Chapter 3

Borrower, Guarantor, Key Principals, and Principals

Section 301

Generally

Requirements

You must:

  • perform a risk assessment of the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… based solely on objective credit standards;
  • for any SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , 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. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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). who owns 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 BorrowerBorrowerPerson who is the obligor per the Note. , 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. , or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , search the internet for
    • any negative press,
    • current or prior lawsuits, and/or
    • fair housing violations or other sanctions;
  • ensure all:
  • document all due diligence findings in the Transaction Approval Memo.

Prohibited practices include:

  • basing the risk assessment on any characteristic protected by any fair housing or fair lending law, including
    • race,
    • color,
    • religion,
    • sex,
    • handicap,
    • familial status, or
    • national origin of the prospective
      • BorrowersBorrowersPerson who is the obligor per the Note. ,
      • GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ,
      • Key PrincipalsKey PrincipalsPerson 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. ,
      • PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…,
      • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). occupants, or
      • residents 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).  neighborhood; or
  • using
    • unsupported assumptions,
    • personal opinions, or
    • unsupported perceptions.

You must:

  • Complete a credit review by analyzing information about the Borrower'sBorrower'sPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ', and GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. '
    • organizational structure,
    • multifamily business experience and qualifications,
    • general credit history, and
    • current and prospective financial condition.
  • Ensure the financial strength, experience, qualifications, and credit history of the BorrowerBorrowerPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. support the transaction's
    • size,
    • complexity,
    • structure, and
    • risk.
Section 302

Borrower Organizational Structure
302.01

Single-Asset Entity

Requirements

You must ensure:

  • the BorrowerBorrowerPerson who is the obligor per the Note. is a domestic single-asset entity formed for the sole purpose of owning 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). ;
  • if the BorrowerBorrowerPerson who is the obligor per the Note. is ultimately owned by foreign persons or entities, it has at least 1 domestic tier of ownership; and
  • you review
    • the Borrower'sBorrower'sPerson who is the obligor per the Note. original formation documents, and
    • all amendments or restatements.

Guidance

As you analyze the BorrowerBorrowerPerson who is the obligor per the Note. and its organizational documents to confirm that it has been a single-asset entity since formation, consider the following questions:

  • Can the BorrowerBorrowerPerson who is the obligor per the Note. acquire any additional real property, personal property, or assets?
  • Can the BorrowerBorrowerPerson who is the obligor per the Note. participate in any business other than managing and 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). ?
  • Are the Borrower’sBorrower’sPerson who is the obligor per the Note. assets or funds commingled with anyone else’s?  If so, can these assets or funds be separated and identified?
  • Are the Borrower’sBorrower’sPerson who is the obligor per the Note. financial statements, accounting records, and other organizational documents maintained with anyone else’s?
  • Has the BorrowerBorrowerPerson who is the obligor per the Note. assumed, guaranteed, or obligated itself to cover anyone else’s liabilities?

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. owns more than a single asset, the BorrowerBorrowerPerson who is the obligor per the Note. may still qualify as a single asset entity if you:

  • Obtain an operating statement for each real property owned.
  • Obtain proof that the BorrowerBorrowerPerson who is the obligor per the Note. has no existing debt secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on any of the Borrower’sBorrower’sPerson who is the obligor per the Note. real property, other than 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. purchased by Fannie Mae.
  • Obtain proof that no direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. is subject to mezzanine financing.
  • Ensure that the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. prohibit the BorrowerBorrowerPerson who is the obligor per the Note. from
    • acquiring any additional debt (except for supplemental debt on existing Fannie Mae loans),
    • increasing any existing debt, or
    • acquiring any additional real property.

Guidance

As you analyze the BorrowerBorrowerPerson who is the obligor per the Note. that owns more than a single asset, you should consider whether its other real estate assets are only

  • multifamily properties, or
  • other types of real estate that do not pose an environmental risk to the BorrowerBorrowerPerson who is the obligor per the Note. .
302.02

Co-Tenant Borrowers

Requirements

You must ensure that any Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. meets these eligibility requirements:

302.02A

Tenancy-in-Common Agreement

Requirements

You must ensure that a validly executed Tenancy-in-Common Agreement is in place prior to or at 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. closing.

You must review the agreement to ensure that:

  • Each co-tenant is bound by the terms of the agreement.
  • 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 a manager of its day-to-day business and affairs, which can be
    • a single co-tenant (or the 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. of such co-tenant) known as the “co-tenant representative”, or
    • a validly-appointed property manager.
  • Distributions to the co-tenant representative are subordinate to
    • all payments under 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. secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. 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). , and
    • the terms and conditions of any such 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. .

