C3-2-01, Determining Eligibility for Loans Pooled into MBS (09/07/2022)

All loans pooled into MBS must be secured by a first mortgage and must represent the entire right, title, and interest in the note and the related security instrument, unless the MBS commitment expressly indicates otherwise.

As of the issue date of the MBS, the loans in the related MBS pool may not be delinquent by more than one monthly installment of principal and interest that is due on the issue date (including the period beginning on the second day of the month preceding the issue date and ending on the issue date). For example, if the first payment date is November 1, and the issue date of the MBS is January 1, then, in order to be eligible for purchase by Fannie Mae, the November and December payments must have been paid, and the only payment that may be delinquent (due) would be for the period December 2 through January 1.

In addition,

• if the loan is one year or less from the first payment date to the pool issue date, the borrower cannot have any 30–day delinquencies since origination; and

• if the current borrower assumed the loan and has owned the property for one year or less, the borrower must have no 30-day delinquencies since purchasing the property.

See  B2-1.5-02, Loan EligibilityB2-1.5-02, Loan Eligibility, for the requirements concerning seasoned loans.

“Nonstandard loans” (or loans with nonstandard characteristics) may be pooled into MBS, but depending on the concentration in the pool, may only be pooled as negotiated rather than standard transactions.

Nonstandard loans are:

• co-op share loans,

• relocation loans (defined below),

• loans with significant interest rate buydowns, and

• high-balance loans.

In a TBA-eligible UMBS pool, nonstandard loans are each limited to 10% of the issue date UPB of a TBA-eligible UMBS pool. If loans with more than one of the nonstandard characteristics are included in the same TBA-eligible UMBS pool, the sum of the issue date UPB of two or more of the loans with nonstandard characteristics may not exceed 15% of the total issue date UPB of the pool. The 15% cumulative limitation, however, does not apply to high-balance loans.

For pools with greater than 10% concentrations of nonstandard loans, see the Pool Prefix Glossary for the applicable pool prefixes. Nonstandard loans may be delivered into existing MBS commitments and may use the same base guaranty fee as those used for the lender’s standard conforming loans.

Lenders may deliver loans with the nonstandard characteristics described above into Fannie Majors TBA-eligible UMBS pools. For Fannie Majors requirements, see C3-6-01, Parameters for Pooling Loans Into Fannie MajorsC3-6-01, Parameters for Pooling Loans Into Fannie Majors.

For the purposes of TBA pooling parameters, a relocation loan is 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. A loan that involves an employee relocation that does not meet these parameters is not considered a relocation loan for TBA pooling purposes, and as such, the pooling limitations and SFC 013 delivery requirement are not applicable.

Examples

The issue date UPB of loans with significant interest rate buydowns and the issue date UPB of co-op share loans individually may not exceed 10% of the total issue date UPB of the TBA-eligible UMBS, and together may not exceed 15% of the total TBA-eligible UMBS. However, while the issue date UPB of high-balance loans and the issue date UPB of co-op share loans individually may not exceed 10% of the total issue date UPB of the TBA-eligible UMBS, together they may exceed 15% of the total TBA-eligible UMBS because high-balance loans are not subject to the 15% limitation.

As a reminder, nonstandard loans must be identified at delivery with the following:

• relocation loans – SFC 013

• loans with significant interest rate buydowns – SFC 014

• high-balance loans – SFC 808

• co-op share loans – the Legal Structure in Loan Delivery is “cooperative.”

For loans pooled into MBS, the first payment date must be no later than two months from the final disbursement date of the loan proceeds. In the case of a single-close construction-to-permanent loan, the two-month period begins at the time of the conversion to permanent financing.

The following table provides an example of this requirement.

Standard pooling allows lenders to include in an MBS pool only those loans for which the first payment date is no later than the first day of the month that immediately follows the issue date of the related MBS. The pool issue date is the first day of the month in which securities backed by the MBS pool are issued. For seasoned loans, the first payment date must be at least 12 months prior to the pool’s issue date.

In addition, the loan’s amortization schedule must not provide for any period during which principal has been disbursed and is outstanding, but interest is not accruing. However, if the lender chooses to pool within the same month of loan origination (also known as "same month pooling"), the loan may begin to amortize on the first day of the month that is two months after the issue date of the securities, with the initial remittance to Fannie Mae being an “interest-only” remittance, because the borrower will not have made their first payment at the time of the initial remittance.

A negotiated contract is needed to pool loans for which the borrower’s monthly payment is due on a day other than first of the month (“odd due dates”).

Lenders may pool current or seasoned loans into a single-lender MBS. Fannie Mae has no minimum seasoning requirement for conventional loans included in single pool transactions. Refer to C3-6-01, Parameters for Pooling Loans Into Fannie MajorsC3-6-01, Parameters for Pooling Loans Into Fannie Majors for additional information about seasoning for Fannie Majors.

If a pool of ARM loans will have amortized by more than 12 monthly payments as of the issue date of the pool, the terms of a negotiated contract will specify whether the loans will be treated as current or seasoned. The key determinants are the length of the interest rate adjustment intervals and whether interest rate or payment adjustments will have occurred by the pool’s issue date.

For a converted ARM (which is a fixed-rate loan that was once an ARM until the borrower exercised an option to convert it to a fixed rate), the 12-month period is measured from the date of conversion to the issue date month of the related pool.

To sell seasoned loans under an MBS execution, lenders must have an MBS commitment that permits delivery of seasoned loans. For information on pricing and parameters, contact the Capital Markets Pricing and Sales Desk (see  E-1-02, List of ContactsE-1-02, List of Contacts).

Loans with different annual rates of interest can be included in the same MBS pool, as long as those rates fall within the minimum and maximum spreads Fannie Mae allows between the loan interest rates and the pass-through rate for the MBS pool.

For fixed-rate loans that are pooled, the minimum allowable interest rate is 25 basis points (.25%) above the pool’s pass-through rate and the maximum allowable interest rate is 112.5 basis points (1.125%) above the pool’s pass-through rate.

Generally, for ARMs that are pooled, the minimum allowable interest rate is the sum of the lowest guaranty fee (after all applicable adjustments have been made, including buyups and buydowns) and the lender’s minimum servicing fee, which must include renewal premiums for lender-purchased mortgage insurance, if applicable. The recommended maximum allowable interest rate is 100 basis points (1%) over the minimum allowable interest rate. Lenders must comply with the allowable minimum and maximum interest rates for each MBS ARM structure.

All loans in a single issuer MBS pool must be serviced by the same entity. If a lender plans to deliver several pieces for inclusion in a multiple pool (Fannie Majors), each piece may have a different servicer. The lender may deliver any combination of seller/servicer numbers for inclusion in a multiple pool (Fannie Majors), however the servicers designated must be servicing loans in the multiple pool that have the same remittance cycle as the loans being delivered.