FHA 232/223(F) AGENCY CALL
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HEALTHCARE AND APARTMENT FINANCING
FHA 232 LEAN - FHA 223(f) - FHA 221(D)(4) - FHA 242 HOSPITAL - FANNIE MAE FREDDIE MAC MULTIFAMILY - HEALTHCARE - AFFORDABLE - LOW INCOME AFFORDABLE MULTIFAMILY RENTAL HOUSIING
Showing posts with label FHA 232 Lean. Show all posts
Showing posts with label FHA 232 Lean. Show all posts
Thursday, September 8, 2011
Thursday, March 24, 2011
FHA 232 LEAN Letter
LOW INCOME HOUSING TAX CREDITS AND SECTION 232 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION PROJECTS:
Provided the Firm Applications are submitted in a timely manner, HUD reserves the right to adjust its Other Queue to give preference to processing new construction and substantial rehabilitation Section 232’s that include Low Income Housing Tax Credits (LIHTC) to meet placed in service deadlines on specific projects. We encourage lenders to submit the Firm Applications on these projects in such a manner that will allow as much time as possible for HUD to act on the applications – including reviewing whether our 2 Stage Firm Application process will provide for such.
CHANGES TO OUR PROCEDURE FOR HANDLING SEASONING OF DEBT:
The April 10, 2009 Email Blast discussed our definition of Eligible Debt and the two and five year seasoning rules. Although this language was silent on the date that the seasoning is based upon, we have consistently required that the two or five year period must have passed prior to the application being submitted (entering our queue). Because of the length of time that projects are spending in our queues, we are changing how we will handle this. Effective immediately, the two and five year time period will be based upon when a project is assigned to an OHP Underwriter (exits our queue). Lenders may choose to submit a project prior to the seasoning period expiring, however, if the project reaches the top of the queue prior to the debt being properly seasoned, the project will be placed on hold. Lenders submitting projects in such a manner must regularly monitor the project’s progression through the queue and contact a Workload Manager at HUD (prior to the project being assigned to an OHP Underwriter) if it becomes evident that the project will be assigned prior to the seasoning period expiring.
REFUNDS OF HUD APPLICATION FEE:
We understand that HUD is no longer issuing refund checks - all refunds are being handled by Direct Deposit. To accommodate this procedure, when requesting refunds in the future, please use the attached document as a template for your letter requesting the refund. This document will be posted to HUD.GOV in the future.
MANAGEMENT AGENT AND OPERATOR GRID:
Please see the attached grid. This document addresses HUD’s closing document requirements for operators and management agents to ensure that HUD has a valid security and regulatory interest in the project assets of the healthcare facility. Particularly of note, this grid addresses the document signing requirements of the operator and/or management agent for the operating lease, license, equipment, provider agreements, deposit accounts and facility repairs. This document will be posted to “Sample Closing Documents” on HUD.GOV in the future.
STALE DATE ON PHASE I ENVIRONMENTAL REPORTS:
We have been asked numerous times in the past few months to waive the stale date on Phase I Environmental Reports – listed in the endnotes on our Checklists. We have turned down all such requests as we are unable to waive this requirement.
CLOSING QUEUE:
We will soon be posting our closing queues to HUD.GOV. Until these are posted, please see the attached two spreadsheets, which list the projects in our closing queues. Projects will be assigned from the top to bottom of the spreadsheets. Currently we have three closing coordinators working on the non 223(a)(7) queue (one of these individuals concentrates on Insured Advances projects).
CLARIFICATION ON MINIMUM LEASE PAYMENTS:
During the closing of Section 232 loans, OHP and OGC have encountered confusion on the minimum lease payment required for closing documents and operating leases. For the actual leases, we are requiring that the annual lease payment be calculated using a minium of a 1.05 coverage ratio - annual principal + annual interest + annual mortgage insurance premium + annual reserve for replacement deposit + annual property and liability insurance + annual property taxes times a multiplier of 1.05. This minimum coverage level required for executed leases is different than the test measurement used in the 223 F Lender’s Narrative, which remains unchanged - it will continue at the 1.17 coverage level.
