DUS Discount Mortgage-Backed Securities

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DUS Discount Mortgage-Backed Securities
 
Fannie Mae’s DUS™ Discount Mortgage-Backed Securities (DMBS) are short-term discount
securities used to fund the acquisition or refinance of multifamily properties.
DMBS delivers low-cost, variable-rate financing at a cost significantly below conventional
adjustable-rate mortgages. Additionally, DMBS offers borrowers the ability to convert to a
fixed-rate loan at any DMBS maturity date with favorable prepayment terms.



   What is a DMBS?:                                         Interest Rate Cap and Reserve:
DMBS are non-interest bearing securities that are         An interest rate cap with a term of at least five
sold at a discount and repaid at par. DUS DMBS            years must be purchased from an approved
have maturities of three months. Upon maturity,           counterparty. If the loan term is longer than the
the DMBS may be rolled over into a new DMBS               term of the initial interest rate cap, a cash
or converted to a fixed-rate loan. The interest           reserve for the purchase of a subsequent
rate used to establish the amount of the discount         interest rate cap is established and funded
is determined at issuance of the initial DMBS and         monthly by the borrower at 125% of estimated
is reset on each subsequent DMBS rollover                 cap costs.
through a competitive capital markets bid
process. At closing, the borrower receives the par           Conversion to Fixed-rate:
amount of the DMBS minus the discount charged             The loan may be converted to a 7 or 10-year
by the winning bidder.                                    fixed-rate cash or MBS loan on any DMBS rollover
                                                          date, provided the loan has not been delinquent
  Eligible Loans:                                         during the previous 12 months and is not in
DUS DMBS may be used for standard DUS Loans               default under any loan document.
and specialty products including Seniors Housing,         •   No prepayment premium is charged at the
Student Housing, Manufactured Housing                         time the DMBS converts to a fixed-rate loan.
Communities and Multifamily Affordable Housing.
                                                          •   Conversion requires only minimal re-
Both single-asset and multiple asset structures
                                                              underwriting. The current NOI must support
are available.
                                                              the new fixed rate on the loan. There is no
                                                              increase in loan amount, but the loan may be
  Loan Amount:
                                                              eligible for a DUS Supplemental Loan.
Single Assets - Minimum $25 million.
                                                          •   No change in guaranty or servicing fees if
Multiple Assets - Minimum $50 million for a
                                                              conversion occurs during the first 60 months
group of assets owned by a common sponsor.
                                                              of the loan. The DMBS may convert to:
  Loan Terms:                                                 – A 7-year loan with either a 5-year or a
5, 7, or 10 years.                                              6.5-year yield maintenance period
                                                              – A 10-year loan with either a 7-year or a
  Maximum Loan-to-Value:                                        9.5-year yield maintenance period
Up to 75% for Tier 2 loans, 65% for Tier 3, and
55% for Tier 4.                                             Prepayment Options:
                                                          Loans may be prepaid on any DMBS rollover
  Minimum Debt Service Coverage:                          date. The borrower selects one of two
As low as 1.0x, based on the current interest             prepayment options at the initial closing.
rate plus a minimum 3% stress.
                                                          •   Fee Maintenance - The greater of 1% of
                                                              the remaining principal balance of the loan or
  Amortization:
                                                              the present value of the guaranty and
Up to 30 years. Interest only is available on a
                                                              servicing fees for the remaining term.
case-by-case basis.
                                                          •   Prepayment Premium - 1% of the
  Accrual Basis:                                              remaining principal balance of the loan. This
Actual/360.                                                   option is not available for all pricing
                                                              categories.
 
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