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pdfMULTIFAMILY ACCELERATED
PROCESSING (MAP) Guide
Revision December 18, 2020
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Needs Assessment CNA e Tool; OMB Approval No. 2502-0541 – MAP Guide; OMB Approval No. 2502-0598 - Multifamily Closing Document
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Table of Contents
Table of Contents
Table of Contents ................................................................................................................................i
Chapter 1 Introduction ................................................................................................................. 1-1
1.1
Multifamily Accelerated Processing Guide ................................................................................... 1-1
1.2
Purposes of MAP........................................................................................................................... 1-1
1.3
Brief Summary of MAP.................................................................................................................. 1-2
1.3.1
Lender Qualifications and Monitoring ................................................................................... 1-2
1.3.2
Programs Covered by MAP..................................................................................................... 1-3
1.3.3
Application Processing ........................................................................................................... 1-3
1.3.4
Construction Responsibilities ................................................................................................. 1-3
1.3.5
Servicing ................................................................................................................................. 1-3
1.4
Regulations, Policies, and the MAP Guide .................................................................................... 1-4
1.5
Workload Management ................................................................................................................ 1-5
Chapter 2 Lender Qualifications and Practices ............................................................................... 2-1
2.1
Introduction .................................................................................................................................. 2-1
2.2
HUD Approval of Lenders ............................................................................................................. 2-2
2.3
Lender Standards .......................................................................................................................... 2-3
2.4
Loan Consultants, Correspondents, or Mortgage Brokers ........................................................... 2-4
2.5
Underwriting and Construction Administration ........................................................................... 2-4
2.6
2.5.1
Underwriter Responsibilities .................................................................................................. 2-4
2.5.2
Construction Administrator Duties ........................................................................................ 2-5
2.5.3
Underwriting and Construction– HUD’s Role......................................................................... 2-5
2.5.4
Electronic Communications.................................................................................................... 2-6
Identity of Interest, Conflicts of Interest ...................................................................................... 2-6
2.6.1
Introduction............................................................................................................................ 2-6
2.6.2
Definitions .............................................................................................................................. 2-7
2.6.3
Identity of Interest - General .................................................................................................. 2-8
2.6.4
Specific Business Conflicts ...................................................................................................... 2-9
2.6.5
Disclosing Identities of Interest ............................................................................................ 2-13
2.6.6
Certification .......................................................................................................................... 2-14
2.6.7
Syndicator or Investor Influence .......................................................................................... 2-14
2.7
New MAP Lender Application Package ....................................................................................... 2-15
2.8
Limitations and Notices .............................................................................................................. 2-16
2.9
Quality Control, Records and Monitoring ................................................................................... 2-17
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2.10
Underwriters – HUD Approval .................................................................................................... 2-17
2.10.1 MAP Underwriters................................................................................................................ 2-18
2.10.2 Chief Underwriters ............................................................................................................... 2-19
2.10.3 Deputy Chief Underwriters .................................................................................................. 2-21
2.11
Underwriter Trainees .................................................................................................................. 2-21
2.12
MAP Underwriter Transfers ........................................................................................................ 2-23
Chapter 3 Programs ...................................................................................................................... 3-1
3.1
General Program Requirements ................................................................................................... 3-1
3.1.1
Regulatory Agreement ........................................................................................................... 3-1
3.1.2
Single Asset Mortgagor Entity ................................................................................................ 3-1
3.1.3
Non-Recourse ......................................................................................................................... 3-1
3.1.4
Interest Rate ........................................................................................................................... 3-1
3.1.5
Amortization Plan ................................................................................................................... 3-2
3.1.6
Loan Terms ............................................................................................................................. 3-2
3.1.7
Prepayment Restrictions ........................................................................................................ 3-2
3.1.8
HUD Application Fee .............................................................................................................. 3-2
3.1.9
HUD inspection Fee ................................................................................................................ 3-3
3.1.10 Mortgage Insurance Premium................................................................................................ 3-3
3.1.11 Lender Fees and Charges........................................................................................................ 3-3
3.1.12 Definition of Affordable Housing ........................................................................................... 3-4
3.1.13 Fair Housing and Equal Opportunity ...................................................................................... 3-4
3.1.14 Previous Participation ............................................................................................................ 3-5
3.1.15 HUD's Fiscal Procedures ......................................................................................................... 3-5
3.1.16 Bridge or Gap Financing ......................................................................................................... 3-5
3.1.17 Secondary Financing ............................................................................................................... 3-5
3.1.18 Statutory Loan Limits.............................................................................................................. 3-5
3.1.19 Tax Increment Financing ........................................................................................................ 3-6
3.1.20 Commercial Space .................................................................................................................. 3-6
3.1.21 Military Impacted Areas ......................................................................................................... 3-6
3.1.22 Student Housing ..................................................................................................................... 3-7
3.1.23 Real Estate Requirements ...................................................................................................... 3-7
3.1.24 Transient Housing/Hotel Services Prohibition ....................................................................... 3-7
3.1.25 Sustaining Occupancy ............................................................................................................. 3-7
3.1.26 Operating Deficit .................................................................................................................... 3-7
3.1.27 Short-Term Lease Premiums .................................................................................................. 3-8
3.1.28 Replacement Reserve ............................................................................................................. 3-8
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3.1.29 Developer Fees ....................................................................................................................... 3-8
3.1.30 Scattered Sites ........................................................................................................................ 3-8
3.1.31 Condominiums ....................................................................................................................... 3-9
3.1.32 Environmental Review.......................................................................................................... 3-10
3.1.33 Underwritten Vacancy and Collection Loss .......................................................................... 3-10
3.1.34 Borrower’s Certifications...................................................................................................... 3-10
3.1.35 Waivers ................................................................................................................................. 3-10
3.1.36 Opportunity Zones ............................................................................................................... 3-10
3.2
New Construction/Substantial Rehabilitation Program Requirements ...................................... 3-11
3.2.1
Properties ............................................................................................................................. 3-11
3.2.2
Insurance for Construction and Permanent Loan Periods ................................................... 3-11
3.2.3
New Construction Transactions ........................................................................................... 3-11
3.2.4
Substantial Rehabilitation Transactions ............................................................................... 3-11
3.2.5
Cost Certification .................................................................................................................. 3-12
3.2.6
Federal Labor Standards....................................................................................................... 3-12
3.2.7
Assurance of Completion ..................................................................................................... 3-12
3.2.8
Absorption Period ................................................................................................................ 3-12
3.2.9
Marketing and Leasing Plan ................................................................................................. 3-13
3.2.10 Working Capital Escrow........................................................................................................ 3-13
3.2.11 Furniture, Fixture, and Equipment in Cost Basis .................................................................. 3-13
3.2.12 Elderly Developments .......................................................................................................... 3-13
3.2.13 Occupancy Preference.......................................................................................................... 3-13
3.2.14 Builder and Sponsor Profit and Risk Allowance (BSPRA) ..................................................... 3-14
3.2.15 Energy Efficiency .................................................................................................................. 3-14
3.2.16 Cost vs. Value ....................................................................................................................... 3-15
3.3
3.4
Section 221(d)(4)–New Construction and Substantial Rehabilitation ........................................ 3-15
3.3.1
Criterion 1 ............................................................................................................................. 3-15
3.3.2
Criterion 3 ............................................................................................................................. 3-15
3.3.3
Criterion 4 ............................................................................................................................. 3-16
3.3.4
Criterion 5 ............................................................................................................................. 3-16
Section 220 Mortgage Insurance for Redevelopment Areas ...................................................... 3-16
3.4.1
Eligible Areas ........................................................................................................................ 3-16
3.4.2
Commercial Facilities............................................................................................................ 3-17
3.4.3
Maximum Loan Ratios and DSCRs ........................................................................................ 3-17
3.4.4
Builder and Sponsor Profit and Risk Allowance (BSPRA) ..................................................... 3-17
3.4.5
Sponsor Profit and Risk Allowance (SPRA) ........................................................................... 3-17
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3.4.6
3.5
3.6
Age Restriction Prohibited ................................................................................................... 3-17
Section 231 Mortgage Insurance ................................................................................................ 3-17
3.5.1
Definitions ............................................................................................................................ 3-18
3.5.2
Design and Amenities ........................................................................................................... 3-18
3.5.3
BSPRA or SPRA allowances ................................................................................................... 3-18
3.5.4
Maximum Loan Ratios and DCRs .......................................................................................... 3-18
Section 241(a) Mortgage Insurance for Supplemental Loans..................................................... 3-18
3.6.1
Eligibility ............................................................................................................................... 3-18
3.6.2
Term ..................................................................................................................................... 3-19
3.6.3
Equity Requirement and Controlling Mortgage Criteria ...................................................... 3-19
3.6.4
CNAs, Plans and Cost Estimates ........................................................................................... 3-20
3.6.5
Davis-Bacon Act Applicability ............................................................................................... 3-20
3.6.6
Insurance of Advances or Insurance upon Completion ....................................................... 3-20
3.6.7
Environmental Review.......................................................................................................... 3-21
3.6.8
Working Capital and Operating Deficit Reserves ................................................................. 3-21
3.6.9
Management Exhibits........................................................................................................... 3-21
3.6.10 Multiple Lenders................................................................................................................... 3-21
3.6.11 MIP ....................................................................................................................................... 3-21
3.7
Section 207/223(f) Refinance or Acquisition .............................................................................. 3-22
3.7.1
General Requirements ......................................................................................................... 3-22
3.7.2
Eligible Properties................................................................................................................. 3-22
3.7.3
Ineligible properties ............................................................................................................. 3-23
3.7.4
Additional Section 223(f) Requirements .............................................................................. 3-23
3.7.5
Repairs .................................................................................................................................. 3-23
3.7.6
Accessibility Requirements................................................................................................... 3-24
3.7.7
Age Restricted Projects ........................................................................................................ 3-24
3.7.8
Defaults, Claims, or Enforcement Referrals ......................................................................... 3-24
3.7.9
Labor Standards.................................................................................................................... 3-24
3.7.10 Prepayment Provisions and Prohibition ............................................................................... 3-25
3.7.11 Maximum Loan and Debt Service Coverage Ratios (DSCR) .................................................. 3-25
3.7.12 For Cash Out/Equity Out Proceeds When Repairs are Deferred ......................................... 3-26
3.7.13 Capitalization Rates and Determination of Value ................................................................ 3-26
3.7.14 Statutory Loan Limits............................................................................................................ 3-26
3.7.15 Cost Not Attributable to Dwelling Space.............................................................................. 3-27
3.7.16 Reserve for Replacements (RfR) ........................................................................................... 3-27
3.7.17 Secondary Financing ............................................................................................................. 3-27
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3.7.18 Commercial Space ................................................................................................................ 3-27
3.7.19 Real Estate Requirements .................................................................................................... 3-27
3.7.20 Mortgage Term..................................................................................................................... 3-27
3.7.21 Firm Commitment Processing Only ...................................................................................... 3-27
3.7.22 Market Study ........................................................................................................................ 3-28
3.7.23 Bond Financing Costs............................................................................................................ 3-28
3.8
Section 223(a)(7) Refinancing ..................................................................................................... 3-29
3.8.1
Eligibility ............................................................................................................................... 3-29
3.8.2
Terms .................................................................................................................................... 3-29
3.8.3
Controlling Mortgage Criteria .............................................................................................. 3-29
3.8.4
Lender Fees .......................................................................................................................... 3-29
3.8.5
Borrower Fees ...................................................................................................................... 3-30
3.8.6
CNA ....................................................................................................................................... 3-30
3.8.7
Other Issues .......................................................................................................................... 3-30
3.9
Property Insurance Requirements .............................................................................................. 3-30
3.9.1
Insurance During Construction............................................................................................. 3-30
3.9.2
Permanent Insurance ........................................................................................................... 3-31
3.9.3
Other Insurance Requirements ............................................................................................ 3-33
3.10
Large Loan Risk Mitigation .......................................................................................................... 3-33
3.10.1 Purpose................................................................................................................................. 3-33
3.10.2 Underwriting Ratios for Large Loans .................................................................................... 3-33
3.10.3 Increased Reserves for Large Loans ..................................................................................... 3-34
3.10.4 Extended Lease-Up Period ................................................................................................... 3-35
3.10.5 Higher Net Worth and Liquidity ........................................................................................... 3-35
3.11
Age and Family Status Restrictions ............................................................................................. 3-35
3.11.1 Restrictions Authorized by Statute....................................................................................... 3-35
3.11.2 Age Restriction in Certain Projects and Programs ............................................................... 3-37
3.11.3 Limitations on Services and Fees.......................................................................................... 3-39
3.12
Tenant Relocation ....................................................................................................................... 3-41
3.12.1 Relocation-General............................................................................................................... 3-41
3.12.2 Projects with Federal Assistance .......................................................................................... 3-42
3.12.3 Projects with No Federal Assistance .................................................................................... 3-43
3.12.4 Relocation Costs on HUD Forms ........................................................................................... 3-44
Chapter 4 Application Processing .................................................................................................. 4-1
4.1
Introduction/General .................................................................................................................... 4-1
4.1.1
Approval of Lender's Reviewers ............................................................................................. 4-1
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4.2
4.3
4.4
Table of Contents
Stages of Application .................................................................................................................... 4-1
4.2.1
Refinancing Applications (Sections 223(f), 223(a)(7)) ............................................................ 4-1
4.2.2
New Construction and Substantial Rehabilitation Programs ................................................. 4-2
4.2.3
Appeals ................................................................................................................................... 4-4
Lender Processing ......................................................................................................................... 4-4
4.3.1
General Requirements ........................................................................................................... 4-4
4.3.2
Processing............................................................................................................................... 4-5
HUD Processing ............................................................................................................................. 4-6
4.4.1
General Requirements ........................................................................................................... 4-6
4.4.2
Processing............................................................................................................................... 4-7
4.4.3
Construction Period Responsibilities...................................................................................... 4-8
4.4.4
Servicing ................................................................................................................................. 4-8
Chapter 5 Architectural and Construction Analysis ........................................................................ 5-1
5.1
5.2
5.3
Eligible Construction Activities ..................................................................................................... 5-1
5.1.1
New Construction ................................................................................................................... 5-1
5.1.2
Substantial Rehabilitation ...................................................................................................... 5-1
5.1.3
Class of Work .......................................................................................................................... 5-2
5.1.4
Defining Construction Activities ............................................................................................. 5-3
5.1.5
Eligible Construction by Program ........................................................................................... 5-4
Consultant Due Diligence Responsibilities.................................................................................... 5-5
5.2.1
General ................................................................................................................................... 5-5
5.2.2
Qualifications for Lender’s Consultants ................................................................................. 5-6
5.2.3
Owner’s Consultant Qualifications and Duties....................................................................... 5-9
5.2.4
Other Technical Specialists ................................................................................................... 5-12
5.2.5
HUD Approval of Qualifications............................................................................................ 5-12
Requirements by Construction Activity and Program ................................................................ 5-13
5.3.1
General ................................................................................................................................. 5-13
5.3.2
Sections 220, 221, and 231 .................................................................................................. 5-14
5.3.3
Section 223(f) with Repairs and Alterations......................................................................... 5-14
5.3.4
Section 223(a)(7) with Repairs and Alterations ................................................................... 5-18
5.4
Architectural and Other Building Standards ............................................................................... 5-18
5.5
Construction Contracts ............................................................................................................... 5-18
5.6
5.5.1
New Construction and Substantial Rehabilitation ............................................................... 5-18
5.5.2
Section 223(f) Transactions .................................................................................................. 5-19
Streamlined Processing............................................................................................................... 5-19
5.6.1
Eligibility for Streamlined Processing ................................................................................... 5-19
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5.6.2
Section 223(f) with new LIHTC Applications ........................................................................ 5-20
5.6.3
Documentation at Firm Commitment .................................................................................. 5-22
5.6.4
Requirements for Issuing a Firm Commitment .................................................................... 5-23
5.6.5
Modifications to the Firm Commitment .............................................................................. 5-23
5.6.6
Risks Related to Deferred Document Submission ................................................................ 5-23
5.7
New Construction Processing through Firm Commitment ......................................................... 5-24
5.7.1
Concept Meeting .................................................................................................................. 5-24
5.7.2
Pre-Application ..................................................................................................................... 5-25
5.7.3
Firm Commitment Application ............................................................................................. 5-26
5.7.4
Special Considerations for Industrialized Housing ............................................................... 5-29
5.8
New Construction Processing through Initial Endorsement....................................................... 5-30
5.8.1
Plans and Specifications Revisions ....................................................................................... 5-30
5.8.2
Major Changes...................................................................................................................... 5-30
5.8.3
Construction Documents...................................................................................................... 5-31
5.8.4
Recommendation for Initial Endorsement ........................................................................... 5-32
5.8.5
Distribution of Drawings and Specifications ........................................................................ 5-32
5.8.6
Early Start of Construction ................................................................................................... 5-33
5.9
Substantial Rehabilitation Processing through Initial Endorsement .......................................... 5-35
5.9.1
Concept Meeting .................................................................................................................. 5-35
5.9.2
Pre-Application ..................................................................................................................... 5-35
5.9.3
Firm Commitment Application ............................................................................................. 5-37
5.9.4
Firm Commitment to Initial Endorsement ........................................................................... 5-38
5.10
Standard Processing for Section 223(a)(7) and 223(f) ................................................................ 5-38
5.10.1 Architectural Standards ........................................................................................................ 5-39
5.10.2 Concept Meetings ................................................................................................................ 5-39
5.10.3 Capital Needs Assessment.................................................................................................... 5-39
5.10.4 Lender’s Review of Costs ...................................................................................................... 5-40
5.10.5 Certification .......................................................................................................................... 5-40
5.10.6 Firm Commitment ................................................................................................................ 5-41
5.10.7 Time for Completion of Repairs ........................................................................................... 5-41
5.10.8 Escrow Agreement for Deferred Repairs ............................................................................. 5-41
5.10.9 Completion of Repairs and Alterations ................................................................................ 5-43
5.11
Processing Section 241(a) Supplemental Loans ......................................................................... 5-43
5.11.1 Supplemental Loan for New Construction ........................................................................... 5-43
5.11.2 Supplemental Loan for Existing Structures .......................................................................... 5-43
5.12
Cost Estimating for Lenders ........................................................................................................ 5-44
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5.12.1 Estimation Method............................................................................................................... 5-44
5.12.2 Cost Categories..................................................................................................................... 5-45
5.12.3 Allowances and Fees ............................................................................................................ 5-47
5.12.4 Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA) ................................................ 5-50
5.12.5 Construction Time ................................................................................................................ 5-50
5.13
CNAs are Required for All Applications....................................................................................... 5-51
5.14
Firm Commitment Cost Package................................................................................................. 5-51
5.14.1 Detailed Cost Estimate ......................................................................................................... 5-51
5.14.2 Substantial Rehabilitation Costs ........................................................................................... 5-54
5.14.3 Refinance/Acquisition Costs ................................................................................................. 5-55
5.15
HUD Procedures.......................................................................................................................... 5-56
5.15.1 HUD Underwriting Assignment ............................................................................................ 5-56
5.15.2 CNA e-Tool and HUD Underwriting ...................................................................................... 5-57
5.15.3 Instructions and Training for Users ...................................................................................... 5-58
5.15.4 Consultation and Review Timeliness .................................................................................... 5-58
Chapter 6 Energy and Water Conservation .................................................................................... 6-1
6.1
Purpose and Summary Requirements .......................................................................................... 6-1
6.1.1
New Construction and Substantial Rehabilitation Standards ................................................ 6-1
6.1.2
Incentives for Improved Building Performance ..................................................................... 6-1
6.2
Statutes and Regulations .............................................................................................................. 6-1
