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DUS Split / Bifurcated Loan Structures

DUS Split / Bifurcated Loan Structures

This product aid is provided to assist the seller in delivering DUS Split loans or Bifurcated loans in the Multifamily C&DTM system. 

What is a DUS Split loan?

A Split Mortgage Loan consists of two Mortgage Loans, a Senior Mortgage Loan and a Junior Mortgage Loan, that are underwritten concurrently as a single credit, but documented as two separate Mortgage Loans (i.e., separate Loan Agreements, Notes, and Security Instruments). Each Mortgage Loan in a Split Mortgage Loan may have different loan terms (e.g., Maturity Date, required Prepayment Premium), which permits the Borrower to deleverage a portion of the total debt during the term of the Split Mortgage Loan.

What is a Bifurcated Loan?

A Bifurcated Mortgage Loan is a single Mortgage Loan where the aggregate amount of the debt is divided among two separate Notes having the same (i.e., pari passu) payment priority, with both Notes being secured by a single Security Instrument. Each Note in a Bifurcated Mortgage Loan may have different loan terms (e.g., Maturity Date, required Prepayment Premium), which permits the Borrower to payoff a portion of the total debt during the term of the Bifurcated Mortgage Loan. An example of a Bifurcated Mortgage Loan: one Note is subject to an Interest Reduction Program (IRP) and the other is not.

What is an Interest Reduction Payment (IRP) Mortgage Loan?

A Mortgage Loan to a Borrower entitled to an interest reduction payment on a HUD Section 236 Property that is collateral for the Mortgage Loan. (The payments were initially associated with an FHA Section 236 loan. They reduced the effective interest rate on the Section 236 loan, hence the name). IRP payments that have been “de-coupled” from the original Section 236 loan can be used to support one of the two notes in a Bifurcated Loan, separate and apart from the other note that is sized based on project Net Operating Income (NOI).

NOTE: Only level-payment IRP loans are permitted for all executions. In addition, each IRP loan requires a separate note.

Instructions for Submitting a Split or Bifurcated Loan in C&D

  1. Create a deal.

  2. Create two commitments (Cash and/or MBS execution).

    1. Create first commitment (A Piece - generally the larger loan amount)

      1. Select Fannie Mae Pre-Review Mortgage loan option.

      2. If an MBS, select “Yes” for Special Disclosure.

      3. Enter Special Disclosure Comments to indicate Bifurcated structure, IRP or DUS Split Loan and include language re: cross relationship (with related commitment number). Enter contact name and contact E-mail.

      4.  Additional Debt is “Yes”. Complete additional debt section of the commitment. (Note: Use Fannie Mae commitment number of the related loan or note until loan number becomes available).

      5.  Indicate “Not a Supplemental – this is a first lien”. Supplemental lien position is “1st”.

      6. Check the “Bifurcated Structure” or “DUS Split” box in the Other Attributes section of the commitment.

      7. LTV and DSCR values are combined and provided at the time of commitment confirmation. Note: the NOI value is the total for the property, not a portion

      8. Select “Yes” for Cross Default/Cross Collateralize field in the Commitment Details section of the commitment. Use corresponding commitment number of the related transaction (i.e., 4 leading zero then the 6 digit commitment number). In some cases cross default only may be applicable depending upon the deal structure.

    2. Create second commitment for smaller loan (B Piece). Related transactions should be associated in the same deal. Associate second commitment to the first. This saves time when using multiple participants and the same property. Find the deal and add the new commitment to the commitment screen.

      1. Select Fannie Mae Pre-Review Mortgage loan option.

      2. If an MBS, select “Yes” for Special Disclosure.

      3. Enter Special Disclosure Comments to indicate Bifurcated structure, IRP or DUS Split Loan and include language re: cross relationship (with related commitment number). Enter contact name and contact E-mail.

      4. Additional Debt is “Yes”. Complete additional debt section of the commitment. (Note: Use Fannie Mae commitment number of the related transaction until loan number becomes available).

      5. Bifurcated structures will indicate second commitment “Not a Supplemental – this is a first lien”. Supplemental lien position is.

      6. DUS Split structures will indicate second commitment “DUS Split 2d”. Supplemental lien Position 2nd, 3rd, 4th or other.

      7. Check the “Bifurcated Structure” or “DUS Split” box in the Other Attributes section of the commitment. For Bifurcated structures also select “Interest Reduction payment (IRP) Subsidy” box, if applicable.

      8. LTV and DSCR values are combined and provided at the time of commitment confirmation. Note: the NOI value is the total for the property, not a portion, and should be identical for both loans.

  3. Submit both commitments to Fannie Mae for confirmation.

  4. Once the commitments are confirmed, enter/upload the other data within C&D to deliver the loan.

    1. Loan (associate commitment to loan).

    2. Property (associate property to loan)

    3. Participant (associate participant(s) to loan)

    4. Hedge, if applicable (associate to loan)

    5. Financing Options (Cash Funding or MBS Pool). Each loan is associated to an individual pool. DUS Split loans cannot be associated to the same pool. IRP Bifurcated loans and certain other bifurcated loans are subject to this same limitation. If you want bifurcated loans associated in the same pool consult with your Deal Team.

  5. Submit the loan data to Fannie Mae for purchase or securitization.

    1. Submit loan documents to Fannie Mae for certification.

  6. Fannie Mae will certify the loan documents. Reach out to MF Certification & Custody team for additional information ([email protected]).

  7. Fannie Mae will purchase (cash) or securitize (MBS) the submitted loans.

  8. Fannie Mae will fund the loan (cash) or issue the MBS.

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