Freddie Mac Single-Family Seller/Servicer Guide Section 5705.5 — Cooperative Share Loan eligibility

Freddie Mac Single-Family Seller/Servicer Guide Section 5705.5 — Cooperative Share Loan eligibility

5705.5: Cooperative Share Loan eligibility (03/05/25) This section contains requirements related to: ■ Occupancy requirement for Cooperative Unit ■ Loan-to-value (LTV) ratios for Cooperative Share Loans ■ Borrower qualification ■ Maximum Pro Rata Share ■ Subordinate financing ■ Cooperative Share Loans subject to stock transfer fee (“flip tax”) ■ Cooperative Share Loan lien priority ■ Cooperative Corporation’s approval ■ Cooperative Project that is not a Cooperative Housing Corporation All Cooperative Share Loans must comply with the following eligibility requirements: (a) Occupancy requirement for Cooperative Unit Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-22 The Shareholder must occupy the Cooperative Unit as a Primary Residence or second home. The Shareholder must have a right to occupy the Cooperative Unit pursuant to a Proprietary Lease for a period of time that extends at least to the maturity date of the Cooperative Share Loan. (b) Loan-to-value (LTV) ratios for Cooperative Share Loans The LTV ratio is determined by dividing the original UPB of the Cooperative Share Loan by the lower of: ■ The sale price; or ■ The appraised value of the Cooperative Interest Note: The Cooperative Unit’s Pro Rata Share of the Cooperative Corporation’s debt is not included in the calculation of the LTV ratio. (c) Borrower qualification If the Cooperative Unit Maintenance Fees include unit utility charge, the Maintenance Fees may be reduced by the documented amount of unit utility charges that are included, prior to calculating: ■ Housing expense-to-income ratio; and ■ Debt-to-income ratio (d) Maximum Pro Rata Share The Pro Rata Share related to the Cooperative Unit must not exceed 35% of the sum of the Cooperative Unit’s Pro Rata Share plus the lower of the (i) sales price or (ii) appraised value of the Cooperative Interest. However, the Pro Rata Share may be increased to 40% when there are significant and documented compensating factors to support the use of the higher percentage, such as a Cooperative Project in strong financial condition with significant cash reserves and good cash flow. If the Cooperative Corporation has obtained a line of credit, the Seller must include the full available amount of the line of credit as part of the Cooperative Corporation’s debt (i.e., Blanket Mortgage and, if applicable, second mortgage) when calculating the maximum Pro Rata Share. The following table provides an example of how to calculate the Pro Rata Share: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-23 Calculating Pro Rata Share Variable Example value Blanket Mortgage balance $4,000,000 Subordinate financing balance $1,000,000 Cooperative Shares issued and outstanding 10,000 Subject unit’s Cooperative Shares 40 Sales price/appraised value of the Cooperative Interest (not including the Pro Rata Share of the Cooperative Corporation’s debt) $100,000 Pro Rata Cooperative Share of the Cooperative Corporation’s debt $20,000 Example: 1. Cooperative Corporation’s total debt = [Blanket Mortgage balance] plus [Subordinate financing balance] [4,000,000] plus [1,000,000] = $5,000,000 2. Pro rata debt by share = [Cooperative Corporation’s total debt] divided by [Cooperative Shares issued and outstanding] [5,000,000] divided by [10,000] = $500 3. Pro Rata Cooperative Share of the Cooperative Corporation’s debt = [Pro rata debt by share] times [Subject unit’s Cooperative Shares] [500] times [40] = $20,000 4. Pro rata % of value/price = [pro rata $ amount] divided by [pro rata $ amount + appraised value] [$20,000] divided by [$20,000 + $100,000] = 16.66% (e) Subordinate financing Subordinate financing is permitted for Cooperative Units that are Primary Residences. (f) Cooperative Share Loans subject to stock transfer fee (“flip tax”) Cooperative Share Loans that are subject to the payment of a flip tax are permitted so long as the Cooperative Project Documents permit the imposition of a flip tax and provide for one of the following: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-24 ■ The Seller is exempt from paying the flip tax if the Seller acquires the Cooperative Unit as a result of a foreclosure, in a transfer by the Shareholder in lieu of foreclosure, or any other transfer of the Shareholder’s interest in the Cooperative Unit in full or partial satisfaction of the Shareholder’s obligations under the Cooperative Share Loan ■ The flip tax is payable when the sales price exceeds the existing Shareholder’s purchase price (i.e., based on property appreciation) and then is assessed only on the amount of the appreciation in value (flip tax is profit-based); or ■ The amount of the flip tax is less than or equal to 5% of the value of the Cooperative Interest (calculated as the lesser of appraised value or sales price of the Cooperative Interest) and is a flat fee, fee per share, percentage of the appraised