MULTIFAMILY UNDERWRITING STANDARDS - Fannie Mae
MULTIFAMILY UNDERWRITING STANDARDS
EFFECTIVE DATE: August 13, 2021
(For Multifamily Selling and Servicing Guide ? Parts I through IV ONLY)
I. Pre-Review Mortgage Loans .................................................................................................. 2 II. Markets .................................................................................................................................... 9 III. Underwritten DSCR, Underwritten LTV, and Underwriting Interest Rate Floors ...... 17 IV. Interest-Only Mortgage Loans ............................................................................................ 26
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 1
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
MULTIFAMILY UNDERWRITING STANDARDS
All Mortgage Loans delivered to Fannie Mae must comply with the Guide and these Multifamily Underwriting Standards unless approved in writing by Fannie Mae.
I. Pre-Review Mortgage Loans
A. Generally
Before Rate Lock, you must submit the following Pre-Review Mortgage Loans for approval.
PRE-REVIEW MORTGAGE LOAN CATEGORIES
Borrower, Guarantor, Key Principals, and Principals
Crowdfunding Equity
Delaware Statutory Trust
Any Mortgage Loan where a Person with a direct or indirect equity interest in the Borrower or any Key Principal solicits financial contributions from the online community for capital funding and/or investment in real estate, and at any time during the Mortgage Loan term:
the crowdfunding investment requires a payoff, or has a redemption period, maturity date, trigger date, etc., requiring the crowdfunding investment to be repaid; or
the Borrower's or Key Principal's organizational documents allow the crowdfunding equity to Control, or cause a direct or indirect change of Control in, the Borrower or Key Principal.
Any Mortgage Loan with a Borrower or a Key Principal that is a Delaware Statutory Trust, and is:
Tier 2;
any Tier secured by a Seniors Housing Property, Student Housing Property, or a Dedicated Student Housing Property; or
Tier 3 if any of the following are not funded:
Replacement Reserve; an upfront fund equal to at least 2 years of annual Replacement
Reserve deposit per the PCA Report; real estate taxes; and insurance premiums.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 2
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
FICO Requirement
Any Small Mortgage Loan with:
a single Borrower, Key Principal, Guarantor, or Principal where the FICO score determined per Part III, Chapter 9 of the Guide is less than 680 (Minimum FICO Requirement); or
multiple Borrowers, Key Principals, Guarantors, or Principals where
any Key Principal, Guarantor, or Principal has a FICO score less than 620, or
the average of the FICO scores for all Borrowers, Key Principals, Guarantors, and Principals is less than the Minimum FICO Requirement.
Non-Recourse Carve-outs
Series LLC
Any Tier 2 Seniors Housing Mortgage Loan where the Borrower and any required Guarantor are not fully liable for the exceptions to the non-recourse provisions set forth in the Multifamily Loan Agreement.
Any Mortgage Loan with a Series LLC
Borrower,
Key Principal,
Guarantor, or
Person Controlling the Borrower, any Key Principal, or Guarantor.
Fannie Mae / Lender Relationship and Status
Modified Risk Loss Sharing
Pre-Review Lender
Any Mortgage Loan where the proposed Allocable Percentage does not comply with your Modified Loss Sharing Matrix.
Any Mortgage Loan when you are on Pre-Review status or are not approved to Deliver the applicable product.
Secondary Risk or Top Loss
Any Credit Enhancement Mortgage Loan or MBS issued as Credit Enhancement for the Bonds (MTEB):
that is a Secondary Risk Mortgage Loan; or
where a third party bears all losses until its recourse obligations are exhausted (Top Loss).
Products and Features
ARM 5/5 Loan
Any ARM 5/5 Loan.
Bond Transactions (Credit Enhancement Mortgage Loans and MTEB)
Any Credit Enhancement Mortgage Loan or MBS issued as Credit Enhancement for the Bonds (MTEB), that is:
Tier 2 with fixed rate Bonds;
any Tier with variable rate or index Bonds; or
any Tier where Fannie Mae will issue the substitute credit enhancement.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 3
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
Cooperative Property
FHA Risk Sharing
Green Rewards
MAH Interest Reduction Payment (IRP) Mezzanine Financing
Any Cooperative Mortgage Loan where the Property is not located in one of the following Cooperative Property Eligible Markets:
New York-Newark-Jersey City, NY-NJ-PA MSA; Boston, MA; Chicago, IL; Los Angeles, CA; San Francisco, CA; or Washington-Arlington-Alexandria, DC-VA-MD-WV MSA.
Any FHA Risk Sharing Mortgage Loan.
Any Green Rewards Mortgage Loan where the installation of a renewable energy generation or storage system, such as a photovoltaic/solar panel system, is among the qualifying Efficiency Measures.
Any MAH Mortgage Loan insured under Section 236 of the National Housing Act with an IRP.
Any Mortgage Loan where the Borrower also has Mezzanine Financing.
Military Housing Any Tier 2 or Tier 3 Military Housing Mortgage Loan.
Preferred Equity Any Mortgage Loan with Hard Preferred Equity.
Rate Lock Period
Any Mortgage Loan with a Rate Lock Period greater than 180 days.
RD 515
Any MAH Mortgage Loan with a subordinate Rural Housing Service Section 515 loan.
RD 538 Guaranteed Rural Rental Housing
Any Mortgage Loan with a Rural Housing Service Section 538 Guaranty.
Reduced Occupancy Affordable Rehabilitation
Any MAH Mortgage Loan with Rehabilitation Work that requires limited tenant displacement.
