Chapter 2
| Section 201 | |
|
|
|
Requirements
When structuring 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. , you must:
- evaluate 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). market; and
- using objective factors, consider its
- strengths, and
- weaknesses.
| Section 202 | |
|
|
|
| 202.01 | |
|
|
|
Requirements
You must not allow your:
- Lender Loan Origination FunctionsLender Loan Origination FunctionsAny:
Lender internal roles or job functions reporting up to the Chief Production Officer;
Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor;
Mortgage Loan… to be involved or participate in any of your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender:
internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities:
engaging the Appraiser;
defining the Appraisal’s scope…, including:
- selecting an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or ordering an 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. for a specific 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
- maintaining lists of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. approved or forbidden to perform AppraisalsAppraisalsWritten 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. for you; and
- Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… to be involved in, or combined with, any Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan….
Your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… are considered to be “Restricted Parties” who are prohibited from:
- ordering, managing, or defining the scope of work for an 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. assignment;
- selecting, retaining, recommending, or influencing whether an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
is selected for:
- a particular 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. assignment; or
- a list of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. approved or forbidden to perform AppraisalsAppraisalsWritten 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. for you; and
- communicating with an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or 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. management company without the Lender Appraisal FunctionLender Appraisal FunctionThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… included.
| 202.02 | |
|
|
|
| 202.02A | |
|
|
|
Requirements
You must:
- maintain a list of AppraisersAppraisersPerson engaged to estimate a Property’s market value per USPAP. generally approved to perform AppraisalsAppraisalsWritten 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. ;
- document the selection and approval of an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
, per your Lender Appraisal FunctionLender Appraisal FunctionThe Lender:
internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities:
engaging the Appraiser;
defining the Appraisal’s scope… processes, who is:
- a Certified General Appraiser (or licensed or certified per state law, if that state does not use the Certified General Appraiser designation);
- listed in good standing on the state roster per Title XI of FIRREAFIRREAFinancial Institutions Reform, Recovery, and Enforcement Act of 1989. ; and
- actively prepares multifamily appraisals in 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). market;
- if an in-house AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
is used, ensure your Lender Loan Origination FunctionLender Loan Origination FunctionAny:
Lender internal roles or job functions reporting up to the Chief Production Officer;
Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor;
Mortgage Loan… is separated from and cannot in any way influence (i.e., an ethical wall) the in-house AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
to:
- prevent conflicts of interest; and
- maintain 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. independence;
- require 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.
to:
- be in a narrative format, using only objective factors;
- be signed by the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ;
- be certified by the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. to conform with current USPAPUSPAPUniform Standards of Professional Appraisal Practice requirements; and
- comply with:
- Instructions for Appraisers (Form 4827); and
- any governmental regulations in effect when 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.
was originated, including
- FIRREAFIRREAFinancial Institutions Reform, Recovery, and Enforcement Act of 1989. ,
- all fair lending laws, and
- all fair housing laws;
- provide the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
all applicable documents needed to accurately assess 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).
value, including:
- the most recent PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. , or any other inspection reports (e.g., a structural engineering report);
- a rent roll dated within 60 days of the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. inspection date;
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
operating statements detailing
- income and expenses for the previous year (if available, for the previous 2 years), and
- year-to-date income and expenses;
- copies of:
- the Borrower'sBorrower'sPerson who is the obligor per the Note. standard form of residential lease;
- any executed commercial leases, including all amendments and attachments;
- any ground leases;
- any easements or regulatory agreements; and
- any purchase/sales contracts executed within 3 years before 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. date;
- any Environmental Site AssessmentsEnvironmental Site AssessmentsInvestigation and resulting report (Phase I ESA or Phase II ESA) conducted per Environmental Due Diligence Requirements (Form 4251), identifying if a Property has Recognized Environmental Conditions or Business Environmental Risks. ;
- architectural plans, 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). is not yet completed;
- site plans/surveys, if available;
- for a Moderate Rehabilitation PropertyModerate Rehabilitation PropertyProperty that will undergo at least $8,000 per unit of Rehabilitation Work.
