Selling Guide

Published June 3, 2020

The Selling Guide is organized into parts that reflect how lenders generally categorize various aspects of their business relationship with Fannie Mae. To begin browsing, select from any of the sections below. You may also download the entire Selling Guide in PDF format.

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E-3, Glossary of Fannie Mae Terms: L thru Z

Guide Glossary of Fannie Mae Terms (L thru Z)

This provides a list of terms used throughout the Guide with associated definitions.




late charge

A penalty that a borrower must pay when a mortgage payment is made a stated number of days (usually a minimum of 15) after its due date.

last paid installment date

The due date of the last paid installment that had been collected for the mortgage.


A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

leasehold estate

A way of holding title to a property wherein the borrower does not actually own the property but rather has a recorded long-term lease on it.

lender-purchased mortgage insurance

Mortgage insurance coverage for a conventional mortgage loan that the lender pays for by using its own funds, rather than requiring the borrower to include periodic accruals for such coverage as part of his or her mortgage payment.

liability insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

limited cash-out refinance

A refinance transaction in which the mortgage amount generally is limited to the sum of the unpaid principal balance of the existing first mortgage, closing costs (including prepaid items), points, and the amount required to satisfy any mortgage liens if the documented proceeds of the subordinate financing were solely used to acquire the property (if the borrower chooses to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed the lesser of $2000 or 2% of the principal amount of the new mortgage).

limited liability company (LLC)

A flexible form of business enterprise that blends elements of partnership and corporate structures.

living trust

See inter vivos revocable trust.

loan amount

The original amount of the loan as indicated by the note; also known as the original loan amount or original principal balance.

Loan Delivery

A Fannie Mae Web-based application that allows a lender to electronically prepare, edit, and transmit information from the Schedule of Mortgages for various MBS pool purchase transactions and whole loan/cash deliveries.

loan estimate

A form required by federal law that provides disclosures to borrower(s) to help them understand the key features, costs, and risks of the mortgage loan for which they are applying. References to the “loan estimate” include the Loan Estimate and Good Faith Estimate forms, as applicable, based on the application date of the mortgage loan.

Loan Quality Center (LQC)

A division of Fannie Mae that reviews acquired loans to confirm that the loans meet underwriting and eligibility requirements.

loan-level price adjustment (LLPA)

LLPAs are assessed based on certain eligibility or other loan features, such as credit score, loan purpose, occupancy, number of units, product types, etc. For whole loan transactions, LLPAs will be deducted from (or credited to) the loan proceeds.

loan-to-value (LTV) ratio

The relationship between the original loan amount of the first mortgage and the property’s appraised value (or sales price, if it is lower).

long-term standby purchase commitment

A negotiated structure that enables a lender to reduce its credit exposure by paying a monthly commitment fee on an identified portfolio of mortgages in exchange for the lender’s agreement to deliver on a mandatory basis, and Fannie Mae’s agreement to purchase any mortgage at par should it become a specified number of months delinquent after the date of the commitment.

look-back period

The date on which the index value that will be used to establish the next interest rate change for an ARM is determined. It is a specified number of days (at least 45) before the interest rate change date.

losses incurred by Fannie Mae

See Fannie Mae losses.



make whole payment

The amount that a party responsible for a breach of a selling representation or warranty or a servicing breach must pay Fannie Mae so that Fannie Mae does not incur a loss on the mortgage or the property.

management escalation process

An option available to an eligible lender to use to resolve loan-level disputes that were not resolved through the appeal or impasse processes.

mandatory delivery commitment

A whole loan commitment that generally requires the lender to deliver eligible mortgages equal to at least the minimum required delivery amount (which is an amount that will not be less than the original commitment amount by more than $10,000 or 2.5% of the original amount) by the expiration date of the commitment.


The amount that is added to an index value to create the mortgage interest rate for an ARM; an amount (expressed as a percentage) that is used in the calculation of the purchase price for an As Soon As Pooled transaction.

margin call

When two parties have entered into one or more MBS trades, one party has the right to request funds from the other party due to a change in the market value of the securities. The right of one party to make a margin call on another party may be subject to a designated threshold amount and minimum transfer amount.

market data approach

See sales comparison approach to value.

market-rate option

A post-conversion disposition option that allows the lender to determine whether it wants to redeliver a repurchased convertible adjustable-rate mortgage that was in an MBS pool to Fannie Mae following its conversion to a fixed-rate mortgage or to retain the repurchased mortgage for its portfolio.

