Chapter 13

Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans

Section 1301

Description

Requirements

A Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. combines the features of fixed rate and ARM LoansARM LoansMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. , and has a total term of 30 years, consisting of

  • an initial term when interest accrues at a fixed rate, followed by
  • the remaining term, during which interest accrues at an adjustable rate.

Product Description

Plan Number

04934 - 30-Day Average SOFR30-Day Average SOFRCompounded average of SOFR over a specified interest period of 30 days.

Terms

Permitted combinations of fixed rate and adjustable rate terms:

 

  • 5-year fixed rate term, followed by automatic conversion to a 25-year adjustable rate term;
  • 7-year fixed rate term, followed by automatic conversion to a 23-year adjustable rate term; or
  • 10-year fixed rate term, followed by automatic conversion to a 20-year adjustable rate term.

Maximum Loan Amount

Per Part III, Chapter 9: Small Mortgage Loans, Section 901.01: Description.

Ineligible Products
  • Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization.
  • Military Housing PropertyMilitary Housing PropertyMultifamily rental Property in which 40% or more of the units are occupied by individuals serving in, or employed by, the United States military.
  • MAH PropertyMAH PropertyProperty encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction that limits rents that can be charged to tenants, or imposes income limits on tenants.
  • Near Stabilized PropertyNear Stabilized PropertyNewly constructed or recently rehabilitated Property, with all construction or rehabilitation complete, which is expected to achieve Stabilized Residential Occupancy and the applicable required Underwritten Debt Service Coverage Ratio within 120 days after the Mortgage Loan Origination Date.
  • Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units.
  • Student Housing PropertyStudent Housing PropertyA multifamily residential rental property in which 40% or more, but less than 80%, of the units are leased to either undergraduate or graduate students.
  • Dedicated Student Housing PropertyDedicated Student Housing PropertyMultifamily rental Property in which 80% or more of the units are leased to undergraduate or graduate students.
  • Supplemental Mortgage LoanSupplemental Mortgage LoanMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae.

Prepayment Premium Options

Either

 

  • standard yield maintenance, or
  • graduated Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .

Prepayment Premium Period End Date / Yield Maintenance Period End Date

Final day of the last Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. during the fixed rate term per the applicable Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. option.

Conversion to Adjustable Rate

Automatic conversion from a fixed rate to an adjustable rate on the 1st day of 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. following the applicable fixed rate term.

Index During Adjustable Rate Term

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

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, and which may be expressed as a percentage. , plus
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
  • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread (per Form 4660).

Gross Note Rate During Adjustable Rate Term

Equals the

 

  • IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. , plus
  • Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. , plus
  • Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. , plus
  • InvestorInvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread (per Form 4660).
Rate Change Date Date the interest rate changes based on changes in the selected IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. . 

Interest Rate Change Frequency During Adjustable Rate Term

Every 6 months, based on the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. in effect as of the Rate Change Date.

Frequency of Payment Change During Adjustable Rate Term

P&IP&IPrincipal and interest payments are recalculated for every Rate Change Date.

Maximum Interest Rate Change

Plus or minus 1% of the then-current interest rate both

 

  • at conversion from fixed rate to adjustable rate, and
  • during the adjustable rate term.

Maximum Interest Rate During Adjustable Rate Term

5% over the fixed rate.

Index Look-Back Period

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

Interest Accrual Method

Must be actual/360.

Payments

Calculated using a 30/360 interest accrual method.

Interest-Only

Must not exceed the fixed rate term.

You must rate lock the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. with the Multifamily Trading DeskMultifamily Trading DeskTeam that quotes interest rate pricing for a Mortgage Loan and can be contacted at (888) 889-1118. (MBSMBSMortgage-Backed Security or cash).

You must underwrite the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. based on the applicable fixed rate terms.

Section 1302

Interest Rate Conversion Date

Requirements

The conversion of the interest rate from fixed to adjustable is mandatory and automatic.  After Fannie Mae confirms the CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. for the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. , it may not be modified.

After the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. , interest will accrue at the applicable adjustable rate, up to and including the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

Operating Procedures

As an example of the conversion to adjustable rate date calculation in Part III, Chapter 13: Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans, Section 1301: Description:

  • If the effective date of the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. is July 1, 2019, and the fixed rate term is 7 years, then the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. would be July 1, 2026.
  • If the fixed rate term is 7 years and the effective date is any other date in July 2019, then the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. would be August 1, 2026.
Section 1303

Prepayment Terms

Requirements

You must select from 3 Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. options.

