Multifamily Lender Memo 11-02

					                                                 Multifamily Legal
                                               New Process for Waiver
                                                  Requests in Deal
                                                   Management

Date:          May 23, 2011

To:            Multifamily Lenders

From:          Barbara Ann Frouman, Vice President and Deputy General Counsel

Subject:       Lender Memo 11-02 | Modification of Form Mortgage Loan Documents
               and Deal Management Waiver Process


                                         Highlights
          Clarifies the delegated authority and waiver procedures with respect to
           modifications of Fannie Mae’s Multifamily form Mortgage Loan documents.
          Eliminates the requirement that Lender submit a Legal Issues Closing
           Memo on Fannie Mae Form 4650.
          Eliminates the requirement that Lender document borrower/deal specific
           Legal Document modifications in a separate exhibit to the document.




                                      Background

Fannie Mae’s Deal Management application tracks the loan transactions originated by
Multifamily Delegated Underwriting and Servicing (DUS™) Lenders (“Lender” or
“Lenders”) for Fannie Mae’s Multifamily Mortgage Business. Deal Management requires
Lenders to specify whether or not waivers related to modifications to Fannie Mae’s
Multifamily form Mortgage Loan documents (“Loan Document” or “Loan Documents”)
are delegated and tracks both delegated and non-delegated legal document waivers
(“Legal Document Waiver” or “Legal Document Waivers”).

This Lender Memo provides the requirements for submission and, when required,
approval of all Loan Document modifications for new Mortgage Loans. Adherence to the
requirements should create a complete record of all Loan Document modifications and
facilitate the certification process prior to Fannie Mae’s purchase or securitization of a
Mortgage Loan.




Lender Memo 11-02                         1                                    05/23/11
Fannie Mae relies on its Lenders and their counsel to use prudent lending standards
when modifying Loan Documents. Whether such document modifications are delegated,
or not, Lenders should act as creditors’ rights advocates and in the best interest of
Fannie Mae

I.     ALL LEGAL DOCUMENT WAIVERS
       Requirements for submitting a Legal Document Waiver in Deal Management:

       A.      Identify and Address Underlying Business and Credit Issues.

       Lender’s counsel must thoroughly review all underlying issues with the Lender to
       make certain the Loan Document modifications are accurately and narrowly
       drafted. An appropriate credit representative of Lender must be involved in the
       review with Lender’s counsel if the Loan Document modifications relate to
       business or credit issues. To the extent modifications relate to underlying
       business or credit waivers, those waivers need to be entered into Deal
       Management separately.

       B.      Fully Justify the Legal Document Waiver

       The Lender must clearly explain why a particular legal document waiver is
       recommended. In the description section of each Legal Document Waiver
       submission in Deal Management, Lender must:

           Note the Loan Document and the specific section of the Loan Document
            being modified,
           Explain the reason the Loan Document modification is necessary or being
            requested,
           Clearly identify any business and legal issues that arise and provide the
            relevant facts,
           Provide a well-reasoned risk/cost/benefit analysis,
           Describe whether the Loan Document modification is or is not adverse to
            Fannie Mae’s interests and describe how the business and legal risks, if any,
            were mitigated,
           Refer to any applicable business or credit waiver that justifies the modification
            by Deal Management waiver number, and categorize the Legal Document
            Waiver as outlined below in Sections II and III.

       The analysis can refer to, but may not solely rely upon, a statement that Fannie
       Mae has approved a Loan Document modification in connection with a previous
       transaction with the Borrower/Key Principal/Guarantor. In this circumstance, the
       Lender must update the facts, reasoning, and analysis relating to the previous
       transaction approval and provide updated analysis in accordance with the
       requirements above.




Lender Memo 11-02                            2                                    05/23/11
       C.      Include Necessary Attachments

       Lender must attach the modified Loan Documents (both an unmarked Microsoft®
       Word document and either a blacklined document, or a complete set of
       blacklined pages), the Fannie Mae written approval (if applicable) and any other
       document necessary to facilitate review (e.g., Borrower’s organizational chart).

       Borrower/transaction specific Legal Document modifications should be made in
       the body of the document, rather than in a separate exhibit to the document, as
       previously required. Consequently, the requirement that an unmarked modified
       document in Microsoft Word format and either a blacklined document or a
       complete set of blacklined pages are uploaded to Deal Management is even
       more important. In addition, Lender will be required to submit either a blacklined
       document or a complete set of blacklined pages along with the relevant
       document in its loan delivery package, and will be required to keep these as part
       of its own records. Published form document modifications in exhibit form should
       continue to be used in exhibit form.