Master Agreement

A negotiated contract that enables lenders to submit multiple transactions—both standard and negotiated—under the terms of a single agreement. Terms are specifically negotiated with each lender.

master association

A governing association in a large condo or PUD community that is made up of representatives from associations covering specific areas within the project. In effect, it is an “umbrella” association that handles matters affecting the entire development, while the “sub” associations handle matters affecting their particular portions of the project.

master servicer

A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae and has contracted with a subservicer under a subservicing arrangement.

maximum claim amount

The lesser of the appraised value of a property and the maximum loan amount that FHA can insure for a one-unit residence in the area where the property is located; a component that is used in determining the borrower’s principal limit for an FHA home equity conversion mortgage.

maximum pool accrual rate

The maximum interest rate that can accrue on an ARM MBS pool. For stated-structure ARM MBS pools, it must be evenly divisible by 0.125% and must be less than or equal to the lowest mortgage interest rate ceiling in the pool (after appropriate deductions have been made for the guaranty fee and the minimum servicing fee).

maximum weighted-average pool accrual rate

The weighted average of the mortgage interest rate ceilings (less the lender’s retained spread) of the mortgages in a weighted-average ARM MBS pool.

MBS Express pool

An MBS pool for which the servicer remits “unscheduled” principal payments to Fannie Mae on the 4th business day of the month and “scheduled” principal and interest payments on the 18th calendar day (or the preceding business day if the 18th is not a business day).

MBS Express remittance cycle

A payment cycle used for scheduled/scheduled remittance types for MBS pools that has two different remittance dates—one for unscheduled principal payments and one for scheduled principal and interest payments.

MBS margin

One of the factors used to establish the pool accrual rate for an ARM MBS pool on each interest rate change date. For stated-structure ARM MBS pools, it is the difference between the lowest mortgage margin in the pool and the sum of the guaranty fee and the minimum servicing fee. For weighted-average ARM MBS pools, the MBS margin may be a fixed margin that the lender specifies or a weighted-average margin. A “fixed” MBS margin is attained by varying the servicing fee for individual mortgages to equalize the differences in their mortgage margins. A “weighted-average” MBS margin is attained by reducing the various mortgage margins by the applicable guaranty fee and a fixed servicing fee that the lender specifies, thus developing a different MBS margin for each mortgage.

MBS pool

All of the mortgages or participation interests in mortgages (delivered under one or more contracts) that will secure an individual issuance of MBS.

MBS pool delivery

Group or groups of mortgages (or participation interests in mortgages) delivered by a lender for the purpose of creating a pool to back an MBS issuance. These deliveries are accepted in one or more pool purchase transactions, rather than being accepted as individual mortgages (or participation interests) to be held in Fannie Mae’s portfolio. Deliveries under this program are, therefore, referred to as MBS pool deliveries.

MBS mortgage

A mortgage or participation interest in a mortgage that is part of an MBS pool.


A pass-through security backed by groups of existing Fannie Mae MBS or other existing Megas.

minimum borrower contribution

The minimum borrower contribution is an amount of funds described as a percentage that is generally required to be paid toward the down payment, closing costs, and financial reserves. The contribution may be required from the borrower’s own funds or in some cases from other eligible sources of funds.

minimum coupon rate

The rate of interest due Fannie Mae for a participation pool, which ensures that Fannie Mae receives the required yield and the servicer receives an appropriate servicing fee; it is generally derived by multiplying the required commitment yield by Fannie Mae’s percentage interest in the pool and then adding the applicable minimum servicing fee to the result.

minimum transfer amount

A specified amount of money that must be exceeded before a margin call can be made.

mixed use project

A project comprised of residential and non-residential (commercial) space, often featuring separate associations that represent the different components.


The act of changing any of the terms of the mortgage by agreement between the borrower and the note holder.

monthly operating income

Income from the rental of an investment property that is determined by reducing the annual effective gross income for the property by the annual operating expenses and dividing the result by 12. This calculation is used to determine whether a borrower who will occupy one unit of a two- to four-unit property as his or her principal residence qualifies for a mortgage.

monthly payment

The monthly payment of principal and interest collected by mortgage lenders. This may also include escrow items for taxes and insurance and is therefore called the housing payment.

monthly payment mortgage

A mortgage that requires payments to reduce the debt once a month.

monthly remittance

The total of the interest and principal distribution amounts that a lender is obligated to remit to Fannie Mae on each remittance date. For scheduled/scheduled remittance types, this represents scheduled principal reductions and scheduled interest accruals, whether or not payments were collected from the borrowers. For scheduled/actual remittance types, this represents scheduled interest accruals (whether or not payments were collected from the borrowers) and actual principal collections.

