STG Additional Interest Swap Endorsement Guideline 2

Explanation:

The Interest Rate Exchange Agreement Endorsement provides insurance as to priority and validity of the insured mortgage to the extent it secures an interest rate exchange agreement. Typically, the interest rate exchange agreement will be a three-party agreement involving the mortgagee, the mortgagor and a third party but may simply be a two-party agreement involving the mortgagor and mortgagee. The agreement relates to a floating interest rate loan provided by the mortgagee where the mortgagor wishes to have a fixed interest rate. Generally, the exchange agreement will provide for mandatory advances that will be secured by the lien of the insured mortgage with the same priority as the current advances. There has been some concern as to the validity of the interest rate exchange because the amount of damages may not accurately reflect the anticipated interest cost.

Underwriting Requirements:

(1) Underwriter review of the interest rate exchange agreement to verify reasonableness of anticipated damages and the mandatory nature of the advances so that priority is assured.
(2) Satisfactory reference to the agreement in the mortgage.