REVISED CONSTRUCTION SPECIFICATION TEMPLATE:
OHP will be following the revised construction specification template discussed in HUD Mortgagee Letter 2010-41 – see attached. All Firm Applications submitted to HUD on or after April 25, 2011, must use the new CSI MasterFormat 2010. Future revisions to our checklists and other documents posted to HUD.GOV will reflect this revised document.
CHANGES TO OUR STANDARD DOCUMENTS:
Please do not change Lean Approved exhibits posted on HUD.GOV. This includes, but is not limited to, submitting exhibits in MS Excel or QuattroPro when they are to be in original Word format, adding or subtracting fields of information in current documents, and changing language in Firm Commitments. When these changes are made it takes Underwriters and Closing Coordinators extra time to identify and mitigate these unapproved changes and is contrary to the standardization required under Lean. We will be following the February 19, 2010 Email Blast and requesting a revision to the Firm Application when this situation is present.
In addition, if a section of the Lender Narrative or an exhibit is not applicable to your project, please note that it is “not applicable” and explain why you believe this is not applicable. No sections are to be left blank or deleted from the Template. Your cooperation with this request will help us process your application more quickly.
MARKET INTEREST RATE ABOVE RATE USED IN SECTION 223(A)(7) APPLICATIONS:
Given the recent rise in interest rates, interest rates proposed in applications under Lean Section 223(a)(7) may not longer be achievable. Please advise your assigned OHP Underwriter if this is the case so you can work to ensure your application is consistently updated throughout to reflect a more accurate interest rate at the time of Firm Commitment issuance. For applications still in the queue that are no longer feasible due to interest rate hikes, lenders can opt to withdraw their application and have the application fee returned.
Need to Reference Previous LEAN 232 Updates?
Previous E-Newsletters (Email Updates) can be found at:
Friday, March 26, 2010
Wednesday, February 24, 2010
Wednesday, April 29, 2009
FHA 232 Lean Process and Rates
All new application for FHA 232 insurance now must filed as FHA 232 LEAN loans.
Rates on FHA 232 Refinances are in the high 5% range.
New Construction FHA 232 Rates - Call Scott at (847) 903-7578
Assisted Living Underwriting now 1.45 to 1 Debt Service Coverage
Rates on FHA 232 Refinances are in the high 5% range.
New Construction FHA 232 Rates - Call Scott at (847) 903-7578
Assisted Living Underwriting now 1.45 to 1 Debt Service Coverage
Friday, March 13, 2009
FHA LEAN
LEAN 232 Pipeline as of March 6th, 2009
FHA # Requests – Purchase/Refinance – 208
FHA # Requests – New Construction – 41
Applications In – Purchase/Refinance –40 (with 18 more scheduled to come in shortly)
Applications In – New Construction – 7
Firm Commitments Issued – 18
Applications CLOSED –Purchase/Refinance – 9
Applications CLOSED – New Construction – 1 CW Capital - (4 pre-apps completed)
FHA # Requests – Purchase/Refinance – 208
FHA # Requests – New Construction – 41
Applications In – Purchase/Refinance –40 (with 18 more scheduled to come in shortly)
Applications In – New Construction – 7
Firm Commitments Issued – 18
Applications CLOSED –Purchase/Refinance – 9
Applications CLOSED – New Construction – 1 CW Capital - (4 pre-apps completed)
Saturday, February 14, 2009
February 6, 2009
MORTGAGEE LETTER 2009-06
TO: All FHA-Approved Multifamily Mortgagees
SUBJECT: Temporary Authority for Multifamily Hubs to Process Waiver Requests Pertaining to the Three-Year Rule for Section 223(f)
Purpose
This mortgagee letter sets forth the Department’s policy to grant temporary authority to Multifamily Hub Directors to grant waivers of the Three Year Rule for Section 223(f) (MAP Guide, Section 3.8.a Eligible Property), for the purpose of providing liquidity to recently constructed, self sustaining properties that are unable to secure permanent long term financing due to the freeze in the capital markets. This mortgagee letter will benefit applications that meet all of the qualifications of the Section 223(f) program, except for the fact that the property was originally constructed or substantially rehabilitated less than three years prior to the date of application for Firm Commitment. Eligible applications will have a Certificate of Occupancy dated no later than July 31, 2008. The waiver authority granted under this Mortgagee Letter expires six months from publication. The Department will evaluate the effectiveness of this waiver authority based upon applications received and may elect to extend the program based upon that valuation.
