Section 404
Requirements
You must ensure that the BorrowerBorrowerPerson who is the obligor under the Note. has sufficient reserves to cover anticipated capital replacement and major maintenance costs. The total amount in the 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. should equal or exceed the anticipated costs (adjusted for inflation) of all necessary capital item replacements and major maintenance needs and repairs for the period from the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. to whichever is sooner:
- 2 years after 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
- 12 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower..
In order to determine the minimum amount of the 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., you must:
- Obtain a PCA (Form 4099).
- Complete the schedule of items to be included in the Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) a Replacement Reserve and Security Agreement (Form 4506), or another agreement approved by Fannie Mae, that evidences:
the Borrower’s agreement to undertake identified replacement of capital items and…
- using the cost estimates in the PCAPCAAssessment of the current physical condition and historical operation of the Property., and
- taking into account any items not already included in the Completion/Repair AgreementCompletion/Repair AgreementDocument evidencing the Borrower’s agreement to undertake Completion/Repairs and other identified capital improvements, the terms for funding the repairs, maintenance, or capital items, and the disbursement of funds from the Completion/Repair Escrow (e.g., Form 4505, or the applicable parts of the….
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Requirements
You must ensure that the costs of all items included in the Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) a Replacement Reserve and Security Agreement (Form 4506), or another agreement approved by Fannie Mae, that evidences: the Borrower’s agreement to undertake identified replacement of capital items and… have been fully funded for
- any Tier 2 Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement., and
- any Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement., regardless of Tier, that requires Completion/RepairsCompletion/RepairsImmediate Repairs identified by the Property Condition Assessment and required by the Lender to be included in the Completion/Repair Agreement (or a Certificate of Borrower, if applicable). costing more than
- 4% 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).’s Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II: Property, Section 201. for refinance transactions, or
- 6% 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).’s Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II: Property, Section 201. for acquisition transactions.
If you choose to modify the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. to not fund a 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. for a Tier 3 or Tier 4 Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement., you must use the appropriate Replacement Reserve ScheduleReplacement Reserve ScheduleThe Required Replacement Schedule to the Multifamily Loan Agreement (Form 6001 series) a Replacement Reserve and Security Agreement (Form 4506), or another agreement approved by Fannie Mae, that evidences: the Borrower’s agreement to undertake identified replacement of capital items and….
Guidance
You may choose not to fund a 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. for any Tier 3 or Tier 4 Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. if
- the required Completion/RepairsCompletion/RepairsImmediate Repairs identified by the Property Condition Assessment and required by the Lender to be included in the Completion/Repair Agreement (or a Certificate of Borrower, if applicable). do not exceed the levels specified in this Section, and
- you determine that the BorrowerBorrowerPerson who is the obligor under the Note. has the financial capacity to fully address future capital expenditures as outlined in the PCAPCAAssessment of the current physical condition and historical operation of the Property..
Guidance
Instead of full funding, you may choose this alternative method for funding the 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..
Requirements
If you choose this alternative funding, you must have the BorrowerBorrowerPerson who is the obligor under the Note. deposit the following amounts on the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower.:
- Monthly deposits for at least 2 years.
- For any significant capital item replacement or major maintenance need that you deem appropriate, an amount sufficient to cover anticipated costs for the period from the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. to whichever is sooner:
- 2 years after 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
- 12 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower..
You must hold these amounts in the 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. for the entire term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement., and may not make them available for refund to the BorrowerBorrowerPerson who is the obligor under the Note. until the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. has been paid in full.