Announcement August 2, Amends these Guides: Selling and Servicing

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1 Announcement August 2, 2007 Amends these Guides: Selling and Servicing Miscellaneous Changes Clarification of Maximum Allowable Financing on Mortgage Loans Secured by Properties in a Declining Market; Limited Waiver of Representations and Warranties Moved to the Selling Guide; List of Loan-Level Price Adjustments and Mortgage Insurance Companies Moving to efanniemae.com; Clarification to Announcement Regarding Elimination of the Fannie Mae LIBOR Index; and Correction and Clarification to Announcement Regarding Manufactured Housing Standards This Announcement includes several updates that are designed to provide more efficient means of conveying information, and a clarification of prior Announcements, as itemized below: A clarification is being provided to Announcement 07-11, Collateral Valuation and Declining Markets to make clear that that there are no existing restrictions on the maximum financing allowed on mortgage loans secured by properties located in a declining market. The limited waiver of representations and warranties policy for loans underwritten through Desktop Underwriter has been moved from the Guide to Underwriting with DU (the DU Guide ) to the Fannie Mae Selling Guide (the Selling Guide ); The list of loan-level price adjustments (LLPAs), as well as Fannie Mae s list of acceptable mortgage insurance companies, has been removed from the Selling Guide. These lists will only be available on efanniemae.com; Announcement Page 1

2 A clarification is being provided to Announcement 06-21, Discontinuance of Fannie Mae LIBOR Indices related to the required use of replacement indices for loans previously tied to the Fannie Mae LIBOR index; and A correction is being made to Announcement 07-06, Manufactured Housing Requirements, Clarifications, and New Forms related to the DU recommendation(s) for mortgage loans secured by manufactured housing and a clarification of our requirements for the security instruments for those mortgage loans. Clarification of Maximum Allowable Financing on Mortgage Loans Secured by Properties Located in Declining Markets Selling Guide Part VII: Mortgage Eligibility, Chapter 1, Conventional Mortgages, Exhibits 1- through 3. On July 13, 2007, Announcement 07-11, Collateral Valuation Practices in Declining Markets was issued to provide general guidance for mortgage loans secured by properties located in a declining market. Subsequently, there have been questions raised about whether Fannie Mae has an existing policy that limits the amount of maximum financing that can be provided if the property is located in a declining market. In this Announcement, we are clarifying that there are no existing restrictions on the maximum financing allowed on mortgage loans secured by properties located in a declining market. This guidance is consistent with the policy communicated in the last Selling Guide Update issued in January The Selling Guide Transmittal Letter dated January 1, 2006 states that we no longer limit the maximum amount of financing for properties located in neighborhoods in which property values are declining. The Transmittal language did not reference the removal of all related language regarding this matter. Accordingly, we have removed the following language from the Selling Guide, Part VII: Mortgage Eligibility, Chapter 1, Conventional Mortgages, Exhibits 1-3 (footnote 1): If the property is located in a market in which real estate values are declining, the lender should offer financing at loan-to-value ratios (LTV, CLTV, and HCLTV) that are 5% below the maximum allowable ratios shown in this chart. Limited Waiver of Representations and Warranties Selling Guide Part I: Lender Relationships, Chapter 2, Contractual Relationships, Section Limited Waiver of Representations and Warranties. This Announcement incorporates into the Selling Guide the terms and conditions under which Fannie Mae will grant a limited waiver of representations and warranties for certain eligible mortgages that are underwritten with DU and sold to Fannie Mae. The limited waiver and warranties Section includes policy and product changes described in Announcement Announcement Page 2

