 Transactions Funded with Tax-Exempt Bond Proceeds
      • 710.02 Fannie Mae Credit-Enhanced Tax-Exempt Bond Issuance
    • Section 711
      FHA Risk Sharing
      • 711.01 Description
      • 711.02 Eligibility
        • 711.02 A Borrowers, Key Principals, Guarantors, and Principals
        • 711.02 B Generally
        • 711.02 C Cash Out
      • 711.03 Mortgage Insurance Premium
      • 711.04 Reserving FHA Units
      • 711.05 Subsidy Layering Review
      • 711.06 Lender FHA Risk Sharing Reserve and Loss Sharing Modifications
  • Chapter 8
    Cooperative Properties
    • Section 801
      Description
    • Section 802
      Eligible Mortgage Loans
      • 802.01 Basic Conditions
      • 802.02 Financial Conditions
      • 802.03 Property Management Conditions
      • 802.04 Other Considerations
    • Section 803
      Underwriting
      • 803.01 Financial Operation
      • 803.02 Property Valuation
      • 803.03 Subordinate Debt
    • Section 804
      Income Analysis
      • 804.01 Cooperative Market Rental Basis NCF (Underwritten NCF)
      • 804.02 Cooperative Market Rental Basis DSCR (Underwritten DSCR)
      • 804.03 Actual Cooperative Property NCF
      • 804.04 Actual Cooperative Property DSCR
    • Section 805
      Limited Equity Cooperative Properties
  • Chapter 9
    Small Mortgage Loans
    • Section 901
      Generally
      • 901.01 Description
      • 901.02 Applicability
    • Section 902
      Key Principal Guaranty Obligation
    • Section 903
      Occupancy
    • Section 904
      Corporate Leases; Leases to One Entity
    • Section 905
      Property Income Analysis
      • 905.01 Small Mortgage Loan Underwritten NCF (Underwritten NCF)
      • 905.02 Underwritten DSCR
    • Section 906
      Property Management
    • Section 907
      Property Condition
      • 907.01 Site Inspection by Lender or Other Third Party
      • 907.02 Site Inspection by Borrower
      • 907.03 PCA
    • Section 908
      Replacement Reserve
    • Section 909
      Environmental Matters and Inspections
    • Section 910
      Borrower, Key Principals, Guarantors, and Principals
      • 910.01 Borrower Organizational Structure
      • 910.02 Co-Tenant Borrowers
      • 910.03 Key Principals
      • 910.04 Principals
      • 910.05 Financial Statements
      • 910.06 Net Worth and Liquid Assets
    • Section 911
      Credit Reports
      • 911.01 Credit Report
      • 911.02 FICO Scoring
      • 911.03 Reviewing the Credit Report
  • Chapter 10
    Healthy Housing Rewards
    • Section 1001
      Healthy Housing Rewards
    • Section 1002
      Healthy Design
    • Section 1003
      Enhanced Resident Services
  • Chapter 11
    Adjustable Rate Mortgage (ARM) Loans
    • Section 1101
      Description
    • Section 1102
      Underwriting
    • Section 1103
      Prepayment Terms
      • 1103.01 Generally
      • 1103.02 1% Prepayment Premium Schedule
  • Chapter 12
    Structured Adjustable Rate Mortgage (SARM) Loans
    • Section 1201
      Description
    • Section 1202
      Underwriting
    • Section 1203
      Actual Amortization Calculation
    • Section 1204
      Prepayment Terms
      • 1204.01 Generally
      • 1204.02 Prepayment Option 1 – Declining Prepayment Premium Schedule
      • 1204.03 Prepayment Option 2 - 1% Prepayment Premium Schedule
    • Section 1205
      Interest Rate Caps
      • 1205.01 Replacement Interest Rate Cap
      • 1205.02 Determining the Cap Strike Rate
      • 1205.03 Including the Cap Cost Factor in the Variable Underwriting Rate
      • 1205.04 Establishing Interest Rate Cap Reserves
      • 1205.05 Interest Rate Cap Contract Documentation and Delivery
  • Chapter 13
    Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans
    • Section 1301
      Description
    • Section 1302
      Interest Rate Conversion Date
    • Section 1303
      Prepayment Terms
    • Section 1304
      Monthly Principal and Interest Payments
      • 1304.01 During the Fixed Rate Term
      • 1304.02 On the Hybrid ARM Loan Conversion Date
      • 1304.03 During the Adjustable Rate Term
  • Chapter 14
    Supplemental Mortgage Loans
    • Section 1401
      Description
    • Section 1402
      Supplemental Mortgage Loans
      • 1402.01 Description
      • 1402.02 Coterminous and Non-Coterminous
      • 1402.03 Loan Amount
        • 1402.03 A Maximum Loan Amount
        • 1402.03 B Calculating the Debt Service
        • 1402.03 C Calculating the DSCR and LTV
        • 1402.03 D New Loan Test
      • 1402.04 Tier Dropping
        • 1402.04 A Designating
        • 1402.04 B Eligibility
        • 1402.04 C Ineligible Mortgage Loans
      • 1402.05 Streamlined Underwriting
        • 1402.05 A Property
        • 1402.05 B Borrower, Guarantor, Key Principals, and Principals
  • Chapter 15
    Split Mortgage Loans and Bifurcated Mortgage Loans
    • Section 1501
      Description
    • Section 1502
      Characteristics
  • Chapter 16
    Mezzanine Financing and Preferred Equity
    • Section 1601
      Mezzanine Financing
      • 1601.01 Description
        • 1601.01 A Eligible Mortgage Loans
        • 1601.01 B Eligible Terms
        • 1601.01 C Loss Sharing
        • 1601.01 D Lender's Loan Application
      • 1601.02 Underwriting
      • 1601.03 Submission
        • 1601.03 A Materials
        • 1601.03 B Data
      • 1601.04 Intercreditor Agreement
      • 1601.05 Servicing
    • Section 1602
      Preferred Equity
      • 1602.01 Description
        • 1602.01 A Definitions
        • 1602.01 B Exclusions
        • 1602.01 C Eligible Mortgage Loans
        • 1602.01 D Structures
        • 1602.01 E Limitations
        • 1602.01 F Lender's Loan Application
      • 1602.02 Underwriting
      • 1602.03 Hard Preferred Equity
        • 1602.03 A Submission
        • 1602.03 B Outside Counsel and Due Diligence Fees
  • Chapter 17
    Structured Transactions
    • Section 1701
      Description
    • Section 1702
      Credit Facilities
    • Section 1703
      Bulk Deliveries
  • Chapter 18
    Choice Refinance Loans
    • Section 1801
      Eligibility
    • Section 1802
      Lender Delegation
    • Section 1803
      Prepayment Premium and Origination Fees
    • Section 1804
      Streamlined Underwriting
      • 1804.01 Zoning
      • 1804.02 Property Condition Assessment (PCA)
      • 1804.03 Environmental Site Assessment
      • 1804.04 Survey
      • 1804.05 Borrower Structure and Experience
      • 1804.06 Borrower Credit
      • 1804.07 Property Management
      • 1804.08 Replacement Reserve
      • 1804.09 Real Estate Tax and Insurance Escrows
    • Section 1805
      Property Ownership Change
Part IV A
Mortgage Loan Commitment, Delivery and Purchase Procedures
  • Chapter 1
    General Mortgage Loan Purchase Requirements
    • Section 101
      Overview of Part IV
    • Section 102
      Lender Eligibility
    • Section 103
      Purchase Types
    • Section 104
      MBS Eligibility
  • Chapter 2
    Pricing, Origination Fees, and Prepayment Premium Incentives
    • Section 201
      Pricing Memos
    • Section 202
      Required Fees and Lender Compensation
      • 202.01 Origination Fee
      • 202.02 Servicing and Guaranty Fees
      • 202.03 Other Fees
    • Section 203
      Choice Refinance Loans – Origination Fees and Prepayment Premiums
      • 203.01 General
      • 203.02 Reduced Origination Fees
      • 203.03 Reduced Prepayment Premiums on Portfolio Mortgage Loans Refinanced with Fannie Mae
        • 203.03 A Refinancing Cash Portfolio Mortgage Loans as Choice Refinance Loans
        • 203.03 B Refinancing MBS Portfolio Mortgage Loans as Choice Refinance Loans
    • Section 204
      Refi Plus Refinance Mortgage Loans
    • Section 205
      Origination Fee and Prepayment Premium Waivers for Portfolio Mortgage Loans Not Being Serviced by the Refinance Lender
    • Section 206
      In Place Loan Fees
      • 206.01 Level 2 Fees
      • 206.02 Level 3 Fees
      • 206.03 Pricing Premiums
  • Chapter 3
    Committing
    • Section 301
      General
    • Section 302
      Requirements for Rate Lock and Commitment
      • 302.01 Pre-Commitment Terms
      • 302.02 Borrower Commitment
      • 302.03 Trading Agreements
      • 302.04 Required Practices for Committing and Delivering Mortgage Loans to Fannie Mae
    • Section 303
      Obtaining a Rate Lock
      • 303.01 General
      • 303.02 Rate Lock Periods
      • 303.03 Rate Lock Amount
      • 303.04 Locking the Rate
        • 303.04 A Lender-Arranged Sale to a Third Party MBS Investor
        • 303.04 B Lender Sale to Fannie Mae as MBS Investor
        • 303.04 C Lender Sale to Fannie Mae for Cash
      • 303.05 Right to Decline Trades
    • Section 304
      Good Faith Deposits
      • 304.01 Deposit Required
      • 304.02 Minimum Good Faith Deposit
      • 304.03 Breakage Fee for Failed Delivery
      • 304.04 Letters of Credit
    • Section 305
      Commitment Terms and Procedures
      • 305.01 General Commitment Provisions
        • 305.01 A Submission Guidance
        • 305.01 B MBS Submissions
      • 305.02 Confirmation of the Commitment
      • 305.03 Commitment Modifications
        • 305.03 A Change Requests
        • 305.03 B Rate Lock Extensions
