Fannie Mae and Freddie Mac Update All Uniform Legal Instruments | Cozen O’Connor
On July 7, 2021, Fannie Mae and Freddie Mac (GSEs) introduced new uniform instruments (tickets, security instruments and endorsements) for use with loans to make them eligible for purchase by GSEs. Lenders can start using the new instruments immediately, but must do so for all transactions closed on or after January 1, 2023. The family of new uniform instruments cannot be used in combination with earlier versions of any of the instruments. , therefore the use of the new uniform promissory note instrument requires the use of the new uniform mortgage, for example. For more information and to access the updated instruments, visit Fannie Mae’s new legal documents page.
According to Fannie Mae, the new instruments are beneficial in the following ways:
- Easier to use. Use more headlines and subheadings, shorter paragraphs and sentences, and more clearly defined lists.
- Provide more clarity. Use simpler language and clarify the explanation of the borrower’s and lender’s obligations.
- Reflecting Industry Changes. Take into account changes the industry has experienced over time and better reflect current industry practices and systems.
As a reminder, GSEs are private companies created by Congress (Fannie Mae in 1938 and Freddie Mac in 1970) with the aim of increasing credit in the field of housing finance. GSEs buy single and multi-family mortgages from lenders and hold them in their portfolios or bundle the loans into mortgage-backed securities sold in the capital markets as investments. Purchases of GSE loans increase lender liquidity and attract investors to the secondary mortgage market among those who could not otherwise invest in mortgages, thereby increasing the availability of funds for housing, making the secondary market more liquid and lowering mortgages. interest rates paid by homeowners and other mortgage borrowers. Fannie Mae states that by ensuring standardization, modernization and consistency in this family of loan documents, the ease and efficiency of selling residential housing loans in the secondary market will be significantly improved, thereby increasing liquidity for all lenders.
In particular, variable rate instruments recognize the imminent disappearance of the interbank offered rate in London, or LIBOR, as the benchmark interest rate applicable to variable rate notes. Instead, GSEs have adopted the Secured Overnight Financing Rate (SOFR) created by the Federal Reserve Bank of New York (the New York Fed). The New York Fed reports that SOFR is a general measure of the overnight cost of borrowing cash secured by Treasury securities and an appropriate proxy index for LIBOR. For these variable rate instruments, the new instruments integrate the averages made up of the SOFR over a rolling period of 30 calendar days. We have already written about alternative interest rate indices and their consequences HERE and HERE.