Chapter 7

Variable Rate Conversions and Renewals

Section 701

Conversion Process

Requirements

For a Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 originated using Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! form Loan Documents Loan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. that automatically converts to a variable rate or a fixed rate per the Loan Documents Loan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , you must comply with the Loan Documents Loan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .

For a Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 originated using non-Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! form Loan Documents Loan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. with a conversion option or other interest rate change (automatic or otherwise), you must

 You must use the following table to determine the conversion process.

For conversion of... You must...
An ARM Loan or a SARM Loan to fixed rate Comply with this Chapter.
A variable rate Mortgage Loan in a Structured Transaction to fixed rate Comply with  Part IV, Chapter 2: Rate Lock and Committing .
A Hybrid ARM Loan to the adjustable rate term Comply with  Part III, Chapter 12: Hybrid Adjustable Rate Mortgage (Hybrid ARM) Loans .
A variable rate Credit Enhancement Mortgage Loan to fixed rate Comply with Part III, Chapter 18: Bond Transactions and Credit Enhancement Mortgage Loans .

Guidance

For information about the ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. and SARM Loan conversion process, refer to Frequently Asked Questions (FAQs) Exercising the Fixed Rate Conversion Option for an Adjustable Rate Mortgage Loan (ARM Loan) or a Structured ARM Loan (SARM Loan) .

Section 702

ARM Loan and SARM Loan Conversions
702.01

Governing Documents

Requirements

For interest rate conversions, you must comply with the following documents and order of priority:

  • Interest Rate Conversion Agreement Interest Rate Conversion AgreementDocument describing the terms and conditions when a Mortgage Loan interest rate may convert from an adjustable rate to a fixed rate. ;
  • Loan Documents Loan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. ; and
  • this Chapter.
702.02

Minimum Conversion Debt Service Ratio

Requirements

To convert... You must...
A Mortgage Loan to a fixed rate Confirm the Minimum Conversion Debt Service Ratio (per the Interest Rate Conversion Agreement Interest Rate Conversion AgreementDocument describing the terms and conditions when a Mortgage Loan interest rate may convert from an adjustable rate to a fixed rate. ) is met.
A Supplemental Mortgage Loan to a fixed rate

Confirm the Minimum Conversion Debt Service Ratio is met using the sum of

 

  • the current annual combined debt service of all Pre-Existing Mortgage Loans Pre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. (using the maximum interest rate for any variable rate Pre-Existing Mortgage Loan Pre-Existing Mortgage LoanMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. ), plus
  • the annual debt service of the converted fixed rate Supplemental Mortgage Loan Supplemental Mortgage LoanMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. .
702.03

Conversion Criteria

Requirements

You must comply with the following table.

Criteria You must...
DUS Gateway Enter delegated and non-delegated conversions in DUS Gateway DUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. .
Effective Date Ensure the conversion is effective on a payment date (i.e., the 1st day of the month).
Conversion Timeline
  • For an ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. , exercise the conversion
    • after the 1st Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. , and
    • up to, and including, the last day of the 5th Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. .
  • For a SARM Loan, exercise the conversion
    • after the 1st Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. , and
    • up to, and including, the 1st day of the 3rd month before the Maturity Date Maturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .
Loan Term

Convert to a fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 with a loan term

 

  • greater than or equal to 7 years, and
  • less than or equal to 10 years.
Underwriting

Underwrite the conversion as follows:

 

  • Base actual DSCR DSCROn 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. on the trailing 12-month period from the most recent supportable actual operations per the Borrower’s Borrower’sPerson who is the obligor per the Note. Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). financial statements.
  • Ensure actual DSCR DSCROn 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. meets the minimum required DSCR DSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. for a fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 at the same Pricing and Underwriting Tier Pricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the original ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan.
  • Comply with the Loan Documentation Requirements Loan Documentation RequirementsLoan Documents listed in Form 6000 applicable to the particular Mortgage Loan execution and/or product and features. ( Form 6000 ).
702.04

Guaranty Fee and Servicing Fee

Requirements

You must calculate the Gross Note Rate Gross Note RateInterest rate stated in the Loan Documents. using the current Guaranty Fee Guaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing Fee Servicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. for a fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 in effect at Rate Lock Rate 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. .

