At the beginning of this year, the Federal Home Loan Mortgage Corporation (“FHLMC”) announced that, “to provide transparency to our Sellers, we are adding the selling requirements for Cooperative Share Loans and Cooperative Project to the [Single Family Seller/Servicer] Guide in new Guide Chapter 5705” (FHLMC Bulletin 2020-1). This effectively transferred FHLMC’s existing requirements for loans secured by shares in a cooperative association and a lease in a cooperative unit (“cooperative loans”) – which were only provided to entities approved to sell such loans to FHLMC – into the Guide and making them accessible to everyone.
Currently, we support cooperative loans intended to be sold to FNMA, but we have been unable to provide similar support for FHLMC due to the lack of transparency of their requirements. We are now pleased to announce that we are rolling out such similar support.
Data Integrity Checks
We had created DI checks in 2019 to restrict documents from being populated for certain types of cooperative loans which we do not support (click here for details). Like FNMA, FHLMC will only purchase the following types of cooperative loans:
- The loan must be in a first-lien position in relation to other mortgage-type liens (FHLMC Single Family Seller/Servicer Guide ch. 5705.5[g] & Glossary: Cooperative Share Loan);
- The loan must be used to purchase, refinance, or renovate a leasehold interest in a cooperative unit. Construction cooperative loans are generally not accepted ( ch. 5705.9[b]); and
- The cooperative unit must be occupied by the borrower as either a principal residence or a second home ( ch. 5705.5[a]).
FHLMC will also not accept a cooperative loan connected with a cooperative project comprised primarily of manufactured homes (see Ibid. 5705.3[l]). While FHLMC does not explicitly limit cooperative loans to certain states, an entity will not be approved to sell cooperative loans to FHLMC unless it possesses “substantial experience in the geographic market in which the Cooperative Share Loans are being originated” (Ibid. ch. 5705.1[b]). Because the types of cooperative loans sold to FNMA and FHLMC are primarily made in the states accepted by FNMA, we will only be supporting FHLMC-purchasable cooperative loans in these states as well. As a reminder, these states are:
- District of Columbia
- New Jersey
- New York
One of global warnings/global errors which we created in 2019 will be modified. The text of this warning/error will now state the following:
“ConformX does not support cooperative loans that are for HELOCs, investment properties, junior liens, construction loans, PUDs, condominiums, or for any loans that are not conventional (i.e., VA, FHA, RD/USDA).”
This warning/error will trigger under the following conditions:
- Cooperative (FI 2253) = Yes
- [Warning Only] Document Package Type (FI 18215) does not equal Closing
- [Error Only] Document Package Type (FI 18215) = Closing
- Any one of the following:
- HELOC (FI 28859) = Yes
- Occupancy (FI 1161) = Investment
- Lien Position (FI 1041) does not equal First Lien
- Loan Purpose (FI 5991) = Construction Only
- Loan Purpose (FI 5991) = Construction to Permanent
- PUD/Condo (FI 1182) = PUD
- PUD/Condo (FI 1182) = Condo
- Base Type (FI 2274) does not equal Conventional
- Document Investor Institution ID (FI 32500) does not equal SNYM (State of New York Mortgage Agency)
Also, we will be creating a new global warning which will state the following:
“Cooperative loans for manufactured or mobile homes are not eligible for sale to FHLMC (see FHLMC Single-Family Seller/Servicer Guide ch. 5705.3[l]).”
