Fannie Mae (FNMA) Multifamily Mortgages

 

ACF offers a wide variety apartment loans through a number of lenders, with the majority of our loans going to Fannie Mae. With access to over 150 wholesale loan programs, you'll find the most competitive interest rates and competitive closing costs at aclenders.com. Whether you are looking for long-term financing or a short term flip, we are here to help.

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The Federal National Mortgage Association (FNMA), commonly known as “Fannie Mae” offers federally guaranteed mortgages and is one of the largest multifamily loan programs in the country. Most FNMA apartment mortgages are non-recourse (except standard carve outs) and properties are underwritten using its Delegated Underwriting Services (DUS) program to make sure that lending parameters are met. Loan collateral may be traditional apartments, affordable housing, senior housing, student housing, and manufactured housing communities. Loan amounts start at $750,000 and go up with terms between 5-30 years and amortizations up to 30 years.Fannie offers both fixed and variable products for all property types and can go nationwide, although primary and large secondary markets are preferred (i.e. MSA populations of at least 200,000). There are 2 major FNMA programs under which the majority of the products fall:

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Standard DUS Mortgage: The Standard DUS product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, senior housing, student housing, and manufactured housing communities. Properties must have a minimum of five units (50 pad sites for manufactured housing) and the Borrower must be a single-asset U.S. entity with all U.S. principals. Borrowers may also have foreign ownership interests, subject to proper structuring of the borrowing entity. Minimum loan amount is $750,000. Maximum LTV is 80% for purchases and 75% for refinances with a minimum 1.25x DSCR requirement, but this will depend on the collateral.*

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* “Pre-Review” markets have a maximum LTV of 65% without a waiver granted by Fannie Mae.

Small Loan Program: The Small Loans product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, seniors housing, student housing, and manufactured housing communities. Properties must have a minimum of five units (50 pad sites for manufactured housing) and the Borrower must be a single-asset U.S. entity with all U.S. principals. Borrowers may also have foreign ownership interests, subject to proper structuring of the borrowing entity. Loan amount must be between $750,000 - $3 million ($5 million in eligible MSAs*). Maximum LTV is 80% for purchases and 75% for refinances with a minimum 1.25x DSCR requirement, but but this will depend on the collateral.**

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* Eligible MSAs include: Baltimore, Boston, Chicago, Los Angeles, New York, Sacramento, San Diego, San Francisco, San Jose, Seattle, and Washington DC.

** Unless in a “Pre-Review” market which has a maximum LTV of 65% without a waiver granted by Fannie Mae

Traditional Multifamily Housing

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Fixed-Rate Mortgage: The Fixed-Rate product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, seniors housing, student housing, and manufactured housing communities. Maximum LTV is 80% for purchases and 75% for refinances with a 1.25x DSCR requirement. Loan terms are from 5-15 years.

Overview

Term                                       5, 7, 9, 10, or 15 years. Affordable Housing mortgage loans and Bond Credit                                                   Enhancements have a minimum of 10 year term.

Amortization                         Up to 30 Years

Max LTV                                 80%

Min DSCR                              1.25x

Index                                     Applicable term constant maturity treasury.

Interest Rate                         Fixed and variable rate options

Rate Lock                              30- to 90-day commitments. An early rate lock feature is available allowing                                                     the borrower to lock a rate 45 to 180 days in advance of closing.

Prepayment Options            Yield maintenance and other graduated prepayment options. No                                                                      prepayment premium if loan paid within the last 90 days of the loan term.

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Structured Adjustable-Rate Mortgage: The Structured ARM product is for the purchase or refinance of existing, stabilized traditional and manufactured housing communities. Senior housing, student housing, and moderate rehabilitation mortgages may be eligible on a case-by-case basis. Affordable housing, bond credit enhancements and substantial rehabilitation are not eligible. The minimum loan amount is $25 million, maximum LTV is 75%, minimum DSCR is 1.0x and terms range from 5-10 years.

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Overview

Term                                       5, 7, 10 years

Amortization                         Up to 30 years, based on the property type. Amortization schedule is based                                                   on the current fixed-interest rate for a comparable maturity, set at closing. A                                                    level monthly principal payment is calculated using a straight-line accrual of                                                    the expected total amortization to be collected over the loan term.

Max LTV                                 75%

Min DSCR                            - 1.00x
                                             - DSCR is calculated based on a variable underwriting rate equal to the index,                                                  plus margin, plus the interest rate cap escrow (if the cap term is shorter than                                                  the loan term), plus 3%, converted to an amortizing constant.
                                             - Mortgage loan amount shall not exceed that of a fixed rate loan of similar                                                      terms.

