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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 5

Property and Liability Insurance

Section 501

Property and Liability Insurance

501.01

General Insurance – Applies to All Policies

501.01A

Generally

Guidance

When terms or acronyms for insurance forms and policies are capitalized in this Chapter, they refer to Insurance Services Office (ISO) forms and policies or their equivalent.  Other capitalized terms and acronyms have standard insurance industry meanings.

Requirements

Each 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). must be covered by compliant property insurance and liability insurance 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. .  If the BorrowerBorrowerPerson who is the obligor under the Note. fails to maintain any required insurance on 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). , you must obtain the required coverage.

All insurance policies must:

  • list the BorrowerBorrowerPerson who is the obligor under the Note. as a named insured;
  • be written on a per occurrence basis, except for earthquake insurance and professional liability Insurance, which may be written on a per occurrence or claims-made basis;
  • include a provision requiring the carrier to notify each Mortgagee and/or Additional Insured in writing at least 10 days before policy cancellation for non-payment of premium and 30 days before cancellation for any other reason, unless the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. expressly require the BorrowerBorrowerPerson who is the obligor under the Note. to notify the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. promptly of any notice of cancellation it receives;
  • except for professional liability insurance, name Fannie Mae as Additional Insured on all liability insurance and excess/umbrella insurance; and
  • contain a mortgagee clause and loss payable clause for the benefit of Fannie Mae, its successors, and assigns.

All property insurance policies must use Replacement Cost valuation, however, coverage for roofs may use Actual Cash Value or Replacement Cost valuation.

Guidance

All requirements apply to the review you perform before closing as well as to the ServicerServicerPrimary Person responsible for servicing the Mortgage Loan (e.g.,  the originator, the selling Lender, or a third-party servicer). ’s annual compliance review.

You are expected to obtain the advance cancellation notice for the benefit of each Mortgagee and Additional Insured from the insurance carriers whenever possible.  When that is not possible, you should ensure that the final Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. have not been modified in any manner that limits

  • the BorrowerBorrowerPerson who is the obligor under the Note.’s obligation to provide prompt notice to the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. of any notice of cancellation it receives from an insurance carrier, or
  • any recourse liability of the BorrowerBorrowerPerson who is the obligor under the Note. or any GuarantorGuarantorKey Principal or other Person who executes a Payment Guaranty, a Non-Recourse Guaranty, or any other guaranty in connection with the Mortgage Loan. as a result of any failure to maintain all insurance coverages required by the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. .  

Below is an acceptable mortgagee clause.

Fannie Mae, its successors and/or assigns, as their interest may appear
c/o [Lender Name]
Lender’s Street Address or PO Box
Lender’s
City, State and Zip Code

Operating Procedures

If you are not able to obtain the advance cancellation notice from any insurance carrier, you must retain evidence of your attempts to obtain such notice provisions in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .

501.01B

Blanket and Other Policies Covering Multiple Properties

Requirements

The coverage provided by a blanket policy must be as good as, or better than, a single property insurance policy.  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). must be listed and identified in the policy or associated schedules.

Guidance

A blanket policy includes

  • blanket policies,
  • blanket programs,
  • first loss limit policies,
  • first loss policies,
  • layered programs,
  • master policies,
  • master programs,
  • property programs,
  • pooled insurance,
  • pooled programs,
  • shared limit policies, and
  • similar programs insuring multiple locations under the same insurance policy.

Blanket policies are acceptable as long as

  • all other requirements are met, and
  • the Terms and Conditions endorsement does not reduce, limit, or exclude any required coverage.

When evaluating a blanket policy or multiple property policies, you should consider the following:

  • Are the required coverages adequate for the subject property or properties?
  • If the blanket policy limits are less than 100% of the total insurable value of the covered properties, is the shortfall warranted by high policy limits and geographic dispersion?
  • If the blanket policy covers high catastrophic exposure in a geographically concentrated area, is the limit adequate for the exposure, or should the BorrowerBorrowerPerson who is the obligor under the Note. obtain additional coverage?

Programs insuring properties that are not under common ownership with the BorrowerBorrowerPerson who is the obligor under the Note. or a 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. , PrincipalPrincipalPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303. , or AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the BorrowerBorrowerPerson who is the obligor under the Note., or managed by the same property management company may provide evidence of insurance that appears to be a standard layered program. 

You should look for red flags signaling that a program may not be a standard layered program, such as:

  • a significant savings in premium when a BorrowerBorrowerPerson who is the obligor under the Note. adds 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 an existing policy; or
  • a large, rounded coverage limit for property insurance.

You may confirm common ownership through an insurance broker or agent.  If the covered properties are not related by ownership or under the same property management, you are expected to evaluate the insurance administrator, considering factors such as the acceptability of its business practices, possible payment of claim by the administrator, years in business, etc.  This evaluation is in addition to the other analysis expected for blanket policies.

Operating Procedures

You must document your analysis of any blanket policy in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .

501.01C

Insurance Carrier Rating

Requirements

All property and liability insurance carriers for new policies must have:

  • an A.M. Best Company general policyholder's rating of A– or better; and
  • a financial performance index rating of VI or better.

For any existing insurance policy (at origination or thereafter), the carrier must have an A.M. Best rating of B++ or better, and must comply with the rating requirement for new policies at renewal.

This rating requirement does not apply to the following coverages:

  • state wind pools or state funds, if they are the only coverages that can be obtained for 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). ; or
  • flood insurance issued by the National Flood Insurance ProgramNational Flood Insurance ProgramProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. (NFIP) or written by companies approved under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. ’s Write Your Own program.

If a carrier of an existing policy is downgraded below B++, you must, as provided by the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. , require the BorrowerBorrowerPerson who is the obligor under the Note. to immediately obtain replacement coverage with a compliant carrier, even if the policy has not yet expired.

Guidance

A new policy is one that is not already in force, and is most common for an acquisition.  An existing policy is most common for a refinance or when 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 added to a policy that the BorrowerBorrowerPerson who is the obligor under the Note. already has in force.

Operating Procedures

If a carrier providing an existing insurance policy has a rating below A-, you must retain evidence of the insurance carrier’s rating in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. until the policy is renewed.  You must also monitor it on a quarterly basis to confirm that the rating is not downgraded below B++.

501.01D

Term

Guidance

Policies should have a term of at least 12 months.  For new Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. , a PropertyPropertyMultifamily residential 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). may be added mid-term to an existing 12-month policy.

You may accept a policy term of less than 12 months if:

  • when it expires, the policy will be renewed for at least 12 months; and
  • the shorter-term is not because of non-renewal or cancellation by the carrier.
501.01E

Payment of Premium

Requirements

Premiums for all required insurance policies must either be:

  • paid in full annually; or
  • payable in installments, for which you have receipts confirming timely payment.

Premium financing is permitted if the financing agreement has no negative impact on you, Fannie Mae, or the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. collateral, and does not include any conditions that could prevent you or Fannie Mae from receiving the insurance proceeds.  If the BorrowerBorrowerPerson who is the obligor under the Note. finances premiums, you must review a copy of the financing agreement and confirm that timely payment of each premium has been made.

Guidance

You should attempt to reinstate the annual payment of premiums at renewal of any policy.

Any financing agreement should include a requirement that you receive a notice of cancellation for any nonpayment of premium.

Operating Procedures

For Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. where no insurance escrows are being collected, you must obtain evidence annually that all policies have been paid in full.

If the BorrowerBorrowerPerson who is the obligor under the Note. finances premiums, you must retain a copy of the financing agreement in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .  You must also keep receipts confirming timely payments.

501.01F

Evidence of Insurance

Requirements

You must have temporary or permanent evidence of insurance at the closing 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 by each renewal date.

You must have permanent evidence of insurance within 90 days of delivering the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. to Fannie Mae and each renewal date.

Guidance

For temporary evidence of insurance, the following forms are acceptable:

  • ACORD 28 – Evidence of Commercial Property Insurance (most recent version or, if applicable, the state-approved form), combined with ACORD 25 – Certificate of Liability Insurance;
  • ACORD 75 – Insurance Binder;
  • MBAMBAMortgage Bankers Association Evidence of Insurance – Commercial Property Form; and
  • if an ACORD certificate is not available, a joint letter from the BorrowerBorrowerPerson who is the obligor under the Note. and its licensed insurance broker/agent certifying that all coverages, terms, and conditions meet the requirements.

For permanent evidence of insurance, the following forms are acceptable:

  • An original or duplicate copy of the insurance policy.
  • For 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). securing Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance of $10 million or less, the MBAMBAMortgage Bankers Association Evidence of Insurance – Commercial Property Form.
  • For 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). securing a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance in excess of $10 million, or for blanket policies with multiple layers, duplicate copies of the primary insurance policies, which should:  
    • include a letter (signed and dated on company letterhead) from an individual authorized to execute evidence of insurance on behalf of the insurance carriers issuing each policy; and
    • state that all policies follow the same terms, conditions, and exclusions as the primary policy, with any differences specified.
  • For NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. flood insurance, the Policy Declaration page.

The following are not acceptable forms of permanent evidence:

  • insurance policy declarations pages (except for an NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy);
  • single policy endorsement;
  • insurance binders; and
  • certificates of insurance.

If an MBAMBAMortgage Bankers Association Evidence of Insurance - Commercial Property Form is used, it should:

  • be the most recent version or, if applicable, the state-approved form;
  • be completed in its entirety;
  • have an original signature of an individual authorized to execute the Evidence of Insurance on behalf of the insurance carriers issuing each policy; and
  • in states where the form is filed and approved, be on the appropriate state form.

Some insurance carriers use boilerplate policies that do not change from year to year.  In such cases, you should keep a specimen kit or library of such policies and endorsements and may place only the renewal Declarations Page in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. as permanent evidence along with a list of endorsements. 

