Selling Guide

Published December 16, 2020

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How is a standard conventional ARM qualified?

Standard Conventional ARM Plans

To qualify as a Fannie Mae standard conventional ARM, the ARM must have all of the characteristics specified in the Standard ARM Plan Matrix for the specific ARM plan. The characteristics related to standard ARMs include but are not limited to:

  • the index used for determining each interest rate adjustment;
  • the initial fixed period during which the interest rate will not change, after which the interest rate will adjust with a specified frequency;
  • the periodic interest rate change limits, which include the limitations on interest rate increases and decreases, first from the initial interest rate and, thereafter, from each immediately preceding interest rate;
  • the lifetime interest rate cap;
  • the look-back period for determining the index value for interest rate adjustments;
  • assumability — either assumable during the entire term of the mortgage or due-on-sale during the initial fixed-rate period and assumable thereafter; and
  • for a convertible ARM, the terms by which the adjustable rate can convert to a fixed rate and the timing of such conversion option. If an ARM offers a conversion feature, the converted rate may not exceed the maximum rate stated in the note.

Lenders must refer to the Standard ARM Plan Matrix for specific requirements related to the above characteristics. 

For additional information, see B2-1.4-02, Adjustable-Rate Mortgages (ARMs)

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