, details of the
- capital expenditures incurred, and
- total construction costs; and
- any information that may affect the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. estimate of 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). value; and
- not accept any 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.
completed by an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
selected, retained, or compensated by:
- the BorrowerBorrowerPerson who is the obligor per the Note. ;
- the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). ;
- any 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. ;
- any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ;
- for an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , the seller or any related party; or
- any third party, including 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.
- BrokersBrokersThird-party Person who arranges Mortgage Loan financing on the Borrower’s behalf, or Transfers/Assumptions on behalf of the new Borrower for an assumption, or transferee for a transfer. , or
- Correspondents.
Guidance
If final reports are unavailable, you may send draft versions of the
- PCA ReportPCA ReportProperty Condition Assessment Report documenting the findings of a PCA. , and
- Environmental Site AssessmentsEnvironmental Site AssessmentsInvestigation and resulting report (Phase I ESA or Phase II ESA) conducted per Environmental Due Diligence Requirements (Form 4251), identifying if a Property has Recognized Environmental Conditions or Business Environmental Risks. .
If the final reports differ materially from the drafts sent to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , you must:
- forward the final reports to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ; and
- inquire whether 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. should be updated based on the final reports.
Requirements
When communicating with an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , you must comply with the Appraiser Communications table.
| Appraiser Communications | |
|---|---|
| You may... | You must not... |
|
provide any 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. data, such as
|
| 202.02C | |
|
|
|
Requirements
You must ensure no PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). influences, or attempts to influence, the development, reporting, result, or review of an 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. through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or any other manner including:
- withholding, or threatening to withhold:
- timely payment; or
- future business;
- demoting or terminating, or threatening to demote or terminate, the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. or any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. employee;
- promising, either expressly or implicitly, the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
or any PersonPersonLegal person, including an
individual,
estate,
trust,
corporation,
partnership,
limited liability company,
financial institution,
joint venture,
association, or
other organization or entity (whether governmental or private).
related to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
:
- future business;
- promotions; or
- increased compensation, including
- financial benefits, or
- non-financial benefits;
- conditioning 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.
order, or any bonus payment on
- the Appraisal’sAppraisal’sWritten 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. opinion of 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). value, or
- a requested preliminary value estimate;
- any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
communications (other than providing a copy of the purchase/sales contract for an AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
) regarding 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).
anticipated, estimated, encouraged, or desired:
- comparable properties;
- capitalization rates; or
- value or value range;
- providing the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. a proposed or targeted loan amount;
- impairing, or attempting to impair, through any other act or practice, the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP.
- independence,
- objectivity, or
- impartiality; or
- violating compliance with any law or regulation, including the USPAPUSPAPUniform Standards of Professional Appraisal Practice .
To ensure the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. independence, you must:
- implement written policies and procedures;
- ensure any Outside PartiesOutside PartiesPerson you retain to perform services for multifamily Mortgage Loans (e.g., Appraisers, inspectors, Correspondents, law firms, engineers, environmental consultants, and Brokers, title companies, or title agents). involved in your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… maintain AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. independence by confirming they do not also participate in your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan…; and
- if requested, provide evidence confirming your Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… are separate from your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope….
Guidance
| Appraisal Independence | |
|---|---|
| To ensure compliance, your written policies should include... | That describe... |
| Procedures |
how you maintain independence between the Lender Appraisal FunctionLender Appraisal FunctionThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… and Lender Loan Origination FunctionsLender Loan Origination FunctionsAny: Lender internal roles or job functions reporting up to the Chief Production Officer; Lender employees who receive a commission or bonus if the Mortgage Loan closes, including any employees or functions that report up to these roles and/or their immediate supervisor; Mortgage Loan… through
|
| Disciplinary Rules |
the consequences for not complying with the requirements, including
|
| Training Programs |
in-person or online training:
|
| 202.02D | |
|
|
|
Requirements
| Valuation Date | |
|---|---|
| If the Appraisal Date is more than... | You must... |
| 6 months before the Commitment Date | Instruct the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. to update 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. per Instructions for Appraisers (Form 4827). |
| 12 months before the Commitment Date | Order a new 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. . |
Guidance
You may be required to obtain a new or updated 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. if Fannie Mae determines the market deteriorated between the
- Appraisal DateAppraisal DateEffective date of value in the Appraisal. , and
- Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
Requirements
If you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. 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 an 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. prepared by an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. selected by another lender, you must:
- make all representations and warranties to Fannie Mae regarding 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. ; and
- confirm it complies with this GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
| 202.02F | |
|
|
|
Requirements
Your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must:
- review and approve each 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. for adequacy and compliance; and
- 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.
includes:
- an accurate description of 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 the market, including:
- 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). complete legal description;
- any information you provided the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ;
- color photographs of 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).
