Chapter 12

Structured Adjustable Rate Mortgage (SARM) Loans

Section 1201

Description

Requirements

A SARM Loan is an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. with an external Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. .

Product Description

Plan Number

04932 - 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

Term

5 to 10 years

Funding Type

MBSMBSMortgage-Backed Security or Cash

Index

30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

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. . 
Index Look-Back Period 1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before the Rate Change Date.

Interest Rate Floor

Must be equal to or greater than the sum of the

 

  • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , 
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , and
  • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.
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.

Prepayment Availability

After the lockout period, voluntary prepayments permitted per the selected prepayment option.

Minimum Loan Amount

$25 million

Interest Rate

Equals the sum of the

 

  • 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. , 
  • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , 
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , and
  • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.

Interest Rate  Adjustment
  • Occurs every month.
  • Except for the Interest Rate Floor, has no limit on number or size of rate changes.

Interest Rate Cap

Required for the entire SARM Loan term.
Interest Accrual Method Actual/360

Amortization

Amortizes with fixed monthly principal installments based on a calculated actual/360 fixed rate payment.

Conversion to Fixed Rate

Permitted per Part IV, Chapter 7: Variable Rate Conversions and Renewals, Section 702: ARM Loan and SARM Loan Conversions.
Investors
  • Third Party MBS InvestorThird Party MBS InvestorMBS Investor for an MBS Mortgage Loan that is not the Multifamily Trading Desk. , or
  • Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. .

Rate Lock
  • Maximum 45-day CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. . 
  • No rate change permitted before DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. .
Section 1202

Underwriting

Requirements

You must calculate the minimum Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, as adjusted for the applicable products and… based on an amortizing debt service constant.

Minimum Underwritten DSCR
Term Equals the sum of the...

Maximum Note Rate
  • minimum Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. as set by Fannie Mae for 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. , plus
  • 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. margin equal to the sum of the
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread,
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , and
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. .
Debt Service Constant
  • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   , plus
  • applicable amortization factor based on the Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   .

You must ensure the maximum SARM Loan amount is the lesser of the amount:

  • calculated using the:
    • 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 4660 for both the
      • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   for the adjustable interest rate, and
      • Fixed Rate Test described in Form 4660; and
    • maximum LTV RatioLTV RatioRatio 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 4660; or
  • 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 204: Refinance Risk Analysis.

Guidance

The amortization used to underwrite the SARM Loan is different than the actual SARM Loan amortization schedule, which uses fixed monthly principal installments.

Section 1203

Actual Amortization Calculation

Requirements

You must amortize SARM Loans on a straight-line basis over the total loan term.  The amount of amortization due during 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 is the same amount that would be due, in total, for a comparable fixed rate loan.  When you calculate the amortization due, you must consider

  • the loan term,
  • the amortization schedule,
  • any interest only period, and
  • the Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). .

To calculate SARM Loan amortization, you must use fixed rate pricing with an interest rate equal to:

  • an indicative MBSMBSMortgage-Backed Security investor yield; plus
  • the lower of the:
    • lowest Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. in the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. for a hypothetical actual/360 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. with the same loan term and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the SARM Loan; or
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. quoted by the Fannie Mae Deal TeamFannie Mae Deal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. for 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. when you request pricing for the SARM Loan.

Operating Procedures

You must... Process
Obtain Fixed Rate Quote
  • Obtain a quote for a hypothetical actual/360 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. .
  • Use the quoted fixed interest rate to calculate the amortization for the SARM Loan.
Calculate the Fixed Monthly Principal Installment Over the SARM Loan Term
  • Step 1:  Using an actual/360 interest accrual method, calculate the aggregate amortization amount to be collected over the SARM Loan term based on the:
    • SARM Loan principal amount;
    • lowest interest rate for a hypothetical actual/360 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. with the same loan term and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660).  as the SARM Loan, rounded to 3 decimal places; and
    • required amortization period.
  • Step 2:  Divide the aggregate amortization amount from Step 1 by the number of amortizing monthly installments in the SARM Loan term.  The result is the fixed monthly principal installment.

       For example, the number of monthly installments would be:

 

  • 120, for a 10-year amortizing Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. ; or
  • 108, for a 10-year 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 1 year of interest-only.

 

Guidance

The following is an example for calculating the fixed monthly principal installment for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 SARM Loan with a

  • 10-year term,
  • 30-year amortization period,
  • actual/360 interest accrual method, and
  • $25 million 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. amount.
Example:  Hypothetical Actual/360 Fixed Rate Quote 
Guaranty Fee quoted by Fannie Mae 0.95%
Servicing Fee quoted by Fannie Mae + 0.55%
U.S. Treasury and Investor spread (quoted by Fannie Mae or Third Party MBS Investor) + 4.00%
Gross Note Rate = 5.50%

Step 1:  Calculate the aggregate principal amortization amount collected over 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 if it had a fixed rate.

Determine the... Assuming... Result
  • Month and year when the first full monthly loan payment would be made, based on an actual/360 amortization schedule.
  • Total amortization amount depends on:
    • the number of days (i.e., 28, 29, 30, or 31) in the month before each loan payment date; and
    • when the next leap year occurs.
  • a debt service constant calculated using the hypothetical fixed Gross Note RateGross Note RateInterest rate stated in the Loan Documents.  of 5.500% (6.8134680% debt service constant);
  • an issue date of December 1, 2018; and
  • a first loan payment date of January 1, 2019.
 The aggregate principal amortization amount over 120 payments is $4,114,494.17.

Step 2:  Calculate the fixed monthly principal installment by dividing the aggregate amortization amount by the total number of amortizing payments during the SARM Loan term.

