As of 01/01/05

HIGH COST LOANS

Investor has worked to combat predatory lending in numerous ways. Among those efforts are our standards to guard against the purchase of mortgages with predatory features which includes a prohibition against the purchase of "high-cost" mortgages under the federal Home Ownership and Equity Protection Act (HOEPA).

Arkansas

• The Arkansas Home Loam Protection Act. (Act 1340 of 2003), which also is intended to combat predatory lending, became effective for owner occupied home loans with a principal balance of $150,000 or less and secured by property located in the State of Arkansas.
• Mortgage loans may not be delivered to Fannie Mae if they qualify as "high-cost home loans" under the Arkansas law.
• Pursuant to our Mortgage Selling and Servicing Contract, a seller represents and warrants that each mortgage loan it delivers conforms to all applicable requirements of Fannie Mae's selling guide, which in the  case of mortgage loans secured by Arkansas property includes the prohibitions on delivery of "high-cost home loans" (as defined by the laws of that state),which are added to Fannie Mae Selling Guide by this Announcement.
• Lenders should consult their own counsel to advise them as to the specifics of relevant statutes.
• Fannie Mae expects a lender that delivers any loan to them that is secured by Arkansas property to have in place across all its business channels a process based on the unique requirements of the relevant laws to ensure that is does not inadvertently deliver a "high-cost home loan" to Fannie Mae.
• In addition, Fannie Mae will conduct additional quality assurance reviews of mortgages secured by properties in Arkansas and will require immediate repurchase of any determined to be "high-cost home loans."

Georgia

• The Georgia Fair Lending Act has been amended. Investor continues to do business in Georgia under the policy requirements that has taken effect.
• Thus, mortgages that meet the"high cost" definition of the Georgia Fair lending Act remain ineligible for purchase.

Illinois

• The Illinois High-Risk Home Loan Act (815 Ill. Comp. Stat. 137/1 et seq.), which is intended to combat predatory lending, will become effective for any owner-occupied closed-end loan, excluding purchase money loans, secured by property located in the State of Illinois.
• Mortgage loans may not be delivered to Fannie Mae if they qualify as "high-risk home loans" under the Illinois law.

Indiana

• The Indiana Home Loan Practices Act (Ind. Code Ann. §§24-9-1 through 24-9-9) will become effective January 1, 2005. The Indiana law applies to owner-occupied home loans secured by property located in the State of Indiana. Effective January 1, 2005, mortgage loans may not be delivered to us if they qualify as "high cost home loans" under the Indiana law.
• Pursuant to our Mortgage Selling and Servicing Contract, a seller represents and warrants that each mortgage loan it delivers conforms to all applicable requirements of our Selling Guide, which in the case of mortgage loans secured by Indiana property includes the prohibition on delivery of "high cost home loans" (as defined by the laws of Indiana). FannieMae expects a lender that sells them any loan secured by an Indiana property to have in place a process based upon the unique requirements of the Indiana law to ensure that it does not inadvertently deliver "high cost home loans" to them.
• In addition, Fannie Mae will conduct quality assurance reviews of mortgage loans secured by properties in Indiana and will require repurchase of any determined to be "high cost home loans."

Kentucky

• The Kentucky high-cost home loan statute ( Ky. Rev. Stat. 360.100) has become effective.
• The Kentucky law, which is intended to combat predatory lending, applies to owner-occupied home loans with a principal balance greater than $15,000 and equal to or less than $200,000 and secured by property located in the State of Kentucky.
• Mortgage loans may not be delivered to Fannie Mae if they qualify as "high-cost home loans " under the Kentucky law.

• Pursuant to our Mortgage Selling and Servicing Contract, a seller represents and warrants that each mortgage loan it delivers conforms to all applicable requirements of Fannie Mae's selling guide, which in the  case of mortgage loans secured by Kentucky property includes the prohibitions on delivery of "high-cost home loans" (as defined by the laws of that state),which are added to Fannie Mae Selling Guide by this Announcement.