- exterior,
- interior common areas,
- typical unit interiors,
- surrounding area,
- rental comparables,
- sales comparables, and
- commercial rental comparables;
- maps showing 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).
location relative to the location of the
- land comparables,
- current rental comparables,
- future rental comparables, and
- sales comparables;
- qualifications of the
- a copy of your
- complete signed engagement letter with the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , and
- communications with the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. regarding 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. scope;
- an opinion of 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).
value per Part II, Chapter 2: Valuation and Income, Section 202.03A: Appraised Value, and supported by
- market data,
- logical analysis, and
- sound professional judgment;
- an opinion of 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). insurable value; and
- an industry standard form of 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.
appropriate for the Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by
the Loan Documents, or
a mortgage debt obligation with a Fannie Mae credit enhancement.
- size, and
- structure.
- an accurate description of 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 the market, including:
Your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must:
- return any report to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP.
that:
- is incomplete; or
- lacks credibility; and
- ensure your 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.
review:
- is documented in the Transaction Approval Memo;
- is accompanied by all other AppraisalsAppraisalsWritten 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. you ordered on 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). during the past 3 years; and
- includes all information per the following Appraisal Analysis table.
| Appraisal Analysis | |
|---|---|
| For... | You must... |
| Market Conditions |
Confirm 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. accounts for current market conditions, including
|
| Data Accuracy |
Verify the Appraisal’sAppraisal’sWritten 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. data accuracy, including
|
| Property Inspections | Determine if the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. conducted a thorough inspection of 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). , including random sampling of occupied and vacant units per Instructions for Appraisers (Form 4827). |
| Sales/Rental Comparable Analysis |
|
| Market Rents and Expense Analysis | If the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. proforma income or expenses substantially differ from 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). income and expenses used to calculate the 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. , provide additional supporting comparable property data or rationale supporting your conclusions. |
| Capitalization Rate Analysis |
Provide your assessment that the capitalization rate:
|
| Value Reconciliation |
|
For each 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. , your Lender Appraisal FunctionsLender Appraisal FunctionsThe Lender: internal roles or job functions, including any employees that report up to the Chief Underwriter (but excluding any Lender Loan Origination Functions), involved with the following Appraisal-related responsibilities: engaging the Appraiser; defining the Appraisal’s scope… must ensure all:
- Potential Red Flags for Mortgage Fraud and Other Suspicious Activity were considered and the review documented in the Transaction Approval Memo; and
- unresolved red flags were reported per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 310: Compliance.
| 202.02G | |
|
|
|
Requirements
For any 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. , you must not order, obtain, use, or pay for a subsequent 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. unless:
- you document in your Transaction Approval Memo that the initial 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.
:
- was not credible; or
- violated legal and/or professional standards related to
- USPAPUSPAPUniform Standards of Professional Appraisal Practice , or
- nondiscrimination; and
- the subsequent 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.
:
- is required per your pre-established written pre- or post-funding 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. review policy;
- adheres to a policy of selecting the most reliable 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. rather than 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. with the highest value; or
- is required by law.
Requirements
You must promptly notify:
- Fannie Mae if you discontinue using any AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. who completed AppraisalsAppraisalsWritten 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. within the past 12 months 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. you DeliveredDeliveredSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. ; and
- Fannie Mae and the applicable state AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. certifying and licensing agency, or other regulatory body, if you believe an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. is:
| 202.03 | |
|
|
|
| 202.03A | |
|
|
|
Requirements
You must ensure:
- the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. engagement letter requires compliance with Instructions for Appraisers (Form 4827);
- the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provides an opinion of the market value on an "as is" basis;
- the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP.
opinion of the market value covers:
- each separate ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. per Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership; and
- the aggregate market value of all ProjectsProjectsMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. ; and
- regardless of any allocation in the purchase/sales agreement, the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP.
opinion of the market value excludes any value from
- goodwill,
- business value (permitted for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. ),
- intangibles,
- furniture,
- fixtures (unless customary in the market), or
- equipment.