Operating Procedures

Permanent evidence must be retained in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .  Policies must be collected annually.

501.01G

Insurance Compliance and Data

Operating Procedures

You must complete an annual insurance compliance checklist, including the following information for all insurance coverages, and place it in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. :

  • name of carrier, all insured parties, and the BorrowerBorrowerPerson who is the obligor under the Note.;
  • coverage amount;
  • deductible amount(s);
  • policy term;
  • description of property insured; and
  • coinsurance percentage, if applicable.
501.01H

Post Closing Insurance Exceptions

Requirements

You must determine compliance with this Section on an annual basis.  Any request for an exception to the insurance requirements after origination and delivery of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. must be submitted on the Multifamily Exception Review Form – Insurance (Form 4638) through the MAMPMAMPMultifamily Asset Management Portal used to submit Property inspections, operating statements, and requested modifications; asset management reports; and data corrections related to loan or property level attributes. .  All supporting documentation must be included with the submission.

Guidance

Insurance exceptions granted by Fannie Mae are 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. , unless otherwise specified in the approval.

501.02

Property Insurance

501.02A

Minimum Coverage Amounts

Requirements

Each 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). must have property insurance throughout the term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .  Coverage must be written on a Special Causes of Loss Form.

The coverage amount must be at least

  • 100% of estimated insurable value for single-building 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). , and
  • 90% of estimated insurable value for multiple-building 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). .

Coinsurance cannot exceed 90%. 

The maximum deductible amount is based on the total insurable values 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). insurance policy.

If the insurable value is...

The maximum deductible amount per occurrence is...

Less than $5 million

$15,000

Equal to or greater than $5 million, but less than $50 million

$25,000

Equal to or greater than $50 million, but less than $100 million

$100,000

Equal to or greater than $100 million

$250,000

These deductible amounts apply to all insurance coverages required by Part II, Chapter 5: Property and Liability Insurance, Section 501.03: Catastrophic Risk Insurance and Part II, Chapter 5: Property and Liability Insurance, Section 501.04: Liability Insurance, unless a different amount is specified.

Guidance

100% coinsurance with the Agreed Value endorsement is acceptable.  Renewal of the Agreed Value endorsement is not automatic.

501.02B

Business Income (including Rental Value) Insurance

Requirements

Each 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). must have business income insurance (including rental value insurance), covering all perils, including windstorm, flood, earthquake, and terrorism.

Coverage must be based on either

  • Actual Loss Sustained for 12 months, or
  • Effective Gross IncomeEffective Gross IncomeOn 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. for the most recent annual reporting period.

The maximum deductible for business income insurance cannot exceed the greater of the maximum deductible for the property insurance policy or a waiting period of up to 72 hours.

Coverage for a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance of $25 million or more must include a 90-day Extended Period of Indemnity option.

Guidance

If a type of coverage is required but is excluded by the property insurance policy (e.g., ordinance or law), and the BorrowerBorrowerPerson who is the obligor under the Note. purchases the coverage separately, or adds it to the property insurance policy, you should confirm that business income insurance is also provided for the covered peril in order to satisfy the requirement.

501.02C

Ordinance or Law Insurance

Requirements

Each 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 non-conforming under any current land use law or was constructed 25 years or more before closing must have ordinance or law insurance.  In this case, 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). must have:

  • Coverage A:  Loss of Undamaged Portion, in an amount equal to
    • 100% of the insurable 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). , less the damage threshold specified by the local building ordinance, or
    • 50% of the insurable value, if the local ordinance does not specify a threshold;
  • Coverage B:  Demolition/Debris Removal Cost, in a minimum amount of 10% of the insurable 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). ; and
  • Coverage C:  Increased Cost of Construction, in a minimum amount of 10% of the insurable 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). .

Guidance

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). is non-conforming if it cannot be rebuilt as is under current law.  Examples of land use laws include building, zoning, energy management, green, and similar ordinances.

Rebuilding as is refers to the ability to build the same square footage within the same building footprint without increasing the non-conformity, as defined by the local ordinance.  You should determine the feasibility of rebuilding within any time frame required by the ordinance.

Ordinance and law insurance is needed for an older 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 it is legally conforming under current zoning law, because the cost of construction will likely be significantly higher due to changes in building codes and construction requirements.

For example:

  • When 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). has an insurable value of $10 million and the damage threshold of the local building ordinance is 75%, $2.5 million is the amount of coverage required for Coverage A.  If A, B, and C are combined, then the required amount is $2.5 million plus $2 million, or $4.5 million total.
  • When Coverages A, B, and C are combined, the minimum limit is the Coverage A amount plus 20% of the insurable 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). .
  • When Coverages B and C are combined, the minimum limit is 20% of the insurable 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). .

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). that closed before February 3, 2014 are not required to have ordinance or law coverage if they are Legal Conforming and have a build date of 25 years or more before closing.