Moody’s Investors Service

A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.


Collectively, the security instrument, the note, the title evidence, and all other documents and papers that evidence the debt (including the chattel mortgage, security agreement, and financing statement for a co-op share loan).

mortgage-backed security (MBS)

An investment instrument that represents an undivided interest in a pool of mortgages.

mortgage impairment insurance

A type of insurance coverage that protects the lender against the lack or inadequacy of insurance coverage for a specific mortgage if the lender is not directly responsible for the insufficiency.

mortgage insurance (MI)

A financial backing type under which a private insurer (and sometime a state or local entity) insures the mortgagee against losses from borrower default, by agreeing to cover a percentage of the losses in return for the payment of a specified mortgage insurance premium.

mortgage interest rate

The rate of interest in effect for the periodic installment due. For fixed-rate mortgages or for ARMs that have an initial fixed-rate period, it is the rate in effect during that period. For ARMs after any initial fixed-rate period, it is the sum of the applicable index and the mortgage margin (rounded as appropriate and subject to any per-adjustment or lifetime interest rate ceilings).

mortgage interest rate ceiling

For an ARM, the maximum interest rate over the life of the loan. It is determined by applying a “lifetime cap” to the initial mortgage interest rate.

mortgage loan

An individual secured loan that is sold to Fannie Mae as a whole loan or in a pool of mortgages underlying Fannie Mae-guaranteed MBS. The term includes a participation interest in a mortgage loan where context requires. In this Guide, a mortgage loan also may be referred to as a mortgage or a loan.

mortgage margin

The amount that is added to the index value to establish the mortgage interest rate on each interest rate change date (subject to any limitations on the interest rate change) for an ARM.

mortgage note

The note or other evidence of indebtedness for a mortgage loan.

Mortgage Selling and Servicing Contract (MSSC)

The contract that establishes the basic legal relationship between a lender and Fannie Mae.

mortgagee interest insurance

See mortgage impairment insurance.

multi-dwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage; e.g., two to four units.

multifamily mortgage

A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

multiple pool

An MBS pool that consists of pools of mortgages delivered by more than one lender; also called Fannie Majors.

multiple pool transaction

An MBS transaction in which mortgages delivered by several individual lenders are combined into one large pool for the sole purpose of backing all or part of an issuance of MBS.

multiwidth manufactured home

A manufactured home that is created by joining two or more single-width sections that are built and towed separately to the site and joined together to create one living unit. Typical models are 24 feet wide and 60 feet long, offering about 1,400 square feet of living area.

municipal utility districts

See special assessment districts.



National Credit Union Administration (NCUA)

The regulator of the credit union industry.

net cash flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense (which includes PITI for the mortgage, homeowners’ association dues, leasehold payments, and subordinate financing payments).

net mortgage ceiling

The mortgage ceiling for an adjustable-rate mortgage after the minimum servicing fee has been subtracted.

net mortgage interest rate

The mortgage interest rate less the lender’s servicing spread (which may be a minimum servicing fee plus any excess yield or a servicing fee and a guaranty fee, depending on whether the mortgage is a portfolio mortgage or an MBS mortgage).

net mortgage margin

The mortgage margin shown in the ARM note and rider after the minimum servicing fee has been subtracted.

net note rate

The mortgage interest rate after the applicable servicing fee and any guaranty fee for Fannie Mae’s various product types have been subtracted.

net worth

The value of all of a company’s (or individual’s) assets—including cash—less its total liabilities. It is used to indicate financial strength.

newly converted project

A condo or co-op project that was converted from an apartment or other use is defined as a newly converted project until it fully meets Fannie Mae’s definition of an established project.

non-gut rehabilitation

A project that has been developed by rehabilitating an existing building and converted into individual units. The building, its mechanical equipment, and individual units typically have not been substantially rehabilitated or replaced.




