© Fannie Mae Single Family Selling Guide
General Information
Fannie Mae accepts delivery of fixed-rate mortgages that were converted from ARMs either by a legally a legally executed modification agreement or under the provisions of the mortgage instrument.
Although the ARM does not have to have been originated on Fannie Mae uniform instruments or in or in accordance with Fannie Mae eligibility requirements for ARMs, the new fixed-rate mortgage that mortgage that results from the conversion must meet Fannie Mae’s general eligibility and underwriting requirements underwriting requirements for newly originated fixed-rate mortgages.
Converted ARMs Removed from ARM MBS Pools
This topic describes the circumstances under which a converted ARM that is removed from an ARM an ARM MBS pool as the result of its conversion to a fixed-rate mortgages may be redelivered to Fannie to Fannie Mae.
If the mortgage is more than 12 months old at the time of the redelivery, and the lender specified a specified a “market rate” post-conversion disposition option when the MBS pool was delivered to Fannie MaeFannie Mae, the mortgage must meet the same eligibility criteria as other converted ARMs (as discussed in discussed in “Eligibility Requirements for Converted ARMs” later in this topic).
If the lender specified a take-out post-conversion disposition option when the MBS pool was delivered was delivered to Fannie Mae, the lender does not need to requalify the borrower or verify that the mortgage the mortgage satisfies Fannie Mae eligibility criteria.
Borrower Requalification Considerations for Fixed-Rate Mortgages Converted
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from ARMs and Redelivered Under “Market Rate” Post-Conversion Options
To qualify a borrower, lenders may use the original in-file documentation to evaluate the borrower’s the borrower’s financial ability, as long as the borrower is able to qualify for the mortgage based on either on either of the following:
The mortgage interest rate in effect following the conversion and Fannie Mae’s
current underwritingcurrent underwriting guidelines for a conventional fixed-rate mortgage, or
The mortgage interest rate in effect for the ARM when it was originated and the underwriting guidelines underwriting guidelines Fannie Mae used for ARMs at that time.
If the lender is unable to qualify a borrower under the previous options, the lender must requalify the requalify the borrower under Fannie Mae’s standard guidelines, including including
obtaining a new loan application,
obtaining up-to-date credit reports,
obtaining new employment and income verifications using the acceptable documentation,
evaluating the borrower’s financial ability based on
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the mortgage interest rate in effect for the converted mortgage, and
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Fannie Mae’s current underwriting guidelines for a conventional fixed-rate mortgage.
Eligibility Requirements for Converted ARMs
The following specific eligibility requirements apply to converted ARMs that are delivered as either as either whole loans or MBS pool deliveries under the “market rate” post-conversion disposition option disposition option that were removed from an ARM MBS pool as the result of the conversion:
| ✓ | Requirements |
|---|---|
| The ARM must have been at least 12 months old when the conversion occurred. | |
| The converted mortgage must meet all of the eligibility criteria specified for mortgages |
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| that are more than one year old, unless Fannie Mae has specified that those criteria do not apply. |
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Note: The age of the mortgage is calculated from the date the ARM was originated. |
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These specific eligibility criteria appear |
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in B2-1.4-02, Mortgage Loan Eligibility. | |
| The mortgage loan must be current at the time of delivery |
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| . Note: To minimize processing delays, Fannie Mae considers a mortgage current |
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if no more than 45 days have elapsed since the last paid installment date. | |
| The total of all interest rate increases or payment adjustments (including any |
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| combination of scheduled ARM interest rate changes and the increases scheduled under an interest |
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| rate buydown plan) that occurred after the ARM was originated must not have exceeded 2% ( |
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| for the interest rate adjustment) or 15% (for the payment adjustment) if the lender qualifies |
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| the borrower on the basis of the mortgage interest rate that was in effect for the ARM when |
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| it was originated and the ARM underwriting guidelines Fannie Mae used at that time. | |
| The modified mortgage must provide for a fixed-interest rate, level monthly payments, |
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| and amortization within the term of the original mortgage. | |
| The title insurance policy or any endorsements to it are not impaired because of the |
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| option to convert to a fixed-rate mortgage or the actual conversion. | |
| If the original title policy did not include the ARM endorsements currently required, |
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| the lender must indemnify Fannie Mae (as described |
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| in A2-1-03, Indemnification for Losses) |
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| against Fannie Mae losses that arise out of future title disputes related to the years in |
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| which the mortgage was an ARM. | |
| The original loan amount of the ARM did not exceed Fannie Mae's current |
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| maximum mortgage amount limitation at the time Fannie Mae originally securitized the mortgage |
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| in an ARM MBS pool. | |
| The greater of the original mortgage amount (at origination of the ARM, pre-conversion) |
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| or the current unpaid principal balance must be used to determine that the modified |
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| mortgage meets Fannie Mae requirements for maximum mortgage amount, LTV ratios, |
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| mortgage insurance coverage, and title insurance. |
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EXCEPTION: For the delivery of a converted ARM that Fannie Mae initially securitized |
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in an ARM MBS pool, if Fannie Mae’s loan limits decreased between the time Fannie Mae initially securitized |
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the ARM and the time the converted mortgage is redelivered to Fannie Mae after it is |
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removed from the pool, the mortgage will still be acceptable to Fannie Mae even if the |
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original mortgage balance exceeds the maximum mortgage amount that is in effect at the time of |
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the redelivery. BACKGROUND This recognizes and acknowledges, respectively, the fact that
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| The LTV, CLTV, and HCLTV ratios at the time of conversion must not exceed |
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| the maximum allowable limits for fixed-rate mortgages, see |
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| the Standard ARM Plan Matrix. If the ARM had negatively amortized, the LTV ratio (and the CLTV ratio and the |
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HCLTV ratio) requirement must be satisfied as a result of
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Note: Increase in property value must be supported by a current appraisal. |
Delivery Requirements and Security Instruments for ARMs Converted to Fixed-
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Rate Mortgages
Lenders must identify each converted ARM that was repurchased from an MBS pool because the conversion the conversion to fixed-rate option was exercised and subsequently redelivered to Fannie Mae as a whole a whole loan delivery of a fixed-rate mortgage with SFC 036.
Lenders must include in the delivery package a a Loan Modification Agreement (Form 3179) as evidence as evidence of the conversion to a fixed-rate mortgage Note.
Note: A different (but substantially equivalent) modification agreement is also acceptablealso acceptable, as long as it includes an enforceable due-on-sale clause.
| ✓ | Modification Agreement Requirements |
|---|---|
| Lenders must determine whether a modification agreement has to be recorded in each particular jurisdiction in order to preserve the lien position of the mortgage. | |
| If recordation is required, lenders must submit the recorded instrument when it delivers |
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| the mortgage for purchase or securitization. | |
| Lenders must obtain a title bring-down through the date of the recordation. |
Mortgage Documents for Fixed-Rate Conversion Option
Execution of Fannie Mae’s standard riders or addenda that provide the terms for conversion to a fixeda fixed-rate mortgage or any other conversion option instrument is not required if:
a convertibility provision was included in the adjustable-rate note, or
the lender previously agreed to a conversion modification despite the fact that the loan documents loan documents did not give the borrower an option to convert. In this instance, lenders must provide must provide a modification agreement to document the conversion and obtain a title bring-down through down through the date of the recordation.
See See Riders & Addenda for for current standard riders or addenda.