501.02D

Boiler and Machinery / Equipment / Mechanical Breakdown Insurance

Requirements

Each 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). located in a state that regulates centralized HVAC boiler, water heater, or other high-pressure vessels must have boiler and machinery insurance if it has such equipment.

The coverage amount must be at least 100% of the insurable value of each building that houses the equipment.

501.02E

Builder’s Risk Insurance

Requirements

If property insurance coverage is excluded during construction or significant renovation or restoration, 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). must have builder’s risk insurance during such activity.

The coverage amount must be at least 100% of the completed value, on a non-reporting basis.

501.02F

Fidelity Bond / Crime Insurance

Requirements

Each 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). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. must have fidelity bond/crime insurance in an amount covering scheduled Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for at least 3 months.

The deductible for fidelity bond/crime insurance may not exceed $25,000.

501.02G

Regional Perils Insurance

Requirements

If 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). is in an area prone to geological phenomena, the property insurance coverage must include those phenomena.

The coverage amount must be 100% of the insurable value.

Guidance

Examples of geological phenomena include sinkhole, mine subsidence, volcanic eruption, and avalanche.

501.03

Catastrophic Risk Insurance

501.03A

Generally

Requirements

If 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). is in an area prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment such as earthquake, flood, terrorist attack and windstorm. , it must have the coverages required by this Section 501.03.

501.03B

Windstorm Insurance

Requirements

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). must have separate windstorm insurance if the Special Causes of Loss Form excludes any type of wind-related Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment such as earthquake, flood, terrorist attack and windstorm. .

The coverage amount must be at least 100% of the insurable value.  This valuation may not rely solely on Probable Maximum Loss (PML) calculations.

The deductible amount may not exceed the greater of

  • 10% of the insurable value,
  • the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts, or
  • for the business income insurance (including rental value insurance), 15 days of income or equivalent.

Guidance

A state insurance plan, state-managed windstorm, or beach erosion insurance pool is acceptable for catastrophic windstorm coverage (i.e., not for non-catastrophic windstorm or other perils), if no other catastrophic windstorm coverage is available.

501.03C

Flood Insurance

Requirements

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). must have flood insurance if any income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that support amenities are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or Zone V.

The coverage amount must be 100% of the insurable value of

  • the first 2 floors above grade and any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). below grade, plus
  • all Fixtures and Goods located on the first 2 floors above grade and/or below grade (as defined in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ).

The deductible amount may not exceed the greater of

  • 5% of the insurable 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). , 
  • the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts, or
  • for business income insurance (including rental value insurance), 15 days or equivalent.

If the coverage available under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. is not sufficient to meet the requirements set forth above, then the BorrowerBorrowerPerson who is the obligor under the Note. must have excess flood insurance or difference in conditions (DIC) insurance that either

  • covers the difference, up to the required coverage amount, or
  • if the required coverage amount is not economically feasible, covers an amount that you determine is reasonable, given the exposure.

During the Letter of Map Amendment (LoMA) process only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required.  The maximum term for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance during the LoMA process is 12 months.

If any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). are reclassified as within an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or Zone V after you deliver the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. , you must require the BorrowerBorrowerPerson who is the obligor under the Note. to obtain compliant flood insurance.

Guidance

Flood insurance is not required if only unimproved portions 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). , or non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that do not support amenities 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 located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .  ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that support amenities include structures such as clubhouses and pool houses.  ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that do not support amenities are structures such as sheds, pump houses, and storage buildings.  Business income insurance is not required for non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). . 

Keep in mind that conditions may change over time and flood zones may be remapped.  In certain cases, you or Fannie Mae may require flood insurance for ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). outside of an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or V, but within an area designated by FEMAFEMAFederal Emergency Management Agency as Zone X or Zone D (for example, if 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). is in an area subject to flooding due to storm water, or within close proximity to an SFHASFHASpecial Flood Hazard Area designated by FEMA. boundary).

When determining whether excess flood insurance or DIC insurance is economically feasible, you may consider a DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. reduction of 10 or more basis points as a reasonable measure or guide. 

Before determining a lesser amount of excess flood insurance or DIC Insurance, or not requiring such coverage, you should have the BorrowerBorrowerPerson who is the obligor under the Note. provide you with at least 3 quotes or declination letters, and determine whether the BorrowerBorrowerPerson who is the obligor under the Note. is attempting to avoid purchasing coverage by applying to companies that do not write flood insurance or give artificially high quotes.  If you are provided with a combination of quotes and declinations, quotes should be used to determine feasibility of coverage, and a limit of coverage that is economically feasible should be secured.

An acceptable deductible for DIC insurance is the coverage limit of the underlying NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy. 

You should obtain flood zone determinations from qualified third-party flood-zone determination firms, and exercise care and sound judgment when selecting the firm.  You should require the determination firm, and any monitoring company (if different), to

  • notify you whenever flood insurance is or becomes required, and
  • continue monitoring after any servicing transfer.

Operating Procedures

You must obtain life-of-loan monitoring for each 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). from a third-party flood-zone determination firm.

