(FHA) provides mortgage insurance on loans made by approved lenders for multi-family developments.
We believe a lot of money is being left on the table. Developers, and Lenders should be seeking multiple sources of financing for projects and deals in today’s economy.
Low Income Housing Tax Credits (LIHTC) projects with mortgages insured under Title II and which have other sources of federal subsidy. Historic and New Market tax credit equity projects apply under the MAP guide
Build America Bonds (BAB’s) can be used as an alternative to financing government sponsored projects using tax exempt bonds. These are taxable bonds which the treasury will rebate 35% of the interest paid, thus making the taxable rate effectively a tax exempt rate.
Tax Credit Assistance Program (TCAP) funds were made available to affordable projects by stated housing agencies as a soft secondary loan to fill the gaps in the financing due to the reduced equity value of selling the tax credits. If interested in these please consult an approved MAP lender.
HUD launched the LIHTC Pilot Program to streamline FHA mortgage insurance applications for projects with equity from LIHTC. The pilot creates a distinct application platform and a separate processing track under the Section 223(f) refinance program. HUD’s Low Income Housing Tax Credit Pilot Program is in the following Hub's Atlanta, Denver, Fort Worth, San Francisco, Seattle, Boston, Chicago, Detroit and Los Angeles. The geographic reach of the Pilot Program will now include the entire country, so that projects from all states will be eligible.
The HQ office of Multifamily Development has established a lead LIHTC coordinator in each HUB or Program center to coordinate and conduct the following: Subsidy layering reviews Enhances staff knowledge of LIHTC Expedite the processing of applications with LIHTC Act as local contact regarding program issues Increase processing consistency among Hub's Communicate with HQ regarding local issues or proposed changes to state policies and procedure involving LIHTC Designated Underwriters, and Asset Management point of contact in each Hub. Tax Credit applications must show evidence of 4% or 9% LIHTC awards. TCAP and Exchange funds are not sufficient to meet this threshold.
Required Concept Meeting- Prior to a submission the Lender must participate in a concept meeting with the Designated Underwriter and other HUB staff to discuss the transaction. On a LIHTC project an affiliate of a MAP lender can be the tax credit equity syndicator or investor and can own up to a 25% interest in 99% investor limited partnership with certain conditions. (Consult with an Approved Map Lender)
Standing 3 Year Waiver- the purpose of the standing is to permit developers to substitute a FHA permanent loan for an existing high rate forward commitment. Given the benefits of the 223 (f) programs lower rates, 35 year amortization this should assist projects in obtaining a better permanent debt alternative. Rehabilitation cost for Section 223(f) under this program are not to exceed $40,000 per unit in hard cost, this is higher than what had previously been permitted.
Non-recourse – the HUD mortgage note will contain a non-recourse provision as to the mortgagor entity, provided that certain parties may be held personally liable to the extent of losses arising from certain acts and malfeasances. This is based on the parties involved and the control of the borrower and their capitalization and assets. These will need to be identified in the firm commitment and will sign all required regulatory agreements. Bridge or Gap financing may be used if they are secured by the property (which are different from those from a tax credit equity bridge loan) only in instances of insurance at upon completion and before the start of the FHA insured permanent financing. Bridge loan must be paid before the permanent closing and is not intended to increase the FHA insured mortgage.
Projects need not use LIHTC to qualify for affordable underwriting as long as they have and are incompliance with a recorded Regulatory Agreement imposing the minimum low income occupancy and restricted rents 20% of units at 50% of AMI or 40% of units at 60% of AMI, with a term of at least 15 years after final endorsement. Projects that were built and plotted as condominiums, but are operating as rental units can be considered under the 223(f) program with some requirements. These projects will be treated as either new construction or substantially rehabilitation proposals.
Davis Bacon prevailing wage requirements do not apply to Sec 207/223(f) projects Elderly developments specifically designed for the elderly, age 62 and over are eligible under 223(f) programs so long as they do not have any provisions of the 232 Hospitals program. Application timeline for submittals of affordable projects Hold a concept meeting prior to submission to vet the proposed application with staffing For acquisition or refinance under section 223(f) there is no pre- application stage and application can go straight to firm eliminating at least 45 days of an application review.
Affordable application reviews are a maximum 60-90 days from completion review check to firm commitment Schematic drawings can be submitted in lieu of complete and final plans and specifications however, a condition in the firm will require receipt of final drawings and specifications for review and approval to ensure consistency of design and cost. Initial closing is to occur within 90-120 days after issuance of a firm commitment
Previous Participation Certification (2530) review and approvals Review lenders preliminary analysis and recommendations regarding the development teams’ financial and general ability and creditworthiness Cash Out- 50% of Cash out is held in escrow until non- critical repairs are completed Mezzanine Debt/ Secondary Financing is allowed Projects with LIHTC’s are exempt from Cost Certification requirements Master Lease structuring to facilitate the use of tax credits
Three types of eligible transactions: Acquisition or refinancing with moderate rehabilitation. Permanent financing of Stabilized but newly built or substantially rehabilitated projects Permanent financing with Moderate rehabilitation of stabilized tax credit projects being re-syndicated with new tax credits
Underwriting standards and loan terms ◦ 35 years or 75% remaining useful economic life ◦ Interest rate established by lender ◦ Maximum mortgage amount – the lowest of the amounts established under the following criteria Criteria 1 amount requested Criteria 3 Loan to Value, not to exceed 87% for project based Section 8 Criteria 4 Limits per family unit, adjusted with High cost percentage Criteria 5 Debt Service Coverage Ratio of 1:1.15 for project based section 8 and 1:1.18 for projects meeting the definition of affordable housing ((see footnote) Criteria 7 total cost of Acquisition not to exceed 87% for project based section 8 and 85% for others meeting the definition of affordable. Criteria 10 Greater of 80% of LTV or the Cost to refinance
Stacia Johnson Director Oklahoma City Multifamily Program Center 405.609.8510 Stacia.L.Johnson@hud.gov
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