Announcement February 8, Amends these Guides: Selling and Servicing. Pooling Government-Guaranteed or Government-Insured Mortgage Loans

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Eunice Linette Griffith
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Announcement 06-01 February 8, 2006 Amends these Guides: Selling and Servicing Pooling Government-Guaranteed or Government-Insured Mortgage Loans This Announcement discusses Guide changes that amend

1 Announcement February 8, 2006 Amends these Guides: Selling and Servicing Pooling Government-Guaranteed or Government-Insured Mortgage Loans This Announcement discusses Guide changes that amend our current mortgage-backed security (MBS) pooling policies related to mortgage loans that are guaranteed by the Rural Housing Service (RHS) and other government-guaranteed or government-insured mortgage loans. It also makes related changes to our mortgage documentation and servicing policies for RHS-guaranteed mortgages, including both whole loan and MBS pool deliveries, and makes a clarification concerning servicing HUD Section 184 Native American mortgages. These changes are summarized below and are further explained later in this Announcement. Effective for MBS deliveries with an issue date of March 1, 2006 or later, we no longer will allow the commingling of RHS-guaranteed mortgages, or any other governmentguaranteed or government-insured mortgages, with conventional mortgages in the same MBS pool. Rather, such mortgages may be securitized only in government-prefix MBS pools. As a result of this new policy, the maximum loan-to-value ratio (or combined loan-tovalue, if we have agreed to allow subordinate financing for a particular mortgage) will be 102 percent for RHS loans when the two percent RHS guarantee fee is included in the loan, for both whole loan deliveries and MBS pool deliveries. When using our Cash Delivery System for whole loans or MBS Pool Submission System, lenders are reminded of the requirement to use Loan Type 1 for all government-guaranteed or government-insured mortgages. Also, all governmentguaranteed or government-insured mortgages that are sold as whole loans must be delivered under the appropriate government product type, such as RHS. To facilitate uniform servicing practices for all mortgages that are in government-prefix MBS pools while allowing lenders the option of continuing to use documents with which they are familiar, effective immediately, we will permit RHS-guaranteed mortgages Announcement Page 1

2 (including RHS-guaranteed mortgages originated under RHS s Rural Housing Native American Pilot), whether delivered as whole loans or for MBS, to be closed on either the Fannie Mae mortgage instruments for conventional mortgages or the Federal Housing Administration (FHA) mortgage instruments. If Fannie Mae s mortgage instruments are used for mortgages delivered to us for MBS pool issuance on and after March 1, 2006, or for whole loans delivered to us for cash purchase on and after May 1, 2006, they must be modified to include the assumability provision contained in the FHA version of the instruments. If the FHA mortgage instruments are used, they must be modified insofar as necessary for compliance with RHS requirements. Servicers are required to service our mortgages in accordance with the mortgage instruments. Therefore, RHS-guaranteed mortgages originated on FHA mortgage instruments will be serviced as our FHA-insured mortgages are serviced, but subject to our requirement that servicers must service mortgages in compliance with all requirements of the government guarantor or insurer. (See Servicing Guide, Part I, Chapter 3, Section 307.) Selling Guide The policy changes highlighted in this Announcement affect the following Selling Guide sections, as described below. Part I: Lender Relationships and Part V: Mortgage and Property Insurance In Part I, Chapter 2, Contractual Relationship; Section , Additional Selling Warranties, Paragraph C; and in Part V, Chapter 1, Mortgage Insurance/Loan Guaranty; Section 104, RHS Loan Note Guarantee. The following sentence will be added to the end of the tenth bullet in Section , Paragraph C concerning RHS-guaranteed first mortgages and to Section 104 as the new final sentence: RHS-guaranteed first mortgages must be pooled in government-prefix MBS pools. Part II: Delivery Options Chapter 2, MBS Pool Deliveries; Section 206, Eligible Mortgages. This Guide section discusses the types of mortgages that may back Fannie Mae MBS pool issuances. Lenders are reminded to use Loan Type 1 at the time of delivery for RHS-guaranteed mortgages, HUD-guaranteed Section 184 Native American mortgages, and for all other governmentguaranteed or government-insured mortgages. Chapter 2, MBS Pool Deliveries; Section 207, MBS Pool Parameters. We are deleting the last bullet in this section concerning the commingling of RHS-guaranteed mortgages in the same MBS pool with conventional mortgages. Announcement Page 2

