Multifamily Mortgage Business Lender Memo 15-02 April 30, 2015 To: From: Subject: Multifamily Lenders Hilary Provinse, Senior Vice President and Head of Multifamily Customer Engagement Gerald LaHaie, Vice President for Multifamily Credit, Underwriting Joanne Schehl, Vice President and Deputy General Counsel Lender Memo 15-02 Loan Document Modification Process HIGHLIGHTS Effective June 1, 2015 Fannie Mae is changing the Loan Document modification process to increase Lender delegation and improve processing efficiency by: delegating Lenders the authority to modify Fannie Mae s Multifamily Loan and Security Agreement (Form 6001) to permit specified transfers of ownership interests in Borrowers or Key Principals for certain newly originated Tier 3 and Tier 4 Mortgage Loans; and clarifying the requirements for modifications that may trigger Special Disclosure or raise other securitization issues. This Lender Memo supersedes in their entirety Lender Memos 12-07 and 14-06. Applicability This Lender Memo applies to Loan Document modifications for all new Mortgage Loans except: Credit Facilities; Bulk Deliveries; and Credit Enhancement Mortgage Loans. This Lender Memo does not apply to Portfolio Mortgage Loans (e.g., in connection with an assumption or a transfer that was not previously approved at the Mortgage Loan Origination Date, or other post-closing modification). I. GENERAL REQUIREMENTS Lenders may only modify Fannie Mae s published form Multifamily Loan Documents as provided in this Lender Memo. Lenders must document all modifications, whether delegated or non-delegated, in Deal Management (or its successor system) as described in Section III below. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 1
A. Defined Terms Capitalized terms used and not otherwise defined in this Lender Memo have the meanings set forth in the Multifamily Selling and Servicing Guide ( Guide ). Delegated Loan Document Modifications is defined in Section IIA. Delegated Transfer Modification Memo is defined in Section IIIA2. Delegated Tier 3/4 Transfer Modifications means the Loan Document modifications required to effectuate the Tier 3/4 Transfers Delegations. Fundamental Interest means any of Fannie Mae s (a) interests in, and rights with respect to, any collateral for the Mortgage Loan, and (b) ability to enforce rights and exercise remedies as a secured creditor. Non-Delegated Loan Document Modifications is defined in Section IIB. Non-Delegated Modification Memo is defined in Section IIIB. Restricted Provisions means the Loan Documents, or specified sections thereof, identified in the attached Exhibit A. Securitization Factor means any modification that (a) requires Special Disclosure, (b) results in an increase in the exercise of discretion or approval rights in connection with the servicing of the Mortgage Loan, (c) affects the recourse or non-recourse liability with respect to a Mortgage Loan, or (d) affects any collateral for a Mortgage Loan. Tier 3/4 Transfers Delegation is defined in Section IIA. Tier 3/4 Transfer Modification Forms is defined in Section IIIA2. Transfer Type is defined in Exhibit B. Type 1 Transfers is defined in Exhibit B. Type 2 Transfers is defined in Exhibit B. Type 3 Transfers is defined in Exhibit B. Type 4 Transfers is defined in Exhibit B. B. Approval Prior to Rate Lock All Non-Delegated Loan Document Modifications described in Section IIB must be approved by Fannie Mae prior to Rate Lock. Approval of any subsequent Non-Delegated Loan Document Modifications shall be at the sole discretion of Fannie Mae. C. Prudent Lending Standards The Lender must use prudent lending standards, and act as a creditors rights advocate in the best interests of Fannie Mae, when modifying the Loan Documents. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 2
D. Modifications to Body of Loan Document; Submission of Blacklined Documents All modifications to Loan Documents must be made within the body of the document. Modifications to published schedules or exhibits to another Loan Document must be made within the body of that schedule or exhibit. The Lender s final upload in Deal Management and the Mortgage Loan Delivery Package must include a cumulative blackline of each modified Loan Document against the Fannie Mae form document, or a set of blacklined pages reflecting all modifications. II. DELEGATION TO MODIFY DOCUMENTS; TYPES OF LOAN DOCUMENT MODIFICATIONS Lender-delegated Loan Document modifications are described in Section IIA. Modifications to the Loan Documents that are not delegated to Lenders and require Fannie Mae approval are described in Section IIB. A. Delegated Loan Document Modifications Fannie Mae delegates to Lenders the authority to modify the Fannie Mae form Loan Documents if such modifications satisfy any of the following conditions ( Delegated Loan Document Modifications ): Priority Borrower Delegation: The Lender has been provided with a Fannie Mae-approved modification memorandum specific to a Priority Borrower, and the Lender determines that the modifications are appropriate for the Mortgage Loan and the related Sponsor and