3 07-04, Broad Availability of Expanded Approval ; Financed Single-Premium Mortgage Insurance up to 100% LTV; and Updated Selling and Servicing Guide Sections for Flexible Mortgages, Expanded Approval, and Financed Single-Premium Mortgage Insurance. The revised Section of the Selling Guide is included with this Announcement as Attachment 1 and replaces the limited waiver of representations and warranties section in the DU Guide. The DU Guide will no longer provide terms and conditions for the limited waiver. Loan-Level Price Adjustments Posted on efanniemae.com Selling Guide Part II: Delivery Options, Chapter 1, Whole Loan and Participation Deliveries, Exhibit 1, Loan-Level Price Adjustments (LLPA). The Loan-Level Price Adjustment Matrix, currently provided in the Selling Guide, lists loanlevel price adjustments (LLPAs) that are applicable to mortgage loans delivered to Fannie Mae. The LLPAs are based on loan purpose, occupancy, number of units, product type, etc. Beginning July 23, 2007, the LLPA Matrix has been revised to consolidate the current LLPA information available in the Selling Guide and the DU Guide. In addition, this listing will be available only on efanniemae.com, and specific LLPAs will not appear in either Guide with future updates. The LLPA Matrix can be accessed from the Single-Family Reference Materials page on efanniemae.com, which will be the definitive source for the LLPA Matrix. Acceptable Conventional Mortgage Insurers Selling Guide Part V: Mortgage and Property Insurance, Chapter 1, Mortgage Insurance / Loan Guaranty, Exhibit 1, Acceptable Conventional Mortgage Insurers (and Codes to be Used if Loan-to-Value Ratio is 80% or More); and Servicing Guide Part II: Mortgage and Property Insurance, Chapter 1, Mortgage Insurance, Exhibit 1, Acceptable Conventional Mortgage Insurers. Fannie Mae requires lenders to obtain mortgage insurance for conventional first mortgage loans that are delivered to us with loan-to-value ratios greater than 80 percent. This insurance must be obtained from companies that Fannie Mae has determined to be qualified mortgage insurers. Until now, the list of conventional acceptable mortgage insurers has been provided in the Selling and Servicing Guide(s). Effective immediately, the list of acceptable conventional mortgage insurers and their associated mortgage insurance codes can be accessed from the Single-Family Reference Materials page on efanniemae.com and will be removed from the Selling and Servicing Guides with the next update(s). The Web site will be the definitive source for qualified mortgage insurers. Announcement Page 3

4 Fannie Mae LIBOR Clarification On November 21, 2006, Announcement 06-21, Discontinuance of Fannie Mae LIBOR Indices, was issued to provide guidance to lenders on acceptable replacement indices. Due to the requirement that the replacement index must be consistent for all loans within an MBS pool, this Announcement clarifies the replacement indices that lenders must use for all loans that were previously tied to the respective Fannie Mae LIBOR index code. The following chart, which is a revision of the chart published in Announcement 06-21, must be used to determine the appropriate replacement index: Current Fannie Mae LIBOR Index Code # Replacement Index Description The average of the LIBOR for 1-month US dollar denominated deposits, as published in the WSJ 1 on or after the 25 th of each month. The average of the LIBOR for 3-month US dollar denominated deposits, as published in the WSJ on the first business day of each month. The average of the LIBOR for 6-month US dollar denominated deposits, as published in the WSJ on the first business day of each month. The average of the LIBOR for 12-month US dollar denominated deposits, as published in the WSJ on the first business day of each month. The 12-month average of the monthly average yield on US Treasury securities adjusted to a constant maturity of 1 year as published by the FRB in Federal Reserve Statistical Release H.15(519). Refer to mortgage note for specific calculation instructions. Replacement Fannie Mae Index Code # WSJ denotes Wall Street Journal. Manufactured Housing Requirements Selling Guide Part VII: Mortgage Eligibility, Chapter 1, Conventional Mortgages, Section , Factory-Built Housing, Subsection A, Manufactured Homes. 3. Underwriting. Announcement 07-06, Manufactured Housing Requirements, Clarifications, and New Forms defined acceptable DU recommendations for loans delivered to Fannie Mae that are secured by manufactured homes; however, the Announcement omitted Refer/Eligible as an acceptable recommendation. As such, we are replacing Paragraph 3, Underwriting in its entirety with the following: Announcement Page 4