702.05

Interest-Only

Requirements

If an interest-only ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan converts during the interest-only period and the new loan term is less than the original term, you must ensure

  • the interest-only period does not carry over, and
  • fixed rate amortization begins immediately.

Guidance

If an interest-only ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan converts during the interest-only period and the new loan term is greater than or equal to the original term, you may allow the remaining interest-only period to carry over to the fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 .

702.06

Fixed Rate Amortization

Requirements

You must comply with the following table.

For ARM Loans and SARM Loans with... The fixed rate amortization term will be...
Full-term interest-only 360 months.
  • Partial interest-only or amortization,
  • a fixed rate term greater than or equal to the original ARM Loan or SARM Loan term, and
  • a most recent Property Condition Rating of 1 or 2
 360 months.
Other characteristics

equal to

 

  • the original ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan amortization term (in months), minus
  • the number of monthly payments (P&I P&IPrincipal and interest or interest-only) since the Mortgage Loan Origination Date Mortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
702.07

Fixed Rate Debt Service Payments

Operating Procedures

To calculate the fixed rate monthly P&I P&IPrincipal and interest payments, you must:

  1. Determine the amount required to repay the Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 UPB UPBUnpaid Principal Balance .
  2. Divide the amount into equal monthly installments.
  3. Include interest accrued at the fixed rate over the amortization term per Part IV, Chapter 7: Variable Rate Conversions and Renewals, Section 702.06: Fixed Rate Amortization .
  4. Use a 30/360 interest accrual method, regardless of whether the Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 uses a 30/360 or an actual/360 interest accrual method.
702.08

Fixed Rate MBS Trade Premium

Requirements

For premiums on fixed rate MBS MBSMortgage-Backed Security trades, you must comply with the Pricing Memo Pricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. .

702.09

New Property Condition Assessment (PCA)

Requirements

For any non-MAH Property MAH PropertyProperty that: complies with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702: MAH Property Eligibility; and is underwritten per Part III, Chapter 7: Multifamily Affordable Housing Properties. , you must obtain a new full PCA PCAAssessment of the Property's physical condition and historical operation. per  Form 4099  if the conversion extends the term of the fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 beyond the original term of the ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan.

You must obtain a full PCA PCAAssessment of the Property's physical condition and historical operation. every 5 years for an MAH Property MAH PropertyProperty that: complies with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702: MAH Property Eligibility; and is underwritten per Part III, Chapter 7: Multifamily Affordable Housing Properties. per  Part V, Chapter 4: Asset Management: Loan Document Administration, Section 408.04E: New Property Condition Assessments .

You must obtain the PCA PCAAssessment of the Property's physical condition and historical operation. by the earlier of

  • the final Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. of the ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan if it had not been converted, or
  • Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 10.
Section 703

Commitment and Delivery
703.01

Rate Lock and Commitment

Operating Procedures

When you receive the Borrower’s Borrower’sPerson who is the obligor per the Note. conversion notice for an ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or a SARM Loan:

  • Perform your standard due diligence before obtaining a Rate Lock Rate 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. .
  • Ensure the quoted fixed rate is less than or equal to the maximum fixed rate used to determine Net Cash Flow Net Cash FlowAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. .
  • Rate Lock Rate 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. with the Borrower BorrowerPerson who is the obligor per the Note. for the quoted fixed rate by the 10th day of the month before the Conversion Date.
  • Submit your Commitment CommitmentContractual 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. request in:
    • DUS Gateway DUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. for a Credit Facility Credit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. ; or
    • C&D C&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. for any other transaction.
  • Obtain a confirmed Commitment CommitmentContractual 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 the fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 .
703.02

Conversion Delivery
703.02A

Deliver Loan Document Amendments

Operating Procedures

Step 1:  Execute and deliver the Rate Conversion Amendment.

