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Lender Incentives for Borrowers

Fannie Mae Selling Guide Section

B3-4.1-03

Cash or Cash-like Incentives for all Transaction Types: 

The lender may provide the borrower with a cash or cash-like (e.g., a gift card) incentive that is not reflected on the settlement statement provided that

• the amount of the incentive does not exceed

  $500, and

• no repayment is required.

Because the lender is not typically a party to the sales transaction, these types of lender incentives are not considered IPCs and, as a result, are not included in the IPC limit calculation. Furthermore, these incentives are not considered cash out to the borrower and do not have to be included in the cash back to borrower at closing calculation.

Note: Documentation of compliance with this policy will not be required at the loan level.

However, the lender must establish policies and/or procedures to ensure that the loans with these types of incentives that it delivers to Fannie Mae, whether or not the loans were originated by the lender, are in compliance with this policy.

Lender Incentives:

The lender may provide the borrower, either directly or through a third-party, with an incentive such as cash, a cash- like gift (for example, a gift card), or other item of value that is not a lender credit toward the loan transaction. The incentive may be offered on all transactions as part of a promotion or lender program, provided that

• the incentive is not sourced from the transaction (for example, premium pricing),

• the borrower qualifies without consideration of the incentive (for example, the incentive cannot be considered borrower assets, used to reduce the payment on an outstanding credit card account, or included in maximum cash back to borrower at closing calculation),

• the amount of the incentive does not exceed $2,500, and

• no repayment is required.

When the lender is, or is affiliated with, an interested party to the transaction, the incentive must be treated as a sales concession.

Note: If the lender is providing a credit toward the borrower's closing costs and/or prepaid items, those funds are considered a lender contribution (not a lender incentive). See B3-4.3-06, Grants and Lender Contributions, for information about lender contributions.

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Interested Party Contributions

Freddie Mac Selling Guide Section 5501.6(a)(i)

Interested parties

Interested parties include, but are not limited to:

• Builder

• Developer

• Seller of the property

• Real estate agent

• Any contributing party (e.g., Seller, originating lender, employer, municipality, nonprofit organization or Related Person) affiliated with any of the above individuals or entities

Interested party definition

An interested party is any person or entity that:

• May benefit from the property selling at the highest possible price, and

• Can influence the sales price or other terms of the real estate transaction

  The following are always considered interested parties

• Builder

• Developer

• Seller of the property

• Real estate agent

• Real estate agent's broker and agency

• Any contributing party (e.g., Seller, originating lender, employer, municipality, nonprofit organization or Related Person) affiliated with any of the above individuals or entities.

For purposes of this section, an affiliation exists when the two parties are owned or controlled by a common third party or when one of the parties has ownership or control over the other.

Sales Concessions

Freddie Mac Selling Guide

Sales concessions definition

Sales concessions are interested party contributions, that:

• Exceed the maximum financing concessions percentage limitations in Section 5501.6(b)(ii) above, and/or

Sales concessions definition

Sales concessions are interested party contributions, that:

• Exceed the maximum financing concessions percentage limitations in Section 5501.6(b)(ii) above, and/or

• Do not meet the acceptable uses of financing concession in 5501.6(b)(i) above, and include:

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Section 5501.6(c)(i)

• Do not meet the acceptable uses of financing concession in 5501.6(b)(i) above, and include:

  • Cash or cash-like contributions (e.g., a gift card), decorator allowances, vacations, furniture, automobiles, securities or other giveaways

  • Reimbursement to the Borrower for payment of fees charged to process or negotiate a short sale (commonly referred to as short sale processing fees, short sale negotiation fees, buyer discount fees or short sale buyer fees

• Cash or cash-like contributions (e.g., a gift card), decorator allowances, vacations, furniture, automobiles, securities or other giveaways

• Rebates (e.g., realtor rebates) that are not financing concessions

• Reimbursement to the Borrower for payment of fees charged to process or negotiate a short sale (commonly referred to as short sale processing fees, short sale negotiation fees, buyer discount fees or short sale buyer fees)

Lender Contributions

Freddie Mac Selling Guide Section 5501.7(b)

Lender incentive: definition and requirements A lender incentive is a cash or a cash-like contribution (e.g., a gift card) that is not a lender credit toward the Mortgage transaction as described in Section 5501.7(a). Mortgages with

lender incentives, as described above, are eligible for sale to Freddie Mac if they meet the following requirements, regardless of whether the incentive is provided before, on or after the Note Date:

• No repayment of the incentive may be required

• The cost or value of the incentive may not exceed $500

Lender incentive: definition and requirements

A lender incentive is a cash or a cash-like contribution (e.g., a gift card), or other item of value that is:

• Provided by the originating lender to the Borrower, directly or through a third party, and

• Not a lender credit toward the Borrower's Closing Costs Mortgages with lender incentives, as described above, are eligible for sale to Freddie Mac if they meet the following requirements, regardless of whether the incentive is provided before, on or after the Note Date:

• No repayment of the incentive may be required

• The cost or value of the incentive must not be funded through the Mortgage transaction (e.g., premium pricing)

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• The amount of the incentive must be documented in the Mortgage file

Note: A lender incentive is not considered cash out to the Borrower and does not have to be included in the calculation of the Mortgage proceeds, including the calculation of cash back to the Borrower.

• The incentive must not be considered when qualifying the Borrower (e.g., as a source of funds for closing or reserves)

• The lender incentive must be treated as a sales concession as described in Section 5501.6(c) if the originating lender is, or is affiliated with, an interested party to the transaction

Note: A lender incentive is not considered cash out to the Borrower and does not have to be included in the calculation of the Mortgage proceeds, including the calculation of cash back to the Borrower.