        • 305.03 C Commitment Extensions
    • Section 306
      ASAP Contracts
      • 306.01 ASAP Options
      • 306.02 Lender Eligibility for ASAP Options
    • Section 307
      Choice Refinance Loans
  • Chapter 4
    Delivery Procedures – Data
    • Section 401
      General
      • 401.01 Timing of Delivery
      • 401.02 Submission of Mortgage Loan Information
      • 401.03 ASAP Data Submission
      • 401.04 Requirements for Mortgage Loan Purchase
      • 401.05 Failure to Comply with Deadlines; Changing the MBS Book-Entry Date
      • 401.06 Wiring Instructions
      • 401.07 Payee Codes for Wiring Cash Mortgage Loan Proceeds
    • Section 402
      MBS Specific Delivery Requirements
      • 402.01 MBS Delivery Options
        • 402.01 A Same Month Pooling
        • 402.01 B Standard Delivery Option
      • 402.02 Special Characteristics and Additional Disclosure
      • 402.03 Confirming Pre-settlement MBS Issuance Information
  • Chapter 5
    Delivery Procedures – Documents
    • Section 501
      General
      • 501.01 Custodian
      • 501.02 Delivery
        • 501.02 A Delivery Deadline; Timing of Document Delivery
        • 501.02 B Location of Delivery
        • 501.02 C Format of Delivery
      • 501.03 Warehouse Lender and Bailee Letter
      • 501.04 Review of Mortgage Loan Delivery Package
      • 501.05 Failure to Deliver: Return of Package
    • Section 502
      The Mortgage Loan Delivery Package Contents
      • 502.01 Mortgage Loan Delivery Documents
      • 502.02 Mortgage Loan Delivery Package Folders
      • 502.03 Participation Interests
      • 502.04 ASAP Deliveries
  • Chapter 6
    Purchase Procedures
    • Section 601
      General
      • 601.01 Timing of Purchase
      • 601.02 C&D Notification of Purchase
      • 601.03 Fannie Mae Loan Number
    • Section 602
      Purchase Amount; Accrued or Prepaid Interest
    • Section 603
      MBS Funding and Delivery Methods
      • 603.01 Third Party MBS Investor Delivery Paths
        • 603.01 A Delivery versus Payment
        • 603.01 B Delivery Direct to the Investor
      • 603.02 Trades with Multifamily Trading Desk - Original Issue Settlement
    • Section 604
      Disclosure for MBS Mortgage Loans
      • 604.01 Multifamily MBS Base Prospectus
      • 604.02 Prospectus Supplement (Prior to December, 2017)
      • 604.03 Additional Disclosure
      • 604.04 Lender Disclosure Obligations
    • Section 605
      Purchase Procedures for Cash Mortgage Loans
      • 605.01 Disbursement of Purchase Proceeds
      • 605.02 Purchase Advice
    • Section 606
      ASAP
Part IV B
Mortgage Loan Commitment, Delivery, and Purchase Procedures for Special Product Features and Executions
  • Chapter 1
    Early Rate Lock
  • Chapter 2
    Streamlined Rate Lock
    • Section 201
      General
      • 201.01 Eligible Mortgage Loans
      • 201.02 Pre-Review Mortgage Loans
      • 201.03 Commitment Terms
        • 201.03 A Rate Lock Period; Delivery Timing
        • 201.03 B Minimum Rate Lock Amount for Trades with the Multifamily Trading Desk; Dual Commitment Option
        • 201.03 C Commitment Modifications
      • 201.04 Basic Streamlined Rate Lock Mortgage Loan Requirements
        • 201.04 A General
        • 201.04 B Good Faith Deposit
        • 201.04 C Delivery Tolerance
        • 201.04 D Green Mortgage Loans
    • Section 202
      Preliminary Underwriting Requirements
    • Section 203
      Rate Lock and Full Underwriting
    • Section 204
      The Lender’s Determination after Completion and Review of the Full Underwriting Package
      • 204.01 Full Underwriting
        • 204.01 A Changes to Rate Lock Amount or Commitment Amount
        • 204.01 B Mortgage Loan Delivery Package
      • 204.02 Lender Determinations after Full Underwriting
        • 204.02 A No Change to the Streamlined Rate Lock, or an Increase or Decrease to the Delivered Mortgage Loan Amount within the Delivery Tolerance
        • 204.02 B Changes to the terms of the Streamlined Rate Lock or the Commitment
        • 204.02 C Waiver to Accept Delivery
        • 204.02 D Non-Delivery of Streamlined Rate Lock Mortgage Loan
    • Section 205
      Dual Commitment Option
      • 205.01 General
      • 205.02 Obtaining Additional Proceeds
  • Chapter 3
    Structured Transactions
    • Section 301
      General
      • 301.01 Transaction Registration
        • 301.01 A Two System Registration
        • 301.01 B Registration Timing
      • 301.02 Structured Transaction Approval
    • Section 302
      Pricing and Fees
      • 302.01 Pricing
      • 302.02 Fees
    • Section 303
      Loan Documents
    • Section 304
      Rate Lock
    • Section 305
      Commitment/Approval Processes
      • 305.01 MBS Mortgage Loans
      • 305.02 Cash Mortgage Loans
    • Section 306
      Delivery Procedures
      • 306.01 Deal Participant and Collateral Data Delivery (Step 1)
        • 306.01 A Submission of Data
        • 306.01 B Timing
      • 306.02 Underwriting Documents (Step 2)
      • 306.03 Interest Rate Hedge (Step 3)
        • 306.03 A Timing of Hedge Acquisition
        • 306.03 B Hedge Data
      • 306.04 Certification of Structured Transaction Loan Documents (Step 4)
        • 306.04 A Credit Facilities
        • 306.04 B Bulk Deliveries
      • 306.05 Pool and Mortgage Loan Data Submission (Step 5)
        • 306.05 A MBS Mortgage Loans
        • 306.05 B Cash Mortgage Loans
    • Section 307
      MBS Disclosure
    • Section 308
      Features
      • 308.01 Collateral Activity
        • 308.01 A Collateral Addition - Add New Collateral to an Existing Structured Transaction
        • 308.01 B Collateral Release - Request a Release of Collateral from an Existing Structured Transaction
        • 308.01 C Collateral Substitution - Substitute Collateral into an Existing Structured Transaction
      • 308.02 Conversion to Fixed Rate
      • 308.03 Borrow-Up Approval and Funding
      • 308.04 Additional Activities
Part V
Servicing and Asset Management
  • Chapter 1
    General Servicing Requirements, and Servicing for Loan Documents and Specialty Products
    • Section 101
      Servicing – General
    • Section 102
      Servicing Standard
    • Section 103
      Servicing Files
    • Section 104
      Loan Document Servicing
    • Section 105
      Uniform Commercial Code Financing Statements
      • 105.01 Documentation and Filing Requirements
      • 105.02 UCC Renewals or Continuations and Amendments and Terminations
    • Section 106
      Administrative Duties Relating to Letters of Credit
      • 106.01 Retention in Servicing File
      • 106.02 Submission of Certification
      • 106.03 Forwarding New, Replacement or Amended Letters of Credit
      • 106.04 Verification of Issuer Rating
      • 106.05 Documenting Rating in Servicing File
      • 106.06 When Issuer Rating Fails to Meet Standard
      • 106.07 Monitoring Expiration Dates
      • 106.08 Draws on the Letter of Credit
      • 106.09 Release/Reduction of Letter of Credit or Other Collateral
      • 106.10 Replacement Letters of Credit
    • Section 107
      Bond Transactions and Credit Enhancement Mortgage Loans
      • 107.01 Borrower Obligations
        • 107.01 A Compliance with Reimbursement Agreement or Loan Agreement, and Other Loan Documents
        • 107.01 B Payment of Fees
        • 107.01 C Other Fees
        • 107.01 D Timing of Payments
        • 107.01 E Principal Reserve Fund
      • 107.02 Security Instrument; Collateral Agreements; Uniform Commercial Code Filings
        • 107.02 A General
        • 107.02 B Cash Collateral Agreement
        • 107.02 C Investment of Collateral
        • 107.02 D Monitoring Uniform Commercial Code Filings
      • 107.03 Remarketing Agent Changes
  • Chapter 2
    Reporting and Remitting
    • Section 201
      Generally
    • Section 202
      Collection, Tracking and Reporting of Monthly P&I Payments and T&I Amounts
    • Section 203
      Reporting Loan Activity and Security Balance
      • 203.01 Use of Fannie Mae eServicing System
      • 203.02 Reporting Specific Transactions
      • 203.03 Monthly Activity Reporting
        • 203.03 A When to Begin Reporting
        • 203.03 B Cutoff Dates for Loan Activity Reporting
        • 203.03 C Cash Mortgage Loan – Reporting Remittance Amount
      • 203.04 Monthly Securitized Mortgage Loan Security Balance Reporting
        • 203.04 A Reporting Security Balances
        • 203.04 B Same Month Pooling – Security Balance for First Reporting Cycle
        • 203.04 C Security Balances Due by Second Business Day
        • 203.04 D Failure to Meet Reporting Deadline
      • 203.05 Due Dates for Reports
        • 203.05 A Removal Transactions
        • 203.05 B All Other Transactions
      • 203.06 Mortgage Loan Activity Record
        • 203.06 A Payment Collection
        • 203.06 B Fee Collection
        • 203.06 C Mortgage Loan Status
      • 203.07 Reports Generated by Fannie Mae
        • 203.07 A MBS Mortgage Loan Reports
        • 203.07 B Cash Mortgage Loan and MBS Mortgage Loan Reports
      • 203.08 Monthly MBS Mortgage Loan Reconciliations - Pool-to-Security Balance Reconciliations (Not Applicable to PFP MBS)