Interest Rate                        - Interest rate adjusts based on changes to the underlying index and is equal                                                    to the index plus a margin, subject to periodic and/or lifetime caps as                                                              specified in the loan documents, but the interest rate shall never be less                                                          than the margin.
                                              - No limit on rate changes.

Interest Rate Cap                - Structured ARMs have no built-in periodic or lifetime caps. Instead, the                                                            borrower must purchase an interest rate cap from an approved interest rate                                                    cap provider.
                                              - The term of the initial interest rate cap need not be equal to the term of the                                                  mortgage loan, but must be for at least 5 years.
                                              - If the mortgage loan term is longer than the interest rate cap term, the                                                            borrower must escrow monthly for the purchase of the next interest rate cap.

Interest Rate Floor                The interest rate will always be greater than the margin.

Interest Rate                          Fixed and variable rate options

Accrual                                   Actual/360

Index                                      1-month or 3-month LIBOR.

Rate Lock                               30 to 90-day commitments. An early rate lock feature is available allowing                                                        the borrower to lock a rate 45 to 180 days in advance of closing.

Conversion to Fixed Rate     Loans have a conversion feature whereby the interest rate may be converted                                                  to a 7- or 10-year fixed-rate loan on any rate change date beginning with the                                                  first day of the second loan year and ending on the first day of the third                                                          month prior to maturity, provided the loan has not been delinquent during                                                    the previous 12 months and the borrower is not in default under any loan                                                        documents.
                                              - No prepayment penalty charged at the time the ARM converts to a fixed                                                        rate.
                                              - Minimal re-underwriting; lender determines that the current NOI can                                                              support the new fixed rate.
                                              - No increase in the loan amount; loan may be eligible for a Supplemental                                                        loan.
                                              - No change in guaranty or servicing fees when the loan converts.

Prepayment                       1. One-year lock-out, then declining prepayment premium; 4% second year, 3%                                                  third year, 2% fourth year, 1% thereafter.

                                           2. One-year lock-out followed by a 1% prepayment premium thereafter. No                                                        prepayment premium during the last 3 months of the loan term.

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Adjustable Rate Mortgage 7-6: The ARM 7-6 product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, seniors housing, student housing, and manufactured housing communities. Maximum LTV is 80% for purchases and 75% for refinances with a 1.00x DSCR requirement at the loan cap rate. Loan terms are 7 years with a 1 year lock-out period and a 1% prepayment premium thereafter.

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Overview

Term                                       7 years

Amortization                         Up to 30 years

Max LTV                                 80%

Min DSCR                            - 1.00x at the maximum lifetime interest rate.
                                             - Mortgage loan amount shall not exceed that of a fixed rate loan of similar                                                      terms.

Interest Rate                          Adjusts based the underlying index and is equal to the index plus a margin

Interest Rate Cap                - Maximum monthly interest rate adjustment of 1% up or down.
                                              - Maximum lifetime interest rate ceiling established at rate lock.

Interest Rate Floor                 The margin, which is the sum of the investor spread, the guaranty fee, and                                                       the servicing fee.

Accrual                                    Actual/360

Index                                       1-month LIBOR.

Rate Lock                                30 day commitments.

Conversion to Fixed Rate      Subject to the terms of the loan documents, the loan may be converted to a                                                   fixed-rate loan on any rate change date beginning on the first day of the                                                         second loan year and ending on the first day of the sixth loan year.
                                               - No prepayment premium is charged at the time that the Mortgage Loan                                                         converts.
                                               - Conversion requires minimal re-underwriting; lender determines that the                                                       current NOI can support the new fixed rate.
                                               - No increase in the loan amount; loan may be eligible for a Supplemental                                                        loan.
                                               - No change in guaranty or servicing fees when the loan converts.

Prepayment                             One-year lock-out followed by a 1% prepayment premium thereafter. No                                                        prepayment premium during the last 3 months of the loan term.

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M-PIRE Mortgage: The M-PIRE product provides first lien and supplemental mortgages for conventional, affordable and cooperative housing that support additional loan proceeds for energy and water efficiency renovations within New York City’s five boroughs. Properties must have a minimum of five units (50 pad sites for manufactured housing) and the Borrower must be a single-asset U.S. entity with all U.S. principals. Maximum LTV is 85% for purchases and 80% for refinances with a 1.20x DSCR requirement.

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Overview

Term                                        5, 7, and 10 years

Amortization                          30 years

Max LTV                                  The max LTV may be no more than 5 percent greater than the maximum                                                         allowable LTV ratio for that loan type and lender contract, as listed in Fannie                                                   Mae Multifamily Underwriting Standards.

