Selling Guide

Published June 3, 2020

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C3-5-05, Uniform Hybrid ARM MBS (04/01/2009)

Introduction

This topic provides information on creating MBS with Hybrid ARMs, including

 

Hybrid ARM Product Description

Fannie Mae has established a standard offering for annually adjusting ARMs that have extended initial fixed interest rate periods. These mortgages are referred to as Uniform Hybrid ARMs. This pooling option provides for more uniform accruals of interest to the security holders during the fixed period of these mortgages.

 

Hybrid ARM Pooling Parameters

The pool parameters for the uniform hybrid ARM MBS pool are described in the following table:

Parameter Description
ARM Plan ARM Plan 3252 must be used for a 5/1 ARM within a uniform hybrid ARM MBS pool.
Original Term The original term of the mortgages in the pool must be no more than 30 years.
Seasoning Requirement The mortgages cannot be seasoned more than two months as of the pool issue date.
Transaction Type The pools may be delivered as a single-lender or multiple-lender transaction.
Aggregate Principal Balance The aggregate principal balance of all of the mortgages included in the pool as of the issue date of the securities cannot be less than $500,000 for a single-lender transaction or $1,000 per lender for a multiple-lender transaction.
Initial Gross Mortgage Interest Rate The initial gross mortgage interest rates of the mortgages in the pool may not be more than 75 basis points greater than the initial pool accrual rate applicable to that pool.
MBS and Mortgage Margins The MBS margin for the uniform hybrid ARM pool is 1.75%. The difference between the mortgage margin of each ARM in the pool and the required 1.75% MBS margin for the uniform hybrid ARM pool may not exceed 75 basis points.
Pool Accrual Rate The initial fixed pool accrual rate is calculated as follows: The initial mortgage interest rate of each mortgage in the pool, less the sum of a servicing fee on a loan-level basis and the guaranty fee, which results in a uniform loan-level accrual rate that equals the pool accrual rate (or pass-through rate) during the initial fixed-rate period.

This initial fixed pool accrual rate can be issued in increments of 0.25% and will remain in effect until the initial interest rate adjustment date among the mortgages in the pool.

After the initial interest rate adjustment, the pool accrual rate will be based on the weighted average of the interest rates of the mortgages in the pool, net of the servicing spread (the sum of the servicing fee and guaranty fee percentages).

Interest Rate Adjustments The interest rates of the mortgages in the pool will adjust based upon the applicable index value combined with the mortgage margin rounded to the nearest 0.125% and subject to any applicable caps, as is common with other standard ARMs.

For a 5/1 ARM within a uniform hybrid ARM MBS pool, lenders may retain a minimum servicing fee of as low as 0.125%. (Lenders, however, should be aware that, in view of the 75-basis-point limitation described above, there may be circumstances where the fee percentage associated with a particular mortgage may result in it being ineligible for inclusion in a uniform hybrid ARM MBS pool.)

The first interest rate adjustment dates will vary among the mortgages in the pool; however, they must be within a specified range that is more constricted than the range for other pools of ARMs.

For example, in the case of a pool of uniform hybrid ARMs with an initial fixed period of 5 years (a 5/1 ARM), to ensure that the interest rate change dates are similar, the mortgages will reset within a range of 54 to 62 months, inclusive, after the first payment date.

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