Background
A number of fully operating, self sustaining properties, which have recently been constructed or rehabilitated, are now unable to secure permanent long-term financing due to the freeze in the capital markets. At this time, the Department recognizes the need to provide liquidity to the market place. In order to do so, waiver authority of the Section 223(f) eligibility restriction to properties that have been completed or substantially rehabilitated for 3 years prior to the date of application is required. Historically, Section 223(f) program requirements have been temporarily modified to better meet program goals when economic conditions greatly decreased the availability of credit. When the Section 223(f) Handbook was originally published, it set forth a Special Eligibility Program that was applicable to recently completed projects, where construction was started before June 30, 1974 and completed before the end of 1975. This special program was implemented to address liquidity shortages prevailing in multifamily real estate financing at that time that prevented otherwise sound projects from obtaining permanent financing. The existing capital market credit freeze is similarly constraining the availability of permanent financing today. This Mortgagee Letter provides relief similar to that provided in 1974, but also includes additional requirements to ensure that the properties are viable, self sustaining and will not jeopardize the long term financial stability of the Section 223(f) program.
Waiver Authority
As of the date of this Mortgagee Letter, Hub Directors will have temporary authority to waive the Three-Year Rule for the Section 223(f) program for a six month period subject to the conditions and processing instructions below. The requirements of this Mortgagee Letter may not be waived by Hub Directors.
Conditions
1. This waiver authority applies only to the refinancing of conventionally funded projects that were originally constructed or substantially rehabilitated less than three years prior to the date of application for Firm Commitment and that have a Certificate of Occupancy for the entire project dated no later than July 31, 2008.
2. Projects that previously applied for mortgage insurance under other HUD programs and withdrew their applications are ineligible.
3. Any prepayment restriction associated with the new Section 223f financing must be discussed with the applicant.
4. The final mortgage amount shall only be sufficient to pay off existing indebtedness, as defined in Chapter 8.9.E of the MAP Guide and may not include an equity payment to the owner.
5. All other applicable program requirements for the Section 223(f) program must be met, including compliance with Chapter 10.8 of the MAP Guide that pertains to the nondiscrimination provisions of the Fair Housing Act, along with Executive Order 11063 and Appendix 5c, Paragraph E that concerns accessibility requirements for persons with disabilities.
6. The applicant must submit documentation evidencing that efforts to obtain permanent conventional financing have been unsuccessful, or that current offers of conventional financing have been canceled. This documentation should include rejection letters from prospective lenders or cancellation letters from lenders that had previously committed financing.
7. The applicant must submit evidence that all interest and/or debt service payments have been made on time since the beginning of the current loan.
8. A minimum of one full year (non-annualized) audited financial statements are required.
9. The project must have achieved Sustaining Occupancy for a period of three months immediately prior to the date that the application for Firm Commitment is submitted. Sustaining Occupancy is defined as having sufficient income to pay all operating expenses, monthly debt service, escrow and reserve for replacement requirements. Only leases with 12 month terms will be considered in the calculation. The certified rent roll level of occupancy for the most recent three-month period must be no less than 90% of the total units in the entire project, including all phases. Unusual rent concessions, other discounts and short term leases that are not typical in the market and that are offered by a landlord to induce a prospective tenant to enter into a lease must be taken into consideration when evaluating the credibility of the 90% occupancy requirement. The market analysis contained in the appraisal report must justify any processing occupancy rate that exceeds the certified rent roll occupancy level.
10. No waiver of the requirement for submission of “as-built” plans shall be permitted.
11. As per outstanding requirements, a current Phase I Environmental Assessment must be submitted. It should reference any prior Environmental Assessments and these older reports should be submitted if available.
12. In accordance with the Uniform Standards of Professional Appraisal Practice, the appraisal report should discuss any current listing of the subject and any offers made and/or accepted to purchase, lease or option the project. Also, since these projects are recently constructed or rehabilitated, depreciation will be minimal or significantly reduced, contributing to the reliability of the Cost Approach. Processing offices are reminded that this approach is required and should be considered in the reconciliation process.
