Servicing Guide

Published September 9, 2020

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Fannie Mae Investor Reporting Manual- Chapter 5, Formulas and Calculations

Chapter 5, Formulas and Calculations

5-01, Mathematical Formulas (11/12/2014)

5-02, Calculations Related to Pass-through Rates (08/16/2017)

5-03, Calculations Related to Servicing Fee/Excess Yield (11/12/2014)

5-04, Exhibits (01/18/2017)

     

5-01, Mathematical Formulas (11/12/2014)

The Fannie Mae investor reporting system uses a number of mathematical formulas in the update process for either computational or editing purposes. The servicer may incorporate use of these formulas into its own systems to reduce the potential for rejected transactions.  

 

5-02, Calculations Related to Pass-through Rates (08/16/2017)

Generally, the pass-through rate for a mortgage loan is established when Fannie Mae purchases or securitizes the mortgage loan and remains in effect for the life of the mortgage loan. However, this is not true for ARMs since the servicer must determine a new pass-through rate at any time the interest rate of the mortgage loan changes (including a change related to the conversion of the mortgage loan to a fixed interest rate). Calculations for determining the applicable pass-through rates in these situations are included in this Section.

Determining Pass-through Rates for Converted ARMs

When an ARM in Fannie Mae's portfolio converts to a fixed-rate mortgage loan, the servicer must determine:

  • a new interest rate, and
  • a new pass-through rate.

The calculation for these rates is the same regardless of whether the mortgage loan has an actual/actual or a scheduled/actual remittance type.

The servicer must calculate the new interest rate and pass-through rate for the converted ARM loan by completing the steps shown in the following table.

Step

Servicer Action

1

Increase the applicable Fannie Mae required yield by 0.625% (or 0.875% if the property is a co-op unit).

2

Round the result to the nearest 0.125%.

3

Reduce this new interest rate by a servicing fee of 0.375% (or the applicable negotiated servicing fee percentage) to develop the new pass-through rate for the converted mortgage loan.

Determining Pass-through Rates for ARM Adjustments

There are two methods for determining the new pass-through rate when the interest rate for an ARM changes:

  • the “top-down” method, and
  • the “bottom-up” method.

For ARM whole loan commitments dated prior to September 11, 2017, the “bottom-up” method can be used, but for commitments dated on or after September 11, 2017, the “top-down” method must be used when calculating the pass-through rate at rate reset.

The “top-down” method must be used for mortgage loans in most weighted-average structure MBS pools (excluding ARM Flex Plus® pools), while the “bottom-up” method must be used for mortgage loans in stated-structure MBS pools and ARM Flex Plus MBS pools.

A. “Top-down” method. The following table illustrates the “top-down” method of determining the new pass-through rate for an ARM after an interest rate change:

 

New Interest Rate

-

Servicing Fee Rate

-

Guaranty Fee Rate (for MBS Mortgage Loans only)

-

Excess Yield (if applicable)

=

New Pass-through Rate

B. “Bottom-up” method. The calculation for determining the new pass-through rate for an ARM after an interest rate change under the “bottom-up” method involves six steps. The servicer must complete the steps as shown in the following table.

 

Step

Servicer Action

1

Determine the net mortgage loan margin by subtracting the servicing fee (and, if the mortgage loan is in an MBS pool, the guaranty fee) from the mortgage loan margin.

2

Verify Fannie Mae's required margin (as reflected on the Trial Balance Report).

3

Determine the “uncapped” pass-through rate by adding the lesser of: 

  • Fannie Mae's required margin, or 
  • the net mortgage loan margin

to the index value used to determine the new mortgage loan interest rate.

4

Determine the minimum pass-through rate by selecting the greater of: 

  • the current pass-through rate less the per adjustment downward cap, or 
  • the pass-through rate floor (as reflected on the Trial Balance Report). 

Note: In the absence of a stated pass-through rate floor, Fannie Mae’s required margin becomes the pass-through rate floor.

5

Determine the maximum pass-through rate by selecting the lesser of:

  • the current pass-through rate plus the per adjustment upward cap, or 
  • the pass-through rate ceiling (as reflected on the Trial Balance Report).

6

Determine the new pass-through rate by comparing the “uncapped” pass-through rate to the minimum and maximum pass-through rates.

  • If the “uncapped” pass-through rate is less than the minimum pass-through rate, the minimum pass-through rate will be the new pass-through rate.
  • If the “uncapped” pass-through rate is greater than the minimum pass-through rate and less than the maximum pass-through rate, it will be the new pass-through rate.
  • If the “uncapped” pass-through rate is greater than the maximum pass-through rate, the maximum pass-through rate will be the new pass-through rate.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements

Issue Date

Announcement SVC-2017-07

August 16, 2017

 

 

 

 

5-03, Calculations Related to Servicing Fee/Excess Yield (11/12/2014)

All mortgage loans have a servicing fee that is specified at the time the mortgage loan is purchased or securitized and that generally remains constant over the life of the mortgage loan (although it may change when an ARM is converted to a fixed-rate mortgage loan). Some ARM MBS pools allow variances in the individual servicing fee for a mortgage loan from time to time to achieve a fixed margin for the MBS pool. In addition, some mortgage loans have excess yield because the mortgage loan interest rate is higher than the sum of Fannie Mae's required yield and the minimum required servicing fee. Excess yield is not always guaranteed over the life of the mortgage loan.

To calculate the servicing fee for an ARM in an MBS pool that has a fixed MBS margin, the servicer must use the formula shown in the following table.

 

Mortgage Loan Margin

-

Fixed MBS Margin

-

Guaranty Fee Rate

=

Servicing Fee Rate

To calculate excess yield for any mortgage loan, the servicer must use the calculation shown in the following table.

 

Note Rate

-

Pass-through Rate

-

Servicing Fee Rate

-

Guaranty Fee Rate (for MBS Mortgage Loan only)

=

Excess Yield

5-04, Exhibits (01/18/2017)

Exhibit 1: Monthly Fixed Installment Formula


Exhibit 2: Regular Amortization Formula

Exhibit 3: Negative Amortization Formula

Exhibit 4: Reverse Amortization Formula

Exhibit 5: Servicing Fee/Yield Differential Adjustment Formula

Exhibit 6, Mapping Fannie Mae Investor Reporting System Records to EDI Investor Reporting Trans Set 203

Fannie Mae also accepts the ANSI x12 EDI format, transaction set 203, Secondary Mortgage Market Investor Report for reporting of loan activity. The transaction set 203 consists of the following:

EDI Segment - identifies the transaction segment which includes a two or three digit code assigned to identify the segment and the name of the segment.

EDI Position - specifies the order in which the segment appears in the transaction set.

EDI Reference - indicates the segment and position.

EDI Data Element and Description - indicates the data element name and what it is.

EDI Requirement Designation - indicates if the field and/or segment is mandatory

Value - indicates mandatory value(s).

 

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