See functional depreciation.

operating expenses

The costs of maintaining an investment property, such as expenses for electricity, gas, fuel oil, water/sewer, trash removal, pest control, license fees, painting/decorating, general repairs/maintenance, supplies, casual labor, professional management fees, and replacement reserves.

original issue settlement

The standard settlement option for a newly originated MBS, which results in the mortgage-backed security being assigned directly to Fannie Mae when the pools are delivered, and subsequently being delivered to the trading desk (which will wire the funds to pay for the security to the lender on the settlement date).

original loan amount

See loan amount.

origination fees

The fee(s) charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property. The fee(s) are usually computed as a percentage of the face value of the mortgage.




A process under which a lender that is unable to meet the terms of a mandatory delivery commitment either pays Fannie Mae a fee or, under certain circumstances for whole loan transactions, receives cash back from Fannie Mae, calculated against the unused portion of the commitment.


The face value of the mortgage (the unpaid principal balance) equals its selling price (100%—there are no discounts or premiums).

participation certificate

The instrument that evidences an undivided interest in mortgages and obligations secured thereby.

participation interest

An individual interest in a mortgage, as specified in the applicable participation certificate.

pass-through rate

The rate at which interest is paid to Fannie Mae for a mortgage. For mortgages held in Fannie Mae’s portfolio, it is the lower of the required yield or the mortgage interest rate after deduction of a minimum servicing fee.

payee code

A number used to identify warehouse or wire transfer banks, which the lender places on its loan schedule for cash deliveries to ensure that purchase proceeds are sent to the appropriate party (if they are to be paid to anyone other than the lender).

payment change date

The date on which the payment changes for an ARM; the effective date that a new amount is due from a borrower. It must fall in the month immediately following an interest rate change date (unless an ARM provides for the monthly payment to change more frequently than the interest rate).

payment rate

The percentage rate used to calculate the mortgage payment when the payment will not fully amortize the mortgage. It differs from the interest accrual rate.


A paystub, pay slip, pay advice, paycheck notice, or payroll earnings statement is a document produced by the borrower's employer and provided to the borrower that evidences the borrower's income. Paystubs typically detail the gross income and all taxes and other deductions, such as retirement plan contributions, insurance, garnishments, or charitable contributions taken out of the gross amount for the current pay period. Paystubs generally include year-to-date earnings.

physical depreciation (deterioration)

A loss in value that is caused by deterioration in the physical condition of a property’s improvements.

planned unit development (PUD)

A real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space). Fannie Mae does not purchase or securitize mortgages secured by PUD projects; it does purchase or securitize mortgages on individual units in a project.


A collection of mortgages (or participation interests) delivered pursuant to one or more pool purchase contracts that secure an individual issuance of MBS.

pool accrual rate

The rate of interest that accrues to the security holder of a stated-structure ARM MBS pool. It is subject to change in accordance with adjustments to the index.

pool issue date

The first day of the month in which MBS are issued.

pool purchase contract

A contract between Fannie Mae and a lender to buy and sell mortgages or participation interests for inclusion in an MBS pool. It will be uniquely identified by a pool purchase contract number that appears on its face.

pool purchase transaction

Any MBS transaction between Fannie Mae and a lender in which Fannie Mae purchases a group of mortgages or participation interests from the lender for the sole purpose of backing all or part of an issuance of MBS.

pool transaction amount

The total of the issue date principal balances of all mortgages or participation interests included in a pool purchase transaction.

portfolio mortgage

A whole mortgage purchased by Fannie Mae to hold in its mortgage portfolio.

prearranged refinancing agreement

A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

premium pricing

When a borrower elects to pay a higher interest rate on a mortgage loan in exchange for a lender credit provided at closing (also referred to as premium financing).

prepayment penalty

A charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the lender imposes if the borrower prepays all of the transaction’s principal sooner than 36 months after loan closing.

price-adjusted loan (PAL)

One or more defects that, when considered with other loan features, and based on the facts of the loan as purchased or securitized by Fannie Mae, result in a loan that was otherwise eligible for delivery to Fannie Mae had the correct data been delivered and LLPA been paid to Fannie Mae by the lender.

price differential

The aggregate amount obtained by applying the pricing rate for an As Soon As Pooled Plus transaction to the purchase price on a daily basis (using a 360-day year) for the actual number of elapsed days beginning with the purchase date and ending with the date preceding the repurchase date.

pricing rate

The per annum percentage rate that is used for determining the price differential between the purchase price and the repurchase price for an As Soon As Pooled Plus transaction.

principal distribution amount

For a particular remittance date, Fannie Mae’s share of the aggregate principal portions of the monthly installments for mortgages in an MBS pool that became due from the second day of the preceding month to and including the first day of the remittance month (whether or not they were actually collected) and those unscheduled principal recoveries that were collected during the month preceding the month in which the remittance is made. This is the principal amount that will be drafted from the servicer’s custodial account.


