Glossary

DUS Loss Sharing

The contractual arrangement under Fannie Mae's DUS program requiring the originating lender to absorb a defined first-loss share (commonly around one-third of losses, subject to caps) on defaulted loans it sold into the program, with Fannie Mae bearing the remaining loss.

Loss sharing is the mechanism that aligns DUS lender incentives with Fannie Mae's credit exposure, since a lender that underwrites poorly bears real economic consequences rather than simply passing risk fully to the agency upon sale. The specific loss-sharing tier and lender exposure percentage vary by product type and can be negotiated within Fannie Mae's published tiers, with some execution options trading off lender risk retention against pricing and fee economics. Because DUS lenders carry real skin in the game across their servicing portfolio, they typically hold loss-sharing reserves and actively self-manage asset quality and early workout intervention on underperforming loans well before a loan would otherwise reach default, differentiating the DUS credit experience from many conduit CMBS loans where the originator has no ongoing loss exposure after sale.