        • 203.08 A Reconciliation Required
        • 203.08 B Rounding Adjustment
        • 203.08 C Required Annual Adjustment to Correct Principal Balance vs. Security Balance Difference
        • 203.08 D Pool-to-Security Reconciliation Certification
    • Section 204
      Calculation of Interest Due
      • 204.01 Generally
      • 204.02 Calculating Interest Due
        • 204.02 A Actual/360 Interest Calculation Method
        • 204.02 B 30/360 Interest Calculation Method
    • Section 205
      ARM Mortgage Loan Interest Rate and Monthly Payment Changes
      • 205.01 Adjustable Rate Mortgage Loan Interest Rate Changes and Required Monthly Payments
        • 205.01 A The Adjustable Rate Mortgage Loan Index
        • 205.01 B Determining the New Monthly Payment
      • 205.02 Monthly Reporting for ARM Payment/Rate Changes
      • 205.03 Structured ARM Loans
    • Section 206
      Application of Monthly Payments
      • 206.01 Fannie Mae Form Loan Documents
      • 206.02 Non-Fannie Mae Form Loan Documents
    • Section 207
      Payment Shortages
    • Section 208
      Delinquency and Servicing Advances
      • 208.01 Generally
        • 208.01 A Applicability
        • 208.01 B Delinquency Advances on a Mortgage Loan other than a Credit Enhancement Mortgage Loan
        • 208.01 C Delinquency Advances on a Credit Enhancement Mortgage Loan
        • 208.01 D Servicing Advances on a Mortgage Loan other than a Credit Enhancement Mortgage Loan
        • 208.01 E Servicing Advances on a Credit Enhancement Mortgage Loan
      • 208.02 Duration of Payment of Delinquency Advances or Servicing Advances
        • 208.02 A Obligation to Make Delinquency Advances
        • 208.02 B Obligation to Make Servicing Advances
        • 208.02 C Reimbursement for Delinquency and Servicing Advances
      • 208.03 Repayment of Servicing Advances from Borrower
      • 208.04 No Capitalization of Servicing Advances for Securitized Mortgage Loans
      • 208.05 Entitlement to Default Interest
    • Section 209
      Remittance Procedures
      • 209.01 Definitions
        • 209.01 A Interest Distribution Amount
        • 209.01 B Principal Distribution Amount
        • 209.01 C Monthly Remittance
        • 209.01 D Remittance Dates
      • 209.02 Monthly P&I Remittance Dates for Cash and MBS Transactions
      • 209.03 Remittance Dates for Cash Mortgage Loan Payoffs
      • 209.04 Use of Cash Remittance System and Requirements
      • 209.05 Cash Mortgage Loans – Transmitting the Remittance
        • 209.05 A Use of Cash Remittance System
        • 209.05 B Required Date for Commencement of Remittance
        • 209.05 C Remittance Transaction Codes
      • 209.06 Securitized Mortgage Loans – Drafting the Remittance – Funds Drafted under Automated Drafting System (Not Applicable to PFP MBS)
      • 209.07 Additional Requirements for Monthly Remittance for Security Transactions
        • 209.07 A Amount of Security Monthly Remittance
        • 209.07 B Security Interest Distribution Amount
      • 209.08 Securitized Mortgage Loans – Remitting Fees to Fannie Mae
        • 209.08 A Guaranty Fee Due on 7th Calendar Day of Month
        • 209.08 B Guaranty Fee Remittance
        • 209.08 C Same Month Pooling – Interest and Guaranty Fee Remittance for First Reporting Cycle
      • 209.09 Notification to Fannie Mae if Unable to Have Funds Available on any Remittance Date
    • Section 210
      Full Prepayments
      • 210.01 Review of Applicable Loan Documents Required
      • 210.02 Notification of Prepayment; Timing of Prepayment
        • 210.02 A Notice and Timing Consistent with Loan Documents
        • 210.02 B Borrower Notice Must Contain Date of Intended Prepayment and Comply with Notice Requirements of the Loan Documents
        • 210.02 C Loan Document Requirements for Payoff and Lockout Dates
        • 210.02 D Notice to Fannie Mae of Proposed Payoff; Use of Fannie Mae Payoff Calculator
      • 210.03 Timing of Confirmation of the Full Prepayment Payoff Amount
      • 210.04 Full Prepayment for Cash Transactions and PFP MBS
        • 210.04 A Confirming the Full Prepayment Payoff Amount
        • 210.04 B Reporting Full Prepayment Payoff Amount
        • 210.04 C Remitting Full Prepayment Payoff Amount
      • 210.05 Full Prepayment for Securitized Transactions (Not Applicable to PFP MBS)
        • 210.05 A Confirming the Full Prepayment Payoff Amount
        • 210.05 B Reporting Full Prepayment Payoff Amount
        • 210.05 C Remitting Full Prepayment Payoff Amount
    • Section 211
      Partial Prepayments Not From Insurance or Condemnation Proceeds
      • 211.01 Partial Prepayments Generally Prohibited
      • 211.02 Partial Prepayment Procedures
        • 211.02 A Servicer’s Analysis of Loan Documents
        • 211.02 B Fannie Mae Approval Required for Partial Prepayments
        • 211.02 C Prepayment Premium Due on Partial Prepayment
        • 211.02 D Reporting and Remitting Partial Prepayments When Not Permitted in Loan Documents
        • 211.02 E Reporting and Remitting Partial Prepayments When Permitted in Loan Documents
    • Section 212
      Prepayments (Full or Partial) Involving Insurance Proceeds or Condemnation Awards
      • 212.01 Partial Prepayments Generally Permitted
      • 212.02 No Prepayment Premium Required
      • 212.03 Reporting and Remitting Partial Prepayments
    • Section 213
      Prepayment Premium Sharing
      • 213.01 General
      • 213.02 Yield Maintenance Prepayment Premiums – Prepayment Occurs Before the Yield Maintenance Period End Date
        • 213.02 A Calculation of Total Prepayment Premium
        • 213.02 B Calculation of Investor’s Share of Total Prepayment Premium for a Securitized Mortgage Loan
        • 213.02 C Calculation of Fannie Mae’s Share of Total Prepayment Premium
        • 213.02 D Calculation of Servicer’s Share of Total Prepayment Premium
      • 213.03 Yield Maintenance Prepayment Premiums – Prepayment Occurs On or After the Yield Maintenance Period End Date
        • 213.03 A Prepayment On or After Yield Maintenance Period End Date
        • 213.03 B Prepayment During Open Period
      • 213.04 Fixed Rate Mortgage Loans with Graduated Prepayment Premiums
      • 213.05 Prepayment Premiums for ARM Loans and Structured ARM Loans
      • 213.06 Prepayment Premium Waivers; Servicer’s Share of Prepayment Premium
    • Section 214
      Maturing Mortgage Loans/Payoffs
      • 214.01 Balloon Mortgage Loans
      • 214.02 Servicer Notification of Payoff Amount to Borrower
      • 214.03 Calculating and Obtaining Confirmation of Payoff Amount
        • 214.03 A Calculating the Full Payoff Amount
        • 214.03 B Fannie Mae Will Not Confirm Nor Is Responsible for Amounts Owing to Servicer
        • 214.03 C Fannie Mae Confirmation of Full Payoff Amount
        • 214.03 D No Quote to Borrower Until Fannie Mae Confirmation
      • 214.04 Reporting the Payoff and Remitting the Payoff Funds
        • 214.04 A Reporting Full Payoff Amount Through the eServicing System Due By 2nd Business Day of Month
        • 214.04 B Remitting Full Payoff Amount
    • Section 215
      Post-Payoff Actions
      • 215.01 Servicer Required Actions
        • 215.01 A General
        • 215.01 B Individual Mortgage Loan Releases
      • 215.02 Post Payoff Document Retention Requirements
    • Section 216
      DUS Bond Credit Enhancement Transactions – Reporting and Remitting Requirements
      • 216.01 Monthly Bond Credit Enhancement Reporting
      • 216.02 Monthly Remittance Procedures
        • 216.02 A Monthly Remittances of Scheduled Payments to Bond Trustee
        • 216.02 B Replenishment of Withdrawals from the PRF
        • 216.02 C Collection and Remittance of Borrower Reimbursement Obligations for Fannie Mae Advances
        • 216.02 D Monthly Remittance of Fees to Fannie Mae
        • 216.02 E Notice and Collection of Other Fees and Expenses
      • 216.03 Prepayments – General Introduction
        • 216.03 A Bond Redemption Premiums Payable to Bondholders
        • 216.03 B Termination Fee or Prepayment Premium Payable to Fannie Mae
        • 216.03 C Termination When No Prepayment Occurs; Weekly Variable Rate Transactions
      • 216.04 Prepayments – Processing
        • 216.04 A General
        • 216.04 B Prompt Notice of Intended Prepayment
        • 216.04 C Critical Path Due Dates
        • 216.04 D Fannie Mae’s Confirmation Required
      • 216.05 Prepayments: Prepayment Reporting
      • 216.06 Prepayments: Remittances
      • 216.07 Reporting on Delinquency Status
    • Section 217
      Mezzanine Loan Reporting and Remitting
      • 217.01 Remitting DUS Plus Mezzanine Loans
      • 217.02 Payoffs
    • Section 218
      Defeasance
      • 218.01 Mortgage Loan Documents Must Permit Defeasance
      • 218.02 Borrower’s Election to Defease
      • 218.03 Defeasance Option Procedures
        • 218.03 A Defeasance Documents
        • 218.03 B Defeasance Notice
        • 218.03 C Defeasance Commitment Fee
        • 218.03 D Verification of the Defeasance Notice
        • 218.03 E Substitute Collateral
        • 218.03 F Assignment and Assumption
        • 218.03 G Closing Documents
