What is a Fannie Mae Apartment Loan
Published 09-28-2018


A The Federal National Mortgage Association (FNMA or “Fannie Mae”) mortgage is an adjustable or fixed-rate loan product available for various types of multifamily properties. The underwriting and application process is standardized and performed by Delegated Underwriting and Services (DUS) lenders. Through it’s two major programs (Small Loan Program and DUS Program), Fannie offers multifamily mortgages starting at $750,000. Like CMBS mortgages, these loans are pooled, securitized, and sold to investors, but typically serviced by the originator.

Loan Features

RecourseUsually non-recourse except for “bad boy” carve-outs, with some exceptions
Interest-Only PeriodAvailable on some adjustable-rate products
Prepayment PenaltyYield Maintenance or Declining (with additional spread or fee)
Loan AssumptionAvailable, with pre-approval and assumption fee
Rate Lock AvailableYes, through Streamlined Rate Lock
Loan ServicerOriginator, or may be transferred to a third party
Secondary financingYes, 12+ months after closing, through FNMA Supplemental Loan Program
Insurance & Tax ReserveRequired unless low-leverage
Capital ReservesRequired for most properties, including older properties or properties with deferred maintenance

Small Balance Loan Characteristics

Eligible PropertiesMarket-Rate (Conventional) ApartmentsAffordable HousingSenior HousingStudent HousingManufactured HousingCooperative Housing (in Boston, Chicago, Los Angeles, New York, Washington D.C.)
Loan Amount$750,000 – $3,000,000 (nationwide) or $5,000,000 (Baltimore, Boston, Chicago, Los Angeles, New York, Sacramento, San Diego, San Francisco, San Jose, Seattle, Washington D.C.)
Loan Terms5-30 year, fixed-rate OR 7 year, adjustable rate (7/6 Program)
AmortizationUp to 30 years
Minimum DSCRDepends on loan tier
Interest-OnlyPart- or full-term available on fixed-rate products
Prepayment PenaltyYield maintenance or Declining (for additional spread or fee) on fixed-rate terms; 1% fee (after 1 year lock-out) on adjustable terms
Rate LockEarly Rate Lock available; 30-180 days

DUS Loan Characteristics

Eligible PropertiesMarket-Rate (Conventional) ApartmentsAffordable HousingSenior HousingStudent HousingManufactured HousingCooperative Housing (in Boston, Chicago, Los Angeles, New York, Washington D.C.)
Loan Amount$3,000,000+
Loan Terms5-30 year, fixed-rate OR 7 year, adjustable rate (7/6 Program)
AmortizationUp to 30 years
Minimum DSCRDepends on property type
Interest-OnlyPart- or full-term on fixed-rate products
Prepayment PenaltyYield maintenance or Declining (for additional spread or fee) on fixed-rate terms; 1% fee (after 1 year lock-out) on adjustable terms
Rate LockEarly Rate Lock available; 30-180 days

 Property Requirements

Property TypeMarket rate apartments, affordable housing, senior housing, student housing, cooperative housing, and manufactured housing communities
LocationPrimary or secondary MSAs (populations of 200,000+) with a few exceptions for tertiary markets
OccupancyAt least 90% for 90 days prior to funding for completed properties; 75% physical occupancy for newly constructed or renovated properties.
Units5+ for multifamily, 50+ pad sites for manufactured housing
Loan amount$750,000 minimum, although most lenders start at $1 million
FinancialsStrong, increasing NOI (excluding unusual expenses)
Leases12-month leases; parental guarantees for student housing

Borrower Requirements

ExperienceRequired
Net worth1.0x loan amount requested, unless waiver granted
Liquidity6-12 months debt service (after any required cash injections)
CreditNo recent bankruptcies, foreclosures, short sales, etc.
Citizenship$750,000 minimum, although most lenders start at $1 million
FinancialsCredit-worth single-asset US Borrower with all US ownership; indirect foreign ownership okay with proper structuring of entity and parent

Underwriting Requirements

Maximum LTV/LTC80% for purchases, 75% for refinances (dependent on cash flow)
Term length5-30 year, fixed-rate OR 7 year, adjustable rate
Maximum amortization30 years (dependent on property location and age)
Minimum DSCR1.25x+ (dependent on location and leverage)
Third party reports requiredAppraisal, Phase I Environmental Assessment, Property Condition Assessment, Seismic report (in certain areas such as California); others may be required based on property, condition, and location

Loan Pricing

Fannie Mae loans are priced based on the corresponding treasury and a spread, which takes into account the loan amount, term, LTV, and property location. Pricing considerations the borrower should be aware of are the following:

  • Usually the longer the term, the higher the rate
  • There is a 3-tier pricing structure based on LTV and DSCR, which have approximately a 0.2% rate change between each tier.» Tier 2: 66-80% LTV (purchase) or 75% LTV (refinance); minimum DSCR of 1.25x» Tier 3: 56-65% LTV; minimum DSCR of 1.35x» Tier 4: 55% LTV or below; minimum DSCR of 1.55x
  • Discounts are given to properties in primary MSAs
  • Discounts are given to properties with loan amounts above $2 million
  • Discounts are given to properties with 5-50 units
  • Premiums are put on properties in tertiary markets (if approved)
  • Amortizations can be shorter on older properties or properties in tertiary markets
  • Tier 3 & 4 loans may qualify for interest-only loans
  • Declining prepayment penalties add additional spread to the rate
  • Rate discounts or additional proceeds are available for “Green” properties

Funding/Securitization Process

Mortgages that conform to the Fannie Mae underwriting standards are funded by the originating lender, then pooled together, securitized (i.e. converted into mortgage-backed security bonds), and sold to investors. A multifamily mortgage-backed security (MBS) may be backed by fixed-rate mortgage loans or adjustable-rate mortgage loans, but not both within the same offering. When the multifamily MBS is issued, Fannie Mae guarantees timely payment of principal and interest to the MBS certificate holders. Fannie also issues Discount Mortgage-Backed Securities (DMBS), which are non-interest bearing securities having terms of one year or less and purchased at a discount. Multifamily MBS may be placed into Megas, REMICs, or other mortgage-related securities.

Post-Closing/Servicing

Typically serviced by the DUS originator/underwriter, but may be transferred to third parties.

Fannie Mae Apartment Loan Products

Adjustable Rate ProductsARM 7-6Credit FacilityStructured ARM
Fixed Rate ProductsBulk DeliveryChoice RefinanceCredit FacilityDUS MortgageSmall LoanNegotiated PoolsSupplemental Loans
Customized Affordable Loan ProductsAffordable Housing PreservationFunded Forward Rate Lock (9% LIHTC)Unfunded Forward Rate Lock (9% LIHTC)Green Preservation PlusReduced Occupancy Affordable Rehab (ROAR)MBS as Tax-Exempt Bond Collateral (Fixed Rate)MBS as Tax-Exempt Bond Collateral (Variable Rate)Rural Development Rental HousingFHA Risk Sharing ExecutionTax-Exempt Bond Credit Enhancement



Author: Leanne Eicoff

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