A dwelling or dwellings comprising two or more single-family units established as a condo, co-op, or PUD project.

project documents

Recorded legal documents for a project and any master association that pertain to the formation of the project, the rights of the developer and limitations on the actions of the developer, the operation of the association, and sales of units in the project. The documents include, but are not limited to, the declaration of condominium or master deed; by-laws, rules, and regulations; articles of incorporation; governing documents; covenants, conditions, and restrictions (CC&Rs); offering circulars; and agreements as applicable to the project as well as any documents related to a master association or the overall project.

project legal phase

A development phase that is defined in the project documents. A project legal phase is not the same as a construction or marketing phase.

property insurance

Insurance coverage that compensates for physical damage—by fire, wind, or other natural disasters—to the property. (This type of coverage was previously referred to as hazard insurance.)

proprietary lease

A lease that a co-op corporation gives to a tenant-stockholder to cover the unit that he or she will occupy. The lease is called proprietary because the tenant-stockholder is both a shareholder in the landlord co-op corporation and a tenant under the lease.

purchase date

The date on which Fannie Mae disburses the purchase proceeds for a whole loan delivery; the date on which Fannie Mae purchases a pool or mortgage loan in an early funding transaction.

purchase money transaction

The acquisition of property through the payment of money or its equivalent.



No Applicable Terms



rapid payment method (RPM)

A payment cycle used for scheduled/scheduled remittance types for MBS pools that has an early remittance date (usually the tenth of the month, although earlier or later dates can be negotiated) for both scheduled and unscheduled payments.

Real Estate Mortgage Investment Conduit (REMIC)

A type of multi-class mortgage-related security in which interest and principal payments from mortgages or mortgage-related securities are structured into separately traded securities.

real estate owned (REO)

Other real estate owned by the borrower (such as an investment property).

reciprocal easement

The right of unit owners in different phases of an overall condo development to use the roads, parking areas, etc., in other phases of the development, through the creation of cross-easements.

recognition agreement

An agreement on the part of a co-op corporation to recognize specific rights of lenders who finance share loans in the project (or those of the lenders’ successors and assigns).


The obligation of the lender to cover losses the buyer incurs as a result of a default on the note. Under a whole loan transaction, a lender that sells a mortgage to Fannie Mae under the “with recourse” servicing option assumes the entire risk of borrower default, while a lender that sells a mortgage under the “without recourse” servicing option transfers the risk of borrower default to Fannie Mae. (See regular servicing option and special servicing option for equivalent terms for MBS transactions.)

refinance transaction

The repayment of a debt from the proceeds of a new loan using the same property as security. Fannie Mae also considers the current owner’s placement of financing on a property that is not financed as a refinance transaction.

regular servicing option

A guaranty fee option for an MBS pool under which the lender assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which the servicer is fully responsible for any losses not recovered from RD. (See recourse for the equivalent term for a whole loan delivery.)

regularly amortizing mortgage

A collective term that Fannie Mae uses to differentiate “forward” mortgages from reverse mortgages. Mortgages that fall into this category include fully amortizing mortgages and partially amortizing mortgages (such as balloon mortgages).

rehabilitation mortgage

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

relocation loan

An owner-occupied purchase money loan, originated pursuant to an established employee relocation program, administered by the employer (or its agent), where the employer relocates employees as part of its normal course of business.


