Date: Dear: Subject: From:
June 2, 2006 Fannie Mae DUS™ Lenders Lender Memo 06-06, Preferred Delegation Plus Joyce T. Roth, Associate General Counsel
Expansion of delegated authority to DUS Lenders to include legal waivers. This memo outlines the substance of the legal waiver delegations and procedures for both delegated and non-delegated legal waivers. This memo supplements the DUS Lender Memo on Preferred Delegation Plus dated January 30, 2006. Background Fannie Mae’s loan documents were intended to be used without changes except as approved by Fannie Mae. Over the years, waivers reflecting business transactional issues or necessary borrower specific changes to the form loan documents have been granted and Lenders’ counsel have developed experience in discerning which waivers Fannie Mae would approve. As a result, Fannie Mae will delegate to Lenders the right to make certain loan document changes as described below. I. Delegated Loan Document Changes
The intended result is that the number and types of document waivers being granted should remain the same; but that only the process is being changed and streamlined by eliminating Fannie Mae’s consent for many types of waivers. Fannie Mae will review delegated document changes post-closing to ensure that excessive document waivers are not being granted. We do not expect to see more loan document changes. We do not anticipate Lenders approving changes that are not critical to the borrower and the transaction, such as the insertion of reasonable and materiality standards in places where they do not already appear. These delegations are not
CONFIDENTIAL COMMUNICATION PURSUANT TO DUS ADDENDUM TO THE MORTGAGE SELLING AND SERVICING CONTRACT DISTRIBUTION IS NOT PERMITTED
Preferred Delegation Plus Page 2 of 6 intended to permit wholesale negotiation of the Fannie Mae form loan documents, but to facilitate loan document changes that Fannie Mae would have otherwise permitted. With respect to borrower or sponsor specific changes, to the greatest extent possible, document changes must be narrowly drafted to apply only to that particular borrower and its sponsors/principals and only so long as that specific borrower owns the mortgaged property and is in turn owned and controlled by the specific sponsors/principals.
This delegation of loan document changes will apply to all new DUS loans, including refinancings, Supplemental Loans, and Preferred Delegation Plus loans; however Seniors Housing Product loans are not eligible. Further, changes to existing loan documents, such as those in connection with an assumption are not delegated. III. Permitted Fannie Mae Loan Document Changes and Creation of Additional Loan Documents Changes to form loan documents, as well as non-standard documents drafted to address specific transactional issues, falling under the following categories may be made without Fannie Mae approval. However, Lenders will be continue to be responsible for notifying Fannie Mae of any disclosure issues within the time frames required under DUS Guide Update 03-01. A. Loan Document Changes Resulting from Lender-Delegated Waivers
Lenders may make changes to the Fannie Mae form loan documents resulting from changes that are required or recommended in connection with a Lender-delegated and approved underwriting waiver. B. Sponsor/Principal-Specific Negotiated Loan Document Changes
Fannie Mae will allow Lenders to make sponsor/principal specific changes without Fannie Mae approval if (i) Lender has verified that all the changes were permitted on one prior Fannie Mae loan with the same borrower sponsor or principal and (ii) the changes are sufficiently addressed in a Legal Issues Closing Memo (“Legal Issues Closing Memo”) for the current transaction, and have been identified as universally acceptable for all loans with the same borrower sponsor and not transaction-specific due to matters such as property characteristics, loan structure or product type, loan tier level, or execution type. Stating that the borrower has obtained such changes in
Preferred Delegation Plus Page 3 of 6 the past is not sufficient justification. Prior to making any document changes, the Lender must check with the borrower to identify whether the document changes requested have been approved by Fannie Mae in the past and obtain as much information as possible to identify the transaction(s). Such information must be presented to Fannie Mae for the purpose of locating the prior loan documents and providing such documents to the Lender. Lenders may also obtain signed and recorded copies of prior closed loan transactions from the borrower to present to Fannie Mae to substantiate the current request. In either case, the Lender or Lender’s counsel will be responsible for reviewing the loan documents to determine if such changes are appropriate for the current transaction and for inclusion in the Legal Issues Closing Memo described in Part IV. C. Other Delegated Loan Document Changes
Lenders may make loan document changes pursuant to the guidelines stated in the DUS Guide and in the attached Loan Document Change Guidelines. These guidelines are intended to adapt the Fannie Mae loan documents to industry trends and will be expanded and updated as needed. D. Fannie Mae-Issued Template Provisions
From time to time, Fannie Mae will issue form or template alternative loan document provisions that may be used in lieu of Lender’s counsel drafting its own provisions. Template provisions may be sponsor or principal-specific or may relate to a Loan Document Change Guideline. Presently, the only template documents and provisions are those found on efanniemae.com and allregs.
