source:
  type: guide
  id: fnma-sel-b2-1.4-03
  authority: Fannie Mae Selling Guide B2-1.4-03 — Convertible ARMs
  description: Fannie Mae Selling Guide B2-1.4-03 — Convertible ARMs.
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-1.4-03-full
  canonical_id: fnma-sel-b2-1.4-03-full
  section: Fannie Mae Selling Guide B2-1.4-03 — Convertible ARMs
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B2-1.4-03 — Convertible ARMs
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B2-1.4-03, Convertible ARMs (02/23/2016) Introduction This topic
      contains information on convertible ARMs, including: General Information Converted
      ARMs Removed from ARM MBS Pools Borrower Requaliﬁcation Considerations for Fixed-Rate
      Mortgages Converted from ARMs and Redelivered Under “Market Rate” Post-Conversion
      Options Eligibility Requirements for Converted ARMs Delivery Requirements and
      Security Instruments for ARMs Converted to Fixed-Rate Mortgages Mortgage Documents
      for Fixed-Rate Conversion Option General Information Fannie Mae accepts delivery
      of ﬁxed-rate mortgages that were converted from ARMs either by a legally executed
      modiﬁcation agreement or under the provisions of the mortgage instrument. Although
      the ARM does not have to have been originated on Fannie Mae uniform instruments
      or in accordance with Fannie Mae eligibility requirements for ARMs, the new
      ﬁxed-rate mortgage that results from the conversion must meet Fannie Mae’s general
      eligibility and underwriting requirements for newly originated ﬁxed-rate mortgages.
      Converted ARMs Removed from ARM MBS Pools This topic describes the circumstances
      under which a converted ARM that is removed from an ARM MBS pool as the result
      of its conversion to a ﬁxed-rate mortgages may be redelivered to Fannie Mae.
      If the mortgage is more than 12 months old at the time of the redelivery, and
      the lender speciﬁed a “market rate” post-conversion disposition option when
      the MBS pool was delivered to Fannie Mae, the mortgage must meet the same eligibility
      criteria as other converted ARMs (as discussed in “Eligibility Requirements
      for Converted ARMs” later in this topic). If the lender speciﬁed a take-out
      post-conversion disposition option when the MBS pool was delivered to Fannie
      Mae, the lender does not need to requalify the borrower or verify that the mortgage
      satisﬁes Fannie Mae eligibility criteria. Borrower Requaliﬁcation Considerations
      for Fixed-Rate Mortgages Converted from ARMs and Redelivered Under “Market Rate”
      Post-Conversion Options Published May 6, 2026 198 To qualify a borrower, lenders
      may use the original in-ﬁle documentation to evaluate the borrower’s ﬁnancial
      ability, as long as the borrower is able to qualify for the mortgage based on
      either of the following: The mortgage interest rate in eﬀect following the conversion
      and Fannie Mae’s current underwriting guidelines for a conventional ﬁxed-rate
      mortgage, or The mortgage interest rate in eﬀect for the ARM when it was originated
      and the underwriting guidelines Fannie Mae used for ARMs at that time. If the
      lender is unable to qualify a borrower under the previous options, the lender
      must requalify the borrower under Fannie Mae’s standard guidelines, including
      obtaining a new loan application, obtaining up-to-date credit reports, obtaining
      new employment and income veriﬁcations using the acceptable documentation, evaluating
      the borrower’s ﬁnancial ability based on the mortgage interest rate in eﬀect
      for the converted mortgage, and Fannie Mae’s current underwriting guidelines
      for a conventional ﬁxed-rate mortgage. Eligibility Requirements for Converted
      ARMs The following speciﬁc eligibility requirements apply to converted ARMs
      that are delivered as either whole loans or MBS pool deliveries under the “market
      rate” post-conversion disposition option that were removed from an ARM MBS pool
      as the result of the conversion: ✓ Requirements The ARM must have been at least
      12 months old when the conversion occurred. The converted mortgage must meet
      all of the eligibility criteria speciﬁed for mortgages that are more than one
      year old, unless Fannie Mae has speciﬁed that those criteria do not apply. Note:
      The age of the mortgage is calculated from the date the ARM was originated.