6.3
Green Building Certifications Specifications Recognized for Green MIP ...................................... 6-2
6.4
6.3.1
New Construction and Substantial Rehabilitation Certifications ........................................... 6-2
6.3.2
Certifications for Existing Buildings ........................................................................................ 6-2
6.3.3
Certifications Not Recognized by HUD ................................................................................... 6-2
General Requirements for Green MIP .......................................................................................... 6-3
6.4.1
Continuing Performance Required under Green MIP ............................................................ 6-3
6.4.2
ENERGY STAR® Appliances and High-Performance Components .......................................... 6-4
6.4.3
HUD Forms – Borrower’s Certifications ................................................................................. 6-4
6.4.4
Regulatory Agreement Rider 5 Required for Green MIP ....................................................... 6-4
6.4.5
Data Collection Plan ............................................................................................................... 6-4
6.4.6
Real-Time Consumption Monitoring, Smart Home Tools ...................................................... 6-5
6.4.7
Design and Construction Team Qualifications ....................................................................... 6-5
6.4.8
Energy Professionals Qualifications ....................................................................................... 6-6
6.4.9
Energy Modeling and Modeling Software .............................................................................. 6-7
6.4.10 Change Orders Modifying Energy Measures .......................................................................... 6-7
6.5
Requirements for Section 223(a)(7) Applications......................................................................... 6-7
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6.6
6.7
6.5.1
Existing Green MIP Mortgages ............................................................................................... 6-8
6.5.2
Proving Continuing Performance Under ENERGY STAR® Existing Building
Certification ............................................................................................................................ 6-8
6.5.3
Delivery of ENERGY STAR® Existing Building Certification ..................................................... 6-8
6.5.4
Recording Baseline Data - CNA............................................................................................... 6-8
Green MIP Requirements for Section 223(f) Applications............................................................ 6-9
6.6.1
Properties with Previously Earned Certifications ................................................................... 6-9
6.6.2
Newly Built Properties with No Prior Certification ................................................................ 6-9
6.6.3
Existing Properties with No Prior HUD Recognized Green Building Certification ................ 6-10
Green MIP Requirements for Sections 220, 221(d)(4), 231-New Construction, SubRehab .......................................................................................................................................... 6-13
6.7.1
ENERGY STAR® Appliances and Systems Required .............................................................. 6-13
6.7.2
Project Architect’s Green MIP Responsibilities .................................................................... 6-13
6.7.3
Recording Baseline Data-CNA .............................................................................................. 6-13
6.8
Green MIP Requirements for Section 241(a) .............................................................................. 6-14
6.9
Underwriting Owner’s Utility Cost as Part of Operating Expenses ............................................. 6-14
6.9.1
Methods for Underwriting Owner’s Utility Costs Changes .................................................. 6-15
6.9.2
Underwriting Owner Utility Operating Expense for New Projects....................................... 6-15
6.9.3
CAUTION: Changed Energy Use Not Proportionate to Resulting Change in Cost ................ 6-15
Chapter 7 Valuation & Market Analysis ......................................................................................... 7-1
7.1
Introduction .................................................................................................................................. 7-1
7.2
Selection of Appraisers and Market Analysts ............................................................................... 7-2
7.3
Appraiser and Market Analyst Qualifications ............................................................................... 7-3
7.3.1
Appraiser Qualifications ......................................................................................................... 7-3
7.3.2
Market Analyst Qualifications ................................................................................................ 7-3
7.4
Valuation Reviews of Third-Party Reports .................................................................................... 7-4
7.5
Content and Format of the Market Study .................................................................................... 7-4
7.5.1
Purpose and Focus of the Study ............................................................................................. 7-4
7.5.2
Effective Date ......................................................................................................................... 7-5
7.5.3
Forecast Period for Market Study .......................................................................................... 7-6
7.5.4
Project Rents Used in Market Study....................................................................................... 7-6
7.5.5
HUD as an Intended User ....................................................................................................... 7-6
7.5.6
Executive Summary ................................................................................................................ 7-6
7.5.7
Description of the Proposed Project ...................................................................................... 7-7
7.5.8
Primary Market Area .............................................................................................................. 7-8
7.5.9
Economic Context................................................................................................................... 7-8
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7.5.10 Demographic Analysis ............................................................................................................ 7-9
7.5.11 Current Housing Market Conditions ...................................................................................... 7-9
7.5.12 Rental Units in the Pipeline .................................................................................................. 7-10
7.5.13 Demand Estimate and Analysis ............................................................................................ 7-11
7.5.14 Findings and Conclusions ..................................................................................................... 7-13
7.5.15 Guidance for Income-Restricted Projects ............................................................................ 7-14
7.5.16 Data, Estimates, and Forecasts ............................................................................................ 7-14
7.6
Appraisal Requirements.............................................................................................................. 7-14
7.6.1
Effective Date ....................................................................................................................... 7-15
7.6.2
Brevity .................................................................................................................................. 7-15
7.6.3
Complex or Unusual Appraisal Assignments ........................................................................ 7-15
7.6.4
HUD Forms to Include in the Report .................................................................................... 7-15
7.6.5
USPAP Jurisdictional Exception Rule .................................................................................... 7-16
7.6.6
Occupancy Percentage ......................................................................................................... 7-16
7.6.7
Sections 220, 221(d)(4), and 231.......................................................................................... 7-16
7.6.8
Section 223(f) ....................................................................................................................... 7-17
7.6.9
Reconciliation of the Approaches to Value .......................................................................... 7-18
7.6.10 Section 231 Substantial Rehabilitation................................................................................. 7-18
7.6.11 Remaining Economic Life (REL) ............................................................................................ 7-18
7.6.12 Confidentiality Rule of USPAP .............................................................................................. 7-20
7.6.13 Appraiser’s Certification ....................................................................................................... 7-20
7.6.14 Inspection of the Subject and Comparables ........................................................................ 7-20
7.6.15 Required Appraisal Report Exhibits ...................................................................................... 7-21
7.6.16 Market Analysis .................................................................................................................... 7-21
7.7
Estimating Project Income .......................................................................................................... 7-22
7.7.1
Rental Estimates ................................................................................................................... 7-22
7.7.2
Adjustments ......................................................................................................................... 7-22
7.7.3
Final Rent Estimate............................................................................................................... 7-22
7.7.4
LIHTC and/or Bond Financed Projects .................................................................................. 7-23
7.7.5
Trending of Rents ................................................................................................................. 7-23
7.7.6
Equipment Included in Rent ................................................................................................. 7-23
7.7.7
Occupancy/Vacancy and Collection Losses .......................................................................... 7-23
7.7.8
Project Rent Concessions ..................................................................................................... 7-24
7.7.9
Occupancy ............................................................................................................................ 7-24
7.7.10 Utilities/Services ................................................................................................................... 7-24
7.7.11 Project Location, Amenities, and Other Factors .................................................................. 7-24
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7.7.12 Other Income ....................................................................................................................... 7-25
7.7.13 Limited Waiver of Commercial Income and Space Limits .................................................... 7-28
7.7.14 Commercial Space Valuation ................................................................................................ 7-29
7.8
Project Operating Expenses, NOI ................................................................................................ 7-29
7.8.1
Purpose................................................................................................................................. 7-29
7.8.2
Sources of Expense Data ...................................................................................................... 7-30
7.8.3
General ................................................................................................................................. 7-30
7.8.4
Estimate of Operating Expenses by Units of Comparison .................................................... 7-32
7.8.5
Expense Comparables .......................................................................................................... 7-32
7.8.6
Expense Adjustments ........................................................................................................... 7-33
7.8.7
Updating Procedures ............................................................................................................ 7-33
7.8.8
Consistent Expense Line Items ............................................................................................. 7-34
7.8.9
Underwritten NOI and Program Guidance ........................................................................... 7-34
7.9
Site Analysis ................................................................................................................................ 7-36
7.9.1
Analysis of Location .............................................................................................................. 7-36
7.9.2
Specific Location ................................................................................................................... 7-36
7.9.3
Civic, Social, and Commercial Centers.................................................................................. 7-36
7.9.4
Transportation ...................................................................................................................... 7-37
7.9.5
Special Hazards and Nuisances ............................................................................................ 7-37
7.9.6
Parking Facilities ................................................................................................................... 7-37
7.9.7
Site Suitability ....................................................................................................................... 7-37
7.9.8
Land/Site Valuation .............................................................................................................. 7-37
7.9.9
Warehousing of “Excess” Land Area .................................................................................... 7-39
7.10
Pre-Application for 220, 221(d), and 231 ................................................................................... 7-39
7.10.1 Lender’s Responsibilities ...................................................................................................... 7-39
7.11
Firm Commitment for 220, 221(d), and 231 (New Construction) .............................................. 7-41
7.11.1 Lender’s Responsibilities ...................................................................................................... 7-41
7.11.2 HUD Review .......................................................................................................................... 7-42
7.12
Firm Commitment for 223(f)....................................................................................................... 7-42
7.12.1 Lender’s Responsibilities ...................................................................................................... 7-42
7.13
Substantial Rehabilitation for 220, 221(d)(4), and 231 .............................................................. 7-43
7.13.1 General ................................................................................................................................. 7-43
7.13.2 Completing Form HUD-92264 .............................................................................................. 7-43
7.13.3 Applicable Approaches for "As Is" Value .............................................................................. 7-44
7.13.4 Valuation for 220 and 221(d)(4) ........................................................................................... 7-44
7.13.5 Valuation for Section 231 Substantial Rehabilitation .......................................................... 7-45
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7.13.6 Valuation for RAD Transactions............................................................................................ 7-45
7.13.7 Contingency Reserves .......................................................................................................... 7-45
7.13.8 Interest During Construction ................................................................................................ 7-46
7.13.9 Inspection Fee ...................................................................................................................... 7-46
7.13.10 Offsite Costs ......................................................................................................................... 7-46
7.13.11 Rehabilitation Cost not Attributable to Residential Use ...................................................... 7-46
7.13.12 Developer’s Fee, when Applicable ....................................................................................... 7-46
7.13.13 Exclusions to Estimated Replacement Cost.......................................................................... 7-47
7.14
Calculating Operating Deficits..................................................................................................... 7-47
7.14.1 Estimate of a Project’s Operating Deficit ............................................................................. 7-47
7.15
Leaseholds/Ground Leases ......................................................................................................... 7-49
7.15.1 Definitions ............................................................................................................................ 7-49
7.15.2 Legal Requirements .............................................................................................................. 7-50
7.15.3 Lease Payments (Ground Rent) ............................................................................................ 7-53
7.15.4 Valuation of the Leasehold Estate........................................................................................ 7-54
7.15.5 Rehabilitation of an Existing Project .................................................................................... 7-55
7.15.6 Maximum Mortgage Amount for Criterion 3 ....................................................................... 7-55
7.15.7 Fee-Joinders ......................................................................................................................... 7-55
7.16
Tax Abatement Procedures ........................................................................................................ 7-57
7.16.1 General Comments and Exceptions ..................................................................................... 7-57
7.16.2 Full Term Tax Abatement ..................................................................................................... 7-57
7.16.3 Partial Term or Variable Tax Abatement .............................................................................. 7-58
7.16.4 Deferral of Real Estate Taxes................................................................................................ 7-60
7.17
Project-Based Section 8 and LIHTC ............................................................................................. 7-60
7.17.1 For Section 223(f) ................................................................................................................. 7-60
7.17.2 Fee Income ........................................................................................................................... 7-61
7.17.3 Income Limits ....................................................................................................................... 7-61
7.17.4 Expenses/Fees ...................................................................................................................... 7-62
7.18
Appraisal Review Policy and Requirements ................................................................................ 7-62
7.18.1 Scope of Work ...................................................................................................................... 7-62
7.18.2 Jurisdictional Exception Rule ................................................................................................ 7-63
7.18.3 Record Keeping Rule ............................................................................................................ 7-63
7.18.4 Loan Committee ................................................................................................................... 7-63
7.18.5 Workload Sharing ................................................................................................................. 7-63
7.18.6 Consultations with Other Staff ............................................................................................. 7-64
7.18.7 Environmental Processing .................................................................................................... 7-64
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7.18.8 Technical Appraisal Review Requirements .......................................................................... 7-64
7.18.9 Documentation of the Appraisal Review ............................................................................. 7-65
Chapter 8 Mortgage Credit............................................................................................................ 8-1
8.1
Introduction .................................................................................................................................. 8-1
8.2
Borrower Types – Single Asset Borrower Entity ........................................................................... 8-1
8.3
Reviewing Principals and Other Parties in Control ....................................................................... 8-2
8.3.1
Determining Principals and Who is in Control ....................................................................... 8-2
8.3.2
Underwriting Active Principals and Those with Control ........................................................ 8-3
8.3.3 Previous Participation Certification Requirements ................................................................ 8-5
8.4
8.5
8.3.4
Nonprofit Principals................................................................................................................ 8-9
8.3.5
Foreign National Participation in FHA-Insured Multifamily Programs ................................. 8-10
8.3.6
Definition of Principal for Regulatory Agreement Section 50 .............................................. 8-11
Investigating Credit and Character ............................................................................................. 8-12
8.4.1
Use of Credit Reports and Credit Investigation .................................................................... 8-12
8.4.2
Lender’s Review of the Credit Report .................................................................................. 8-13
8.4.3
Delinquent Federal Debt, Judgments and Pending Litigation .............................................. 8-13
8.4.4
Trade and Credit References ................................................................................................ 8-14
8.4.5
Rejection Due to Unacceptable Character and Credit ......................................................... 8-14
Evaluating Financial Capacity ...................................................................................................... 8-15
8.5.1
8.6
8.7
Financial Statement Analysis ................................................................................................ 8-15
Required Prior Credit Approval of Principals/Borrowers............................................................ 8-22
8.6.1
FHA Insured Balances Greater than $500 Million ................................................................ 8-22
8.6.2
Principal Types...................................................................................................................... 8-23
8.6.3
Threshold .............................................................................................................................. 8-23
8.6.4
Threshold Applies to Current and Expected Balance ........................................................... 8-23
8.6.5
Effective Date and Duration ................................................................................................. 8-23
8.6.6
Lender Submission and Procedure ....................................................................................... 8-24
Secondary Financing ................................................................................................................... 8-24
8.7.1
Public Sources....................................................................................................................... 8-24
8.7.2
Private Sources – Section 223(f)........................................................................................... 8-25
8.7.3
Private Source – New Construction/Substantial Rehab ....................................................... 8-26
8.7.4
Section 223(a)(7) Refinance Program .................................................................................. 8-26
8.7.5
Condition for Repayment of Secondary Financing ............................................................... 8-26
8.7.6
Secured Public Secondary Financing Conditions .................................................................. 8-27
8.7.7
Unsecured Private Secondary Financing Conditions ............................................................ 8-28
8.7.8
Tax Credit Equity Bridge Loans ............................................................................................. 8-29
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8.8
Application Exhibits and Responsibilities.................................................................................... 8-29
8.8.1
General Responsibilities of Lender’s Underwriter ............................................................... 8-29
8.8.2
Additional Exhibits Required of Project Participants ........................................................... 8-31
8.8.3
Evaluating Nonprofit Sponsors and Borrowers .................................................................... 8-32
8.8.4
Credit Review of a Nonprofit Sponsor and Borrower ......................................................... 8-33
8.8.5
Nonprofit Developer Fees .................................................................................................... 8-34
8.8.6
Consultant Fees .................................................................................................................... 8-34
8.8.7
Establishing a Profit-Motivated Borrower Entity ................................................................. 8-35
8.8.8
Lender’s Review and Recommendation ............................................................................... 8-35
8.8.9
Mortgage Credit Duties of HUD ........................................................................................... 8-37
8.9
Mortgage Term and Amortization Commencement .................................................................. 8-37
8.9.1
Sections 220, 221(d)(4), 241(a) and 231 Projects ................................................................ 8-37
8.9.2
Section 207 Pursuant to 223(f) Projects ............................................................................... 8-37
8.9.3
Section 223(a)(7) Projects .................................................................................................... 8-38
8.10
Commitment Processing 220, 221(d), 231, 241(a) ..................................................................... 8-38
8.10.1 Mortgage Amounts and Cash Requirements ....................................................................... 8-38
8.11
Sections 223(a)(7) and 223(f) Firm Commitment Processing ..................................................... 8-40
8.11.1 Determining Mortgage Amounts, Cash Requirements, and Related Matters ..................... 8-40
8.12
Firm Commitment Processing with Grants and Loans................................................................ 8-44
8.12.1 General ................................................................................................................................. 8-44
8.12.2 Application for Mortgage Insurance .................................................................................... 8-44
8.12.3 Grants and Loans from a Government Agency or Instrumentality ...................................... 8-45
8.12.4 Grants and Loans from a Non-Governmental Source .......................................................... 8-46
8.13
Insurance Upon Completion ....................................................................................................... 8-47
8.14
Determining Cash Requirements for Completion....................................................................... 8-47
8.15
Bond Financed Projects and Tax-Exempt Agency Loans............................................................. 8-51
8.15.1 Review of Financing Documents .......................................................................................... 8-51
8.15.2 Loan Rates ............................................................................................................................ 8-51
8.15.3 Tax-Exempt Loans and/or Bonds.......................................................................................... 8-52
8.15.4 Itemized Statement of Costs ................................................................................................ 8-53
8.15.5 State and Local Tax-Exempt Financed Projects .................................................................... 8-53
8.15.6 Pre-Cost Certification Conference Information ................................................................... 8-54
Chapter 9 Environmental Review and Requirements ..................................................................... 9-1
9.1
Introduction .................................................................................................................................. 9-1
9.1.1
Legal Authorities, Guidance, Standards, and Documentation ............................................... 9-1
9.1.2
Project Description, Aggregation, and Extent of Review ....................................................... 9-2
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9.2
9.1.3
Levels of Environmental Review ............................................................................................ 9-3
9.1.4
Local, State, Tribal or Federal Requirements ......................................................................... 9-5
Procedures .................................................................................................................................... 9-6
9.2.1
Lender Responsibilities and Limitations ................................................................................. 9-6
9.2.2
HUD Responsibilities .............................................................................................................. 9-7
9.2.3
Timing Considerations ............................................................................................................ 9-9
9.2.4
Verifying Qualifications of Professionals .............................................................................. 9-10
9.2.5
Consulting with Regional or Satellite Offices ....................................................................... 9-10
9.3
HEROS Environmental Reports ................................................................................................... 9-11
9.4
Contamination and Toxic Substances ......................................................................................... 9-12
9.4.1
Phase I Environmental Site Assessment Requirements ....................................................... 9-13
9.4.2
Phase II Environmental Site Assessment Requirements ...................................................... 9-15
9.4.3
Remediation Response Planning .......................................................................................... 9-17
9.4.4
Remediation Plans with Complete Removal of Contamination ........................................... 9-18
9.4.5
Remediation Plans with Incomplete Removal of Contamination ........................................ 9-19
9.4.6
Monitoring Wells, Flushing Wells, and Testing Wells .......................................................... 9-21
9.4.7
Off-Site Contamination ........................................................................................................ 9-22
9.4.8
Escrow .................................................................................................................................. 9-22
9.4.9
Waivers ................................................................................................................................. 9-22
9.4.10 LSTF Approvals and Reviews ................................................................................................ 9-22
9.4.11 Superfund Sites .................................................................................................................... 9-23
9.4.12 Unacceptable Sites ............................................................................................................... 9-24
9.4.13 Underground Storage Tanks Not Regulated by the LSTF ..................................................... 9-24
9.5
9.6
HUD Responsibilities when Projects Require Remediation ........................................................ 9-25
9.5.1
General Responsibilities ....................................................................................................... 9-25
9.5.2
Projects with Complete Removal of Site Contamination ..................................................... 9-25
9.5.3
Projects with Incomplete Removal of Site Contamination .................................................. 9-26
9.5.4
Insurance and Guarantee Requirements ............................................................................. 9-26
9.5.5
Management, Coordination, and Communication .............................................................. 9-26
Environmental Laws and Authorities .......................................................................................... 9-27
9.6.1
Lead-Based Paint (24 CFR Part 35.115(a)) ............................................................................ 9-27
9.6.2
Asbestos (24 CFR 50.3(i)) ...................................................................................................... 9-29
9.6.3
Radon (Supersedes ML 2013-07) ......................................................................................... 9-32
9.6.4
Historic Preservation (24 CFR 50.4(a)) ................................................................................. 9-36
9.6.5
Floodplain Management (24 CFR 50.4(b)(2)) ....................................................................... 9-40
9.6.6
Flood Insurance (24 CFR 50.4(b)(1)) ..................................................................................... 9-44
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9.6.7
Wetlands Protection (24 CFR 50.4(b)(3)) ............................................................................. 9-45
9.6.8
Noise Abatement and Control (24 CFR Part 51, Subpart B) ................................................. 9-46
9.6.9
Explosive and Flammable Hazards (24 CFR Part 51 Subpart C)............................................ 9-48
9.6.10 Air Quality (24 CFR 50.4(h)) .................................................................................................. 9-49
9.6.11 Airport Hazards (24 CFR Part 51 Subpart D)......................................................................... 9-50
9.6.12 Coastal Barrier Resources (24 CFR 50.4(c)(1)) ...................................................................... 9-50
9.6.13 Coastal Zone Management (24 CFR 50.4(c)(2)) ................................................................... 9-51
9.6.14 Endangered Species (24 CFR 50.4(e)) ................................................................................... 9-51
9.6.15 Farmlands Protection (24 CFR 50.4(j)) ................................................................................. 9-52
9.6.16 Sole Source Aquifers (24 CFR 50.4(d)) .................................................................................. 9-52
9.6.17 Wild and Scenic Rivers (24 CFR 50.4(f))................................................................................ 9-53
9.6.18 Environmental Justice (24 CFR 50.4(l)) ................................................................................. 9-53
