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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 Terms
        • 103.02 A Ground Lease Rents
        • 103.02 B Ground Lease Terms
      • 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 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 hedge 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 interest payments on the Mortgage Loan. .

Product Description

Plan Numbers

  • 03488 for 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. .
  • 03487 for 3-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. .

Term

5 to 10 years

Funding Type

MBSMBSMortgage-Backed Security or cash

Index

1- or 3-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.

Prepayment Availability

After a 1-year lock-out period, may be voluntarily prepaid per the selected prepayment option.

Minimum Loan Amount

$25 million

Interest Rate

Equals the

 

  • IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. , plus
  • 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.

Interest Rate  Adjustment

  • Occurs every 1 or 3 months depending on the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. .
  • Has no limit on number or size of rate changes.

Interest Rate Cap

Required for the entire term of the SARM Loan.

Amortization and Interest Accrual Method

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

Conversion to Fixed Rate

Permitted, with no prepayment penalty and minimal re-underwriting, 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 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.

Rate Lock

  • 45-day commitments. 
  • No rate change may occur before DeliveryDeliveryMeeting all of the data delivery requirements in , and submitting an acceptable Mortgage Loan Delivery Package per Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 5.  A Mortgage Loan is “Delivered,” when all documents, data, and information are correct, accurate, and….
Section 1202

Underwriting

Requirements

You must calculate the minimum underwritten 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.  based on an amortizing debt service constant.

Minimum Underwritten DSCR

Variable Underwriting Rate

Equals:

 

  • the applicable 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. IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. or 3-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. IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. at the time of 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. ; plus
  • 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. margin equal to
    • the InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. ’s required spread over the applicable 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. IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. or 3-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. IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. , plus
    • the Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan. , plus
    • the 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
  • a 3% interest rate spread; plus
  • a cap cost factor (see Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans, Section 1205.03: Including the Cap Cost Factor in the Variable Underwriting Rate of this Chapter for the cap cost factor calculation) if the BorrowerBorrowerPerson who is the obligor under the Note. does not purchase an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. for the full term of the SARM Loan at loan origination.

Debt Service Constant

Equals

 

  • the Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. , plus
  • the applicable amortization factor based on the Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. .

You must ensure that the maximum SARM Loan 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
    • Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. for the adjustable interest rate, and
    • Fixed Rate Test described in the 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.   Ratio 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 minimum Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. , if set by Fannie Mae; 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.

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,
  • 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 Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming Lender's portion of credit risk for a Mortgage Loan. in the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features to Lenders. 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
    • the Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming Lender's portion of credit risk for a Mortgage Loan. quoted by the Deal TeamDeal 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

1.  You must obtain quotes 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. . 

For  example, for a SARM Loan with a 10-year loan term...
Guaranty Fee quoted by Fannie Mae 0.95%
Servicing Fee quoted by Fannie Mae + 0.55%
US Treasury and investor spread (quoted by Fannie Mae or Third Party MBS Investor) + 4.00%
Gross Note Rate = 5.50%

You must use the same 5.50% annual interest rate to calculate the amortization for the 10-year SARM Loan.

2.  You must calculate the fixed monthly principal installment required over the term of the SARM Loan following these steps:

Step 1:  Using an actual/360 interest accrual method, calculate the aggregate amortization amount that would be collected over the term of the SARM Loan based on the:

  • principal amount of the SARM Loan;
  • lowest applicable 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 determined in Step 1 by the number of amortizing monthly installments in the SARM Loan term.  For example, the number of monthly installments would be:

  • 60, for a 5-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. ;
  • 84, for a 7-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. ;
  • 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.

The result is the fixed monthly principal installment.

Example:  Assume a 10-year Tier 2 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 a

  • 5.500% per annum Gross Note RateGross Note RateInterest rate stated in the Loan Documents. ,
  • 360-month amortization period, and
  • $25 million loan amount.

Calculate the fixed monthly principal installment as follows:

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

Estimate the month and year in which the first full monthly loan payment would be made, based on an actual/360 amortization schedule.  The total amount of amortization depends on both

  • the number of days (i.e., 28, 29, 30, or 31) in the month prior to each loan payment date, and
  • when the next leap year occurs.