13. Copies of any market studies and updates that were made in conjunction with obtaining the current loan must be submitted. The market analysis in the appraisal report will address current market conditions of the subject property.
14. Inspections/Repairs. All of the existing MAP Guide requirements related to project inspection, repair escrows, and protection against latent defects associated with the new Section 223(f) financing are applicable to cases processed under this waiver authority.
MORTGAGEE LETTER 2009-06
TO: All FHA-Approved Multifamily Mortgagees
SUBJECT: Temporary Authority for Multifamily Hubs to Process Waiver Requests Pertaining to the Three-Year Rule for Section 223(f)
Purpose
This mortgagee letter sets forth the Department’s policy to grant temporary authority to Multifamily Hub Directors to grant waivers of the Three Year Rule for Section 223(f) (MAP Guide, Section 3.8.a Eligible Property), for the purpose of providing liquidity to recently constructed, self sustaining properties that are unable to secure permanent long term financing due to the freeze in the capital markets. This mortgagee letter will benefit applications that meet all of the qualifications of the Section 223(f) program, except for the fact that the property was originally constructed or substantially rehabilitated less than three years prior to the date of application for Firm Commitment. Eligible applications will have a Certificate of Occupancy dated no later than July 31, 2008. The waiver authority granted under this Mortgagee Letter expires six months from publication. The Department will evaluate the effectiveness of this waiver authority based upon applications received and may elect to extend the program based upon that valuation.
Background
A number of fully operating, self sustaining properties, which have recently been constructed or rehabilitated, are now unable to secure permanent long-term financing due to the freeze in the capital markets. At this time, the Department recognizes the need to provide liquidity to the market place. In order to do so, waiver authority of the Section 223(f) eligibility restriction to properties that have been completed or substantially rehabilitated for 3 years prior to the date of application is required. Historically, Section 223(f) program requirements have been temporarily modified to better meet program goals when economic conditions greatly decreased the availability of credit. When the Section 223(f) Handbook was originally published, it set forth a Special Eligibility Program that was applicable to recently completed projects, where construction was started before June 30, 1974 and completed before the end of 1975. This special program was implemented to address liquidity shortages prevailing in multifamily real estate financing at that time that prevented otherwise sound projects from obtaining permanent financing. The existing capital market credit freeze is similarly constraining the availability of permanent financing today. This Mortgagee Letter provides relief similar to that provided in 1974, but also includes additional requirements to ensure that the properties are viable, self sustaining and will not jeopardize the long term financial stability of the Section 223(f) program.
Waiver Authority
As of the date of this Mortgagee Letter, Hub Directors will have temporary authority to waive the Three-Year Rule for the Section 223(f) program for a six month period subject to the conditions and processing instructions below. The requirements of this Mortgagee Letter may not be waived by Hub Directors.
Conditions
1. This waiver authority applies only to the refinancing of conventionally funded projects that were originally constructed or substantially rehabilitated less than three years prior to the date of application for Firm Commitment and that have a Certificate of Occupancy for the entire project dated no later than July 31, 2008.
2. Projects that previously applied for mortgage insurance under other HUD programs and withdrew their applications are ineligible.
3. Any prepayment restriction associated with the new Section 223f financing must be discussed with the applicant.
4. The final mortgage amount shall only be sufficient to pay off existing indebtedness, as defined in Chapter 8.9.E of the MAP Guide and may not include an equity payment to the owner.
5. All other applicable program requirements for the Section 223(f) program must be met, including compliance with Chapter 10.8 of the MAP Guide that pertains to the nondiscrimination provisions of the Fair Housing Act, along with Executive Order 11063 and Appendix 5c, Paragraph E that concerns accessibility requirements for persons with disabilities.
6. The applicant must submit documentation evidencing that efforts to obtain permanent conventional financing have been unsuccessful, or that current offers of conventional financing have been canceled. This documentation should include rejection letters from prospective lenders or cancellation letters from lenders that had previously committed financing.
7. The applicant must submit evidence that all interest and/or debt service payments have been made on time since the beginning of the current loan.