• Lenders should consult their own counsel to advise them as to the specifics of relevant statutes.
• Fannie Mae expects a lender that delivers any loan to them that is secured by Kentucky property to have in place across all its business channels a process based on the unique requirements of the relevant laws to ensure that is does not inadvertently deliver a "high-cost home loan" to Fannie Mae.
• In addition, Fannie Mae will conduct additional quality assurance reviews of mortgages secured by properties in Kentucky and will require immediate repurchase of any determined to be "high-cost home loans."

Massachusetts

• The Massachusetts Predatory Home Loan Practices Act (Mass. Ann. Laws ch. 183C) has now become effective. The Massachusetts law applies to owner-occupied home loans secured by property located in the Commonwealth of Massachusetts. Mortgage loans may not be delivered if they qualify as "high cost home mortgage loans" under the Massachusetts law.
• Fannie Mae expects a lender that sells them any loan secured by a Massachusetts property to have in place a process based upon the unique requirements of the Massachusetts law to ensure that it does not inadvertently deliver "high cost home mortgage loans" to them.
• In addition, Fannie Mae will conduct quality assurance reviews of mortgage loans secured by properties in Massachusetts and will require repurchase of any determined to be "high cost home mortgage loans."

New Jersey

• The New Jersey Homeownership Security Act of 2002 (N.J.S.A. 46:10B-22 et seq.), which is intended to combat predatory lending, will become effective for owner-occupied home loans with a principal balance of $350,000 or less and secured by property located in the State of New Jersey.
• Mortgage loans may not be delivered to Fannie Mae if they qualify as "high-cost home loans" under the New Jersey law.
• The New Jersey law's treatment of home improvement loans, manufactured home loans, and refinance loans that are "covered home loans," creates potential legal and business risks, even for responsible secondary market participants.
  • Although Fannie Mae will continue to accept deliveries of such loans, we will monitor developments in interpretive regulations, possible legislative amendments, market forces, and quality of loan deliveries.
  • If necessary, Fannie Mae may announce restrictions on their delivery in the future.

new Mexico

• The New Mexico Home Loan Protection Act (N.M. Stat. Ann. §§58-21A-1 et seq.), which is intended to combat predatory lending, will become effective for conforming owner-occupied home loans secured by property located in the State of New Mexico.
• Mortgage loans may not be delivered to Fannie Mae if they qualify as "high-cost home loans" under the New Mexico law.
• The New Mexico law's treatment of refinance loans, home improvement loans, and manufactured home loans creates potential legal and business risks, even for responsible secondary market participants.
  • Although Fannie Mae will continue to accept deliveries of such loans, we will monitor developments in interpretive regulations, possible legislative amendments, market forces, and quality of loan deliveries.
  • If necessary, we may announce restrictions on their delivery in the future.

New York

• New York Banking §6-l, which also intended to combat predatory lending, will become effective for owner-occupied home loans with a principal balance of $300,000 or less and secured by property located in New York
• Investor will not purchase mortgages, if they qualify as "high cost home loans" under the New York law.

Community Lending Income Limits

• Investor recently approved higher income limits (165% of the HUD Area Median Family Incomes) for the following New York counties and metropolitan areas:
  • Dutchess County
  • Ulster County
  • Newburgh metropolitan statistical area (Orange County).
• The new income limits, which are already effective, apply trough out Community Home Buyers Program, Fannie 3/2, and Fannie 97.
• DU will be updated to reflect the new income limits.
• Both Version 5.2 and Version 5.3 will use the new income limits for new and resubmitted loans to determine whether Community Lending loans meet Fannie Mae's income limit requirements.
• The DO/DU user interface will be updated to reflect the increased limit.
• Until the new limits are implemented in DU, lenders may manually adjust the income limit factor by entering 165% in the Income Limit Adjustment Factor field on the Community Lending screen in the DO/DU user interface.
• Investor will publish the new income limits in an upcoming Announcement.

Puerto Rico

ARMs secured by properties in Puerto Rico

DU will be updated with Version 5.3 to reflect that ARMs secured by properties in Puerto Rico may be eligible for delivery to Fannie Mae.