9.6.19 Additional Nuisances and Hazards ....................................................................................... 9-53
9.6.20 Environmental Assessments (24 CFR 50 Subpart E) ............................................................. 9-56
9.6.21 Operation and Maintenance Plans....................................................................................... 9-58
Chapter 10 Management Analysis ................................................................................................. 10-1
10.1
Introduction ................................................................................................................................ 10-1
10.2
Exhibits Required for Firm Commitment .................................................................................... 10-1
10.3
Lender Review of Management Documents .............................................................................. 10-2
10.4
HUD Asset Management Review ................................................................................................ 10-5
10.5
Review of Previous Participation ................................................................................................ 10-5
10.6
Bonding Requirements for Agents .............................................................................................. 10-5
10.7
Management Agreement Requirements .................................................................................... 10-6
10.7.1 Applicability .......................................................................................................................... 10-6
10.7.2 Required Contents................................................................................................................ 10-6
10.7.3 Length/term of the Agreement ............................................................................................ 10-7
10.7.4 Management Fee ................................................................................................................. 10-7
10.8
Approval of Proposed Management Agent ................................................................................ 10-7
10.9
Affirmative Fair Housing Marketing............................................................................................ 10-8
10.10 Management Agents and Escrow Administration ...................................................................... 10-8
Chapter 11 Lender Underwriting, HUD Review and Closing ............................................................ 11-1
11.1
General........................................................................................................................................ 11-1
11.2
Lender Underwriting ................................................................................................................... 11-1
11.2.1 Pre-application ..................................................................................................................... 11-3
11.2.2 Firm Commitment Application ............................................................................................. 11-3
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11.2.3 Third-Party Report Certifications ......................................................................................... 11-5
11.2.4 HUD Forms Submission ........................................................................................................ 11-5
11.3
HUD Regional Center or Satellite Office Underwriting Review .................................................. 11-6
11.3.1 HUD Underwriter Responsibilities........................................................................................ 11-6
11.3.2 Pre-Application and Firm Commitment Processing ............................................................. 11-7
11.3.3 Underwriting Recommendation........................................................................................... 11-7
11.3.4 Firm Commitment Issuance, Extensions, Amendments and Reissuance............................. 11-8
11.3.5 Waivers ................................................................................................................................. 11-9
11.3.6 Interest Rate Lock ............................................................................................................... 11-10
11.4
Program Closing Provisions....................................................................................................... 11-10
11.5
Loan Fees .................................................................................................................................. 11-10
11.5.1 Deferred Fee Collection...................................................................................................... 11-11
11.5.2 Broker’s Fees ...................................................................................................................... 11-11
11.6
Title Matters ............................................................................................................................. 11-12
11.6.1 Preliminary Title Report ..................................................................................................... 11-12
11.6.2 Air Rights and Other Shared Interest Projects ................................................................... 11-12
11.7
Borrower Entity’s Organizational Documents .......................................................................... 11-12
11.8
Note .......................................................................................................................................... 11-13
11.8.1 Term ................................................................................................................................... 11-13
11.8.2 Prepayment Provisions....................................................................................................... 11-13
11.8.3 Conditions for Including Lockouts and/or Penalties .......................................................... 11-14
11.8.4 Late Charge Provisions ....................................................................................................... 11-14
11.8.5 Override of Prepayment Lockout ....................................................................................... 11-15
Chapter 12 Construction Period .................................................................................................... 12-1
12.1
HUD Construction Administration Roles and Responsibilities.................................................... 12-1
12.1.1 General ................................................................................................................................. 12-1
12.1.2 HUD Construction Analyst (CA) ............................................................................................ 12-1
12.1.3 HUD Inspector ...................................................................................................................... 12-1
12.2
Pre-Construction Conference ..................................................................................................... 12-2
12.2.1 General Requirements ......................................................................................................... 12-2
12.2.2 Contract Administration ....................................................................................................... 12-3
12.2.3 Cost Certification .................................................................................................................. 12-4
12.3
HUD Construction Inspection and Monitoring ........................................................................... 12-4
12.3.1 Purpose of Inspection........................................................................................................... 12-4
12.3.2 Access ................................................................................................................................... 12-4
12.3.3 HUD Construction Analyst’s Duties ...................................................................................... 12-5
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12.3.4 HUD Inspector’s Duties ........................................................................................................ 12-6
12.3.5 Construction Progress Meetings (monthly meetings).......................................................... 12-9
12.3.6 Reporting Serious Construction Problems ......................................................................... 12-10
12.4
Architect’s Duties in Administering Construction ..................................................................... 12-11
12.4.1 General Requirements ....................................................................................................... 12-11
12.4.2 Architect's Supplemental Instructions ............................................................................... 12-12
12.4.3 Architect Administering the Construction Contract ........................................................... 12-12
12.5
Architect’s Adequacy ................................................................................................................ 12-13
12.5.1 Deficient Administration .................................................................................................... 12-13
12.5.2 Reasons for Termination of Services .................................................................................. 12-13
12.5.3 HUD Office Actions ............................................................................................................. 12-13
12.5.4 Request for Contract Termination ..................................................................................... 12-14
12.5.5 Contract Termination ......................................................................................................... 12-14
12.6
Completion Inspections for New Construction and Substantial Rehabilitation ....................... 12-14
12.6.1 Substantial Completion ...................................................................................................... 12-14
12.6.2 Final 100% Draw Completion Inspection ........................................................................... 12-15
12.6.3 Warranty Inspections ......................................................................................................... 12-16
12.7
Application for Insurance of Advances ..................................................................................... 12-16
12.7.1 General ............................................................................................................................... 12-16
12.7.2 Lender’s Role in Processing Application for Insurance of Advance ................................... 12-17
12.7.3 Stages of Advances ............................................................................................................. 12-18
12.7.4 Approval of Initial/Interim Advances ................................................................................. 12-18
12.7.5 Contractor’s Monthly Requisition and Related Matters .................................................... 12-19
12.7.6 Next to Final Advance......................................................................................................... 12-19
12.7.7 Final Advance ..................................................................................................................... 12-19
12.7.8 Keeping the Mortgage in Balance ...................................................................................... 12-20
12.8
Change Orders – HUD Duties .................................................................................................... 12-21
12.8.1 General Requirements ....................................................................................................... 12-21
12.8.2 Change Order Classification ............................................................................................... 12-22
12.8.3 Additive change Orders ...................................................................................................... 12-23
12.8.4 Deductive Change Orders................................................................................................... 12-24
12.8.5 Changes that Adversely Affect Property Income ............................................................... 12-24
12.8.6 Extension of Contract Time ................................................................................................ 12-24
12.8.7 Changes to Items of Delayed Completion .......................................................................... 12-25
12.8.8 Emergency Changes ........................................................................................................... 12-25
12.8.9 Insurance Upon Completion............................................................................................... 12-25
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12.8.10 Changes to Offsite Construction ........................................................................................ 12-25
12.8.11 Other Changes .................................................................................................................... 12-26
12.9
Change Orders - Inspection Instructions .................................................................................. 12-26
12.9.1 General Procedure ............................................................................................................. 12-26
12.9.2 Voiding Changes ................................................................................................................. 12-27
12.9.3 Unapproved Changes ......................................................................................................... 12-27
12.10 Change Orders – HUD Architectural and Cost Instructions ...................................................... 12-27
12.10.1 Architectural ....................................................................................................................... 12-27
12.10.2 Cost ..................................................................................................................................... 12-27
12.11 Change Orders – HUD Underwriter Instructions ...................................................................... 12-28
12.11.1 Appraisal Reconsideration, When Required ...................................................................... 12-28
12.11.2 HUD Underwriter Tasks ...................................................................................................... 12-28
12.12 Labor, Fair Housing and Equal Opportunity (FHEO) and URA Compliance............................... 12-30
12.12.1 Wages ................................................................................................................................. 12-30
12.12.2 Labor Violations .................................................................................................................. 12-31
12.12.3 FHEO Noncompliance ......................................................................................................... 12-31
12.12.4 Compliance with Any Applicable Relocation Plan .............................................................. 12-31
12.13 Surveys ...................................................................................................................................... 12-31
12.14 Permission to Occupy ............................................................................................................... 12-32
12.14.1 Physical Completion ........................................................................................................... 12-32
12.14.2 Signatures, Approval and Permission ................................................................................. 12-32
12.14.3 Submission Documents ...................................................................................................... 12-32
12.14.4 Partial Occupancy Approval ............................................................................................... 12-33
12.15 Escrowed Funds, Letters of Credit, Deposits, Holdbacks and Related Matters........................ 12-33
12.15.1 Application for Disbursement of Escrowed Funds ............................................................. 12-33
12.15.2 Release of Letters of Credit ................................................................................................ 12-34
12.15.3 Working Capital Deposit ..................................................................................................... 12-34
12.15.4 Initial Operating Deficit Deposit ......................................................................................... 12-35
12.15.5 Amount of Contractor's Retainage and Release ................................................................ 12-36
12.15.6 Cash-Out Escrow from Land Equity .................................................................................... 12-38
12.16 Insurance Upon Completion (IUC) ............................................................................................ 12-38
12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f) ................... 12-41
12.17.1 Repairs and Alterations ...................................................................................................... 12-41
12.17.2 Inspection ........................................................................................................................... 12-43
12.17.3 Schedule of Values for Reimbursement from the Repair Escrow ...................................... 12-45
12.17.4 Final Report ........................................................................................................................ 12-45
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12.17.5 Change Orders .................................................................................................................... 12-46
12.17.6 Warranty Inspections ......................................................................................................... 12-47
12.17.7 Projects in Difficulty ........................................................................................................... 12-47
12.18 Casualty Events During Construction........................................................................................ 12-47
Chapter 13 Cost Certification ........................................................................................................ 13-1
13.1
Projects that Must Certify ........................................................................................................... 13-1
13.2
Projects Exempt from Cost Certification..................................................................................... 13-1
13.2.1 Low Income Housing Tax Credits.......................................................................................... 13-1
13.3
Types of Cost Certification .......................................................................................................... 13-5
13.4
Entities That Must Cost Certify ................................................................................................... 13-5
13.5
Cost Certification Sequence of Events ........................................................................................ 13-6
13.6
Project Completion and Cut-Off Dates ....................................................................................... 13-7
13.7
Administrative Completion Date ................................................................................................ 13-8
13.8
Submission Date ......................................................................................................................... 13-8
13.9
Required Forms ........................................................................................................................... 13-8
13.10 Required Statements and Certifications ..................................................................................... 13-9
13.10.1 Simplified Form of Cost Certification ................................................................................... 13-9
13.10.2 Long Form Cost Certification ................................................................................................ 13-9
13.10.3 Section 223(f) Projects ....................................................................................................... 13-14
13.11 Deficiencies in Cost Certification Submission ........................................................................... 13-15
13.12 Mortgage Credit Limited Review .............................................................................................. 13-15
13.13 Mortgage Credit Detailed Review ............................................................................................. 13-16
13.14 Review of Borrower’s Cost Certification ................................................................................... 13-17
13.14.1 Construction Contract ........................................................................................................ 13-17
13.14.2 Architect’s Fee(s) ................................................................................................................ 13-20
13.14.3 Interest Accrued ................................................................................................................. 13-20
13.14.4 Taxes Accrued..................................................................................................................... 13-21
13.14.5 Property Insurance Accrued ............................................................................................... 13-22
13.14.6 Mortgage Insurance Premium............................................................................................ 13-22
13.14.7 HUD Application, Commitment, and Inspection Fees ........................................................ 13-22
13.14.8 Financing Expenses............................................................................................................. 13-22
13.14.9 Title and Recording Expenses ............................................................................................. 13-24
13.14.10
Legal, Organization, and Audit Expenses ................................................................ 13-24
13.14.11
Offsite Costs ............................................................................................................ 13-25
13.14.12
Other Costs ............................................................................................................. 13-26
13.14.13
Builder’s and Sponsor’s Profit and Risk Allowance ................................................. 13-27
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13.14.14
Non-Profit Developer Fee ....................................................................................... 13-28
13.15 Review of Contractor’s Cost Certification ................................................................................. 13-28
13.15.1 Actual Costs ........................................................................................................................ 13-28
13.15.2 Mortgage Increase or Detailed Review Not Requested ..................................................... 13-29
13.15.3 Cost Review ........................................................................................................................ 13-29
13.15.4 Lump Sum Construction Contract Cost Certification ......................................................... 13-31
13.15.5 Summary of Cost Certification Review (on Form HUD-92331) .......................................... 13-31
13.16 Non-Profit Borrower’s Initial Equity Investment ...................................................................... 13-31
13.17 Determine the Borrower’s Initial Investment ........................................................................... 13-32
13.18 Section 223(f) Modified Form of Cost Certification .................................................................. 13-32
13.19 Special Instructions for Substantial Rehabilitation ................................................................... 13-33
13.20 Mortgage Reduction after Cost Certification............................................................................ 13-34
13.21 Increase in Mortgage Amount .................................................................................................. 13-36
13.22 Restrictions on Mortgage Increases ......................................................................................... 13-37
13.23 Processing a Mortgage Increase ............................................................................................... 13-37
13.24 Authorization to Reopen Mortgage Transaction ...................................................................... 13-39
13.25 Deferment of Principal Payments ............................................................................................. 13-39
13.26 Document Distribution ............................................................................................................. 13-40
13.27 Office of Inspector General ....................................................................................................... 13-40
13.28 Cost Certification Incontestability ............................................................................................ 13-40
13.29 Post-Closing Escrows................................................................................................................. 13-41
13.30 Final Closing – Insurance of Advances ...................................................................................... 13-41
13.30.1 Amortization and Mandatory Prepayments ...................................................................... 13-41
13.30.2 Confirmation of Final Loan Amount ................................................................................... 13-43
13.30.3 Final Closing – Insurance Upon Completion....................................................................... 13-44
Chapter 14 LIHTC and Other Tax Credit Programs .......................................................................... 14-1
14.1
Introduction ................................................................................................................................ 14-1
14.2
LIHTC Underwriting Guidance..................................................................................................... 14-1
14.3
Historic and New Markets Tax Credits ........................................................................................ 14-2
14.4
Subsidy Layering Review ............................................................................................................. 14-3
14.5
Evidence of Tax Credit Allocations .............................................................................................. 14-4
14.6
HAP Contract Renewals for Section 8 Projects ........................................................................... 14-4
14.7
Application/Submission Requirements ...................................................................................... 14-5
14.8
Architecture and Engineering ..................................................................................................... 14-6
14.9
Identities of Interest in Tax Credit Transactions ......................................................................... 14-6
14.10 Mortgage Amounts, Contingency and Escrow............................................................................ 14-6
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14.11 Structuring of Secondary Debt.................................................................................................... 14-7
14.12 Developer Fees ........................................................................................................................... 14-8
14.12.1 Treatment of Developer Fee ................................................................................................ 14-8
14.12.2 Deferred Developer Fee (DDF) ............................................................................................. 14-9
14.13 Tax Credit Equity Pay-In Schedule .............................................................................................. 14-9
14.14 Definition of “Net Equity” ......................................................................................................... 14-10
14.15 Equity Bridge Loans in Tax Credit Projects................................................................................ 14-11
14.16 Syndicator and Investor Fees from Operations ........................................................................ 14-13
14.17 Mark to Market (M2M) Transactions ....................................................................................... 14-13
14.18 Firm Commitment Additional Conditions ................................................................................. 14-13
14.19 Other Matters ........................................................................................................................... 14-15
14.19.1 Bond-Financed Projects in New York City .......................................................................... 14-16
14.19.2 Lien Priority ........................................................................................................................ 14-16
14.19.3 Tax Credit Regulatory Agreements .................................................................................... 14-16
14.19.4 Tax Exempt Bonds - FHA Insured Permanent Debt ............................................................ 14-16
14.19.5 Refinancing of M2M Properties ......................................................................................... 14-17
14.19.6 Income Averaging ............................................................................................................... 14-17
14.20 FHA Tax Credit Pilot Program Expansion .................................................................................. 14-17
Chapter 15 Oversight of MAP Program Requirements.................................................................... 15-1
15.1
Oversight of MAP Lenders .......................................................................................................... 15-1
15.2
Multifamily Asset and Counterparty Oversight Division ............................................................ 15-1
15.2.1 Functions .............................................................................................................................. 15-1
15.2.2 Data and Reports .................................................................................................................. 15-2
15.2.3 Timing of MAP Lender Reviews ............................................................................................ 15-3
15.3
Authority to Issue MAP Sanctions .............................................................................................. 15-3
15.3.1 General ................................................................................................................................. 15-3
15.4
Administrative Record ................................................................................................................ 15-4
15.5
Settlement Agreements .............................................................................................................. 15-5
15.6
Letters of Caution, Warning Letters or Sanctions ....................................................................... 15-6
15.7
Warning Letters and Targeted Enforcement Measures ............................................................. 15-6
15.7.1 Warning letter ...................................................................................................................... 15-6
15.7.2 Targeted Enforcement Measures......................................................................................... 15-7
15.8
MAP Probation ............................................................................................................................ 15-8
15.9
MAP Suspension ......................................................................................................................... 15-9
15.10 MAP Termination ...................................................................................................................... 15-10
15.11 MAP Lender Review Board ....................................................................................................... 15-11
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15.12 MAP Lender Review Board: Staff Responsibilities .................................................................... 15-12
15.13 MAP Lender Review Board: Procedures ................................................................................... 15-13
15.14 Notice of Violation .................................................................................................................... 15-14
15.15 Notice of Action ........................................................................................................................ 15-14
15.16 Appeal Conference and Procedures ......................................................................................... 15-15
15.17 Suspension, Debarment or LDP ................................................................................................ 15-16
15.17.1 Parties subject to a suspension, debarment or LDP........................................................... 15-16
15.17.2 Limited Denial of Participation ........................................................................................... 15-17
15.17.3 Suspension and debarment................................................................................................ 15-17
15.17.4 Procedures to refer a suspension, debarment or LDP ....................................................... 15-17
15.18 Referral to Mortgagee Review Board or OIG ............................................................................ 15-18
15.19 Other Enforcement Actions ...................................................................................................... 15-18
Chapter 16 Master Leases with Market Tax Credits ....................................................................... 16-1
16.1
Introduction ................................................................................................................................ 16-1
16.2
Background ................................................................................................................................. 16-1
16.3
General Programmatic Requirements ........................................................................................ 16-2
16.4
Processing Requirements ........................................................................................................... 16-3
16.5
Cost Certification and Final Endorsement .................................................................................. 16-4
Chapter 17 Section 207: Refinancing Cooperative Housing Projects................................................ 17-1
17.1
Introduction and Background ..................................................................................................... 17-1
17.2
Program Eligibility ....................................................................................................................... 17-1
17.3
Program Requirements ............................................................................................................... 17-4
17.3.1 Loan Parameters .................................................................................................................. 17-5
17.3.2 General Operating Reserve (GOR)........................................................................................ 17-5
17.3.3 Model Forms and Closing Documents.................................................................................. 17-6
17.4
Application Processing ................................................................................................................ 17-6
17.5
Technical Processing ................................................................................................................... 17-7
17.5.1 Architectural and Cost Processing ........................................................................................ 17-7
17.5.2 Valuation Processing: Appraisal Scope-of-Work .................................................................. 17-8
17.5.3 Environmental Processing .................................................................................................. 17-11
17.5.4 Mortgage Credit Processing ............................................................................................... 17-11
17.5.5 Asset Management Processing .......................................................................................... 17-12
17.6
Loan Closing Procedures ........................................................................................................... 17-13
Chapter 18 Section 223(a)(7) ......................................................................................................... 18-1
18.1
Introduction ................................................................................................................................ 18-1