Min DSCR                               Loans must underwrite to a DSCR no more than 5 basis points lower than                                                      standard underwriting guidelines when underwriting the loan with the                                                            additional loan proceeds but without the benefit of the reduced, projected                                                    energy and water cost savings.

Recourse Requirements        Standard recourse carve-outs apply.

Escrows                                   Replacement reserve, tax, and insurance escrows are typically required for                                                       higher leverage transactions.

Third-Party Reports              - Standard third-party reports including Appraisal, Phase 1 Environmental                                                         Assessment, and a Physical Needs Assessment are required.
                                               - The Physical Needs Assessment must include the new High Performance                                                         Building module, or an equivalent scope of work that meets the                                                                       requirements of the ASHRAE Level 2 audit.

Interest Rate and                    Fixed rate. 30/360 and Actual/360 accrual methods are available.

Accrual Method

Rate Lock                                Standard rate lock requirements apply.

Assumption                             Loans are typically assumable.

Prepayment Options             Yield maintenance and other graduated prepayment options are available.

Supplemental Loans              Supplemental M-PIRE loans can only be placed behind an existing Fannie                                                       Mae loan.

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Supplemental: The Supplemental Loans product is subordinate financing for properties with a pre-existing fixed or adjustable Fannie Mae Mortgage Loan that has been in place for a minimum of 12 months. Maximum LTV is 75% and minimum DSCR is 1.30x. New third party reports may not be required and early rate lock is available for a fee.

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Overview

Term                                          5-30 Years

Max LTV                                    75%

Min DSCR                                 1.30x

Rate Lock                                  30 to 90-day commitments. An Early Rate Lock feature is available allowing                                                     the borrower to lock a rate 45 to 180 days in advance of closing.

First Lien Seasoning                 Supplemental Loans are available 12 months after the closing of the                                                               previous lien.

Maturity                                     Supplemental Loans can be either coterminous with the underlying first                                                         trust, or non-coterminous.

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Choice Refinance Program: The Choice Refinance product is a streamlined refinance process with more limited documentation for existing DUS Cash or MBS mortgages to be refinanced by the same Lender. Properties must be stabilized and well-maintained and mortgages must be in good standing.

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Overview

Property                                  - Property Management: documentation requirements may be waived.
                                                 - Property Location and Certification: Borrower may certify that there has                                                           been no change in zoning affecting the property in lieu of full

                                                   underwriting.  However, if property has been rezoned the lender must                                                             address the change.

Third-Party Reports                - New Phase I Environmental Assessment may not be required.
                                                 - New appraisal required.
                                                 - New physical needs assessment required.
                                                 - New title insurance policy required.

Borrower Analysis                   - New underwriting certification may be given in lieu of full underwriting.                                                            However, if the organization has changed the lender must review                                                                      necessary documents to confirm that the organization meets the                                                                      requirements.
                                                  - For the borrower, key principal and principal the Lender will report                                                                  ACheck results, obtain and review financial statements and meet the FICO                                                      requirements.

Existing Prepayment               - Existing minimum 1 percent prepayment premium may be reduced or        Premium                                     waived in certain circumstances.

                                                  - Prepayment premium due may be paid from the proceeds of the new                                                              loan.
                     

Bulk Delivery Program: Fannie Mae’s Apartment Mortgage Business program provides a bulk delivery structuring option that gives borrowers the ability to arrange financing terms for a group of properties.

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Overview

Structure                                    A Bulk Delivery is governed by a Bulk Delivery Agreement between                                                                  borrower and lender that permits multiple mortgage loans.

Bulk Delivery Amount               $55MM+

Term                                           Min. 5 years

Amortization                              Interest-only and amortizing available, based upon property performance.

Maximum LTV/                          Fannie Mae DUS “Tier 2” DSCR and LTV standards (as applicable).

Minimum DSCR

Recourse                                    Non-recourse, subject to standard non-recourse carveouts.

Rate Lock                                   30- to 90-day commitments. An early rate lock feature is available allowing                                                      the borrower to lock a rate 45 to 180 days in advance of closing.

Property Substitutions              Subject to the Bulk Delivery Agreement, a property generally may be                                                              substituted if: (A) the substitute property has a valuation equal to or                                                                greater than the greater of (i) the valuation of the release property                                                                    immediately prior to release, or (ii) the original valuation of the release                                                            property; and (B) the substitute property has net operating income equal                                                        to or greater than the greater of (i) the net operating income of the                                                                  release property immediately prior to the release, or (ii) the original net                                                          operating income of the release property.

