Fannie Mae Discusses DUS Legal Issues
Fannie Mae recently hosted a DUS Legal Issues Forum on June 3, 2009 to discuss Fannie Mae’s loss mitigation process, legal delegation, and upcoming revisions to the form loan documents and Guide. During the course of the forum, Fannie Mae highlighted the following major points:
- Fannie Mae has revised the Guide to incorporate adjustments to certain underwriting terms and requirements. Fannie Mae has also made recent loan document changes that are mandatory for any Mortgage Loan that is not under application or rate locked on or prior to June 30, 2009.
Please note the following changes:
- The Bankruptcy Modification to the Note (Form 4199) has been modified to include “waste”; failure to comply with Section 17(a) of the Security Instrument (Preservation, Management and Maintenance of Mortgage Property) will trigger personal liability.
- The Security Instrument has been modified to:
- incorporate the standard bankruptcy modifications into the text of the Security Instrument (Form 4094 will no longer be required);
- require quarterly operating statements and rent schedules (NOTE: Lenders will be required to provide notice of this change to existing Borrowers);
- potentially disallow disbursement of insurance proceeds to the Borrower if certain debt service coverage ratios are not satisfied;
- create an Event of Default for failing to notify the Lender of the death of a Key Principal and if a replacement Key Principal has not signed for the carve-outs within ninety (90) days after such death; and
- restrict the approved Transfers for limited partnerships and limited liability companies.
(Please see Guide Update 09-02 - Update to Multifamily Underwriting and Other Requirements for more details.)
- Fannie Mae will closely monitor legal delegation to confirm compliance with the procedures set forth in LM 07-07: Enhanced Legal Delegation (04/20/07).
- Fannie Mae will pay increased attention to lenders’ representations and warranties, as well as the overall quality of loans delivered. If Fannie Mae determines that the lender violated its representations and warranties and, as a result, the risk increased, Fannie Mae may require the lender to accept higher loss sharing or repurchase that loan.
- Fannie Mae will continue to follow a dual track for dealing with delinquent and defaulting loans. This dual process includes (i) establishing prompt contact and dialogue with the Borrower in an attempt to resolve the delinquency, and (ii) initiating the foreclosure/receivership process at the appropriate time. (Please see LM 08-19: Mortgage Loan Delinquency Management Process and Procedures (10/24/08) for more details.)
- Fannie Mae anticipates a significant increase in loans maturing in 2010-2012 and will promptly begin review of loans scheduled to mature in the next twenty-four (24) months. (Please see LM 09-12: Maturity Management for more details.) Fannie Mae is currently developing a “defensive” refinance product and has implemented more stringent procedures for Mortgage Loan maturity management.
For more information please contact a member of the Multifamily Housing Group of Troutman Sanders LLP.