Selling Guide

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B4-2.3-04, Loan Eligibility for Co-op Share Loans (08/07/2019)

Introduction

This topic contains information on loan eligibility for co-op share loans, including:

 

Overview

Co-op share loans finance the purchase or refinancing of the borrower’s ownership interest in a co-op housing corporation and accompanying occupancy rights in a residential unit in a co-op project owned by the co-op housing corporation. The property that secures Fannie Mae’s first lien is the borrower’s ownership interest in a co-op housing corporation that is represented by stock or shares in the co-op housing corporation (or by a membership certificate or other contractual agreement evidencing ownership) and an assignment of the borrower’s rights under a proprietary lease or occupancy agreement with the co-op housing corporation.

 

Co-op Share Loan Eligibility Requirements

Fannie Mae will purchase co-op share loans provided borrowers occupy the property as a principal residence or second home. Investment properties are prohibited. Fannie Mae does not purchase or securitize co-op share loans that are subject to subordinate financing except for high LTV refinance transactions.

For the applicable credit score, minimum reserve requirements, and maximum debt-to-income ratio requirements, see the Eligibility Matrix.

 

Calculating the LTV Ratio for Co-op Share Loans

The method for calculating the LTV ratio for a co-op share loan is based on whether the borrower assumes his or her pro rata share of the blanket mortgage or does not. In those markets where the borrower assumes his or her pro rata share of the blanket mortgage, the LTV ratio is determined by dividing the original loan amount by the lower of

  • the sales price for the co-op unit (unencumbered by the unit’s pro rata share of the co-op project’s blanket mortgage(s)), or

  • the appraised value of the co-op stock or shares and the related occupancy rights (unencumbered by the unit’s pro rata share of the project’s blanket mortgage(s)).

In those markets where the borrower does not assume his or her pro rata share of the blanket mortgage, then the LTV ratio is determined by dividing the original loan amount by the lower of

  • the sales price for the co-op unit, or

  • the appraised value of the co-op stock or shares and the related occupancy rights.

 

Co-op Share Loans Subject to Flip Tax

Co-op share loans secured by units in co-op projects that require the payment of a “flip tax” are eligible for delivery as long as the co-op project’s legal documents permit the imposition of a flip tax and provide for one of the following:

  • the lender is exempt from paying the flip tax if the lender acquires the co-op unit in foreclosure, in a transfer by the borrower in lieu of foreclosure, or any other transfer of the borrower’s interest in the co-op unit in full or partial satisfaction of the borrower’s obligations under the co-op share loan; or

  • the flip tax is payable when the sales price of the co-op unit exceeds the existing unit owner’s purchase price (based on property appreciation) and then is assessed only on the amount of the appreciation in value (this flip tax is profit-based).

If the flip tax does not meet one of these requirements and is due whether or not the sales price exceeds the existing unit owner’s purchase price, then it may still be eligible as long as the amount of the flip tax is less than or equal to 5% of the value of the property (calculated as the lesser of appraised value or sales price) and it is calculated in one of the following ways:

  • a flat fee,

  • a fee per share,

  • a percentage of the appraised value or sales price of the co-op unit, or

  • a dollar amount per room.

 

Co-op Share Loan Documentation

Fannie Mae does not publish multistate standard co-op share loan instruments because of the variations in state laws pertaining to the co-op form of ownership. If a lender elects to use the Fannie Mae fixed-rate note forms for co-op share loans, the lender represents and warrants that the notes comply with all applicable laws and regulations for co-op share loans in and are enforceable and negotiable under the laws of the applicable jurisdiction.

Fannie Mae publishes state-specific documentation requirements for states in which Fannie Mae purchases co-op share loans on Fannie Mae's website. Those requirements describe documents that must be delivered to the document custodian (for example, co-op Recognition Agreement, assignments to Fannie Mae, and evidence of share ownership) and documents that the lender must retain in the individual loan file.

 

Whole Loan and MBS Delivery Requirements

Co-op share loans may be delivered as whole loans in standard commitments. Co-op share loans pooled in MBS may be eligible for delivery as long as they meet the requirements in

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