Borrower; Discretionary Delegation: The modification is not material or substantive and does not implement a business or credit decision requiring approval by Fannie Mae; Express Delegation: The modification implements a business or credit decision that is expressly delegated to Lenders in the Guide (including pursuant to a Lender Memo or other writing from Fannie Mae); Legal Compliance Delegation: The modification is necessary to comply with applicable law; or Tier 3/4 Transfers Delegation: The modification permits a future transfer of direct or indirect ownership interests in a Borrower or a Key Principal with respect to a Tier 3 or Tier 4 Mortgage Loan (as defined in the Multifamily Underwriting Standards ( Form 4660 )), provided that the Mortgage Loan: o is a non-recourse Mortgage Loan; o is not designated a Pre-Review Loan in Form 4660; o o does not require execution of a Guaranty (Payment), Guaranty of Non-Recourse Obligations, or other guaranty; and does not have Mezzanine Financing or Preferred Equity that is subject to Part IIIC, Chapter 10 of the Guide. Modifications that satisfy the conditions set out above for Express Delegation or Legal Compliance Delegation modifications but that also meet the description of a Category 2 Non-Delegated Loan Document Modifications (described below) are not delegated and must be documented and submitted in accordance with the requirements for Non-Delegated Loan Document Modifications set out in Section III. This limitation does not apply to the following: Discretionary Delegation modifications; Tier 3/4 Transfers Delegation modifications that do not trigger a Securitization Factor; or modifications specified in a Fannie Mae approved modification memo for a Priority Borrower. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 3
Note: Delegated Loan Document Modifications are not reviewed by Fannie Mae prior to Rate Lock or Delivery of the Mortgage Loan. B. Non-Delegated Loan Document Modifications Loan Document modifications that are not Delegated Loan Document Modifications ( Non-Delegated Loan Document Modifications ) must be approved by Fannie Mae. Non-Delegated Loan Document Modifications generally implement a credit or business decision that requires approval by Fannie Mae, and are categorized as follows: Category 1 - The modification does not (a) modify a Restricted Provision, (b) result in an additional Loan Document (or new Loan Document provision) being created that is not a Fannie Mae published form, (c) affect a Fundamental Interest in any material respect, or (d) trigger a Securitization Factor. Category 2 - The modification (a) modifies a Restricted Provision, (b) results in an additional Loan Document (or a new Loan Document provision) being created that is not a Fannie Mae published form, (c) affects a Fundamental Interest in any material respect, or (d) triggers a Securitization Factor. Note: Non-Delegated Loan Document Modifications must be approved by Fannie Mae prior to the Rate Lock of the Mortgage Loan, except as otherwise approved in writing by Fannie Mae. III. REQUIREMENTS RELATING TO ANALYSIS AND DOCUMENTATION A. Documentation of Delegated Loan Document Modifications 1. Documentation and Analysis Required for Delegated Loan Document Modifications (other than those permitted by the Delegated Tier 3/4 Transfers Delegation). Delegated modifications for a Mortgage Loan must be submitted in Deal Management in a single entry under the Lender delegated waiver type titled Loan Document Modifications Delegated. The submission must include a complete list of the Delegated Loan Document Modifications including, for each modification, the name of the Loan Document, the sections being modified and, for each section, the applicable category of Delegated Loan Document Modification, as described in Section IIA. Written analysis beyond the single entry submission is not required. 2. Documentation and Analysis Required for Delegated Tier 3/4 Transfer Modifications Delegated Tier 3/4 Transfer Modifications for a Mortgage Loan must be submitted in Deal Management in a single entry under the Lender delegated waiver type titled Loan Document Modifications Delegated and include the phrase Tier 3/4 Transfers Delegation for tracking purposes. Lenders must prepare a single memo covering all Delegated Tier 3/4 Transfer Modifications (a Delegated Transfer Modification Memo ). Lenders may choose the format of the Delegated Transfer Modification Memo provided that it: o describes the requested Delegated Tier 3/4 Transfer Modifications; 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 4