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18.2
Purpose of Section 223(a)(7) ...................................................................................................... 18-1
18.3
Basic Program Requirements ...................................................................................................... 18-1
18.3.1 Standard Processing Time .................................................................................................... 18-1
18.3.2 Inapplicable Mortgages ........................................................................................................ 18-2
18.3.3 Maximum Mortgage ............................................................................................................. 18-2
18.3.4 Mortgage Term..................................................................................................................... 18-3
18.3.5 Mortgage Insurance Premium.............................................................................................. 18-5
18.3.6 Environmental Review Requirements .................................................................................. 18-5
18.3.7 Fees....................................................................................................................................... 18-5
18.3.8 Project Numbering ............................................................................................................... 18-6
18.3.9 Regulatory Agreement ......................................................................................................... 18-6
18.3.10 Cost Certification .................................................................................................................. 18-6
18.3.11 Commencement of Amortization......................................................................................... 18-6
18.3.12 Source of Funds for Prepayment Penalty Costs ................................................................... 18-6
18.3.13 Refinancing Partial Payment of Claim (PPC) Properties ....................................................... 18-7
18.3.14 Commitment, Regulatory Agreement and Closing .............................................................. 18-7
18.4
Processing ................................................................................................................................... 18-8
18.4.1 Project Analysis .................................................................................................................... 18-8
18.4.2 Verification of Existing Borrower Debt............................................................................... 18-11
18.4.3 CNA Requirement ............................................................................................................... 18-12
18.4.4 Site Visits ............................................................................................................................ 18-12
18.4.5 Section 202 Mortgage Refinancing .................................................................................... 18-12
18.4.6 Ownership and Property Management Changes ............................................................... 18-13
18.5
Application Requirements Checklist ......................................................................................... 18-13
Chapter 19 Closing Guide .............................................................................................................. 19-1
Part I: Introduction and Procedures ............................................................................................... 19-1
19.1
General Loan Closing Procedures ............................................................................................... 19-1
19.1.1 Applicability .......................................................................................................................... 19-1
19.1.2 Closing Document Review and Procedures.......................................................................... 19-2
19.1.3 Closing Arrangements .......................................................................................................... 19-6
19.1.4 Post-Closing Handling of Closing Dockets ............................................................................ 19-9
19.2
Initial Loan Closing Procedures for New Construction and Substantial Rehabilitation .............. 19-9
19.2.1 Initial Endorsement Activities .............................................................................................. 19-9
19.2.2 Prevailing Wage Rates & Davis-Bacon Labor Standards .................................................... 19-10
19.2.3 Early Start of Construction ................................................................................................. 19-11
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19.2.4 Lender’s Loan Assignment between Initial and Final Endorsement .................................. 19-12
19.3
Final Loan Closing Procedures for New Construction and Substantial Rehabilitation ............. 19-14
19.3.1 Final Loan Closings ............................................................................................................. 19-14
19.3.2 Final Endorsement.............................................................................................................. 19-15
19.3.3 Final Advance ..................................................................................................................... 19-17
19.3.4 Final Closings when Disputes Arise .................................................................................... 19-17
19.3.5 Workout Restructuring and Interim Closing ...................................................................... 19-20
Part II: Closing Documents and Program-Specific Requirements ................................................... 19-22
19.4
Document and Diligence Requirements ................................................................................... 19-22
19.4.1 General Requirements for Closing Documents .................................................................. 19-22
19.4.2 Security Instrument ............................................................................................................ 19-26
19.4.3 UCC-1 Financing Statements .............................................................................................. 19-28
19.4.4 Promissory Note ................................................................................................................. 19-29
19.4.5 Regulatory Agreement ....................................................................................................... 19-30
19.4.6 Borrower Entity’s Organizational Documents .................................................................... 19-32
19.4.7 Title, Escrow, and Survey Requirements ............................................................................ 19-33
19.4.8 Opinion of Borrower’s Counsel .......................................................................................... 19-42
19.4.9 Secondary Financing ........................................................................................................... 19-43
19.4.10 Bond-Financed Projects...................................................................................................... 19-49
19.4.11 Low-Income Housing Tax Credit (LIHTC) Financed Projects ............................................... 19-51
19.4.12 Escrow Agreements ............................................................................................................ 19-56
19.4.13 Additional Closing Requirements ....................................................................................... 19-57
19.5
Additional Requirements for Insurance of Advances ............................................................... 19-61
19.5.1 Building Loan Agreement ................................................................................................... 19-61
19.5.2 Project Completion Funds .................................................................................................. 19-61
19.5.3 Disbursement Agreement .................................................................................................. 19-62
19.5.4 Owner-Architect Agreement – New Construction/Substantial Rehabilitation .................. 19-62
19.5.5 Construction Contract – New Construction/Substantial Rehabilitation ............................ 19-63
19.5.6 Assurance of Completion and Related Requirements ....................................................... 19-65
19.5.7 Building Components Stored Off-Site ................................................................................ 19-67
19.5.8 Lender’s Certificate for New Construction or Substantial Rehabilitation .......................... 19-68
19.5.9 Final Closing Documents – General Requirements ............................................................ 19-68
19.5.10 When On-Site Facilities Are Incomplete............................................................................. 19-72
19.5.11 When Off-Site Facilities Are Incomplete ............................................................................ 19-74
19.6
Requirements for Acquisition/Refinance and Other FHA Insurance Programs........................ 19-74
19.6.1 223(f) Loans ........................................................................................................................ 19-74
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19.6.2 223(a)(7) Loans ................................................................................................................... 19-78
19.6.3 Section 241(a) Supplemental Loans ................................................................................... 19-79
19.6.4 Section 213 Cooperative Housing Loans ............................................................................ 19-81
19.6.5 Insurance Upon Completion Loans for New Construction and Substantial
Rehabilitation ..................................................................................................................... 19-81
Part III:
Sample Language, Certifications, and Riders .............................................................. 19-84
19.7
HUD-Required Provisions for Borrower’s Organizational Documents ..................................... 19-84
19.8
Rider to Security Instrument – LIHTC Projects.......................................................................... 19-87
19.9
Rider to Regulatory Agreement for Residual Receipts Requirements...................................... 19-89
19.10 Survey Affidavit of No Change .................................................................................................. 19-91
19.11 Certification of Architectural/Engineering Fees ....................................................................... 19-93
19.12 Building Code Verification ........................................................................................................ 19-95
19.13 Zoning Letter ............................................................................................................................. 19-96
19.14 Third Party Obligee Certification .............................................................................................. 19-97
19.15 HUD [Rider / Amendment] To Restrictive Covenants............................................................... 19-99
19.16 Equity Bridge Loan Rider – LIHTC Projects .............................................................................. 19-103
19.17 Section 213 Cooperative Program Rider to Regulatory Agreement for Multifamily
Projects ................................................................................................................................... 19-106
Chapter 20 Glossary...................................................................................................................... 20-1
Chapter 21 Index .......................................................................................................................... 21-1
Appendix 2
A.2.1
Quality Control Plans and Identity of Interest .......................................................... A2-1
Lender Quality Control Plans and Identity of Interest Examples ................................................A2-1
A.2.1.1 Lender Quality Control Plan Guidelines ...............................................................................A2-1
A.2.2
Identity of Interest Examples ....................................................................................................A2-24
A.2.2.1 MAP Lender’s and Borrower’s Team ..................................................................................A2-24
A.2.3
MAP Lender Representation and Warranty .............................................................................A2-25
Appendix 3
A.3.1
Program Specifications and Limitations ................................................................... A3-1
Specifications and Limitations by Program .................................................................................A3-1
A.3.1.1 New Construction/Substantial Rehabilitation......................................................................A3-1
A.3.1.2 Refinance/Acquisitions .........................................................................................................A3-2
A.3.2
Developer Fees by Program ........................................................................................................A3-5
A.3.2.1 Section 223(f) Program.........................................................................................................A3-5
A.3.2.2 New Construction/Substantial Rehabilitation Programs .....................................................A3-6
A.3.3
Sample Senior Housing Waiver Certification Form.....................................................................A3-7
A.3.4
Senior’s Housing: Definitions ......................................................................................................A3-9
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A.3.5
Details Required in Relocation Plans ..........................................................................................A3-9
A.3.5.1 Qualifications of Relocation Consultant ...............................................................................A3-9
A.3.5.2 Relocation Plans .................................................................................................................A3-10
A.3.5.3 Resident Relocation Budget and Escrow ............................................................................A3-11
A.3.5.4 Resident Relocation – Implementation & Reporting .........................................................A3-12
A.3.6
Tenant Relocation Escrow Agreement (guide form) ................................................................A3-12
A.3.7
Opportunity Zone Map Locations .............................................................................................A3-16
A.3.8
Affordable & Green MIP Rate Categories .................................................................................A3-16
A.3.8.1 General ...............................................................................................................................A3-16
A.3.8.2 Broadly Affordable Housing ...............................................................................................A3-16
A.3.8.3 Affordable Housing.............................................................................................................A3-17
A.3.8.4 Green and Energy Efficient Housing ...................................................................................A3-18
A.3.8.5 Calculating Upfront or Capitalized MIP ..............................................................................A3-18
A.3.8.6 Documentation Requirements ...........................................................................................A3-19
A.3.8.7 Other Considerations .........................................................................................................A3-19
Appendix 4
A.4.1
Application Processing Documents .......................................................................... A4-1
General Application Submission Instructions .............................................................................A4-1
A.4.1.1 Application Submission Instructions ....................................................................................A4-1
A.4.1.2 Application Exhibit Checklists ...............................................................................................A4-1
A.4.1.3 Concept Meeting Checklists .................................................................................................A4-2
A.4.2
Section 223(f) Refinance/Acquisition Checklists ........................................................................A4-2
A.4.2.1 Concept Meetings ................................................................................................................A4-2
A.4.2.2 Firm Applications ..................................................................................................................A4-3
A.4.3
Section 223(a)(7) Refinance Checklists .......................................................................................A4-6
A.4.3.1 Concept Meetings ................................................................................................................A4-6
A.4.3.2 Firm Applications ..................................................................................................................A4-6
A.4.4
Sections 221(d)(4), 220, 231, and 241(a) Checklists ...................................................................A4-8
A.4.4.1 Concept Meetings ................................................................................................................A4-8
A.4.4.2 Pre-Applications ...................................................................................................................A4-9
A.4.4.3 Firm Applications ................................................................................................................A4-13
A.4.5
Sample MAP Invitation Letter ...................................................................................................A4-17
A.4.6
Firm Commitment Templates ...................................................................................................A4-19
A.4.7
FHA Project Number and Fees on Pay.gov ...............................................................................A4-19
A.4.7.1 Requesting an FHA Project Number ...................................................................................A4-19
A.4.7.2 Paying Multifamily Fees on Pay.gov ...................................................................................A4-22
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Appendix 5
A.5.1
Architectural and Construction Analysis .................................................................. A5-1
Property Standards and Survey Criteria .....................................................................................A5-1
A.5.1.1 Minimum Property Standards (HUD Handbook 4910.1)......................................................A5-1
A.5.1.2 Commercial Use and Daycare Facilities................................................................................A5-1
A.5.1.3 Equipment ............................................................................................................................A5-2
A.5.1.4 Ineligible Equipment.............................................................................................................A5-2
A.5.1.5 Air Conditioning ....................................................................................................................A5-3
A.5.1.6 Water and Sewer ..................................................................................................................A5-3
A.5.1.7 Duplicate Water and Sewerage Systems..............................................................................A5-3
A.5.1.8 Individual Septic or Sewerage Systems ................................................................................A5-3
A.5.1.9 Privately Owned Offsite Water and Sewerage Systems.......................................................A5-4
A.5.1.10 Subsurface Exploration .....................................................................................................A5-4
A.5.1.11 ALTA Survey General Requirements (see Chapter 19)......................................................A5-4
A.5.2
Accessibility for Persons with Disabilities ...................................................................................A5-5
A.5.2.1 Statutory Requirements .......................................................................................................A5-5
A.5.2.2 Implementing and Applying Accessibility Requirements .....................................................A5-7
A.5.2.3 Summary of Fair Housing Act Requirements .......................................................................A5-9
A.5.2.4 Section 504 Requirements for Assisted Housing ...............................................................A5-12
A.5.2.5 The Americans with Disabilities Act (ADA) .........................................................................A5-15
A.5.2.6 Accessibility and Features of Adaptive Design ...................................................................A5-16
A.5.3
Seismic Resistance and Fire Protection ....................................................................................A5-18
A.5.3.1 Seismic Resistance Standards for Existing Buildings ..........................................................A5-18
A.5.4
Construction/Architectural Documents for Firm Commitment ...............................................A5-20
A.5.4.1 Required Exhibits for New Construction ............................................................................A5-20
A.5.4.2 Required Exhibits for Substantial Rehabilitation................................................................A5-22
A.5.4.3 Required Exhibits for Refinance or Acquisition ..................................................................A5-23
A.5.5
Firm Commitment Drawings and Specifications .......................................................................A5-25
A.5.5.1 New Construction and Substantial Rehabilitation .............................................................A5-25
A.5.6
HUD Architectural Review Report Format ................................................................................A5-32
A.5.6.1 Pre-Application Exhibits .....................................................................................................A5-32
A.5.6.2 Lender’s Architectural Analyst’s Report for Firm Exhibits .................................................A5-33
A.5.7
Capital Needs Assessments.......................................................................................................A5-40
A.5.7.1 What is a Capital Needs Assessment? ................................................................................A5-40
A.5.7.2 When CNAs are Required ...................................................................................................A5-41
A.5.7.3 Guidance for Key Values on CNA e-TOOL Entries ..............................................................A5-42
A.5.7.4 Lender Review of Capital Needs Assessments ...................................................................A5-48
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A.5.7.5 Documents for Firm Commitment .....................................................................................A5-53
A.5.8
Design Professional Certifications ............................................................................................A5-54
A.5.8.1 Certification for New Construction and Substantial Rehabilitation ...................................A5-54
A.5.8.2 Project Architect’s Certification for Refinancing ................................................................A5-56
A.5.8.3 Certificate of Professional Liability Insurance ....................................................................A5-58
A.5.9
HUD Cost Reviewer Reports Format .........................................................................................A5-59
A.5.9.1 Cost Review Report for Pre-Application.............................................................................A5-59
A.5.10 Cost Review of Construction Analyst Cost Review Report .......................................................A5-60
A.5.10.1 New Construction and Substantial Rehabilitation ..........................................................A5-60
A.5.10.2 Section 223(f) & 223(a)(7) ...............................................................................................A5-60
A.5.11 Costs Not Attributable for New Construction...........................................................................A5-63
A.5.11.1 Cost Not Attributable for New Construction ..................................................................A5-63
A.5.11.2 Example: Calculating Cost Not Attributable--New Construction ...................................A5-65
A.5.12 Costs Not Attributable for Existing Properties..........................................................................A5-67
A.5.12.1 Instructions for Cost Not Attributable for Existing Properties ........................................A5-67
A.5.12.2 Example of Calculating Cost Not Attributable for Substantial Rehabilitation
and Repairs......................................................................................................................A5-69
A.5.13 223(f) Repairs and Alterations Cost Worksheet .......................................................................A5-73
Appendix 6
Energy Modeling and Water Conservation ............................................................... A6-1
Appendix 7
Valuation Processing ............................................................................................... A7-1
A.7.1
HUD Review Appraiser Scope of Work .......................................................................................A7-1
A.7.1.1 Purpose.................................................................................................................................A7-1
A.7.1.2 USPAP Background ...............................................................................................................A7-1
A.7.1.3 Applicability of USPAP to HUD/FHA .....................................................................................A7-2
A.7.1.4 USPAP Standards ..................................................................................................................A7-4
A.7.1.5 Conclusion ............................................................................................................................A7-5
A.7.2
HUD Review of Appraisal and Market Study ..............................................................................A7-5
A.7.2.1 Technical Review of Multifamily Accelerated Processing ....................................................A7-5
Appendix 8
Mortgage Credit Requirements ............................................................................... A8-1
A.8.1
Required Loan Application Documents ......................................................................................A8-1
A.8.2
How to Analyze Financial Statements.........................................................................................A8-4
A.8.3
Prior Credit Approval ..................................................................................................................A8-6
A.8.3.1 Determination ......................................................................................................................A8-6
A.8.3.2 Lender’s Analysis and Scope of Review ................................................................................A8-6
A.8.3.3 Signatures for Prior Approval Decisions ...............................................................................A8-7
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A.8.3.4 Maximum Insured Balance Limit ..........................................................................................A8-7
A.8.3.5 Submission............................................................................................................................A8-7
A.8.3.6 Authority, Conditions and Duration of Prior Approval.........................................................A8-8
A.8.3.7 Process for Prior Approval....................................................................................................A8-8
A.8.3.8 Decision ................................................................................................................................A8-9
A.8.3.9 Project Applications after Prior Approval.............................................................................A8-9
A.8.3.10 Prior Approval and Loan Committee Actions..................................................................A8-10
A.8.3.11 Lender Fees for Prior Approval .......................................................................................A8-10
A.8.3.12 Lender Appeals of Prior Approval Decisions ...................................................................A8-11
A.8.3.13 Detailed Guidance for Exhibits and Analysis ...................................................................A8-11
A.8.4
Mortgage Credit Underwriting Documentation Matrix............................................................A8-15
A.8.4.1 Mortgage Credit Underwriting Documentation Matrix Legion..........................................A8-17
A.8.5
Payoff Letter for Existing Mortgage ..........................................................................................A8-17
A.8.6
Subordination, Non-Disturbance and Attornment Agreements ..............................................A8-18
A.8.6.1 Purpose and Applicability ...................................................................................................A8-18
A.8.6.2 Background.........................................................................................................................A8-19
A.8.6.3 Implementation ..................................................................................................................A8-19
A.8.6.4 Approval .............................................................................................................................A8-20
A.8.7
Financial & Performance Metrics for Concentrated Risk REO Schedules .................................A8-25
A.8.8
Addendum: Identification and Certification of Limited Liability Investor Entities (ILLC)..........A8-26
Appendix 9
A.9.1
Environmental Analysis ........................................................................................... A9-1
Baseline Pipeline Impact Radius Tables ......................................................................................A9-1
A.9.1.1 High-Pressure Pipelines Transferring Flammable and Combustible Liquids ........................A9-1
A.9.1.2 High-Pressure Pipelines Transferring Flammable and Combustible Gases
(Thermal Radiation) ..............................................................................................................A9-3
A.9.1.3 High-Pressure Pipelines Transferring Flammable and Combustible Gases (Blast
Overpressure) .......................................................................................................................A9-6
A.9.2
Section 106 Delegation Memo ...................................................................................................A9-8
Appendix 12 Construction Period ...............................................................................................A12-1
A.12.1 Approval of Advances ...............................................................................................................A12-1
A.12.1.1 Approving Advances........................................................................................................A12-1
A.12.1.2 Architect’s Fees ...............................................................................................................A12-2
A.12.1.3 Interim Insurance of Advances .......................................................................................A12-3
A.12.1.4 Allocation of Cash Available to the Borrower .................................................................A12-6
A.12.1.5 Restricted Excess Mortgage Proceeds ............................................................................A12-7
A.12.1.6 MAP Lender Duties for Processing Form HUD-92403.....................................................A12-7
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A.12.1.7 Certificate of Mortgage Insurance ..................................................................................A12-8
A.12.1.8 HUD Monitoring of Interim Draws ..................................................................................A12-8
A.12.2 Contractor’s Monthly Requisition.............................................................................................A12-8
A.12.3 Components Stored Offsite ....................................................................................................A12-10
A.12.3.1 Eligible Building Components .......................................................................................A12-10
A.12.3.2 Basic Requirements for Insured Advances....................................................................A12-10
A.12.3.3 MAP Lender’s Responsibilities ......................................................................................A12-10
A.12.3.4 General Contractors’ Responsibilities ...........................................................................A12-11
A.12.3.5 Contractor’s Requisition................................................................................................A12-11
A.12.3.6 Offsite Construction ......................................................................................................A12-12
A.12.4 Amendment to the Construction Contract for Payment for Components Stored
Offsite......................................................................................................................................A12-12
A.12.5 Projects Experiencing Difficulties Before Final Closing ...........................................................A12-14
A.12.5.1 General ..........................................................................................................................A12-14
A.12.5.2 Problems Leading to Default .........................................................................................A12-14
A.12.5.3 Defaults During Construction ........................................................................................A12-15
A.12.5.4 Remedies to Cure Defaults............................................................................................A12-16
A.12.5.5 Reporting.......................................................................................................................A12-19
A.12.5.6 Foreclosure....................................................................................................................A12-19
A.12.5.7 Other Matters ...............................................................................................................A12-20
Appendix 13 Cost Certification ...................................................................................................A13-1
A.13.1 Agreement Authorizing Reopening of Mortgage Transaction..................................................A13-1
A.13.2 Agreement Authorizing Deferment of Principal Payments for Level Annuity Monthly
Payment ....................................................................................................................................A13-2
Appendix 15 Lender Compliance, Loan Underwriting and Application Processing
Deficiency Taxonomy .............................................................................................A15-1
A.15.1 Background and Purpose ..........................................................................................................A15-1
A.15.2 MAP Lender Compliance...........................................................................................................A15-1
A.15.3 Loan Underwriting or Application Processing Deficiencies ......................................................A15-3
Appendix 16 Organizational Chart for Lease Structure ................................................................A16-1
A.16.1 Sample Master Lease Ownership Structure .............................................................................A16-1
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Chapter 1 Introduction
1.1 Multifamily Accelerated Processing Guide
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Chapter 1
1.1
Introduction
Multifamily Accelerated Processing Guide
A. Multifamily Accelerated Processing (MAP) is designed to establish uniform national standards for
approved Lenders to prepare, process and submit loan applications for Federal Housing Administration
(FHA) multifamily mortgage insurance. The MAP Guide provides - in one volume with appendices guidance for HUD staff, Lenders, third party consultants, Borrowers, and other industry participants.