The borrower’s spouse, child, or other dependent or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.

remaining term

Original term less the number of payments that have been applied.

remittance cycle

A schedule for determining when funds must be remitted to Fannie Mae each month. Portfolio mortgages generally have only a single remittance cycle (regardless of the remittance type), but MBS mortgages have three different remittance cycles (standard, RPM, or MBS Express).

remittance type

A way of determining the composition of the servicer’s required remittance to Fannie Mae. For portfolio mortgages, there are three types—Actual/Actual, Scheduled/Actual, and Scheduled/Scheduled.

replacement reserve fund

A dedicated fund set aside for the repair and replacement of common property in a condo, co-op, or PUD project.

repurchase date

The date through which interest must be calculated when a lender is required to repurchase a mortgage or an acquired property from Fannie Mae; the date on which the lender redelivers mortgages funded in certain early funding transactions to Fannie Mae for whole loan purchase or for securitization under an As Soon As Pooled Sale transaction.

required yield

Fannie Mae’s posted commitment yield plus all applicable adjustments. This yield does not include a servicing fee.

residential mortgage credit report

A detailed account of the credit, employment, and residence history (as well as public records information) of an individual.

responsible party

A seller, servicer, or other entity that is responsible for the selling representations and warranties and/or for the servicing responsibilities or liabilities on a mortgage loan.

retail origination

A mortgage loan for which the mortgage loan seller takes the mortgage loan application and then processes, underwrites, funds, and delivers the mortgage loan to Fannie Mae. The loan is closed in the name of the mortgage loan seller, which may or may not service the loan. This definition may include joint ventures between the mortgage loan seller and another entity, provided that the mortgage loan seller retains control of the joint venture (either through majority ownership or voting rights).

revolving debt

An arrangement for credit in which the customer receives purchases or services on an ongoing basis prior to payment. Repayment is usually at regular intervals but not for a specified amount or term. Example: charge cards.

right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

right of ingress or egress

The right to enter upon or leave from designated premises.

Rural Development (RD)

A government agency within the U.S. Department of Agriculture (USDA) that makes direct loans and guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers who meet income eligibility requirements. Formerly the Rural Housing Service (RHS).



sales comparison approach to value (or market data approach)

A method of measuring the value of a property based on an analysis of comparable sales, contract offerings, and listings of properties that are the most comparable to the property that is being appraised.

sales contract

A contract for the purchase/sale, exchange, or other conveyance of real estate between parties. The contract must be in writing, contain the full names of the buyer(s) and seller(s), identify the property address or legal description, identify the sales price, and include signatures by the parties. Sales contracts are also known as agreements of sale, purchase agreements, or contracts for sale.

same month pooling

An option for creating MBS pools that allows a lender to include in a pool mortgages that close in the same month that the related MBS is issued (which means that they will have their first payment due two months after the MBS issue date).

scheduled/actual remittance type

A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due (whether or not it is collected from borrowers) and the actual principal payments collected from borrowers.

scheduled/scheduled remittance type

A method of sending mortgage payments to Fannie Mae requiring lenders to remit the scheduled interest due and the scheduled principal due (whether or not payments are collected from borrowers).

second mortgage (or subordinate lien mortgage loan)

A mortgage loan that has a lien position subordinate to the first mortgage. Also called subordinate lien mortgage loan.

secondary mortgage market

The financial market in which residential mortgages and mortgage-related securities are bought and sold.

security balance

The balance for an MBS mortgage (or a participation interest in an MBS mortgage) that is determined by reducing Fannie Mae’s share of the issue date principal balance of the mortgage by its share of any principal distribution amounts included in subsequent monthly remittances; the balance for an MBS pool that represents the aggregate security balance of all the mortgages (or participation interests) in the pool as of any date, which is equal to the aggregate issue date principal balances of the mortgages (or participation interests) less any subsequent principal distribution amounts.


A Fannie Mae approved servicer that is contractually obligated to service one or more mortgage loans for Fannie Mae. Also refers to a subservicer if there is a subservicing arrangement.

servicing compensation

The income that a servicer receives for the collection of payments and management of operational procedures related to a mortgage. It includes a base servicing fee, plus late charges, fees charged for special services, yield differential adjustments or excess yield, and, sometimes, prepayment premiums.