Provisions Not Permitted to be Changed
Regardless of the extent of delegated loan document waivers described in Section III above, changes can not be made to the following documents, provisions, or the content of such provisions: A. The Note, except that the non-recourse provisions of Paragraph 9 may be expanded. B. Paragraphs 1 through 4, 6, 22 (except that events of default may be expanded, provided however that the Lender remains responsible for identifying any resulting special disclosure items to Fannie Mae), and 43 of the Security Instrument.
Preferred Delegation Plus Page 4 of 6 C. Provisions requiring Fannie Mae to consent to or approve a future borrower request to take action with respect to any collateral, guaranties, or other credit support, or to alter the terms of the loan documents. D. Compliance with law provisions with respect to the property, or the ownership or operation of the property. V. Process for Approving, Documenting and Reviewing Loan Document Changes A. Legal Issues Closing Memo
A Legal Issues Closing Memo in the attached format will be required for all loans that incorporate loan document changes or in which legal issues have been identified that require legal waivers, regardless of whether the waivers are delegated under Section III above or require Fannie Mae approval. The Legal Issues Closing Memo is not a legal opinion, but an analysis of the issues. The Legal Issues Closing Memo must (1) highlight any legal issues arising from the transaction and describe how such issues are being addressed and (2) explain any identifiable risk associated with the loan document changes (both Lender-delegated and non-delegated) and any mitigant proposed by the Lender. The Legal Issues Closing Memo is substantively the same as documentation currently required by Fannie Mae to grant loan document waivers, but will now serve to substantiate both Lender-approved and Lender-recommended changes to the loan documents. It is highly recommended that the Lender require the borrower or borrower’s counsel to submit an explanation for requested loan document changes and the Lender shall then attach such explanation to the waiver entered into Deal Management and to the Legal Issues Closing Memo as additional support. An enforceability opinion from borrower’s counsel admitted in the property jurisdiction will continue to be required to verify that the proposed changes (other than modified transfer provisions in Section 21 of the Security Instrument) do not affect the enforceability of the loan documents. B. Tracking Loan Document Changes
As before, loan document changes must be made by an exhibit to the relevant form loan document and the Lender must (i) attach a copy of the changes black lined against the form provisions in Deal Management and (ii) include such black lined provisions in Folder 1, Tab 2. See attached revised Table of Contents (Form 4517). The Legal Issues Closing Memo must be (i) attached in Deal Management, together with all other supporting material (e.g. Borrower’s counsel’s memo and Borrower’s organizational chart) and (ii) included in Folder 1, Tab 2.
Preferred Delegation Plus Page 5 of 6 All delegated loan document waivers should be entered as one waiver and categorized in Deal Management as “Legal/Loan Document Waiver”under the Lender Delegated drop-down box. All non-delegated loan documents waivers should be entered as one waiver and categorized in Deal Management as “Legal/Loan Document Waiver”under either (i) the Preferred Delegation Plus Exceptions drop-down box for Preferred Delegation Plus loans or (ii) the Loan Structure dropdown box for loans that are not Preferred Delegation Plus loans. Non-delegated loan document waivers require Fannie Mae approval prior to closing. Lender must also identify all the appropriate documents and document sections which are to be modified as listed in the drop-down box under “Documents to be Modified” in Deal Management.
C. Responsibility for Negotiating Loan Document Changes Lender’s counsel must be responsible for ensuring that any negotiated changes to the Fannie Mae form loan documents do not limit Fannie Mae’s approval, monitoring, remedies or other rights any further than as specifically contemplated in the Loan Document Change Guidelines, Underwriter’s Narrative and/or Legal Issues Closing Memo, as applicable. D. Certification By delivering a loan to Fannie Mae, a Lender automatically certifies that the loan complies with Fannie Mae requirements. Therefore, all loan document changes must ultimately be reviewed and approved by the Lender, as evidenced by Lender’s entry of loan document changes into Deal Management E. Post-Purchase Legal Review In addition to certifying the mortgage loan prior to purchase, Fannie Mae will conduct postpurchase reviews of the loan documents and will provide Lenders with feedback on loan documentation and, where necessary, take appropriate action (including suspending the Lender’s right to approve document changes without Fannie Mae’s approval).
Training will be conducted on June 9 and 12, 11:00-12:00 a.m. EST. Details will be forthcoming in a future communication. VII. Effective Date
Preferred Delegation Plus Page 6 of 6
The delegations described in the memo are effective immediately. Please contact your National Account Manager or Joyce T. Roth (972-773-7383 or firstname.lastname@example.org) for any clarifications on eligible products, executions and waivers. Attachments: Legal Issues Closing Memo (Form 4650) Loan Document Change Guidelines (Form 4600.Addendum) Table of Contents (Form 4517)