Selling Guide

Published October 2, 2018

Ability to Repay Loan Eligibility Requirements

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

Note: As to any mortgage 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 mortgage loan that is 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;

  • 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; and

  • have total points and fees not in excess of 3% of the total loan amount (or such different amount as provided in Regulation Z) as described below under Points and Fees Limitations.

Exception: The only exception to these requirements is for single-closing construction-to-permanent loans, which may have a loan term that exceeds 30 years including the construction period. See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions, for additional information.

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

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.

Exception: A “non-standard mortgage” to “standard mortgage” refinance transaction as defined in Regulation Z (other than a loan secured by an investment property that fits within the “business purpose” definition for an exempt loan under TILA) shall be treated as an ATR Covered Loan.

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.

Acceptable Mortgage Loan Terms

Fannie Mae purchases or securitizes mortgage 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.

Exception: The only exception to these requirements is for single-closing construction-to-permanent loans, which may have a loan term that exceeds 30 years including the construction period. See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions.

HOEPA and State Higher-Priced Mortgage Loans

A mortgage 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 mortgage 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:

State Loan Type Description
Arkansas High-cost home loan Loans delivered on or after September 1, 2003 that meet the definition of “high-cost home loan” under the Arkansas Home Loan Protection Act (Ark. Code Ann. §§ 23-53-101 et seq.), notwithstanding the “safe harbor” language contained in § 23-53-103(5)(B).
Georgia Home Loan Loans originated between October 1, 2002 and March 7, 2003 that are governed by the Georgia Fair Lending Act (Ga. Code Ann. §§ 7-6A-1 et seq.).
Georgia High-cost home loan Loans delivered on or after January 1, 2003 that meet the definition of “high-cost home loan” under the Georgia Fair Lending Act (Ga. Code Ann. §§ 7-6A-1 et seq.), as amended effective March 7, 2003.
Illinois High risk home loan Loans delivered on or after January 1, 2004 that meet the definition of “high risk home loan” under the Illinois High Risk Home Loan Act (§ 815 Ill. Comp. Stat. 137/1 et seq.).
Indiana High cost home loan Loans delivered on or after January 1, 2005 that meet the definition of “high cost home loan” under the Indiana Home Loan Practices Act (Ind. Code Ann. §§ 24-9-1 et seq.), notwithstanding the “safe harbor” language contained in § 24-9-1-1.
Kentucky High-cost home loan Loans delivered on or after September 1, 2003 that meet the definition of “high-cost home loan” under the Kentucky high-cost home loan statute (Ky. Rev. Stat. § 360.100).
Maine High-rate, high-fee mortgage Loans delivered on or after January 1, 2008 that meet the definition of “high-rate, high-fee mortgage” under the Maine Consumer Credit Code – Truth in Lending (Me. Rev. Stat. Tit. 9-A §§ 8-101 et seq.).
Massachusetts High-cost home mortgage loan Loans delivered on or after November 7, 2004 that meet the definition of “high cost home mortgage loan” under the Massachusetts Predatory Home Loan Practices Act (Mass. Gen. Laws Ann. ch.183C).
New Jersey High-cost home loan Loans delivered on or after November 27, 2003 that meet the definition of “high-cost home loan” under the New Jersey Home Ownership Security Act of 2002 (N.J. Rev. Stat. §§ 46:10B-22 et seq.).
New Mexico High-cost home loan Loans delivered on or after January 1, 2004 that meet the definition of “high-cost home loans” under the New Mexico Home Loan Protection Act (N.M. Stat. Ann. §§ 58-21A-1 et seq.).
New York High-cost home loan Loans delivered on or after April 1, 2003 that meet the definition of “high-cost home loan” under the New York Banking Law § 6-l.
New York Subprime home loan Loans delivered on or after September 1, 2008 that meet the definition of “subprime home loan” under New York Banking Law § 6-m.
Rhode Island High-cost home loan Loans delivered on or after December 31, 2006 that meet the definition of “high-cost home loan” under the Rhode Island Home Loan Protection Act (R.I. Gen. Laws §§ 34-25.2-1 et seq.), notwithstanding the exemptions contained in § 34-25.2-11 of the Rhode Island law.
Tennessee High-cost home loan Loans delivered on or after January 1, 2007 that meet the definition of “high-cost home loan” under the Tennessee Home Loan Protection Act (Tenn. Code Ann. §§ 45-20-101 et seq.), notwithstanding the preemption provision contained in § 45-20-111 of the Tennessee law.

Impact of Special Assessments on Maximum Mortgage Loan Amount

If special assessments have been levied against the property and they are not paid before or at closing, the maximum mortgage 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 mortgage 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 mortgage 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

Premium pricing refers to situations when a borrower selects a higher interest rate on a mortgage 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:

Private Transfer Fee Covenants

In accordance with a regulation issued by the Federal Housing Finance Agency on March 16, 2012, and codified at 12 CFR Part 1228 (the “Private Transfer Fee Regulation”), Fannie Mae will not purchase or securitize mortgages 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.”)

Property Value for Loans Sold More than Four Months from Note Date

For mortgage loans that are more than four months old from the date of the note and mortgage 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 delivery to Fannie Mae by the lender except on a negotiated basis. In these instances, the loan must be submitted as part of a bulk transaction, which is subject to additional review by Fannie Mae to ensure the loan is eligible for sale.

Seasoned Mortgages

Seasoned mortgages are mortgages that are more than one year old from the first payment date to:

  • the loan purchase date for whole mortgage loans, or

  • the pool issue date for MBS mortgage loans.