  • Obtain the Borrower's Borrower'sPerson who is the obligor per the Note. signature on the Rate Conversion Amendment. 
  • If you have a Limited Power of Attorney Limited Power of AttorneyLegal document authorizing a Servicer to execute certain Loan Documents related to the asset management of a Mortgage Loan as attorney-in-fact on behalf of Fannie Mae. with Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! (per  Part V, Chapter 4: Asset Management: Loan Document Administration, Section 403: Execution of Documents by Servicer – Limited Power of Attorney ), you must
    • execute the Rate Conversion Amendment as Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! ’s attorney-in-fact, and
    • include the executed document in the Mortgage Loan Delivery Package Mortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. .
  • If you do not have a Limited Power of Attorney Limited Power of AttorneyLegal document authorizing a Servicer to execute certain Loan Documents related to the asset management of a Mortgage Loan as attorney-in-fact on behalf of Fannie Mae. , you must:
    • deliver the Rate Conversion Amendment to Multifamily Acquisitions Multifamily AcquisitionsTeam that can be contacted at [email protected]. who will execute and retain the original with the Mortgage Loan Delivery Package Mortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. ; and
    • retain the returned, executed copy in your Servicing File Servicing FileYour file for each Mortgage Loan serviced. .

Step 2:  Determine if state law requires a Security Instrument Security InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. amendment for a change in the Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 Maturity Date Maturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. .

If an amendment is needed, you must:

703.02B

Deliver Mortgage Loan Delivery Package

Operating Procedures

Step 1:  Prepare the Mortgage Loan Delivery Package Mortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. , including all documents listed in Form 6000 as “Required upon Conversion” for an ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or a SARM Loan.

Step 2:  Deliver DeliverSubmission 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 Loan Delivery Package Mortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. to Multifamily Certification and Custody Multifamily Certification and CustodyTeam responsible for taking custody of and certifying Mortgage Loans that can be contacted at  [email protected], (800) 940-4646, or for submissions:  Fannie Mae (Multifamily) Certification and Custody 21240 Ridgetop Circle Suite 125-130 Sterling, VA  20166.

  • within 10 days after receiving the confirmed Commitment CommitmentContractual 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. , and
  • by the Delivery DeliverySubmission 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. deadline.

Step 3:  Deliver DeliverSubmission 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 data and documents for:

  • Credit Facilities Credit FacilitiesStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. per  Part IV, Chapter 6: Structured Transactions, Section 604: Delivery ; and
  • C&D C&DElectronic committing and delivery system used for issuing and confirming Commitments for acquiring Mortgage Loans, or any such successor system. Mortgage Loans Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 per  Part IV, Chapter 4: Delivery .

Step 4:  Upload  Form 4662 and relevant underwriting due diligence to DUS DUSDelegated Underwriting and Servicing DocWay DocWayBusiness-to-business electronic documentation delivery application, or any successor system. .

703.03

Conversion Activities

Operating Procedures

You must coordinate with Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! to ensure the following conversion activities occur.

You must... Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! will...
  • Issue a new fixed rate MBS Pool after completing the conversion process.
  • Deliver the converted fixed rate Mortgage Loan to Fannie Mae under the new confirmed Commitment.
  • Ensure the MBS trade has a Book-Entry Date no later than:
    • the 17th day of the month of the Conversion Effective Date for an MBS ARM Loan or SARM Loan; or
    • the 10th day of the month of the Conversion Effective Date for a Cash ARM Loan or SARM Loan.
  • Deposit the funds from the MBS trade into your applicable P&I Custodial Account. 
  • Issue the new fixed rate MBS MBSMortgage-Backed Security .
  • For a variable rate Cash Mortgage Loan Cash Mortgage LoanMortgage Loan purchased by Fannie Mae in exchange for cash. , place it into the MBS MBSMortgage-Backed Security trade assignment account.
  • Transfer the MBS MBSMortgage-Backed Security to the MBS Investor MBS InvestorFor MBS Mortgage Loans, either a Third Party MBS Investor for Lender-Arranged Sales, or the Multifamily Trading Desk. per your instruction on either the 10th or the 17th day of the month (as applicable) of the Conversion Effective Date.
703.04

Pay Off

Requirements

You must confirm, report, and remit funds to pay off the MBS MBSMortgage-Backed Security ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan.

