source:
  type: guide
  id: fnma-sel-c3-5-04
  authority: Fannie Mae Selling Guide C3-5-04 — Pooling ARMs with a Conversion Option
  description: Fannie Mae Selling Guide C3-5-04 — Pooling ARMs with a Conversion Option.
  coverage_tier: operative
obligations:
- id: fnma-sel-c3-5-04-full
  canonical_id: fnma-sel-c3-5-04-full
  section: Fannie Mae Selling Guide C3-5-04 — Pooling ARMs with a Conversion Option
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide C3-5-04 — Pooling ARMs with a Conversion Option
    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: 'C3-5-04, Pooling ARMs with a Conversion Option (05/01/2019)
      Introduction This topic provides information on pooling ARMs with conversion
      options, including ARM Conversion Options Redelivering a Converted ARM that
      Originally Required Recourse or Credit Enhancement ARM Conversion Options If
      a borrower chooses to convert an adjustable-rate mortgage that includes an option
      to convert to a ﬁxed-rate mortgage, the lender must repurchase the mortgage
      from the MBS pool before interest begins accruing at the new ﬁxed rate. Lenders
      may choose from two options for disposing of the converted mortgage after it
      has been repurchased from the pool: take-out option market rate option If the
      take-out post-conversion option was selected when the convertible ARM was delivered,
      the servicer must redeliver the converted mortgage to Fannie Mae as a whole
      loan or as part of a ﬁxed-rate MBS (A/A remittance type only). The take-out
      option is not available on mortgages that have lender-purchased mortgage insurance
      or were originated under an ARM plan that permits conversion to a ﬁxed interest
      rate only on speciﬁed interest rate adjustment dates. The conversion option
      selected for each convertible ARM delivered to Fannie Mae must be identiﬁed
      by the appropriate special feature code: SFC 037 Convertible ARM — Take-Out
      Option, or SFC 038 Convertible ARM — Market Rate Option. In order to receive
      a par price on a redelivered converted mortgage, the lender must obtain a take-out
      mandatory delivery commitment (Converted ARM Resale Commitment) by the 16th
      day of the month in which the conversion was requested. If the market rate option
      was chosen, the servicer is not required to redeliver the mortgage to Fannie
      Mae, although it may choose to redeliver the mortgage as a whole loan (A/A,
      S/A or S/S remittance types) or as part of a ﬁxed-rate MBS. It may deliver the
      loan under any existing standard ﬁxed-rate whole loan or MBS Published May 6,
      2026 1006 commitment that it has outstanding, as long as Fannie Mae’s original
      acceptance of the mortgage was not conditional on the lender providing some
      type of special recourse or credit enhancement. Redelivering a Converted ARM
      that Originally Required Recourse or Credit Enhancement If Fannie Mae originally
      required recourse or credit enhancement on an ARM that includes an option to
      convert to a ﬁxed-rate mortgage, and the conditions that led to its requirement
      still exist, then lenders will not be able to use a standard commitment to redeliver
      the converted mortgage to Fannie Mae. Instead, lenders must obtain a new negotiated
      contract (which may or may not require recourse or credit enhancement) or include
      the converted mortgage as part of a delivery under an outstanding negotiated
      contract that has acceptable recourse or credit enhancement. If the conditions
      that led to Fannie Mae requiring recourse or credit enhancement no longer exist,
      and Fannie Mae determines that the recourse or credit enhancement is no longer
      necessary, lenders may redeliver the converted mortgage under a standard whole
      loan commitment, or a standard MBS commitment. Recent Related Announcements
      The table below provides references to recently issued Announcements that are
      related to this topic. Announcements Issue Date Announcement SEL-2019-04 May
      01, 2019'
  judgment: false
