Freddie Mac and Fannie Mae Update Requirements for Builder Forward Commitments

Freddie Mac has recently announced in Bulletin 2024-7 an update to the Freddie Mac Single-Family Seller/Servicer Guide (Guide) that specifically addresses builder forward commitments.  In particular, the sections of the Guide that address limitations and requirements applicable to interested party contributions have been updated to provide that when a builder, prior to entering into a contract with the borrower, obtains a forward commitment from a lender to offer future buyers mortgage loans at a specific interest rate, the costs associated with obtaining the commitment are not considered interested party contributions.

In addition, effective for loans with application received dates on or after September 4, 2024, Freddie Mac has created a new required investor feature identifier code for mortgage loans originated under builder forward commitments.

Similarly, Fannie Mae announced in Selling Guide Announcement (SEL-2024-04) a revision to existing guidance regarding builder forward commitments.  In particular, the Fannie Mae Single Family Selling Guide has been revised to provide that fees for standby commitments (also known as forward commitments) that a builder pays to a lender before entering into a sales contract with a borrower are not subject to Fannie Mae’s party contribution limits because they are not attributable to the specific loan transaction.

In an effort to identify loans with a reduced interest rate due to a standby commitment, Fannie Mae is also requiring lenders to use a special feature code upon delivery of the loan.  Lenders are encouraged to implement the use of the code immediately but must do so for all loans with application dates on and after September 4, 2024.