Guidance

As you analyze the Tenancy-in-Common Agreement, consider the following questions.  The term “co-tenant” also includes 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. who has the rights of the co-tenant.

Representation

  • Have the Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. given the co-tenant representative the power to deal with the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. through the Tenancy-in-Common Agreement or an irrevocable power-of-attorney?
  • Has each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. waived its right to reside in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?

Buy outs

  • Does each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. have buy out rights to any other co-tenant?
  • Is each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. financially able to buy out any other co-tenant?

Communication

  • Does each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. have a name, address, telephone number, and percentage of ownership interest listed?
  • Has each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. agreed to promptly notify all other Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. and you if their address or telephone number changes?
  • Has a single 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. of the co-tenant representative agreed to receive any communication from you on behalf of all Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. ?
302.02B

Key Principal Execution of Guaranty

Requirements

You must ensure that:

  • each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. names at least 1 Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ; and
  • if a GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. is required per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 311: Execution of Non-Recourse Guaranty, a 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. from each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. must become a GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. and execute either a Non-Recourse GuarantyNon-Recourse GuarantyGuaranty executed by a Key Principal on Form 4501 series or Form 6015 series, or approved by Fannie Mae. or Payment GuarantyPayment GuarantyGuaranty executed by a Key Principal on Form 4502 series or Form 6020 series, or approved by Fannie Mae. .
302.03

Joint and Several Borrowers with Multiple Properties

Requirements

If 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. not in a Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. is secured by multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and any 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 owned by a different BorrowerBorrowerPerson who is the obligor per the Note. , you must require each BorrowerBorrowerPerson who is the obligor per the Note. to:

  • execute a single set of Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. with joint and several liability 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. ;
  • comply with the “single purpose entity” requirements per Modifications to Multifamily Loan and Security Agreement (Co-Borrowers) (Form 6274);
  • be owned, directly or indirectly, by the same PersonsPersonsLegal 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). having the same percentage ownership interests;
  • be ControlledControlledPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). by the same SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or 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. ;
  • execute Form 6274, restricting PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. or release during 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;
  • execute an acceptable Contribution Agreement complying with Form 6274; and
  • if separate Security InstrumentsSecurity InstrumentsInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. are recorded to encumber 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 different counties, execute separate Modifications to Security Instrument (Co-Borrowers) (Form 6322) for each Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .

Each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). securing 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:

Section 303

Key Principals, Principals, and Guarantors
303.01

Generally

Requirements

For every 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:

  • Identify and underwrite the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and all Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. and PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… of the BorrowerBorrowerPerson who is the obligor per the Note. .
  • Require the BorrowerBorrowerPerson who is the obligor per the Note. to disclose any foreign PersonsPersonsLegal 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). whose direct or indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. , in the aggregate, is 10% or greater. 
  • Ensure the GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty.
    • is not a foreign person or a foreign entity, and
    • either has an ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. or ensure that the GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. has adequate legal consideration to enter into the GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. .

You must:

  • not deliver 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
    • undisclosed PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or 
    • a Blocked PersonBlocked PersonAny Person who is: on the FHFA SCP List; sanctioned or blocked by OFAC; or identified on: HUD's “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List”; or General Services Administration’s “System for Award Management (SAM) exclusion list”… as a 
      • BorrowerBorrowerPerson who is the obligor per the Note. ,
      • GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ,
      • 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. , or
      • PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…;
  • review all original, unredacted organizational documents, and any amendments and restatements;
  • comply with Part III, Chapter 16: Mezzanine Financing and Preferred Equity, Section 1602: Preferred Equity if the organizational documents provide any investor having a direct or indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. with:
    • unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners; or
    • the right to, directly or indirectly, force a
      • sale 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). ,
      • transfer of the direct or indirect ownership interests in the BorrowerBorrowerPerson who is the obligor per the Note. , or
      • transfer of the 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 BorrowerBorrowerPerson who is the obligor per the Note. , 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. , or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; and
  • identify:
    • as a 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 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). with control takeover rights per the Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. Checklist (Form 6441); and
    • PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… based on the aggregate of all direct and indirect ownership interests in the BorrowerBorrowerPerson who is the obligor per the Note. held per the following table.

If the Borrower (or the Person owning an interest in the Borrower) is a...

Then a Principal is...

General Partnership or Joint Venture

any general partner or joint venturer.