5 3. Underwriting. Mortgages secured by manufactured homes must be underwritten through Desktop Underwriter and must receive an Approve/Eligible, Refer/Eligible, EA-I/Eligible, or EA-II/Eligible recommendation. Loans receiving an EA-III, or RWC-IV recommendation are not eligible for delivery. When entering the property information into Desktop Underwriter, lenders must correctly identify the property type as manufactured housing. Government-insured or guaranteed manufactured housing loans are not subject to conventional guidelines for manufactured housing. (Refer to Chapter 2 for guidelines on Government-insured or guaranteed mortgage loans.) Selling Guide Part VII: Mortgage Eligibility, Chapter 1, Conventional Mortgages, Section , Factory-Built Housing, Subsection A, Manufactured Homes, Manufactured Housing Standards. Announcement specified the requirements for the security instrument on loans secured by manufactured housing. In that Announcement we incorrectly stated the location of the serial number. This Announcement clarifies the location of the manufactured home s serial number on the property. Under The Security Instrument section, the second requirement is replaced in its entirety with the following text: The serial number is located on the HUD Data Plate located on the interior of the home, usually near the electrical box. In addition, the serial number is generally cold stamped on the frame front cross member of each transportable section. Finally, in the fifth requirement, Affidavit of Affixture, we stated that if assistance is needed in preparing an acceptable affidavit, the lender should contact its Regional Fannie Mae Customer Account Manager. This guidance can be provided by the Customer Account Team upon request. As a reminder, the Affidavit of Affixture must affirm that borrower and lender intend for the manufactured home to be a permanent part of the real property. Any form of affidavit that meets the Guide requirement is acceptable. An affidavit that meets the following standards is an example of one that would comply with our requirements. The document must: be in an affidavit format; be dated, notarized and recorded, if possible; identify the property; contain the printed name and signature of the borrower and lender; comply with applicable federal, state and local law; include the following language: Borrower and Lender state that it is their intent that the manufactured home be and remain permanently attached to and part of the real property, and that it be regarded as an immovable fixture thereto and not as personal property. be maintained in the loan file. Announcement Page 5

6 * * * Lenders should contact their Customer Account Team if they have questions about Announcement Michael A. Quinn Sr. Vice President Single-Family Risk Officer Attachment (1) Announcement Page 6

7 Attachment 1 Selling Guide Part I, Lender Relationships, Section : Limited Waiver of Representations and Warranties For certain loans submitted to Desktop Underwriter, Fannie Mae will waive some underwriting representations and warranties that are typically required of the lender when it delivers loans to Fannie Mae. Specifically, if Desktop Underwriter recommends to approve a borrower s application for mortgage financing, and (i) Desktop Underwriter indicates that the related mortgage loan is eligible for sale to Fannie Mae, and (ii) an authorized Desktop Underwriter licensee (the Licensee ) or another Approved Lender (as defined below) elects to sell that mortgage loan to Fannie Mae; then Fannie Mae will not require such lender to warrant that the mortgage loan complies with the requirements of this Guide contained in Desktop Underwriter (as reflected in the data fields included in Desktop Underwriter and the reports generated by Desktop Underwriter) with regard to the mortgage loan s eligibility for delivery to Fannie Mae and the application of the approval underwriting recommendation provided by Desktop Underwriter relating to the borrower s creditworthiness. However, the following conditions must be met: (a) (b) (c) all data pertaining to the applicable mortgage loan are complete and accurate and all data on which the underwriting approval recommendation (including an Expanded Approval (EA) recommendation of EA-I, EA-II, or EA-III) was based remain unchanged as of the closing date for such mortgage loan, and otherwise comply with the requirements relating to resubmissions as stated in the Guide to Underwriting with DU (the DU Guide ), as it may be supplemented or amended from time to time; verification of all such data is provided with the loan file and such verification complies with Fannie Mae s requirements as set forth in this Guide and the DU Guide; Licensee or such Approved Lender, as the case may be, uses the appropriate special feature codes, as specified in the delivery reporting requirements of this Guide or as otherwise specified by Fannie Mae in the DU Guide. Special feature codes are required for all loans that receive an EA-I, II, or III recommendation, including those loans with the Timely Payment Rewards feature. Without limiting the generality of the foregoing, Special Feature Code 127 must be used if the lender delivering the loan to Fannie Mae is the lender that underwrote the loan through Desktop Underwriter. However, if the lender delivering the loan to Announcement Attachment 1 Page 1