       Lender and its counsel are no longer required to submit a Legal Issues Closing
       Memo on Fannie Mae Form 4650 in Deal Management or in its loan delivery and
       certification package as previously provided in Lender Memo 07-07, which has
       been superseded by this Lender Memo. To the extent Lender determines that
       legal analysis in the form of a separate legal memorandum is necessary or
       helpful, that legal analysis can be presented in any format that Lender chooses.

       D.      Specify Documents in “Legal Documents to Modified” List

       Lender must select in the “Legal Documents To Be Modified” list appearing at the
       bottom of the waiver submission all Loan Documents or sections thereof, as
       applicable, that have been modified. Failure to specify will slow the review
       process as Fannie Mae in-house legal counsel receives system-generated
       notification of Legal Document Waivers only when the Lender specifies
       something on the list. Fannie Mae in-house legal counsel will only review
       non-delegated Loan Document modifications as described in Section II of
       this Lender Memo.

       E.      Identify Potential MBS Issues

       Lender must identify any potential MBS issues that may arise as a result of the
       modification, including any need for special disclosure.




Lender Memo 11-02                         3                                    05/23/11
       F.       Enforceability Opinion

       An enforceability opinion has been and continues to be required to be given by
       Borrower’s Counsel to the extent any Legal Document Waiver has been approved
       and Loan Document modifications have been made. The Lender may waive this
       requirement to the extent they determine that the Loan Document modifications do
       not impact Fannie Mae’s Fundamental Interests (defined below).

       G.       Determine if Legal Document Waiver is Delegated or Not Delegated

       Lender must refer to and comply with Sections II and III of this Lender Memo, as
       applicable.

II.    NON-DELEGATED LEGAL DOCUMENT WAIVERS

       A non-delegated Legal Document Waiver is a waiver documenting a
       modification to the Loan Documents that must be approved by Fannie Mae
       in-house legal counsel.

       Lenders must allocate sufficient time for Fannie Mae to review, discuss, and
       approve any non-delegated Legal Document Waiver and allow time for Lender to
       revise the Loan Document modifications if required. If possible, business and
       credit waivers should be entered simultaneously with their corresponding non-
       delegated Legal Document Waiver and Loan Document modifications should be
       submitted after the Borrower and its counsel approve the proposed language to
       avoid multiple reviews by Fannie Mae. Lead-time is especially critical if potential
       MBS issues require internal Fannie Mae discussion. To the extent the
       requirements of Sections I, B and I, C are not satisfied, the non-delegated Legal
       Document Waiver will be returned to the Lender.

       When entering a non-delegated Legal Document Waiver, Lender must
       categorize the Loan Document modification and refer to the chosen
       category in the Legal Document Waiver description.

               Non-Delegated Category 1: Restricted Documents
               Non-Delegated Category 2: Changes Adverse to Fundamental Interests of
                Fannie Mae
               Non-Delegated Category 3: Conditional Fannie Mae Approval

       Non-Delegated Category 1: Restricted Documents/Sections

       The Loan Document modification would change one of the Loan Documents, or
       sections thereof, listed on the attached Exhibit A as Restricted Documents.
       Note: The sections listed as Prohibited Sections on Exhibit A should not be
       modified under any circumstances.



Lender Memo 11-02                          4                                    05/23/11
       Non-Delegated Category 2: Changes Adverse to Fundamental Interests of
       Fannie Mae

       Lender has determined that it cannot approve a Legal Document Waiver that
       would otherwise fall under Delegated Category 2: Discretionary Lender
       Decisions, because the impact of the proposed Loan Document modification
       would:

       (a) Affect the collateral or security for the loan,
       (b) Affect Fannie Mae’s rights as creditor,
       (c) Affect Fannie Mae’s ability to exercise remedies,
       (d) Have the effect of increasing or adding the exercise of Lender, discretion or
         approval rights in connection with the servicing of the loan, or
       (e) Have the effect of potentially increasing the risk of Lender liability (collectively
         (a) through (e) shall be referred to as “Fundamental Interests”).

       Lender must also have determined that a business or credit waiver is not
       necessary.

       Non-Delegated Category 3: Conditional Fannie Mae Approvals.

       The Loan Document modification would generally be a delegated Legal
       Document Waiver under Delegated Category 1 below, but such Loan Document
       modification is subject to review and approval of Fannie Mae in-house legal
       counsel as a result of an express condition imposed by Fannie Mae business or
       credit in its approval of the related business or credit waiver.