Calculate the Fixed Monthly Principal Installment
Aggregate amortization $4,114,494.17
Divided by total payments 120
Equals fixed monthly principal $34,287.45

 

Section 1204

Prepayment Terms
1204.01

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 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

Borrower attempts to make a voluntary prepayment during the lockout period.

BorrowerBorrowerPerson who is the obligor per the Note. cannot make a voluntary prepayment during the lockout period.

SARM 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. .

Borrower makes a prepayment sometime after the lockout period and before the "open period" (typically 3 months before 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. .

SARM 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. .

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. .

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. .
1204.02

Prepayment Option 1 – Declining Prepayment Premium Schedule

Requirements

For a voluntary prepayment after the lockout period using Prepayment Option 1, you must use Schedule 4 of the Multifamily Loan and Security Agreement - Prepayment Premium Schedule (Graduated Prepayment Premium – ARM, SARM) (Form 6104.10) with the applicable 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. percentage listed in this table.

Loan Year

5-Year Term

7-Year Term

10-Year Term

1 (Locked Out)1

N/A

N/A

N/A

2

4%

4%

4%

3

3%

3%

3%

4

2%

2%

2%

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 cannot voluntarily prepay the SARM Loan.  If the SARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.
1204.03

Prepayment Option 2 - 1% Prepayment Premium Schedule

Requirements

For a voluntary prepayment after the lockout period using Prepayment Option 2, you must use Schedule 4 to Multifamily Loan and Security Agreement (Prepayment Premium Schedule-1% Prepayment Premium – ARM, SARM) (Form 6104.11) to document the required 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. .

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 cannot voluntarily prepay the SARM Loan.  If the SARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.
Section 1205

Interest Rate Caps
1205.01

Generally

Requirements

Description
Interest Rate Cap

BorrowerBorrowerPerson who is the obligor per the Note. must:

 

  • purchase a third-party Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; and
  • keep an Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. in place continually until the earlier of the
    • effective date of any permitted conversion 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. , or
    • SARM Loan Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
Interest Rate Cap Provider BorrowerBorrowerPerson who is the obligor per the Note. must only obtain bids from Fannie Mae-approved providers listed on https://multifamily.fanniemae.com.
Interest Rate Cap Documentation Must be on forms acceptable to Fannie Mae.
Minimum Interest Rate Cap Term 5 years.
Replacement Interest Rate Cap You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. purchases a replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term expires before the SARM Loan conversion or Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
Interest Rate Cap Reserves BorrowerBorrowerPerson who is the obligor per the Note. must fund a cash reserve equal to at least 110% of the current replacement cap cost if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term expires before the SARM Loan Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
Interest Rate Cap Contract Process and Documentation

You must deliver all Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. -related documentation, including the

 

  • Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. , and
  • Interest Rate Cap Reserve and Security Agreement (Form 6442 series).
Fannie Mae will engage outside counsel at your expense to review all cap-related documentation.
Initial Interest Rate Cap Notional Amount

Must equal the original principal amount of the SARM Loan throughout the Interest Rate Cap’sInterest Rate Cap’sInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term.

Guidance

You may require the BorrowerBorrowerPerson who is the obligor per the Note. to:

  • pay Fannie Mae's costs, including legal fees; and
  • fund a reserve to pay these expenses. 
1205.02

Determining the Cap Strike Rate

Requirements

You must:

  • determine the maximum Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. permitted for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; and
  • ensure the sum of the following is less than or equal to the rate (calculated using an underwritten debt service constant that includes amortization) that produces the minimum required Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis, as adjusted for the applicable products and… for the SARM Loan's Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). :
    • the Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. ; plus
    • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. ; plus
    • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. ; plus
    • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.

Guidance

You should enter “0” in the C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. “Cap Cost Factor” field if the replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. escrow was fully funded on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

You may calculate the initial Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. based on an interest-only underwritten debt service constant if the approved interest-only term is greater than or equal to the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term.

1205.03

Establishing Interest Rate Cap Reserves

Requirements

You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. funds a cash reserve to purchase a replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. if the the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term is less than the SARM Loan term.

If the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. term is less than the SARM Loan term, the BorrowerBorrowerPerson who is the obligor per the Note. must:

  • fully fund the cash reserve on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
  • escrow at least 110% of the current replacement cap cost.
1205.04

Interest Rate Cap Contract Documentation and Delivery

Operating Procedures

Interest Rate Cap Contract Documentation and Delivery
For Actions
Cap Provider Payment

The Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. provider must:

 

  • pay you directly if, on the 1st day of the month corresponding with the monthly loan payment date, the 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days. 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. exceeds the Cap Strike RateCap Strike RateIndex interest rate specified in the Interest Rate Cap Agreement at or above which a payment obligation will be triggered by the Interest Rate Cap provider. for a monthly settlement; and
  • only disburse a provider payment to the BorrowerBorrowerPerson who is the obligor per the Note. if
    • there is no 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. default, and
    • you have received all payments due per the NoteNoteInstrument evidencing a Mortgage Loan obligation, including  Form 6010 series,  any other Fannie Mae-approved note, and  all applicable addenda, schedules, and exhibits.  for that month.
Timing
  • BorrowerBorrowerPerson who is the obligor per the Note. must accept a bid for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. in writing from a Fannie Mae-approved provider before you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the SARM Loan.
  • You must submit copies of all cap-related documentation when you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the SARM Loan.
Purchase Price BorrowerBorrowerPerson who is the obligor per the Note. must pay the entire purchase price for an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. to the provider when the Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. is issued.
Pledge to Fannie Mae BorrowerBorrowerPerson who is the obligor per the Note. must execute Form 6442 series to pledge its interest in the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. and any reserve to Fannie Mae as additional SARM Loan collateral.