Texas

• We purchase or securitize both fixed-rate mortgages and adjustable-rate mortgages that are originated as Texas Section 50(a)(6) mortgages, although we limit the plans that can be used for adjustable-rate mortgages.
• Under Texas law, a new Texas Section 50(a)(6) mortgage is an equity take-out mortgage (a cash-out refinance transaction).
• Although we permit an existing Texas Section 50(a)(6) mortgage to be refinanced as either a limited cash-out refinance transaction or a cash-out refinance transaction, a lender should keep in mind that, under the provisions of the Texas Constitution, "once a Section 50(a)(6) mortgage, always a Section 50(a)(6) mortgage."
• This means that once a borrower obtains a Texas Section 50(a)(6) mortgage (either a first lien or a subordinate lien), any subsequent refinancing of the homestead property will be subject to all of the provisions of Section 50(a)(6) if any of the proceeds are used to pay off the Section 50(a)(6) mortgage -- even if the borrower does not receive any cash out of the refinance proceeds.
• Generally, the lender that delivers a Texas Section 50(a)(6) mortgage to us must also service the mortgage. However, if a lender wants to assign the servicing of the mortgage concurrent with its delivery to us, we will not object as long as the servicer is one that we have approved to sell and service Texas Section 50(a)(6) mortgages. To avoid delays in funding the proceeds of its deliveries, a lender that intends to assign servicing concurrent with its delivery should request our approval of such assignments when it is negotiating the terms of its Master Agreement or negotiated contract that covers Texas Section 50(a)(6) deliveries.
• Restrictions in the Texas Constitution impose substantial additional legal risks and uncertainties that a lender does not face when it originates (and services) equity take-out mortgages in other states.
• For example, if any of the specific requirements that relate to Texas Section 50(a)(6) mortgages -- such as limitations on fees charged to the borrower, disclosures to the borrower, matters to be addressed in the closing documents, etc. -- are not satisfied,  the lien may be invalid.
• A Texas Section 50(a)(6) mortgage cannot be closed until after a 12-day "cooling off" period in which the borrower is allowed to change his or her mind about obtaining the mortgage.
  • This "cooling off" period runs from the later of the date of the loan application or the date that the borrower receives the required notice about the extension of credit.
  • The borrower must also be allowed to rescind the loan (without incurring a penalty or charge) within three days after the extension of credit is made.

• A Texas Section 50(a)(6) mortgage must be secured by a one-family property that is the borrower's homestead. Texas law limits the size of a homestead to ten acres for an urban homestead, 100 acres for an individual's rural homestead, and 200 acres for a family's rural homestead.
  • The borrower's property may not exceed the applicable acreage limit when a Texas Section 50(a)(6) mortgage is originated.
  • If the borrower (or if there are multiple borrowers, the borrower who owns the homestead) owns any adjacent land, he or she must submit appropriate evidence -- such as a survey -- that the mortgaged homestead property is a separate parcel that does not exceed the permissible acreage.

Refinance transactions for properties located in Texas through DU

• A verification message will be issued for all owner-occupied refinance transactions, including construction-to-permanent transaction, on properties located in the state of Texas.
• The verification message will require that the lender delivering the loan to Investor have a Master Agreement authorizing delivery of loans that are originated in accordance with Article XVI, Section 50(a)(6) of the Texas Constitution.
• This applies to all cash-out refinances and may apply to some limited refinances.
• The lender will be required to confirm that the loan meets the terms of its Master Agreement outside of Desktop Underwriter.

Note: Desktop Underwriter does not contain the specific eligibility rules needed to determine eligibility in accordance with Article XVI, Section 50(a)(6) of the Texas Constitution or the requirements of the lender's Master Agreement.  Lenders must determine outside of Desktop Underwriter that cash-out refinance mortgages securing properties in Texas are eligible for sale to Investor, and should be aware that even though a loan may receive an Approve/Eligible recommendation, the loan may not be eligible for delivery according to Section 50(a)(6) of the Texas Constitution or the lender's Master Agreement.

Refer to your Master Agreement and Investor's Selling Guide, Part VII, Chapter 1, Section 112, for additional information about originating and delivering this type of loan.