Section 1203

Actual Amortization Calculation

Requirements

You must amortize SARM Loans on a straight-line basis over the total loan term.  The amount of amortization due during the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. term is the same amount that would be due, in total, for a comparable fixed rate loan.  When you calculate the amortization due, you must consider

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

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

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

Operating Procedures

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

       For example, the number of monthly installments would be:

 

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

 

Guidance

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

  • 10-year term,
  • 30-year amortization period,
  • actual/360 interest accrual method, and
  • $25 million Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount.
Example:  Hypothetical Actual/360 Fixed Rate Quote 
Guaranty Fee quoted by Fannie Mae 0.95%
Servicing Fee quoted by Fannie Mae + 0.55%
U.S. Treasury and Investor spread (quoted by Fannie Mae or Third Party MBS Investor) + 4.00%
Gross Note Rate = 5.50%

Step 1:  Calculate the aggregate principal amortization amount collected over the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. term if it had a fixed rate.

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

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

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