Limited Partnership
  • all general partners;
  • 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). who owns, directly or indirectly, an aggregate 25% or more limited partnership interest in the BorrowerBorrowerPerson who is the obligor per the Note. through any single limited partner; and
  • 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). who owns, directly or indirectly, an aggregate 25% or more limited partnership interest in the BorrowerBorrowerPerson who is the obligor per the Note. through multiple limited partners.

Privately-Held Corporation

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). who owns 25% or more of the voting stock in the BorrowerBorrowerPerson who is the obligor per the Note. .

Limited Liability Company
  • all non-member managers or member-managers;
  • 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). who owns, directly or indirectly, an aggregate 25% or more membership interest in the BorrowerBorrowerPerson who is the obligor per the Note. through any single member; and
  • 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). who owns, directly or indirectly, an aggregate 25% or more membership interest in the BorrowerBorrowerPerson who is the obligor per the Note. through multiple members.
Co-Tenant Borrower 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). who owns, directly or indirectly, a 25% or more ownership interest in each co-tenant.

Trust (other than a Land Trust)
  • the grantor (if the trust is a revocable trust or if the grantor or settlor has retained powers); 
  • 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). who has a 25% or more beneficial interest in the trust; and
  • any trustee.

Land Trust

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). who has

 

  • the power of direction, and
  • a 25% or more beneficial ownership interest in the land trust.

Guidance

For example:  BorrowerBorrowerPerson who is the obligor per the Note. ABC Apartments, LLC has the following ownership structure:

Equity Owner Role Direct Ownership % in Borrower Member Equity Owner and % Interest Aggregate Indirect Ownership % in Borrower
ABC Reality, LLC Managing Member 1% John Doe - 100% 1%
Member A, LLC Non-managing Member 19.80% Bob Smith - 50% 9.9%
Others - 50% 9.9%
Member B, LLC Non-managing Member 19.80% Bob Smith - 50% 9.9%
Others - 50% 9.9%
Member C, LLC Non-managing Member 19.80% Bob Smith - 20% 3.96%
XYZ Owner, LP - 80% 15.84%
Member D, LLC Non-managing Member 19.80% Bob Smith - 50% 9.9%
Sally White - 50% 9.9%
Member E, LLC Non-managing Member 19.80% Bob Smith - 50% 9.9%
Others - 50% 9.9%

In addition, the ownership interest of XYZ Owner, LP is:

Equity Owner Role Direct Ownership % in XYZ Owner, LP Aggregate Indirect Ownership % in Borrower
987 Investor, LLC General Partner 1% 0.16%
Sally White Limited Partner 99% 15.68%

You must identify and underwrite:

  • Bob Smith as a PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… of ABC Realty based on his aggregate 43.56% indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. ; and
  • Sally White as a PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… of ABC Realty based on her aggregate 25.58% indirect ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. .

It is immaterial that:

  • neither Bob Smith nor Sally White has any direct ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. or the managing member of the BorrowerBorrowerPerson who is the obligor per the Note. ; and
  • none of the non-managing members of the BorrowerBorrowerPerson who is the obligor per the Note. owns greater than the 25% direct interest in the BorrowerBorrowerPerson who is the obligor per the Note. that would qualify for being identified as a PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,….
303.02

Entity Review

Guidance

When you review an entity, consider the following questions:

  • If it is an existing entity (e.g., a corporation, limited liability company, limited liability partnership, or other acceptable structure) that is not newly formed, does it comply with the requirements for a BorrowerBorrowerPerson who is the obligor per the Note. owning more than a single asset per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 302.01: Single-Asset Entity?
  • Is it a well-capitalized, stable, ongoing business that would be expected to:
    • Remain financially healthy?
    • Support 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). ?
    • Meet all GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. requirements and obligations under the GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. ?
    • Have assets and net worth that are significantly greater than what would be minimally acceptable for an individual 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. ?
303.03

Fund Review

Guidance

When you review a fund, consider the following questions:

  • What is the experience and performance history of the fund manager with similar funds?
  • Can the fund raise equity from financially substantial investors?
  • What is the performance of the fund?
  • What is the leverage level of the fund?
  • What is the net worth and liquidity of the fund?
  • What is the type and quality 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 market,
    • other existing properties and markets, and
    • any potential additional properties and markets targeted by the fund pursuant to its agreements?

