This topic contains information on mortgage loan eligibility requirements, including:
The following provisions apply to loans with application dates on or after January 10, 2014.
ATR Covered Loans. An ATR Covered Loan is a loan 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 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.
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.
Fannie Mae purchases or securitizes 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. The minimum original term is 85 months, subject to applicable committing and delivery requirements for whole loans and loans in MBS.
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.
A 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 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:
|Arkansas||High-cost home loan||Loans delivered on or after September 1, 2003 that meet the definition of “high-cost home loan” under the Arkansas Home Loan Protection Act (Ark. Code Ann. §§ 23-53-101 et seq.), notwithstanding the “safe harbor” language contained in § 23-53-103(5)(B).|
|Georgia||Home Loan||Loans originated between October 1, 2002 and March 7, 2003 that are governed by the Georgia Fair Lending Act (Ga. Code Ann. §§ 7-6A-1 et seq.).|
|Georgia||High-cost home loan||Loans delivered on or after January 1, 2003 that meet the definition of “high-cost home loan” under the Georgia Fair Lending Act (Ga. Code Ann. §§ 7-6A-1 et seq.), as amended effective March 7, 2003.|
|Illinois||High risk home loan||Loans delivered on or after January 1, 2004 that meet the definition of “high risk home loan” under the Illinois High Risk Home Loan Act (§ 815 Ill. Comp. Stat. 137/1 et seq.).|
|Indiana||High cost home loan||Loans delivered on or after January 1, 2005 that meet the definition of “high cost home loan” under the Indiana Home Loan Practices Act (Ind. Code Ann. §§ 24-9-1 et seq.), notwithstanding the “safe harbor” language contained in § 24-9-1-1.|
|Kentucky||High-cost home loan||Loans delivered on or after September 1, 2003 that meet the definition of “high-cost home loan” under the Kentucky high-cost home loan statute (Ky. Rev. Stat. § 360.100).|
|Maine||High-rate, high-fee mortgage||Loans delivered on or after January 1, 2008 that meet the definition of “high-rate, high-fee mortgage” under the Maine Consumer Credit Code – Truth in Lending (Me. Rev. Stat. Tit. 9-A §§ 8-101 et seq.).|
|Massachusetts||High-cost home mortgage loan||Loans delivered on or after November 7, 2004 that meet the definition of “high cost home mortgage loan” under the Massachusetts Predatory Home Loan Practices Act (Mass. Gen. Laws Ann. ch.183C).|
|New Jersey||High-cost home loan||Loans delivered on or after November 27, 2003 that meet the definition of “high-cost home loan” under the New Jersey Home Ownership Security Act of 2002 (N.J. Rev. Stat. §§ 46:10B-22 et seq.).|
|New Mexico||High-cost home loan||Loans delivered on or after January 1, 2004 that meet the definition of “high-cost home loans” under the New Mexico Home Loan Protection Act (N.M. Stat. Ann. §§ 58-21A-1 et seq.).|
|New York||High-cost home loan||Loans delivered on or after April 1, 2003 that meet the definition of “high-cost home loan” under the New York Banking Law § 6-l.|
|New York||Subprime home loan||Loans delivered on or after September 1, 2008 that meet the definition of “subprime home loan” under New York Banking Law § 6-m.|
|Rhode Island||High-cost home loan||Loans delivered on or after December 31, 2006 that meet the definition of “high-cost home loan” under the Rhode Island Home Loan Protection Act (R.I. Gen. Laws §§ 34-25.2-1 et seq.), notwithstanding the exemptions contained in § 34-25.2-11 of the Rhode Island law.|
|Tennessee||High-cost home loan||Loans delivered on or after January 1, 2007 that meet the definition of “high-cost home loan” under the Tennessee Home Loan Protection Act (Tenn. Code Ann. §§ 45-20-101 et seq.), notwithstanding the preemption provision contained in § 45-20-111 of the Tennessee law.|
If special assessments have been levied against the property and they are not paid before or at closing, the maximum loan 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 loan 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 loan 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.
Premium pricing refers to situations when a borrower selects a higher interest rate on a loan in exchange for a lender credit. The lender credit cannot be used to fund any portion of the borrower’s down payment, and should not exceed the amount needed to offset the borrower’s closing costs.
Any excess lender credit required to be returned to the borrower in accordance with applicable regulatory requirements is considered an overpayment of fees and charges, and may be applied as a principal curtailment or returned in cash to the borrower. See the following sections for additional details on lender credits derived from premium pricing:
In accordance with a regulation issued by the Federal Housing Finance Agency on March 16, 2012, and codified at 12 CFR Part 1228 (the “Private Transfer Fee Regulation”), Fannie Mae will not purchase or securitize loans on properties encumbered by private transfer fee covenants if those covenants were created on or after February 8, 2011, unless permitted by the Private Transfer Fee Regulation.