value or sales price of the Cooperative Interest, or dollar amount per room (g) Cooperative Share Loan lien priority A Cooperative Share Loan must be a lien that has priority over all other claims or liens against the Shareholder’s Cooperative Shares in the Cooperative Project. Exceptions: ■ The lien may be subordinated to the Cooperative Corporation’s lien against the Cooperative Shares for unpaid assessments that represent the Pro Rata Share of the Cooperative Corporation’s payments for the Blanket Mortgage and/or the current year’s real estate taxes ■ For Cooperative Projects located in New York, a Cooperative Share Loan may additionally be subordinated to unpaid Maintenance Fees and assessments accrued after the origination date of the Cooperative Share Loan and collection expenses The Seller must also ensure that all the following requirements are met: 1. The Shareholder has the right to encumber his or her Cooperative Interest in the Cooperative Corporation 2. The Shareholder’s right to occupy the Cooperative Unit pursuant to the Proprietary Lease extends through the Maturity Date of the Cooperative Share Loan either by its term or through renewals 3. The Cooperative Share Loan is secured by a pledge or trust of the Cooperative Shares, the assignment of interest in the Proprietary Lease and any other documents appropriate under individual State or local laws, ordinances and practices 4. The Cooperative Share Loan is a valid, enforceable first lien on the Shareholder’s Cooperative Interest in the Cooperative Corporation Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-25 5. All UCC-1 and renewal statements as applicable are current and valid. In States where Cooperative Units are considered real property, perfection of the lien must comply with applicable State or local laws. 6. The Seller has obtained the following: ■ An assignment of the Proprietary Lease for each Cooperative Share Loan sold to Freddie Mac ■ The stock power or other equivalent document authorizing the Seller/Servicer to transfer Cooperative Shares in the event of a default; and ■ Valid financing statements and assignments of financing statements (executed and filed if necessary) to perfect Freddie Mac’s security interest under the Uniform Commercial Code of the State in which the Cooperative Unit is located (h) Cooperative Corporation’s approval The Seller represents and warrants that if the purchaser’s right to a Cooperative Share or occupancy of a Cooperative Unit is subject to any right of the Cooperative Corporation to give approval, then the Seller is required to furnish evidence to clearly show that such approval has been given before the Cooperative Share Loan is eligible for Freddie Mac purchase or securitization (i) Cooperative Project that is not a Cooperative Housing Corporation For a Cooperative Share Loan to be eligible for Freddie Mac purchase or securitization, the Cooperative Project must meet Internal Revenue Service (IRS) requirements (Section 216) for a Cooperative Housing Corporation in effect as of the Delivery Date. Shareholders in a Cooperative Housing Corporation can claim their Pro Rata Share of Mortgage interest and real-property taxes as income tax deductions. 5705.6: Legal requirements for New Cooperative Projects (03/05/25) This section contains requirements related to: ■ Compliance with law ■ Right of first refusal ■ Amendments to Cooperative Documents Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-26 ■ Rights of Cooperative Shareholders and Sellers ■ Cooperative membership requirements ■ Cooperative Corporation’s lien position ■ Assignment of Shareholder’s Cooperative Interest ■ Cooperative Corporation responsibilities and lender rights Except for Freddie Mac-owned “no cash-out” refinance Cooperative Share Loans delivered in accordance with the requirements in Section 5705.7 for Exempt from Review, when a Seller delivers a Cooperative Share Loan secured by a Cooperative Interest in a New Cooperative Project to Freddie Mac, the Seller represents and warrants all of the following: (a) Compliance with law The Cooperative Corporation is a validly formed Entity authorized to carry out its independent purposes and is compliant with all applicable State and local laws and ordinances. (b) Right of first refusal If the Cooperative Corporation has retained the right to provide a substitute purchaser, the right to have the first option to purchase a Cooperative Unit, or the right to approve a purchaser, those rights will not: ■ Be exercised in a way that could be interpreted as discrimination; or ■ Impair the marketability of the Cooperative Units in the Cooperative Project (c) Amendments to Cooperative Project Documents The Shareholders have the right to amend the Cooperative Project Documents. (d) Rights of Cooperative Shareholders and Sellers The Cooperative Corporation is legally bound to notify the Seller of any material adverse changes including, but not limited to, the following: 1. Threatened or actual condemnation, eminent domain proceeding or acquisition or any actual