Selling Guide

Published December 4, 2018

MBS Program Description

Fannie Mae MBS are securities that represent an ownership interest in pools of residential mortgages with similar characteristics. MBS are also known as “pass-through certificates,” because the principal and interest on the underlying mortgages are passed through to investors based on the percentage of the security that each investor owns. Fannie Mae guarantees to the related trust holding the mortgages that it will supplement amounts received by that trust as required to permit timely payment of principal and interest on the MBS.

Fannie Mae’s MBS program provides for the issuance and sale of MBS that represent fractional, undivided, beneficial ownership interests in a distinct pool of mortgages, such as the following mortgage types:

  • conventional,

  • FHA-insured,

  • VA-guaranteed, and

  • HUD-guaranteed Section 184 loans.

MBS transactions result in the formation of one of two types of pools:

  • a single-lender pool, in which all of the mortgages share a common characteristic, such as lien type, amortization type, loan term or range of loan terms, mortgage type, or ARM plan number. The minimum pool size (aggregate UPB) for a fixed rate, single-lender pool is $1 million. For ARMs, the minimum pool size is $500,000.

  • a multiple-lender pool, known as a Fannie Majors, that consists of pools of whole mortgages delivered by more than one lender. For Fannie Mae to open a Fannie Majors pool, the pool’s aggregate UPB must meet the minimum amounts noted above. Once opened, a lender may deliver loans with UPBs as low as $1,000.

MBS Single-Family Pool Trust Agreement

Fannie Mae holds, in its capacity as trustee, the mortgages sold to Fannie Mae by a lender or lenders in a trust comprising the pool and issues MBS that are backed by those mortgages. All mortgage loans related to a pool represent a separate trust and issuance of MBS. For each issuance of MBS, there will be an issue supplement to the Trust Agreement.

The Trust Agreement and any issue supplement are entered into by Fannie Mae in its corporate capacity (as Issuer, Master Servicer and Guarantor) and as Trustee. The trust agreement is posted at Single Family Master Trust Agreement. Issue supplements are available to investors in related pools upon request from the Fixed-Income Investor Helpline; see E-1-03, List of Contacts.

The 2016 Single-Family Master Trust Agreement is effective for all fixed-rate and adjustable-rate mortgage loans in pools delivered to Fannie Mae, and Pooled from Portfolio loans included in pools, for all MBS issued on or after June 1, 2016.

Guaranty Fees

The lender must pay Fannie Mae a guaranty fee remittance each month as compensation for the lender’s right to participate in the MBS program. The guaranty fee is ultimately a corporate responsibility of the servicer and is not a function of the pool cash flows; therefore, it must be paid even if there is no pool collection activity.

The guaranty fee remittance rate for MBS mortgages varies depending on:

  • the credit risk of mortgages included in the pool,

  • the servicing option that applies to each mortgage in the pool, and

  • the remittance cycle that applies to the pool.

For additional details, see C1-1-01, Execution Options.

Lenders may buy up or buy down their guaranty fees. See C3-2-03, MBS Remittance Type and Selecting a Remittance Cycle, and Chapter C3–3, MBS Guaranty Fees and Guaranty Fee Buyups and Buydowns, for more information.

MBS Pricing Parameters

MBS prices are driven by investors and can change continually throughout the day. Pricing is a function of the security itself, such as, the type of mortgage backing the security and the coupon rate (the rate at which interest is paid to the investor); and market factors, such as interest rate fluctuations and overall MBS demand.

MBS may be bought or sold at par, at a premium, or at a discount, that is, a price equal to, greater than, or less than 100% of their face value.

MBS Servicing Fees

The lender determines the amount of the total servicing compensation it wants to receive when it establishes the interest rate for the mortgage, but Fannie Mae requires that it provide for at least a minimum servicing fee. Generally, the total servicing fee for a regularly amortizing mortgage is the difference between the mortgage interest rate of a mortgage loan and the sum of (a) the pass-through rate on the loan (or, for ARMs, the loan’s contributions to the pool accrual rate), (b) the guaranty fee, and (c) any lender-purchased mortgage insurance.

The total servicing fee — after deduction of the applicable guaranty fee for an MBS mortgage and/or the applicable renewal premium accrual for a mortgage with lender-purchased mortgage insurance — must at least equal Fannie Mae’s required minimum servicing fee for the particular type of mortgage.

The minimum servicing fee can vary by mortgage product and, in certain cases, a lender has a choice of minimum servicing fees for the same product. Fannie Mae may specify a maximum allowable servicing fee for some products.

The total servicing fee that is established when the MBS pool is formed generally will remain in effect for the life of the pool (without regard to whether the pool contains fixed-rate mortgages or ARMs).

MBS Remittance Types and Cycles

The scheduled principal and interest due on mortgages pooled into MBS must be remitted to Fannie Mae, whether or not it is collected from the borrowers (that is, accounted for using the scheduled/scheduled remittance type).

MBS Program Transaction Options

Lenders can opt to either hold the MBS in their investment portfolio (often referred to as a “swap-and-hold” transaction) or sell the MBS to another investor as part of the same transaction (“swap-and-sell”). Lenders can choose to service the mortgages underlying the MBS or sell the servicing associated with these loans to another financial institution.

Structured Transactions

MBS may be combined with other Fannie Mae mortgage-related securities to create a single structured transaction security, such as:

  • Megas — Pass-through securities backed by groups of existing MBS or other existing Megas;

  • SMBS — Pass-through securities created by either (1) restructuring the interest and principal payments into separately tradable securities (standard SMBS) or (2) with Fannie Mae’s approval, depositing into an SMBS trust a portion of the interest payable on mortgage loans backing certain MBS—the “excess yield” (excess servicing SMBS); and

  • REMICs — Multiclass mortgage-related securities backed by MBS or whole loans.

Lenders that wish to deliver mortgage-related securities to Fannie Mae in exchange for a structured transaction security should contact the Capital Markets Structured Transactions group, to seek approval to do so.

Fannie Mae’s Capital Markets Pricing and Sales Desk

Lenders in good standing may be eligible to use the services of Fannie Mae’s Capital Markets Pricing and Sales Desk (“the Desk”) to either buy or sell MBS (and whole loans as well). The Desk also assists lenders in obtaining current market quotes and in finding markets for nonstandard MBS products. However, the Desk will not make individualized trade recommendations or determine the appropriateness or benefit of any particular transaction or strategy for a lender.

Lenders should note that they must consent to the recordation of all telephone conversations with the Desk. In the event of a conflict between a recorded telephone conversation and a confirmation or settlement notice sent by Fannie Mae to the lender, the recorded conversation represents the official terms of the transaction.

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-2016–09 December 06, 2016
Announcement SEL-2012–06 June 26, 2012
Announcement SEL-2011–11 October 25, 2011
Announcement 08-31 December 8, 2008