Additionally, you should review the organizational documents and private placement memorandum (if applicable) for the following information:

  • the fund’s expiration date;
  • any extension to the fund’s existence and conditions to approve that extension; and
  • the process for winding up the business affairs of the fund, including whether the fund is organized in a state that requires the orderly dissolution of investment funds, such as Delaware or Illinois.
Section 304

Limited Experience Owner

Requirements

You must determine if any SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , 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. , or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. is a Limited Experienced OwnerLimited Experienced OwnerAny Sponsor, Key Principal, or Guarantor who has either: never obtained a prior Fannie Mae multifamily Mortgage Loan; or during the last 10 years, not owned a Controlling Interest in one or more multifamily properties for at least: 5 consecutive years; or 2 consecutive years if the….

To determine if a Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. is a Limited Experienced OwnerLimited Experienced OwnerAny Sponsor, Key Principal, or Guarantor who has either: never obtained a prior Fannie Mae multifamily Mortgage Loan; or during the last 10 years, not owned a Controlling Interest in one or more multifamily properties for at least: 5 consecutive years; or 2 consecutive years if the…, you:

  • must analyze the 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). named as the co-tenant representative per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 302.02: Co-Tenant Borrowers; and
  • may exclude from the analysis any:
    • passive Tenant in Common Member, who is solely named a 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. to comply with Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 302.02: Co-Tenant Borrowers; or
    • BorrowerBorrowerPerson who is the obligor per the Note. whose 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. is owned by a 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. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. that does not meet the definition of a Limited Experienced OwnerLimited Experienced OwnerAny Sponsor, Key Principal, or Guarantor who has either: never obtained a prior Fannie Mae multifamily Mortgage Loan; or during the last 10 years, not owned a Controlling Interest in one or more multifamily properties for at least: 5 consecutive years; or 2 consecutive years if the….

For each Limited Experienced OwnerLimited Experienced OwnerAny Sponsor, Key Principal, or Guarantor who has either: never obtained a prior Fannie Mae multifamily Mortgage Loan; or during the last 10 years, not owned a Controlling Interest in one or more multifamily properties for at least: 5 consecutive years; or 2 consecutive years if the…:

  • verify the identity of the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). and each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , 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). who owns 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 BorrowerBorrowerPerson who is the obligor per the Note. , using a current
    • driver’s license or passport,
    • personal residence, and
    • business address (not a P.O. Box); 
  • ensure your Credit Underwriting or Screening team meets, in person or virtually, each individual:
    • identified as, or on behalf of, the 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. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; or
    • who owns, directly or indirectly, 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 BorrowerBorrowerPerson who is the obligor per the Note. ,
      • 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. , or
      • any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ;
  • for any individual identified as a 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. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or who owns 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 BorrowerBorrowerPerson who is the obligor per the Note. , 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. , or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. :
    • obtain a resume; and
    • verify employment history using
      • a Lexis-Nexis report, or
      • other industry standard background reporting tool;
  • review, for each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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). who owns 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 BorrowerBorrowerPerson who is the obligor per the Note. , their:
    • investment profile;
    • business goals; and
    • primary sources of income, which must be consistent with business activities;
  • obtain evidence of the origin of transaction funds for
    • an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , or
    • cash-in refinances requiring the BorrowerBorrowerPerson who is the obligor per the Note. to deposit additional funds at closing; and
  • determine any appropriate adjustments to the reported liquidity and net worth of the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). and each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , including:
    • verifying liquidity based on 3 consecutive months of bank or brokerage statements for accounts (a bank or brokerage letter alone is insufficient to verify liquidity); and
    • using best efforts to verify the value (including ownership interest and debt outstanding) of all real estate owned, directly or indirectly, using
      • K-1 statements,
      • CoStar or similar service, or
      • mortgage loan verification from other creditors.

Guidance

You should consider if the additional underwriting requirements are appropriate for any BorrowerBorrowerPerson who is the obligor per the Note. , SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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. with whom you have never originated a multifamily 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. , even if they are not a Limited Experienced OwnerLimited Experienced OwnerAny Sponsor, Key Principal, or Guarantor who has either: never obtained a prior Fannie Mae multifamily Mortgage Loan; or during the last 10 years, not owned a Controlling Interest in one or more multifamily properties for at least: 5 consecutive years; or 2 consecutive years if the….

Section 305

Financial Statements

Requirements

You must:

For all financial statements, you must collect:

  • a list of all other assets, including
    • notes receivable from related entities, and
    • an estimate of the market value of each asset with the basis for calculating value estimates; and
  • all liabilities and contingent liabilities, including
    • debts under lines or letters of credit,
    • personal guaranties,
    • unmet obligations to partnerships or other entities, and
    • other future obligations, with their amount and timing.