o o explains the rationale for the modifications, the relevant facts, and a well-reasoned analysis in accordance with the guiding principles set forth in the attached Exhibit B; and incorporates or includes as an attachment the actual modifications and an organizational chart for the Borrower. Lenders must document Delegated Tier 3/4 Transfer Modifications using Modifications to Multifamily Loan and Security Agreement Forms 6240-T2, 6240-T3 and 6240-T4, available on www.fanniemae.com/multifamily (collectively, the Tier 3/4 Transfer Modification Forms ), except with respect to Type 1 Transfers, as detailed in Exhibit B. Subject to the limitations and requirements of this Lender Memo, Lenders may modify the Tier 3/4 Transfer Modification Forms without Fannie Mae s prior approval to reflect relevant transaction details. 3. Documentation Required for All Delegated Loan Document Modifications Lender must upload to Deal Management the Delegated Transfer Modification Memo (if applicable) and blacklines of the final modified Loan Documents showing all changes to the applicable provisions of the published forms, including all Non-Delegated Loan Document Modifications (as described below). B. Documentation of Non-Delegated Loan Document Modifications: Initial Submission and Notification of Deal Team (or Priority Borrower Team, as applicable) by email Lenders must request Fannie Mae s approval of Non-Delegated Loan Document Modifications by submitting into Deal Management a single memo describing all Non-Delegated Loan Document Modifications (a Non-Delegated Modification Memo ). Lenders may choose the format of the Non-Delegated Modification Memo provided that it: o o o o satisfies the requirements of Section IIIC below; identifies each modification using the categories set forth in Section IIC above, and by Loan Document name and section; includes the proposed Non-Delegated Loan Document Modifications blacklined against the applicable provisions from the published forms (or, alternatively, the modified Loan Documents, blacklined against the respective published forms and identified by draft date, may be uploaded to Deal Management separately); and is identified as a draft. Lenders must upload to Deal Management any other documentation relevant to Fannie Mae s review of the requested Non-Delegated Loan Document Modifications (e.g., the Borrower s organizational chart when requesting a transfer modification or a site plan of the Property). Lenders must notify their Deal Team (or Priority Borrower Team, as applicable) by email that a Non- Delegated Modification Memo has been submitted in Deal Management and is ready for review. C. Required Analysis for Non-Delegated Loan Document Modifications Lenders must: provide the relevant facts and a well-reasoned analysis, identifying clearly any risks that arise as a result of the requested modification, and describing how such risks are being mitigated; explain the rationale for the modification and provide a recommendation; and identify any Securitization Factors that may arise as a result of the modification. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 5
Any request for a Non-Delegated Loan Document Modification previously approved by Fannie Mae for another Mortgage Loan must satisfy the requirements of Section IIIB and this Section IIIC. Approval of a Non-Delegated Loan Document Modification on a prior Mortgage Loan is not sufficient justification for the same modification request on a new Mortgage Loan. D. Final Documentation of Non-Delegated Loan Document Modifications Once all Non-Delegated Loan Document Modifications have been agreed upon by the Deal Team, the Lender must: upload to Deal Management a final Non-Delegated Modification Memo for approval by Fannie Mae, identifying the modifications that were agreed upon by the Deal Team and are to be approved (either as submitted or as modified), and those that were declined; make a single entry into Deal Management for each category of Non-Delegated Loan Document Modification (i.e., one entry for all Category 1 modifications and another for all Category 2 modifications, as applicable), identifying each Loan Document and section modified; and upload to Deal Management the final modified Loan Documents blacklined to show all changes, including all Delegated Loan Document Modifications. IV. LEGAL OPINIONS A legal opinion from Borrower s counsel is required for any Mortgage Loan that is not a Small Mortgage Loan. The legal opinion must address enforceability of the Mortgage Loan if the Lender determines that a Loan Document modification materially affects a Fundamental Interest. For a Small Mortgage Loan, the Lender must review the organizational and related documents of the Borrower (and any other applicable parties) to determine that the Borrower is duly formed, validly existing and in good standing, and that the undertaking of the Mortgage Loan and related obligations has been duly authorized by all necessary parties. Consistent with the foregoing paragraph, an enforceability opinion is required with respect to a Small Mortgage Loan if the Loan Documents are modified and the Lender determines that the modifications affect a Fundamental Interest. Forms of opinions of Borrower s counsel are available on www.fanniemae.com/multifamily. The Lender is delegated the authority to permit modifications to the forms of opinions (including additional or modified qualifications and assumptions) in accordance with the prudent lending standards referenced in Section IC above and as may be deemed to be customary or appropriate opinion practice by a national, or the applicable state, bar association. V. LOAN DOCUMENT MODIFICATIONS RELATING TO SPECIFIC TRANSACTIONS A. Transactions of less than $10 million Requests for Non-Delegated Loan Document Modifications should not be considered for transactions of less than $10 million. Exceptions may be made under compelling circumstances, including: key Borrower/Sponsor relationships; Multifamily Affordable Housing transactions; transactions that are part of a Multiple Asset Transaction; and critical issues essential for a particular transaction. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 6
