Fannie Mae Announces Selling Guide Updates

Fannie Mae recently updated its Selling Guide to include changes in Secured Overnight Financing Rate (SOFR) adjustable-rate mortgage (ARM) products, changes in property tax and escrow calculation, and reference to Special Feature Code (SFC) 785.

Fannie Mae updated the Selling Guide in response to its Lender Letter LL-2020-01, published on February 5, 2020, that introduced new SOFR ARM plans as a transition away from the London Interbank Offered Rate (LIBOR).  Fannie Mae explained that the Selling Guide includes information about the SOFR index, new ARM Plan numbers, and individual plan specifications.  In some areas, SOFR specific criteria will change the ARM requirements, including SOFR ARM Plans, the Index, and conversion options.  In other areas, existing policies will operate unchanged, including borrower disclosure requirements, eligible loan terms, and MBS Pooling Policy.  Fannie Mae will begin accepting SOFR ARM products on August 3, 2020, and will continue to update the Selling Guide.

Fannie Mae removed the underwriting changes announced on December 4, 2019, that required the use of estimated property taxes for the establishment of the escrow account.  Fannie Mae replaced the update with a requirement that lenders comply will applicable laws and regulations.  Additionally, for purchase and construction-related transactions, lenders are required to estimate property taxes based on the value of the land and any improvements.  Lenders must implement this change by June 1, 2020.

Fannie Mae also incorporated a reference to SFC 785 which requires SFC 785 to be delivered for all non-SOFR ARM loans that contain the updated fallback language and are closed on notes and riders with revision dates during or after February 2020.

For more information on SOFR ARMs, see WBK’s article on LIBOR transition milestones.