Section 1202

Underwriting

Requirements

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

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

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

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

  • calculated using the:
    • minimum DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. per Form 4660 for both the
      • Maximum Note RateMaximum Note RateEquals the sum of the: minimum Cap Strike Rate as set by Fannie Mae; and Mortgage Loan margin equal to the sum of the Investor spread, Guaranty Fee, and Servicing Fee.   for the adjustable interest rate, and
      • Fixed Rate Test described in Form 4660; and
    • maximum LTV RatioLTV RatioRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  per Form 4660; or
  • you determined is appropriate.

You must use the Fixed Rate Test interest rate to determine the UPBUPBUnpaid Principal Balance for the refinance risk analysis per Part II, Chapter 2: Valuation and Income, Section 204: Refinance Risk Analysis.

Guidance

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