Selling Guide Announcement SEL-2017-04

April 25, 2017

Selling Guide Updates

The Selling Guide has been updated to include changes to the following:

 Student Loan Solutions

 Project Eligibility Review Waiver for Fannie Mae to Fannie Mae Limited Cash-Out Refinances

 Properties Listed for Sale in the Previous Six Months

 PERS Expiration Dates

 Truncated Asset Account Numbers

 Flash Settlement for Mortgage-Backed Securities

 Servicing Execution Tool Bifurcation Option Terms and Conditions

 Miscellaneous Selling Guide Update

Each of the updates is described below. The affected topics for each policy change are listed on the Attachment. Lenders

should review each topic to gain a full understanding of the policy changes. The updated topics are dated April 25, 2017.

Student Loan Solutions

Student Loan Payment Calculation

We are simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy

will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans. If a

payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does

not identify a payment amount (or reflects $0), the lender can use either 1% of the outstanding student loan balance, or a

calculated payment that will fully amortize the loan based on the documented loan repayment terms.

The current Desktop Underwriter

(DU

) message issued when an installment debt on the loan application does not

include a monthly payment will be updated in a future release to reflect this new policy. Until then, lenders may disregard

the statement in the message specifying the previous policy and follow the requirements in the Selling Guide.

Effective Date

This policy change is effective immediately.

Debts Paid by Others

We are simplifying our requirements for excluding non-mortgage debts from the debt-to-income ratio. Non-mortgage

debts include debt such as installment loans, student loans, and other monthly debts as defined in the Guide.

If the lender obtains documentation that a non-mortgage debt has been satisfactorily paid by another party for the past 12

months, then the debt can be excluded from the debt-to-income ratio. This policy applies regardless of whether the other

party is obligated on the debt.

N O T E : This policy does not apply if the other party is an interested party to the subject transaction (such as

the seller or realtor).

Effective Date

Lenders may implement this flexibility immediately. The DU message on omitted debts will require documentation to

support the omission of the debt, but will not reference the documentation requirements specified above as DU is not able

to identify if the debt was omitted as a result of this policy.

Student Loan Cash-out Refinance

With this update, we are introducing the student loan cash-out refinance feature, a cost-effective alternative to use

existing home equity to pay off student loan debt. This feature provides the opportunity for borrowers to payoff one or

more student loans through the refinance transaction, potentially reducing their monthly debt payments. The loan-level

price adjustment that applies to cash-out refinance transactions will be waived when all requirements have been met.

The student loan cash-out refinance feature contains elements of both a cash-out refinance and a limited cash-out

refinance transaction as described in the table below.

Student Loan Cash-out Refinance Features

Student Loans Eligible

for Payoff

 At least one student loan must be paid off. Loan proceeds

must be paid directly to the student loan servicer at closing.

 Only student loans for which the borrower is personally

obligated can be paid through the transaction.

 Student loan debt must be paid in full with the proceeds –

partial payments of student loan debt are not permitted.

New policy

Eligibility

The standard cash-out refinance LTV, CLTV, and HCLTV ratios

apply per the Eligibility Matrix

Aligns with cash-out refinance

Underwriting Method

DU only

New policy

Maximum Cash Back

Lesser of 2% or $2k (over and above the student loan payoff)

Aligns with limited cash-out refinance

Mortgage Payoff

mortgage and purchase-money seconds

Aligns with limited cash-out refinance

Other Requirements

 Property cannot be listed for sale at time of disbursement

 Payoff of taxes ineligible unless escrow account is established

 Payoff of delinquent taxes ineligible

Aligns with limited cash-out refinance

Lenders must deliver the following Special Feature Code (SFC) 841, Student Loan Cash-Out Refinance, at the time of

delivery.

N O T E : The Eligibility Matrix, Special Feature Codes, and Loan-Level Price Adjustment Matrix will be updated

to reflect the applicable changes.

Effective Date

This policy is effective immediately. DU is not currently able to identify these transactions or issue specific messaging so

lenders must confirm the loan meets all the requirements to include SFC 841 at time of delivery.

Project Eligibility Review Waiver for Fannie Mae to Fannie Mae Limited Cash-Out

Refinances

In response to lender feedback and our commitment to developing solutions that increase lender efficiency while

effectively managing risk, we are waiving the project eligibility review for certain Fannie Mae-owned loans that are being

refinanced as a limited cash-out refinance. The lender must confirm the following:

 the loan-to-value ratio is no higher than 80% (CLTV or HCLTV ratios may be higher);

 the project has the required project-related property and flood insurance coverage; and

 the project is not a condo hotel or motel, houseboat project, or a timeshare or segmented ownership project.

N O T E : This waiver does not apply to co-op projects.

