Selling Guide

Published May 05, 2021

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What is required for loans with subordinate financing?

Subordinate Financing Requirements

Fannie Mae purchases or securitizes first-lien mortgages that are subject to subordinate financing except for co-op share loans that are subject to subordinate financing. (See B5-7-01, High LTV Refinance Loan and Borrower Eligibility, for exceptions related to this policy.) Subordinate liens must be recorded and clearly subordinate to Fannie Mae’s first mortgage lien. Lenders must disclose the existence of subordinate financing and the subordinate financing repayment terms to Fannie Mae, the appraiser, and the mortgage insurer. If a first mortgage is subject to subordinate financing, the lender must calculate the LTV, CLTV, and HCLTV ratios.

The lender must consider any subordinate liens secured by the subject property, regardless of the obligated party, when calculating CLTV and HCLTV ratios. This includes business loans, such as those provided by the Small Business Administration

For more information on subordinate financing originated in connection with the Section 502 Leveraged (Blended) Loan Program, see B6-1-05, Eligible RD-Guaranteed Mortgages.  

For additional information, see B2-1.2-04, Subordinate Financing.

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