Topics include mortgage insurance program descriptions, Borrower and Lender eligibility requirements,
application requirements, underwriting standards for all technical disciplines and construction loan
administration requirements. The MAP Guide applies only to FHA multifamily mortgage insurance
programs. Except to the extent Lender monitoring or enforcement activities overlap, Section 232 and
other programs administered by the Office of Healthcare Programs are not addressed by the MAP Guide.
B. The Guide has been updated to reflect various organizational, policy and processing changes
implemented since the last edition was published in 2016. Examples include electronic submission of
data in a standardized format, the consolidation of HUD Field Offices to Regional Centers and Satellite
Offices, workload sharing, “risk-based” underwriting, instructions for underwriting energy conservation
measures and savings, and updates to architecture, cost and construction administration procedures
including data entry for the CNA e-Tool.
C. Statutory authority for the implementation of MAP is contained in the basic insuring authority for each
of the programs covered in the MAP Guide, e.g. National Housing Act, 12 U.S.C. §§ 220, 221(d)(4), 231,
241(a), 223(a)(7), and 223(f). Additionally, Section 211 of the National Housing Act and Section 7(d) of
the Department of HUD Act authorize the Secretary to make such rules and regulations as may be
necessary to carry out the provisions of the National Housing Act. The FHA requirements listed in HUD
regulations covering each MAP eligible program are included and more fully explained in this MAP Guide.
1.2
Purposes of MAP
A. The goal of MAP is to provide a consistent, expedited mortgage insurance application process at each
HUD Multifamily Regional Center or Satellite Office. HUD no longer accepts new applications for the
covered programs, either for Pre-application review or for Firm Commitment review, under local “fasttrack” processing. All MAP eligible projects must be submitted using MAP processing unless a waiver is
granted to process under Traditional Application Processing (TAP). Such waiver approval authority is
retained by HUD Headquarters’ Director of Multifamily Production.
B. Review of applications for TAP processing require more work and responsibility by HUD staff, and
accordingly, a higher application fee may be charged. Projects not eligible for MAP, and which may be
submitted under TAP, are:
1. Applications submitted by FHA approved multifamily Lenders who are not approved to submit MAP
applications,
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2. Applications where there is an identity of interest between the Lender and the Borrower or affiliates
of either, or
3. Applications for mortgage insurance under Programs or Sections of the Act not covered by MAP (e.g.,
Cooperatives under Section 213).
C. Some MAP approved Lenders (MAP Lenders) only originate loans and do not close or service them.
After obtaining a Firm Commitment for mortgage insurance under MAP, the originating Lender may sell
or transfer the Firm Commitment to another MAP Lender, so long as the MAP Lender closing the loan does
not have an identity of interest with the Borrower on the loan. The second MAP Lender will close the loan,
oversee the construction loan administration, if applicable, and service the loan in accordance with HUD
requirements. At the Pre-application submission, the originating MAP Lender should inform the Regional
Center or Satellite Office if it does not intend to service the loan or administer the construction loan. The
originating MAP Lender must identify which MAP Lender will be responsible for those functions as soon
as the closing/servicing MAP Lender is identified. The second MAP Lender must identify its construction
loan administrator before or at initial endorsement. A Loan Servicer who receives a transferred MAP loan
for servicing must be FHA approved for multifamily housing and have an approved Construction Loan
Administrator, unless the loan is a refinancing with no repair escrow. The servicing Lender generally is,
but is not required to be, a MAP approved Lender. See also Chapter 19, Section 19.2.4 of the MAP Guide
for assignments post initial endorsement but prior to final endorsement.
D. MAP and the MAP Guide are intended to:
1. Increase HUD’s reliance upon the Lender’s due diligence and increase the MAP Lender’s
accountability for its due diligence and underwriting.
2. Establish a uniform process that significantly reduces the amount of HUD review time.
3. Strike a careful balance between expedited processing and ensuring an acceptable level of risk
management for HUD’s multifamily mortgage insurance programs.
4. Have in one volume, the MAP Guide, the basic information required for loan origination by the Lender
and for review by HUD staff.
5. Bring Handbook and Notice instructions current and maintain up-to-date instructions through
amendments to the MAP Guide.
6. Provide the Lender with predictable and consistent underwriting guidelines, thus facilitating efficient
processing and better service for Borrowers.
1.3
1.3.1
Brief Summary of MAP
Lender Qualifications and Monitoring
A. By permitting a MAP Lender to prepare much of the documentation for an application for mortgage
insurance, HUD places confidence in the Lender’s integrity and competence. A Lender wishing to submit
a MAP application must be:
1. An FHA approved Lender. See the FHA Single Family Housing Policy Handbook (4000.1).
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2. Approved by the Multifamily Asset and Counterparty Oversight Division (COB, formerly Lender
Qualification and Monitoring Division or LQMD) at HUD Headquarters. See Chapter 2 of the MAP
Guide.
3. Subject to Quality Assurance Enforcement Actions. See Chapter 15 of the MAP Guide.
1.3.2
Programs Covered by MAP
A. MAP may be used for the following programs, identified by section of the National Housing Act:
1. 220 - new construction or substantial rehabilitation of mixed-use projects in urban renewal areas;
2. 221(d)(4) - new construction or substantial rehabilitation of apartments;
3. 223(a)(7) - refinancing of FHA insured mortgages;
4. 223(f) - refinancing or purchase of existing apartments;
5. 231 - new construction or substantial rehabilitation of housing for the elderly; and
6. 241(a) - Supplemental Loan program for rehabilitation or additions to projects which have an FHA
insured first mortgage.
1.3.3
Application Processing
A. Application processing instructions are described in Chapter 4. All periods longer than two weeks are
described in calendar days, and periods of two weeks or less, in business days.
B. HUD has certain responsibilities which it does not assign to the Lender, including responsibility for the
environmental clearance in the HUD Environmental Review Online System (HEROS), approval of the
Borrower’s Affirmative Fair Housing Marketing Plan (AFHMP), and issuing the commitment for mortgage
insurance. Although HUD does not assign environmental clearance to the Lender, the Lender must
prepare information for HUD’s review as discussed in Chapter 9.
1.3.4
Construction Responsibilities
A. Under MAP, HUD must approve the initial and final draws.
B. HUD will contract, or perform or otherwise provide, for inspection duties and will provide copies of
the Trip Report to the MAP Lender. Generally, HUD will rely on one inspection per month; however, the
Multifamily Regional Director has discretion to require additional inspections based on fact specific
circumstances.
C. The MAP Lender will prepare and approve the interim draws during construction.
D. HUD must approve the construction amount for each item in the initial and final advance, and for each
Change Order during construction.
1.3.5
Servicing
A. MAP makes no changes in procedures for servicing or asset management, except for servicing Lenders
with prior approval for delegated responsibility for repair escrow administration. See Section 1.2 above
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for guidance on MAP approved Lenders who only originate and transfer loans to another FHA approved
Lender for servicing.
1.4
Regulations, Policies, and the MAP Guide
A. All applicable HUD Handbooks, Notices, and Forms remain in effect and will be used for traditional
HUD processing of mortgage loan applications. For applications under MAP, the Guide incorporates the
majority of Handbook, Notice and Mortgagee Letter requirements and includes in the Appendix the forms
that are required for most applications. If there is a conflict between the Guide and the Handbooks or
instructions for various HUD forms, the Guide will take precedence. Lenders with questions should
address them to the Regional Center or Satellite Office processing the application. Where the Guide is
silent on a matter, the Lender should consult the following MAP website:
https://www.hud.gov/program_offices/housing/mfh/map/maphome or the Regional Center or Satellite
Office that is processing the application.
B. Consistent with their level of approval, the Lender must be familiar with the basic programmatic
requirements and regulations of the insurance programs set forth in Title 24 of the Code of Federal
Regulations, including but not limited to Part 200.
C. The Lender is encouraged to contact a Regional Center or Satellite Office if any issues are not addressed
in the Guide or if any clarifications are needed. See Chapter 11 on Underwriting for waiver procedures.
The Multifamily Regional Director may waive non-regulatory or non-statutory provisions of the Guide,
although Chapter 11 specifies several requirements that may not be waived without prior approval of
HUD Headquarters (HQ). If the Regional Center intends to waive any of the environmental requirements
in Chapter 9, Section 9.3 that are not regulatory in nature, the Regional Office must obtain advice of the
Departmental and/or Housing Environmental Officer, or the applicable Regional or Field Environmental
Officer (REO/FEO) in whose district the project is located, before the waiver is granted. Regulatory
provisions may be waived only with approval of the Assistant Secretary for Housing - FHA Commissioner.
Statutory provisions may not be waived.
D. The Lender is also encouraged to communicate early with the Borrower to ensure that the Borrower,
the proposed Management Agent, and/or the Project have not been referred to HUD’s Departmental
Enforcement Center (DEC), as such referrals may require additional time to resolve and create
impediments to a timely closing.
E. Any waiver of this Guide granted by the Multifamily Regional Director must be documented in the
Regional Center or Satellite Office docket, along with the Lender’s request and supporting documentation
for the approval. The form HUD-2 must be submitted electronically to the HUD HQ Office of Multifamily
Housing Production’s SharePoint site in accordance with outstanding instructions. No hard copies need
to be submitted to HQ; Multifamily Field Office staff and Office of General Counsel (OGC) may rely on
electronic signatures or scanned copies. HQ will periodically review waivers to determine if changes to
the Guide or to the regulations are warranted.
F. HUD made technical and substantive changes when it adopted new and updated FHA multifamily loan
closing documents. The term “directives” was subsumed within the term “Program Obligations.”
“Program Obligations” refer to:
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1. All applicable statutes and any regulations issued by the Secretary that apply to the Project, including
all amendments to such statutes and regulations, as they become effective, except that changes subject
to notice and comment rulemaking shall become effective only upon completion of the rulemaking
process, and
2. All current requirements in HUD handbooks and guides, notices, and mortgagee letters that apply to
the Project, and all future updates, changes and amendments thereto, as they become effective, except
that changes subject to notice and comment rulemaking shall become effective only upon completion
of the rulemaking process, and provided that such future updates, changes and amendments shall be
applicable to the Project only to the extent that they interpret, clarify and implement terms in the
applicable closing document rather than add or delete provisions from such document. Handbooks,
guides, notices, and mortgagee letters are available on HUD's official website:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/
1.5
Workload Management
A. Applications. Applications for mortgage insurance should be submitted to the Regional Center or
Satellite Office having jurisdiction for the area where the property is located (the “originating” office). The
Regional Center or Satellite Office Director is responsible for workload management within their Regional
Center or Satellite Office, including:
1. Delegation and staff assignments,
2. Participation in Workload Sharing,
3. Establishing priority of application processing,
4. Meeting standard processing times, and
5. Loan Committee.
B. Workload Sharing. Depending on staff capacity and programmatic expertise, a Regional Center
Director may transfer processing assignments to other Multifamily Regional Centers or Satellite Offices
(“processing” offices) through Workload Sharing. Workload Sharing occurs outside of the geographic
service area identified in existing published delegations of authority. The originating Multifamily Regional
Director will retain Commitment Authority and closing responsibility. The processing office will assist as
requested, following protocols of the originating office and counsel. A Regional Center Director may redelegate processing responsibilities to designated Multifamily staff in processing offices unless
specifically restricted by the Guide, statute or regulation or by existing published delegations of authority.
C. Washington Docket. At the “initial”/“final” endorsement and closing, the Regional Center’s Closing
Coordinator or other appropriate designated staff should assemble a set of original documents (or as HUD
allows, copies) for the Washington Docket, in accordance with the local Regional Center’s requirements
and procedures. If originals of recorded documents are unavailable because of filing or recording
procedures, a wholly legible copy should be collected (certified true and correct by the recorder or by the
title company). Note that the Phase I Environmental Site Assessment is a program requirement and a
supporting document for the HEROS environmental review. It should remain with the HEROS summary
report in the Washington Docket as a part of the permanent, historical file.
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D. Initial Endorsement Diligence Review. The Regional Center Director and program staff will review
the Lender’s request for initial endorsement and closing and supporting materials in accordance with
Program Obligations. Applications participating in Workload Sharing will follow closing requirements
and protocols of the originating office and counsel; the processing office will provide such support as
requested.
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Chapter 2 Lender Qualifications and Practices
2.1 Introduction
Lender Qualifications and Practices
Introduction
A. The MAP program requires that Lenders and Underwriters be skilled in underwriting multifamily
housing loans and in preparing applications for FHA multifamily mortgage insurance. To ensure that goal
is met, MAP Lenders and MAP Underwriters must be approved by the Counterparty Oversight Branch
(“COB”) within the Multifamily Asset and Counterparty Oversight Division.
B. Approval of a MAP Lender or Underwriter by COB is on a nationwide basis and the MAP Lender and its
approved Underwriter may process MAP loans regardless of which HUD area office will review the MAP
application. MAP approval does not expire, but by accepting the opportunity to participate in the MAP
program, the MAP Lender and Underwriter agree that their MAP loans will be subject to postendorsement review by COB and that, if they fail to meet HUD standards for underwriting loans, their
MAP designation may be terminated in accordance with the Quality Assurance and Enforcement Actions
in Chapter 15.
C. Approval by COB as a MAP Lender is a prerequisite to participation in the MAP program, but MAP
approval does not obviate the need to have an experienced team process each application. The MAP
Lender is responsible for ensuring that all third party contractors meet the requirements outlined in the
MAP Guide, including the USPAP appraiser competency provision and jurisdictional certification
requirements, and that third party contractors do not have any Identity of Interest with the
Borrower/Sponsor or any affiliated entity. If the HUD office has concerns regarding the MAP Lender’s, its
Underwriter’s or its third-party contractor’s past performance or capabilities, the office should consult
with COB for additional monitoring or for a potential enforcement action.
D. As a condition of approval of any new MAP Lender, the Lender’s first three loan transactions will be
subject to the processing restrictions described at D.1-4, below. Further, COB will review the first three
loan transactions after Firm Commitments have been issued, although the transactions may continue to
be processed for Initial Endorsement during COB’s review. Section 223(a)(7) refinancing transactions
may only be credited towards one of the three loan transactions that must be reviewed by COB. Based on
the results of its review of the first three transactions, COB may extend the review process and the
processing restrictions described at D.1-4, below, to additional applications for all MAP programs, to
additional applications just for specific programs or it may release any application processing restrictions.
A new MAP Lender may not submit additional applications for insurance until COB has completed its first
three loan transaction reviews. For its first three MAP applications, and such additional applications as
COB may require, the following limitations on the new Lender’s MAP privileges will apply:
1. For all MAP lending programs:
A Concept Meeting will be required for all new applications.
The Lender’s ability to process MAP loans over a certain amount or for properties over a certain
number of units may be restricted, with the specific loan and unit limits determined by COB based
on a review of the Lender’s application.
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Chapter 2 Lender Qualifications and Practices
2.2 HUD Approval of Lenders
A HUD appraiser must review and approve the full appraisals (and market studies, as applicable)
for any new applications.
2. For the 223(f) and 223(a)(7) programs:
The Lender may not manage critical and non-critical repair escrow releases without a site
inspection and approval of escrow disbursements by HUD staff.
The Lender may not process 223(f) or 223(a)(7) loans which require greater than Level 1 repairs
and/or alterations.
HUD staff must inspect a property if a CNA is found to be deficient.
The Lender must report quarterly on its administration of a non-critical repair escrow.
3. For the 221(d)(4) and 220 programs:
Two-step processing will be required for all new construction and substantial rehabilitation
applications and direct-to-Firm applications may not be submitted.
The Lender may be required to submit full schematics and working drawings during preapplication processing based on the results of HUD’s review during the concept meeting.
4. For the Low-Income Housing Tax Credit program:
The Lender may not participate in expedited processing of tax credit applications but must submit
to standard application processing for both 223(f) and 221(d)(4) loans.
E. An originating MAP Lender may sell or transfer a MAP application only upon receipt of a Firm
Commitment. The application and Firm Commitment may be sold only to another MAP Lender in good
standing and not currently subject to any Probation or Suspension sanctions, and within the limits on MAP
Lenders with Identities of Interest with the Borrower (or affiliates of both). For further guidance on the
sale of a Firm Commitment by a MAP Lender, see Chapter 1, Section 1.2 of this Guide.
2.2
HUD Approval of Lenders
A. The Lender must prepare the application for approval as a MAP Lender, although there is no prescribed
form of this application. The application should be submitted to COB electronically in PDF format. Upon
receipt of all the information specified in Section 2.7, COB will process the application within 30 days.
B. COB must approve each MAP Lender in writing. The names of approved MAP Lenders will be posted
on the HUD website at: https://www.hud.gov/sites/dfiles/Housing/documents/aprvlend.pdf
C. COB may disapprove a Lender application on the grounds that: a) it fails to meet the standards set
forth in Section 2.3); b) it fails to provide sufficient information required by Section 2.7); or c) there are
specified deficiencies that must be corrected. A Lender will not be granted MAP approval if the Lender
uses contract Underwriters exclusively. MAP Underwriters must be full time salaried employees and must
already be employed by the Lender at the time of approval. An appeal of COB’s decision to disapprove an
application, or to impose specific conditions of approval, may be made to the Deputy Assistant Secretary
(DAS) for Multifamily Housing.
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2.3 Lender Standards
D. If the MAP Lender’s approval has been terminated, the Lender may not apply for reinstatement for 12
months after termination. See Chapter 15, Section 15.10.G.
E. MAP Lenders that fail to maintain a minimum level of MAP activity, defined as failing to submit either
a pre-application package or a Firm Commitment application at least once every 12 months, will be
terminated from the MAP program for inactivity, in accordance with 24 CFR 200.1520(b).
2.3
Lender Standards
A. A MAP Lender must demonstrate that it is an FHA-approved mortgagee pursuant to 24 CFR Part 202,
that it is financially sound, it has on-staff principal employees with the necessary multifamily
underwriting experience required by this Guide and its record with FHA-insured or conventional
multifamily loans has been satisfactory. Further requirements are as follows:
1. A Lender must be an FHA mortgagee as a result of its approval by the Office of Lender Activities and
Program Compliance, Lender Approval and Recertification Division.