        • 218.03 H Amounts Payable by Borrower
        • 218.03 I Defeasance Deposit
        • 218.03 J Release
        • 218.03 K Fannie Mae Security Liquidated Damages
        • 218.03 L Third-Party Costs
        • 218.03 M Post Defeasance Closing Date
    • Section 219
      Delinquency Reporting and Certification
    • Section 220
      Reporting Collateral Balances in Custodial Accounts
      • 220.01 P&I Custodial Accounts
      • 220.02 Letters of Credit as Collateral
      • 220.03 Report on Fair Value Basis
      • 220.04 What to Report
      • 220.05 When to Report
    • Section 221
      Internal Revenue Service Reporting Requirements
      • 221.01 What to Report
      • 221.02 Filing IRS Form 1099 MISC
      • 221.03 Notifying the Internal Revenue Service about Abandonments or Acquisitions (IRS Form 1099-A)
        • 221.03 A When Required
        • 221.03 B Preparing IRS Form 1099-A
      • 221.04 Notifying the Internal Revenue Service about Cancellations of Indebtedness (IRS Form 1099-C)
        • 221.04 A When Required
        • 221.04 B Determining When a Debt Is Cancelled
        • 221.04 C Preparing IRS Form 1099-C
        • 221.04 D Exceptions to IRS Form 1099-C Reporting
        • 221.04 E Coordination with Reporting Abandonments or Acquisitions
      • 221.05 Reporting via Magnetic Media
  • Chapter 3
    Custodial Account Requirements
    • Section 301
      Custodial Accounts
      • 301.01 General
      • 301.02 Custodial Account Types, Investments, and Depositories
        • 301.02 A Custodial Account Requirements and Investments
        • 301.02 B Eligible Depositories
        • 301.02 C Verifying Depository Ratings
        • 301.02 D Fannie Mae’s Rights in Custodial Accounts
      • 301.03 Required Custodial Accounts
      • 301.04 Servicer Liability
        • 301.04 A Responsibility of Servicer
        • 301.04 B Servicer Liable for Losses
        • 301.04 C No Reimbursement for Losses
        • 301.04 D Overdrafts Not Permitted
    • Section 302
      Establishment of Custodial Accounts
      • 302.01 Notification Requirements
        • 302.01 A Establishment of a Custodial Account
        • 302.01 B Changes to a Custodial Account
        • 302.01 C Termination of a Custodial Account
      • 302.02 Titling of Custodial Accounts
      • 302.03 Daily Cutoff
    • Section 303
      P&I Custodial Accounts
      • 303.01 Purpose of P&I Custodial Accounts
      • 303.02 P&I Commingling Restrictions
        • 303.02 A Maintain Multiple P&I Custodial Accounts
        • 303.02 B No Commingling Permitted
      • 303.03 Withdrawals from P&I Custodial Accounts
      • 303.04 Use as a Clearing Account Not Permitted
    • Section 304
      Tax and Insurance Custodial Accounts
      • 304.01 Purpose of T&I Custodial Accounts
      • 304.02 T&I Commingling Restrictions
      • 304.03 Prohibited Use of T&I Custodial Account Funds
    • Section 305
      Collateral Agreement Custodial Accounts
      • 305.01 Purpose of Collateral Agreement Custodial Accounts
      • 305.02 Commingling Restrictions
    • Section 306
      Interest-Bearing Accounts
      • 306.01 Interest-Bearing Account Requirements
      • 306.02 Loan Documents May Require Interest-Bearing Accounts
    • Section 307
      Clearing Accounts
      • 307.01 Clearing Accounts Permitted
      • 307.02 Custodial Account Requirements Applicable to Clearing Accounts
      • 307.03 Clearing Account Activity Guidelines
        • 307.03 A Timing for Crediting to Custodial Account
        • 307.03 B Debit and Credit Memos Permitted
        • 307.03 C Using Checks
        • 307.03 D Insufficient Funds Checks
        • 307.03 E Records and Audit Trails
    • Section 308
      Drafting Accounts
      • 308.01 Establishing Drafting Accounts
      • 308.02 Consolidated Custodial Account
        • 308.02 A Distinct Custodial Accounts for Securitized Mortgage Loans (Other Than PFP MBS)
        • 308.02 B Timely Remittance
        • 308.02 C Commingling of P&I Funds Permitted for Cash Executions
        • 308.02 D Commingling of P&I Funds Permitted for Securitized Mortgage Loans
        • 308.02 E Separate Accounts for P&I Funds Permitted
        • 308.02 F Corporate/General Lender Accounts Not Permitted
        • 308.02 G Timing of Commingling
        • 308.02 H Election of Cash Remittance System or Automated Drafting System Required
        • 308.02 I Required Records
    • Section 309
      Custodial Account Reconciliations
    • Section 310
      Taxes, Assessments, Insurance Premiums, and Other Charges/Obligations
      • 310.01 Taxes and Insurance and Other Custodial Accounts
      • 310.02 Collections for T&I and Other Obligations
        • 310.02 A T&I and Other Obligations
        • 310.02 B Collections for T&I Obligations
        • 310.02 C No Financing for T&I Obligations
      • 310.03 Interest Earned on T&I and Other Custodial Accounts
      • 310.04 Accounting for T&I Custodial Accounts
      • 310.05 Commingling of Funds in T&I Custodial Accounts
      • 310.06 T&I Account Shortfalls
      • 310.07 Periodic Analysis of Borrower’s T&I Obligations and Custodial Account Collections
        • 310.07 A Timing of Analysis
        • 310.07 B Insufficient Borrower Funds
        • 310.07 C Custodial Account Surplus
      • 310.08 Annual T&I Custodial Account Statements
  • Chapter 4
    Asset Management: Loan Document Administration
    • Section 401
      Servicing Requirements
      • 401.01 General
      • 401.02 Monitoring Compliance with Loan Documents
    • Section 402
      Delegation of Decision-Making Authority; Retention of Outside Legal Counsel
      • 402.01 Delegation of Decision-Making Authority
      • 402.02 Retention of Outside Legal Counsel
    • Section 403
      Execution of Documents by Servicer – Limited Power of Attorney
    • Section 404
      Execution of Documents by Fannie Mae
      • 404.01 Submission of Documents to Fannie Mae
      • 404.02 Servicer Certification When Fannie Mae Approval Is Not Required
      • 404.03 Servicer Certification When Fannie Mae Approval Is Required
    • Section 405
      Fees Due to Fannie Mae
    • Section 406
      Follow-Up Actions by the Servicer
    • Section 407
      Subordinate Financing
      • 407.01 Non-Fannie Mae Subordinate Financing
      • 407.02 Prerequisite for Subordinate Financing
      • 407.03 Fees for Subordinate Financing
      • 407.04 Submitting the Request for Subordinate Financing
      • 407.05 Fannie Mae Approval and Execution
      • 407.06 Subsequent Servicer Actions
    • Section 408
      Administration of Collateral Agreements
      • 408.01 General Administrative Requirements
        • 408.01 A Administration of Funds
        • 408.01 B Funds to be Held in a Custodial Account
        • 408.01 C Use of Funds
        • 408.01 D Funds as Additional Security for Mortgage Loan
        • 408.01 E Servicer’s Fees and Costs
        • 408.01 F Waiver or Modification of Terms of Collateral Agreement
      • 408.02 Achievement Agreement or Other Agreement for Additional Collateral
        • 408.02 A General
        • 408.02 B Releases or Reductions in Collateral
        • 408.02 C Draws on Letters of Credit or Application of Other Collateral
      • 408.03 Completion/Repair Agreement
        • 408.03 A General
        • 408.03 B Extensions for Completion/Repair Agreement
        • 408.03 C Amendments to Completion/Repair Agreements
        • 408.03 D Servicer’s Administrative Requirements
        • 408.03 E Processing Borrower Requisitions
        • 408.03 F Inspections
        • 408.03 G Fees
        • 408.03 H Default under Completion/Repair Agreement
      • 408.04 Replacement Reserve
        • 408.04 A General
        • 408.04 B Amendments to Replacement Reserve Schedules
        • 408.04 C Servicer’s Administrative Requirements
        • 408.04 D Modifications to Replacement Reserve Deposits
        • 408.04 E New Property Condition Assessments
        • 408.04 F When Replacement Reserve Funding Was Partially or Fully Waived
        • 408.04 G Interest on Replacement Reserve Funds
        • 408.04 H Items Eligible for Funding from the Replacement Reserve
        • 408.04 I Items Not Eligible for Funding from the Replacement Reserve
        • 408.04 J Processing Borrower Requisitions
        • 408.04 K Inspections
        • 408.04 L Fees
        • 408.04 M Default under Replacement Reserve Schedule
        • 408.04 N Return of Replacement Reserve Funds to Borrower
        • 408.04 O Alternative Funding of Replacement Reserves for Portfolio Mortgage Loans
    • Section 409
      Interest Rate Hedge Requirements
      • 409.01 General
      • 409.02 Interest Rate Hedge Coverage
        • 409.02 A Bond Credit Enhancement Transactions
        • 409.02 B Structured Transactions
        • 409.02 C All Hedges
      • 409.03 Interest Rate Hedge Term
      • 409.04 Lien Filings and Collateral
      • 409.05 Borrower Payments
        • 409.05 A Interest Rate Caps
        • 409.05 B Interest Rate Swaps
      • 409.06 Provider Ratings
      • 409.07 Replacement Interest Rate Hedge and Notification
      • 409.08 Replacement Interest Rate Hedge Documents and Follow Up
    • Section 410