You may also request the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provide an opinion of 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). market value on an "as completed" basis, but you must only use an "as completed" value if all of the following apply:
- less than 12 months have passed between the
- Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , and
- Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ;
- for any capital improvements completed after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to be considered in an "as completed" value, they must be:
- Immediate Repairs listed in the PCAPCAAssessment of the Property's physical condition and historical operation. ; or
- improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , if you agree the improvements will add PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- all capital improvements are included in either the
- Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion…, or
- Rehabilitation Reserve AgreementRehabilitation Reserve AgreementBorrower’s agreement to undertake identified Rehabilitation Work, the terms for funding the Rehabilitation Work, and the disbursement of funds from the Rehabilitation Reserve Account (e.g., Form 6222 or Form 4523). ;
- sufficient funds to complete all capital improvements are deposited into either the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents.
or the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work.
:
- for capital improvements identified as Immediate Repairs, the funds must cover any higher funding percentage you require; and
- for capital improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , the funds must cover the estimated cost (including a cost overrun allowance); and
- all capital improvements must be completed within:
- 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , if identified by the BorrowerBorrowerPerson who is the obligor per the Note. ; or
- any shorter time period per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405: Completion/Repairs, if listed as Immediate Repairs.
| 202.03B | |
|
|
|
Requirements
You must:
- analyze 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). sale history for the last 3 years, including any transfer of a Controlling InterestControlling InterestFor any entity, ownership or control of 50% or more of the ownership interests in the entity or the power or right to control or modify, directly or indirectly, the management and operations of the entity. in the owner;
- address the following in your Transaction Approval Memo:
- if a sale occurred within the last 24 months, document the
- circumstances of the sale, and
- support for any increased Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide.
by analyzing any
- Net Cash FlowNet Cash FlowOn 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… increases,
- capitalization rate compression, and
- value-add market drivers; and
- if any stated sales price per the purchase/sales agreement differs from the transfer price per the public records or third-party reports, investigate and document the discrepancy;
- if a sale occurred within the last 24 months, document the
- for any AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , confirm the seller was 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). owner in the real estate records when the purchase/sales agreement was signed;
- evaluate the purchase/sale contracts to
- clearly identify the
- seller, and
- purchaser, and
- confirm the sale was an arm's length transaction;
- clearly identify the
- review the final settlement statement before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to confirm accuracy of the
- purchase price,
- closing costs, and
- any cash in/out to the seller and purchaser; and
- submit a copy of:
- the final settlement statement at DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. ; and
- all purchase/sales contracts and amendments to
- the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. , and
- Fannie Mae.
| 202.03C | |
|
|
|
Requirements
Your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. , as reduced by any adjustments you deem necessary, accounting for:
- your analysis of 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). sales history; and/or
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deficiencies that cannot be cured within 6 months after the Appraisal DateAppraisal DateEffective date of value in the Appraisal. .
If less than 12 months have passed between the Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. and the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the lower of the
- Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. , or
- sum of 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).
AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price per the title company settlement statement, with no allocations to:
- goodwill,
- business value (permitted for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. ),
- intangibles,
- furniture,
- fixtures (unless customary in the market), or
- equipment;
- cost of capital improvements or repairs that increase 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).
value, if
- completed and fully paid, or
- sufficient funds for completion are deposited in the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or reserve account; and
- actual AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
costs, not exceeding 3% of the AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price (but excluding all costs or fees paid to a BorrowerBorrowerPerson who is the obligor per the Note.
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…), including:
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. ;
- arm's length AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. fee (generally 1% - 2%) paid to an unrelated PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). if documented in the Settlement Statement;
- third-party report fees;
- BorrowerBorrowerPerson who is the obligor per the Note. -paid legal fees incurred on your behalf;
- title search and title insurance fees;
- survey fees;
- real estate and stamp taxes;
- deed-recording fees; and
- credit report charges.
- 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).