2. The Lender must not be subject to judgments, administrative claims, litigation or current lawsuits that
would seriously affect its ability to do business; the Lender may not unlawfully discriminate. The
Lender must be, and must remain, continuously in compliance with 24 CFR 200.30, 24 CFR part 5 and
24 CFR part 200, subparts I, J, and M, regarding nondiscrimination and equal opportunity, and it may
not have outstanding violations under said authorities unless it is under an agreement or order to
come into compliance. The Lender must identify staff persons with the level of training and experience
required pursuant to Section 2.10. Multifamily underwriting experience on staff is a key to MAP
approval and the Lender’s Underwriters must have worked regularly in the multifamily lending
business and have underwritten the required number of loans which have been funded.
3. The Lender’s application must identify experienced staff who have the authority to underwrite loan
applications and sign the narrative summary in a loan application. The applicant must also identify
whose signatures may bind the Lender for its responsibilities under MAP.
4. FHA multifamily experience is not specifically required for initial approval as a MAP Lender, but if the
Lender lacks FHA experience, additional emphasis will be placed on recent comparable conventional
multifamily permanent and construction lending experience that is consistent with MAP lending. For
any loan processed under MAP, the Lender must thoroughly understand MAP program requirements.
5. A Lender may be rejected for MAP qualification due to a recent history of early defaults, foreclosures
or assignments of FHA-insured, or defaults or foreclosures of non-FHA insured, loans. The reason for
any assignments, defaults or foreclosures will be evaluated by COB, including whether it was due to
inadequate servicing or poor-quality underwriting. COB will review any loan the applicant has
underwritten and endorsed within the previous five years that has defaulted and been assigned to
HUD to determine whether the Lender was at fault in its origination and underwriting of the defaulted
loan and if there has been a pattern of poor Lender performance.
6. If the Lender has worked with HUD’s Offices in the previous two years, COB will contact those offices
to ascertain their experience with the applicant and their responses will be included in the Lender’s
file. A pattern of unsatisfactory applications at one or more HUD Offices may be grounds for rejection
of the Lender’s MAP application.
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2.4 Loan Consultants, Correspondents, or Mortgage Brokers
Loan Consultants, Correspondents, or Mortgage
Brokers
A. It is common practice for MAP Lenders to use loan consultants, loan correspondents or mortgage
brokers to increase origination capacity. A consultant or a correspondent represents the MAP Lender and
seeks to identify and screen transactions which the Lender can finance using the MAP program. A
mortgage broker represents the Borrower/Sponsor and seeks to identify an appropriate financing source
for their loan transaction.
B. The term loan consultant, loan correspondent or mortgage broker, as used here, applies to an
individual or outside company who is actively engaged in the mortgage origination business and acts as
an intermediary with or on behalf of the MAP Lender but who is not a MAP-approved Lender themselves
and is not an employee of a MAP Lender or of an affiliate of the Lender. Under MAP, the consultant’s,
correspondent’s, or mortgage broker’s sole role is to refer new business to a MAP Lender including
information supplied by the proposed Borrower/Sponsor. Aside from referring a Borrower/Sponsor for
a MAP loan, a consultant, correspondent, or mortgage broker may not have any additional role in
underwriting the transaction or in respect to the MAP Lender.
C. The consultant’s, correspondent’s or mortgage broker’s fee must be paid solely from the Lender’s fees
and must be disclosed in the MAP Lender’s underwriting narrative. The consultant, correspondent or
mortgage broker may not have any Identity of Interest with the Borrower/Sponsor or any affiliated entity,
and acting as an intermediary with or on behalf of the MAP Lender may not represent any Conflict of
Interest with their existing relationship with the Borrower/Sponsor. Consultants or correspondents must
agree to comply with the MAP Guide’s prohibitions on illegal inducements, kickbacks, and side
agreements with the Borrower/Sponsor. For consultants or correspondents to represent a MAP Lender,
there must be a signed written agreement acknowledging the requirements and prohibitions of this
section and of the MAP Guide and certifying their compliance to the MAP Lender.
D. HUD will only accept application packages from, correspond with or rely on information submitted by
an approved MAP Lender, will only communicate with employees of the MAP Lender and will only accept
documents signed by authorized signatories of the MAP Lender. MAP Lenders are expected and
authorized to hire third party contractors to prepare specialized reports related to any of the technical
disciplines, as required by the MAP Guide. However, the involvement of a consultant, correspondent, or
a mortgage broker in any of these functions, including in the selection of third-party contractors, is not
permitted by the MAP program.
2.5
2.5.1
Underwriting and Construction Administration
Underwriter Responsibilities
A. The MAP Underwriter performs the mortgage credit and real estate underwriting functions and must
be a full-time employee of the MAP Lender. The MAP Lender is responsible for underwriting the loan
which necessarily requires that the Lender oversee and recommend to HUD for approval the conclusions
and recommendations of the third-party reports, except as modified, explained and justified in the
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2.5 Underwriting and Construction Administration
Lender’s underwriting. The Underwriter or the Construction Loan Administrator is responsible for
management of the Lender’s responsibilities during the construction period.
B. The duties and responsibilities associated with MAP application underwriting are as follows:
1. Make a determination of the acceptability of the General Contractor, Supervisory Architect,
Management Agent, the Sponsor and the Borrower and its principals through a thorough review of
their ownership structure and an analysis of their experience, credit, character, financial condition
and motivation for ownership (e.g., are they a merchant builder, plan to hold for long term, refinancing
balloon debt, etc.), the availability of assets for closing and the adequacy of property income to meet
loan obligations.
2. Use trade references, bank references, credit data and construction experience resume in analyzing
the construction capability of the General Contractor, including its financial stability and its ability to
complete the project in light of its responsibility for other projects in progress.
3. Identify and analyze all risks associated with the proposed financing and determine the recommended
maximum mortgage amount and other key terms of the loan.
4. Engage all third-party consultants and analysts, provide oversight and effective supervision of their
work to ensure their deliverables meet MAP Guide requirements and support the underwriting
recommendation. The Underwriter must assure that third party contractors do not have any Identity
of Interest with the Borrower/Sponsor or any affiliated entity at the time they are providing the
services. The Underwriter will oversee the assembly of the loan application and will recommend loan
approval to HUD.
2.5.2
Construction Administrator Duties
A. The duties and responsibilities associated with the Construction Loan Administrator during the
construction period (if applicable) are:
1. Determine the initial distribution of mortgage proceeds into various accounts and maintain a record
of their control and disbursement.
2. Determine construction costs (as approved by the HUD inspector), Architect fees and carrying charges
payable under requests for advances of mortgage proceeds or prepare written reasons for
modifications, as necessary.
3. Recommend approval of construction change orders and recommend release of both on-site and offsite escrow funds or cite special requirements or conditions of approval, as necessary.
4. Protect HUD’s interests by assisting with and overseeing the resolution of construction disputes,
delays, costs overruns and any related problems.
2.5.3
Underwriting and Construction– HUD’s Role
A. HUD’s role during application underwriting is to:
1. Review the Lender’s mortgage credit analysis of the acceptability of the Sponsor, the Borrower and
its principals, and of the contractor.
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2. Perform the Active Partner Performance System (APPS) Electronic form HUD-2530 Property
Submission review or successor previous participation review process.
3. Confirm the maximum mortgage amount, loan conditions, loan settlement requirements and other
key terms of the loan.
4. Confirm the project’s financial feasibility and the acceptability of the market and the valuation
conclusions.
5. Review initial and final closing documents for compliance and acceptability.
6. Perform the environmental review.
7. Review and approve the Lender’s construction period analysis and construction costs.
B. HUD’s role during the construction period (if applicable) is to:
1. Review and approve the Lender’s proposed initial distribution of mortgage proceeds.
2. Conduct construction inspections.
3. Require the Lender to ensure resolution of construction problems and disputes.
4. Approve construction change orders.
5. Review the Borrower’s cost certification based on HUD’s allowed costs.
6. Confirm the final maximum insurable mortgage.
7. Review and approve the final distribution of mortgage proceeds.
2.5.4
Electronic Communications
A. HUD will post information on its web site and will transmit messages to Lenders and to the lending
community by electronic mail, often with attached documents, Mortgagee Letters or Housing Notices.
Lender requests or information required to be submitted by Lenders to HUD must be submitted
electronically, including MAP Lender and Underwriter approval requests which are submitted to COB.
2.6
2.6.1
Identity of Interest, Conflicts of Interest
Introduction
A. The Code of Federal Regulations at 24 CFR 200.1530(b)(6) refers to Identity of Interest (IOI) violations
as defined in this Chapter. For purposes of this section, an IOI is defined as a financial or family
relationship between a MAP Lender and another party related to the MAP loan transaction. All IOIs must
first be reviewed and approved in writing by COB. IOIs are prohibited unless explicitly permitted
pursuant to this section or approved in writing by COB. A prohibited IOI is referred to in this section as a
“Conflict of Interest.” Conflicts of Interest are unacceptable in the MAP program because they:
1. Undermine the independence and integrity of the MAP Lender’s underwriting, risk assessment, credit
analysis and/or loan closing procedures;
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2. Obscure the lines between the MAP Lender’s fiduciary responsibilities to the project’s equity investor
and its responsibilities to HUD;
3. Represent an unfair competitive advantage for the MAP Lender; and/or;
4. Represent an unfair business practice with the Borrower or any of its affiliates, which may be due to
a lack of disclosure or skewing of arm’s length incentives.
B. HUD considers certain prohibited payments and promises by a MAP Lender to be a violation of 24
C.F.R. 200.1530(b)(7), which prohibits:
Payment by, or receipt of a payment by, a MAP Lender of any kickback or other consideration, directly or
indirectly, which would affect the Lender’s independent evaluation, or represent a conflict of interest, in
connection with any FHA-insured mortgage transaction.
C. Certain payments and promises could further violate the Lender’s Certificate (form HUD-92434M) and
the Request for Endorsement form (HUD-92455M, Certificate of Lender)
provision, as follows:
Lender has not made or offered, and shall not make or offer, any guarantees, pledges, reservations of sums to
become due, or other inducements to any entity or person to make loans or advances which Lender would be
prohibited from making under the terms of this Section.
D. MAP Lenders that violate the prohibition against IOIs may be subject to enforcement action by the
Department, including, but not limited to, sanctions under 24 CFR part 200, subpart Y (MAP Lender
Quality Assurance Enforcement) and part 25 (Mortgagee Review Board).
E. Prohibited Conflicts of Interest, and acceptable IOI relationships and permissible exceptions, are
detailed in this section; examples are provided in Appendix 2, Section A.2.1.1. IOI relationships that could
be a Conflict of Interest must be disclosed and reported to COB which will provide determinations to
written requests for IOI approvals pursuant to this section. Because determining whether an IOI is
acceptable is inherently complex and may lead to an enforcement action, MAP Lenders and other
participants must obtain written approval from COB prior to proceeding when there is any question of an
IOI.
2.6.2
Definitions
A. The following definitions shall apply to this Chapter:
1. Borrower: Includes, but is not limited to, the GP, LP or managers and members of an LLC of the
borrowing entity, its principals and affiliates.
2. Borrower’s Counsel: Includes, but is not limited to, any attorney or support staff employees who are
a partner, member, or employee of the law firm, and applies to firms and solo practitioners.
3. Borrower’s Team: Includes the Borrower, Borrower’s counsel, General Contractor, subcontractor,
Architect, seller of the land, seller of the property, a third-party consultant providing reports
supporting the transaction, any affiliates of the Borrower’s Team or any parties related to the
Borrower’s Team.
4. Family Relationship/Family Members: Includes spouses, parents, siblings, brothers, stepbrothers,
sisters, stepsisters, sons, stepsons, daughters, stepdaughters, legally adopted sons or daughters, foster
children, grandparents, grandchildren, aunts, uncles, mothers-in-law, fathers-in-law, brothers-in-law
and sisters-in-law.
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5. Financial Interest/Financial Relationship: Includes any current or contingent ownership, equity or
security interest in real or personal property or in a business, as well as any indebtedness,
compensated employment and fiduciary relationship.
6. Gift: Includes any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item
having monetary value, including services as well as gifts of training, transportation, local travel,
lodgings, and meals. Gifts can be provided in-kind, by payment in advance, or by reimbursement after
the expense has occurred.
7. MAP Lender: Includes the Lender’s officers, directors, partners, principals, stockholders, affiliates,
affiliate’s officers, affiliate’s principals or any contract employees working on a particular affiliate’s or
principal’s MAP application and, unless otherwise specified, includes the FHA-approved MAP Lender,
its parent company, subsidiaries, affiliates and any other related entities, and any officers, directors,
partners, members or employees of the MAP Lender, its affiliates and other related parties.
8. Prohibited Source: Means any person who: a) is seeking official action by HUD, b) does business or
seeks to do business with HUD, c) conducts activities regulated by HUD; d) has interests that may be
substantially affected by performance or nonperformance of the HUD employee’s official duties, or e)
is an organization a majority of whose members are described in (a) through (d) and also includes
any people who have a family relationship with the prohibited sources.
2.6.3
Identity of Interest - General
A. The MAP Lender is responsible for conducting appropriate, commercially reasonable due diligence to
identify IOIs and to ensure that no Conflicts of Interest exist. Because the guidance in this chapter is
necessarily general, the Lender is responsible for obtaining prior written approval from COB when there
are questions as to whether an IOI is prohibited in any specific situation.
B. In some cases, the MAP Lender is a Supervised Mortgagee, as defined in the HUD Single Family
Handbook, or is a publicly owned company (or a wholly owned subsidiary of a publicly owned company)
subject to oversight by the U.S. Securities and Exchange Commission. Such entities are actively regulated
by other federal agencies and thus HUD’s risk in IOI situations is partially mitigated. Due to the size and
number of shares and employees, it may be impractical for such entities to provide certainty that there is
no IOI. Accordingly, for purposes of determining whether a prohibited Conflict of Interest exists,
Supervised Mortgagees or publicly-owned MAP Lenders may define in their QC Plan the MAP Lender as
the applicable operating entity responsible for origination and servicing of “agency business”, which
would include both FHA and GSE loans. The QC Plan must describe the due diligence process used to
ensure shareholder or employee IOIs are sufficiently remote such that they will not undermine, or give
the appearance of undermining, the MAP Lender’s or Borrower’s Team member’s integrity and
independence in the underwriting, risk analysis, credit review and loan closing process.
C. Generally, MAP Lenders which are Supervised Mortgagees or publicly owned companies can assume
that counterparties in MAP transactions with less than a 5% shareholder interest in the Borrower entity,
or depositories with less than $500,000 in an account, would not have a Conflict of Interest with the
Lender.
D. Lenders are expected to perform commercially reasonable and appropriate due diligence in evaluating
Borrower Team members’ potential IOIs. Generally, certifications by Borrower’s counsel, Design
Architects and other professional advisors (including the MAP Lender’s third-party professionals) and the
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principals of their firms, that they have no equity interest in the Borrower or in the MAP transaction or
project, may be relied upon. Similarly, certifications by non-IOI General Contractors may be relied upon
as applying to principals of their firms and sub-contractors.
E. Borrower Team members subject to Previous Participation review are assumed to be subject to IOI
disclosure and prohibitions, as are entities or persons with an equity or other financial interest in the
Borrower such that their role in the transaction may provide material control or influence over the
development, operations or management of the project.
F. Further IOI examples can be found in Appendix 2, Section A.2.2.1.
2.6.4
Specific Business Conflicts
2.6.4.1
Lender Owned FHA-Insured Properties
A. MAP Lenders with an equity or ownership interest in a property, either directly or through an affiliate,
would have an IOI if they refinanced the property’s existing loan with a new FHA insured mortgage. This
is not necessarily prohibited, so long as the MAP Lender complies with the requirements of this Chapter
of the MAP Guide (for example, if the MAP Lender is affiliated with a tax credit equity investor or
syndicator which will have a 99% ownership interest in the property), discloses to COB the relationship
in writing prior to submitting the Firm Commitment application, and the loan terms and interest rate are
commercially competitive at the time of the refinancing.
2.6.4.2
Secondary Financing Relationships
A. Secondary financing includes, but is not limited to:
1. Loans secured by the project or made to the Borrower entity in addition to a first mortgage;
2. Loans made to and/or secured by upper tier ownership interests in the Borrower entity (i.e., persons
or entities with any ownership interest in the property’s Single Asset Mortgagor Entity); and
3. Other forms of mezzanine financing associated with the project proposed for the MAP loan
transaction.
B. Any proposed secondary financing relationship between the Borrower and the MAP Lender on a MAP
financed project constitutes an IOI and, unless explicitly allowed in published program guidance, must be
disclosed in writing to HUD and the MAP Lender must receive written approval of the IOI from COB before
submitting an application. Such approval will not be unreasonably withheld provided the relationship is
fully disclosed and the parties demonstrate to HUD’s satisfaction that the relationship will not undermine
the integrity and independence of the MAP Lender’s underwriting, credit review and loan closing process.
These situations will require additional scrutiny by HUD and by the MAP Lender to ensure an appropriate
property valuation and compliance with MAP program requirements. In cases where a secondary
financing IOI occurs during or after processing, it must be disclosed in the manner provided in this section
as soon as it is anticipated.
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Bridge Loans and Balance Sheet Loans
A. An IOI is created in cases where a temporary bridge loan is made by the MAP Lender to the Borrower,
as well as in cases where a loan on the MAP Lender’s balance sheet will be refinanced using an FHA insured
loan. Existing or potential bridge or balance sheet loans require disclosure of IOIs at the earlier of the
Concept Meeting or at submission of the loan application. Generally, such IOIs will be approved if HUD
determines, based on the facts and circumstances submitted in writing by the MAP Lender, that the
relationship does not:
1. Undermine the integrity and independence of the Lender’s underwriting;
2. Circumvent program requirements; or
3. Undermine program intent (for example by facilitating cash out on either a Section 223(a)(7) or a
Section 223(f) loan greater than 80% LTV).
2.6.4.4
Lenders with Tax Credit Equity Affiliates
A. With prior written approval from COB, certain MAP Lenders with tax credit equity syndicator or
investor affiliates, which would otherwise represent a prohibited IOI relationship, may originate MAP
loans. Approval of such requests shall be conditioned on:
1. The MAP Lender must be a Supervised Mortgagee, as defined in the HUD Single Family Handbook.
2. Except where HUD has agreed to a “Pre-Approval of Special Limited Partners as Interim Replacement
GP/MM for LIHTC Transactions”, the equity syndicator or investor must remain in a purely passive
role throughout the term of the FHA-insured loan, including after the tax credit compliance period
ends.
3. The MAP loan must be processed, underwritten, and approved by the MAP Lender’s staff without
involvement by the affiliated equity syndicator’s or investor's staff.
4. Effective firewalls must be maintained between the affiliated equity syndicator or investor and the
MAP Lender. The affiliated equity syndicator or investor must not improperly influence the MAP
division's staff in its role as MAP Lender, nor may the MAP Lender act to influence the affiliated equity
syndicator or investor.
5. The MAP division and the affiliated equity syndicator or investor must each provide HUD with a
project-specific certification that contains the MAP Guide's prescribed IOI certification contained in
Section 2.6.4.6.A.8, below.
6. The MAP Lender and the Borrower must certify that the affiliated equity syndicator or investor did
not seek, and shall not provide, any inducement to the Borrower to close the MAP loan with the MAP
Lender.
B. MAP Lenders that are not Supervised Mortgagees may still invest in tax credit transactions through
their equity syndicator or investor affiliates, subject to compliance with Section 2.6.4.4.A.2-6 above, and
compliance and certification that, after the project’s placed-in-service date, the affiliated equity syndicator
or investor will hold no more than a 25 percent ownership interest in the Borrower entity.
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2.6 Identity of Interest, Conflicts of Interest
Lender’s Consultants, Correspondents, or Mortgage Brokers and IOI
A. MAP Lenders may engage business using a mortgage broker, loan consultant or loan correspondent,
subject to the restrictions and requirements contained in Section 2.6.4, above. Brokers, consultants and
correspondents may not have any IOI with the Borrower or Sponsor or any of their affiliated entities.
Although the broker’s, consultant’s or correspondent’s fee will be paid from the MAP Lender’s fees, this
does not create an IOI relationship between the broker, consultant or correspondent and the Lender.
