Product Development
MBS
Date:
February 23, 2009
To:
Fannie Mae Lenders
From:
Manuel Menendez, Vice President, Product Development and Business
Management
Subject:
Lender Memo 09-06 MBS/DUS Eligibility for DUS ARM and Fixed Rate
Graduated Prepayment Premiums
Highlights
Fannie Mae expands the product features available for MBS/DUS execution.


Graduated Prepayments will now be available for Fixed Rate MBS/DUS execution.
DUS ARM:
o The Lifetime interest rate cap options available for the MBS/DUS execution
are being expanded beyond the 3% option that was available previously.
Lifetime interest rate caps now range from 2% to 6% over the initial interest
rate, in increments of 0.50%; and
o There will now only be two prepayment options available for both the
MBS/DUS and Cash executions: a Graduated Prepayment Premium option
and a 1% Prepayment Premium option.
Fannie Mae is pleased to announce the expansion of product features that are available for
MBS/DUS execution. This enhancement will provide Borrowers with more options when the
MBS/DUS execution is utilized. The specific features available are described in more detail
below and in the attached DUS Guide Updates.
Fixed Rate Graduated Prepayment Premiums
Graduated Prepayment Premiums will now be available for Fixed Rate Mortgage Loans utilizing
the MBS/DUS execution. The following options are offered:


5-year Mortgage Loan term: 5%,4%,3%,2%,1%
7-year Mortgage Loan term: 2 year Lockout, 5%,4%,3%,2%,1%
Lender Memo 09-06
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
10-year Mortgage Loan term: 5%,5%,4%,4%,3%,3%,2%,2%,1%,1%
The Lender must use the applicable Schedule A to the Fannie Mae form Note that conforms to
the Graduated Prepayment Premium structure selected.
The Lender is not entitled to retain any portion of the Prepayment Premium paid by the
Borrower. The entire Prepayment Premium must be remitted to Fannie Mae. Fannie Mae will
pass through to the investor the amount of the Prepayment Premium that exceeds 1% of the
amount of principal being prepaid.
DUS ARM
Lifetime Interest Rate Caps:
The DUS ARM is being enhanced to permit the use of the MBS/DUS execution for all of the
existing lifetime interest rate cap options. The lifetime interest rate cap options currently
available range from 2% to 6% over the initial interest rate, in increments of 0.50%.
Prepayment Premium Options:
The Prepayment Premium options available for the DUS ARM are being consolidated. Only two
options will be available (for both Cash and MBS/DUS executions):

Option #1: Declining Prepayment Premium Schedule:
o 5 year Mortgage Loan Term: 1 year Lockout (5%),4%,3%,2%,1%
o 7 year Mortgage Loan Term: 1 year Lockout (5%),4%,3%,2%,1%,1%,1%
o 10 year Mortgage Loan Term: 1 year Lockout
(5%),4%,3%,2%,1%,1%,1%,1%,1%,1%
The Lender must use the appropriate Schedule A to the Fannie Mae ARM Note (Form
4179-1 if a 5-year term, Form 4176-1 if a 7-year term, Form 4177-1 if a 10-year term).

Option #2: 1% Prepayment Premium Schedule:
o All Mortgage Loan Terms: 1 year Lockout, 1% thereafter
The Lender must use the appropriate Schedule A to the Fannie Mae ARM Note (Form
4179-2 if a 5-year term, Form 4176-2 if a 7-year term, Form 4177-2 if a 10-year term).
There is no Prepayment Premium payable during the last 3 months prior to the maturity date of
the Mortgage Loan for either option.
If the ARM Mortgage Loan has a conversion option and is converted to a Fixed Rate Mortgage
Loan, the Prepayment Premiums will not apply at conversion. The converted Fixed Rate
Mortgage Loan must have one of the following terms:
Term of Converted Mortgage Loan:
7 years
10 years
Lender Memo 09-06
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Yield Maintenance Period:
5 or 6.5 years
7 or 9.5 years
The Lender is entitled to retain a portion of the Prepayment Premium paid by the Borrower in
accordance with the provisions of the attached sections to the DUS Guide.
Commitment and Delivery Requirements
The Lender must follow standard committing procedures when entering commitment information
in the Multifamily Committing and Delivery system (C&D) and include the following information:


Fixed Rate Graduated Prepayment Premium option:
o The Lender must check the “Special Disclosure” box on the commitment screen
in order for the correct disclosure to be created; and
o Enter the appropriate Prepayment Premium information.
DUS ARM: The Lender must enter the appropriate Prepayment Premium information
and lifetime interest rate cap information on the commitment screen.
A job aid for entering data on Graduated Prepayment Premiums in C&D is attached.
MBS/DUS securities are typically comprised of one Mortgage Loan per MBS/DUS security.
DUS ARMs that use the MBS/DUS execution should conform with this standard. In no event
should the number of DUS ARM Mortgage Loans underlying a MBS/DUS security exceed ten.
Loan Documents
The Schedule A Forms (Forms 4176, 4177 and 4179 series) are being revised to retire existing
Forms 4176-1, 4177-1 and 4179-1 and renumber Forms 4176-3, 4177-3 and 4179-3 to reflect a
“-1” suffix. There has been no change to Forms 4176-2, 4177-2 and 4179-2. The new
Schedule A Forms will be published on efanniemae.com shortly.
Effective Date
This Guide Update is effective immediately.
Questions
Questions about these revisions may be addressed to Nancy Atwell at (301) 204-8495 or by email at nancy_atwell@fanniemae.com, or your Deal Team.
Attachments
1.
2.
3.
4.
DUS Guide, Part XII, Chapter 3 (clean and black line)
DUS Guide, Part IIIC, Chapter 5 (clean and black line)
C&D Job Aid for Graduated Prepayments
New Schedule A Forms 4176-1, 4177-1 and 4179-1
Lender Memo 09-06
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