If an exception applies, the Lender must contact the Deal Team for approval to proceed prior to making any such submission. The submission must specify that the Lender requested an exception for a Non- Delegated Loan Document Modification for a transaction of less than $10 million. B. Outside Counsel Expenses for Large or Complex Loan Transactions and Issues Fannie Mae may elect to retain outside counsel, at the Borrower s expense, on any request for Non- Delegated Loan Document Modifications relating to: transactions of $50 million or more; transactions involving a complex Borrower structure (including those with certain types of Mezzanine Financing or Preferred Equity); non-delegated transfer modifications that require extensive analysis; modifications to the Environmental Indemnity Agreement; modifications or exceptions to Section 4.01(g) or 4.02(b) of the Loan Agreement ( Economic Sanctions and Anti-Money Laundering ); and modifications or exceptions to Section 4.01(m), 4.02(e) of the Loan Agreement ( ERISA ). In each instance, Fannie Mae will advise the Lender prior to retaining outside counsel to provide an estimate of outside counsel fees, so that the Lender and the Borrower can determine whether they wish to proceed. If Fannie Mae retains outside counsel, Lender s counsel will continue to have primary responsibility for documenting the transaction but will submit such documentation to Fannie Mae outside counsel for review and comment. VI. POST-PURCHASE REVIEW The Lender s compliance with the requirements of this Lender Memo is subject to review by Fannie Mae, as provided in Part II of the Guide. Superseded Lender Memos This Lender Memo supersedes in their entirety: Lender Memo 12-07: Loan Document Modification Process; and Lender Memo 14-06: Loan Document Modification Process. Effective Date Lenders may use these delegations voluntarily as of the date of this Lender Memo. Except for Tier 3/4 Transfers Delegation, this Lender Memo is mandatory for all Loan Document modifications submitted on or after June 1, 2015. Use of the Tier 3/4 Transfers Delegation is not mandatory. Questions Please contact your Deal Team with any questions. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 7
Associated Documents The following documents are available at www.fanniemae.com/multifamily: Modifications to Multifamily Loan and Security Agreement (Transfers of Ownership Interests; No Change of Control)(Type 2 Transfers) Form 6240-T2 Modifications to Multifamily Loan and Security Agreement (Transfers of Ownership Interests; Change of Control)(Type 3 Transfers) Form 6240-T3 Modifications to Multifamily Loan and Security Agreement (Transfers of Ownership Interests; Change of Control Replacement or Divestment of Key Principal)(Type 4 Transfers) Form 6240-T4 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page 8
Multifamily Note Security Instrument Guaranty of Non-Recourse Obligations Guaranty (Payment) Environmental Indemnity Agreement Exhibit A RESTRICTED PROVISIONS Restricted Documents and Sections Multifamily Loan and Security Agreement Section 2.02 ( Payments on Mortgage Loan ) Section 2.03 ( Lockout/Prepayment ) Article 3 ( Personal Liability ) Section 4.01(g)( Economic Sanctions, Anti-Money Laundering and Anti-Corruption ) Section 4.01(m)( ERISA ) Section 4.01(o)( Prohibited Person ) Section 4.02(b)( Economic Sanctions, Anti-Money Laundering, and Anti-Corruption ) Section 4.02(d)( Borrower Single Asset Status ) Section 4.02(e)( ERISA ) Section 6.01(a)( Compliance with Laws, Permits and Licenses ) Section 6.02(e)( Compliance with Laws ) Article 11 ( Liens, Transfers and Assumptions )* Article 14 ( Defaults/Remedies ) Schedule 1 Schedule 3 Assignment of Management Agreement Section 5 (b) - Section 6(b) MBS Early Rate Lock Agreement Streamlined Rate Lock Agreement All Defeasance Form Documents All Mezzanine Form Debt Documents * Except as permitted pursuant to Tier 3/4 Transfers Delegation. Form 6429 Sections 3, 4, 5, 6, and (only if Fannie Mae is the investor) Section 7 Form 6430 Sections 3, 4, 5, 6, and (only if Fannie Mae is the investor) Section 7 Includes Forms 6423, 6424, & 6425 Includes Forms 6437, 6438, 6439 & 6440 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page A-1