Expansion                                  Subject to Fannie Mae approval, the maximum amount of the bulk                                                                  delivery facility may be increased.

Third-Party Reports                   Standard third-party reports including Appraisal, Phase I Environmental                                                          Assessment and a Property Condition Assessment are required.

Interest Rate                              Fixed-rate and variable-rate available. Certain variablerate mortgage loans                                                     may be converted to fixed-rate for the remainder of the term. An interest                                                       rate cap or other hedging arrangement is required for all variablerate                                                             loans.

Rate Lock                                  30- to 180-day commitments. Early rate lock is available with prior approval                                                     from Fannie Mae upon completion of preliminary underwriting.

Assumption                               Assumption of an individual mortgage loan is permitted upon satisfaction                                                       of the requirements of the Bulk Delivery Agreement.

Prepayment Options               Yield maintenance and other graduated prepayment options are available.                                                    Other options may be available on a negotiated basis.

Supplemental Financing         Supplemental Loans are available.

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Credit Facility Program: Fannie Mae’s Multifamily Mortgage Business provides a credit facility structuring option that gives the ability for borrowers to arrange financing terms for a group of properties on a cross-collateralized and cross-defaulted basis, with property release, property substitution, property addition, borrow-up, and expansion capabilities.

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Overview

Structure                                   A Credit Facility is governed by a Master Credit Facility Agreement                                                                   between borrower and lender that permits multiple cross-collateralized                                                           and cross-defaulted advances.

Bulk Delivery Amount              $55MM+

Term                                          Min. 5 years

Amortization                             Interest-only and amortizing available, based upon property and pool                                                             performance.

Maximum LTV/                         Fannie Mae DUS “Tier 2” DSCR and LTV standards (as applicable).

Minimum DSCR

Recourse                                   Non-recourse, subject to standard non-recourse carveouts.

Rate Lock                                  30- to 90-day commitments. An early rate lock feature is available allowing                                                     the borrower to lock a rate 45 to 180 days in advance of closing.

Property Substitutions             Subject to the terms of the Master Credit Facility Agreement, a property                                                         generally may be substituted if (i) the substitute property being added                                                           satisfies minimum DSCR and maximum LTV tests, (ii) the remaining                                                                   properties satisfy maximum LTV and minimum DSCR pool tests, (iii) the                                                           substitute property has a valuation equal to or greater than the valuation                                                         of the property being released, (iv) the substitute property has net                                                                   operating income equal to or greater than the net operating income of the                                                     property being released, and (v) geographic diversification requirements                                                         are satisfied (if applicable).

Property Releases                     Subject to the terms of the Master Credit Facility Agreement, a property                                                         generally may be released provided that (i) the remaining properties satisfy                                                     the minimum DSCR and maximum LTV tests, (ii) the maximum LTV and                                                             minimum DSCR of the remaining properties are unchanged or improved                                                         after the release, (iii) the geographical diversification requirements                                                                   continue to be satisfied after release (if applicable), and (iv) Borrower pays                                                       a release price equal to the greater of 100% of the allocated advance                                                               amount for the property being released, or the amount necessary to meet                                                     the above requirements, along with any prepayment premium due.

Property Additions                   Subject to the terms of the Master Credit Facility Agreement, a property                                                         generally may be added provided that (i) the individual property being                                                           added satisfies minimum DSCR and maximum LTV tests, and (ii) all                                                                   outstanding advances collectively satisfy the maximum LTV and minimum                                                       DSCR tests for the credit facility.

Borrow-Ups                               Subject to the terms of the Master Credit Facility Agreement, Borrowers                                                         may request additional loan advances, without adding any additional                                                               properties to the credit facility, subject to Lender’s approval and                                                                       underwriting standards mortgages.

Expansion                                 Subject to Fannie Mae approval, the maximum amount of the credit facility                                                     may be increased.

Assumption                               Assumption of the entire facility is permitted upon satisfaction of the                                                               requirements of the Master Credit Facility Agreement.

Prepayment Options                Yield maintenance and other graduated prepayment options are available.                                                     Other options may be available on a negotiated basis..

Interest Rate                              Fixed-rate and variable-rate available. Mortgages in a credit facility may                                                         include multiple interest rate types. Variable-rate advances may be                                                                   converted to fixed-rate for the remainder of the loan term. An interest rate                                                     cap or other hedging arrangement is generally required for all

                                                   variable-rate advances

Loan Features

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Term Length/Amortization: Fannie Mae loan terms range from 5-30 years with amortizations up to 30 years, depending on the type, location, and condition of the collateral. Depending on the way the loan is structured, it may “balloon” at the end of the term, meaning at the loan balance will need to either be refinanced or paid off; otherwise the loan is self-amortizing, meaning that the loan will be fully paid off when the loan matures, so there is no loan balance to pay off (unless the loan is prepaid before it matures).