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. , you must determine any:

  • appropriate adjustments to the reported net worth and liquidity of the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). and each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; and
  • other factors that may impact the party’s financial position immediately or 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. (including any known threat of potential lawsuits that may arise from the parties’ business operations).
Section 306

Schedule of Real Estate Owned (SREO)

Requirements

You must:

  • obtain an SREOSREOCertified document listing all real estate equity interests the Person owns. by the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. and GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. for all real estate assets, including:
    • lender;
    • address;
    • whether the loan is fixed or variable rate;
    • amortizing 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. ;
    • Loan-to-Value RatioLoan-to-Value RatioRatio 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.  ;
    • acquisition year;
    • acquisition price;
    • current market value;
    • ownership percentage; and
    • maturity date; and
  • fully analyze:
    • the SREOSREOCertified document listing all real estate equity interests the Person owns. , including non-multifamily properties;
    • your identification and mitigation of underperforming properties;
    • upcoming maturities; and
    • recourse debt.
Section 307

Certifications
307.01

Multifamily Underwriting Certificate (Form 6460)

Requirements

You must:

  • obtain the appropriate Multifamily Underwriting CertificateMultifamily Underwriting CertificateMultifamily Underwriting Certificate (Form 6460 series) , and/or other agreement approved by Fannie Mae that provides underwriting information for a Mortgage Loan. (Form 6460) from
    • the BorrowerBorrowerPerson who is the obligor per the Note. ,
    • any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and
    • each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ; and
  • retain a copy of each Form 6460 in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. . 

You must ensure the Form 6460: 

  • is signed and certified as
    •  true,
    • correct, and
    • complete;
  • has all corresponding financial documents attached;
  • includes representations by the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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. that, to their knowledge, all
    •  financial statements and schedules
      •   are dated within 15 months of the certification date,
      •   were prepared by the BorrowerBorrowerPerson who is the obligor per the Note. , GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or 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. or their independent accounting firm,
      •   are true, correct, and provide a current and accurate account of the financial condition 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). ,
        • BorrowerBorrowerPerson who is the obligor per the Note. ,
        • Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and
        • GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; and   
    •  PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). condition information provided to you or to the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. is correct as of the date provided; and
  • either:
    • is dated within 90 days before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ; or
    • includes a certification of no material adverse changes to the financial condition shown in the financial statements delivered per the Form 6460    from each of the
      • BorrowerBorrowerPerson who is the obligor per the Note. , 
      • Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and
      • GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .
307.02

Brokered Transaction Certifications

Requirements

For any Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower.  A Brokered Transaction does not include using an investment sale broker retained solely…, you must ensure the BorrowerBorrowerPerson who is the obligor per the Note. , all Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and any GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. directly deliver all:

  • financial statements and schedules to you, including:
    • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). rent rolls;
    • Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. schedules;
    • 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;
    • BorrowerBorrowerPerson who is the obligor per the Note. financial statements; and
    • other related documents; and
  • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). condition information to you or the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. , including:
    • inspection records;
    • maintenance records;
    • pre-site visit questionnaire;
    • capital improvement plans; and
    • other relevant information.

For any Brokered TransactionBrokered TransactionAny Mortgage Loan sourced by you using a third party (e.g., a Mortgage Loan Broker or Correspondent) for which the third party receives a referral or other similar fee paid by you or on behalf of the Borrower.  A Brokered Transaction does not include using an investment sale broker retained solely…, you must certify in your Transaction Approval Memo that you directly, not through a BrokerBrokerThird-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 Correspondent:

  • obtained and reviewed all underwriting source documents from the
    • SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). /BorrowerBorrowerPerson who is the obligor per the Note. ,
    • Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , and
    • GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ;
  • underwrote 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. ;
  • engaged all third-party reports/consultants; and
  • entered accurate and complete BrokerBrokerThird-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 Correspondent information into
    • 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. , and
    • acquisition systems.
Section 308

Fraudulent Conveyance

Requirements

You must not obtain a CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. 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. if you believe that the BorrowerBorrowerPerson who is the obligor per the Note. , Key PrincipalsKey PrincipalsPerson 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. , PrincipalsPrincipalsPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or GuarantorsGuarantorsKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. intend to delay, hinder, or defraud creditors.