The loan must be delivered with Project Type Code “V” and any applicable SFCs that apply.

Effective Date

Lenders may implement this policy change immediately. The DU message regarding project review requirements will be

modified in a future release. Until that time, lenders may disregard the project review message and comply with the

updated Selling Guide requirements.

Properties Listed for Sale in the Previous Six Months

The current policy on cash-out refinances has been updated to eliminate the additional eligibility restrictions that apply

when a property has been listed for sale in the previous six months. With this update, properties that were listed for sale

must have been taken off the market on or before the disbursement date of the new mortgage loan.

Effective Date

The policy change is effective immediately.

PERS Expiration Dates

The Project Eligibility Review Service (PERS) is a review method lenders can use to submit new, newly converted, and

established projects to Fannie Mae to determine eligibility. Currently, the final project approval expires no later than 18

months from the date of issuance. We are updating the Guide to allow for a longer expiration term for PERS Final Project

Approvals (at our discretion). As a result, we are pleased to announce that Final Project Approvals for Streamlined PERS

submissions will be issued for up to 24 months.

Effective Date

This policy change is effective immediately.

Truncated Asset Account Numbers

We are updating our policy to permit truncated account numbers that display at least the last four digits of the borrower’s

asset account. This change will help provide a greater degree of protection of borrowers’ non-public information.

Truncated or masked account numbers for bank and portfolio or investment accounts where at least the last four digits are

displayed are permissible on the loan application, in DU, and on asset documentation, including verification reports

obtained through the DU validation service.

Effective Date

This policy change is effective immediately.

Flash Settlement for Mortgage-Backed Securities

By using Fannie Mae's Flash MBS

, a lender receives book-entry delivery on Fannie Mae MBS – including Fannie

Majors

– as soon as 72 hours after Fannie Mae receives a Loan Delivery submission. Using Flash MBS gives the lender

up to two more business days for pooling than the standard pool processing option. The cost is a one-time, one basis

point ($100 per $1 million) processing fee. With this update, we are eliminating this processing fee and instead offer Flash

MBS as an acceptable standard no cost delivery option, which may reduce selling costs and provide lenders with

increased flexibility for same-month pooling. No separate contract or special forms are needed - simply indicate the

desired book-entry delivery date in Loan Delivery. For more information, refer to the pool settlement calendar, which

includes eligible Flash MBS dates, on the Pricing & Execution page on Fannie Mae’s website.

Effective Date

This update is effective with Flash MBS deliveries made on or after the date of this Announcement.

Servicing Execution Tool Bifurcation Option Terms and Conditions

In order to provide additional flexibility for lenders to take advantage of selling loans through the Servicing Execution Tool

(SET) Bifurcation option, we are removing the requirement that SET Bifurcation loans be underwritten in DU and receive

an Approve/Eligible recommendation. Going forward, we will permit SET Bifurcation loans without regard to the

underwriting method. As a reminder, specific lender approval is required to participate in the SET Bifurcation option.

Effective Date

The policy change is effective immediately.

Miscellaneous Selling Guide Update

The name of the Capital Markets Sales Desk has changed to Capital Markets Pricing and Sales Desk. The name has

been updated throughout the Selling Guide.

*****

Lenders who have questions about this Announcement should contact their Account Team.

Carlos T. Perez

Senior Vice President and

Chief Credit Officer for Single-Family

Attachment

Section of the Announcement

Updated Selling Guide Topics

Student Loan Solutions

 B3-6-05, Monthly Debt Obligations

 B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on

the Subject Transaction

 B2-1.2-03, Cash-out Refinance Transactions

Project Eligibility Review Waiver for

Fannie Mae to Fannie Mae Limited

Cash-Out Refinances

 B4-2.1-01, General Information on Project Standards

 B4-2.2-04, Geographic-Specific Condo Project Considerations

 B4-2.2-05, Requirements for Review of Site Condos

 B4-2.2-07, Project Eligibility Review Service (PERS)

 B4-2.2-08, Additional Requirements for Review of Condo, Co-op,

and PUD Projects Comprised of Manufactured Homes

Properties Listed for Sale in the

Previous Six Months

 B2-1.2-03, Cash-out Refinance Transactions

PERS Expiration Dates

 B4-2.2-07, Project Eligibility Review Service (PERS)

Truncated Account Numbers

 B3-4.2-01, Verification of Deposits and Assets

Flash Settlement for Mortgage-Backed

Securities

 C3-6-01, Parameters for Pooling Loans Into Fannie Majors

 C3-7-06, Settling the Trade

 E-3-06, Glossary of Fannie Mae Terms: F

Servicing Execution Tool Bifurcation

Option Terms and Conditions

 A3-3-02, Concurrent Servicing Transfers