Seniors Housing Form Documents In addition to the Restricted Provisions above, the following sections of Seniors Housing form Loan Documents are also restricted. Restricted Provisions Multifamily Loan and Security Agreement (Seniors Housing) Subordination, Assignment and Security Agreement Section 4.01(r) ("Licensing; Borrower/Property Operator Compliance with Laws ) Section 4.02(j) ("Borrower/Property Operator Compliance with Laws") Section 6.01(a) ("Mortgaged Property Compliance with Laws; Permits and Licenses") Section 6.01(b) ("Operating Documents; Contracts; Resident Records") Section 6.01(f) ( Personal Property ) Section 6.01(g) ( Medicaid Provider Agreement Representations ) Section 6.02(a)(1), (7) and (8) ("Use of Property") Section 6.02(e) ( Mortgaged Property Compliance with Laws ) Section 6.02 (f) ("Licensing") Section 6.02(g) ("Medicaid Provider Agreement") Section 6.02(h) ("Facility Operating Agreement") Section 6.02(i) ("Change in Property Operator") Section 6.02 (j) ("Contracts") Section 6.03 (b) ( Subordination of Fees by Property Operator ) Section 7.01(c) ( Seniors Housing Facility Lease ) Section 7.02(g) ( Special Covenants Regarding Seniors Housing Facility Lease ) Section 7.03(c) ( Seniors Housing Facility Lease Structure Consideration ) Section 1 ( Definitions; Parties ) Section 2 ("Uniform Commercial Code Security Agreement") Section 3 ("Assignment of Leases and Rents; Appointment of Receiver; Lender in Possession") Section 4 ("Assignment of Contracts and Management Agreement; Contracts Affecting the Mortgaged Property") Section 6 ("Subordination to Mortgage Lien") Section 7 ( Property Operator Fee Subordination ) Sections 8(a)(xi),(xvi), (xvii) and (xx) and 8(b)(vii), (xi), (xii) and (xv) ("Property Operator 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page A-2
Government Receivables Depositary Agreement and Government Receivables Collection Account Agreement Modifications to Multifamily Loan and Security Agreement (Medicaid Transition Reserve) Modifications to Multifamily Loan and Security Agreement (Post-Closing License Transfer) Modifications to Security Instrument (Seniors Housing) Opinion of [Operator s][borrower's] Counsel On Origination of Mortgage Loan (Seniors Housing) Representations and Warranties") Sections 9(a),(b),(c),(j),(m),(n),(r) and (w) ("Property Operator Covenants") Section 10 ("Events of Default; Remedies") Sections 8, 9, 10 and 11 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page A-3
Exhibit B TIER 3/4 TRANSFERS DELEGATION This Exhibit B provides additional instructions and guidance to Lenders regarding the Tier 3/4 Transfers Delegation. TRANSFER TYPES Transfers of direct or indirect ownership interests in the Borrower or Key Principal generally fall into one of four categories or types (each a Transfer Type and, collectively, Transfer Types ): Transfers of ownership interests that are not prohibited by the form Loan Agreement ( Type 1 Transfers ); Transfers of direct or indirect ownership interests in the Borrower or the Key Principal that are prohibited by the form Loan Agreement but that do not result in a change of Control of the Borrower or the Key Principal, replace the Key Principal or divest the Key Principal of its direct or indirect ownership interest in the Borrower ( Type 2 Transfers ); Transfers that effect or result in a change of Control of the Borrower or the Key Principal but do not replace the Key Principal or divest it of its direct or indirect ownership interest in the Borrower ( Type 3 Transfers ); and Transfers that replace the Key Principal or divest it of its direct or indirect ownership interest in the Borrower, requiring a replacement or identification of a new Key Principal (whether or not the transfer results in a change of Control) ( Type 4 Transfers ). Lenders should refer to the definition of Control set forth in Schedule I to the Loan Agreement (available on www.fanniemae.com/multifamily) in determining whether a proposed transfer would result in a change of Control for purposes of the Tier 3/4 Transfers Delegation. Certain transfer requests may not conform neatly to one of the four Transfer Types. In such cases, Lenders should reference the Transfer Type that is most similar to the circumstances presented. TRANSFER MODIFICATION FORMS AND STANDARD TRANSFER DOCUMENT CONDITIONS Type 1 Transfers must be documented in a new subsection to Section 11.03 of the Loan Agreement. All other Transfers must be documented using the Tier 3/4 Transfer Modification Forms. The Tier 3/4 Transfer Modification Forms include standard transfer conditions (e.g., notice to and approval of Lender, Borrower certifications, payment of fees, etc., as applicable). These conditions vary based on the Transfer Type. The Forms also identify circumstances in which Lender may tailor a condition based on the facts and circumstances of the underlying Mortgage Loan and organizational structure of the Borrower and Key Principal. The Delegated Transfer Modification Memo must support any conditions established by Lender. See the Guiding Principles that follow in Exhibit B-1 for further details. EXCEPTIONS TO STANDARD TRANSFER DOCUMENT CONDITIONS The Tier 3/4 Transfer Modification Forms also identify exceptions to the standard transfer conditions based on the Borrower s organizational structure (e.g., investment funds, pension funds, and buy-sell arrangements) or underwriting. To the extent the Borrower s organizational structure qualifies for such an 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-1