Guidance

To show that you have made 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 good faith, consider the following questions:

  • Have you carefully reviewed the facts so that you have a clear defense to potential fraudulent conveyance or fraudulent transfer claims?
  • Have you obtained a Form 6460 that confirms the Borrower’sBorrower’sPerson who is the obligor per the Note. good faith?
Section 309

Applicant Experience Check

Requirements

For all 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. applications and any Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. , you must:

  • perform an ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application.  per the timing below for
    • the BorrowerBorrowerPerson who is the obligor per the Note. ,
    • each Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ,
    • each PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…,
    • each GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , and
    • 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). who owns 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 an entity
      • 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. , or
      • GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ; and
  • receive a "You can proceed" response.
ACheck Timing
For all... You must perform an ACheck...
  • Mortgage Loans, and
  • Transfer/Assumptions
  • upon accepting a signed application;
  • within 1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before 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. ;
  • within 3 Business DaysBusiness DaysAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
  • within 1 Business DayBusiness DayAny day other than a Saturday, Sunday, day when Fannie Mae is closed, day when the Federal Reserve Bank of New York is closed, or for any MBS and required remittance withdrawal, day when the Federal Reserve Bank is closed in the district where any of the MBS funds are held. before 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. .

Guidance

For any extended 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. (e.g., 180 days), you should consider performing an additional ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. between 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. and 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. .

Operating Procedures

The ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. application is available at https://multifamily.fanniemae.com/applications-technology/acheck.

ACheck Frequently Asked Questions
Question Answer
What information do you need to perform an ACheck?

The applicant’s

 

  • tax identification number, or
  • Social Security number.
How do you view ACheck results?

The ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. application will immediately respond either

 

  • “You can proceed”, or
  • “Do not continue processing”.
What must you do if you receive a "You can proceed" response?

For each applicant, you must:

 

  • receive a “You can proceed” response to proceed with 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. application;
  • complete full credit underwriting; and
  • not interpret this ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. response to mean the applicant is approved.
What must you do if you receive a "Do not continue processing" response?

If the ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. response is “Do not continue processing the transaction involving this applicant” (or similar wording), you must:

 

  • comply with all ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. instructions; and
  • not proceed with the application by omitting any BorrowerBorrowerPerson who is the obligor per the Note. , 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. , PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. who received a “Do Not Process” response.
What about confidentiality? 
  • Fannie Mae will not provide any information regarding a “Do not continue processing” response for a particular
    • BorrowerBorrowerPerson who is the obligor per the Note. ,
    • 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. ,
    • PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or
    • GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .
  • You must establish procedures ensuring all ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheckTM application. responses remain confidential.
Section 310

Compliance

Requirements

You must:

  • unless you are subject to, and complying with, the Bank Secrecy ActBank Secrecy ActFinancial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (31 U.S.C. 5311 et seq.). , establish and maintain effective procedures and controls (including employee training), similar to those required by the Bank Secrecy ActBank Secrecy ActFinancial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (31 U.S.C. 5311 et seq.). , to prevent, identify, and report potential:
    • mortgage fraud; and
    • other suspicious activity; and
  • confirm every BorrowerBorrowerPerson who is the obligor per the Note. , 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. , PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. is not a Blocked PersonBlocked PersonAny Person who is: on the FHFA SCP List; sanctioned or blocked by OFAC; or identified on: HUD's “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List”; or General Services Administration’s “System for Award Management (SAM) exclusion list”….

Operating Procedures

If you identify Potential Red Flags for Mortgage Fraud and Other Suspicious Activity:

  1. Do not inform the BorrowerBorrowerPerson who is the obligor per the Note. , any 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…, 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. , PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .
  2. Evaluate the red flags to determine if a plausible business explanation exists.
  3. Immediately report any unresolved red flags indicative of mortgage fraud or other suspicious activity to:
  4. Maintain all documentation relating to the potential mortgage fraud or other suspicious activity.
  5. Promptly provide all related documentation to Fannie Mae upon request.
  6. Do not provide any information to Fannie Mae that would indicate whether you have filed a Suspicious Activity ReportSuspicious Activity ReportReport made by a financial institution to the Financial Crimes Enforcement Network (FinCEN), regarding suspicious or potentially suspicious activity. (SAR) with the Financial Crimes Enforcement Network (FinCEN).