8. A minimum of one full year (non-annualized) audited financial statements are required.
9. The project must have achieved Sustaining Occupancy for a period of three months immediately prior to the date that the application for Firm Commitment is submitted. Sustaining Occupancy is defined as having sufficient income to pay all operating expenses, monthly debt service, escrow and reserve for replacement requirements. Only leases with 12 month terms will be considered in the calculation. The certified rent roll level of occupancy for the most recent three-month period must be no less than 90% of the total units in the entire project, including all phases. Unusual rent concessions, other discounts and short term leases that are not typical in the market and that are offered by a landlord to induce a prospective tenant to enter into a lease must be taken into consideration when evaluating the credibility of the 90% occupancy requirement. The market analysis contained in the appraisal report must justify any processing occupancy rate that exceeds the certified rent roll occupancy level.
10. No waiver of the requirement for submission of “as-built” plans shall be permitted.
11. As per outstanding requirements, a current Phase I Environmental Assessment must be submitted. It should reference any prior Environmental Assessments and these older reports should be submitted if available.
12. In accordance with the Uniform Standards of Professional Appraisal Practice, the appraisal report should discuss any current listing of the subject and any offers made and/or accepted to purchase, lease or option the project. Also, since these projects are recently constructed or rehabilitated, depreciation will be minimal or significantly reduced, contributing to the reliability of the Cost Approach. Processing offices are reminded that this approach is required and should be considered in the reconciliation process.
13. Copies of any market studies and updates that were made in conjunction with obtaining the current loan must be submitted. The market analysis in the appraisal report will address current market conditions of the subject property.
14. Inspections/Repairs. All of the existing MAP Guide requirements related to project inspection, repair escrows, and protection against latent defects associated with the new Section 223(f) financing are applicable to cases processed under this waiver authority.
Friday, February 6, 2009
FHA 232 Lean Revised Assisted Living Underwriting
Given the difficult economic and fiscal environment nationally, the Department is requesting that HUD approved Mortgagees exercise caution in underwriting loans under the LEAN Section 232 programs for new construction and refinance transactions for assisted living facilities. For all Assisted Living Project LEAN mortgage insurance applications under Section 223(f), Section 232 new construction and substantial rehabilitation, and Section 241(a), HUD will require justification/mitigation if the underwritten debt service coverage ratio (“DSCR”) is less than 1.45. Moreover, as was previously discussed with various lenders in June of 2008, for all LEAN mortgage insurance applications involving new construction of Assisted Living units, HUD will require justification/mitigation if the underwritten loan to value is greater than 75%.
The Department would consider, for example, a mitigating factor to be the inclusion of less expensive independent living units in the project or the presence of facility residents that are being provided with state or federal rental assistance subsidies. The Department’s review of mitigating factors will focus on any project specific attributes that result in limiting project market risk or in reducing project financial risk. The Department will be reasonable and flexible in determining where justifiable circumstances or mitigating factors exist.
Additional Guidance on the Use of Project Capitalization Rates:
The Department would like to provide general guidance regarding the usage of capitalization rates for Assisted Living projects. HUD believes that the capitalization rate should be a true reflection of conditions in the marketplace and the specific risks associated with a project. The Department is particularly concerned with the use (in some cases) of an approximate “risk free” capitalization rate for Assisted Living projects. The Department is not mandating a minimum capitalization rate. However, HUD may require justification/mitigation on Assisted Living projects if the capitalization rate used by the appraiser appears not to fully account for specific project and market related risks. This capitalization rate issue should be fully discussed in the Lender Narrative of the LEAN Application.
The Department believes that, in most but not all economic environments, the following debt service constant formula (Debt Service Constant + FHA MIP) multiplied by 1.25 would reflect reasonable guidance for the “minimum” capitalization rate for a proposed project. HUD would expect that the market realities of each project would dictate the capitalization rate to be used, which may be higher than the minimum formula. HUD does not wish to impose requirements for determining the capitalization rate and will defer to the USPAP appraisal standards to provide the definitive guidance on this issue. The Department’s guidance on capitalization rates is not mandatory and the Department understands that this guidance may not be as helpful as a guide when market and economic conditions are either highly optimistic or overly conservative and/or when the interest rate environment reflects unusually low or high project interest rates.