Rental Assistance Demonstration (RAD) Program
Any Mortgage Loan where the Property is currently funded under HUD's Public Housing program and is converting to a Section 8 HAP Contract per the terms of a HUD RAD use agreement.
Seniors Housing Any Seniors Housing Mortgage Loan.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 4
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
Split and Bifurcated Mortgage Loans
Structured ARM Loan
Any Split Mortgage Loan, or Bifurcated Mortgage Loan where the 2 Notes have different interest rate structures or prepayment terms.
Any SARM Loan.
Student Housing and Dedicated Student Housing
Any Student Housing or Dedicated Student Housing Mortgage Loan.
Supplemental Mortgage Loan
Any Supplemental Mortgage Loan that is refinancing Hard Preferred Equity or any Mezzanine Financing, or subordinate to a Portfolio SARM Loan.
Market and Property Attributes
Co-Living
Any non-Student Housing Mortgage Loan Property where the individual units are leased by the bedroom (whether or not leased "jointly and severally"), and the tenants of each unit share common space (e.g., kitchen, living rooms). These properties typically include expanded property management functions, such as a roommate matching platform, housekeeping services (e.g., periodic cleaning and/or supplying household sundries), and/or concierge services, and may provide some furnishings.
Any Mortgage Loan where the Property's leased commercial:
Commercial Space or Income
space equals more than 35% of the total space; or
income, after applying a 10% vacancy rate, equals more than 35% of EGI (regardless of whether all of the commercial income is included in the Underwritten NCF).
Any Mortgage Loan where the Property is a:
Condominium
Fractured Condominium and the Borrower owns less than 80% of the units, or does not control the condominium association; or
Commercial Condominium and the Borrower does not control the condominium association.
Any Mortgage Loan where
Ground Lease
the Borrower owns only a Leasehold estate in the Property, and the original Ground Lease began in 2010 or later.
Any non-Cooperative Mortgage Loan Property located in a Pre-Review Pre-Review Market Market per Section II of this Form 4660 and does not qualify for
delegation.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 5
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
Single-Family Structures
Single-Room Occupancy (SRO)/Micro Units
Any Mortgage Loan where the Property includes a standalone building containing less than 5 residential units, unless the standalone building:
was originally constructed as part of one multifamily development; or
is situated on the same tax parcel, or shares a tax parcel boundary, with a multifamily building or Manufactured Housing Community.
Any Mortgage Loan where more than 5% of the Property's units are selfcontained 1-room residential units that are typically less than or equal to 350 square feet, each with its own in-unit bathing and cooking facilities, suitable to the competitive market.
Property Operations / Underwriting Terms
Declining NRI
Forward Commitment
Healthy Housing Rewards ? Enhanced Resident ServicesTM (ERS)
Near Stabilized Property
Any Tier 2 Small Mortgage Loan where a non-Cooperative Property experienced a decline greater than 3% in NRI (measured by the current rent roll compared to the prior operating statement period).
Any Mortgage Loan or Credit Enhancement Mortgage Loan structured as a Forward Commitment.
Any Mortgage Loan secured by a Multifamily Affordable Housing (MAH) Property with:
at least 60% of the units affordable at 60% of AMI; and the required certifications attesting that the Property provides Enhanced
Resident Services.
Any Near Stabilized Property.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 6
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
Large Loan
Structured Transaction
Guide Requirements Underwriting Standards
Loan Size
Any Mortgage Loan: with an amount greater than or equal to $55 million and the Property is located in any Strong Market or Eligible MSA, except: Denver-Aurora-Lakewood, CO MSA; Miami-Fort Lauderdale-West Palm Beach, FL MSA; Minneapolis-St. Paul-Bloomington, MN-WI MSA; Oxnard-Thousand Oaks-Ventura, CA MSA; Sacramento-Arden-Arcade-Roseville, CA MSA; or Salt Lake City, UT MSA; where the Property is located in any other market with an amount greater than or equal to: $30 million for Tier 2; $40 million for Tier 3; or $55 million for Tier 4; or where the aggregate UPB of all Pre-Existing Mortgage Loans plus the amount of the Supplemental Mortgage Loan, would be a Large Loan and none of the Pre-Existing Mortgage Loans were previously a PreReview Mortgage Loan.
Any Credit Facility.
Guide Requirements and Underwriting Standards
Any Mortgage Loan that does not meet all Requirements in Parts I, II, III, and IV of the Guide unless it is a Tier 3 or Tier 4 Mortgage Loan and the non- compliant Requirements are for:
Co-Tenant Borrowers; or Non-Cooperative Moderate Rehabilitation Property that has
Rehabilitation Work costing more than $20,000 per unit.
Any Mortgage Loan that does not comply with this Form 4660.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 7
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
B. Pre-Review Exceptions for Choice Refinance Loans
A Choice Refinance Loan that complies with the Requirements of Part III, Chapter 18 of the Guide is exempt from the following Pre-Review Mortgage Loan categories:
Cooperative Property; Cooperative Property Eligible Markets; Co-Tenant Borrowers; FICO Requirement; Large Loan; Manufactured Housing Community; Military Housing Property; Phased Property; Pre-Review Market, provided that the Pre-Review Market is not designated with
Note No. 2 ? "These Pre-Review Markets are not eligible for delegation at any Tier"; Single Asset Entity or Multi Asset Entity; or Single-Room Occupancy (SRO)/Micro.
? 2021 Fannie Mae
Multifamily Underwriting Standards
Page 8
Trademarks of Fannie Mae
8/13/2021
Form 4660
CONFIDENTIAL ? FANNIE MAE PROPRIETARY INFORMATION
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