PREPAYMENT Option 1 – 5% Declining Prepayment Premium Schedule

Loan Year

5-Year Term

7-Year Term

10-Year Term

1

5%

5%

5%

2

4%

5%

5%

3

3%

4%

4%

4

2%

4%

4%

5

1%

3%

3%

6

N/A

2%

3%

7

N/A

1%

2%

8

N/A

N/A

2%

9

N/A

N/A

1%

10

N/A

N/A

1%

PREPAYMENT Option 2 – 3% Declining Prepayment Premium Schedule

Loan Year

5-Year Term

7-Year Term

10-Year Term

1

3%

3%

3%

2

2%

3%

3%

3

1%

2%

3%

4

1%

2%

2%

5

1%

1%

2%

6

N/A

1%

2%

7

N/A

1%

1%

8

N/A

N/A

1%

9

N/A

N/A

1%

10

N/A

N/A

1%

PREPAYMENT Option 3 – Standard Yield Maintenance

Loan Year

5-Year Term

7-Year Term

10-Year Term

Yield Maintenance Ends

Last day of the 5th 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.

Last day of the 7th 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.

Last day of the 10th 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.

If the BorrowerBorrowerPerson who is the obligor per the Note. makes a prepayment due to casualty or condemnation, no Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is due.  For all other prepayments, the BorrowerBorrowerPerson who is the obligor per the Note. must pay a Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. if the prepayment occurs before the Prepayment Premium Period End DatePrepayment Premium Period End DateLast date when a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. .

The BorrowerBorrowerPerson who is the obligor per the Note. may prepay the Hybrid ARM LoanHybrid ARM LoanMortgage Loan with a total term of 30 years, comprised of an initial term when interest accrues at a fixed rate, and which automatically converts to a term where interest accrues at an adjustable rate. without any Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. :

  • on the last day of the fixed rate term; or
  • at any time during the adjustable rate term.

The Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is shared with Fannie Mae per Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing using the applicable Prepayment PremiumPrepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. schedule 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. .

Section 1304

Monthly Principal and Interest Payments
1304.01

During the Fixed Rate Term

Requirements

The monthly installments of P&IP&IPrincipal and interest  must equal the amount needed to repay the UPBUPBUnpaid Principal Balance

  • in substantially equal payments over the amortization term at the fixed rate, and
  • based on a 30/360 interest accrual method.

To calculate loan payments at the end of an interest only period, refer to the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .

1304.02

On the Hybrid ARM Loan Conversion Date

Requirements

On the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. , the BorrowerBorrowerPerson who is the obligor per the Note. must make the last regularly scheduled payment of P&IP&IPrincipal and interest for the fixed rate term.

1304.03

During the Adjustable Rate Term

Requirements

The BorrowerBorrowerPerson who is the obligor per the Note. must make payments of P&IP&IPrincipal and interest based on changes to the IndexIndexBasis for determining the Gross Note Rate of an ARM Loan, including any required alternative index that may be determined necessary by Fannie Mae because the Index is no longer widely accepted or has been replaced as the index for similar financial instruments. :

  • on the 1st day of the month immediately following the Hybrid ARM Conversion DateHybrid ARM Conversion DateDate when the UPB of a Hybrid ARM Loan automatically converts from accruing at a fixed interest rate to accruing at an adjustable interest rate. ; and
  • on the 1st day of each month thereafter, until the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

On the Rate Change Date, a new P&IP&IPrincipal and interest installment will be calculated to be in effect on the 1st day of the following month.

Monthly installments of P&IP&IPrincipal and interest , due on each payment date during the adjustable rate term, must equal the amount needed to repay the UPBUPBUnpaid Principal Balance

  • in substantially equal payments over the amortization term at the variable rate,
  • based on a 30/360 interest accrual method.

Operating Procedures

To determine the amount of each monthly installment allocated to principal, subtract the amount allocated to interest following each rate change.

For example:

A 5-year Hybrid ARM Loan with the following terms:

Loan Amount

$2,500,000

Fixed Rate

5.25%

Fixed Rate Term

60 months

Amortization Term

360 months

Fixed Rate Period

Standard fixed payment amortization

Monthly Payment

$13,805.09

UPB at End of Month 60

$2,303,737.20

Upon conversion to adjustable rate in month 61, amortization is recalculated using the following terms:

Loan Amount

$2,303,737.20

Variable Rate

4.25%

Amortization Term

300 months

Monthly Payment

$12,480.22

Interest Payment

(4.25% / 360 months) x 30 days x UPBUPBUnpaid Principal Balance

Principal Payment

Monthly Payment – Interest Payment

UPB at End of Month 66

$2,277,579.64

At rate change in month 67, amortization is recalculated using the following terms:

Loan Amount

$2,277,579.64

Variable Rate

4.50%

Amortization Term

294 months

Monthly Payment

$12,799.71

Interest Payment

(4.50% / 360 months) x 30 days x UPBUPBUnpaid Principal Balance

Principal Payment

Monthly Payment – Interest Payment

UPB at End of Month 72

$2,251,786.15