Demand Note Available October 1 for Refinancing of Existing Freddie Mac Multifamily Loans
September 24, 2012
This year we’re focused on making it easier to do business with us and streamlining our underwriting process. These latest efforts allow borrowers to use a demand note to further streamline the refinance process, which also makes it less costly for borrowers to refinance their existing loans with Freddie Mac.
Beginning October 1, 2012, all Program Plus, Targeted Affordable Housing and Seniors Housing Sellers/Servicers will have the option on certain early rate-lock transactions to deliver a demand note in lieu of the good faith deposit normally due. The demand note option is available only on Early Rate-Lock Applications (ERLAs) that refinance existing Freddie Mac loans and that contemplate funding by us within six months after rate-lock.
Use of the Demand Note
The demand note secures your borrower’s obligation to pay the breakage fee and is secured by an unrecorded second lien mortgage on the property. In the event of nondelivery, the demand note and the demand note mortgage are endorsed and assigned to us. The demand note mortgage is then recorded.
Your borrower does not have to wait until we purchase the loan for the release of the demand note. After you complete the origination of the loan, you can request authorization to return the demand note and demand note mortgage to the borrower.
Changes to the Purchase Process
There are some minor changes to our purchase process with the use of a demand note.
- The ERLA will be modified with a provision allowing you to submit a demand note from the borrower instead of a cash good faith deposit.
- The application fee will need to be wired to Freddie Mac after rate-lock because Freddie Mac will not be holding any cash from a good faith deposit.
- The demand note will be 3% of the maximum loan amount (1% more than a cash good faith deposit), but no less than $50,000.
- You will be required to upload a copy of the executed demand note and demand note mortgage to the Document Management System (DMS) after rate-lock with the delivery of the executed ERLA. Freddie Mac will not hold the originals.
Resources and Questions
We notified each Seller/Servicer’s legal counsel about the demand note and the changes to the ERLA. The demand note will be posted online to the Multifamily Loan Documents web page on October 1, 2012. You can then use the demand note in early rate-lock transactions on ERLA’s prepared on or after October 1.
Please contact your legal counsel or your Freddie Mac Producer or Underwriter with any questions about the demand note.