• Fannie Mae Updates Multifamily Loan Documents
  • September 3, 2013 | Authors: Cornelius R. O'Brien; Mark S. Shiembob
  • Law Firm: Troutman Sanders LLP - Richmond Office
  • On August 23, 2013, Fannie Mae released Multifamily Lender Memo 13-02 updating its Multifamily Mortgage Form Loan Documents and introducing new Asset Management Loan Documents. A substantial number of changes were made to the Loan Documents. Many of the changes made by Fannie Mae are aimed at addressing Borrower comments to the Loan Documents and are clarifying and corrective in nature.

    Some of the more notable changes to the Loan Documents include the following:

    • The term “Controlling Interest” in the Loan Agreement has been bifurcated and replaced with the terms “Control” and “Restricted Ownership Interest.” Formerly, a “Controlling Interest” in an entity included both the traditional concept of control as well as the notion of a 50% or greater ownership in an entity, regardless of whether such ownership interests conveyed control. Use of the new terms “Control” and “Restricted Ownership Interest” will have the most important impact in the areas of Borrower representations, warranties and covenants and in the areas of permitted Transfers of Borrower ownership interests. The changes provide increased clarity around permitted Transfers of Borrower ownership interests that were traditionally viewed as being non-controlling.

    • The terms “Preferred Equity” and “Permitted Preferred Equity” have been introduced in the Loan Agreement. Although the definition of “Preferred Equity” is quite broad, the introduction of the term “Permitted Preferred Equity” now provides a clearer avenue for addressing many preferred equity ownership structures. Fannie Mae’s requirements around preferred equity are still evolving, but the introduction of the concept of Permitted Preferred Equity is a constructive step to addressing the thorny underwriting, credit and legal issues that often surround preferred equity ownership structures. The genesis of the “Preferred Equity” and “Permitted Preferred Equity” concepts originate from Fannie Mae’s recent Preferred Equity Credit Guidance (Fannie Mae Lender Letter 13-02).

    • The Loan Agreement Transfer provisions have been clarified to more clearly accommodate the Transfer of interests in a publicly-held corporation or publicly-held trust that holds a direct or indirect interest in a Borrower, Key Principal or Guarantor.

    • Fannie Mae has introduced a new series of Asset Management Loan Documents, known as the 6600 Series, which standardizes Loan Document amendments that are necessary during the servicing stage of the loan life cycle. Previously, many of the Loan Document amendments necessary during the loan servicing stage were prepared individually on a case by case basis.

    The new and updated Loan Documents may be used immediately. Usage is mandatory in connection with all Mortgage Loans committed on and after October 1, 2013.

    The developments around Transfers and Preferred Equity are particularly significant to Fannie Mae Lenders and their Borrowers.