You are required to complete the most recent version of the Standard Flood Hazard Determination form issued by FEMAFEMAFederal Emergency Management Agency to determine whether any of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .  You must keep a completed copy of this form in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. , including a signed copy of the Notice to Borrower of Special Flood Hazard and Federal Assistance (included in the Flood Determination Certificate). 

If you permitted a reduction in the amount of excess flood insurance or DIC insurance, your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. must include your analysis and related documentation to support the economic feasibility and the amount of the reduction.

501.03D

Earthquake Insurance

Requirements

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). must have earthquake insurance if required by Fannie Mae based on the Seismic Risk Assessment.

The coverage amount must be at least 100% of the insurable value.

The deductible amount may not exceed the greater of

  • 10% of the insurable value, or
  • the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts.
501.03E

Terrorism Insurance

Requirements

Each 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). must have terrorism insurance for property damage/casualty and liability exposures, unless

  • it secures a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance of less than $25 million, and
  • you performed a risk assessment, and it indicated no or low terrorism risk.

The coverage amount must be at least 100% of the insurable value of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). .

The deductible amount may not exceed the greater of

  • 20% of the insurable value, or
  • the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts.

Guidance

Your risk assessment should consider 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). location in relation to potential terrorist targets, such as tourist attractions, mass transportation facilities, urban areas, and government buildings.  You should also consider concentrations of risk and overall exposures.

Operating Procedures

You must retain a copy of your risk assessment in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .

501.04

Liability Insurance

Requirements

Each 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 BorrowerBorrowerPerson who is the obligor under the Note. must be covered by liability insurance for bodily injury, 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). damage, and personal injury throughout the term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. .

501.04A

Commercial General Liability Insurance

Requirements

The general liability insurance coverage amount must be at least

  • $1 million per occurrence/$2 million general aggregate limit, plus
  • excess/umbrella insurance as follows:

If the number of stories in the building is...

The minimum excess/umbrella insurance coverage is...

1 – 4

$2 million

5 – 10

$5 million

11 – 20

$10 million

Over 20

$25 million

The maximum deductible amount is based on the total insurable values 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). insurance policy.

If the insurable value is...

The maximum deductible amount per occurrence is...

Less than $5 million

$40,000

Equal to or greater than $5 million, but less than $50 million

$50,000

Equal to or greater than $50 million, but less than $100 million

$125,000

Equal to or greater than $100 million

$275,000

You may satisfy the maximum deductible amounts by any combination of the deductibles on the primary liability insurance and excess/umbrella insurance policies.

The maximum deductibles apply to all liability insurance.

Guidance

You may satisfy the insurance coverage requirements with any combination of primary liability insurance and excess/umbrella insurance coverage, so long as they add up to the sum of the required minimum limits.

You may satisfy the insurance coverage requirements for excess/umbrella insurance when the coverage limit meets the requirement for the location with the most stories.

501.04B

Professional Liability Insurance

Requirements

If any level of healthcare is provided at a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. , it must have professional liability insurance covering professional errors and omissions, medical malpractice, and all types of abuse.

The coverage amount must be at least

  • $1 million per occurrence/$2 million general aggregate limit, plus
  • excess/umbrella insurance as follows:

If the number of licensed beds is...

The minimum excess/umbrella insurance coverage is...

1 – 100

$2 million

101 – 500

$5 million

501 – 1,000

$10 million

Over 1,000

$25 million

For 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). with Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority.  beds, Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. beds are not counted when determining the minimum coverage limit.

When general liability insurance and professional liability insurance coverages are combined under an excess/umbrella insurance policy, the required coverage is the higher minimum limit of the 2 underlying coverages.

The maximum deductible for professional liability insurance must not exceed the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.04A: Commercial General Liability Insurance.

Guidance

When using a claims-made policy, you should consider whether an adequate “retroactive date” is in place.  A retroactive date provides coverage for acts that took place before a specified date – usually before the effective date of the current policy.  A retroactive date of 3 - 5 years before the current policy’s effective date is common. 

If the BorrowerBorrowerPerson who is the obligor under the Note. changes carriers 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. , the addition of tail coverage or an extended reporting period endorsement, which extends coverage after the cancellation or termination of a claims-made policy, is important.  These provisions help ensure that there is no lapse in coverage.

You may satisfy the insurance coverage requirements with any combination of primary liability insurance and excess/umbrella insurance coverage, as long as they add up to the sum of the required minimum limits.

You may satisfy the insurance coverage requirements for excess/umbrella insurance when the limit meets the requirement for the covered location with the most beds.

501.04C

Risk Retention Groups and Captive Insurance

Requirements

Only a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. may use liability insurance from a Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or a Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. .  Captive Insurance is only acceptable for

  • professional liability insurance, and
  • general liability insurance when combined with professional liability insurance.

Any Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. must have a rating of at least

  • A- / VI from A.M. Best, or
  • A from Demotech.

