Selling Guide

Published December 16, 2020

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B5-5.1-01, Community Seconds Mortgages (04/09/2013)

Introduction

This topic contains information on Community Seconds mortgages, including:

 

Community Seconds Overview

The specific terms and structures that are associated with a Community Seconds mortgage may vary depending upon the provider. Fannie Mae provides the eligibility requirements for subordinate Community Seconds mortgages in connection with first mortgages delivered to Fannie Mae. Mortgage loans delivered to Fannie Mae with a Community Seconds mortgage must meet Fannie Mae requirements or receive prior approval on a negotiated basis.

 

Review of Community Seconds Programs

The lender is responsible for reviewing the Community Seconds programs that are used in those transactions to ensure that the programs are in compliance with Fannie Mae’s requirements.

The Community Seconds Checklist includes a checklist that a lender may use to evaluate key considerations in determining whether to grant approval of a Community Seconds program.

The lender’s evaluation of the Community Seconds program must include a review of all of the documents applicable to the program, including the legal documents (such as the promissory note and the security instrument), the program description, and any other pertinent documents.

If the Community Seconds program includes recorded deed restrictions or option agreements, or local ordinances that impose similar restrictions, these restrictions and agreements must be evaluated for compliance with other Fannie Mae policies, such as those applicable to resale restrictions (see Section B5–5.3, Loans with Resale Restrictions).

The lender must determine that the deed of trust or mortgage for the Community Seconds mortgage is clearly subordinate to the first mortgage lien. The title insurance in effect must ensure priority of the first mortgage being delivered to Fannie Mae by showing the Community Seconds mortgage in a subordinate position.

The Community Seconds documents do not need to explicitly state the fact that the Community Seconds mortgage will be subordinate to the first mortgage; however the documentation must allow the holder of the first mortgage to foreclose and acquire title to the property free and clear of all interests of the Community Seconds provider.

Note: If a provider assumes the first mortgage and cures all outstanding defaults under that mortgage, the Community Seconds financing may be maintained.

 

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