AcquisitionAcquisitionAny Purchase of either the:
Property’s fee simple or leasehold interest via a deed transfer; or
Controlling Interest in the Borrower.
price per the title company settlement statement, with no allocations to:
Guidance
Actual AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. costs should exclude any prepaid operating expenses or deposits applied toward future operating expenses or PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). improvements, including:
- prepaid or escrowed
- real estate taxes, or
- insurance premiums;
- prepaid
- utilities,
- 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. interest, including any interest rate buydown expense,
- rents, or
- security deposits;
- funded
- Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. (including any initial deposit),
- Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. cost,
- operating or Restabilization Reserve, or
- BorrowerBorrowerPerson who is the obligor per the Note. -controlled PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating or capital accounts;
- fees included in the Gross Note RateGross Note RateInterest rate stated in the Loan Documents.
, including any
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. , or
- broker fee; and
- for an 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. , pre-paid BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. -related and compliance monitoring fees.
| Section 203 | |
|
|
|
Guidance
When calculating 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). 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. , you should:
- use objective measures to determine the revenue generated and the expenses incurred;
- use the best information available, including
- historical performance, and
- anticipated operations;
- use best efforts to obtain operating statements for the prior 3 years;
- obtain the prior full-year operating statement or, at a minimum, one covering the trailing 6 months (annualized);
- request trailing 3-month physical and economic vacancy history if not included on the operating statement provided;
- use best efforts to obtain a current aged receivables report, listing rent delinquencies at day
- 30,
- 60, and
- 90;
- review operating statement and rent roll updates, ensuring no inexplicable variances compared to previously provided statements;
- if variances are identified compared to previously provided statements, they should be
- investigated,
- reconciled, and
- documented in the Transaction Approval Memo; and
- consider 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).
can achieve the 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.
within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
, absent
- unexpected market conditions, or
- other unforeseen events.
You may, for:
- AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. only, rely on the Borrower'sBorrower'sPerson who is the obligor per the Note. budgeted operating statements; and
- 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. , calculate the 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. more conservatively, if warranted by specific PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). circumstances.
Requirements
You must:
- determine the reasonableness of 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). current income and expenses based on historical data from external real estate data aggregator services;
- if adjustments were made to any reviewed historical operating statement:
- document and reconcile each individually adjusted line item; and
- provide supporting detail in the Transaction Approval Memo; and
- use the following table to calculate 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. for 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. unless another table is provided in the applicable Part III chapter based on the specific product.
|
REQUIRED UNDERWRITTEN NCF (CONVENTIONAL LOANS) |
||
|---|---|---|
|
Item |
Function |
Description |
|
CALCULATION OF NET RENTAL INCOME |
||
|
1 |
|
GROSS RENTAL INCOME – actual rents in place for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12). 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). must have Stabilized Residential OccupancyStabilized Residential OccupancyPercentage of Property units physically occupied by Qualified Occupants, per Part II, Chapter 1: Attributes and Characteristics, Section 105.02: Qualified Occupants as adjusted for the applicable Part III products and features. by Qualified TenantsQualified TenantsParty occupying a dwelling unit in a Property in full compliance with a lease. .
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). is located in New York City and subject to the J-51 Tax Incentive Program where the BorrowerBorrowerPerson who is the obligor per the Note. has decontrolled rent-stabilized units (a Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. ), you must adjust the current rents to reflect no rent decontrol benefits:
|
|
2 |
PLUS |
To the extent deducted as an operating expense, rents for other non-revenue units (e.g., model units deducted in the “model apartment” operating expense in the “general and administrative” category, or actual rent from employee units deducted in the “employee” operating expense in the “payroll and benefits” category). |
|
|
EQUALS |
GROSS POTENTIAL RENT (GPR) |
|
3 |
MINUS |
Premiums (e.g., identifiable additional income from furnished units or short term leases) and/or corporate premiums (e.g., identifiable additional income from corporate units, housekeeping services, etc.). |
|
4 |
MINUS |
Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).1 |
|
5 |
MINUS |
Concessions - the aggregate amount of forgone residential rental income from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.1 |
|
6 |
MINUS |
Bad debt - the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.1 |
|
|
EQUALS |
NET RENTAL INCOME (NRI)2 |
|
1 The total of Items 4, 5, and 6 must equal the greater of
2 NRI must reflect projected operations for the underwriting period.
a. You must assess the NRI using these parameters and fully support any changes:
b. You must assess declines in NRI using these parameters:
|
||
|
CALCULATION OF OTHER INCOME |
||
|
7 |
PLUS |
Actual other income (except premiums and corporate premiums) generated through ongoing operations. The income must:
You must assess the individual month's other income within the prior full-year operating statement or, at a minimum, an operating statement covering at least the trailing 6 months (annualized).