3 Part III: Mortgage Commitments Chapter 4, MBS Pool Purchase Contracts; Section , Commingling Fixed-Rate Products. In this section, we discuss mortgage products that may, and may not, be commingled in the same MBS pool. All government-guaranteed mortgages and government-insured mortgages (including RHS-guaranteed mortgages and HUD-guaranteed Section 184 Native American mortgages) may be commingled in any government-prefix MBS pool, but MBS deliveries with an issue date on and after March 1, 2006 may not be pooled in the same MBS pool with any conventional mortgages. Part IV: Mortgage Documents Chapter 1, Security Instruments; Section 101, Government Mortgages. This section discusses the appropriate mortgage instruments for government-guaranteed or government insured mortgages. The second bullet will be revised to read as follows: A lender may use the uniform security instruments for conventional mortgages to document an RHS-guaranteed mortgage, but if it does so, it must modify the documents to include the assumability provision contained in the FHA version of the instruments. Alternatively, the lender may use the FHA mortgage instruments, modified insofar as necessary for compliance with applicable RHS requirements. This means, for example, that the documents must be made consistent with any RHS requirements concerning fees, and that references to the HUD Secretary must be changed to reference the Rural Housing Service of the U.S. Department of Agriculture. Any legally sufficient way of effecting such modifications is acceptable to us e. g., by changing each affected provision, or by adding text or an addendum that provides for all modifications. Chapter 5, Specialized Legal Documents; Section , Security Instruments, Notes, and Riders. This section describes our requirements for documenting an FHA Section 248 mortgage, a HUD Section 184 mortgage, and an RHS Rural Housing Native American Pilot mortgage. The first paragraph after the bullets will be revised to read as follows: To document an RHS-guaranteed mortgage originated under RHS s Rural Housing Native American Pilot, the lender may use the applicable version of our standard conventional mortgage instruments, but if it does so, it must modify the documents to include the assumability provision contained in the FHA version of the instruments. As an alternative to using our standard conventional mortgage instruments, the lender may use FHA instruments, modified insofar as necessary for compliance with applicable RHS requirements. Whether the lender uses our standard instruments or FHA instruments, it also must have the borrower execute a special note addendum and rider that RHS developed for the pilot. Announcement Page 3

4 Part IX: Special Housing Initiative Mortgages Chapter 1, Rural Housing Service Programs; Section , Eligible Mortgages. Our eligibility requirements for RHS-guaranteed mortgages that are sold to us for whole loan cash deliveries and for MBS pool deliveries are presented in this section. The maximum loan-to-value ratio (or combined loan-to-value, if we have agreed to allow subordinate financing for a particular mortgage) is 102 percent when the two percent RHS guarantee fee is included in the loan, for both whole loan deliveries and MBS pool deliveries, regardless of which servicing option the lender selects. This is because government-prefix pools do not have a 100 percent maximum loan-to-value ratio limitation, and all RHS-guaranteed mortgages sold to us with an MBS pool issue date of March 1, 2006 or after must be delivered into government-prefix pools. If the RHS guarantee fee is not included in the loan, the maximum loan-to-value ratio is 100 percent. Chapter 2, Native American Housing Initiatives; Section 203, RHS s Rural Housing Native American Pilot. The third paragraph of this section will read as follows: We have committed to the purchase or securitization of RHS-guaranteed mortgages originated under this pilot. With respect to such mortgages, the Bureau of Indian Affairs must have approved the legal agreements, ground leases, and mortgage instruments that will be used. The borrower must execute the applicable version of our uniform security instrument and note (modified to include the assumability provision contained in the FHA version of the instruments), or the FHA mortgage instruments modified as necessary for compliance with applicable RHS requirements. Borrowers also must execute a special note addendum and mortgage rider that has been developed for the pilot and, if applicable, a U.S. Department of Agriculture residential lease for trust land (as modified and approved by the borrower, the borrower's tribe, the Bureau of Indian Affairs, RHS, and Fannie Mae). Chapter 2, Native American Housing Initiatives; Section , Eligible Mortgages. The third paragraph of this section states that the Rural Housing Native American Pilot mortgages may be assumable or may be subject to a due-on-sale provision. That language will be changed to state that all such mortgages must be assumable. Announcement Page 4

5 Servicing Guide The policy changes highlighted in this Announcement will be included in the following Servicing Guide sections, which will be revised as set forth below. Part III: General Servicing Functions Chapter 1, Mortgage Payments; Section 101, Scheduled Mortgage Payments. The third paragraph in this section contains a parenthetical expression concerning the use of uniform security instruments for RHS first mortgages, VA first mortgages, and HUD-guaranteed Section 184 first mortgages. That parenthetical expression will be deleted. Chapter 4, Transfers of Ownership; Section 405, RHS Mortgages. This section of the Guide will be revised to read as follows: Servicers must service our mortgages in accordance with the borrower s mortgage instruments. If an RHS mortgage has the due-on-sale clause of our conventional mortgage instruments, then such clause must be enforced upon transfer of ownership of the property unless the transfer is one of the exempt transactions described below in Section The procedures for accelerating the debt are the same as those related to conventional mortgages, which are discussed below in Section It is not necessary to notify the RHS of the acceleration. Chapter 4, Transfers of Ownership; Section 406, HUD Section 184 Mortgages. The Selling Guide provides that HUD Section 184 Native American mortgages must be assumable. Accordingly, the first paragraph of Part III, Chapter 4, Section 406 of the Servicing Guide is revised for consistency as follows: Our Selling Guide (at Part IX, Chapter 2, Section ) provides that HUD Section 184 Native American mortgages must be assumable. The assumability provision requires that the new purchaser be a Native American, qualify for the mortgage under the Section 184 credit guidelines, and be approved by both the borrower's tribe and the HUD Indian Loan Guarantee Processing Center. ****** Lenders should contact their Customer Account Team if they have any questions about the topics addressed in this Announcement. Pamela S. Johnson Senior Vice President Announcement Page 5

NATIVE AMERICAN HOUSING SECURITY INSTRUMENT RIDER FOR ASSIGNMENTS

NATIVE AMERICAN HOUSING SECURITY INSTRUMENT RIDER FOR ASSIGNMENTS The Security Instrument, as amended by this Rider, encumbers (or attaches to), your Land Assignment interest on the Reservation. The Security