Selling Guide

Published October 2, 2018

C2-1.1-07: Standard ARM and Converted ARM Resale Commitments (05/30/2017)

This topic provides information about whole loan mandatory commitments to deliver ARM loans to Fannie Mae, including:

Standard ARM Mandatory Commitments

Lenders may take down mandatory whole loan commitments to deliver a variety of ARMs to Fannie Mae. Fannie Mae will purchase ARMs with varying initial fixed rate periods and indices.

See the Standard ARM Plan Matrix for parameters for ARM loans eligible for sale to Fannie Mae, including the initial fixed interest rate period, interest rate adjustment frequency, indices, and cap structure. Fannie Mae’s standard ARM program does not permit the purchase of ARMs with caps (“floors”) (other than the ARM’s margin) on the lifetime decreases to the life of the loan. The margin for each ARM delivered must include the same servicing fee specified in the commitment.

For additional information, see the Standard ARM Plan Matrix.

Minimum Commitment Amount for Converted ARM Resale Commitments

Converted ARM Resale mandatory commitments are used by lenders to redeliver ARMs that were originally in an MBS pool and have been converted to fixed-rate whole loans.

Lenders must agree to deliver an amount (total UPB) equal to the outstanding balance of the mortgage to be delivered under the commitment. If the lender is delivering multiple mortgages with the same interest rate after conversion, the amount must equal the combined UPB of those mortgages.

Process for Converting an ARM within an MBS to a Fixed-Rate Mortgage

ARM loans with a conversion option are eligible for conversion to fixed-rate mortgages. When a borrower chooses to convert an ARM currently in an MBS pool, the lender must follow these steps.

Step Process for Converting the Mortgage
1. Contact Fannie Mae to repurchase the mortgage from the MBS pool before interest begins accruing at the new fixed rate.
2. Redeliver the mortgage to Fannie Mae as a whole loan (A/A remittance only), if the lender specified a take-out post-conversion disposition option when it originally delivered the ARM.
3. Continue any recourse or credit enhancement that initially applied to the mortgage unless the lender and Fannie Mae agree otherwise.
4. Obtain a Converted ARM Resale commitment number from Fannie Mae.

Note: Only mortgages originally delivered with the take-out post-conversion disposition option may be delivered under this commitment.

For additional information concerning the redelivery of ARMs under both the take-out and market rate options, see C3-5-06, Pooling ARMs with a Conversion Option.

Commitment Timing, Pricing and Compensatory Fees for Converted ARM Resale Commitments

See the table below for information on the relationship between the timing of the commitment and the pricing and fees Fannie Mae may charge.

Date Of Commitment Request Price
On or before the 16th day of the month in which the conversion rate is requested. Par.
After the 16th day of the month in which the conversion rate is requested. Fannie Mae may discount the price the lender receives by
  • $250 or

  • the applicable discount created by the market movement between the first business day of the month in which the commitment was supposed to be requested and the date on which the commitment actually is obtained. As a result, Fannie Mae either bills lenders for the compensatory discount or reduces the lender’s purchase proceeds by the applicable amount.

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-2017-05 May 30, 2017
Announcement SEL-2016–09 December 06, 2016
Announcement SEL-2015–12 November 3, 2015