loss, whether covered by insurance, that affects any portion of the Cooperative Project or Cooperative Unit 2. The inability of Shareholders to deduct their Pro Rata Share of Mortgage interest from their taxable income per the Internal Revenue Code (i.e., the Cooperative Corporation no Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-27 longer qualifies as a Cooperative Housing Corporation pursuant to Section 216 of the Internal Revenue Code) 3. Any 30-day Delinquency by the Cooperative Corporation in payments due under any underlying Blanket Mortgage, whether the payments are for real estate taxes, assessments or charges imposed by a government entity or public utility or made under the terms of any ground lease 4. Any lapse, cancelation or material modification of any insurance or fidelity insurance coverage maintained by the Cooperative Project 5. Any 90-day Delinquency by the Shareholder that is related to the payment of his or her Maintenance Fees or other assessments; and 6. Any proposed action that requires the consent of a specified percentage of eligible lenders of Cooperative Share Loans (e) Cooperative membership requirements The Cooperative Project Documents must meet all the following requirements: 1. Require that the sale or transfer of Cooperative Shares, stock or membership certificates in the Cooperative Corporation comply with federal and State security disclosure laws 2. Require the Shareholders to own Shares, stock or a membership certificate and permit the Cooperative Shares, stock or membership certificates to be pledged and registered in the Cooperative Corporation 3. Give the Shareholder a right to occupy the Cooperative Unit for a period that extends at least to the maturity date of the Cooperative Share Loan in accordance with the terms and conditions of the Proprietary Lease 4. Prohibit the Cooperative Corporation from imposing unreasonable limitations on the Shareholder’s ability to sell, transfer or convey his or her Cooperative Share (f) Cooperative Corporation’s lien position The Cooperative Corporation has a good and marketable title to the Cooperative Project land, Cooperative Units and Common Elements, and the Cooperative Project is free and clear of liens and encumbrances except the underlying Blanket Mortgage. (g) Assignment of Shareholder’s Cooperative Interest The Cooperative Project Documents and the Recognition Agreement must not permit the Cooperative Corporation to restrict the sale, conveyance or transfer of a Cooperative Unit owned by a lender, its successors or assigns or place any limits on the assignment of the Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-28 Proprietary Lease to the lender, its successors or assigns. The Cooperative Project Documents and the Recognition Agreement must also permit the lender, its successors or assigns to: ■ Transfer the Cooperative Shares and Proprietary Lease if the Shareholder defaults on the Cooperative Share Loan; and ■ Select a non-corporate designee for any transfer of the Cooperative Shares and Proprietary Lease in the event of a foreclosure if the Cooperative Project Documents require that a Shareholder be a natural person (h) Cooperative Corporation responsibilities and lender rights The Cooperative Project Documents or Recognition Agreement must include provisions to recognize specific rights of the lender that finances a Cooperative Share Loan and the Cooperative Corporation’s responsibilities to that lender, its successors or assigns. The Cooperative Project Documents must provide for at least the following corporation responsibilities and lender rights: (i) Corporation responsibilities The Cooperative Project Documents, Recognition Agreement or other legal documents include, but are not limited to, the following responsibilities of the Cooperative Corporation: (i) In the event of Shareholder’s default on the Cooperative Share Loan and at the request of the lender of the Cooperative Share Loan, the Cooperative Corporation must: ■ Evict the Shareholder; and ■ Terminate the Shareholder’s Proprietary Lease at the lender’s expense (ii) In the event of the Shareholder’s default on the Cooperative Share Loan, the Cooperative Corporation must also issue Cooperative Share(s) and the Proprietary Lease in the name of the lender or its designee (ii) Lender rights The Cooperative Project Documents or Recognition Agreement must grant the lender of a Cooperative Share Loan the right to: (i) Cure the Shareholder’s default in payment of Maintenance Fees or other assessments (ii) Review and approve the following actions: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-29 ■ Any surrender, cancelation, modification, assignment or pledge of any documents evidencing ownership, possession and use of the Shareholder’s Cooperative Unit ■ Any further or additional pledge or Mortgage of any documents evidencing ownership, possession and use of the Cooperative Unit ■ Any action to change the size, existence or form of ownership of the Cooperative Project

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