Loan level guaranty fee buyups and buydowns allow lenders to pool a wider range of note rates under one MBS coupon. Lenders can buy up guaranty fees, meaning they agree to remit a guaranty fee higher than the contractual fee applicable for the particular servicing option and remittance cycle in return for a one-time payment from Fannie Mae.
Fannie Mae disburses payment for buyups to lenders once a month in a single cash transfer covering all of the lender’s mortgages with buyups that were in pools for which securities were issued in the previous month.
Lenders can buy down or agree to remit a lower guaranty fee than the applicable contract fee in exchange for a one-time, upfront payment to Fannie Mae.
When Fannie Mae drafts the lender’s monthly guaranty fee remittances, it also will draft charges for buydowns on pooled loans for which securities were issued in the previous month. Generally, lenders must place buydown funds into a T&I escrow account. If buydown funds (or subsidy payments or other advance payments made by the borrower) are directed for immediate application under the mortgage documents, the lender may deposit these amounts directly into the P&I custodial account.
If a lender holds MBS certificates and the buydown account and its attorneys believe there are tax complications, the lender may deposit the funds in a special account with another institution that meets Fannie Mae’s requirements for custodial depositories. For more information, see Fannie Mae’s Servicing Guide.
If a lender buys down a guaranty fee but does not service the associated mortgage, Fannie Mae establishes a receivable in the lender’s name. The lender must deposit the funds into a designated account in time for Fannie Mae to draft the funds on the seventh calendar day of the month (or the preceding business day if the seventh is a holiday or weekend) following the issue date of the related MBS pool.
Fannie Mae posts guaranty fee buyup/buydown ratios for nearly all mortgage products in a matrix format that enables a lender to find the applicable buyup or buydown ratio for any individual mortgage that it plans to include in an MBS pool by using the gross note rate and remaining term (in months) of the mortgage.
Information concerning guaranty fee buyup or buydown ratios can come from several different sources. For example,
registered users of Message Manager can obtain them on the day after they are posted by accessing Message Manager, and
lenders may request a copy of the posted ratios from their Fannie Mae customer account team.
Refer to Fannie Mae’s website for information about the buyup and buydown grids.
The total buyup disbursement or buydown charge is calculated as follows:
multiply the number of basis points by which each mortgage in a given pool was bought up/down (the difference between the “guaranty fee rate before the buyup or buydown” and the “guaranty fee rate after the buyup/buydown”) by the “buyup/buydown per basis point” (rounding to three decimal places),
multiply the rounded product by 0.0001 to convert the basis points to a decimal equivalent, and
multiply the decimal equivalent by the delivered unpaid principal balance with a guaranty fee rate buyup/buydown.
Do this for all pools that include mortgages with guaranty fee rate buyups/buydowns and settled in the month. The total of the buyups or buydowns for all of the pools will be the amount Fannie Mae collects, disburses, or nets.
With respect to any mortgage loan that pays off within 120 days from the MBS issue date that involved a guaranty fee buyup, Fannie Mae reserves the right to request reimbursement of any or all buyup proceeds paid by Fannie Mae.
For mortgage loans repurchased by a lender, Fannie Mae in its sole discretion may require reimbursement by the lender of any buyup proceeds paid by Fannie Mae in connection with the purchase of the related repurchased mortgage loan without regard to the 120–day limitation.
The table below provides references to the Announcements that have been issued that are related to this topic.