2.6.4.6
Other Lender Conflicts
A. MAP Lenders may occasionally seek to invest in a project financed under MAP by a separate
“Underwriting MAP Lender”. If the Borrower has an IOI relationship with a MAP Lender, that “IOI MAP
Lender” cannot assist in underwriting, purchasing, or servicing the loan until after Final Endorsement.
The arrangement to assign the loan after Final Endorsement is subject to full disclosure before processing
begins, including certification and approval by HUD and the adoption of appropriate procedures in each
MAP Lenders’ QC Plans. The Conflict of Interest risk may be mitigated by meeting the following
requirements:
1. The IOI relationship must be fully disclosed as a planned business practice in both MAP Lenders’ QC
Plans. With each application, the Underwriting MAP Lender must include a certification that includes
the applicable criminal penalty warning. The warning must certify that the IOI MAP Lender had no
involvement in the underwriting process and that the referring entity had a “firewall” such that only
employees of the owner/ equity investor affiliate of the IOI Map Lender provided information to the
Underwriting MAP Lender.
2. The Underwriting MAP Lender must have made no specific written or oral obligation to assign the
loan to the IOI Map Lender after Final Endorsement and must retain the right to assign, or refuse to
assign, the loan to any servicer or to hold the loan.
3. The IOI Map Lender must have made no written or oral obligation to purchase the loan from the
Underwriting MAP Lender after Final Endorsement and must retain the right to sell, or refuse to sell,
the loan.
4. Any dealings between the IOI MAP Lender and the Underwriting MAP Lender must be arm’s length
and independent at all times, including after issuance of a Firm Commitment. The IOI MAP Lender
may not advise or assist the Underwriting MAP Lender in processing the loan or with making any
underwriting decisions.
5. The IOI MAP Lender may not receive a mortgage broker’s, consultant’s or correspondent’s referral fee
from the mortgage proceeds.
6. HUD will only accept application packages, correspondence and information related to the loan that
are submitted by the Underwriting MAP Lender.
7. The IOI MAP Lender may not hire or interact with third-party contractors, except that its equity
affiliate may respond to inquiries from the Underwriting MAP Lender’s third parties. Such
interactions must be isolated by the firewall described in the Lenders’ QC Plans.
8. Third-Party contractors may not have any IOI with the Borrower or the Underwriting MAP Lender at
the time they are providing their services.
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9. Both Lenders must have appropriate and acceptable QC practices that provide for an effective firewall
and must provide for objective and independent loan origination and underwriting processes. Such
practices and procedures must be defined in each MAP Lenders’ QC Plan and be approved by COB.
2.6.4.7
Prohibited Practices - Inducements
A. A MAP Lender may not have arrangements with Borrowers for the purpose of securing the Borrower’s
business that may undermine the MAP Lender’s integrity in the underwriting and credit review process
or provide an unfair competitive advantage to the MAP Lender. The following are examples of prohibited
inducements in which the MAP Lender may not:
1. Provide “kickbacks” such as financial rewards, payments or fee rebates, free or discounted
professional services (except for a reduced loan origination fee) or other remuneration to a Borrower;
2. Provide loans or advances of funds to affiliates of either the MAP Lender or the Borrower for the
purpose of meeting requirements for cash or financial capacity related to the MAP transaction;
3. Condition the provision of, or provide more desirable terms for, other banking products including tax
credit equity investments by affiliated entities in exchange for engagement to process the MAP loan;
4. Pay the Borrower’s costs for third-party reports;
5. Pay application fees; or
6. Offer to refund application fees on unsuccessful loan applications.
B. The preceding list of prohibited inducements is not intended to be exhaustive. Any similar payment
made by MAP Lender to the Borrower to secure loan origination business is prohibited. The prohibition
on inducements does not prevent a MAP Lender from paying for updated third-party reports provided
the transaction was already submitted for a Firm Commitment application that was delayed in processing
due to no fault of the Borrower. The Lender must provide to COB and the Director of Multifamily
Production a written notice and detailed explanation of any transaction in which such funds are greater
than $10,000.
2.6.4.8
Prohibited Practices - Gifts
A. A prohibited IOI can be created when the MAP Lender, Borrower, or other parties to a MAP loan
transaction solicit or accept gifts from prohibited sources based on their business relationship. Gifts less
than $200 per year to an individual recipient are presumed not to constitute a prohibited IOI. A gift may
not be conditioned on an agreement or obligation to do business related to a MAP transaction. Gifts given
based on an existing business relationship outside of the MAP transaction, or incidental to commercially
reasonable and customary marketing practices that are typical of FHA MAP Lenders, are not prohibited
unless the value, amount or circumstances undermine, or give the appearance of undermining, the
integrity and independence of the underwriting and credit review process. The MAP Lender’s QC Plan
must address their policy on this topic.
2.6.4.9
Prohibited Practices - Charitable Donations
A. Occasionally, MAP Lenders will make charitable donations to causes that may create a potential
Conflict of Interest. HUD does not prohibit charitable contributions by MAP Lenders or Borrowers,
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2.6 Identity of Interest, Conflicts of Interest
although they can result in a Conflict of Interest for MAP purposes. Any donation given by any party in a
MAP transaction conditioned upon an agreement or obligation related to a MAP loan creates a prohibited
IOI whether or not such condition is in writing. In situations where HUD becomes aware of such
contributions that may constitute a Conflict of Interest, enforcement will be pursued if HUD determines
the gifts were intended for the purpose of competing for a potential MAP loan.
B. The six primary factors to be considered by HUD in determining whether charitable donations may
represent a prohibited IOI are:
1. Whether the donor disclosed such charitable donations to HUD in advance of submitting the MAP
application. The donor may provide documentation of monetary value, history of donations to a
particular charity, history of donations to a variety of similar charities or other information it deems
relevant to show that the donation is not based on, and would not influence, the origination or
underwriting of the MAP loan;
2. The timing of the donation;
3. The monetary value or amount of the donation;
4. Any implicit or explicit understanding that the contribution is a condition of engagement of the Lender
to process the MAP loan;
5. The Lender’s history of philanthropic contributions; and
6. The specific roles and relationships between the parties involved.
2.6.5
Disclosing Identities of Interest
2.6.5.1
In General
A. Disclosure is required where there is an actual IOI, the appearance of an IOI or the potential for an IOI
between the MAP Lender and the Borrower’s Team or any other party to the MAP transaction. All
questions and supporting documentation, including any additional information requested by the HUD
production office, must be submitted to COB for review.
2.6.5.2
IOI Discovered Before Processing
A. If an IOI is identified and a MAP Lender has not started processing, the MAP Lender must disclose the
IOI to COB and request written approval of the IOI before continuing. Alternatively, the MAP Lender may
undertake one of the following measures:
1. Remove the IOI party from the transaction and process the application using MAP; or
2. Immediately transfer the application to a new MAP Lender. The new MAP Lender may not assign the
pre-application submission, the Firm Commitment application, the mortgage insurance commitment
or the insured loan back to the IOI MAP Lender prior to Final Endorsement.
2.6.5.3
IOI Discovered During Processing
A. If an IOI becomes apparent during processing, a MAP Lender must immediately stop processing,
disclose the IOI to COB and attempt to obtain HUD’s written approval of the IOI before continuing.
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2.6 Identity of Interest, Conflicts of Interest
Alternatively, the MAP Lender may transfer the application to a new MAP Lender which may be required
by the HUD production office to reprocess all or some stages of the transaction. At no time prior to Final
Endorsement may the new MAP Lender assign the pre-application submission, the Firm Commitment
application, the mortgage insurance commitment, or the insured loan back to the IOI MAP Lender.
2.6.5.4
IOI Discovered After Firm Commitment
A. IOIs discovered after issuance of a Firm Commitment may reflect either a lack of transparency, absence
of due diligence or negligence on the part of the MAP Lender. The MAP Lender and other involved parties
may be referred to investigative or enforcement authorities and the HUD production office must refer
such transactions to COB for review of the loan underwriting to determine if it may have been impacted
by the IOI relationship.
2.6.6
Certification
A. The MAP Lender must certify and agree that it:
1. Does not have outstanding loans or advances to the Borrower’s Team or to any of the Sponsors, the
General Contractor or the Architect for any purpose directly or indirectly related to the MAP
transaction without prior written approval of HUD;
2. Will not make any loans or advances to the aforementioned parties for any purpose directly or
indirectly related to the MAP transaction without prior written approval of HUD; and
3. Has not made or offered, and shall not make or offer, any guarantees, pledges, reservations of sums to
become due or other inducements to any entity or person associated with the MAP transaction.
B. In the following circumstances, certification is not required: a) loan advances made in accordance with
Program Obligations; b) notes given to evidence additional financing charges owed by Borrower to the
MAP Lender as authorized in the MAP Guide and as disclosed pursuant to the Lender’s Certificate (form
HUD-92434M or later designation) or the Certificate of Lender contained in the Request for Endorsement
of Credit Instrument (form HUD-92455M or later designation), as applicable; or c) Lender advances made
pursuant to the Security Instrument (form HUD-94000M or later designation).
2.6.7
Syndicator or Investor Influence
A. The affiliated tax credit equity syndicator or investor must not improperly influence the MAP Lender
which is underwriting a MAP loan on a tax credit project. The MAP Lender and the affiliated tax credit
equity syndicator or investor must each provide the HUD production office a project specific
representation and warranty on each application submitted for a tax credit project. The representation
and warranty should be consistent with instructions provided in Appendix 2, Section A.2.3 and must
contain the referenced criminal warning language.
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2.7 New MAP Lender Application Package
New MAP Lender Application Package
A. A new Lender’s MAP application should be submitted to COB electronically in PDF format. There is no
specific required application form for approval as a MAP Lender, but the information submitted must
include the following exhibits:
1. Exhibit A: Provide the name of applicant, address, employer identification number, contact person or
persons, telephone and fax number, e-mail address, branch offices for multifamily business with
address, telephone and e-mail address, and the FHA Mortgagee ID Number.
2. Exhibit B: List the names and titles of those who are authorized to bind the Lender in matters
involving an application, underwriting and origination of insured mortgages under MAP
3. Exhibit C: Describe the type of FHA-Mortgagee (e.g., supervised or non-supervised), type of legal
structure (e.g., general corporation, limited liability corporation, partnership, Housing Finance
Agency or other), whether the Lender is a subsidiary of another company, and if so, identification of
the parent company.
4. Exhibit D: Provide a copy of most recent financial statements submitted to HUD’s Office of Lender
Activities and Program Compliance, Lender Approval and Recertification Division (not applicable to
supervised mortgagees).
5. Exhibit E: Describe in the narrative the applicant’s method of operation in multifamily lending. This
will include whether it: a) services loans; b) is an originator that sells commitments or loans to others;
c) originates and holds loans in its portfolio; d) purchases loans from others; and, e) has experience
in construction loan administration. Also include the number, location and staffing of branch offices
it operates and any other information the applicant deems relevant in providing a clear description of
its business.
6. Exhibit F: Describe the experience of the Lender in multifamily loan origination, for both
conventional, GSE and FHA-insured loans. List the FHA-insured loans for which the Lender has
received Firm Commitments in the last 5 years, the number, name, location, original amount, HUD
Office where processed and whether the loan is in default has been assigned, or an election to assign
the loan to FHA has been filed, or the Lender has elected to foreclose on the loan. The extent of
conventional lending may be summarized rather than listing each conventional mortgage originated
in the last 5 years. It is important to summarize the extent of conventional multifamily experience,
the extent to which construction loan administration was involved and the number and percentage of
defaults and foreclosures. List any FHA or conventional loan that was sold since origination and is
serviced by another Lender and report on whether the sold loan is in default, foreclosure or has been
assigned to FHA. Default for these purposes means a loan whose payment is more than 60 days
overdue.
7. Exhibit G: Explain in detail any elections to assign FHA loans for insurance benefits for any Initial
Endorsements that occurred after May 1, 1995.
8. Exhibit H: Provide resumes of the staff who will be responsible for the submission of MAP loan
applications demonstrating that the staff have the required multifamily experience.
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2.8 Limitations and Notices
9. Exhibit I: Describe experience in construction loan administration, if the applicant intends to perform
this function. Identify those persons authorized to sign advances, construction change orders and
escrow releases.
10. Exhibit J: Provide a detailed description of the following:
Lawsuits/claims/judgments filed or issued in the last 5 years against the applicant, its officers or
principals, or its Chief or Deputy Underwriter(s) which:
1) Concern equal employment or Lender discrimination prohibited by law, or
2) Are a result of, or might significantly affect, its multifamily lending business.
Any criminal matters or civil complaints that impugn the character or compromise the integrity
of the applicant, its officers or principals, or its Chief or Deputy Underwriter(s).
11. Exhibit K: The Lender must represent that it will certify with each pre-application submission and
application for mortgage insurance that it is in compliance with the provisions of the MAP Guide
concerning Identities of Interest and conflicts of interest among participants in a loan transaction.
12. Exhibit L: The Lender must state that it will open its files and records on all FHA applications for
monitoring by COB, the Departmental Enforcement Center and the Office of Inspector General.
13. Exhibit M: The Lender must submit a Quality Control plan for underwriting insured mortgages
processed under MAP and when applicable, for construction loan administration for such insured
mortgages.
14. Exhibit N: Provide a copy of the Letter of Approval evidencing approval as an FHA Approved
Mortgagee.
2.8
Limitations and Notices
A. There are no additional capital requirements for MAP Lenders beyond the minimum net worth and
liquidity requirements in 24 CFR Part 202.5(n)(3).
B. There is no fee charged by HUD for applying to be a MAP Lender.
C. MAP Lenders must promptly notify MCOB if there has been a change in approved signatories. MAP
Lenders at all times must maintain staff with the level of experience and qualifications required by this
Guide. Other than Underwriters, Chief Underwriters and Deputy Chief Underwriters, COB will not
approve or disapprove of other individuals working for MAP Lenders.
D. MAP Lenders must notify COB if there has been a change of address of their home office for multifamily
business, electronic mail address or telephone number. If there is a change in ownership or in the
controlling interest in a MAP Lender, or if the Lender has a material change in its way of doing business,
the Lender must re-apply for MAP Lender status. If a sale/acquisition, merger or license transfer of a MAP
Lender is planned, the acquiring Lender must notify COB at least 30 days before the transaction is
consummated and must submit for COB’s review a description of: a) the transaction; b) its effect on the
Lender’s participation in the MAP program; c) the Lender’s MAP staffing plan; d) any changes to its MAP
operating procedures; e) an updated QC plan; and, f) a combined production tracking report for all MAP
transactions in process. If there is a change in the MAP Lender’s name or in the name the Lender does
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2.9 Quality Control, Records and Monitoring
business as (DBA) with no other substantive changes proposed, the Lender must notify COB of the change
and must provide a certification that there has been no change in ownership, principal staff or in the
Lender’s QC Plan and procedures. Lenders must notify COB if they withdraw as MAP Lenders, even if
temporarily.
2.9
Quality Control, Records and Monitoring
A. All new and existing MAP Lenders must have a QC Plan that contains the information required by this
Chapter and by Appendix 2, Section A.2.1. The QC Plan must be updated annually.
B. MAP Lenders must make their files and records available to HUD or HUD’s authorized contractors for
such monitoring of MAP processed loans as HUD determines. Lenders must retain the loan origination
and underwriting files for 7 years after Final Endorsement (even if the loan has been sold).
C. MAP Lenders are subject to, and must cooperate with, monitoring and periodic on-site reviews by COB
or its representatives to verify that the Lender:
1. Adheres to all statutory, regulatory and MAP Guide requirements;
2. Has made underwriting decisions that are consistent with the requirements of the MAP Guide;
3. Has undertaken technical processing that is consistent with the requirements of the MAP Guide;
4. Has complied with the conditions of a Firm Commitment and the requirements for Initial or Final
Endorsement; and
5. Has complied with the requirements for construction loan administration in the MAP Guide.
D. Additional information on the role, authority and procedures of COB is found in Chapter 15.
2.10 Underwriters – HUD Approval
A. Any applications submitted to HUD must be underwritten by a MAP-approved Underwriter who has
been approved and certified either by HUD or by a HUD-approved Chief Underwriter who is employed by
a MAP Lender. The process for approving and certifying MAP Underwriters by HUD or by Chief
Underwriters is outlined below.
B. COB will approve MAP Underwriters for: a) Low Volume MAP Lenders (with less than a 4 year trailing
average of $100,000,000 in firm commitments annually) that choose not to have their Underwriters
approved by a Chief Underwriter; b) new MAP Lenders with less than 4 years MAP underwriting
experience (or until COB has determined that they have gained sufficient experience); and, c) MAP
Lenders with suspension or termination enforcement actions within the previous 4 years. All other MAP
Lenders must approve their MAP underwriting staff pursuant to the Chief Underwriter process described
below.
C. COB may reject or condition approval authority for MAP Underwriters, provided that the basis for
decision are described in writing. Lenders may appeal rejections or conditions to approval to the DAS for
Multifamily Housing.
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2.10 Underwriters – HUD Approval
MAP Underwriters
A. A MAP Underwriter must be a full-time salaried employee of the MAP Lender and may not be hired or
retained only for a specific loan application. Underwriter compensation may not be based solely on loan
production volume, nor may the Underwriter be compensated in a way that may be construed as a means
of discouraging prudent risk management. MAP Underwriters may not hold a significant equity position
in, or be a principal of, the MAP Lender or any of the Lender’s affiliates, although Employee Stock
Ownership Plans and similar forms of compensation are permitted.
B. Applicants for MAP Underwriter designation may range from trainees to veteran executives with years
of experience, but all are expected to have recent experience and to document that they have met the
minimum education and experience requirements expected of Underwriter trainees. The applicant must
demonstrate competence and the following qualifications:
1. The applicant must have knowledge and skills in a variety of financial areas, including:
General experience in banking, accounting, finance, commercial lending and in multifamily
mortgage financing;
The ability to analyze corporate and personal financial statements including, but not limited to,
balance sheets, income statements, statements of changes in financial position and to evaluate the
credit acceptability of individuals, partnerships, corporations and other entities;
A broad knowledge of lending practices for permanent mortgages, construction loans and the
financial structures of individuals, partnerships, and other business entities; and
Demonstrate recent, like-kind underwriting experience. Recent experience is defined as actual
underwriting experience obtained by underwriting funded multifamily permanent loans within
the previous 5 years. Like-kind experience is defined as underwriting with comparable duties
and responsibilities as required under the MAP program.
2. Application for HUD approval of MAP Underwriters (who will not otherwise be approved under the
procedures contained in Section 2.11, below): The request for approval should be submitted
electronically in PDF format to COB by a senior officer of the MAP Lender with signatory authority
and include the following exhibits:
Resume of the Underwriter that demonstrates the specific qualifications, education, and level of
experience.
Documentation of successful completion of relevant education and training courses.
List of loans (MAP and otherwise) processed and underwritten by the Underwriter that reached
Firm Commitment (or its equivalent under other loan programs), certified and signed by a senior
officer of the MAP Lender with authorized signatory designation and by the Underwriter
applicant. The list must contain the following warning code:
“Warning: Federal law provides that anyone who submits (or causes to submit) a document
containing any false, fictitious, misleading, or fraudulent statement/certification or entry may be
criminally prosecuted and may incur civil administrative liability. Penalties upon conviction can
include a fine and imprisonment, as provided pursuant to applicable law, which includes, but is
not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802, 24 C.F.R. Parts 25, 28 and 30, and
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2.10 Underwriters – HUD Approval
2 C.F.R. Parts 180 and 2424. The signatory certifies that the information provided herein is true
and accurate.”
Additional supporting documentation as may be requested by COB.
2.10.2
Chief Underwriters
A. MAP Lenders that are responsible for approving their MAP Underwriters pursuant to this Chapter must
designate an employee as a Chief Underwriter who has been approved by COB. As a condition of approval,
all new MAP Lenders must have a designated Chief Underwriter who meets this Section’s requirements. .
The designated Chief Underwriter will have responsibility for approving MAP Underwriters and Deputy
Chief Underwriters and must certify that they are qualified in accordance with MAP Guide requirements.
If the Chief Underwriter is absent or is no longer employed by the MAP Lender, and there is no Deputy
Chief Underwriter available to perform these functions, the Lender may not submit new applications until
COB has approved a new Chief Underwriter to perform them.