If you identify any BorrowerBorrowerPerson who is the obligor per the Note. , 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. , PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,…, or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. as a Blocked PersonBlocked PersonAny Person who is: on the FHFA SCP List; sanctioned or blocked by OFAC; or identified on: HUD's “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List”; or General Services Administration’s “System for Award Management (SAM) exclusion list”…:

  1. Report the Blocked PersonBlocked PersonAny Person who is: on the FHFA SCP List; sanctioned or blocked by OFAC; or identified on: HUD's “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List”; or General Services Administration’s “System for Award Management (SAM) exclusion list”… to Lender Assessment OversightLender Assessment OversightTeam that can be contacted at [email protected]. within 24 hours.
  2. Maintain all documentation relating to your searches.
  3. Promptly provide all related documentation to Fannie Mae upon request.
  4. Do not
  • 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. the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. , or
  • proceed with 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. by omitting 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).  that is a Blocked PersonBlocked PersonAny Person who is: on the FHFA SCP List; sanctioned or blocked by OFAC; or identified on: HUD's “Limited Denial of Participation, HUD Funding Disqualifications and Voluntary Abstentions List”; or General Services Administration’s “System for Award Management (SAM) exclusion list”….
Section 311

Execution of Non-Recourse Guaranty

Requirements

You must obtain a Non-Recourse GuarantyNon-Recourse GuarantyGuaranty executed by a Key Principal on Form 4501 series or Form 6015 series, or approved by Fannie Mae. from a 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. (the GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ) 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. that has:

  • an 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… less than
    • 1.35 for fixed rate, or
    • 1.10 for variable rate; or
  • an 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.   greater than 65%.

You do not need to obtain a Non-Recourse GuarantyNon-Recourse GuarantyGuaranty executed by a Key Principal on Form 4501 series or Form 6015 series, or approved by Fannie Mae. if the

  • BorrowerBorrowerPerson who is the obligor per the Note. is a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. , or
  • 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. (who would otherwise be the GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ) is a publicly traded entity.
Section 312

Conflict Mortgage Loans
312.01

Description

Requirements

Conflict Mortgage Loan Type

Conflict Mortgage Loan
  • 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. in which:
    • you, or any of your LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. AffiliatesAffiliatesWhen 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… or Lender Senior ExecutivesLender Senior ExecutivesFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance…
      • owns (or will own) any direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. , or
      • directly or indirectly controls the BorrowerBorrowerPerson who is the obligor per the Note. ; or
    • any of your employees, or a group of your employees, owns (or will own) more than a 5% direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. .
  • 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. with DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. .

 

Any equity interest you acquire in the BorrowerBorrowerPerson who is the obligor per the Note. relating solely to obtaining the associated LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. is not considered when determining if 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. is a Conflict Mortgage Loan (see Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 709: LIHTC Properties – Lender Equity Interest).
Prohibited Conflict Mortgage Loan

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. in which:

 

  • you or any single Lender Senior ExecutiveLender Senior ExecutiveFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance… of yours owns more than a 5% direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. ; 
  • any group of your Lender Senior ExecutivesLender Senior ExecutivesFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance… together owns more than a 10% direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. ; or
  • you or any of your LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. AffiliatesAffiliatesWhen 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… is 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). manager.
Controlling Conflict Mortgage Loan

Any Conflict Mortgage Loan where:

 

  • you
    • can (other than through the exercise of a lender's rights and remedies under the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. ) require changes to the management, operations, or decision-making of the BorrowerBorrowerPerson who is the obligor per the Note. , the 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 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). holding 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 BorrowerBorrowerPerson who is the obligor per the Note. or 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. , or any PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , or
    • own any Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. in the BorrowerBorrowerPerson who is the obligor per the Note. ; 
  • any of your LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. AffiliatesAffiliatesWhen 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… or any employees or any group of employees of yours or any of your LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. AffiliatesAffiliatesWhen 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…
    • can require changes to the management, operations, or decision-making of the BorrowerBorrowerPerson who is the obligor per the Note. , the 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 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). holding 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 BorrowerBorrowerPerson who is the obligor per the Note. or 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. , or any PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. , 
    • individually or together own a 25% direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. or in 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). holding 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 BorrowerBorrowerPerson who is the obligor per the Note. at or after loan origination (including any interest acquired as part of a Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. ), 
    • own any Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. in the BorrowerBorrowerPerson who is the obligor per the Note. , or
    • exercises rights under DLA Mezzanine FinancingDLA Mezzanine FinancingMezzanine Financing provided by an approved mezzanine lending affiliate of a DUS Lender. that results in a Controlling Conflict Mortgage Loan under these requirements; or
  • any of your Lender Senior ExecutivesLender Senior ExecutivesFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance… owns any direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. .

