Selling Guide

Published August 29, 2017

General Requirements

Lenders must ensure that any mortgage insurance Fannie Mae requires for a mortgage loan is in place. Lenders must obtain and be able to produce evidence of any required mortgage insurance or loan guaranty.

Unless the lender has provided another charter-compliant form of credit enhancement, the lender must obtain a primary mortgage insurance policy for a conventional first mortgage loan that has an LTV ratio greater than 80% at the time it is purchased for Fannie Mae’s portfolio or securitized. (For this purpose, the LTV ratio is calculated based upon the unpaid principal balance of the mortgage loan at the time it is purchased or securitized by Fannie Mae.)

  • For a purchase money loan, the value used in determining the LTV ratio is the lower of the sales price or the appraised value of the security property.

  • For a refinance loan, the value used in originating the loan can be derived from an appraisal, AVM, or other acceptable method.

Conventional mortgages may be insured by private mortgage insurers or state or local insuring agencies that have been approved under Fannie Mae’s Qualified Mortgage Insurer Approval Requirements to insure loans sold to or serviced for Fannie Mae. For a listing of the eligible conventional mortgage insurers and their associated mortgage insurance codes, see Approved Mortgage Insurers and Related Identifiers. The website is the definitive source for approved mortgage insurers.

The form of mortgage insurance policy, including any endorsements, must be acceptable to Fannie Mae.

Use of Approved Forms

Lenders are responsible for ensuring that only Fannie Mae-approved mortgage insurance forms and related endorsements and other forms (Forms) are used in connection with individual loans sold to or securitized by Fannie Mae. These Forms provide the terms of mortgage insurance coverage on individual loans. A list of Fannie Mae-approved Forms for each insurance provider is available on Fannie Mae’s website – see Approved Mortgage Insurance Forms.

Any mortgage loan sold to or securitized by Fannie Mae that requires primary mortgage insurance (or is delivered with primary mortgage insurance even though not required) and has a loan application date on or after October 1, 2014, must be insured under one of the Fannie Mae-approved Forms. If such loan is insured under any pre-existing forms or agreements between lenders and mortgage insurers, the loan is not eligible for sale to Fannie Mae, and is subject to repurchase if identified after acquisition by Fannie Mae.

Any mortgage loan sold to or securitized by Fannie Mae that requires primary mortgage insurance (or is delivered with primary mortgage insurance even though not required) and has a loan application date prior to October 1, 2014, may be insured under either

  • one of the Fannie Mae-approved Forms; or

  • any pre-existing forms and agreements between lenders and mortgage insurers, as long as the lender first confirms with the mortgage insurer that such forms and agreements were approved by Fannie Mae for use at the time of the loan application date.

Exception

Insured mortgage loans that are refinanced through Refi Plus and DU Refi Plus, and insured balloon loans that are modified or refinanced may continue to be insured pursuant to the forms and agreements under which the existing loan is insured regardless of the loan application date of the new loan. However, the new loan must be insured pursuant to a modification of the existing mortgage insurance certificate, which may or may not involve the assignment of a new certificate number by the mortgage insurer. If the mortgage insurer issues an entirely new mortgage insurance certificate, this exception does not apply.

LTV Ratio Determination in New York State

Under a New York statute, a mortgage insurer must issue mortgage insurance based on a determination of the “fair market value” of the property. The term “fair market value” is not defined in the statute, but has been defined by the New York insurance regulator as being the “appraised value.” Per the statute, for co-op properties, the issuance of mortgage insurance must be based on the “purchase price of the ownership interest and the proprietary lease.”

As a result, the determination of value for properties in New York is different from Fannie Mae’s standard definition of value that is used to calculate the LTV ratio. The following table identifies the value calculation that is to be used for mortgage loans secured by properties in New York for policies that are based on the LTV ratio.

LTV Ratio Calculation Policy
LTV ratio based on the appraised value for non-co-op properties
  • Lenders must base their determination of when mortgage insurance is required solely on the appraised value of the property. If the appraised value of the property exceeds the sales price, this determination may result in mortgage insurance not being placed on a mortgage loan as would otherwise be required using Fannie Mae’s standard definition.

  • If this calculation results in mortgage insurance not being placed on the loan where mortgage insurance would otherwise have been required using Fannie Mae’s standard definition, the lender must deliver the loan to Fannie Mae using the MI Absence Reason Type of “No MI Based On Original LTV” (Sort ID 429).

LTV ratio based on the sales price for co-op properties
  • For purchase transactions, lenders must base their determination of when mortgage insurance is required solely on the sales price for the co-op property. If the sales price of the property is more than the appraised value, this determination may result in mortgage insurance not being placed on a mortgage loan as would otherwise be required using Fannie Mae’s standard definition.

    Note: For purchase transactions when the co-op property is subject to resale restrictions that terminate automatically upon foreclosure and the appraised value exceeds the sales price, lenders may use the appraised value of the property without resale restrictions, rather than the sales price when determining when mortgage insurance is required. For additional information on calculating LTV ratios on loans with resale restrictions, see B5-5.3-03, Loans with Resale Restrictions: Underwriting and Collateral Considerations.