      These speciﬁc eligibility criteria appear in B2-1.5-02, Loan Eligibility. The
      mortgage loan must be current at the time of delivery. Note: To minimize processing
      delays, Fannie Mae considers a mortgage current if no more than 45 days have
      elapsed since the last paid installment date. Published May 6, 2026 199 ✓ Requirements
      The total of all interest rate increases or payment adjustments (including any
      combination of scheduled ARM interest rate changes and the increases scheduled
      under an interest rate buydown plan) that occurred after the ARM was originated
      must not have exceeded 2% (for the interest rate adjustment) or 15% (for the
      payment adjustment) if the lender qualiﬁes the borrower on the basis of the
      mortgage interest rate that was in eﬀect for the ARM when it was originated
      and the ARM underwriting guidelines Fannie Mae used at that time. The modiﬁed
      mortgage must provide for a ﬁxed-interest rate, level monthly payments, and
      amortization within the term of the original mortgage. The title insurance policy
      or any endorsements to it are not impaired because of the option to convert
      to a ﬁxed-rate mortgage or the actual conversion. If the original title policy
      did not include the ARM endorsements currently required, the lender must indemnify
      Fannie Mae (as described in A2-1-03, Indemniﬁcation for Losses) against Fannie
      Mae losses that arise out of future title disputes related to the years in which
      the mortgage was an ARM. The original loan amount of the ARM did not exceed
      Fannie Mae''s current maximum mortgage amount limitation at the time Fannie
      Mae originally securitized the mortgage in an ARM MBS pool. The greater of the
      original mortgage amount (at origination of the ARM, pre-conversion) or the
      current unpaid principal balance must be used to determine that the modiﬁed
      mortgage meets Fannie Mae requirements for maximum mortgage amount, LTV ratios,
      mortgage insurance coverage, and title insurance. EXCEPTION: For the delivery
      of a converted ARM that Fannie Mae initially securitized in an ARM MBS pool,
      if Fannie Mae’s loan limits decreased between the time Fannie Mae initially
      securitized the ARM and the time the converted mortgage is redelivered to Fannie
      Mae after it is removed from the pool, the mortgage will still be acceptable
      to Fannie Mae even if the original mortgage balance exceeds the maximum mortgage
      amount that is in eﬀect at the time of the redelivery. BACKGROUND This recognizes
      and acknowledges, respectively, the fact that • the loan satisﬁed Fannie Mae
      requirements when it was securitized, and • the redelivery is a function of
      an administrative requirement Fannie Mae imposed for mortgage-backed security
      transactions, rather than the delivery of a diﬀerent mortgage. Published May
      6, 2026 200 ✓ Requirements The LTV, CLTV, and HCLTV ratios at the time of conversion
      must not exceed the maximum allowable limits for ﬁxed-rate mortgages, see the
      Standard ARM Plan Matrix. If the ARM had negatively amortized, the LTV ratio
      (and the CLTV ratio and the HCLTV ratio) requirement must be satisﬁed as a result
      of • Subsequent normal amortization • The application of funds contributed by
      the borrower, or • An increase in the value of the property. Note: Increase
      in property value must be supported by a current appraisal. Delivery Requirements
      and Security Instruments for ARMs Converted to Fixed- Rate Mortgages Lenders
      must identify each converted ARM that was repurchased from an MBS pool because
      the conversion to ﬁxed-rate option was exercised and subsequently redelivered
      to Fannie Mae as a whole loan delivery of a ﬁxed- rate mortgage with SFC 036.
      Lenders must include in the delivery package a Loan Modiﬁcation Agreement (
      Form 3179 ) as evidence of the conversion to a ﬁxed-rate mortgage. Note: A diﬀerent
      (but substantially equivalent) modiﬁcation agreement is also acceptable, as
      long as it includes an enforceable due-on-sale clause. ✓ Modiﬁcation Agreement
      Requirements Lenders must determine whether a modiﬁcation agreement has to be
      recorded in each particular jurisdiction in order to preserve the lien position
      of the mortgage. If recordation is required, lenders must submit the recorded
      instrument when it delivers the mortgage for purchase or securitization. Lenders
      must obtain a title bring-down through the date of the recordation. Mortgage
      Documents for Fixed-Rate Conversion Option Execution of Fannie Mae’s standard
      riders or addenda that provide the terms for conversion to a ﬁxed-rate mortgage
      or any other conversion option instrument is not required if: a convertibility
      provision was included in the adjustable-rate note, or Published May 6, 2026
      201 the lender previously agreed to a conversion modiﬁcation despite the fact
      that the loan documents did not give the borrower an option to convert. In this
      instance, lenders must provide a modiﬁcation agreement to document the conversion
      and obtain a title bring-down through the date of the recordation. See Riders
      & Addenda for current standard riders or addenda. Recent Related Announcements
      There are no recently issued Announcements related to this topic.'
  judgment: false