You must get an annual report on the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. from an independent firm that is:

  • familiar with captive domiciles, operations, and insurance structures;
  • experienced analyzing captive actuarial studies and audited financial statements; and
  • unrelated to the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. , you, the BorrowerBorrowerPerson who is the obligor under the Note., 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 any of its sponsors or PrincipalsPrincipalsPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303. .

The firm’s report must include:

  • an analysis of the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. ’s annual independent actuarial study;
  • an actuarial memorandum/reserve analysis provided by the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. ;
  • a review of the annual independent audited financial statements for the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. ; and
  • a conclusion regarding the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. ’s operations and financial viability.

Guidance

Captive Insurance and similar arrangements have lower capitalization requirements than traditional insurance companies, and are usually not rated by a recognized rating agency.

In order to be rated, a Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. will typically provide the following to a rating provider:

  • detailed updated accrual runs;
  • updated loss history (minimum 5 years, brief summary, and detailed list);
  • current updated audited financial statements for the past 2 years:
    • for the captive, audited financials typically are on a stand-alone basis (if audited are not available, then unaudited financials are acceptable); and
    • for the parent company’s, the financials should be on a consolidated basis;
  • financials, audited or unaudited, from the captive and parent company for the most recent quarter;
  • description of any changes from previous years with applicable updated resumes of all officers;
  • description of any reinsurance and/or fronting company, if applicable;
  • description of internal claims management procedures;
  • status of market update;
  • description of funding sources;
  • business plan;
  • projected volume over the next year;
  • actuarial memorandum/reserve analysis as provided by the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. ;
  • state insurance examination report or, if a report is not available,
    • date of examination,
    • description of any adverse findings, and
    • steps taken to remediate; and
  • exposure to the Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. or Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. , based on the UPBUPBUnpaid Principal Balance of loans made to date.
501.04D

Workers’ Compensation Insurance

Requirements

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). must have workers’ compensation and employer’s liability insurance (including terrorism coverage), if required in the state where 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 located.

The coverage amount must equal or exceed:

  • the statutory limits for injured employees; plus
  • the greater of
    • employer’s liability limits of $1 million per occurrence for bodily injury, $1 million per occurrence and $1 million aggregate for employee disease, or
    • any underlying limit required by the excess/umbrella insurance carrier.
501.04E

Directors’ and Officers’ Liability Insurance

Requirements

Each 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). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. must have directors’ and officers’ liability insurance.

The coverage amount must be at least $1 million per occurrence.

501.04F

Commercial Auto Liability Insurance

Requirements

The BorrowerBorrowerPerson who is the obligor under the Note. must have commercial auto liability insurance for any motor vehicles that are

  • owned or hired by the BorrowerBorrowerPerson who is the obligor under the Note., or
  • used by anyone for business on behalf of the BorrowerBorrowerPerson who is the obligor under the Note. or 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). .

The coverage must include personal injury protection required by the state where 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 located.

The coverage amount must be the greater of

  • $1 million per occurrence, or
  • any underlying limit required by the excess/umbrella insurance carrier.
501.05

Small Loans

Requirements

All insurance requirements of this Chapter apply to Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III: Products and Features, Chapter 9. , except as noted in this Section.

501.05A

Permanent Evidence

Guidance

If you are unable to obtain the original or a duplicate copy of the insurance policy or the MBAMBAMortgage Bankers Association Evidence of Insurance, the BorrowerBorrowerPerson who is the obligor under the Note.’s insurance agent or broker may deliver a written statement that it has reviewed the policy and confirmed that it meets the following requirements:

  • Named insured is listed as Fannie Mae and the BorrowerBorrowerPerson who is the obligor under the Note..
  • Mortgagee Clause meets Fannie Mae's requirements.
  • Each insurance carrier has a compliant A.M. Best rating.
  • Policy term is 12 months.
  • Cancellation Clause meets Fannie Mae's requirements.
  • Special Coverage Form applies.
  • No Coinsurance or, if there is Coinsurance, an Agreed Value Endorsement is attached to the policy.
  • Limits of insurance are included for all required coverages, including any sub-limits or other restrictions (such as catastrophic limits) that may differ from the standard coverage amount.
  • A Statement of Values is included where applicable.
  • Coverage is subject to Replacement Cost valuation.
501.05B

Excess/Umbrella Insurance

Requirements

The minimum excess/umbrella insurance is $1 million if

  • no building 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). has more than 4 stories, 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. has a UPBUPBUnpaid Principal Balance of $3 million or less.
501.05C

Terrorism Insurance

Guidance

Terrorism insurance is not required for Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III: Products and Features, Chapter 9. .

Section 502

Environmental Matters

Guidance

Any environmental conditions or risks impacting 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). should be fully understood and considered in the underwriting.