  • If this calculation results in mortgage insurance not being placed on the loan where mortgage insurance would otherwise have been required using Fannie Mae’s standard definition, the lender must deliver the loan to Fannie Mae using the MI Absence Reason Type of “No MI Based On Original LTV” (Sort ID 429).

LTV ratio based on the appraised value for refinances of co-op share loans
  • Lenders must base their determination of when mortgage insurance is required for a refinance transaction for co-op share loans solely on the appraised value.

LTV ratio based on the lower of the sales price or appraised value (standard LTV ratio calculation) for all property types
  • Irrespective of the use of appraised value or sales price for determining whether mortgage insurance is required, this standard LTV ratio calculation must be used to determine the level of mortgage insurance coverage that is required on the mortgage loan. See B1-1-01, Contents of the Application Package, and B7-1-02, Mortgage Insurance Coverage Requirements, for additional information.

  • The standard LTV ratio calculation must also be used

    • to determine whether the loan satisfies any of Fannie Mae’s other eligibility criteria that are based on the LTV ratio of the loan;

    • to determine any loan-level price adjustments derived from Fannie Mae’s pricing matrix that includes LTV ratios or CLTV ratios as a risk attribute in its lookup table; and

    • when the loan is delivered to Fannie Mae (Sort ID 254). (The standard LTV ratio must be delivered even if the appraised value or sales price is used to determine that mortgage insurance coverage is not required.)

Payment of Mortgage Insurance Premiums

Premium plans for mortgage insurance may be:

  • monthly plans – monthly premiums from accumulated escrow deposits (with no initial payment at closing),

  • annual plans – an initial payment at closing to cover the first year's premium and annual renewal premiums thereafter paid from accumulated escrow deposits,

  • single-premium plans – lump-sum premium at closing to purchase life-of-the-mortgage coverage, or

  • split-premium plans – an initial payment at closing and an ongoing monthly premium from accumulated escrow deposits.

Mortgage Insurability

Each loan a lender delivers to Fannie Mae must be insurable. A mortgage is insurable if a mortgage insurer would not decline to insure it by reason of any fraud, misrepresentation, negligence, or dishonest, criminal, or knowingly wrongful act in origination or servicing, and would not be entitled to deny a claim by reason of any of the foregoing.

Authorizing Release of Data to Fannie Mae

To facilitate Fannie Mae's ability to validate mortgage insurance coverage directly with mortgage insurers, lenders must instruct mortgage insurers to release data to Fannie Mae (at Fannie Mae's request) for any mortgage loans that Fannie Mae currently owns or securitizes or is evaluating for possible purchase or securitization in the future. Lenders must instruct, in writing, each mortgage insurer of mortgage loans it currently services or may service in the future for Fannie Mae, to provide Fannie Mae with any and all information Fannie Mae may request concerning the mortgage and the insurance. In addition, lenders must provide any Fannie Mae-approved mortgage insurer with which it may begin doing business in the future with the same written instructions at the outset of the relationship.

These instructions do not relieve lenders of their obligations under the Selling Guide and the Servicing Guide to report mortgage insurance coverage terms completely and accurately to Fannie Mae nor do they imply that the mortgage insurer rather than the lender will be the initial source of this data for Fannie Mae.

A Mortgage Insurance Disclosure Instructions and Release form is posted on Fannie Mae's website. Lenders may use this form or any other form that is acceptable to the mortgage insurer and that results in the release of the requested data to Fannie Mae. The disclosure instructions and release must be returned to each mortgage insurer using the contact information posted on Fannie Mae's website. Language that accomplishes the same objective may also be included in any other written agreement between the lender and mortgage insurer, such as a master primary policy, as long as it covers both loans currently insured by the mortgage insurer as well as those that become insured or may become insured in the future. Under such circumstances, separate instructions need not be returned to each mortgage insurer using the posted contacts.

Prohibition of Certain Mortgage Insurance Agreements

Fannie Mae prohibits lenders from entering into any agreement that modifies the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae. Prohibited agreements include, but are not limited to, agreements that directly or indirectly:

  • modify master policy provisions for settling of claims,

  • limit the right of a mortgage insurer to conduct file reviews or investigate claims,

  • limit the right of a mortgage insurer to rescind coverage,

  • rescind or modify coverage, or

  • restrict notice to Fannie Mae of changes in coverage status.

Further, Fannie Mae prohibits loss sharing, indemnification, settlement, or similar agreements of any kind between lenders and mortgage insurance companies that affect Fannie Mae's interest in its mortgage loans or modify the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae. Traditional captive reinsurance arrangements between a mortgage insurance company and a licensed insurer or reinsurer may be permissible so long as they do not:

  • affect Fannie Mae's interest in its mortgage loans, or

  • modify the terms of an approved mortgage insurance master policy on loans delivered to or intended for delivery to Fannie Mae.

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-2016–03 March 29, 2016
Announcement SEL-2015–08 July 28, 2015
Announcement SEL-2014–10 July 29, 2014
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2012–06 June 26, 2012
Announcement SEL-2011–04 May 24, 2011
Announcement SEL-2011–03 March 31, 2011
Announcement SEL-2010–13 September 20, 2010
Announcement SEL-2010–09 June 30, 2010
Announcement SEL–2010–07 May 27, 2010