       This conditional Fannie Mae approval will not be used frequently. The general
       assumption should be that if a Lender receives approval of a business or credit
       waiver, documentation of that waiver can be done on a delegated basis under
       Delegated Category 1.



III.   DELEGATED LEGAL DOCUMENT WAIVERS.

       A delegated Legal Document Waiver is a waiver documenting a
       modification to the Loan Documents that can be submitted and approved in
       Deal Management by Lender without the involvement of Fannie Mae in-
       house legal counsel.

       Fannie Mae’s Loan Documents are generally intended to be used without
       changes unless otherwise agreed to in writing by Fannie Mae. However,
       consistent with the Multifamily DUS model and to facilitate ongoing business,



Lender Memo 11-02                             5                                        05/23/11
       Fannie Mae recognizes that Lenders should be granted limited authority to
       modify the Loan Documents without requiring approval of Fannie Mae in-house
       legal counsel. As a result, Fannie Mae has delegated to Lenders the authority to
       make certain Loan Document changes as described below.

       When entering a delegated Legal Document Waiver, Lender must
       categorize the Loan Document modification and refer to the chosen
       category in the Legal Document Waiver description.

              Delegated Category 1: Business or Credit Decisions Delegated or
               Approved by Fannie Mae
              Delegated Category 2: Discretionary Lender Decisions
              Delegated Category 3: Borrower Channel Loan Document Modifications

       Delegated Category 1: Business or Credit Decisions Delegated or
       Approved by Fannie Mae

              The Loan Document modification is based on an underlying business or
               credit decision that is expressly delegated to Lender in accordance with
               the Fannie Mae Multifamily Selling and Servicing Guide.
              The Loan Document modification, or new loan document if necessary, is
               based on a non-delegated underlying business or credit decision that has
               been approved by Fannie Mae business or credit and has been
               appropriately documented in Deal Management.

       Delegated Category 2: Discretionary Lender Decisions

              The Loan Document modification is prudent and necessary to comply with
               applicable law; or
              The Loan Document modification is necessary for a particular Borrower, or
               given the facts and circumstances of a particular transaction, and Lender
               has determined that the modification does not impact any Fundamental
               Interest of Fannie Mae and will not otherwise be materially adverse to
               Fannie Mae’s interests.

       In selecting Delegated Category 2, Lender must also have determined that a
       business or credit waiver is not necessary as a result of the modification.

       In selecting Delegated Categories 1 or 2, Lender has determined that the Loan
       Document modification does not violate Non-Delegated Category 1: Restricted
       Documents/Sections.




Lender Memo 11-02                         6                                   05/23/11
       Delegated Category 3: Borrower Channel Loan Document Modifications

       The Loan Document modifications are Fannie Mae-approved document
       modifications for a Borrower Channel Borrower/Sponsor. The general
       requirements of Sections I, A and I, B of this memorandum do not apply to this
       category of Legal Document Waiver.

IV.    EFFECTIVE DATE AND RESTRICTIONS ON APPLICABILITY

       This Lender Memo applies to all transactions documented on the 2011 Loan
       Documents and supersedes:
           Lender Memo 06-06 dated June 2, 2006,
           Lender Memo 07-07 dated April 20, 2007, and
           Guidance on Legal Document Waivers provided in Guide Update 11-01
             dated January 3, 2011 with respect to those transactions.

       As provided in Guide Update 11-03, use of the 2011 Loan Documents is required
       for all Mortgage Loan commitments issued on or after June 1, 2011 (for clarity,
       the date a commitment is issued is the date Fannie Mae confirms the
       commitment (not Lender’s submission)).

       This Lender Memo does not apply to documentation related to Credit Facilities or
       Bulk Deliveries done through Fannie Mae’s structured transactions team and
       unpublished documentation related to bond credit enhancement transactions,
       none of which can be documented by Lenders on a delegated basis. In addition,
       changes to existing documents relating to a Mortgage Loan that has been sold to
       or securitized by Fannie Mae, such as proposed changes to documents in
       connection with a Mortgage Loan assumption or post-closing modifications of
       any type, are not addressed by this Lender Memo.

V.     CONTACTS

       Please contact your Deal Team to discuss any questions you may have
       regarding this Lender Memo.