If there are fluctuations, you may use other income that exceeds the trailing 3-month other income (annualized), provided it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.
When determining the other income, you must
|
|
CALCULATION OF COMMERCIAL INCOME |
||
|
8 |
PLUS |
Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases. |
|
9 |
PLUS |
Actual income from STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… units. |
|
10 |
MINUS |
10% of the actual commercial space income (total of Items 8 plus 9).3 |
|
11 |
PLUS |
Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.3 |
|
3 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI. |
||
|
12 |
PLUS |
Premiums, provided that the income must:
|
|
13 |
PLUS |
Corporate premiums, provided that this income must:
|
|
14 |
PLUS |
Laundry and vending. |
|
15 |
PLUS |
Parking - income from residential parking/garage spaces. |
|
16 |
PLUS |
All other income, including the following:
The following must not be included:
|
|
|
EQUALS |
EFFECTIVE GROSS INCOME (EGI) |
| CALCULATION OF OPERATING EXPENSES | ||
|
17 |
MINUS |
Line-by-line stabilized operating expenses.
Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations, not affected by a
Non-recurring, extraordinary expenses must not be included.
You must access:
You must:
|
|
17(a) |
MINUS |
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 fee equal to the greatest of:
|
|
4 Minimum property management fee may be 2.5% of EGI (rather than 3% of EGI) provided that the:
|
||
|
17(b) |
MINUS |
Real estate taxes based on the greatest of:
You must, for:
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 real estate tax abatements, exemptions, deferrals, or PILOTsPILOTsPayment In Lieu Of Taxes. , they must:
|
| 17 (b) continued | MINUS |
If the timeframe for the real estate tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. is shorter than 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, or begins phasing out or expires within 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must consider:
|
|
17(c) |
MINUS |
Insurance equal to:
For an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. :
If 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). area is prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. , ensure the expense aligns with the market. |
|
17(d) |
MINUS |
Utilities, including the following:
|
|
17(e) |
MINUS |
Water and sewer. |
|
17(f) |
MINUS |
Repairs and maintenance, including the following:
|
|
17(g) |
MINUS |
Payroll and benefits, including the following:
|
|
17(h) |
MINUS |
Advertising and marketing, including the following:
|
|
17(i) |
MINUS |
Professional fees, including the following:
|
|
17(j) |
MINUS |
General and administrative, including the following:
|
| 17 (j) continued | MINUS |
|
|
17(k) |
MINUS |
Other expenses, including the following:
For example, if actual lease STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income for a unit is $1,000 and market rate residential rent for that unit is $900, then deduct $1,200 ($1,000 - $900 = $100 x 12 months) as an "other" expense.
Do not include the following:
|
| 18 | MINUS |
For a CondominiumCondominiumStatutorily established Property ownership regime where Condominium Documents designate: individual units for separate ownership; and common areas for shared use and joint ownership by the unit owners. PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). or a Shared Use PropertyShared Use PropertyProperty subject to Shared Use Documents: benefiting the Property by granting the right to use Essential Elements on common areas created by, or other properties subject to, the Shared Use Documents, and/or burdening the Property by: subjecting it to: property-use or other…:
|
| 19 |
MINUS |
Ground rent for any Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. or any master lease. Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. bonus rent and/or escalations 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. must be considered when calculating 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. and analyzing refinance risk. |
|
|
EQUALS |
UNDERWRITTEN NOI |
|
20 |
MINUS |
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense, including a
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense must be included whether the escrow is funded or not. |
|
|
EQUALS |
UNDERWRITTEN NCF |
| 203.02 | |
|
|
|
Requirements
You must calculate 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… per the following table.
|
Item |
Function |
Description |
|---|---|---|
|
1 |
|
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. per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF). |
|
2 |
DIVIDED BY |
Annual debt service 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. amount.