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Recourse: Most FNMA mortgages are non-recourse, except for standard carve-out provisions. Full recourse mortgages make the sponsors guarantying the loan responsible for any and all shortfalls between the loan balance and sales price in the event of default and foreclosure as well as any applicable legal and ancillary fees. Non-recourse means is that the Borrowers are not personally liable for the repayment of the loan and that the collateralized property and its cash flows would be the sole source of repayment of the debt in the event of a foreclosure. However, in the event the Borrower actively participates in an activity that could cause harm to the property, Lender, or investors, there could be springing recourse in some limited circumstances; this may include loan fraud, property transfer or subordinate financing without consent of the Lender, voluntary or collusive activity leading to a bankruptcy filing or failure to maintain SPE status, among other such actions.

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Rate Lock: Fannie Mae has an early rate lock feature which is available with a good faith deposit, allowing the borrower to lock a rate 45 to 180 days in advance of closing. Otherwise the rate will lock 1-2 days before closing.

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Loan Assumption: Fannie Mae mortgages are assumable for a 1% fee, but the new assuming borrower (i.e. Purchaser) must qualified by meeting the original underwriting standards. Typically this occurs when the Borrower wants to sell the commercial real estate that secures the loan, and the Purchaser of the property wants to take the loan over. Once the property sale and assumption is completed, the Purchaser becomes the owner of the property and is bound by the original terms of the assumed loan and the original Borrower/Seller is released from its obligation to the property and the existing loan. The benefit of this structure is that the assumption of the loan allows the Borrower/Seller to avoid defeasance or other pre-payment costs and give the buyer the opportunity to assume a loan that may have favorable terms than what is market. Loan assumption is an especially attractive option in high interest rate environments or tight credit environments.

Pre-Review Markets: The following markets require Fannie Mae Pre-Approval prior to (or at time of) issuing the loan application. In most cases, the Lender will require mortgages in these markets to be Tier 3 (65% LTV Maximum) without a waiver granted by Fannie Mae.

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Prepayment Penalty Structures

Yield Maintenance: The goal of Yield Maintenance is to allow the bond investors to maintain the same yield as if the borrower made all scheduled mortgage payments until maturity. The penalty is typically calculated by a formula contained in the Note of the Loan Documents. The language will vary between different institutions, but will typically have the same two amounts to be repaid, namely: 1) The loan’s unpaid principal balance and 2) a prepayment penalty, which is typically determined by calculating the difference between the loan’s interest rate and the replacement rate (based on the US Treasury rate that most closely corresponds to the maturity date), with the remaining loan payments discounted back for the time value of money. One thing to keep in mind is that yield maintenance provisions contain a prepayment penalty “floor” of at least 1%.

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Declining (Step-Down) Prepayment Penalty: A declining prepayment penalty may be structured in a variety of ways, but always has the same feature of the prepayment penalty lessening by 1% per step with the last 3-12 (or more) months open to prepay or refinance without penalty. These are usually offered on shorter-term mortgages (i.e. 5-10 years), but could potentially be offered on longer terms as well. An example of a 5 and 10 year declining prepayment penalty would be the following:

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• 5 Year Declining: 5% of loan amount if prepaid in the first year, 4% if prepaid in the second year, 3% if prepaid in the third year, 2% if prepaid in the fourth year, and 1% if prepaid in the fifth year, also represented as 5-4-3-2-1% or 5% declining.

• 10 Year Declining: 5% of loan amount if prepaid in the first or second year, 4% if prepaid in the third or fourth year, 3% if prepaid in the fifth or sixth year, 2% if prepaid in the seventh or eighth year, and 1% if prepaid in the ninth or final year, also represented as 5-5-4-4-3-3-2-2-1-1% or 5% declining.

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Loan Servicing:

The Fannie Mae lender or a third party may service the mortgages. The Master Servicer is responsible for day-to-day loan servicing practices including collecting loan payments, managing escrow accounts, analyzing financial statements inspecting collateral and reviewing borrower consent requests. All non-performing mortgages are usually sent to the special servicer. The special servicer is responsible for preforming customary work-out related duties including extending maturity dates, restructuring mortgages, appointing receivers, foreclosing the lender’s interest in a secured property, managing the foreclosed real estate and selling the real estate. Under some situations, master servicers subcontract some of their responsibilities to a primary or sub servicer in order to uphold the servicing standard when they need additional assistance.