Assuming

  • a SARM Loan amount of $25 million,
  • a 30-year amortization term,
  • a debt service constant calculated using the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. of 5.500% (6.8134680% debt service constant),
  • an actual/360 interest accrual method,
  • an issue date of December 1, 2018, and
  • a first loan payment date of January 1, 2019,

the aggregate amount allocated to principal 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 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.

BorrowerBorrowerPerson who is the obligor under the Note. may not make a voluntary 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. (i.e., a voluntary prepayment is “locked out”).

SARM 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 sometime after the 1st Loan Year and before the 3 months before 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. .

SARM 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. .

1204.02

Prepayment Option 1 – Declining Prepayment Premium Schedule

Requirements

For a voluntary prepayment after the 1-year 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 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. 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 may not 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 1-year 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 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. .

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 SARM Loan.  If the SARM Loan is accelerated during the lockout period, the Borrower owes a 5% Prepayment Premium.

Section 1205

Interest Rate Caps

Requirements

Description

Interest Rate Cap

BorrowerBorrowerPerson who is the obligor under the Note. must purchase a third-party Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. .

Interest Rate Cap Provider

BorrowerBorrowerPerson who is the obligor under the Note. must only obtain bids from providers approved by Fannie Mae as listed on www.fanniemae.com/multifamily.

Interest Rate Cap Documentation

Must be on forms that are acceptable to Fannie Mae.

Minimum Interest Rate Cap Term

5 years.  The BorrowerBorrowerPerson who is the obligor under the Note. must 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
  • Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the SARM Loan.

Replacement Cap

You must ensure that the BorrowerBorrowerPerson who is the obligor under the Note. purchases a replacement cap if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. term expires before the conversion or Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the SARM Loan.

Cap Cost Factor

Equals the cost of a replacement cap divided by the initial cap term.

Interest Rate Cap Reserves

BorrowerBorrowerPerson who is the obligor under the Note. must fund a cash reserve sufficient to purchase a replacement cap if the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. term expires before the Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the SARM Loan.

Cap Contract Process and Documentation

You must deliver all cap-related documentation to Fannie Mae, 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).

Fannie Mae will engage outside counsel at your expense to review all cap-related documentation.

Initial Interest Rate Cap Notional Amount

Notional amount of the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. throughout its term must equal the original principal amount of the SARM Loan.

Guidance

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

  • pay Fannie Mae's costs, including legal fees; and
  • fund a reserve for the payment of these expenses.
1205.01

Replacement Interest Rate Cap

Requirements

If the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. expires before the Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the SARM Loan, you must ensure that:

  • The BorrowerBorrowerPerson who is the obligor under the Note. purchases a replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. to cover the remaining term.
  • The notional amount of any replacement cap equals the outstanding principal balance of the SARM Loan when the replacement cap becomes effective, and continues throughout the term of the replacement cap.
  • The term of the replacement cap equals the remaining term of the SARM Loan, or a shorter term if previously approved and documented in the Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. .
  • The Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. of the replacement cap is equal to or less than the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. at 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. origination (see Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans, Section 1205.02: Determining the Cap Strike Rate).

Guidance

The BorrowerBorrowerPerson who is the obligor under the Note. may purchase an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. in advance if

  • the initial cap goes into effect on the Mortgage Loan Origination DateMortgage Loan Origination DateDate the Lender funds a Mortgage Loan to the Borrower. , and
  • the replacement cap goes into effect on the Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the initial cap.
1205.02

Determining the Cap Strike Rate

Requirements

You must determine the maximum Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. .  The sum of the following must not be greater than 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: Property, Section 202, as adjusted for the applicable products and features in Part III. for the Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). of the SARM Loan:

  • Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. ; plus
  • 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; plus
  • the higher of a cap cost factor (see Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans, Section 1205.03: Including the Cap Cost Factor in the Variable Underwriting Rate) or actual Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. escrow deposits, if an interest rate cap for the full 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. is not purchased at closing.

You must ensure that the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. at which the BorrowerBorrowerPerson who is the obligor under the Note. purchases any replacement cap is not greater than the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. at which the initial cap was purchased.

Guidance

If the BorrowerBorrowerPerson who is the obligor under the Note. purchases an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. with a Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. less than the maximum rate, then any replacement cap may still be purchased at a Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. that is less than or equal to the maximum rate.