exception, the alternative transfer conditions may be used as provided in the Tier 3/4 Transfer Modification Forms. Lenders must identify the applicable exception in the Delegated Transfer Modification Memo. Guiding Principles for use of the Tier 3/4 Transfers Delegation are attached as Exhibit B-1. The standard transfer conditions and exceptions for each Transfer Type are summarized in the matrices attached as Exhibit B-2 (Type 2 Transfers), Exhibit B-3 (Type 3 Transfers) and Exhibit B-4 (Type 4 Transfers). 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-2
Exhibit B-1 GUIDING PRINCIPLES For Type 1 Transfers, Lenders may expressly permit certain Transfers that are not otherwise prohibited by the Loan Agreement, subject only to the limitations on Delegated Tier 3/4 Transfers in this Lender Memo. For the remaining Transfer Types, Lenders should consider the following attributes of the transferor and transferee and ensure that such attributes are reasonably comparable between such parties: financial condition; commercial real estate experience, including multifamily; major decision or similar discretionary rights in the organizational documents or ownership structure; and material funding or other obligations in the organizational documents. Such attributes should be considered for potential impact to Control of the Borrower and Key Principal, and the past performance and ongoing management and operations of the Mortgaged Property. If the transferor s financial condition or experience was material to the underwriting analysis or approval of the Mortgage Loan (e.g., market expertise, property condition or capital needs, or property type), Lenders are expected to ensure that the required transfer conditions preserve the integrity of the original underwriting analysis and approval. Further, whenever the Key Principal is the transferor, and the transfer will result in a new Key Principal or a change of Control of the Borrower or the Key Principal, the required transfer conditions should ensure that the replacement is substantially similar. Lenders may permit transfers to transferees with financial or experience conditions that are less strong than the transferor if the transferor s financial condition and experience significantly exceed reasonable underwriting requirements for the underlying transaction. In such instances, Lenders must require reasonable, alternative financial and experience conditions to ensure that the Borrower s organizational structure remains acceptable after the transfer, taking into account the performance and condition of the Mortgaged Property and any obligations of such transferee in the organizational documents. Lenders are expected to exercise such discretion judiciously where a requested transfer is likely to affect Control of the Mortgaged Property, Borrower or Key Principal, or divest or replace the Key Principal. Modifications to the Tier 3/4 Transfers Modification Forms consistent with and of similar nature to this Guiding Principle are delegated to Lenders. The Tier 3/4 Transfer Modification Forms include alternative conditions for organizational structures and circumstances that align with these Guiding Principles. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-3
Exhibit B-2 TYPE 2 TRANSFERS MATRIX See attached 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-4
Type 2 Transfers (Restricted by Loan Agreement but No Change of Control of Borrower or Key Principal, and No Change of Key Principal) Notice and Approval Organizational Documents & Chart Borrower Certification No Event of Default Transferee Requirements Transfer Fees Further Assurances Standard Loan Document Conditions for Type 2 Transfers Notice 30 days prior, approval not to be unreasonably withheld, delayed or conditioned Transfer from Investor to a New Investor Transfer from Investor to Affiliated Investor Transfer from Advisor to New Advisor Partial Transfer by Investor to 3 rd Party Transfer to Key Principal Affiliate (Affiliated Transfers or Buy-Sell) Transfer by Holder of 50%+ Owner to its Affiliates Transfer to a Transferee underwritten and approved in advance Exception 2-1 Exception 2-2 Exception 2-3 Exception 2-4 Exception 2-5 Exception 2-6 Exception 2-7 Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Delivered with notice Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Delivered with notice that (i) no Change of Control will occur as a result of Transfer, (ii) no Event of Default has occurred and is continuing, and (iii) no Event of Default will occur as a result of Transfer No Event of Default has occurred and is continuing -Not a Prohibited Person if transferee will own 25% or more of Borrower -Financial Capacity (1) Qualified Transferee, (2) net worth and liquidity not less than transferor, or (3) net worth and liquidity thresholds -Experience. If transferee has major decision rights, (1) experience and units under management not less than transferor, (2) experience and units thresholds, or (3) minimum