Note: Fannie Mae restricts purchase or securitization of seasoned adjustable-rate mortgage loans to those that are delivered as a negotiated transaction. See B2-1.3-02, Adjustable-Rate Mortgages (ARMs).

The table below provides the requirements for seasoned mortgages.

Seasoned Mortgage Loan Requirements
Seasoned mortgages may not be included in Fannie Majors MBS pools. See Chapter C3–6, Pooling Loans into Fannie Majors.
The lender’s underwriting of the borrower’s credit and the security property for a seasoned mortgage loan must meet the current requirements set out in this Guide.
The borrower has not had a 30-day delinquency in the 12-month period that precedes the lender’s delivery of the mortgage to Fannie Mae.
If the current borrower assumed the mortgage and has owned the property for less than 12 months, he or she must have had no 30-day delinquency since purchasing the property.
The borrower’s ability to pay must not have changed adversely.

Note: If the mortgage has been assumed, the new borrower’s credit must be fully documented and underwritten in accordance with the same standards used for new mortgages, unless the transfer of ownership was one of the exempt transactions that legally prohibit a credit review. See the Servicing Guide for an explanation of exempt transactions.

The current value of the property cannot be less than the original value. If the lender is unable to provide this warranty, the loan is not eligible for delivery to Fannie Mae by the lender except on a negotiated basis.
The status of the title to the property must not have been affected adversely.
The mortgage must satisfy Fannie Mae’s current applicable mortgage eligibility requirements.
If the mortgage loan is secured by a unit in a condo, co-op, or PUD project, the project must satisfy Fannie Mae’s current applicable project eligibility requirements.
If the mortgage loan was modified prior to delivery to Fannie Mae, it must be a modification that is eligible for delivery in accordance with the requirements of this Guide as described below under Modified Mortgages.
Except to the extent otherwise expressly permitted in the Selling Guide (A2-3.2-01, Loan Repurchases and Make Whole Payments Requested by Fannie Mae), or Servicing Guide with respect to the redelivery of mortgages to Fannie Mae, the mortgage being delivered cannot be a mortgage that was required to be repurchased by a secondary market investor, government-sponsored enterprise, or private institutional investor other than Fannie Mae for any documentation, underwriting, property valuation, or other deficiencies and/or issues with the property (including project eligibility if the property is in a condo, co-op, or PUD project), borrower credit or other deficiencies or for any other reason.

Modified Mortgages

A modified mortgage 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, mortgage 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 mortgage that was modified to effect technical or typographical corrections is permitted for delivery, provided that all of the changes 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.

Category of Modification Owned or Securitized by Fannie Mae Prior to or at Time of Modification? Eligible for Delivery to Fannie Mae After Modification? Selling Guide or Servicing Guide Reference
Converted ARMs Yes Yes Selling Guide: See B2-1.3-03, Convertible ARMs, for convertible ARMs that are redelivered to Fannie Mae after their removal from an MBS pool
No No N/A
Maturing Balloon with Conditional Right to Refinance Yes Yes Selling Guide: See B2-1.3-04, Refinanced Balloon Mortgages, for refinanced balloon mortgages owned or securitized by Fannie Mae that have a conditional refinance option
No No N/A
Maturing Balloon with Conditional Right to Modify Yes or No No N/A
Borrower Principal Curtailment and Recast Over Remaining Term Yes N/A — No redelivery required Servicing Guide: See Chapter C-1, Processing Mortgage Loan Payments
No No N/A
Changes to Borrowers Due to Death, Marriage, or Other Allowable Property Transfers Yes N/A — No redelivery required Servicing Guide: See Chapter D1–4, Transfers of Ownership
No No N/A
Single-Closing Construction-to-Permanent Financing No Yes Selling Guide: See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions
New York Consolidation, Extension, and Modification No Yes Selling Guide: See B8-2-02, Special-Purpose Security Instruments
Modifications that Result in Material Changes to Loan Terms No No Selling Guide: See Modified Mortgages, above

For information on subsequent refinances of modified mortgages for DU Refi Plus and Refi Plus, refer to B5-5.2-01, DU Refi Plus and Refi Plus Eligibility.

Nonstandard Payment Collection Options

A nonstandard payment collection option is a payment option that permits the borrower to make mortgage 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 mortgage loan is ineligible for delivery to Fannie Mae.

Lenders may offer nonstandard payment collection plans as part of a separate agreement; however, the mortgage 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 mortgage loan must be identifiable by the lender such that the information can be provided to Fannie Mae upon request.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2017-10 December 19, 2017
Announcement SEL-2016–05 June 28, 2016
Announcement SEL-2015–12 November 3, 2015
Announcement SEL-2015–07 June 30, 2015
Announcement SEL-2015–01 January 27, 2015
Announcement SEL-2014–16 December 16, 2014
Announcement SEL-2014–12 September 30, 2014
Announcement SEL-2014–11 August 26, 2014
Announcement SEL-2014–03 April 15, 2014
Announcement SEL-2013–07 September 24, 2013
Announcement SEL-2013–06 August 20, 2013
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2012–06 June 26, 2012
Announcement SEL-2012–04 May 15, 2012
Announcement SEL-2011–06 July 26, 2011
Announcement SEL-2011–03 March 31, 2011
Announcement SEL-2011–01 January 27, 2011
Announcement SEL-2010–10 August 12, 2010
Announcement SEL-2010–06 April 30, 2010
Announcement 09-32 October 30, 2009
Announcement 09-19 June 8, 2009