B2-1.4-02: Mortgage Loan Eligibility (12/19/2017)

© Fannie Mae Single Family Selling Guide

Ability to Repay Loan Eligibility Requirements

The following provisions apply to loans with application dates on or after January 10, 2014.

Note: As to any mortgage loan for which the original application was made before January 10, 2014, but which was assumed on or after January 10, 2014, and subsequently purchased or securitized by Fannie Mae, then, for eligibility purposes, the application date is considered to be the date on which Truth in Lending Act disclosure requirements were triggered with respect to such assumption.

ATR Covered Loans. An ATR Covered Loan is a mortgage loan that is subject to the TILA’s ability to repay requirements under Regulation Z and is otherwise not an ATR Exempt Loan (defined below). An ATR Covered Loan must meet the following requirements in addition to the other underwriting and eligibility requirements in the Selling Guide:

• have a loan term not exceeding 30 years;

• be a fully amortizing loan, as defined in Regulation Z:

  • the loan must have regular periodic payments that are substantially equal that do not result in an increase in the principal balance or allow the borrower to defer repayment of principal; and

• have total points and fees not in excess of 3% of the total loan amount (or such different amount as provided in Regulation Z) as described below under Points and Fees Limitations.

Exception: The only exception to these requirements is for single-closing construction-to-permanent loans, which may have a loan term that exceeds 30 years including the construction period. See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions, for additional information.

The ATR Covered Loan requirements apply to acquisitions of newly originated loans (including government mortgage loans). These new requirements do not apply to assumptions or modifications of existing Fannie Mae mortgage loans regardless of the dates on which the loans being assumed or modified were originally closed.

ATR Exempt Loans. An ATR Exempt Loan is, with certain exceptions, a loan that either is not subject to TILA or is exempt from the ability to repay requirements in Regulation Z (12 CFR § 1026.43(a) or (d)). For purposes of determining whether a loan is an ATR Exempt Loan, lenders must follow the TILA and Regulation Z definitions.

Note: The classification of certain transactions for TILA purposes and for eligibility and underwriting purposes by Fannie Mae do not always align. For example, Fannie Mae defines a four-unit property where the borrower occupies one of the units as a “principal residence.” If under TILA such a loan is considered to be for commercial or business purposes, it will be exempt from TILA and therefore considered an ATR Exempt Loan by Fannie Mae.

Exception: A “non-standard mortgage” to “standard mortgage” refinance transaction as defined in Regulation Z (other than a loan secured by an investment property that fits within the “business purpose” definition for an exempt loan under TILA) shall be treated as an ATR Covered Loan.

Fannie Mae purchases or securitizes ATR Exempt Loans as long as such loans meet the other eligibility and underwriting requirements described in this Guide.

Points and Fees Limitations. For purposes of these requirements, “total points and fees” and “total loan amount” must be calculated in accordance with Regulation Z (12 CFR § 1026.32).

• ATR Covered Loans: Total points and fees may not exceed 3% of the total loan amount or such different amount in accordance with the qualified mortgage provisions of Regulation Z (12 CFR § 1026.43(e)(3)(i)). If a lender makes a cure payment in the amount and by the time required by 12 CFR § 1026.43(e)(3)(iii), such loan satisfies this requirement.

• ATR Exempt Loans: Total points and fees may not exceed 5% of the total loan amount. This determination may take into account either of the following adjustments:

  • permitted reduction of total points and fees pursuant to 12 CFR § 1026.31(h); or

  • in the case of loans not subject to TILA, restitution to the borrower of at least that portion of total points and fees that exceeded 5% at the time of loan closing.

Acceptable Mortgage Loan Terms

Fannie Mae purchases or securitizes mortgage loans that have original terms up to 30 years. The term of a first mortgage may not extend more than 30 years beyond the date that is one month prior to the date of the first payment.

Exception: The only exception to these requirements is for single-closing construction-to-permanent loans, which may have a loan term that exceeds 30 years including the construction period. See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions.

HOEPA and State Higher-Priced Mortgage Loans

A mortgage loan that is subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA), as described in Section 32 of Regulation Z, is not eligible for delivery to Fannie Mae.

In addition, Fannie Mae does not purchase or securitize mortgage loans that meet the definitions under the following laws of the state in which the property is located (“state higher-priced loans”), regardless of whether any provision of such state law is preempted by federal law with respect to a particular loan or for a particular originator:

If special assessments have been levied against the property and they are not paid before or at closing, the maximum mortgage amount otherwise available must be reduced by the amount of the unpaid special assessments (unless sufficient deposits to pay them will be collected as part of the mortgage payment).

If the security property may be subject to liens for taxes and special assessments and the liens are not yet due and payable, Fannie Mae does not consider these conditions, restrictions, and encumbrances material and does not require a reduction in the maximum mortgage amount.

The lender must provide documentation to show that the current installments of taxes and assessments (or future installments of special assessments that have been levied) - including those which may have been attached as prior liens, but which are not now in arrears - have been paid or that sufficient deposits are being collected to pay them.

Modified Mortgages

A modified mortgage is a loan that was legally modified after loan closing in a way that changed any of the loan terms or attributes reflected in the original note. In general, mortgage loans with material modifications, such as changes to the original loan amount, interest rate, final maturity, or product structure, are not eligible for delivery to Fannie Mae.

A mortgage that was modified to effect technical or typographical corrections is permitted for delivery, provided that all of the changes correct errors in the executed documents, which reflect the terms of the original loan transaction. None of the changes can be the result of a subsequent modification or amendment to the original loan amount, interest rate, or other material loan term. The correction may not result in a change to, or create any inconsistencies with, other legal documents.

Fannie Mae permits the delivery of certain other modified loans based primarily on whether the loan was owned or securitized by Fannie Mae prior to the modification, or the modification of the loan was done in accordance with a standard product or is common and customary in a certain area.

The table below provides a comprehensive overview of Fannie Mae requirements applicable to the delivery of modified loans. If the loan is not eligible in accordance with standard Selling Guide provisions, it may be eligible in accordance with a variance. Such variances may be subject to additional terms and conditions.

For information on subsequent refinances of modified mortgages for DU Refi Plus and Refi Plus, refer to B5-5.2-01, DU Refi Plus and Refi Plus Eligibility.

Nonstandard Payment Collection Options

A nonstandard payment collection option is a payment option that permits the borrower to make mortgage loan payments on a schedule other than a monthly basis. If the nonstandard payment collection option terms are included in the loan documents, then the mortgage loan is ineligible for delivery to Fannie Mae.

Lenders may offer nonstandard payment collection plans as part of a separate agreement; however, the mortgage loan is eligible for delivery to Fannie Mae only under the following conditions:

• the agreement must not impact the terms and conditions of the mortgage note, nor the reporting or remittance of payments to Fannie Mae;

• the agreement must be cancelable by the borrower without cost; and

• the mortgage loan must be identifiable by the lender such that the information can be provided to Fannie Mae upon request.