      Ground Leases
    • Section 411
      Notice of Lien or Non-Compliance with Applicable Laws, Ordinances and Regulations
    • Section 412
      Property Forfeitures and Seizures
    • Section 413
      Property and Liability Insurance
      • 413.01 Property and Liability Insurance
      • 413.02 No Financing for Property and Liability Insurance Premiums
      • 413.03 Flood Map Changes; Obtaining Flood Insurance
      • 413.04 Lender Placed Insurance
        • 413.04 A Property and Liability Insurance
        • 413.04 B Flood Insurance
        • 413.04 C Servicer’s Administrative Costs and Expenses
    • Section 414
      Casualty Losses – Performing Mortgage Loans
      • 414.01 Notice
      • 414.02 Filing Proof of Loss
      • 414.03 Casualty Loss Assessment
      • 414.04 Required Casualty Loss Property Inspection
      • 414.05 Documentation for Required Casualty Loss Property Inspections
      • 414.06 Endorsement of Insurance Loss Draft or Check When Payable to Fannie Mae
      • 414.07 Endorsement of Insurance Loss Draft or Check When Not Payable to Fannie Mae
      • 414.08 Insurance Loss Draft or Check Not Payable to Either Fannie Mae or Servicer
      • 414.09 Application of Insurance Loss Proceeds
        • 414.09 A Fannie Mae Determination Required
        • 414.09 B Disposition of Insurance Loss Proceeds
      • 414.10 Property Restoration Requirements
      • 414.11 Commencement of Repair/Restoration Work
      • 414.12 Disbursements
        • 414.12 A Prerequisites for Disbursement of Funds
        • 414.12 B Disbursing Funds
        • 414.12 C Content of Disbursement Request
        • 414.12 D Disbursement Amount
        • 414.12 E Final Disbursement; Notice to Fannie Mae
        • 414.12 F Documentation in Servicing File
      • 414.13 Borrower’s Failure to Diligently Pursue Repair
      • 414.14 Reimbursement of Administrative Costs
    • Section 415
      Casualty Losses – Non-Performing Mortgage Loans
    • Section 416
      Credit Facilities and Bulk Deliveries
      • 416.01 General
      • 416.02 Delegation of Decisions
        • 416.02 A Decisions and Actions Not Delegated
        • 416.02 B Decisions Delegated by the Delegated Transaction Form 4636 series
        • 416.02 C Other Delegated Decisions and Actions
      • 416.03 Approval Requests
      • 416.04 Release and Substitution Requests
      • 416.05 Facility Revaluations
      • 416.06 Supplemental Mortgage Loans Not Permitted
      • 416.07 Additional Information
    • Section 417
      Seniors Housing Properties
      • 417.01 General
      • 417.02 Decisions and Actions Delegated and Not Delegated
      • 417.03 Approval Requests
      • 417.04 Seniors Housing Expansion/Conversion Requests
        • 417.04 A Permitted Purpose
        • 417.04 B Submission Requirements
        • 417.04 C Requirements and Monitoring
        • 417.04 D Construction Completion Requirements
        • 417.04 E Request Changes in Unit Count/Mix in the MAMP
    • Section 418
      Asset Management for Credit Enhancement Mortgage Loans and Multifamily Affordable Housing Properties
      • 418.01 Bond Transactions and Credit Enhancement Mortgage Loans
      • 418.02 Compliance Issues Relative to Bond Credit Enhancement Transactions
      • 418.03 Monitoring Compliance; Notification of Noncompliance
        • 418.03 A Affordable Regulatory Agreement
        • 418.03 B Default Notice for Failure to Comply with the Bond Documents
      • 418.04 Multifamily Affordable Housing (MAH) Properties
      • 418.05 Low-Income Housing Tax Credits
      • 418.06 Enhanced Resident Services
      • 418.07 Restabilization Reserve
  • Chapter 5
    Surveillance
    • Section 501
      General
    • Section 502
      Property Inspections
      • 502.01 MBA Master Inspection Form
      • 502.02 Mortgage Loans with Property Condition Concerns (Not Limited to Watchlist Loans)
      • 502.03 Property Inspection Protocols
      • 502.04 Property Inspection Frequency; Submission of Property Inspection Forms
        • 502.04 A Timing of Property Inspections
        • 502.04 B Submission of Property Inspection Forms
      • 502.05 Property Inspector Qualifications
        • 502.05 A Minimum Inspector Experience
        • 502.05 B Third-Party Inspector Requirements
      • 502.06 Content of Property Inspections
        • 502.06 A Number of Units to be Inspected; “Down” Units
        • 502.06 B Selection of Units to be Inspected
        • 502.06 C Photographs
        • 502.06 D Consultation with Property Manager and Staff
        • 502.06 E Analysis of Market
        • 502.06 F Analysis of Collateral
        • 502.06 G Life Safety Issues
      • 502.07 Servicer Property Inspection Quality Control Requirements
        • 502.07 A Review of Inspection Forms
        • 502.07 B Quality Control Program
      • 502.08 Retention of Inspection Forms
      • 502.09 Other Property Inspections; Inspection Fees
      • 502.10 PCA Frequency
    • Section 503
      Quarterly and Annual Financial Analysis of Operations
      • 503.01 Electronic Reporting of Financial Analysis of Operations
      • 503.02 Request for Waivers of Quarterly and Annual Reporting on Financial Analysis of Operations
        • 503.02 A Waivers for Reasons Other Than Unresponsive Borrowers
        • 503.02 B Waivers due to Unresponsive Borrowers
      • 503.03 Quarterly Reporting on Financial Analysis of Operations
        • 503.03 A Quarterly Reporting Requirements
        • 503.03 B Quarterly Submission Requirements by Asset Class
      • 503.04 Annual Reporting on Financial Analysis of Operations
        • 503.04 A Annual Financial Analysis Reporting Requirements
        • 503.04 B Submitting the Annual Financial Analysis of Operations
        • 503.04 C Annual Review
        • 503.04 D Asset Management Testing
        • 503.04 E Maintenance of Records
    • Section 504
      Compliance with Loan Agreement Requirements
      • 504.01 General
      • 504.02 Obtaining Required Financial and other Reporting Items
        • 504.02 A Notice to the Borrower
        • 504.02 B Annual Reporting of Guarantor Financial Condition
        • 504.02 C Failure of Borrower to Provide Required Guarantor Financial Reporting
        • 504.02 D Lender Review of Required Financial Reporting
        • 504.02 E Maintenance of Annual Financial Reporting Records
  • Chapter 6
    Watchlist Management
    • Section 601
      General
    • Section 602
      Risk Rate and Maintain Servicer Watchlist
    • Section 603
      Servicer Watchlist Classifications and Requirements
      • 603.01 Rating Classifications
        • 603.01 A Pass Asset
        • 603.01 B Pass/Watch Asset
        • 603.01 C Special Mention Asset
        • 603.01 D Substandard Asset
        • 603.01 E Doubtful Asset
      • 603.02 Identification on Servicer Watchlist
      • 603.03 Increased Communication with Fannie Mae
    • Section 604
      Servicer Watchlist Submission
    • Section 605
      Fannie Mae Watchlist
    • Section 606
      Action Plans
      • 606.01 Action Plans for Primary Risk Mortgage Loans
      • 606.02 Information Requests and Action Plans for Secondary Risk Mortgage Loans
      • 606.03 Defaulted Mortgage Loans on Fannie Mae or Servicer Watchlist
    • Section 607
      Property Condition Concerns (Not Limited to Watchlist Loans)
    • Section 608
      Servicer Fees for Workout, Modification, or Reinstatement
    • Section 609
      Fannie Mae Contractors
  • Chapter 7
    Non-Performing Mortgage Loans
    • Section 701
      Generally
    • Section 702
      Secondary Risk Mortgage Loans and Primary Risk Mortgage Loans
      • 702.01 Generally
      • 702.02 Secondary Risk Mortgage Loans
        • 702.02 A Definition
        • 702.02 B Lender is Special Servicer
        • 702.02 C Deemed Exhaustion of Recourse Obligation
      • 702.03 Primary Risk Mortgage Loans Defined
        • 702.03 A Definition
        • 702.03 B Fannie Mae is Special Servicer
    • Section 703
      Mortgage Loan Defaults
      • 703.01 Anticipatory Defaults
      • 703.02 Performance Defaults
        • 703.02 A Failure of Borrower to Perform
        • 703.02 B Service of Process
        • 703.02 C Lender Tenders for Minor or Immaterial Defaults
      • 703.03 Monetary or Payment Defaults
      • 703.04 Date of Default
        • 703.04 A Definition of Date of Default
        • 703.04 B Definition of Non-Performing Mortgage Loan
        • 703.04 C Partial Payments by Borrower Do Not Change Date of Default
      • 703.05 Late Charges and Default Interest
        • 703.05 A Timing for Imposition of Late Charges and Default Interest
        • 703.05 B Late Charges and Default Interest
        • 703.05 C No Deduction for Late Charges or Default Interest
        • 703.05 D Enforceability of Late Charges and Default Interest
    • Section 704
      Notice of Default; Reservation of Rights
      • 704.01 Notice of Default
        • 704.01 A Notice to Fannie Mae of Payment Default
        • 704.01 B Notice to Fannie Mae of Performance Default
        • 704.01 C Types of Performance Defaults
        • 704.01 D Contact with Borrower
        • 704.01 E Pre-Negotiation Letter
      • 704.02 Partial Payments; Late Payments