502.01

Environmental Site Assessments

Requirements

You must comply with the Environmental Due Diligence Requirements (Form 4251), which include obtaining a Phase I Environmental Site AssessmentPhase I Environmental Site AssessmentEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. (Phase I ESA) of the entire 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). .  The Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. must:

  • be performed per the instructions in Form 4251, including meeting the current requirements of ASTMASTMAmerican Society for Testing Materials E1527;
  • be prepared by an environmental professional as that term is defined in 40 C.F.R. § 312.10 (an Environmental Professional);
  • identify all environmental conditions and risks that may potentially impact resident safety, marketability, or 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). ; and
  • clearly identify how to properly mitigate those conditions and risks, including where applicable,
    • the Environmental Professional’s recommendations regarding additional investigation, or requirements of government authority or regulatory agency, or
    • action to remediate or abate any Recognized Environmental Condition (REC)/Controlled Recognized Environmental Condition (CREC), as those terms are defined in ASTMASTMAmerican Society for Testing Materials E1527.

If the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. identified any RECs/CRECs, you must obtain Fannie Mae's approval before Rate LockRate LockAgreement between the Lender and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. .

Guidance

You may rely on a preliminary or draft Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. to obtain a CommitmentCommitmentContractual agreement between Fannie Mae and the Lender where Fannie Mae agrees to buy a Mortgage Loan from the Lender at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and the Lender agrees to Deliver that Mortgage Loan to Fannie Mae. .

502.02

Lender’s Responsibilities

Requirements

You must:

  • Obtain all investigations recommended or indicated by the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. .
  • Conduct a thorough review and analysis of the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. .
  • Provide the Environmental Professional with all available prior Phase I ESAsPhase I ESAsEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. , investigations, and any relevant and readily available environmental materials.
  • Provide the appraiser with any documentation from the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. that is necessary to accurately assess 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). .
  • Identify whether the state where 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 located has an environmental “super-lien” statute and, if so, confirm that conditions 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). are not likely to result in the imposition of such a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. .
  • Disclose to Fannie Mae your knowledge of any actual or suspected environmental conditions affecting 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). , whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. .
  • Ensure that any required Operations and Maintenance Plans (O&M Plans) are obtained and located on the site throughout the loan term.
  • Assess the BorrowerBorrowerPerson who is the obligor under the Note.’s ability to carry out any O&M PlanO&M PlanWritten plan, document, or agreement containing ongoing operating, maintenance, or monitoring actions for the Property or its Improvements. .  A Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. is ineligible for purchase if the BorrowerBorrowerPerson who is the obligor under the Note. or its agents are not financially or organizationally capable of satisfying the requirements of the O&M PlanO&M PlanWritten plan, document, or agreement containing ongoing operating, maintenance, or monitoring actions for the Property or its Improvements. .
  • Evaluate the potential risk of loss and liability 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). , the BorrowerBorrowerPerson who is the obligor under the Note., you, or Fannie Mae posed by any
    • REC/CREC,
    • Business Environmental RiskBusiness Environmental RiskRisk of material environmental or environmentally-driven impact on the business or property associated with a Property or the past, current or planned use of a Property, including all “non-scope considerations” under current ASTM E 1527, asbestos or asbestos-containing materials, radon, lead-based…, or
    • other environmental condition, whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. .

If you become aware of any REC/CREC, you must:

  • Obtain a Remediation Plan from the BorrowerBorrowerPerson who is the obligor under the Note. that
    • is prepared by an Environmental Professional, as required by Form 4251,
    • will protect the health and safety of the residents and bring the PropertyPropertyMultifamily residential 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). into regulatory compliance, and
    • includes a cost estimate and schedule for completing the work.
  • Add the estimated cost of the Remediation Plan to the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account established by the Lender and initially funded by an escrow deposit from the Borrower on the Mortgage Loan Origination Date to complete Completion/Repairs or other capital improvements at the Property. requirement of the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. .

Guidance

The amount funded into the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account established by the Lender and initially funded by an escrow deposit from the Borrower on the Mortgage Loan Origination Date to complete Completion/Repairs or other capital improvements at the Property. on the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. should be at least 125% of the estimated cost of the Remediation Plan.

502.03

Environmental Indemnity Agreement

Requirements

You must consider revisions to the Environmental Indemnity Agreement (Form 6085) to protect you and Fannie Mae from liability associated with any REC/CREC (including the cost to investigate/remediate any such condition) and any violation of Environmental LawsEnvironmental LawsAll current federal, state, and local laws, ordinances, regulations, standards, rules, policies, and other governmental requirements, administrative rulings, court judgments, and decrees, and all amendments thereto, relating to pollution or protection of human health, wildlife, wetlands, natural… by the BorrowerBorrowerPerson who is the obligor under the Note..  You must document your evaluation of potential revisions, including at a minimum, whether the following revisions are appropriate:

  • additional representation and warranty where the BorrowerBorrowerPerson who is the obligor under the Note. disclaims responsibility for any REC/CREC, if appropriate and accurate;
  • additional covenant(s) requiring
    • implementation of the Remediation Plan,
    • compliance with any Environmental Activity and Use LimitationsEnvironmental Activity and Use LimitationsLegal or physical restrictions or limitations on the use of, or access to, all or any portion of a site, facility, groundwater, soils, or other media at, on, about or under a site or facility to reduce or eliminate potential exposure to Hazardous Materials or to prevent activities that could… and/or institutional or engineering controls, and
    • maintenance of BorrowerBorrowerPerson who is the obligor under the Note. eligibility for applicable liability protection status;
  • specifically identifying any liability associated with the REC/CREC in the indemnification provisions; and
  • other terms and conditions as may be required based on Fannie Mae environmental counsel review.
Section 503

Seismic Risk

503.01

Seismic Hazard and Risk Factors

Guidance

Any seismic risk impacting 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). should be understood before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae as described in Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 3. .  Seismic risk is assessed by analyzing the PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. at the location 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). .