The lender must establish policies and/or procedures to ensure that the loans it delivers to Fannie Mae, whether or not the loans were originated by the lender, are not secured by properties encumbered with a private transfer fee that is unacceptable under the Private Transfer Fee Regulation. The policies and/or procedures will be reviewed by Fannie Mae as part of the lender’s operational review process.
As with all other federal, state, and local laws, the lender (and any third-party originator it uses) must be aware of, and in full compliance with, the Private Transfer Fee Regulation. (Refer to the Private Transfer Regulation for further detail concerning acceptable and unacceptable private transfer fee covenants, as well as the definitions of “private transfer fee” and “private transfer fee covenant.”)
For loans that are more than four months old from the date of the note and loan to the date the loan is sold to Fannie Mae, the current value of the property cannot be less than the original value. If the lender is unable to warrant that the current value of the property is not less than the original value of the property, the loan is not eligible for delivery to Fannie Mae by the lender except on a negotiated basis. In these instances, the loan must be submitted as part of a bulk transaction, which is subject to additional review by Fannie Mae to ensure the loan is eligible for sale.
Seasoned loans are loans that are more than one year old from the first payment date to:
the loan purchase date for whole loans, or
the pool issue date for MBS loans.
The table below provides the requirements for seasoned loans.
|✓||Seasoned Loan Requirements|
|Seasoned loans may not be included in Fannie Majors MBS pools. See Chapter C3–6, Pooling Loans into Fannie Majors.|
|The lender’s underwriting of the borrower’s credit and the security property for a seasoned loan must meet the current requirements set out in this Guide.|
|The borrower has not had a 30-day delinquency in the 12-month period that precedes the lender’s delivery of the loan to Fannie Mae.|
|If the current borrower assumed the loan and has owned the property for less than 12 months, he or she must have had no 30-day delinquency since purchasing the property.|
|The borrower’s ability to pay must not have changed adversely.|
|The current value of the property cannot be less than the original value. If the lender is unable to provide this warranty, the loan is not eligible for delivery to Fannie Mae by the lender except on a negotiated basis.|
|The status of the title to the property must not have been affected adversely.|
|The loan must satisfy Fannie Mae’s current applicable mortgage eligibility requirements.|
|If the loan is secured by a unit in a condo, co-op, or PUD project, the project must satisfy Fannie Mae’s current applicable project eligibility requirements.|
|If the loan was modified prior to delivery to Fannie Mae, it must be a modification that is eligible for delivery in accordance with the requirements of this Guide as described below under Modified Loans.|
|Except to the extent otherwise expressly permitted in the Selling Guide ( A2-3.2-01, Loan Repurchases and Make Whole Payments Requested by Fannie Mae), or the Servicing Guide with respect to the redelivery of loans to Fannie Mae, the loan being delivered cannot be one that was required to be repurchased by a secondary market investor, government-sponsored enterprise, or private institutional investor other than Fannie Mae for any documentation, underwriting, property valuation, or other deficiencies and/or issues with the property (including project eligibility if the property is in a condo, co-op, or PUD project), borrower credit or other deficiencies or for any other reason.|
A modified loan 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, 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 loan 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.
|Category of Modification||Owned or Securitized by Fannie Mae Prior to or at Time of Modification?||Eligible for Delivery to Fannie Mae After Modification?||Selling Guide or Servicing Guide Reference|
|Converted ARMs||Yes||Yes||Selling Guide: See B2-1.4-03, Convertible ARMs, for convertible ARMs that are redelivered to Fannie Mae after their removal from an MBS pool|
|Maturing Balloon with Conditional Right to Refinance or Modify||No||No||N/A|
|Borrower Principal Curtailment and Recast Over Remaining Term||Yes||N/A — No redelivery required||Servicing Guide: See Chapter C-1, Processing Mortgage Loan Payments|
|Changes to Borrowers Due to Death, Marriage, or Other Allowable Property Transfers||Yes||N/A — No redelivery required||Servicing Guide: See Chapter D1–4, Transfers of Ownership|
|Single-Closing Construction-to-Permanent Financing||No||Yes||Selling Guide: See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions|
|New York Consolidation, Extension, and Modification||No||Yes||Selling Guide: See B8-2-02, Special-Purpose Security Instruments|
|Modifications that Result in Material Changes to Loan Terms||No||No||Selling Guide: See Modified Loans, above|
A nonstandard payment collection option is a payment option that permits the borrower to make 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 loan is ineligible for delivery to Fannie Mae.
Lenders may offer nonstandard payment collection plans as part of a separate agreement; however, the 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 loan must be identifiable by the lender such that the information can be provided to Fannie Mae upon request.