Bond Redemption Premiums Payable to Bondholders

All relevant rules regarding bond redemption premiums will be contained in the related Bond IndentureIndentureBond issuer trust indenture or resolution listing Bond terms. .  The BorrowerBorrowerPerson who is the obligor per the Note. is obligated to pay any bond redemption premium.  Fannie Mae does not provide credit enhancement for the bond redemption premium.

Not all types of bond redemptions are subject to redemption premiums and the ServicerServicerPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. must consult the related Bond Indenture documentation to determine whether a redemption premium is due.  As a general rule, only bond redemptions initiated voluntarily or optionally by the BorrowerBorrowerPerson who is the obligor per the Note. will potentially have a redemption premium.  Mandatory redemptions almost never have a redemption premium.  Mandatory redemptions include redemptions paid from condemnation proceeds and insurance proceeds from casualty losses.

1.  Variable Rate Bond Redemption

Weekly variable rate bonds may typically be redeemed at any time, or at least on any bond interest payment date, without restriction or redemption premium to the bondholders subject to the terms of the related Bond IndentureIndentureBond issuer trust indenture or resolution listing Bond terms. .

2.  Fixed Rate Bond Redemption

Fixed rate bonds are typically restricted from optional or voluntary redemption by the BorrowerBorrowerPerson who is the obligor per the Note. for a specific period following the original bond issuance date, known as a lockout period.  A lockout period may approximate 10 years from the initial bond issuance.  Following the expiration of the lockout period, any voluntary redemption during the subsequent 3 to 5 year period typically requires the payment of a redemption premium to bondholders.

NOTE:  Most transactions require the BorrowerBorrowerPerson who is the obligor per the Note. to pay the bond redemption premium with money that is not subject to being treated as a voidable preference under applicable bankruptcy and insolvency laws.  This usually means the redemption premium cannot come from regular resources of the BorrowerBorrowerPerson who is the obligor per the Note. .  The Bond IndentureIndentureBond issuer trust indenture or resolution listing Bond terms. must be consulted for requirements applicable to sources of payment of the Bond Redemption Premium and legal counsel should be consulted.