        • 704.02 A Partial Payments
        • 704.02 B Late Partial Payment
        • 704.02 C Full Payment After Expiration of Period Before Assessing Late Charges
        • 704.02 D Application of Partial Payments
        • 704.02 E Failure to Make Any Payment
        • 704.02 F Copies of Letters Sent to Borrower; Correspondence with Borrower
    • Section 705
      Capital Repairs and Protection of Property and Property Income
      • 705.01 Funding Capital Repairs During Default Resolution
        • 705.01 A Generally
        • 705.01 B Health and Safety Repairs
      • 705.02 Protection of Property Income
      • 705.03 Property Management Changes
        • 705.03 A Primary Risk Mortgage Loans
        • 705.03 B Secondary Risk Mortgage Loans
        • 705.03 C Approval Decision Criteria and Timing
        • 705.03 D Documenting the Property Management Change
    • Section 706
      Reinstatement; Calculation of Payoff Amount
      • 706.01 Reinstatement
        • 706.01 A Primary Risk Mortgage Loans
        • 706.01 B Secondary Risk Mortgage Loans
      • 706.02 Calculation of Payoff Amount
    • Section 707
      Non-Performing Primary Risk Mortgage Loans – Transfers to Fannie Mae Special Asset Management
      • 707.01 Transfer to Special Servicing
      • 707.02 Asset Review
    • Section 708
      Non-Performing Secondary Risk Mortgage Loans – Special Servicing
      • 708.01 Servicer Performs Loss Mitigation Actions
      • 708.02 Servicer Workout Action Template (“SWAT”)
        • 708.02 A Delivery of SWAT
        • 708.02 B Purpose of SWAT
        • 708.02 C Contents of SWAT
        • 708.02 D Fannie Mae Approves SWAT
        • 708.02 E Fannie Mae does not Approve SWAT
        • 708.02 F Updating SWAT
        • 708.02 G Failure to Timely Deliver SWAT
        • 708.02 H No Credit Against Recourse
    • Section 709
      Special Servicing of Primary Risk Mortgage Loans
      • 709.01 Fannie Mae Performs Loss Mitigation Actions
      • 709.02 Servicing Transfer Memo
    • Section 710
      Engagement of Legal Counsel
      • 710.01 Fannie Mae Retains Legal Counsel
      • 710.02 Primary Risk Mortgage Loans
      • 710.03 Secondary Risk Mortgage Loans
      • 710.04 Payment of Legal Counsel Fees
        • 710.04 A Primary Risk Mortgage Loans
        • 710.04 B Secondary Risk Mortgage Loans
    • Section 711
      Courses of Action
      • 711.01 Election and Implementation of a Course of Action
      • 711.02 Course of Action – Lender Purchase of Mortgage Loan
        • 711.02 A Primary Risk Mortgage Loans
        • 711.02 B Secondary Risk Mortgage Loans
        • 711.02 C Purchase Price for Mortgage Loans
        • 711.02 D No Fannie Mae Approval Required
        • 711.02 E Implementation of Course of Action
      • 711.03 Course of Action – Lender Workout Election
        • 711.03 A Lender Workout Defined
        • 711.03 B Documentation and Terms of Lender Workout
        • 711.03 C Lender Workout Has No Impact on Loss Sharing or Recourse Obligation
        • 711.03 D No Fannie Mae Approval Required
        • 711.03 E Servicer Makes Delinquency Advances But Fails to Report Mortgage Loan Delinquent
        • 711.03 F Foreclosure Process Continues Unless Otherwise Agreed to by Fannie Mae
      • 711.04 Course of Action – A Joint Workout
        • 711.04 A Joint Workout Defined
        • 711.04 B Delinquency Advances Must Be Made During Negotiation of Joint Workout
        • 711.04 C Joint Workout Process
        • 711.04 D Modification, Extension, and Forbearance Fees
        • 711.04 E Triggering Modification Fees; Other Fees
        • 711.04 F Foreclosure Process Continues Unless Otherwise Agreed to by Fannie Mae
      • 711.05 Course of Action - Foreclosure
        • 711.05 A Primary Risk Mortgage Loans
        • 711.05 B Secondary Risk Mortgage Loans
        • 711.05 C Deed-in-Lieu of Foreclosure
        • 711.05 D Management of Property Post Title Vesting in Fannie Mae
        • 711.05 E Deficiency Suits
      • 711.06 Course of Action – Note Sale Election or Discounted Loan Payoff
        • 711.06 A Note Sale and Discounted Loan Payoff Defined
        • 711.06 B Lender Ability to Bid
        • 711.06 C Any Note Sale or Discounted Payoff Gives Rise to Loss Sharing Event
        • 711.06 D Note Sale – Secondary Risk Mortgage Loans
        • 711.06 E Discounted Loan Payoff - Secondary Risk Mortgage Loans
    • Section 712
      Dual Track Approach
      • 712.01 Dual Track Approach Generally
      • 712.02 Waiver of Dual Track Approach
      • 712.03 Track One: Dialogue with the Borrower
        • 712.03 A Purpose of Track One
        • 712.03 B First 30 Calendar Days after a Default
        • 712.03 C Calendar Days 31 through 60 after a Payment Default or Performance Default
        • 712.03 D Cessation of Dialogue with the Borrower
      • 712.04 Track Two: Foreclosure Process
        • 712.04 A The Foreclosure Process
        • 712.04 B REO Management
      • 712.05 Description of Contractual Relationships
        • 712.05 A Two Contractual Relationships
        • 712.05 B No Disclosure of Lender’s Contract Terms to Borrower; Borrower Not a Third-Party Beneficiary of Lender Contract
        • 712.05 C Primary Risk Mortgage Loans
        • 712.05 D Secondary Risk Mortgage Loans
      • 712.06 Asset Audits for Secondary Risk Mortgage Loans
        • 712.06 A Purpose of Asset Audits
        • 712.06 B Personnel Performing Asset Audits
        • 712.06 C Timing of Asset Audits
        • 712.06 D Content of Asset Audits
        • 712.06 E Pre-Negotiation Letter
        • 712.06 F Special Requirements for the Environmental Assessment
      • 712.07 Dual Track Timeline
    • Section 713
      Loss Sharing and the Appraisal Process in connection with a Foreclosure Event
      • 713.01 General
        • 713.01 A Appraisal Required; Defined Terms
        • 713.01 B Compliance with Loss Sharing Addendum
        • 713.01 C Approved Appraisers
        • 713.01 D Appraisal Requirements
        • 713.01 E Appraisal Notice and Election of Appraisal Methodology
      • 713.02 Single Appraisal Approach
        • 713.02 A Single Appraisal Approach Timeline
        • 713.02 B Draft Appraisal Review
        • 713.02 C Acceptable Draft Appraisal
        • 713.02 D Non-Acceptable Draft Approach
      • 713.03 Dual Appraisal Approach
        • 713.03 A Dual Appraisal Approach Timeline
        • 713.03 B Average of Appraised Values
        • 713.03 C Third Appraisal
  • Chapter 8
    In Place Loans
    • Section 801
      General
    • Section 802
      In Place Loan Categories
      • 802.01 Loan Sizing
      • 802.02 Level 2 In Place Loans
      • 802.03 Level 3 In Place Loans
      • 802.04 Level 2 and Level 3 In Place Loans – Generally
    • Section 803
      Eligibility Requirements
    • Section 804
      Underwriting Process
      • 804.01 Generally
      • 804.02 Specific Underwriting Requirements
        • 804.02 A Borrower Structure and Experience
        • 804.02 B Property Management
        • 804.02 C Occupancy
        • 804.02 D Property Zoning, Location, and Condition
    • Section 805
      Appraisals, Inspections and Loan Documentation
      • 805.01 Appraisal
      • 805.02 Physical Condition Assessment
      • 805.03 Environmental Assessment
      • 805.04 Mortgage Loan Documents
      • 805.05 Title Policy and Survey Requirements
        • 805.05 A Title Policy
        • 805.05 B Survey
      • 805.06 Subordinate Debt
    • Section 806
      Fees and Pricing Premiums
      • 806.01 Origination Fees
      • 806.02 Pricing Premiums
      • 806.03 Loan Modification, Extension and Forbearance Fees
Appendix
Glossary
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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 LIHTCLIHTCFederal 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 DeliverDeliverMeeting all of the data delivery requirements in , and submitting an acceptable Mortgage Loan Delivery Package per Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 5.  A Mortgage Loan is “Delivered,” when all documents, data, and information are correct, accurate, 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. 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).
  • Section 8 HAP contract:  at least 20% of all units are subject to a project-based HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract.
  • Special Public Purpose:  the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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.
  • Self-Imposed Restrictions:  Even though a government entity generally imposes rent or income restrictions, the BorrowerBorrowerPerson who is the obligor under the Note. may voluntarily self-impose such restrictions to preserve multifamily affordable housing.  These restrictions must:
    • be placed on record against the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
    • remain in place beyond 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 amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. ; and
    • be monitored by you or a government entity annually to ensure the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s compliance.