Servicing Execution Tool (SET)

SET is a web-based solution for facilitating the concurrent transfer of servicing rights from the lenders that commit and sell mortgage loans to Fannie Mae using Fannie Mae’s whole loan committing application to approved Fannie Mae servicers, while providing a servicing-released premium best execution price.

servicing fee

The monthly fee, generally expressed in basis points, that a lender retains from borrowers’ interest payments as compensation for servicing loans on an investor’s behalf.

servicing spread

The fixed percentage amount for each mortgage or participation interest in a weighted-average ARM MBS pool that consists of the guaranty fee and the servicing fee. It cannot be less than the sum of the minimum allowable servicing fee and the guaranty fee applicable to the pool, nor greater than the sum of the maximum allowable servicing fee and the guaranty fee.

settlement date

The date that the sale of an MBS is settled and funds are paid or transferred. It may be the same day that the securities are issued to the designated book-entry account.

settlement statement

A form required by federal law that provides disclosures to borrower(s) of the final loan terms and costs of the mortgage loan transaction. References to “settlement statement” include the HUD-1 Settlement Statement and Closing Disclosure forms, as applicable, based on the application date of the mortgage loan.

significant defect

One or more defects that either necessitate a change to the price on which the loan was acquired or result in the loan being unacceptable for purchase had the true and accurate information about the loan been known at time of purchase. In determining whether there is a significant defect, Fannie Mae must give due consideration to the severity of the defect. The defect must also meet certain criteria established in this Guide.

significant interest rate buydown

A temporary reduction in the initial interest rate of a mortgage loan that provides for either more than a 2% difference between the actual interest rate as stated in the note and the “bought-down” interest rate, or a buydown period greater than two years. Fannie Mae restricts the percentage of an MBS pool that can be comprised of mortgages with this type of buydown. Requires SFC 014 at delivery.

single entity owner

The same individual, investor group (e.g., developer, sponsor, builder), partnership, or corporation that owns multiple units in a condo or co-op project. In its examination for project eligibility, the lender must determine compliance with Fannie Mae’s single entity ownership requirements.

single pool

An MBS pool that consists of mortgages or participation interests delivered by a single lender.

single-family mortgage loan

A mortgage loan secured by a property that contains one to four residential dwelling units.

special assessment districts (or municipal utility districts)

Jurisdictions that have been granted the authority to assess owners of properties within their boundaries for funds that will be used to cover the operating costs and debt service they incur for providing water or other utilities for the area (since it is not served by existing city or municipal utility services).

special deposit account

An account that is established for renovation mortgages to hold the funds needed for the renovation work so they can be disbursed from time to time as particular portions of the work are completed.

special feature codes (SFC)

Codes that Fannie Mae uses to identify certain characteristics related to individual mortgage loans, mortgage products, or negotiated transactions. A lender must specify these codes when they apply to mortgages delivered to Fannie Mae.

Special Flood Hazard Area (SFHA)

The land in the flood plain within a community having at least a 1% chance of flooding in any given year, as designated by FEMA.

special lender obligations

Special requirements or undertakings that a lender agrees to honor in connection with the purchase or securitization of mortgages—such as credit support obligations; repurchase obligations; and recourse, loss-sharing, or indemnity obligations.

special servicing option

A guaranty fee option for an MBS pool under which Fannie Mae assumes the entire risk of loss from a borrower default; a servicing option for RD-guaranteed mortgages under which Fannie Mae will bear all losses not recovered from the RD. (See recourse for the equivalent term for a whole loan delivery.)

Standard and Poor’s Ratings Services

A credit rating agency that, among other things, assigns credit ratings to debt issuers and the debt instruments themselves, as well as to title insurance companies and custodial depositories, by evaluating their assets and liabilities.

standard pricing option

A pricing method under which all mortgages delivered under a single commitment will be priced based on the relationship of their specific pass-through rate to the commitment’s single required yield. Standard pricing can result in either a par price or a discount price, but not a premium price.

standard remittance cycle

A payment cycle used for scheduled/scheduled remittance types for MBS pools that requires the scheduled and unscheduled payments to be remitted to Fannie Mae on the 18th calendar day of each month (or on the preceding business day if the 18th is not a business day).


Any state, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States.

stated-structure pooling

A method of creating an ARM MBS pool that results in interest accruals to the security holder at the stated pool accrual rate.

structured transactions

Multi-class or multi-tranche Fannie Mae securities and/or single-class Fannie Mae MBS that are resecuritizations of other single-class Fannie Mae MBS.


A housing development that is created by dividing a tract of land into individual lots for sale or lease.

subordinate financing

Any mortgage or other lien that has priority lower than that of the first mortgage.

subordinate lien mortgage loan

Seesecond mortgage.


