Chapter 18

Choice Refinance Loans

Section 1801

Eligibility

Requirements

A Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. is a Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. that is eligible for a streamlined underwriting process which reduces origination costs.

To use the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. streamlined underwriting, you must ensure:

Topic

Requirements

Prerequisites
  • You have been the ServicerServicerPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. of the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. for the last 12 months.
  • The Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. complies with 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. .
  • The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. is not in default.
  • The BorrowerBorrowerPerson who is the obligor per the Note. has demonstrated a commitment to its obligations under the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. by
    • maintaining 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). in good physical condition,
    • providing competent PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management services, and
    • complying with the requirements under the Loan DocumentsLoan DocumentsAll executed Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
  • 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).
    • is operating on a stabilized basis,
    • has a most recent overall inspection rating of 1 or 2, and
    • does not show any adverse change in PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). condition, except normal wear and tear, or any life safety issues during the underwriting inspection.

Loan History
  • The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. :
    • has a good payment history, with no delinquencies of 60 days or more during the 3 years immediately preceding the proposed refinance;
    • is not on the current Fannie Mae WatchlistWatchlistThe risk rating classification if you or Fannie Mae determine the Mortgage Loan has heightened credit risk. ;
    • had no declared non-monetary defaults that remained uncured for more than 120 days;
    • was underwritten and delivered per then-applicable GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. provisions; and
    • is serviced per the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
  • There were no unauthorized assumptions or changes in ownership, and no unauthorized LiensLiensLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. filed against 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). .

Additional Collateral

The Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. does not have a Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. or additional cash collateral.

Pricing

The pricing that was approved for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. does not apply to the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. .

Underwriting

The Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. , regardless of the 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 202: Income Analysis, as adjusted for the applicable products and…, must be of sufficient credit quality to repay the refinanced 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. without individually negotiated debt relief.
Section 1802

Lender Delegation

Requirements

You are delegated to underwrite the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. if:

  • the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. and the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. fall under the same Pre-ReviewPre-ReviewRequirement that the Lender obtain Fannie Mae’s approval before Rate Lock of a Mortgage Loan. categories 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. , and Fannie Mae approved those same Pre-ReviewPre-ReviewRequirement that the Lender obtain Fannie Mae’s approval before Rate Lock of a Mortgage Loan. categories for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. ; or
  • the Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. falls under the Pre-ReviewPre-ReviewRequirement that the Lender obtain Fannie Mae’s approval before Rate Lock of a Mortgage Loan. categories 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. , and has the same structure as the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. , even though the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. was not a Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. when it was CommittedCommittedContractual 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. .

In addition, you are delegated to approve a Non-Contiguous ParcelNon-Contiguous ParcelMultiple parcels of land securing a Mortgage Loan that do not share common boundaries or that are separated by dedicated or private streets that are major arterials. structure if the same structure was approved for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. . 

Section 1803

Prepayment Premiums

Requirements

You must not waive 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. based on required yield maintenance; or
  • portion of the Minimum 1% Prepayment PremiumMinimum 1% Prepayment PremiumFor a prepayment, an amount equal to 1% of the UPB. above the required yield maintenance if the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan.
    • has a minimum 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. other than 1%,
    • will be refinanced before the Yield Maintenance Period End DateYield Maintenance Period End DateLast day on which a Borrower owes yield maintenance for a voluntary Mortgage Loan prepayment. , or
    • is a fixed rate MBS Mortgage LoanMBS Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for an issued MBS backed by the Mortgage Loan. with an Issue DateIssue DateFirst day of the month a Security is issued.  before April 1, 1999.

Guidance

For all other Choice Refinance LoansChoice Refinance LoansMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. :

Cash or MBS You may waive the Minimum 1% Prepayment Premium...
Fixed Rate
  • after the Yield Maintenance Period End DateYield Maintenance Period End DateLast day on which a Borrower owes yield maintenance for a voluntary Mortgage Loan prepayment. , or 
  • for declining Prepayment PremiumsPrepayment PremiumsFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. during the 6 months before the Maturity DateMaturity DateDate all amounts due and owing per the Mortgage Loan become fully due and payable per the Loan Documents. .
ARM and SARM

after any lockout if the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan.

 

  • is being refinanced with a fixed rate 7- or 10-year term, and
  • was either
    • an ARM LoanARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. with a Plan NumberPlan NumberNumber identifying the applicable loan characteristics for any Mortgage Loan that accrues interest at a variable rate at any time during the loan term. of 02160, 02254, 02255, 03471, or
    • a SARM Loan with a Plan NumberPlan NumberNumber identifying the applicable loan characteristics for any Mortgage Loan that accrues interest at a variable rate at any time during the loan term. of 03488.
Section 1804

Streamlined Underwriting
1804.01

Zoning

Requirements

You must perform a non-conforming use analysis and comply with the requirements of Part II, Chapter 3: Legal Compliance, Section 301: Zoning and Legally Non-Conforming Status if 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). has been rezoned since the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. of the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan.

  • causing 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). to become a non-conforming use, or
  • further restricting the ability of an existing non-conforming use to be rebuilt.
1804.02

Property Condition Assessment (PCA)

Guidance

You may use the Streamlined Physical Condition Assessment Requirements (Form 4099.A).

