__Pricing__:

Freddie ARM spreads are about 20 bps wider than Fannie SARM pricing.

__Sizing:__

Both Agencies size to ARM loans no greater than a comparable fixed rate would size. Freddie sizing currently is able to generate more dollars based on the Agencies differing Sizing methodologies see below.

__Max LTV:__

Freddie is 80% and Fannie SARM is 75%.

__Hedging__:

Freddie only requires a 3 year initial cap vs Fannie SARM requires a 5 year initial cap. Freddie’s strike rates are lower (in the 2.0%-2.75% range) and cheaper since only 3 years. Fannie’s strike rates are higher – in the 2.5%-4% range and more expensive since term is 5 years. The lower end will be for high quality, low leverage, and strong sponsor deals. There are pros and cons of a lower cap for shorter duration vs higher cap for longer duration.

__Prepay__:

Freddie: has 4 options including 1 year Lockout then 1%, and 3 declining prepayment options see details below. Fannie SARM: One year lockout then 1% or declining prepayment premium.

__Premiums__:

Freddie does not allow build-up of premium in spread. Fannie does allow.

__Freddie Mac ARM:__

- Currently the Freddie Mac 10 year is most popular allowing for the most partial I/O and easier to pass Refi test than the 7 year term. If lower leverage and not maxing I/O, it might make sense to do a 7 year for 5 bps savings or so in spread.
- Pricing: ARM pricing for 80%/1.25x loan is say 280bps over SOFR.
- Sizing: Size to a fixed rate equivalent so ARM loan is not greater than fixed rate. 10 year Fixed spread for 80%/1.25x is about 250 bps over 10 yr UST of say 65bps so say 3.15% sizing note rate at 1.25x min dscr.
- Hedging:
- Max Note Rate: Varies. Derived by the note rate which provides a 1.0x amortizing dcr. Say in this case it works out to 4.75%
- Index Strike Rate: 2.0% (4.75% max note rate – margin of 280bps = 1.90% rounded to 2.0% Currently a cap for 3 years at 2.0% strike is about 15bps * UPB.

- Freddie Mac offers the following 4 prepayment provisions: Option 1: 1 year Lockout, then 1% thereafter; Option 2 is 3%, 2, then 1% thereafter; Option 3 is 5%, 4%, 3%, 2%, then 1% thereafter; Option 4 for 10 year term only is 7%, 6%, 5, 4%, 3%, 2%, then 1% thereafter.
**Conversion to a Fixed Rate:**- Based on the prepayment provision chosen above, starting in year 2, 4, 6 or 8, Freddie Mac will waive the 1 % prepayment premium if the Borrower voluntarily prepays the floating rate Mortgage with the proceeds of a Freddie Mac fixed-rate Mortgage.
- Fixed Rate loan is like any other new loan with no streamlining when conversion from the ARM.

__Fannie Mae SARM:__

- Pricing: 250bps over Index
- Sizing: Minimum DSCR of 1.00x calculated based on a Variable Underwriting Rate which is the sum of (i) the Index, plus (ii) the investor spread, guaranty fee and servicing fee (the “Margin”), plus (iii) the interest rate cap escrow expressed as a percentage (if the cap term is shorter than the loan term), plus (iv) 3%, plus (v) the amortizing constant for that built-up rate. Mortgage loan amount shall not exceed that of a fixed-rate loan of similar terms
- Hedging: Fannie requires an initial 5 year cap. Strike rate on the index ranges from is 2.5 – 4%. The lower end will be for high quality, low leverage, and strong sponsor deals. Recent example is 3.15% strike for a priority borrower on a 75% LTV acquisition.
- Max 75% ltv
- Minimum loan size: $25mm – might allow lower depending on sponsor

**Conversion to Fixed Rate: **May be converted to a fixed rate Loan (with a 7 or 10 year term).

- No Prepayment Premium charged at the time of conversion.
- Minimal re-underwriting; Lender determines that the current Net Cash Flow can support the new fixed-rate terms.
- No increase in the loan amount; loan may be eligible for a Supplemental Loan.

__Fannie 7/6 ARM:__

- Pricing: Approximately 330 bps over Index.
- Sizing: 1.00x at the maximum lifetime interest rate (6% + Credit Spread or 7.95%). Mortgage loan amount shall not exceed that of a fixed-rate loan with similar terms.
- Hedging:
- Lifetime 7 year cap cost built into spread.
- Max Lifetime Interest Rate Limit: 6% + Credit Spread or 7.95%
- Index Strike rate: 6% strike.

- Max 80% ltv
- Prepay: Lockout for one year then 1%.
- Premium: 7-6 ARMs eligible for a max 100 bps trade premium for a max of 75 bps (25 bps for the first half point and 50 bps for the next half which is 2:1 up to half point then 1:1 for the next half).

**Conversion to Fixed Rate: **Same as SARM Conversion parameters see above.