You may calculate the initial Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation 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 hedge 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 interest payments on the Mortgage Loan. term.

1205.03

Including the Cap Cost Factor in the Variable Underwriting Rate

Requirements

When determining the Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. used to calculate 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: Property, Section 202, as adjusted for the applicable products and features in Part III. , you must include a cap cost factor based on the term of the SARM Loan and the term of the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. .

You do not need to include a cap cost factor if the term of the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. equals the term of the SARM Loan.

You must ensure that the cap cost factor equals

  • the estimated cost of the replacement cap (when the term of the initial cap expires), divided by
  • the term of the initial cap.

Operating Procedures

For example, to calculate the cap cost factor assuming a 5-year Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. and 7-year SARM Loan term:

  • You must include an annual cap cost factor in the Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. .
  • If the SARM Loan term is 7 years and an initial cap is purchased for a 5-year term, the cap cost factor equals the estimated cost of a replacement cap divided by 5 (the number of years of the initial interest rate term).
  • The replacement cap has a 2-year term and a Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. equal to that of the initial cap. 
  • If a 2-year Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. at the initial Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. costs 20 basis points, you must divide 20 by 5, then add the result (4 basis points) to the Variable Underwriting RateVariable Underwriting RateRate for Structured ARM Mortgage Loans per Part III: Products and Features, Section 1202. .
1205.04

Establishing Interest Rate Cap Reserves

Requirements

You must ensure that the BorrowerBorrowerPerson who is the obligor under the Note. has a cash reserve to purchase a replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. if the term of the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. is less than the term of the SARM Loan.

If the initial Interest Rate Cap AgreementInterest Rate Cap AgreementContract setting forth the terms and conditions of an Interest Rate Cap, Hedge, or Swap. has a term of 5 years, the BorrowerBorrowerPerson who is the obligor under the Note. must fund the cash reserve with each monthly 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. payment during the term.

If the initial cap has a term of more than 5 years, the BorrowerBorrowerPerson who is the obligor under the Note.’s monthly reserve payments for a replacement cap must start no later than 5 years before the existing cap expires.

You must calculate the monthly reserve payments for the first 12-month period using the estimated cost of the replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. .

Guidance

Assuming that a 5-year Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. is initially purchased for a SARM Loan with a 10-year term, if

  • the initial cap is purchased with a 6.50% Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. , and
  • the cost of a replacement 5-year cap with a 6.50% Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. is $250,000,
  • then the monthly reserve for the first 12-month period would be $4,166.67 ($250,000 cost ÷ 60 months).
1205.05

Interest Rate Cap Contract Documentation and Delivery

Operating Procedures

1.  Cap Provider Payment

The Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. provider must make a payment directly to you if, on the 1st day of the month corresponding with the monthly loan payment dates of a 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. -based SARM,

  • the 1-Month IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. for a 1-month SARM Loan exceeds the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. for a monthly settlement, or
  • the 3-Month IndexIndexBasis for determining the Gross Note Rate of an ARM Loan. for a 3-month SARM Loan exceeds the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. for a quarterly settlement.

Only disburse a provider payment to the BorrowerBorrowerPerson who is the obligor under 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 under the NoteNoteCurrent instrument evidencing a Mortgage Loan obligation, including Form 6010 (series), any other note approved by Fannie Mae, and all applicable addenda, schedules, and exhibits. for that month.

2.  Timing

The BorrowerBorrowerPerson who is the obligor under the Note. must accept a bid for the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. in writing from a Fannie Mae approved provider before you DeliverDeliverMeeting all of the data delivery requirements in , and submitting an acceptable Mortgage Loan Delivery Package per Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 5.  A Mortgage Loan is “Delivered,” when all documents, data, and information are correct, accurate, and… the SARM.

You must give Fannie Mae copies of all cap-related documentation when you deliver the SARM Loan.

3.  Purchase Price

The BorrowerBorrowerPerson who is the obligor under the Note. must pay the entire purchase price for an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. 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.

4.  Pledge to Fannie Mae

The BorrowerBorrowerPerson who is the obligor under the Note. must execute Form 6442 to pledge its interest in the Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a hedge 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 interest payments on the Mortgage Loan. and any reserve to Fannie Mae, as additional collateral for the SARM Loan.

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