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For standard DUS mortgages, the organization offers borrowers three prepayment premium options: yield maintenance, the graduated-prepayment premium and defeasance.
Yield maintenance calculates prepayment costs based on market rates. Investors attain the same yield as if they made all scheduled payments until the end of the loan term.
The graduated prepayment option offers a fixed prepayment cost schedule based on the year in which prepayment occurs. For example, the prepayment premium schedule for a five-year loan may be 5 percent in year one, 4 percent in year two and so on.
Defeasance removes the lien on the property before maturity in exchange for the borrowers' purchase of a Fannie Mae bond, which pays the same cash flows as expected from the original mortgage.
Fannie Mae has one of the most borrower-friendly defeasance products because it involves the purchase of a single bond. This makes it easier and less costly for borrowers when compared to defeasance that requires purchasing a series of Treasury or other government securities.
The GSE has also made other recent financing enhancements. The Fixed+1 Product adds to the end of mortgages a one-year, adjustable-rate term for loan repayment without penalty. For apartment loans of less than $3 million, the Fannie Mae 3MaxExpress product streamlines the loan process with reduced documentation requirements, more straightforward report formats and flexible closing requirements.
For years, Fannie Mae often fell behind conduits and life-insurance companies in financing Class-A properties. With its recent transformation, however, Fannie Mae has become a more attractive option for these projects.
Ronen Abergel is a director at Arbor Commercial Mortgage LLC,
which provides Federal Housing Administration-insured and commercial-mortgage-backed-securities financing. It is one of a select group of lenders approved under Fannie Mae's Delegated Underwriting and Servicing product, Fannie Mae's principal product line for purchasing individual multifamily loans. He can be reached directly at (212) 389-6548 or via e-mail at email@example.com.
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