Chapter 11
| Section 1101 | |
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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, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. , and
- interest period,
- payments that are adjusted to repay the UPBUPBUnpaid Principal Balance in substantially equal payments over the remaining amortization period, and
- a term of 5, 7, or 10 years, depending on the plan.
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Product Description |
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Plan Number |
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Terms |
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Interest Rate Floor |
Must not be less than the combined
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Lockout Period |
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. |
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Prepayment Availability |
May be prepaid after the lockout period with a 1% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. , but no Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is due
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Rate Change Date |
Date the interest rate changes based on changes in the selected IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. . |
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Interest Rate Change Frequency |
Monthly |
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Maximum Interest Rate Change |
Plus or minus 1% of the then-current interest rate. |
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Maximum Lifetime Interest Rate Limit |
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Index Look-Back Period |
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Interest Accrual Method |
Actual/360 |
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Interest Rate Cap |
Not required; interest rate adjustments are subject to an embedded cap. |
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Conversion to Fixed Rate |
Permitted, with no prepayment penalty and minimal re-underwriting, after the lockout period and before the "open period" (typically the last day of the 4th month preceding the end 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. term). |
| Investors |
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| Rate Lock |
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| ARM 5/5 Loan Options at Maturity |
Before the end of the initial 5-year term for an ARM 5/5 Loan, BorrowerBorrowerPerson who is the obligor per the Note. must elect to:
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| Section 1102 | |
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Requirements
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.
For an ARM 5/5 Loan, you must:
- instruct the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. to determine all required 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). capital improvements over a 12-year period (i.e., the initial 5-year adjustable rate term, plus the optional 5-year adjustable rate term, plus 2 years); and
- calculate the Replacement ReserveReplacement ReserveCustodial Account established by the Lender and funded by deposits from the Borrower over the term of the Mortgage Loan to fund the replacement of capital items at the Property. based on the required capital improvements during the first 5-year adjustable rate term, plus 2 years.
| Section 1103 | |
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| 1103.01 | |
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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 PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. calculations and sharing between you and Fannie Mae.
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Situation |
Prepayment Provisions |
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Borrower attempts to make a voluntary prepayment during the lockout period. |
BorrowerBorrowerPerson who is the obligor per the Note. may not make a voluntary prepayment during the lockout period. |
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ARM Loan is accelerated during the prepayment lockout period. |
BorrowerBorrowerPerson who is the obligor per the Note. owes a 5% Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
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Borrower makes a prepayment after the lockout period and before the "open period" (typically 3 months prior to the Maturity Date) for any reason other than a casualty or condemnation. |
BorrowerBorrowerPerson who is the obligor per the Note. owes a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
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ARM Loan converts to a fixed rate Mortgage Loan. |
BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
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Borrower makes a prepayment during the "open period" (typically 3 months before the Maturity Date). |
BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
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Borrower makes a prepayment due to casualty or condemnation. |
BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
| 1103.02 | |
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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 PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. will be 1% for any reason other than a casualty or condemnation.
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Loan Year |
5-Year Term |
7-Year Term |
10-Year Term |
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1 (Locked Out)1 |
N/A |
N/A |
N/A |
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2 |
1% |
1% |
1% |
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3 |
1% |
1% |
1% |
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4 |
1% |
1% |
1% |
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5 |
1% |
1% |
1% |
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62 |
N/A |
1% |
1% |
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7 |
N/A |
1% |
1% |
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8 |
N/A |
N/A |
1% |
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9 |
N/A |
N/A |
1% |
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10 |
N/A |
N/A |
1% |
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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.
2 If an ARM 5/5 Loan is renewed for the optional 5-year adjustable rate term, the Borrower may not voluntarily prepay during the lockout period at the beginning of the second 5-year adjustable rate term (typically the 6th Loan Year). If the ARM 5/5 Loan is accelerated during the 6th Loan Year, the Borrower owes a 5% Prepayment Premium. |
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| 1104.01 | |
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Requirements
A performing ARM 5/5 Loan is eligible to renew the adjustable rate term for an additional 5-year adjustable rate term if:
- Fannie Mae offers the ARM 5/5 Loan.
- You comply with the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae.
, including calculating an updated:
- 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. , using the current NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II: Property, Section 202 and the applicable products and features in Part III). and the Maximum Lifetime Interest Rate Limit, at least equal to the 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. based on the same TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the initial 5-year adjustable rate term; and
- 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. less than or equal to the LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage. 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. based on the same TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the initial 5-year adjustable rate term.
| 1104.02 | |
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Requirements
If the BorrowerBorrowerPerson who is the obligor per the Note. renews the adjustable rate term for an additional 5 years, a second lockout period is required at the beginning of the second 5-year adjustable rate term (typically the 6th 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. ), during which no prepayment is permitted.
The following table describes various situations and the applicable prepayment provisions for the second 5-year adjustable rate term for an ARM 5/5 Loan; see Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing for Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. calculations and sharing between you and Fannie Mae.
| Situation | Prepayment Provisions |
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| ARM 5/5 Loan is renewed for a second 5-year adjustable rate term. | BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
| Borrower attempts to make a voluntary prepayment during the lockout period at the start of the second 5-year adjustable rate term. | BorrowerBorrowerPerson who is the obligor per the Note. may not make a voluntary prepayment during the lockout period (typically the 6th 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. ). |
| ARM 5/5 Loan converts to a fixed rate Mortgage Loan after the lockout period. | BorrowerBorrowerPerson who is the obligor per the Note. does not owe a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |
| Borrower makes a prepayment after the lockout period at the beginning of the second 5-year adjustable rate term and before the “open period” (typically 3 months prior to the extended Maturity Date) for any reason other than a casualty or condemnation. | BorrowerBorrowerPerson who is the obligor per the Note. owes a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. . |