Chapter 11

Adjustable Rate Mortgage (ARM) Loans

Section 1101

Description

Requirements

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

  • an interest rate that is adjusted periodically based on a specified IndexIndexBasis for determining the Gross Note Rate of an ARM Loan., and
  • payments that are adjusted to repay the UPBUPBUnpaid Principal Balance in substantially equal payments over the remaining amortization period.

Product Description

Plan Number

02255

Terms
  • 5, 7, or 10 years.
  • See Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features to Lenders. for current term availability.

Index

1-month LIBORLIBORLondon Interbank Offered Rate is the benchmark interest rate banks quote to lend funds to one another in the international interbank market for short-term loans, or as replaced by an alternative Index determined by Fannie Mae.

Interest Rate Floor

Must not be less than the combined

 

  • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan., plus
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming Lender's portion of credit risk for a Mortgage Loan., plus
  • investor spread.

Rate Change Date

Date the interest rate changes based on changes in the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan..

Prepayment Availability
  • No prepayment during the 1st Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter.; then prepayable with a 1% Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..
  • No Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents. is due
    • during the last 3 months of the loan term, or
    • when an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. converts to a fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement..

Maturity

Matures on the 5th, 7th, or 10th anniversary of the 1st day of the month:

 

  • immediately following the month in which 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. was originated; or
  • in which 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. was originated, if the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. was on the 1st day of a month.

Payments

Scheduled monthly payments are due on the 1st day of each month.

Interest Rate Change Frequency

Monthly

Maximum Interest Rate Change

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

Maximum Lifetime Interest Rate Limit

For ARM 7/6, the

 

  • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan., plus
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming Lender's portion of credit risk for a Mortgage Loan., plus
  • 6%.

Index Look-Back Period

15 days before the Rate Change Date.

Interest Accrual Method

Actual/360

Interest Rate Cap

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

Conversion to Fixed Rate

Permitted between the 1st day of the 2nd Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. and the last day of the:

 

  • 4th Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. if the loan term is 5 years; or
  • 5th Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. if the loan term is greater than 5 years.
Section 1102

Underwriting

Requirements

You must 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. the ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. with the Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. (MBSMBSMortgage-Backed Security or cash).

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

  • calculated applying the applicable minimum DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. 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. for both the
    • maximum lifetime interest rate limit, and
    • Fixed Rate Test 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.;
  • calculated using the applicable maximum LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  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.; and
  • you determined is appropriate.

You must use the Fixed Rate Test interest rate to determine the UPBUPBUnpaid Principal Balance for the refinance risk analysis per Part II, Chapter 2: Valuation and Income, Section 203: Refinance Risk Analysis.

Section 1103

Prepayment Terms
1103.01

Generally

Requirements

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

Situation

Prepayment Provisions

Borrower attempts to make a voluntary prepayment during the 1st Loan Year.

Borrower may not make a voluntary prepayment during the 1st Loan Year (i.e., a voluntary prepayment is “locked out”).

ARM Loan is accelerated during the prepayment lockout period.

BorrowerBorrowerPerson who is the obligor under the Note. owes a 5% Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..

Borrower makes a prepayment after the 1st Loan Year and before the 3 months prior to the Maturity Date for any reason other than a casualty or condemnation.

BorrowerBorrowerPerson who is the obligor under the Note. owes a Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..

ARM Loan converts to a fixed rate Mortgage Loan.

BorrowerBorrowerPerson who is the obligor under the Note. does not owe a Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..

Borrower makes a prepayment during the 3 months before the Maturity Date.

BorrowerBorrowerPerson who is the obligor under the Note. does not owe a Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..

Borrower makes a prepayment due to casualty or condemnation.

BorrowerBorrowerPerson who is the obligor under the Note. does not owe a Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents..
1103.02

1% Prepayment Premium Schedule

Requirements

After the 1st Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter., the Prepayment PremiumPrepayment PremiumWhen a Mortgage Loan prepayment is made, amount required to be paid by the Borrower in addition to the principal amount being prepaid and accrued interest per the related Loan Documents. will be 1% for any reason other than a casualty or condemnation.

Loan Year

5-Year Term

7-Year Term

10-Year Term

1 (Locked Out)1

N/A

N/A

N/A

2

1%

1%

1%

3

1%

1%

1%

4

1%

1%

1%

5

1%

1%

1%

6

N/A

1%

1%

7

N/A

1%

1%

8

N/A

N/A

1%

9

N/A

N/A

1%

10

N/A

N/A

1%

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