units threshold only (larger operator) $25K Transfer Fee for each occurrence Borrower provides further assurances Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition -Not a Prohibited Person if transferee will own 25% or more of Borrower -Financial Capacity Minimum surplus of $100MM, or not less than transferor (if lower) New pension fund investor must be Controlled by, Controlling or under common Control with original pension fund investor Must be an Acceptable Replacement Pension Fund Advisor Not a Prohibited Person if transferee will own 25% or more of Borrower -Not a Prohibited Person if transferee will own 25% or more of Borrower -Transferee must be Controlled by, Controlling or under common Control with the Key Principal -Not a Prohibited Person if transferee will own 25% or more of Borrower -Transferee must be Controlled by, Controlling or under common Control with the transferor Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition $0 Transfer Fee Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition N/A Other Conditions N/A N/A N/A N/A Transferor must retain (1) at least 25% of Borrower and (2) any major decision rights N/A N/A N/A 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-5
Type 2 Transfers (Restricted by Loan Agreement but No Change of Control of Borrower or Key Principal, and No Change of Key Principal) Notice and Approval Organizational Documents & Chart Borrower Certification Transfer of Fund Investors Interests in Fund where: --Fund Manager is not in Control; and --Fund Investors do not have major decision rights over Fund Manager s activities (for cause removal permitted) Transfer of Fund Investors Interests in Fund where: --Fund Manager is not in Control and does not have major decision rights; and --Fund Investors have major decision rights over Fund Manager s activities Transfer of Fund Investors Interests in Fund where: --Fund Manager is not in Control but has major decision rights; and --Fund Investors have major decision rights over Fund Manager s activities Transfer of Fund Investors Interests in Fund where: --Fund Manager is in Control; and --Fund Investors have major decision rights over Fund Manager s activities Replacement of Investment Fund Manager where: --Investment Fund is not in Control Transfer of Investment Fund s Interest in Borrower where: --Investment Fund is not in Control Transfer by Key Principal of More than 50% of its Interest in Borrower Exception 2-8 Exception 2-9 Exception 2-10 Exception 2-11 Exception 2-12 Exception 2-13 Exception 2-14 Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Standard Condition Standard Condition Notice within 15 days after (Lender approval not required) Notice within 15 days after (Lender approval not required) Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Standard Condition Standard Condition Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Delivered with notice that no Change of Control has occurred as a result of Transfer, and no Event of Default has occurred and is continuing Standard Condition No Event of Default Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Transferee Requirements N/A N/A Not a Prohibited Person if transferee will own 50% or more of Borrower Not a Prohibited Person if transferee will own 25% or more of Borrower Must be an Acceptable Replacement Fund Manager Not a Prohibited Person if transferee will own 25% or more of Borrower Not a Prohibited Person if transferee will own 25% or more of Borrower or have major decision rights over management or operations of Property Transfer Fees $25K Transfer Fee for each Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition occurrence Further Assurances Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Other Conditions Same Fund Manager Same Fund Manager Same Fund Manager Same Fund Manager N/A -Same Fund Manager Key Principal must retain at least 10% -Not a Prohibited Person if an investor will own 50% or more of Borrower or has major decision rights 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-6
Exhibit B-3 TYPE 3 TRANSFERS MATRIX See attached. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-7
Type 3 Transfers (Change of Control of Borrower or Key Principal but No Change of Key Principal) Notice and Approval Organizational Documents & Chart Borrower Certification No Event of Default Transferee Requirements Transfer Fees Standard Loan Document Conditions for Type 3 Transfers Notice 30 days prior, approval not to be unreasonably withheld, delayed or conditioned Transfer of Control to Current Pension Fund Investor Transfer of Control to New Advisor Transfer of Control to Key Principal Affiliate Transfer of Control Pursuant to a Buy-Sell where Transferee is not underwritten and approved in advance Transfer of Control to Transferee underwritten and approved in advance Replacement of Investment Fund Manager where: --Investment Fund is in Control of Borrower Transfer of Investment Fund s Interest in Borrower where: --Investment Fund is in Control of Borrower Exception 3-1 Exception 3-2 Exception 3-3 Exception 3-4 Exception 3-5 Exception 3-6 Exception 3-7 Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Delivered with notice Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Delivered with notice that no Event of Default will occur as a result of Transfer and no Event of Default has occurred and is continuing No Event of Default has occurred and is continuing -Not a Prohibited Person -Financial Capacity (1) Qualified Transferee, (2) net worth and liquidity not less than transferor, or (3) net worth and liquidity thresholds -Experience. (1) Experience and units under management not less than transferor, (2) experience and units thresholds, or (3) minimum units threshold only (larger operator) Reduction of up to 50% of standard Transfer Fee (reduces Lender s portion only) Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Not a party described in (a) or (b) of the definition of Prohibited Person $25K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Must be an Acceptable Replacement Advisor $25K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent -Not a Prohibited Person -Transferee must be Controlled by, Controlling or under common Control with the Key Principal $0 Transfer Fee for first occurrence; $25K for each subsequent Standard Condition $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Not a party described in (a) or (b) of the definition of Prohibited Person Must be an Acceptable Replacement Fund Manager $0 Transfer Fee $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Not a Prohibited Person $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Further Assurances Borrower provides further assurances Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Other Conditions N/A N/A N/A N/A N/A N/A N/A -Same Fund Manager - Not a Prohibited Person if an investor will own 25% or more of Borrower or has major decision rights 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-8
Exhibit B-4 TYPE 4 TRANSFERS MATRIX See attached. 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-9
Type 4 Transfers (Transfers Resulting in a Divestment of or New Key Principal) Notice and Approval Organizational Documents & Chart Borrower Cert. No Event of Default Transferee Requirements Transfer Fees Standard Loan Document Conditions for Type 4 Transfers Notice 30 days prior, approval at Lender discretion Investor as New Key Principal New Advisor as New Key Principal Key Principal Affiliate as New Key Principal New Key Principal Pursuant to Buy-Sell but not Underwritten in Advance Transferee Underwritten in Advance as New Key Principal Replacement Investment Fund Manager as New Key Principal Replacement Investment Fund as New Key Principal Exception 4-1 Exception 4-2 Exception 4-3 Exception 4-4 Exception 4-5 Exception 4-6 Exception 4-7 Notice 30 days prior, Notice 30 days prior, Notice 30 days prior, Standard Condition Notice 30 days prior, Standard Condition Standard Condition approval not to be approval not be approval not to be approval not to be unreasonably unreasonably unreasonably withheld, unreasonably withheld, delayed or withheld, delayed or delayed or conditioned withheld, delayed or conditioned conditioned conditioned Delivered with notice Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Delivered with notice that no Event of Default will occur as a result of Transfer and no Event of Default has occurred and is continuing No Event of Default has occurred and is continuing -Not a Prohibited Person -Financial Capacity (1) Qualified Transferee, (2) net worth and liquidity not less than transferor, or (3) net worth and liquidity thresholds -Experience. (1) Experience and units under management not less than transferor, (2) experience and units thresholds, or (3) minimum units threshold only (larger operator) Reduction of up to 50% of standard Transfer Fee (reduces Lender s portion only) Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Not a party described in (a) or (b) of the definition of Prohibited Person $25K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Must be an Acceptable Replacement Advisor $25K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent -Not a Prohibited Person -New Key Principal must be Controlled by, Controlling or under common Control with the original Key Principal -New Key Principal must have net worth and liquidity not less than transferor $0 Transfer Fee for first occurrence; $25K for each subsequent Standard Condition $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Not a party described in (a) or (b) of the definition of Prohibited Person Transferee must be an Acceptable Replacement Fund Manager $0 Transfer Fee $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Not a Prohibited Person $50K Transfer Fee for the first occurrence; standard Transfer Fee for each subsequent Further Assurances Borrower provides further Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition Standard Condition assurances Other Conditions N/A N/A N/A N/A N/A N/A N/A -Same Fund Manager - Not a Prohibited Person if an investor will own 25% or more of Borrower or has major decision rights 2015 Fannie Mae. Trademarks of Fannie Mae. Lender Memo 15-02 Page B-10