Section 802

Eligible Mortgage Loans

Requirements

Fannie Mae will only purchase a CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. if each shareholder or other equity owner in the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. is granted the right to occupy a unit in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). under a proprietary lease or other occupancy agreement.

You must:

  • Examine the organizational documents of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. .
  • Ensure that the terms of these documents allow you to originate a Loan secured by the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in compliance with the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
  • Review the composition and experience of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. ’s Board of Directors or managers.
802.01

Basic Conditions

Requirements

You must ensure for all the following:

  • The Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. has a fixed rate.
  • Any commercial lease is determined to be a Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… based on 5% or more of total gross income calculated on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. .
  • The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. Eligible Market per Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans. .
  • The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has an overall condition of 2 or better, as shown on the Comprehensive Assessment Addendum tab of the MBAMBAMortgage Bankers Association Standard Inspection Form.
802.02

Financial Conditions

Requirements

You must ensure all of the following:

  • You have reviewed at least 3 years of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ’s financial operations.
  • The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ’s financial operations achieved at least a 0.90 DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. on an Actual Cooperative Property BasisActual Cooperative Property BasisFinancial analysis or valuation of a Cooperative Property conducted based on its actual operating performance. for 2 of the previous 3 years.
  • The Board of Directors or managers of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. approve any increase in the Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. prior to closing; and any scheduled annual increase cannot exceed 10%.
  • A Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. may not own interests to occupy or lease more than 40% of the units in the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. , unless the following criteria are met:
    • You deem the financial strength, experience, qualifications, character, and credit history of the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization.  acceptable, per the applicable provisions for Key PrincipalsKey PrincipalsAny Person who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and who may be required to provide a Guaranty. in Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals or Part III, Chapter 9: Small Mortgage Loans.
    • The Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. consistently demonstrates sound financial operations and market acceptability.
    • There is no on-going litigation between the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. and the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. .
    • The aggregate annual rental income from the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. -owned units is greater than the aggregate annual Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. on those units.
802.03

Property Management Conditions

Requirements

You must ensure all of the following:

  • Except for Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III, Chapter 9: Small Mortgage Loans. , the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). must be managed by a professional property management firm that currently manages:
    • at least 3 other CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in the same market as the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
    • a minimum of 350 Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. units in the aggregate; and
    • another Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III, Chapter 9: Small Mortgage Loans. , a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with more than 25 units must be managed by a property management firm with at least 3 years of experience managing a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size.

Guidance

The BorrowerBorrowerPerson who is the obligor per the Note. may manage a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). securing a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III, Chapter 9: Small Mortgage Loans. with 25 units or less.

802.04

Other Considerations

Guidance

A CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. does not have to comply with the following: