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What Is a Buyup or Buydown?

A loan-level guaranty fee buyup/buydown (BU/BD) allows you to pool a wider range of note rates under one MBS coupon. You may “buy up” a guaranty fee, thus agreeing to remit a guaranty fee higher than the contractual fee applicable for the particular servicing option and remittance cycle, in return for a one-time payment from Fannie Mae. You may conversely “buy down,” or agree to remit a lower guaranty fee than the applicable contractual fee in exchange for a one-time, upfront payment to Fannie Mae. This guaranty fee is expressed in basis points (i.e., a unit that is equal to 1/100th of 1%).

Example: If you deliver a loan with an Issue Unpaid Principal Balance (UPB) of $120,000 with an MBS contract guaranty fee of 20 basis points, you will issue $20 to Fannie Mae the first month as the guaranty fee for this loan. This fee is calculated monthly on the declining balance.  

You could buy down the 20-basis points guaranty fee by paying an upfront buydown fee that would reduce your monthly guaranty fee remittance. Conversely, you also have the option of increasing the guaranty fee that you pay Fannie Mae each month by buying up the guaranty fee and receiving cash from Fannie Mae in return.

Description of the Guaranty Fee after Buyup/Buydown Options

Loan Delivery offers the following two methods of selecting the amount of the buyup or buydown to accommodate unique lender business needs:

Automatic Fit:  For this option, the Loan Delivery application automatically calculates the guaranty fee buyups or buydowns for each note rate, based on the Pass-Through Rate and Servicing Fee.

Customized Fit: Select this option if you want to vary the amount of servicing retained on different note rates in the pool by customizing the buyups/buydowns for each note rate.  

See chart below for specific parameters for each option:

Guaranty Fee After Buyup/Buydown
Buyup/Buydown Method When to Select What is Required  

Automatic Fit to Servicing Fee
  • Loan Delivery will calculate the guaranty fee rate BU/BD necessary to fit the servicing fee rate requested
  • Retain the same servicing fee rate for all loans in a pool

Note: Only applicable for pools with a fixed-rate amortization

  • Pool-specific information:

    • Pass-Through Rate

    • Desired servicing fee rate (must be at least the required minimum)

  • Loan-specific information:

    • Contract Number

    • Guaranty fee after APM

  • Select the "Automatic Fit" option

Customized Fit to Servicing Fee
  • Select this option to vary the amount of servicing by designating the guaranty fee after BU/BD using the contract, guaranty fee, or note rate information
  • Applicable for any type of amortization (including fixed-rate)

  • Loan-specific information:

    • Contract Number

    • Guaranty fee after APM

    • Note Rate

  • Guaranty fee rate after BU/BD for each unique contract number, guaranty fee, or note rate selected

 

Scenarios for Using the BU/BD Features in Loan Delivery

The Loan Delivery application provides lenders with flexibility in managing guaranty fee assignments after BU/BD. Several scenarios are provided in this section to illustrate the options available and how to fully maximize these features. Each scenario provides step-by-step instructions on how to calculate the BU/BD for that particular circumstance.