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 LIHTCLIHTCFederal 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). restrictions in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .
702.02

Ineligible Characteristics and Underwriting

Requirements

You must not underwrite or price the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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. .
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 202: 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , as adjusted for AMI, family size, and number of bedrooms in a unit, and reductions for the applicable utility allowances;
  • 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ; or
  • actual rents in place for occupied units, plus the lesser of
    • market rents, or
    • permitted rents, described above for vacant units based on a current rent roll (multiplied by 12).

You must include incremental HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract income as described in 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)

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 HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract) based on a current rent roll (multiplied by 12).1

4

MINUS

Concessions – the aggregate amount of forgone residential rental income resulting from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.).1

5

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable:  include any adjustments to other income for bad debt.1

 

EQUALS

NET RENTAL INCOME (NRI)2

1 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
  • either
    • 5% of GPR, or
    • 3% of GPR if:
      • the Property is located in a Strong Market per Form 4660;
      • the Property has a HAP contract that will expire after the Maturity Date; 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.

2 You must assess whether there was any decline in NRI per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.

CALCULATION OF OTHER INCOME3

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 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), as long as it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.

3 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 202: Income Analysis.

CALCULATION OF COMMERCIAL INCOME

7

PLUS

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

8

MINUS

10% of the actual commercial income.4

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

9

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.

 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

10

MINUS

Line-by-line stabilized operating expenses.  Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). operations, not affected by lease-ups, 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’s expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the BorrowerBorrowerPerson who is the obligor under the Note.’s budget (in the case of an acquisition).

You must analyze historical operations at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and apply an appropriate increase over the prior year’s operations in determining an estimate.

11

MINUS

PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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: Property, Section 202 and the applicable products and features in Part III. 5;
  • actual property management fee (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. ); or
  • market property management fee.

5 Minimum management fee may be 3.5% of EGI (rather than 4% of EGI) provided that the:

 

  • underwritten management fee is at least $300 per unit;
  • actual management fee is equal to or less than the underwritten management fee; and
  • market management fees support the underwritten management fee for similarly sized properties.

12

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% (the 3% trending is not required for trailing 12-month or year-to-date annualized expenses); or
  • in California, 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 the assessed value, multiplied by the millage rate, plus any special assessments.

You must consider any automatic reassessment upon acquisition in the next 12-month period.

12

continued

MINUS

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has real estate tax abatements, exemptions, or deferrals, 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 Part XV of the DUS Guide, subject to certain conditions. ), 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, or deferral benefit as long as the rent, income, or other restrictions are maintained (i.e., it is tied to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 under the Note. must be in and remain in compliance with the California Welfare Tax Exemption program; or
    • if an acquisition or a Transfer/AssumptionTransfer/AssumptionTransaction resulting in a change in 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 under 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
      • ensure that the BorrowerBorrowerPerson who is the obligor under the Note. has demonstrated experience with the California Welfare Tax Abatement Program; and
      • ensure that the BorrowerBorrowerPerson who is the obligor under the Note. is and remains eligible for the California Welfare Tax Abatement Program.

12

continued

MINUS

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). benefits from real estate tax abatements, exemptions, or deferrals that will not survive a Foreclosure EventForeclosure EventAny of the following: Foreclosure under the Security Instrument; any other exercise by the Lender of rights and remedies (whether under the Security Instrument or under applicable law, including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, as a result of…, 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). owner would qualify for the tax abatement;
  • the rent or income restrictions at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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, or deferral; and
    • the original or alternative tax abatement, exemption, or deferral has
      • been established in the state’s statutes,
      • been in effect for at least 10 years, and
      • the LenderLenderPerson approved by Fannie Mae 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 PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s ability to continue to qualify for the tax abatement, exemption, or deferral.

12

continued

MINUS

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 obligations under the Loan Documents. ),
  • an amortization schedule that accommodates the elimination of the abatement, or
  • providing clear justification and support in the refinance analysis.

13

MINUS

Insurance equal to:

 

  • the quoted expense, for insurance policies with a bona fide written quote from a reputable broker for a new 12-month policy; or
  • 110% of the current expense, for insurance policies with a remaining term of less than 6 months.

14

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 202: Income Analysis.

 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

15

MINUS

Replacement ReserveReplacement ReserveCustodial Account established by the Lender and funded by deposits from the Borrower over the term of the Mortgage Loan to fund the replacement of capital items at the Property. expense per Part II, Chapter 2: Valuation and Income, Section 202.01: Underwritten Net Cash Flow (Underwritten NCF).

 

EQUALS

UNDERWRITTEN NCF

703.02

Underwriting

703.02A

Not-for-Profit (IRC §501[c][3]) Borrower may be a Multi-Asset Borrower

Requirements

Although a single-asset entity is preferred, a not-for-profit BorrowerBorrowerPerson who is the obligor under the Note. may be a multi-asset entity.

If the not-for-profit BorrowerBorrowerPerson who is the obligor under the Note. is a multi-asset BorrowerBorrowerPerson who is the obligor under the Note., you must analyze the Borrower'sBorrower'sPerson who is the obligor under the Note. other assets and general financial condition per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 302: Borrower Organizational Structure.

703.02B

Appraised Value and Underwriting Value

Requirements

In addition to the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified appraiser stating an opinion as to the market value of the Property as of a specific date, supported by the presentation and analysis of relevant market information. requirements in Part II, Chapter 2: Valuation and Income, Section 201.02: Appraisal, you must:

  • Include 2 separate opinions of the Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide. based 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…, using
      • comparable multifamily rental properties,
      • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s submarket, and
      • properties with similar rent or income restrictions; and
    • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s 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, and
      • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s submarket.
  • Ensure that each Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by 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 underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. );
    • tax credit benefits; or
    • any perceived special risks or benefits associated with the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and its 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….
  • Determine the appropriate Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide. for the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II: Property, Section 201. per Part II, Chapter 2: Valuation and Income, Section 201: Market and Valuation.
703.02C

Market Study

Requirements

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is subject to a HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. 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 amounts due and owing under the Mortgage Loan 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 as to the market value of the Property as of a specific date, 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.
703.02D

Restabilization Reserve

Requirements

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 HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract if the HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract term (disregarding any annual or other 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 amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. .

The Restabilization Reserve must:

  • equal the monthly P&IP&IPrincipal and interest  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. , multiplied by the greater of
    • 6 months, or
    • the lease-up period determined by the market study per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.02C: Market Study; and
  • remain in place until
    • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). achieves underwritten occupancy for 90 days at market rate rents, or
    • the HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract is renewed and expires 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 amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. .
703.02E

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 amounts due and owing under the Mortgage Loan 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 LIHTC. standards in the Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans. , taking into account factors such as:

  • restricted rents below market rate rents;
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s 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 BorrowerBorrowerPerson who is the obligor under the Note.’s 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • the BorrowerBorrowerPerson who is the obligor under the Note.’s 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 amounts due and owing under the Mortgage Loan 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). compares to comparable market rate properties in terms of occupancy, condition, and amenities if the BorrowerBorrowerPerson who is the obligor under the Note. intends to convert the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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.