Example for calculating Cap Rate: 7% fixed interest rate plus the MIP of 50 basis points. {.0746+.50bp MIP=.0796*1.25=.0995 or 9.95%}. In this example, the minimum capitalization rate “guidance” is 9.95.
The revised guidance relative to the debt service coverage ratio, loan to value, and capitalization rates for assisted living projects shall apply to any future application for mortgage insurance where an FHA Project Number is issued after February 6, 2009. Alternatively, if the FHA number has not been issued but a project appraisal is underway, FHA will accept the lower DSCR of 1.3 for refinancing and 1.35 for new construction if an appraisal engagement letter was executed prior to February 6, 2009, and if appraisals using the lower DSCRs are finalized and provided to HUD prior to April 6, 2009. On projects that do not meet this revised guidance (where the FHA Project Number was issued on or prior to February 6, 2009) the Lender should provide a notification in the Check Transmittal Letter and Lender Narrative of the mortgage insurance application that provides for the discussion of the appraisal lender modifications.
Please note that the previous guidance on loan to value and debt service coverage on Section 232/223(f)’s for Skilled Nursing and Independent Living Facilities have not been revised.
The Department would consider, for example, a mitigating factor to be the inclusion of less expensive independent living units in the project or the presence of facility residents that are being provided with state or federal rental assistance subsidies. The Department’s review of mitigating factors will focus on any project specific attributes that result in limiting project market risk or in reducing project financial risk. The Department will be reasonable and flexible in determining where justifiable circumstances or mitigating factors exist.
Additional Guidance on the Use of Project Capitalization Rates:
The Department would like to provide general guidance regarding the usage of capitalization rates for Assisted Living projects. HUD believes that the capitalization rate should be a true reflection of conditions in the marketplace and the specific risks associated with a project. The Department is particularly concerned with the use (in some cases) of an approximate “risk free” capitalization rate for Assisted Living projects. The Department is not mandating a minimum capitalization rate. However, HUD may require justification/mitigation on Assisted Living projects if the capitalization rate used by the appraiser appears not to fully account for specific project and market related risks. This capitalization rate issue should be fully discussed in the Lender Narrative of the LEAN Application.
The Department believes that, in most but not all economic environments, the following debt service constant formula (Debt Service Constant + FHA MIP) multiplied by 1.25 would reflect reasonable guidance for the “minimum” capitalization rate for a proposed project. HUD would expect that the market realities of each project would dictate the capitalization rate to be used, which may be higher than the minimum formula. HUD does not wish to impose requirements for determining the capitalization rate and will defer to the USPAP appraisal standards to provide the definitive guidance on this issue. The Department’s guidance on capitalization rates is not mandatory and the Department understands that this guidance may not be as helpful as a guide when market and economic conditions are either highly optimistic or overly conservative and/or when the interest rate environment reflects unusually low or high project interest rates.
Example for calculating Cap Rate: 7% fixed interest rate plus the MIP of 50 basis points. {.0746+.50bp MIP=.0796*1.25=.0995 or 9.95%}. In this example, the minimum capitalization rate “guidance” is 9.95.
The revised guidance relative to the debt service coverage ratio, loan to value, and capitalization rates for assisted living projects shall apply to any future application for mortgage insurance where an FHA Project Number is issued after February 6, 2009. Alternatively, if the FHA number has not been issued but a project appraisal is underway, FHA will accept the lower DSCR of 1.3 for refinancing and 1.35 for new construction if an appraisal engagement letter was executed prior to February 6, 2009, and if appraisals using the lower DSCRs are finalized and provided to HUD prior to April 6, 2009. On projects that do not meet this revised guidance (where the FHA Project Number was issued on or prior to February 6, 2009) the Lender should provide a notification in the Check Transmittal Letter and Lender Narrative of the mortgage insurance application that provides for the discussion of the appraisal lender modifications.
Please note that the previous guidance on loan to value and debt service coverage on Section 232/223(f)’s for Skilled Nursing and Independent Living Facilities have not been revised.
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