This warning will trigger under the following conditions:
- Cooperative (FI 22537) = Yes
- Document Investor Institution ID (FI 32500) = FHLM
- Manufactured/Mobile Home (FI 22413) = Yes
All of the documents used in connection with FNMA-purchasable cooperative loans will also be used for FHLMC-purchasable cooperative loans (see “Cooperative Matrix” for details). We have made some minor edits to certain documents accordingly (e.g., configuring some New York cooperative-text to be disclosed for all states, replacing certain words such as “recording” with “executed” to be more compatible with cooperative loans which are considered to be liens on personal property, etc.). These, as well as additional major edits (as outlined below) will be made to the following documents:
- Note Balloon Addendum (Cx252)
- F3190 Rider Balloon (Cx253)
- Note Balloon Addendum (Cx263)
- F3191 Rider Balloon (Cx762)
- 3170 1-4 Family Rider – MI (Cx1582)
- 5524 FHLMC 6 Month LIBOR ARM Note (Assumable After IP) (Cx7609)
- For the New York-version of this document, we will be modifying Section 11 (which cross-references the Security Instrument) to make it compatible with the language found in Section 11 of the New York-version of “Loan Security Agreement – COOP” (Cx4987). Similar changes were made to the FNMA promissory notes and ARM riders in 2018 (see https://compliance.docutech.com/2018/02/27/document-updates-new-fixed-adjustable-rate-notes-riders-coop-loans-new-york/ for details).
- 5124 FHLMC 6 Month LIBOR ARM Rider (Assumable After IP) (Cx7610)
- Similar to the changes we are making to Cx7609 as outlined above, we will be modifying Section B of the New York-version of this form to be more compatible with the language in Section 11 of the New York-version of Cx4987.
- MERS Rider (Cx18587)
- We are changing the print condition of “Cooperative” to “Allow Any”.
- Cooperative Rider (Cx22760)
- Section G (“Assignment of Rents”) will be configured to not print when “Property State” (FI 1714) equals “Michigan”. Also, a cross-reference to Section H (“Pledge”) will be replaced with a reference to “paragraph G” under the same condition (since Section H will become Section G for Michigan).
- Cooperative Loan Recognition Agreement (Cx22776)
- Due to FHLMC Single-Family Seller/Servicer Guide ch. 5705.6(g), we will be expanding the last clause of Subsection 1(e), so that the cooperative association affirms that both the “constituent documents” and the lease do not restrict the lender, as a consequence of the borrower’s default, from either: (a) assigning the lease or pledge of the shares to the lender; or (b) selling or conveying the lease or pledge of the shares to the lender.
- Due to ch. 5705.6(g) & (h), the first sentence in Subsection 3(g) will not print when “Project Classification” (FI 31321) equals “Freddie Mac New Project”. This will ensure that the lender is able to transfer the lease and shares upon a foreclosure without first obtaining the approval of the cooperative association.
- FHLMC requires lenders and servicers to obtain from the cooperative association certain documents (see ch. 5705.11 & 8801.1[g]). To ensure timely cooperation from the cooperative association on this matter (even for loans sold to an investor other than FHLMC), we will be adding a new Section 4 to Cx22776, which states the following:
“Lender may seek to sell the Loan to an investor, including the Federal National Mortgage Association (‘FNMA’) or Federal Home Loan Mortgage Corporation (‘FHLMC’). Such investors may require, either as a condition of sale or as part of the servicing of the Loan, copies of documents in the possession of the Co-Operative Association (including, but not limited to, Constituent Documents, financial statements, and operating budgets). The Co-Operative Association agrees to timely provide Lender, or to any person servicing the loan on behalf of the Lender (‘Servicer’), such copies upon the Lender’s or Servicer’s demand conducted in accordance with Section [X].”
- FHLMC requires, in connection with a new cooperative project, that the cooperative association agree within the recognition agreement to perform various responsibilities, and to recognize various rights of the lender. In order to streamline the terms of the recognition agreement, as well as to make it more efficient to modify Cx22776 if FHLMC ever amends these requirements, we will be “tying-in” these agreements (rather than explicitly promulgating them) by adding the following as a new Section 5 when “Project Classification” (FI 31321) equals “Freddie Mac New Project”:
“For purposes of this Section, ‘Provisions’ means FHLMC Single-Family Seller/Servicer Guide ch. 5705.6(d), (g), & (h) and 8801.1(g), as such provisions existed on May 4, 2020.