You must base debt service on a level debt service payment, including amortization, and the greater of the
|
When calculating 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… for 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 an interest-only period, you must use the same level debt service payment, including amortization, regardless of the length of the interest-only period.
The Underwriting Interest Rate Floor, if applicable, is the lowest interest rate you may use to determine 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. amount.
If the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. is below the required Underwriting Interest Rate Floor, per Form 4660, you must use the Underwriting Interest Rate Floor to establish the permitted 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.
All underwriting TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). requirements must be based on the 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. .
| Section 204 | |
|
|
|
Requirements
You must prepare an exit strategy analyzing the Borrower'sBorrower'sPerson who is the obligor per the Note. ability to refinance 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. in the year after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. (e.g., use the projected 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… in year 11 for 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 a 10-year term), by calculating a:
- “reversion” cap rate, which is the expected capitalization rate able to be supported per the projected 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…; and
- Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. .
| 204.01 | |
|
|
|
Requirements
For 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. 1, use the 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. . For all subsequent Loan YearsLoan YearsPeriod 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. , you must derive proforma 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… as follows:
| Factor | For... | Use... |
|---|---|---|
| Income Growth Rate |
|
2%. |
| All other 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. | the growth rates published 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. 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). . | |
| Economic Vacancy | 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. | the underwritten economic vacancy rate. |
| Real Estate Taxes | California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
|
| Non-California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
|
|
| Real Estate Tax Abatements, Exemptions, Deferrals, or PILOTs | 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. |
|
| Management Fee | 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. | the underwritten rate. |
| Replacement Reserves | 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. | the underwritten value. |
| Insurance and Other Expenses |
|
3%. |
| All other 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. | the growth rates published 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. 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). . |
You must estimate 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. UPBUPBUnpaid Principal Balance at the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. as follows:
| For... | Use... |
|---|---|
| Amortization |
|
| DSCR | The minimum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. for the applicable product or features, per Form 4660. |
| LTV | The maximum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 LTVLTVRatio 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. for the applicable product or features, per Form 4660. |
Guidance
In most cases, the combined effect of principal amortization and 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 should result in a refinancing at 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. and maximum LTVLTVRatio 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. for TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2, using a reasonable interest rate.
You should consider the following refinance parameters:
- A target reversion capitalization rate at least 2.0% greater than the initial capitalization rate used for determining Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. .
- A Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. at least 2.25% greater than the current 10-year Amortizing Nationwide Underwriting Floor rate, per Form 4660.
| 204.02 | |
|
|
|
Requirements
You must:
- present an alternative risk analysis using assumptions that deviate from the base assumptions if:
- you determine the base assumptions do not appropriately estimate 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). 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… 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; or
- third-party data providers project rent growth materially below Fannie Mae growth rates published 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. ;
- identify and support any deviations with
- reliable evidence, and
- historical and projected market trends; and
- state your conclusions, discussing any mitigating factors, such as the:
- strength of the
- SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , or
- submarket; and
- 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).
- characteristics,
- operating history, and
- performance.
- strength of the
Guidance
Income and Expense Growth Rates: Income and expense trending should incorporate projected market rates based on general economic, market, and submarket conditions from reliable sources, as well as 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). characteristics. For example:
- Rents on recently signed leases should only be used for estimating income growth in Loan YearsLoan YearsPeriod 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. 1 and 2.
- Rent projections greater than the Base Assumption Income Growth Rate should not be used beyond 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. 4.
- When improvements in market economic occupancy or sustained market rental rate increases are widely anticipated, growth trends above the Base Assumption Income Growth Rate may be supported.
- Projections of income growth resulting from PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). renovations or improved operations should be limited to the first 3 Loan YearsLoan YearsPeriod 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. .
- When a 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 subject to a scheduled reassessment or a tax abatement phase-in period, tax expense should be adjusted appropriately.
- If a tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes.
begins phase out or expires more than 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
, consider if the increased expense within 10 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
may affect the Borrower'sBorrower'sPerson who is the obligor per the Note.
ability to refinance, and warrants
- a lower 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,
- faster amortization, or
- a reduced interest only period.
