B2-1.5-02, Loan Eligibility (06/05/2024)

The following provisions apply to loans with application dates on or after January 10, 2014.

Note: As to any loan for which the original application was made before January 10, 2014, but which was assumed on or after January 10, 2014, and subsequently purchased or securitized by Fannie Mae, then, for eligibility purposes, the application date is considered to be the date on which Truth in Lending Act disclosure requirements were triggered with respect to such assumption.

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 (see Acceptable Loan Terms below);

• 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; 

• have total points and fees as described below under Points and Fees Limitations; and

• have an APR-APOR spread as described below under APR-APOR Spread Limitations.

The ATR Covered Loan requirements apply to acquisitions of newly originated loans (including government mortgage loans). These requirements do not apply to certain assumptions or modifications of existing Fannie Mae loans regardless of the dates on which the loans being assumed or modified were originally closed. Refer to the regulation for the applicable requirements.

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.

Note: The classification of certain transactions for TILA purposes and for eligibility and underwriting purposes by Fannie Mae do not always align. For example, Fannie Mae defines a four-unit property where the borrower occupies one of the units as a “principal residence.” If under TILA such a loan is considered to be for commercial or business purposes, it will be exempt from TILA and therefore considered an ATR Exempt Loan by Fannie Mae.

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.

APR-APOR Spread Limitations. Effective for loans with applications dates on and after July 1, 2021, the APR-APOR spread is the maximum difference by which the loan's APR cannot exceed the APOR. (Note: Loans with application dates before July 1, 2021 provided the loans otherwise meet the Revised QM Rule.)

• ATR Covered Loans: The spread may not exceed 2.25% or a different amount as specified in the Revised General QM Rule, calculated in accordance with the provisions of that rule.

Note: For ARMs with initial fixed periods of five years or less, the APR must be calculated using the maximum interest rate that could apply during the first five years after the first payment is due.

• ATR Exempt Loans: The spread may not exceed 6.5% or more calculated in accordance with the Revised General QM rule.

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 must have a loan term not exceeding 30 years after conversion to permanent financing (disregarding the construction period). See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing TransactionsB5-3.1-02, 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:

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:

• B3-4.1-01, Minimum Reserve RequirementsB3-4.1-01, Minimum Reserve Requirements

• B3-4.1-02, Interested Party Contributions (IPCs)B3-4.1-02, Interested Party Contributions (IPCs)

• B3-4.3-06, Grants and Lender ContributionsB3-4.3-06, Grants and Lender Contributions

• B5-5.1-02, Community Seconds Loan EligibilityB5-5.1-02, Community Seconds Loan Eligibility

In accordance with a regulation issued by the Federal Housing Finance Agency on March 16, 2012, as amended, and codified at 12 CFR Part 1228 (the “Private Transfer Fee Regulation”), except as provided below, 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.”)

Fannie Mae will purchase loans secured by properties encumbered by excepted transfer fee covenants (as defined in the Private Transfer Fee Regulation), including those that are part of shared equity transactions. See B5-5.3-02, Shared Equity Transactions: General Requirements B5-5.3-02, Shared Equity Transactions: General Requirements .

To be eligible for purchase by Fannie Mae on a flow basis, a loan must be no more than six months old measured from the first payment date to the "Purchase Ready" date (whole loans) or the MBS pool issue date (MBS loans).

For example, if a whole loan is in "Purchase Ready" status in May 2023 or an MBS loan is in a May 1, 2023 issued pool, the first payment date can be no earlier than December 1, 2022.

NOTE: HomeStyle Renovation loans that are not delivered until renovation is complete (and delivered with SFC 279) can be sold up to 15 months after the note date. See  B5-3.2-01, HomeStyle Renovation MortgagesB5-3.2-01, HomeStyle Renovation Mortgages  for additional requirements.

For loans that are more than four months old from the date of the note 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 sale to Fannie Mae by the lender except on a negotiated basis. 

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.

Note: Fannie Mae restricts purchase or securitization of seasoned loans to those that are delivered as a negotiated transaction. Contact Fannie Mae customer account team for additional information.

The table below provides the requirements for seasoned loans.

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 whose note was corrected to effect technical or typographical corrections is not considered to be a modified loan and is eligible for delivery.  All of the changes must 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.

Borrower Principal Curtailment and Recast Over Remaining Term

Fannie Mae will purchase a re-amortized loan following the application of a principal curtailment received from the borrower. The curtailment reduces the principal balance and monthly mortgage payment over the remaining term of the loan. The following requirements must be met:

• The only changes to the original note terms are a corresponding reduction in the principal balance and a re-amortized reduction to the monthly mortgage payment.
• The original note amount must comply with maximum loan limits in effect at the time of acquisition. See  B2-1.5-01, Loan LimitsB2-1.5-01, Loan Limits.
• When the loan was underwritten, the borrower was fully qualified based on the original note amount.
• The loan must be delivered with Special Feature Code 76.
• The lender must complete an Agreement for Modification, Re-Amortization, or Extension of Mortgage (Form 181), in accordance with the requirements of the Servicing Guide, place a copy in the loan servicing file, and deliver the completed documents to the applicable document custodian in accordance with Selling Guide E-2-01, Required Custodial DocumentsE-2-01, Required Custodial Documents.
• The delivery data must comply with the delivery instructions for principal curtailments.

See  B2-1.5-05, Principal CurtailmentsB2-1.5-05, Principal Curtailments for additional requirements related to principal curtailments.

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.