FNMA DUS Financing

What is FNMA DUS Financing?

FNMA DUS Financing refers to the Federal National Mortgage Association’s (Fannie Mae) Delegated Underwriting and Servicing program. Established in 1988, it is the premier platform for multifamily commercial mortgage lending in the United States. The program is designed to provide sustainable liquidity, stability, and affordability to the mortgage market by leveraging a unique risk-sharing model between Fannie Mae and its approved lenders.

The "Delegated" aspect of the program is its most defining feature. It grants approved DUS lenders the authority to underwrite, close, and service loans without prior review or approval from Fannie Mae. In exchange for this autonomy, lenders agree to share in the risk of loss over the life of the loan, ensuring that the lender's interests are strictly aligned with the performance of the asset.

The DUS Risk-Sharing Model

Unlike traditional lending models where a lender might sell a loan and offload all subsequent responsibility, DUS lenders maintain "skin in the game." Typically, the lender assumes a portion of the first-loss position if a borrower defaults. This structure provides several benefits to the commercial mortgage market:

• Speed and Efficiency: Because the lender has the authority to make credit decisions, the approval process is significantly faster than traditional agency executions.
• Certainty of Execution: Borrowers benefit from reliable closing timelines and predictable terms because the lender manages the process from start to finish.
• Consistent Liquidity: Even during economic downturns, the DUS program remains a stable source of capital for multifamily owners.

Key Features of DUS Commercial Mortgages

FNMA DUS loans are primarily used for the acquisition or refinancing of multifamily properties. The program is known for offering some of the most competitive terms in the industry, including:

• Non-Recourse Debt: Most DUS loans are non-recourse, meaning the borrower is not personally liable for the debt, subject to standard "bad boy" carve-outs.
• Competitive Interest Rates: Loans are typically priced over the 10-year Treasury yield, offering aggressive fixed or floating rates.
• Flexible Loan Terms: Terms generally range from 5 to 30 years, with amortization schedules up to 30 years.
• High Leverage: Maximum Loan-to-Value (LTV) ratios can reach up to 80% for certain asset classes.
• Assumability: DUS loans are generally assumable, which can be a significant selling point if interest rates rise in the future.

Eligible Property Types

While the DUS program is synonymous with multifamily housing, it covers a broad spectrum of property sub-types, including:

• Standard Multifamily: Conventional apartment buildings with 5 or more units.
• Student Housing: Properties specifically designed or repurposed for student populations.
• Seniors Housing: Independent living, assisted living, and memory care facilities.
• Affordable Housing: Properties benefiting from Low-Income Housing Tax Credits (LIHTC) or Section 8 contracts.
• Manufactured Housing Communities: Quality land-lease communities.
• Cooperatives: Financing for blanket mortgages on housing cooperatives.

Standard Requirements

To qualify for FNMA DUS financing, properties must typically demonstrate a minimum Debt Service Coverage Ratio (DSCR) of 1.25x. Borrowers are expected to be experienced operators with a strong credit history and sufficient liquidity. Because these loans are securitized and sold to investors as Mortgage-Backed Securities (MBS), the underwriting process is rigorous, focusing on the historical physical and financial occupancy of the asset.