- When you expect to incur costs for tenant improvement allowances and leasing commissions, or to realize rent increases from the rollover of tenants, commercial income should be adjusted appropriately.
- A substantially renovated PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , with improved in-unit finishes and/or new/renovated amenities, may experience different income and expense growth rates than properties of the same age; therefore, growth trends differing from the Base Assumption Income Growth Rate may be supported.
Economic Vacancy: PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in submarkets with depressed economic conditions due to temporary demand or supply issues may be modeled to reflect the economic vacancy projected by a reliable source. If you expect a decrease in vacancy to achieve stabilized levels, you should consider
- the anticipated timing, and
- effect of decreased economic vacancy on projected income growth over the same time period.
| Section 205 | |
|
|
|
Requirements
You must:
- examine the risk of allowing cash out to the BorrowerBorrowerPerson who is the obligor per the Note. (see Form 4660 for a description of cash out transactions); and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , consider 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. amount relative to 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). total development cost basis.
When underwriting a cash-out transaction, you must consider and document in the Transaction Approval Memo:
- the amount of hard equity remaining in 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). debt structure, excluding prior permanent financing costs, such as interest or prepayment premium;
- the length of time the BorrowerBorrowerPerson who is the obligor per the Note. has owned 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). ;
- 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).
- effective age, and
- current physical condition;
- over the ownership period, any improvement in
- asset quality,
- 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). operations (i.e., its 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…), or
- value;
- if 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). value increased due to an increase in 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…, rather than a decrease in the capitalization rate; and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , 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). total development costs basis per the New Construction table:
| New Construction | |
|---|---|
| For... | The Property's total development cost basis includes... |
| Land |
|
| Hard Costs |
Expenses for:
|
| Soft Costs |
Fees for:
|
| Construction Financing Costs |
Expenses for:
|
| HUD or LIHTC New Construction | Amount supported by the Cost CertificationCost CertificationIndependent third-party audit report itemizing the Property's construction and development costs, including a statement of eligible and qualified basis, submitted to the state housing finance agency to obtain IRS Form 8609(s). . |
| Cash Out Transaction Support | |
|---|---|
| Factor... | Must... |
| Cash Out Proceeds | Be commensurate with the length of the ownership period. |
| Property Condition | Have improved or been good over the ownership period. |
| Property NCF | Have improved over the ownership period. |
| Property Value | Have increased due to higher 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… over the ownership period. |
| Section 206 | |
|
|
|
Requirements
For AcquisitionsAcquisitionsAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. or refinances where 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 repositioned through a substantial capital improvement plan, you must analyze (and document in your Transaction Approval Memo) the:
- Sponsor’sSponsor’sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
:
- business plan (either through a written plan or by a conversation with the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
), including
- market rent growth expectations,
- any planned capital improvements,
- any expected rent premiums after renovations,
- operating expense management, and
- value appreciation through capitalization rate compression;
- expected ownership period 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). relative to 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; and
- expected investment returns from owning/operating 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).
, assuming
- AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. at the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. , and
- a hypothetical disposition at the Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. ;
- business plan (either through a written plan or by a conversation with the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal).
), including
- Mortgage Loan’sMortgage Loan’sMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. Underwritten Capitalization RateUnderwritten Capitalization RateRatio, expressed as a percentage, of the Underwritten Net Cash Flow, divided by Underwriting Value. ; and
- motivation in 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). investment compared to the Borrower’sBorrower’sPerson who is the obligor per the Note. other investment alternatives.
| Section 207 | |
|
|
|
Guidance
For Rent-Stabilized PropertiesRent-Stabilized PropertiesProperty where rent increases on more than 50% of the residential units are limited by state or local statutory controls, not by an Affordable Regulatory Agreement. (e.g., located in New York State), you should:
- underwrite PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). income based on current rents;
- exclude any potential rent increase for units converting to market rate from the projected 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… in the refinance risk analysis;
- assess and stress the cap rate used to determine the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. , and consider obtaining an 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. before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. ;
- for fund SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or other SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). requiring minimum investment returns, consider whether the Sponsor'sSponsor'sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). interests are aligned with the limited rent increases allowed under the law; and
- fund the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. to maintain 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). physical condition.