Lender Memo 11-02                         7                                   05/23/11
                                          Exhibit A

Note: Defined terms contained in any of the Restricted Documents/Sections or Prohibited
  Sections should be considered restricted or prohibited, respectively. In addition, the
 portions of published form modification documents that modify Restricted Documents/
  Sections or Prohibited Sections should also be considered restricted or prohibited,
                                      respectively.

                               RESTRICTED DOCUMENTS/ SECTIONS
Multifamily Note                              entire document
Security Instrument                           entire document
Guaranty of Non-Recourse Obligations          entire document
Guaranty (Payment)                            entire document
Environmental Indemnity Agreement             entire document
Multifamily Loan and Security Agreement       - Section 2.02 (“Payment on Mortgage Loan”)
                                              - Section 2.03 (“Lockout/Prepayment”)
                                              - Article 3 (“Limits on Personal Liability/Full
                                              Recourse Loan”)
                                              - Article 11 (“Liens, Transfers and
                                              Assumptions”)
                                              - Article 14 (“Defaults/Remedies”)
                                              - Defined terms contained in Schedule 1 that
                                              are used in any prohibited sections of the Loan
                                              Agreement and any Security Instrument,
                                              Guaranty of Non-Recourse Obligations,
                                              Guaranty (Payment) and Environmental
                                              Indemnity Agreement
                                              - Schedule 3
                                              - Schedule 4
All Early Rate Lock Certificates              entire document
                                              Includes Forms 6417, 6427, 6428,6429,&
                                              6430
All Defeasance Form Documents                 entire document
                                              Includes Forms 6423, 6424, & 6425
All Mezzanine Debt Form Documents             entire document
                                              Includes Forms 6437, 6438, 6439 & 6440

Prohibited Sections
Multifamily Loan and Security Agreement         - Section 4.01(g)(“Economic Sanctions, Anti-
                                                Money Laundering and Anti-Corruption”)
                                                - Section 4.01(m)(“ERISA”)
                                                - Section 4.01(o)(“Prohibited Person”)
                                                - Section 4.02(b)(“Economic Sanctions and
                                                Anti-Money Laundering”)
                                                - Section 4.02(e)(“ERISA”)
                                                - Section 6.02(e)(“Compliance with Laws”)




Lender Memo 11-02                           8                                      05/23/11
                                 Seniors Housing Documents
In addition to the Restricted Documents/ Sections and Prohibited Sections above, the following
 also apply to Seniors Housing transactions documented on Seniors Housing form documents.

Restricted Documents/ Sections
Multifamily Loan and Security Agreement         - Section 4.01(p) ("Licensing; Compliance with
(Seniors Housing)                               Law”)
                                                - Section 4.02(h) ("Compliance with Laws
                                                Applicable to Seniors Housing Facility")
                                                - Section 6.01(a) ("Compliance with Law;
                                                Permits and Licenses")
                                                - Section 6.01(b) ("Operating Documents;
                                                Contracts; Resident Records")
                                                - Section 6.02 (f) ("Licensing")
                                                - Section 6.02(g) ("Medicaid")
                                                - Section 6.02(h)- ("Facility Operating
                                                Agreement")
                                                - Section 6.02(i) ("Change in Property
                                                Operator")
                                                - Section 6.02 (j) ("Contracts")
Subordination, Assignment and Security          - Section 2 ("Uniform Commercial Code
Agreement                                       Security Agreement")
                                                - Section 3 ("Assignment of Leases and Rents;
                                                Appointment of Receiver; Lender in
                                                Possession")
                                                - Section 4 ("Assignment of Contracts and
                                                Management Agreement; Contracts Affecting
                                                the Mortgaged Property")
                                                - Section 6 ("Subordination to Mortgage Lien")
                                                - Sections 8(k) and (s) ("Property Operator
                                                Representations and Warranties")
                                                - Sections 9(a),(b),(c),(k),(n),(o),and (x)
                                                ("Property Operator Covenants")
                                                - Section 10 ("Events of Default; Remedies")
Depositary Agreement                            - Section 3 ("Security Interest; Operator
                                                Lockbox and Operator Lockbox Account")
                                                - Section 4 ("Transfer of Funds to Lender
                                                Account Upon Default")
                                                - Section 5 ("Access to the Operator Lockbox")
                                                - Exhibits A and B
Opinion of Borrower's Counsel On Origination    - Sections 8 and 9
of Mortgage Loan (Seniors Housing Licensing)

Prohibited Sections
Multifamily Loan and Security Agreement         - Section 6.02(a)(1) ("Use of Property")
(Seniors Housing)




Lender Memo 11-02                           9                                        05/23/11

				
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