Operating Procedures

  1. Request MBS MBSMortgage-Backed Security payoff amount verification by submitting your calculation in the Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! Payoff Calculator per Part V, Chapter 2: Reporting and Remitting, Section 210: Full Prepayments .
  2. Send the payoff amount to Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! per the standard monthly remittance process in Part V, Chapter 2: Reporting and Remitting .
  3. For an MBS MBSMortgage-Backed Security ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. or SARM Loan,
    • report a $0 balance for the MBS MBSMortgage-Backed Security on the 1st or 2nd day of the month in which the Conversion Effective Date occurs, and
    • Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! will draft the funds due to the MBS Investor MBS InvestorFor MBS Mortgage Loans, either a Third Party MBS Investor for Lender-Arranged Sales, or the Multifamily Trading Desk. .
Section 704

ARM 5/5 Optional 5-Year Adjustable Rate Term Renewal
704.01

Eligibility

Operating Procedures

To renew an ARM 5/5 Loan for a second 5-year adjustable rate term:

Timing before the initial Maturity Date You must...
At least 180 days
  • Notify Multifamily Asset Management Multifamily Asset ManagementTeam that can be contacted at [email protected]. that the ARM 5/5 Loan will be renewed for the second 5-year adjustable rate term.
  • Confirm the ARM 5/5 Loan complies with  Part III, Chapter 10: Adjustable Rate Mortgage (ARM) Loans, Section 1004: ARM 5/5 Loan Optional 5-Year Adjustable Rate Term Renewal Eligibility .
  • Include preliminary DSCR DSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. and LTV LTVRatio 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.  calculations.
  • Estimate the starting interest rate for the second 5-year adjustable rate term, including the new Investor InvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread.
At least 30 days

Provide Multifamily Asset Management Multifamily Asset ManagementTeam that can be contacted at [email protected]. with:

 

  • an updated ARM 5/5 Loan eligibility confirmation;
  • current DSCR DSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. and LTV LTVRatio 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.  calculations; and
  • an estimate of the starting interest rate for the second 5-year adjustable rate term, including the new Investor InvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread. 
704.02

Underwriting

 Requirements

If an ARM 5/5 Loan is renewed for an additional 5 years, you must:

  • Use the same Guaranty Fee Guaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing Fee Servicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. as the first 5-year adjustable rate term.
  • Adjust the Investor InvestorMBS Investor for an MBS Mortgage Loan, or Fannie Mae for a Cash Mortgage Loan. spread for the second 5-year adjustable rate term based on current market conditions.
  • Adjust the monthly Replacement Reserve Replacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. deposit to include required capital improvements during Loan Years Loan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 6 through 10, plus 2 additional years, per the original PCA Report PCA ReportProperty Condition Assessment Report documenting the findings of a PCA. .
  • Not charge a Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .
704.03

Prepayment Terms

 Requirements

If an ARM 5/5 Loan is renewed for an additional 5 years:

  • no voluntary prepayment will be permitted during the 6th Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. (i.e., the 1st Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. of the second 5-year adjustable rate term); and
  • the ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. may be prepaid after the 6th Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. with a 1% Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. , but no Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. is due
    • during the last 3 months of the loan term, or
    • if the ARM Loan ARM LoanMortgage Loan with an interest rate that periodically adjusts based on an Index per the Note or Loan Documents. converts to a fixed rate Mortgage Loan Mortgage 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. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 .

The following table describes various situations and the applicable prepayment provisions for the second 5-year adjustable rate term for an ARM 5/5 Loan; see  Part V, Chapter 2: Reporting and Remitting, Section 213: Prepayment Premium Sharing for Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. calculations and sharing between you and Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! .

Situation Prepayment Provisions
ARM 5/5 Loan is renewed for a second 5-year adjustable rate term. Borrower BorrowerPerson who is the obligor per the Note. does not owe a Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .
Borrower attempts to make a voluntary prepayment during the 6th Loan Year. Borrower BorrowerPerson who is the obligor per the Note. may not make a voluntary prepayment during the 6th Loan Year Loan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. (i.e., a voluntary prepayment is locked out).
ARM 5/5 Loan converts to a fixed rate Mortgage Loan after the 6th Loan Year. Borrower BorrowerPerson who is the obligor per the Note. does not owe a Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .
Borrower makes a voluntary prepayment after the 6th Loan Year and before the 3 months prior to the extended Maturity Date for any reason other than a casualty or condemnation. Borrower BorrowerPerson who is the obligor per the Note. owes a Prepayment Premium Prepayment PremiumFor a Mortgage Loan prepayment, amount the Borrower must pay in addition to the prepaid principal and accrued interest per the Loan Documents. .