After purchase 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. , no additional seismic risk evaluation is required.

Requirements

Each 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). must have an acceptable level of seismic risk.

A Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. is ineligible for purchase if the PropertyPropertyMultifamily residential 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

  • a PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. equal to or greater than 0.15g, and
  • 1 of these Structural Risk Factors:
    • an unreinforced masonry building that has not been seismically retrofitted; or
    • a building constructed on a slope with an angle exceeding 30 degrees (a 50% slope).

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 located in a High Seismic RiskHigh Seismic RiskArea or a specific site identified by the most recent USGS data (see United States Geological Survey (USGS) Peak Ground Acceleration (PGA) Calculator Tutorial) as having a PGA equal to or greater than 0.15g (i.e., 15% of the acceleration of gravity (g) using a 10% probability of exceedance in a 50… area, you must complete Form 4099.C.  If a Structural Risk Factor is present, you must also obtain a Seismic Risk Assessment (SRA).

503.02

Seismic Risk Assessment (SRA)

Requirements

You must obtain a Level 1 SRA dated within 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae as described in Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 3. for any 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). with one of the Structural Risk Factors listed in Form 4099.C.

The SRA must:

  • meet the ASTMASTMAmerican Society for Testing Materials seismic standards (ASTMASTMAmerican Society for Testing Materials E2026 – Standard Guide for Seismic Risk Assessment of Buildings and ASTMASTMAmerican Society for Testing Materials E2557 – Standard Practice for Probable Maximum Loss (PML) Evaluations for Earthquake Due Diligence Assessments);
  • include estimates for the Scenario Expected Loss (SEL) and the Scenario Upper Loss (SUL);
  • use a 10% probability of exceedance in a 50-year period;
  • meet ASTMASTMAmerican Society for Testing Materials seismic standard professional qualifications; and
  • comply with Form 4099.C.

Guidance

For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III: Products and Features, Chapter 9. , the SRA field investigation may be performed by a PCAPCAAssessment of the current physical condition and historical operation of the Property. consultant or field observer if that professional has at least 2 years of experience performing seismic risk assessments of buildings.

A new SRA is not required for Supplemental Mortgage LoansSupplemental Mortgage LoansMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. ; you may rely on the original underwriting seismic analysis.

503.03

Acceptable Levels of Seismic Risk

Guidance

The SEL percentage 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). and the building stability assessment will determine whether the seismic risk is acceptable.

Requirements

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 seismic risk is acceptable if all income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that support amenities

  • comply with this Section 503.03,
  • have an SEL of 20% or less, and
  • meet the current building stability requirements of ASTMASTMAmerican Society for Testing Materials E2026.

A Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. is ineligible for purchase if it is secured by 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 has any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). with an SEL greater than 40%.

Guidance

Your analysis should include:

  • a Level 1 SRA, including Appendix X4 (ASTMASTMAmerican Society for Testing Materials E2557);
  • your analysis of the seismic issues and recommendation, describing in detail
    • the severity and pervasiveness of the conditions driving the SEL and stability issues,
    • the risks presented to building stability, building damageability, site stability, and life safety, and
    • the recommended retrofit or remediation requirements;
  • a retrofit letter or the BorrowerBorrowerPerson who is the obligor under the Note.’s retrofit plan, timetable, and cost estimate;
  • Form 4099.C; and
  • a minimum of 6 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). photos, including
    • photos of those areas significant to the seismic calculation or stability issue, and
    • elevation views of any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). having an SEL over 20% or a stability issue.
503.04

Seismic Retrofit Ordinances

Requirements

If 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). is required to be retrofitted under any law, regulation, or ordinance,

  • the SRA must describe a proposed retrofit plan, including associated costs, and
  • the retrofit must be completed before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae as described in Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 3. .
503.05

Seismic Risk Mitigants

Guidance

For any 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). where any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). have an SEL greater than 20% or a building stability issue, you should consider the following to mitigate seismic risk:

  • perform a seismic retrofit sufficient to resolve all stability issues and reduce the SEL of all ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). to 20% or below; and
  • obtain earthquake insurance coverage per Part II, Chapter 5: Property and Liability Insurance, Section 501.03D: Earthquake Insurance.

Earthquake insurance does not mitigate building collapse risk.

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