The Co-Operative Project is considered a ‘New Cooperative Project’ by FHLMC. The Co-Operative Association agrees both to: (i) fulfill all responsibilities it has to Lender and Servicer under the Provisions; and (ii) recognize all rights of Lender and Servicer under the Provisions. Such responsibilities and rights are incorporated into, and made a part of, this Recognition Agreement. These responsibilities and rights are in addition to all other responsibilities and rights agreed to under this Recognition Agreement. The Co-Operative Association agrees to notify Lender and Servicer of any and all changes that are of a material and adverse nature to Lender.”
Due to this new section, we will be adding an additional sentence (which will print under the same condition as for new Section 5) to the end of Subsection 3(g), which states the following:
“See Section 5 for further rights and responsibilities concerning Borrower’s default under the Loan.”
- Community Land Trust Ground Lease Rider (Cx23607)
- We are changing the print condition of “Cooperative” to “No”.
We are adding or modifying certain provisions to our multistate “Cooperative Loan Recognition Agreement” (Cx22776) due to FHLMC requiring certain terms to be within a recognition agreement (see above for details).
Cx22776 is provided for cooperative loans in all supported jurisdictions, except New York, where we provide “NY Aztech Recognition Agreement – COOP” (Cx8091) instead (due to popular demand). This document is copyrighted by the Aztech Document Systems, Inc. and, while use of the form is permitted, modifications to it are not.
As a result, we will be providing a new “NY Addendum to Recognition Agreement” (Cx24100) which amends Cx8091. This document is split into four sections:
- Constituent Documents (Section A) – Under this section, the cooperative association certifies that neither the “constituent documents” nor the lease prohibits the lender from assigning or selling the lease and pledge of shares in the cooperative apartment to the lender, its successors, or assigns.
- Copies of Documents and Notifications (Section B) – This section is the same as new Section 4 in Cx22776 (see above for details).
- New Cooperative Project: Responsibilities and Rights (Section C) – This section is the same as new Section 5 in Cx22776 and will print under the same condition (see above for details).
- Our Transfer Rights (Section D) – This section repeals paragraph 3.(b) of the Aztech Loan Recognition Agreement and replaces it with the following (this change is being made due to FHLMC Single-Family Seller/Servicer Guide ch. 5705.6[g], which requires that the recognition agreement not restrict the lender’s ability to sell or transfer the lease and pledge of shares to themselves, upon a borrower’s default):
“Notwithstanding any apparent authority granted to us under agreements with the Lessee, and except as otherwise agreed to in this paragraph, WE SHALL HAVE NO RIGHT OR POWER TO TRANSFER THE APARTMENT UPON FORECLOSURE OR OTHERWISE TO ANY ELSE WITHOUT YOUR APPROVAL AS REQUIRED BY THE LEASE, provided, however, that nothing contained herein shall: (i) limit any rights we may have to dispossess the Lessee pursuant to law or realize upon our security in accordance herewith; (ii) restrict the sale, conveyance or transfer of the Apartment if we, our successors, or assigns, obtain ownership thereof; or (iii) limit the assignment of the Lease to us, our successors, or assigns.”
Cx24100 will print under the following conditions:
- Base Type = Conventional
- Cooperative = Yes
- Document Package Type = Closing
- Documents to Use = Freddie Mac
- HELOC = No
- Lien Position = FirstLien
- Occupancy = PrimaryResidence
- Occupancy = SecondHome
- State Code = New York
We intend to publish a revised Cooperative Matrix by the end of August which will reflect these changes, as well as include cross-references to FHLMC’s cooperative requirements (similar to what this Matrix currently does for FNMA). As always, this revised Matrix will be posted on our “Matrices” page (https://compliance.docutech.com/matrices/).
These changes will be in Production on July 18, 2020. Questions or concerns about these changes should be directed to Client Support at 1.800.497.3584.
DR 318413, 319052