A Fannie Mae approved servicer that is contractually obligated to a master servicer to perform substantially all of the ongoing servicing activities for one or more mortgage loans for the master servicer.

subservicing arrangement

An arrangement wherein the master servicer of one or more Fannie Mae mortgage loans hires a subservicer to subservice substantially all of its subservicing functions.

swing loan

See bridge loan.



take-out option

A post-conversion disposition option that requires the lender to redeliver as a whole loan a repurchased convertible adjustable-rate mortgage that was in an MBS pool following its conversion to a fixed-rate mortgage and to continue any recourse or credit enhancement that initially applied to the mortgage (unless Fannie Mae agrees it is no longer needed).

temporary interest-rate buydown

A temporary reduction in the effective interest rate that a borrower pays during the early years of a mortgage term, which is made possible by the property seller or another acceptable party depositing a lump sum of money into a buydown account so that it can be released each month to reduce the borrower’s payments.


The obligee for a co-op share loan, who is both a stockholder in the co-op corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

Texas Section 50(a)(6) loan

A loan originated in accordance with and secured by a lien permitted under the provisions of Article XVI, Section 50(a)(6), of the Texas Constitution, which allows a borrower to take equity out of a homestead property under certain conditions. Article XVI, Section 50(a)(6), of the Texas Constitution is sometimes referred to as Texas Constitution Section 50(a)(6).

timeshare project

A real estate development in which a purchaser can buy the exclusive right to occupy a unit for a specified period of time each year.

title insurance

Insurance against loss resulting from defects in the title to real property.

trade equity

Equity that results from a property purchaser giving his or her existing real property as trade as all or part of the down payment for the property that is being purchased.

transfer of ownership

Any means by which the ownership of property changes hands. Fannie Mae considers the transfer of all or any part of the property or any interest in the property to be a transfer of ownership, including: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract, grant deed, or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, Fannie Mae also considers any transfer of a beneficial interest in the trust to be a transfer of ownership.

Treasury index

An index that is used to determine interest rate changes for certain ARM plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields and actively traded Treasury securities in the over-the-counter market.

two- to four-unit condo project

A project comprised of two to four residential units in which each unit is separately owned. A two- to four-unit project may be either a new or established project and may be comprised of attached and/or detached units.

two- to four-unit property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.



underwriting documents

All of the documentation used to support the lending decision for a mortgage—such as the loan application and other documents used to verify a borrower’s employment, income, deposits, and credit history.

Uniform Commercial Code (UCC)

A comprehensive codification and modernization of commercial law (but excluding law dealing with real property).

Uniform Electronic Transactions Act (UETA)

Any of several state adoptions of an Act that has provisions for the use of electronic signatures and records in interstate commerce that are virtually identical in all material respects to similar provisions of ESIGN.

Uniform Mortgage-Backed Security (UMBS)

A common security issued by the GSEs that is eligible for trading in the To-be-Announced (TBA) market. The securities are backed by fixed-rate loans secured by single-family one-to-four unit properties and are identified by certain pool prefixes.

unit mortgage

A mortgage (or share loan) on an individual residential unit in a planned unit development, condo, or co-op project.

unpaid principal balance (UPB)

The actual balance of the mortgage as of the last paid installment date (also referred to as the “outstanding principal balance”).



VA-guaranteed mortgage

A mortgage that is guaranteed by the U.S. Department of Veterans Affairs; may be referred to as a “government” mortgage.

voluntary conveyance

See deed in lieu of foreclosure.



weighted-average pool accrual rate

The weighted average of the net mortgage interest rates of the mortgages in a weighted-average ARM MBS pool, which is the rate at which interest will accrue on the MBS.

weighted-average structure pooling

A method of creating an ARM MBS pool that results in interest accruals to the security holder at the weighted average of the accrual rates of the mortgages in the pool.

whole loan delivery

The submission of a whole mortgage or a participation pool mortgage to Fannie Mae for purchase as a portfolio mortgage. Fannie Mae pays the mortgage seller cash for its mortgage delivery, rather than swapping the mortgage for a mortgage-backed security.



No Applicable Terms




Return on an investment.

yield difference (or interest rate differential)

The difference between Fannie Mae’s required yield and the net note rate of an ARM. Fannie Mae limits the amount of this difference.

yield differential adjustment

An amount paid to the servicer of a whole first mortgage when the initial interest rate of a mortgage exceeds Fannie Mae’s required yield for the commitment under which the mortgage was purchased.



No Applicable Terms

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