Section 1601

Mezzanine Financing

1601.01	Description

Requirements

A 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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is permitted only if

the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is originated by an approved DUS LenderDUS LenderLender approved to Deliver loans under the Delegated Underwriting and Servicing program. AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… (DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ), or
Fannie Mae approves the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. from another source (non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ) on a case-by-case basis.

Before underwriting non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , you must contact the Deal TeamDeal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. .

1601.01A	Eligible Mortgage Loans

Requirements

Mortgage LoansMortgage LoansMortgage 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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. must:

be newly originated;
have an original principal balance of at least
- $10 million, for DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , or
- $50 million, for non-DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. ;
be fixed rate; and
be flagged for MBSMBSMortgage-Backed Security additional disclosure per Form 4098.

1601.01B	Eligible Terms

Requirements

Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. must:

have a fixed rate or fixed mezzanine rate of return without escalations;
not have a maturity date, redemption date, trigger date, or require repayment of the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. during 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. ; and
have a minimum $1 million origination balance.

1601.01C	Loss Sharing

Requirements

Loss sharing is required on all Mortgage LoansMortgage LoansMortgage 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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

1601.01D	Lender's Loan Application

Requirements

Your loan application form must:

require the BorrowerBorrowerPerson who is the obligor per the Note. to indicate whether it has or intends to obtain Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. as part of its organizational or capital structure; and
inform the BorrowerBorrowerPerson who is the obligor per the Note. that you may delay approval or revoke any prior approval if the BorrowerBorrowerPerson who is the obligor per the Note. changes its intention to obtain Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

1601.02	Underwriting

Requirements

You must comply with the following table.

Topic	Requirements
Income Projections	Provide support for the income projections used to determine the aggregate amount 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. and Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. . Demonstrate that the local economics are sufficient and sustainable to support both loans.
Underwritten NCF	Use the same Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. to determine the loan amount 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. , and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .
Refinance Analysis	Prepare a refinance analysis that: incorporates the terms of both 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. and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. ; demonstrates that the BorrowerBorrowerPerson who is the obligor per the Note. will maintain a positive equity position in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). throughout 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. , or have some other incentive (e.g., continuing cash flow) to remain committed to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and its successful operation; and concludes that there will be sufficient cash flow, NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… growth, and residual value to pay off 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. and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. at maturity (as fully extended, if applicable).
Experience	Ensure that the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). and each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. have sufficient net worth, liquidity, and experience with the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). type and market to justify the origination 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. and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. . If upgrades or rehabilitation are being financed by the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , then ensure that the BorrowerBorrowerPerson who is the obligor per the Note. , each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and the mezzanine borrower also have sufficient experience managing the scope of the proposed rehabilitation, and strong property management experience in the local market.
Mezzanine Borrower Structure	Ensure the mezzanine borrower is a newly-formed, special purpose, bankruptcy-remote limited liability company or limited partnership, the sole owner of the BorrowerBorrowerPerson who is the obligor per the Note. , and wholly-owned by the PrincipalsPrincipalsPerson who owns or controls specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals, and Guarantors. of the BorrowerBorrowerPerson who is the obligor per the Note. .
Appraisal	If the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. is funding rehabilitation, ensure the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. states the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). “as is” and “as completed” values.
Third-Party Reports	For Mortgage LoansMortgage LoansMortgage 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 DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , include in the underwriting submission, on behalf of your DLDLLender approved to Deliver loans under the Delegated Underwriting and Servicing program. Mezzanine AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… any: internal or third-party inspection reports; PCAsPCAsAssessment of the Property's physical condition and historical operation. ; and architect’s or engineer’s reports (or other similar reports) related to the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .

Guidance

You may require a Completion Guaranty (Form 6018).

The DUS Lender Mezzanine Affiliate may also require a completion guaranty from the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. borrower.

1601.03	Submission

1601.03A	Materials

Operating Procedures

You must submit the following in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. when you submit 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. underwriting:

the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. sizing model;
a sources and uses of funds reflecting the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. proceeds;
any approvals associated with the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. ; and
for any Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. that finances rehabilitation:
- a description of the proposed rehabilitation;
- the approved rehabilitation budget;
- the rehabilitation timeline; and
- the construction or rehabilitation documents.

1601.03B	Data

Operating Procedures

To obtain a 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. , you must complete the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. fields in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. .

1601.04	Intercreditor Agreement

Requirements

For each 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 Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , you and the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. lender must execute an intercreditor agreement approved by Fannie Mae.

Operating Procedures

The BorrowerBorrowerPerson who is the obligor per the Note. must pay the legal fees if Fannie Mae engages outside counsel to review any intercreditor agreements. These fees are non-refundable, and you must pay the counsel retainer when you submit the underwriting.

Guidance

You may charge the BorrowerBorrowerPerson who is the obligor per the Note. your own legal and due diligence fees.

1601.05	Servicing

Operating Procedures

You must service, report, and remit on the DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. per Part V.

In all cases, you, as servicer of the DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. , must promptly notify Fannie Mae of any default on the Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. .