You must not

  • 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 Prohibited Conflict Mortgage Loan, or
  • cause any Portfolio Mortgage LoanPortfolio Mortgage LoanMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. to become a Prohibited Conflict Mortgage Loan.
312.02

Restrictions
312.02A

Underwriting

Requirements

You must ensure that no LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. employee or other person involved in Conflict Mortgage Loan underwriting and approval owns any direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. .

You must include the following in your Transaction Approval Memo:

  • the amount of any direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. owned by any Lender Senior ExecutiveLender Senior ExecutiveFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance…, other LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. employee or group of employees; and
  • answers to the following questions, including an explanation if your answer to a question is yes:
    • Does any Lender Senior ExecutiveLender Senior ExecutiveFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance…, other LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. employee or group of employees, or any person who participated in the underwriting or approval 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. , own any direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. ?
    • Can any Lender Senior ExecutiveLender Senior ExecutiveFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance…, other LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. employee or group of employees, or any person who participated in the underwriting or approval 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. , require changes to the management, operations, or decision-making of the BorrowerBorrowerPerson who is the obligor per the Note. ?

In addition, your underwriting submission must include:

  • copies of the Borrower'sBorrower'sPerson who is the obligor per the Note. organizational documents and financial statements;
  • copies of all organizational documents and financial statements for any Lender AffiliateLender AffiliateOther Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. that holds a direct or indirect equity ownership interest in the BorrowerBorrowerPerson who is the obligor per the Note. ; and
  • an organizational chart or diagram showing the:
    • Borrower'sBorrower'sPerson who is the obligor per the Note. complete ownership structure;
    • relationship among the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. , BorrowerBorrowerPerson who is the obligor per the Note. , and applicable Lender AffiliateLender AffiliateOther Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. ; and
    • percentage ownership of each entity.

Operating Procedures

You must designate 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. as a Conflict Mortgage Loan in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. .

312.02B

Servicing

Requirements

As ServicerServicerPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. of a Controlling Conflict Mortgage Loan, you must not

  • participate in loss mitigation or special asset management decisions if it becomes a Non-Performing Mortgage LoanNon-Performing Mortgage LoanMortgage Loan with an uncured default. , or
  • be notified of, or participate in, any negotiations or communications between Fannie Mae and the BorrowerBorrowerPerson who is the obligor per the Note. , 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. , or PrincipalPrincipalPerson who owns or controls, in the aggregate, directly or indirectly (together with that Person's Immediate Family Members, if an individual), specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals,… (or any 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… of any of them).

Fannie Mae will make reasonable efforts to provide copies of written communications between Fannie Mae and other parties.

These servicing restrictions apply as long as 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. is considered a Controlling Conflict Mortgage Loan.

Operating Procedures

  1. Fannie Mae has sole discretion to decide what action, if any, to take regarding any Controlling Conflict Mortgage Loan, any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). securing a Controlling Conflict Mortgage Loan, or any BorrowerBorrowerPerson who is the obligor per the Note. or GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. .
  2. If Fannie Mae decides that a Controlling Conflict Mortgage Loan has a material risk of default or other characteristics of increased risk, it can
    • designate a substitute servicer or subservicer, or
    • terminate (with or without cause) your right to service 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. .
  3. Fannie Mae will comply with the Program Rules Part 3 Sections B and C relating to Fannie Mae initiated servicing transfers.  After servicing is transferred, you will retain your loss sharing obligation.
312.02C

No First Right of Refusal

Requirements

You will not have any First Right of Refusal to purchase 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). that secured a Conflict Mortgage Loan, even if the Loss Sharing Addendum to the MSSAMSSAProgram Documents per the Multifamily Selling and Servicing Agreement. grants you this right.

312.02D

Additional Disclosure

Operating Procedures

For an MBSMBSMortgage-Backed Security backed by a Conflict Mortgage Loan, you must indicate in C&DC&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system.

  • that additional disclosure is required, and
  • whether it is the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. , a Lender AffiliateLender AffiliateOther Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. , a Lender Senior ExecutiveLender Senior ExecutiveFor any Lender any:   a.  senior executive officer serving as its president, chief executive officer, chief financial officer, chief operating officer, chief production officer, chief underwriter, chief asset manager, chief legal officer, chief information security officer, chief compliance…, a LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. employee, or group of employees who has 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. or a non-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. .
312.02E

Notifications

Requirements

If, after delivering 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. , it becomes a Conflict Mortgage Loan, you must deliver all materials described in this Section to Multifamily Asset ManagementMultifamily Asset ManagementTeam that can be contacted at [email protected]. within 30 days after acquiring each equity interest.