Section 704

Subordinate Financing

704.01

Interest Rate and Payments

Requirements

You must ensure that the subordinate loan has:

  • a fixed rate;
  • interest payable on a current basis; and
  • no deferrals, except as described in this Section.
704.02

Loan Term

Requirements

A fully amortizing subordinate loan may mature at any time regardless of the:

  • Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. or 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. ; or
  • expiration date of the Fannie Mae 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 must ensure that any subordinate loan that does not fully amortize, including any Soft Financing, does not mature before 90 days after the earlier of the:

  • final Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. or 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. ; or
  • expiration date of the Fannie Mae 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. 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. 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. .
704.03

Collateral

Guidance

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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). if:

  • the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. is subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. per Sections 704.08 - 704.11 of this Chapter; and
  • the granting clause of the security instrument creating the subordinate LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. is the same as that of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. .
704.04

Credit Support

Requirements

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

  • recourse to the BorrowerBorrowerPerson who is the obligor under the Note. or third-party GuarantorGuarantorKey Principal or other Person who executes a Payment Guaranty, a Non-Recourse Guaranty, or any other guaranty in connection with the Mortgage Loan. , or
  • additional collateral.
704.05

Soft Financing

Requirements

To be considered Soft Financing, subordinate debt must have all of the following:

  • P&IP&IPrincipal and interest payments made 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: Property, Section 202 and the applicable products and features in Part III). remaining after all other payments (due and owing) are made on 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. ;
  • unpaid interest that either
    • does not accrue, or
    • accrues, but can only be satisfied 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: Property, Section 202 and the applicable products and features in Part III). ;
  • agreement from the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. to execute a Subordination Agreement with any future first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. that refinances any UPBUPBUnpaid Principal Balance 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. 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. ;
  • the BorrowerBorrowerPerson who is the obligor under the Note.’s failure to make an interest or principal payment due to a 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: Property, Section 202 and the applicable products and features in Part III). is not considered a default under the Soft Financing subordinate debt; and
  • the BorrowerBorrowerPerson who is the obligor under the Note. retains a minimum 25% equity share in 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: Property, Section 202 and the applicable products and features in Part III). unless
    • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. ,
    • the Soft Financing Note is payable to the developer, and
    • the developer (or entities related to the developer) owns or controls more than 50% of the general partner (or equivalent managing) interest of the BorrowerBorrowerPerson who is the obligor under the Note..

Guidance

Soft Financing may also include:

  • a Loan term significantly longer than 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. , with the subordinate loan either
    • being forgiven over time or at the maturity date of the Soft Financing, or
    • due only upon the sale of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • a nominal interest rate (e.g., 1% or 2%); or
  • principal payments on the Soft Financing that do not fully amortize the subordinate debt over its term.
704.06

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 approved by Fannie Mae 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 approved by Fannie Mae to sell or service Mortgage Loans. is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.05: Soft Financing.

704.07

Developer's Notes

Requirements

You must ensure that the BorrowerBorrowerPerson who is the obligor under the Note. only secures a commitment to repay developer advances or unpaid development costs with the proceeds of a mortgage loan secured by the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). if the subordinate financing is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.05: Soft Financing.

704.08

Subordination Agreement

Requirements

You, the BorrowerBorrowerPerson who is the obligor under the Note., and the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. must enter into either:

  • Fannie Mae form Subordination Agreement (Affordable) (Form 6456), if the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. is a government entity; or
  • Fannie Mae form Subordination Agreement (Conventional) (Form 6414), if the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. is not a government entity.
704.09

Lien Priority and Title Insurance Policy

Requirements

You must ensure that:

  • The LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. securing the subordinate loan remains, at all times, subordinate to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. securing 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. or Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. , including any refinancing of 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. .
  • The Subordination Agreement is recorded in the land records immediately after the subordinate security instrument is recorded.
  • The title insurance policy reflects the recordation of the Subordination Agreement.
704.10

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; 
  • do not require the BorrowerBorrowerPerson who is the obligor under the Note. to maximize rents at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). (even if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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…); and 
  • are not in the form of subordinate 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. .
704.11

Prepayment

Requirements

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

Section 705

Restrictive Covenants and Affordable Regulatory Agreements

Requirements

You must review 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 ensure there are no provisions that, if a BorrowerBorrowerPerson who is the obligor under the Note. defaulted, would

  • grant rights, remedies, or powers similar to that of a secured creditor to any aggrieved party, or
  • impair 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 obligations under the Loan Documents. .

If 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… contains any of these provisions, Fannie Mae will only purchase 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 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… is subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents.

  • using a Subordination Agreement approved by Fannie Mae, or
  • if 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… is in connection with a subordinate loan, using Fannie Mae form 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). manager without your prior consent.

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… does not need to 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 obligations under the Loan Documents. if 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…:

  • has no BorrowerBorrowerPerson who is the obligor under the Note. obligations other than the affordability restrictions;
  • has no rights or remedies to enforce the affordability restrictions other than specific performance or injunctive relief; and
  • terminates upon 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. .
Section 706

ROAR Loan

706.01

Generally

Requirements

You must ensure that 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 underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. 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;
  • currently has Stabilized Residential OccupancyStabilized Residential OccupancyPercentage of Property units physically occupied by Qualified Occupants, per Part II: Property, Section 104.02 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: Property, Section 202, as adjusted for the applicable products and features in Part III. , 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 Preferred Equity payments. set forth in Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans. ; 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 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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. , and
    • the repairs and improvements will be completed within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. .
706.02

Timing

Requirements

Within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds 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 the Lender funds a Mortgage Loan to the Borrower. ;
  • the BorrowerBorrowerPerson who is the obligor under the Note.’s 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: Property, Section 202 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 202: 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 the Lender funds a Mortgage Loan to the Borrower. .

Appraisal

The AppraisalAppraisalWritten statement independently and impartially prepared by a qualified appraiser stating an opinion as to the market value of the Property as of a specific date, supported by the presentation and analysis of relevant market information. must include an opinion of the value of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). 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 the Lender funds 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(s) who control and/or manage the Borrower or the Property, are critical to the successful operation and management of the Borrower and the Property, and who 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 under 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 underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. , if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has both HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. 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 HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract units using the lowest of

 

  • market rents,
  • HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract rents, or
  • Applicable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents.

Option 2

Underwrite the rents from HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. 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 the HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract rents are less than market rents.  If the HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. 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 amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. , you must ensure that:

 

  • 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: Property, Section 202, as adjusted for the applicable products and features in Part III. 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
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). 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: Property, Section 202, as adjusted for the applicable products and features in Part III. greater than or equal to 1.10 based on the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents when the HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contract expires.

You may use Option 2, or eliminate the Restabilization Reserve under either option, if you meet all of the following:

  • all LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents are at 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; and
  • the SponsorSponsorPrincipal equity owner and/or the primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). is experienced and successful in owning and operating properties with HAPHAPHousing assistance payment provided to a Borrower by HUD in connection with a HUD Section 8 Property. contracts. 
707.02

HAP Contract Review Sheet

Requirements

Before you DeliverDeliverMeeting all of the data delivery requirements in , and submitting an acceptable Mortgage Loan Delivery Package per Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 5.  A Mortgage Loan is “Delivered,” when all documents, data, and information are correct, accurate, and… 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 under 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 under 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 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: Property, Section 202, as adjusted for the applicable products and features in Part III. .

708.02

Additional Proceeds from Mortgage Loan

Requirements

If the BorrowerBorrowerPerson who is the obligor under 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 202: 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 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: Property, Section 202, as adjusted for the applicable products and features in Part III. 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: Property, Section 202, as adjusted for the applicable products and features in Part III. 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 per Part XV of the DUS Guide, subject to certain conditions. 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 under 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 PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s overall LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard 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 an LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). in which you are an equity investor (directly or indirectly) in the BorrowerBorrowerPerson who is the obligor under the Note. if the following conditions are met:

  • 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. .
  • You comply with the Underwriting Restrictions for Conflict Mortgage Loans per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 310.02: Restrictions.
  • Any subordinate loans secured by the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704: Subordinate Financing.
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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in 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 LIHTCLIHTCFederal 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 under 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 under 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 under the Note..

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

  • Fannie Mae’s indirect equity interest in the BorrowerBorrowerPerson who is the obligor under the Note. is less than 50%;
  • in the case of an 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 under the Note. have either
      • entered into an 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 under the Note. and the issuer under an 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 under 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.  HUDHUDU.S. Department of Housing and Urban Development ’s 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 under the Note. (and each Key PrincipalKey PrincipalPerson(s) who control and/or manage the Borrower or the Property, are critical to the successful operation and management of the Borrower and the Property, and who may be required to provide a Guaranty. , GuarantorGuarantorKey Principal or other Person who executes a Payment Guaranty, a Non-Recourse Guaranty, or any other guaranty in connection with the Mortgage Loan. , and PrincipalPrincipalPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303. <