1804.03

Environmental Site Assessment

Requirements

A Phase I Environmental Site AssessmentPhase I Environmental Site AssessmentEnvironmental report and site assessment performed according to the process described in current ASTM E 1527, including any report summarizing the conclusions of the assessment. is not required if:

  • an Environmental Professional performs an environmental database review and identifies no
    • potential environmental concerns (as defined in ASTMASTMAmerican Society for Testing Materials E1528 - Standard Practice for Limited Environmental Due Diligence: Transaction Screen), or 
    • adverse conditions requiring further due diligence; 
  • the BorrowerBorrowerPerson who is the obligor per the Note. enters into an Environmental Indemnity Agreement (Form 6085); and
  • you confirm that the BorrowerBorrowerPerson who is the obligor per the Note. is appropriately implementing any existing O&M PlansO&M PlansWritten plan, document, or agreement containing ongoing operating, maintenance, or monitoring actions for the Property or its Improvements. for 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). .
1804.04

Survey

Requirements

Part II, Chapter 3: Legal Compliance, Section 305: Survey does not apply if the:

  • new mortgagee title insurance policy includes all title exceptions, including those that would appear based upon the most recent survey provided by the BorrowerBorrowerPerson who is the obligor per the Note. (whether it is the original survey for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. or a subsequent one);
  • BorrowerBorrowerPerson who is the obligor per the Note. certifies that there have been no changes or improvements 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). since the later of the date of the survey
    • referenced in the original title policy, or
    • most recently completed; and
  • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). inspection report reveals no evidence of new construction or encroachments on the site from construction on adjoining properties. 
1804.05

Borrower Structure and Experience

Requirements

You must:

  • Obtain a new Multifamily Underwriting CertificateMultifamily Underwriting CertificateMultifamily Underwriting Certificate (Form 6460 series) , and/or other agreement approved by Fannie Mae that provides underwriting information for a Mortgage Loan. (Form 6460 series) from the BorrowerBorrowerPerson who is the obligor per the Note. , any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and any Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. . 
  • Obtain updated copies of the organizational documents of the BorrowerBorrowerPerson who is the obligor per the Note. and the Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. , and confirm that the BorrowerBorrowerPerson who is the obligor per the Note. ’s organizational structure complies with Part II, Chapter 3: Legal Compliance.
  • Confirm that no unauthorized change has been made to the BorrowerBorrowerPerson who is the obligor per the Note. ’s organizational structure or documents.
  • Obtain a new good standing certificate from the jurisdiction where the BorrowerBorrowerPerson who is the obligor per the Note. is organized. 
1804.06

Borrower Credit

Requirements

You must obtain and review new financial statements for all parties relevant to the transaction.

For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $6 million and underwritten per Part III, Chapter 9: Small Mortgage Loans. , you must:

Guidance

If the BorrowerBorrowerPerson who is the obligor per the Note. or any Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or PrincipalPrincipalPerson 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. submitted financial statements within the past 12 months, then in lieu of new financial statements, you may accept a certification that there has been no material adverse change from the financial condition or credit standing reflected in the financial statements.

1804.07

Property Management

Guidance

You may elect not to review 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). management or agreement per Part II, Chapter 1: Attributes and Characteristics, Section 111: Property Management and Agreement.

1804.08

Replacement Reserve

Requirements

You must ensure the Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. is funded as follows:

If...

Then...

The Property

 

  • is located in a Pre-Review Market that is not eligible for delegation at any Tier per Section II of the Form 4660, and
  • the market was a Pre-Review Market when the Portfolio Mortgage Loan was originated.

The BorrowerBorrowerPerson who is the obligor per the Note. must fully fund the Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. .

The Property

 

  • is located in a Pre-Review Market that is not eligible for delegation at any Tier per Section II of the Form 4660, but
  • the market was not a Pre-Review Market when the Portfolio Mortgage Loan was originated.

You must determine the Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. funding per Part II, Chapter 4: Inspections and Reserves, Section 404: Replacement Reserve.

 

The Property is located in

 

  • a Strong Market,
  • a Nationwide Market, or
  • a Pre-Review Market that is eligible for Tier 3 and Tier 4 Mortgage Loans on a delegated basis per Section II of the Form 4660.

You must determine the Replacement ReserveReplacement ReserveCustodial Account funded during the Mortgage Loan term for major maintenance and replacing capital items per the Loan Documents. funding per Part II, Chapter 4: Inspections and Reserves, Section 404: Replacement Reserve.
1804.09

Real Estate Tax and Insurance Escrows

Requirements

You must require T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow deposits for a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. unless Fannie Mae waived the T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow for the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. .  If you do not require T&IT&ITaxes or assessments that may become a Lien on the Property and insurance premiums. escrow deposits, then you must comply with Part II, Chapter 4: Inspections and Reserves, Section 405: Escrow Requirements for Taxes and Insurance.

Section 1805

Property Ownership Change

Guidance

If at the time of the refinance of the Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. 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). is being sold to a new owner, then you may use the streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans, Section 1804.01: Zoning, Part III, Chapter 18: Choice Refinance Loans, Section 1804.02: Property Condition Assessment (PCA), and Part III, Chapter 18: Choice Refinance Loans, Section 1804.03: Environmental Site Assessment provided that you comply with Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals for underwriting the BorrowerBorrowerPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsAny Person 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 who may be required to provide a Guaranty. , GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and 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. . 

You may also use the streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans, Section 1801: Eligibility for Portfolio Mortgage LoansPortfolio Mortgage LoansMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. that were assumed before being refinanced as a Choice Refinance LoanChoice Refinance LoanMortgage Loan refinancing a Portfolio Mortgage Loan using streamlined underwriting per Part III, Chapter 18: Choice Refinance Loans. .