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Fannie Mae Discount MBS
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Fannie Mae Discount MBS

Discounted Mortgage Backed Securities

Fannie Mae Discount MBS, short for Fannie Mae Mortgage Backed Securities, or even DMBS, is unique in the multifamily finance industry. It is a variable rate financing facility for portfolio property owners seeking the lowest mortgage rates in the market through the sale of short-term secured notes. Fannie Mae issues a Discount MBS that is sold at a discount and then recasts the interest rate every 3, 6, or 9 months in lieu of a stated interest rate.

Mortgage backed securities of this nature trade inside of the LIBOR rate, thus significantly reducing the cost of borrowing. Further, Fannie Mae allows “asset swaps” whereby a particular property can be swapped out for another asset of equal or greater value. This is especially advantageous to a portfolio owner who wants to retain the flexibility of selling a particular property without facing cost prohibitive prepayment penalties.

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Fannie Mae Discount MBS Term Sheet

Eligible Properties

Existing income-producing multifamily properties and manufactured housing communities with a minimum of three stable months of 90% occupancy or better are eligible for Fannie Mae Discount MBS. Properties can be newly constructed or recently rehabilitated. Properties must have common control but can (and will) have single asset ownership structures.

Amortization and Loan Terms

Interest only. Amortization defeats the purpose. Terms of 5,7, or 10 years

Minimum Loan Size

Minimum programmatic loan size is $25,000,000 for a single asset and $50,000,000 for pools. Fannie Mae Discount MBS can be “sized” and assets filled into it over a 12 month period

Personal Liability

Non-recourse for monetary default with typical carve-outs

Eligible Borrowers

For-profit individuals and entities

Prepayment

Fee Maintenance schedule with a minimum of 1.00%. These terms can be modified by adjusting the interest rate.

Maximum Loan Refinancing

The Lesser of the amount supported by using a 1.00 to 1.00 debt service ratio using the lifetime interest rate ceiling or 75.0% of appraised value. The lifetime interest rate ceiling is the interest cap purchase for the term at the time of commitment.

Interest Rate

Market interest rates change daily. Call for quote.

Assumability

All loans are assumable and transferable at anytime for a 1.00% fee

Loan Origination Fee

Negotiable

Escrows

Required for property taxes, insurance, and replacement reserves as calculated by the underwriter

Repairs/Replacements

125% to 150% of the estimated cost of repairs per the physical needs report. Funds released upon completion.

Subordinate Financing

No third party subordinate financing, however Fannie Mae Supplemental Loans are allowed beginning 12 months after the initial first mortgage loan closing.

Preliminary Submission Package

  • Location map and property description and photos (or website info)
  • Unit mix showing type, number, size, and current rent of all units
  • Description of commercial space if any
  • Last three months rent rolls along with year-to-date financial statements
  • Last full 36 month operating statements or pro-forma if recently completed construction
  • Business resume and financial statement of principals and entity
  • Terms of existing debt if any