Early Rate-Lock Enhancements Streamline the Process for You and Your Borrowers
November 7, 2011
Beginning December 1, we're introducing enhancements to our early rate-lock process in response to your feedback. You've told us that speed to lock is critical to serving your borrowers. With the changes we're making to improve our service delivery, you and your borrowers will see a more streamlined rate-lock process. You will receive more upfront communication on your preliminary package submission. And you will notice a more flexible approach to how we determine proceeds at full underwriting, following the early rate-lock decision. Our changes include:
- Simplifying preliminary underwriting package components.
- Establishing timelines for underwriters to assess the preliminary underwriting package and notifying you about missing items or completeness.
- Streamlining our approach to early rate-lock during preliminary underwriting.
- Changing our approach to preserving exact loan proceeds at full underwriting.
- Communicating the final underwriting results and deal terms through the Adjustment Letter.
Simplifying the Early Rate-Lock Preliminary Underwriting Package
We are moving a number of items that are part of the preliminary underwriting package today to the full underwriting package submission. These new preliminary underwriting package requirements reduce the amount of information the borrower needs to submit, enabling our underwriter to review the preliminary package more quickly.
To facilitate this change, we have consolidated requirements to one checklist for all conventional products. You can view a draft of the new early rate-lock checklist on the New and Notable section of the MultiSuite® homepage. Please note that with the new checklist, Borrower Certificate – Form 1115 and Borrower Certification of Property Physical and Environmental Condition – Form 1117 will also be revised. We will also make changes to the Document Management System (DMS) and the Origination and Underwriting System (OUS) to support the new consolidated checklist.
Preliminary Underwriting Package Assessment
You will now receive notification of any missing preliminary underwriting package items within 48 hours after we receive your package. If nothing is missing from the package, you will receive confirmation that the preliminary requirements have been met. Our goal upon receipt of the complete preliminary underwriting package is to reach an early rate-lock decision within two to five business days.
Certain deal characteristics may impact the speed of the rate-lock process.
- Loans that can be approved in the Region with no high-level exceptions can lock more quickly than those that require waivers.
- Repeat borrowers who have completed other deals within the last 12 months should be able to rate-lock more quickly.
- Rate-locks can be faster if we are familiar with the property's local market. However, deals with new borrowers, with greater complexity such as ground leases, and deals in unfamiliar markets will all require additional time to complete the evaluation and rate-lock process.
Adjusting Loan Proceeds After Rate-Lock at Full Underwriting
Our new approach to early rate-lock gives your underwriter the ability to adjust the loan amount at full underwriting after rate-lock. This change in approach improves the efficiency of the early rate-lock process by eliminating delays that result from postponing the rate-lock to finalize the exact loan proceeds.
- The underwriter will be able to adjust the locked loan amount down by up to 5 percent, without the borrower incurring any breakage fees.
- Any change in the loan amount would be based on variances between the limited information provided in the preliminary underwriting package and the full due diligence provided at the time of full underwriting.
- At the borrower's request and when there has been an increase in our underwritten NOI at final underwriting, the underwriter will be able to adjust the locked loan amount by up to 5 percent. In order to provide this flexibility, we are requiring a minimum loan increase amount of $100K.
Freddie Mac is introducing this enhancement for all conventional deals. Bonds and Targeted Affordable Housing (TAH) transactions are not eligible for the adjustment of loan proceeds post rate-lock.
Our new early rate-lock application (ERLA) provides you and the borrower with more transparency on the information used in underwriting. This results in greater clarity to the borrower on what determines their net operating income (NOI) and potentially impacts loan proceeds and pricing. However, the Adjustment Letter will serve as the final confirmation of any changes to deal proceeds, pricing, and spread changes.
Revised Deal Terms and Breakage Fees
Your underwriter will reassess the NOI provided at full underwriting against the NOI provided in the preliminary underwriting package. The underwriter will also review occupancy, income, and the appraised value of the property.
- The underwriter will determine if any adjustment to proceeds is necessary.
- To increase our efficiency while reducing the impact to the borrower, we've eliminated breakage fees for changes within five percent of the preliminary underwriting proceeds that were rate-locked.
- Any additional breakage fee beyond the 5 percent is based on only 95 percent of the rate-locked loan amount, instead of 100 percent of the rate-locked loan.
- You can advise your underwriter in instances where the borrower wants to defer the rate-lock in order to resolve deal parameters that could impact the NOI and change the loan proceeds or price.
Borrowers will see a decrease in proceeds for the loan only when the property demonstrates low occupancy, low NOI, or a low appraisal at full underwriting. Where a decrease in proceeds of more than 5 percent results, the borrower will incur breakage fees on 95 percent of the loan amount. Flexible pricing post rate-lock also allows the borrower to preserve the locked loan amount without breakage in certain instances, if the borrower is willing to accept an increase to the net spread.
Resources and Training
For your convenience, training is being offered on the following dates. We invite you to attend this one-hour online session to learn more about our new early rate-lock delivery process.
|Thursday, November 17, 2011||2:00 – 3:00 p.m. ET||Registration Link|
|Wednesday, November 30, 2011||2:00 – 3:00 p.m. ET||Registration Link|
To better prepare you for the enhancements to our early rate-lock process, we sent this information to both you and your legal counsel. You can also review the revised Early Rate-Lock Application on the New and Notable section of the MultiSuite homepage before December 1, 2011.
For questions about early rate-lock, please contact your Freddie Mac regional representative.