8 (d) (e) (f) (g) Fannie Mae is not the lender that underwrote the loan through Desktop Underwriter, then Special Feature Code 214 must be used; Prior to the closing of the loan, Licensee or any such Approved Lender takes all appropriate action in response to the Verification Messages/Approval Conditions that appear in the Fannie Mae Underwriting Findings (Underwriting Findings) report that Desktop Underwriter produces with respect to the related mortgage loan application with proper documentation in the loan file; Licensee or any such Approved Lender complies with all other requirements, instructions, and restrictions set forth in the most recent version of this and the DU Guide; Licensee or any such Approved Lender reports the proper Desktop Underwriter-assigned casefile ID on the Loan Schedule (Form 1068 or 1069) or the Schedule of Mortgages (Form 2005) at the time of delivery; and Licensee or any such Approved Lender pays all applicable loan-level price adjustments. The foregoing waiver of underwriting representations and warranties does not apply to: (i) (ii) (iii) (iv) loans that receive a Refer/Eligible, Refer/Ineligible, or Out of Scope recommendation; loans that receive a Refer with Caution/IV recommendation; and loans that receive an Approve/Ineligible recommendation, even if the reason for the ineligibility is covered by the lender s Master Agreement, unless the limited waiver is specifically granted in the Terms and Conditions for a particular variance; the eligibility and underwriting representations and warranties that apply to the property, appraisal or alternative property inspection as set forth in this Guide and the DU Guide; government loans that are underwritten with Desktop Underwriter and subsequently sold to Fannie Mae; and seasoned loans, as defined in this Guide, that are delivered to Fannie Mae. All seasoned loans that are delivered to Fannie Mae, including those that received an Approve/, EA-I/, EA-II/, or EA-III/Eligible recommendation from Desktop Underwriter, are required to meet our seasoned mortgage requirements as set forth in Part III, Chapter 4, Section 403. Notwithstanding the foregoing, all other representations and warranties that are set forth in the Mortgage Selling and Servicing Contract between Fannie Mae and Licensee (or between Fannie Mae and such Approved Lender) and in this Guide shall apply. Licensee s use of Desktop Underwriter does not relieve Licensee (or any other Approved Lender) of any obligation set forth in such Mortgage Selling and Servicing Contract, this Guide, or in any other agreement between Fannie Mae and Licensee (or between Fannie Mae and any other Approved Lender), except (i) as expressly set forth in this Section Announcement Attachment 1 Page 2

9 with respect to Fannie Mae s limited waiver of representations and warranties, and (ii) as expressly set forth in any Desktop Underwriter recommendation or findings relating to streamlined documentation requirements, streamlined appraisal requirements, alternative property inspection requirements, and any similar requirements provided by Desktop Underwriter. The grant of any such relief shall be subject to Licensee s satisfaction of the requirements set forth in paragraphs (a) through (g) of this Section. For purposes of definition, Approved Lender shall mean any mortgage lender that is a party to a Fannie Mae Mortgage Selling and Servicing Contract at the time the mortgage loan in question is sold to Fannie Mae. Note: Desktop Underwriter assigns a unique casefile ID for each casefile created in Desktop Originator or Desktop Underwriter. The casefile ID is specifically assigned to one casefile and should not be used for any other loan. The Desktop Underwriter casefile ID, which is located on both the Underwriting Findings report and the Underwriting Analysis report, must be reported at the time of delivery regardless of the Desktop Underwriter recommendation. Announcement Attachment 1 Page 3