B. Ongoing eligibility to approve Underwriters will be determined by COB, by confirming the following:
a) the MAP Lender is in good standing; b) the Chief and Deputy Chief Underwriters are in good standing;
c) the Chief Underwriter or Deputy has co-signed each application submitted by a designated
Underwriter; and, d) the Chief Underwriter confirms in his/her annual Certification that the MAP Lender’s
QC Plan and underwriting staff are in compliance as defined herein.
1. The proposed Chief Underwriter must:
Be approved in writing by COB.
Be in good standing with the Department and in full MAP compliance, defined as not having been
subjected to MAP disciplinary actions (probation, suspension, or termination) over the previous
5 years.
Have evidence of 10 years prior underwriting experience, which need not be continuous, but must
total 10 years. The experience must include a minimum of 5 years FHA/MAP underwriting
experience, with the remaining experience to be comprised of Fannie Mae, Freddie Mac, HFA Risk
Sharing or equivalent experience underwriting construction and/or permanent loans on
multifamily properties. The proposed Chief Underwriter’s application must include a list of FHA
loans the applicant has underwritten and the name(s) of the processing MAP Lender. The
applicant may request that 1-year’s equivalent experience be granted for evidence of each 10
acceptably processed Firm Commitment applications, for up to 5 years of the required experience.
Demonstrate experience in the training, development, and oversight of MAP Underwriter
trainees. The application should include specific training experience with a list of all personnel
they have trained.
May not hold a significant equity position in, or be a principal of, the MAP Lender or any of the
Lender’s affiliates, although Employee Stock Ownership Plans and similar forms of compensation
are permitted.
2. The roles and responsibilities of Chief Underwriters include:
Creation and oversight of the MAP Lender’s training and development program for underwriting
personnel.
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2.10 Underwriters – HUD Approval
Approval of MAP Underwriters.
Confirmation of the MAP Lender’s compliance with statutory, regulatory and programmatic
underwriting processes, requirements and standards.
Establishment and oversight of the MAP Lender’s quality control process.
Review, approval and cosigning of all HUD mortgage insurance applications. All application
submissions must be cosigned by the Chief Underwriter, who may delegate responsibilities to the
Deputy Chief Underwriter, but otherwise remains responsible for the submission.
Implementation of COB recommended improvements, including any findings and observations
from COB’s review of the MAP Lender or of its loans.
3. MAP Underwriter Approval Process and Certification.
The MAP Lender and its Chief Underwriter must provide a certification that the MAP Underwriter
or the Underwriter Trainee has complied with all experience and training requirements detailed
in this Chapter and must evaluate the prospective Underwriter to ensure the following:
1) The Underwriter has completed and complied with the MAP Lender’s approved training plan.
2) The Chief Underwriter has extensively reviewed the Underwriter Trainee’s underwriting
during the training period to ensure that it complies with MAP requirements and accurately
identifies and addresses the risks associated with the proposed loan.
3) The Chief Underwriter has reviewed and ensured that the loan documentation submitted to
HUD during the training period was complete and that the submission did not require
significant revision to correct errors or omissions by HUD staff.
The MAP Lender and Chief Underwriter must notify COB and certify that the Underwriter or the
Underwriter Trainee has satisfactorily completed the designation criteria and has been approved
and designated to underwrite loans. The designee is not authorized to begin underwriting until
COB is in receipt of and acknowledges the MAP Lender’s notification and certification.
Although HUD will rely upon the designation and certification by the MAP Lender, HUD reserves
the right, with due cause and based on written notification, to deny or rescind such approval and
otherwise hold the MAP Chief Underwriter accountable under any of the following circumstances:
1) Evidence that the Underwriter Trainee’s work product during the training period was
unsatisfactory.
2) Prior incidences of poor underwriting that display a lack of knowledge or failure to exercise
prudent judgment or risk management.
3) Listing of the Underwriter Trainee on HUD’s LDP, suspension or debarment list.
4) For other good cause as determined by HUD.
QC reviews prepared by the MAP Lender must include confirmation that the Chief Underwriter
and the Underwriter(s) are approved and have satisfactorily completed all designation criteria,
including, without limitation, the MAP Lender’s approved training and approval requirements.
During the QC process, the reviewer will ensure that each loan reviewed was underwritten by an
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2.11 Underwriter Trainees
approved and designated Underwriter, and, if the Underwriter was approved within the previous
4 years, the QC review should include a review of the Underwriter’s approval package.
2.10.3
Deputy Chief Underwriters
A. The MAP Lender’s Deputy Chief Underwriter may perform all functions delegated to the Chief
Underwriter, but the Chief Underwriter remains responsible for all actions of the Deputy Chief
Underwriter. With notice to and approval by COB, the Deputy Chief Underwriter may also act as an
interim Chief Underwriter to maintain business continuity in emergency situations. The MAP Lender
must obtain COB’s approval if the Deputy Chief Underwriter will act as the Chief Underwriter for more
than 3 months. High Volume MAP Lenders (with more than a 4-year trailing average of $100,000,000 in
firm commitments annually) may designate more than one Deputy Chief Underwriter.
1. The proposed Deputy Chief Underwriter must:
Be approved in writing by COB.
Be in good standing with the Department and in full MAP compliance, defined as free of MAP
disciplinary actions (probation, suspension or termination), during the previous 5 years.
Provide evidence of 5 years prior underwriting experience including a minimum of 3 years of
FHA/MAP underwriting, with the remaining experience comprised of Fannie Mae, Freddie Mac,
HFA Risk Sharing or equivalent experience underwriting permanent loans on multifamily
properties. The experience need not be continuous but must total 5 years. The proposed Deputy
Chief Underwriter’s application must include a list of FHA loans underwritten and the name(s) of
the processing Lender. The Underwriter may request that 1-year’s equivalent experience be
granted for evidence of each 10 acceptably processed Firm Commitment applications.
Not hold a significant equity position in, or be a principal of, the MAP Lender or any of the Lender’s
affiliates, although Employee Stock Ownership Plans and similar forms of compensation are
permissible.
2.11 Underwriter Trainees
A. A MAP Lender may train its in-house staff to be new MAP Underwriters for approval either by COB or
by the Lender’s Chief Underwriter under the procedures in Section 2.10, above. The Lender must establish
a written development plan for Underwriter trainees that includes a combination of
commercial/multifamily training courses and on the job experience.
1. The Underwriter trainee must have successfully completed at least 3 underwriting, finance, appraisal
or environmental courses that demonstrate basic understanding of multifamily underwriting
concepts, one of which must be a multifamily/ commercial appraisal course. These courses may be
obtained through the American Bankers Association, Institute of Real Estate Management, National
Association of the Review Appraisers & Mortgage Underwriters, the Mortgage Bankers Association of
America (MBA), the Appraisal Institute or any other acceptable training institution such as colleges
and universities. Suggested courses include Commercial Underwriting, Understand Your Construction
Borrower, Analyzing Financial Statements, Commercial Real Estate Financing and Valuation, Appraisal:
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2.11 Underwriter Trainees
Concepts and Applications, Appraisal Principles, Appraisal Procedures, Basic Income Capitalization,
Advanced Income Capitalization, and Uniform Standards of Professional Appraisal Practice (USPAP).
Education used to meet Underwriter approval requirements must be comprehensive enough to
provide substantive background. In-depth specialized technical training provided by recognized
training institutions, trade associations or private firms will be considered so long as the content and
duration of the class is analogous to a college-level class. One-day seminars or participation in
industry conferences are appropriate (and expected) for continuing education, but these are not
sufficient to meet the requirement for one of the 3 courses. Lenders or training providers may submit
a course syllabus to COB if there is a question as to the sufficiency of a specific course to meet the
requirement.
2. In addition to the training courses, HUD requires on-the-job training of a minimum of 3 years
continuous work experience in multifamily mortgage lending. The Underwriter trainee must work
on a minimum of 3 MAP applications that reach Firm Commitment. Section 223(a)(7) refinancing
transactions may only be credited towards one of the three minimum MAP applications. Only one
Underwriter trainee may assist the MAP-approved Underwriter in completion of any MAP application,
which should document that the trainee was supervised by only one MAP-approved Underwriter
mentor.
3. An Underwriter trainee may assist the MAP Underwriter in completion of the underwriting and both
the MAP approved Underwriter and the trainee must sign the Narrative Summary and the processing
forms.
4. The MAP-approved Underwriter must accept responsibility for all aspects of the loan underwriting as
evidenced by the signed Narrative Summary and processing forms.
5. The Underwriter trainee must be a full-time salaried employee of the MAP Lender and may not be
hired or retained only for a specific loan application.
6. The Underwriter trainee may not hold a significant equity position in, or be a principal of, the MAP
Lender or any of the Lender’s affiliates, although Employee Stock Ownership Plans and similar forms
of compensation are permissible.
7. The trainee’s contribution to the underwriting, and the specific tasks performed by the trainee, must
be stated in the Narrative Summary.
8. Work completed by an Underwriter trainee must be under the direct supervision of a MAP approved
Underwriter and it is unacceptable for the MAP Underwriter to merely sign a form or document
prepared by a trainee without providing proper supervision. The mentor Underwriter must add a
paragraph in the Underwriter Certification to certify that he/ she has directly supervised the
Underwriter trainee in completion of the specific tasks in the Narrative Summary and the processing
forms.
9. For new MAP Underwriters who must be approved by COB, a written request for approval of the
trainee as a MAP Underwriter should be submitted electronically in PDF format by a senior officer of
the MAP Lender with signatory authority to COB and include the following exhibits:
A written development plan established for the Underwriter trainee.
A resume of the Underwriter trainee that demonstrates the specific qualifications, education and
the level of experience outlined above.
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A list of MAP loans processed and underwritten by the trainee that reached Firm Commitment,
certified and signed by a senior officer with authorized signatory designation and by the
Underwriter trainee. The list must contain the following warning:
“Warning: Federal law provides that anyone who submits (or causes to submit) a document
containing any false, fictitious, misleading, or fraudulent statement/certification or entry may be
criminally prosecuted and may incur civil administrative liability. Penalties upon conviction can
include a fine and imprisonment, as provided pursuant to applicable law, which includes, but is
not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802, 24 C.F.R. Parts 25, 28 and 30, and
2 C.F.R. Parts 180 and 2424. The signatory certifies that the information provided herein is true
and accurate.”
An electronic submission of complete documentation of each MAP application on which the
Underwriter trainee worked (a hard copy is not required and should not be submitted). The
documentation, signed by the trainee and co-signed by the mentor Underwriter, must include:
1) A copy of Narrative Summary that clearly identifies the specific tasks performed by the
Underwriter trainee;
2) A copy of completed form HUD-92264-A and other forms and / or exhibits for the type of
mortgage proposed that require a mortgage credit analysis (refer to Chapter 8 and Appendix
4);
3) A copy of the Master form HUD-92264; and,
4) An IOI Certification, as required by Section 2.6, signed and dated by the Underwriter trainee
only.
10. Underwriter candidates who have successfully completed the MBA’s 6-month FHA Multifamily
underwriting course will receive credit toward the experience and education requirements.
Completion of that course will:
Fully satisfy the requirement to complete 3 courses;
Satisfy half of the 3 transactions requirement; and,
Satisfy half of the 3 years of experience requirement.
B. By satisfying half of the MAP Underwriter requirements in #2 and #3, above, the candidate may elect
to utilize the course completion to fulfill either two transactions/one year, or one transaction/two years
of the requirements. The applicant should submit evidence of completion of the MBA MAP Underwriter
course and indicate how they wish to utilize the course completion toward the minimum transaction
requirements.
2.12 MAP Underwriter Transfers
A. MAP Underwriters in good standing may transfer to another approved MAP Lender.
B. A written request for transfer approval should be submitted electronically in PDF format to COB, on
behalf of the transferring MAP Underwriter, by a senior officer with signatory authority for the MAP
Lender to which the MAP Underwriter has or intends to transfer and include the following exhibits:
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1. Resume of the Underwriter that demonstrates the specific qualifications, education, and the level of
experience.
2. Evidence of prior MAP Underwriter approval.
3. A list of MAP loans processed and underwritten by the Underwriter that reached Firm Commitment,
certified and signed by the Underwriter applicant. The list must contain the following warning:
“Warning: Federal law provides that anyone who submits (or causes to submit) a document
containing any false, fictitious, misleading, or fraudulent statement/certification or entry may be
criminally prosecuted and may incur civil administrative liability. Penalties upon conviction can
include a fine and imprisonment, as provided pursuant to applicable law, which includes, but is not
limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R.
Parts 180 and 2424. The signatory certifies that the information provided herein is true and
accurate.”
4. A detailed list of all prior MAP loan defaults, assignments or claims with which the Underwriter was
associated, including a detailed explanation of the circumstances of each default, assignment, or claim,
and any applicable mitigants.
5. Approved Chief Underwriters are delegated the authority to approve MAP Underwriter transfers by
certifying to COB that the transferee is qualified in accordance with items in Section 2.12.B.1-4 above.
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Chapter 3
3.1
Programs
General Program Requirements
A. This chapter contains the basic requirements for FHA multifamily mortgage insurance programs for
which Lenders can submit Pre-Applications and Applications for Firm Commitment under MAP.
B. The requirements below apply to FHA multifamily mortgage insurance programs governed by this
Guide.
3.1.1
Regulatory Agreement
A. All Borrowers must execute a HUD Regulatory Agreement governing the operation of the project. The
Regulatory Agreement is recorded at Initial Endorsement.
3.1.2
Single Asset Mortgagor Entity
A. The mortgaged property must be the only asset of the Borrower entity, and there may not be more
than one Borrower entity. Natural persons, foreign entities, or Tenants-in-Common ownership structures
(including entities such as Maryland Statutory Trusts and Delaware Statutory Trusts) are not permitted
as mortgagor entities, though they may hold “upper-tier” interests (i.e., they may have an ownership stake,
such as a partnership interest, in the Single Asset Mortgagor Entity). Additional information on eligible
foreign nationals and entities may be found in Chapter 8. Waiver authority is reserved for the Director,
Office of Multifamily Production headquarters but requests for waivers are discouraged as they are
unlikely to be approved. In the unusual circumstance that a waiver request is submitted for review,
approval must be obtained prior to a Multifamily Regional Center or Satellite Office accepting an
application for mortgage insurance that does not conform to these prohibitions.
3.1.3
Non-Recourse
A. The HUD mortgage note will contain a non-recourse provision as to the mortgagor entity.
Notwithstanding this provision, certain parties may be held personally liable to the extent of losses arising
from certain “bad acts” and malfeasance, as set forth in the Regulatory Agreement. Such parties will be
identified in the Firm Commitment.
3.1.4
Interest Rate
A. The interest rate on a HUD insured loan is negotiated between the Borrower and the mortgagee (and
if applicable, the Ginnie Mae investor) and must be locked in by the time of Initial Endorsement. Payment
of discounts by the mortgagor to buy down an interest rate is acceptable during negotiations, prior to
Initial Endorsement. Any change in the mortgage amount due to a change in interest rate must be
reflected in an amendment to the Firm Commitment before Initial Endorsement. This action may require
re-underwriting with the issuance of an amended Firm Commitment. The Mortgage Note, form HUD-
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94001M, provides for the same or different interest rates for the construction and permanent financing
periods.
3.1.5
Amortization Plan
A. All HUD insured mortgages must amortize through a level annuity monthly payment plan (LAMP), with
equal monthly payments of principal and interest. Variations are not permissible. This restriction does
not prevent separate tranches within one promissory note (e.g. An A and B pieces).
3.1.6
Loan Terms
A. The maximum loan term is the lesser of any limits included under the applicable Section of the Act, 40
years for new construction/substantial rehabilitation, 35 years for Section 223(f) purchase/refinancing,
or 75% of the remaining economic life of the property.
3.1.7
Prepayment Restrictions
A. The Section 223(f) program limits prepayment during the first five years of the loan. (Refer to Section
3.7.10 for detailed requirements for prepayment restrictions concerning Section 223(f) loans.) For other
Sections of the Act, HUD permits but does not impose prepayment restrictions on insured loans.
Prepayment restriction provisions may not include HUD consent as a condition to prepayment of the loan
by the Borrower.
3.1.8
HUD Application Fee
A. Under MAP (and the Section 213 program), HUD requires a fee of $3 per thousand dollars of the
requested mortgage amount for review of the Firm Commitment application. The application fee (also
known as “exam fee”) is considered earned at HUD acceptance of the application for processing and is
nonrefundable. For market rate new construction or substantial rehabilitation transactions, one half of
the application fee is due with the submission of the pre-application, and the other half is due with the
application for Firm Commitment. For affordable new construction or substantial rehabilitation
proposals, and for any refinancing or acquisition transactions, the entire amount is paid at the Firm
Commitment stage, regardless of whether or not a Pre-Application is filed with HUD (see Section 3.1.12
for definition of affordable).
B. See Section 3.1.36 for application fees for projects located in Opportunity Zones.
C. For Section 223(a)(7) transactions processed under MAP, the application fee is $1.50 per thousand
dollars of the requested mortgage amount.
D. For Traditional Application Processing (TAP) loans, the application fee is $5 per thousand dollars of
the requested mortgage amount for market rate transactions and $3 per thousand dollars of the requested
mortgage amount if the transaction meets HUD’s definition as Affordable housing or is a Section 213 loan
processed under TAP rather than under MAP.
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3.1.9
HUD inspection Fee
A. The HUD inspection fee is $5 per thousand of the mortgage amounts for new construction and $5 per
thousand of the total of all improvement costs (line G50 on form HUD-92264) for substantial
rehabilitation. The inspection fee is no longer calculated on Builder and Sponsor Profit Risk Allowance
(BSPRA) and Sponsor Profit Risk Allowance (SPRA). There is no inspection fee for Section 223(a)(7)
projects (even if there are repairs). For loans insured pursuant to Section 207/223(f), the inspection fee
is the following:
1. $30 per unit where the repairs/improvements are greater than $100,000 in total but $3,000 or less
per unit.
2. The greater of $30 per unit or 1% of the cost of repairs or $1,500, where the repairs/improvements
are more than $3,000 per unit.
3. $1,500 where the total repairs/improvements are less than $100,000, which may be decreased by the
Regional Center or Satellite Office, if the Lender elects to take responsibility for the inspection.
3.1.10
Mortgage Insurance Premium
A. The mortgage insurance premiums (MIP) are established by the Firm Commitment and may not be
changed after initial endorsement. The annual MIP is based on a percentage of the mortgage amount and
may vary, depending on the insurance program and the MIP rates as most recently posted in the Federal
Register. For New Construction or Substantial Rehabilitation, the initial annual capitalized MIP is
collected at Initial Endorsement. The capitalized MIP is the mortgage amount times the annual MIP
percentage rate for each year of construction with any portion of a year rounded up to one year. Any MIP
due for a partial year of construction is paid at the anniversary of the Initial Endorsement. All MIP
payments collected between Initial and Final Endorsement are reconciled at Final Endorsement.
B. For Section 223(f) and Section 223(a)(7) loans, the upfront capitalized MIP is payable at Initial
Endorsement. This upfront capitalized MIP is the same for all market rate acquisition or refinancing
transactions and equals 1% for Section 223(f) loans and ½% (50 basis points) for Section 223(a)(7) loans.
C. The standard upfront and annual MIPs are reduced for any project qualifying as Affordable, Broadly
Affordable, or Green and Energy Efficient Housing, as defined in the Federal Register published on March
31, 2016 (24 CFR Part 266) as follows:
1. 25 basis points for Broadly Affordable
2. 35 basis points for Affordable
3. 25 basis points for Green and Energy Efficient Housing
D. These categories are more fully described in Appendix 3. The Federal Register Notice is available in
the link below: https://www.regulations.gov/document?D=HUD-2016-0007-0001
3.1.11
Lender Fees and Charges
A. For programs other than Section 223(a)(7), the maximum financing and placement fees the Lender
may charge is limited to a total of 3.5% of the mortgage amount. This 3.5% maximum may consist of any
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combination of origination, financing, and permanent placement fees, as long as it also includes the
Lender’s legal fee. In bond transactions, financing and placement fees up to 5.5% are permissible. Third
party costs (e.g., appraisal, market study, Capital Needs Assessment (CNA), and other organization costs)
may be included as mortgageable soft costs in the mortgage calculations and are not included in the
limitation on Lender fees. See Chapter 11, Section 11.5 for additional provisions regarding loan fees and
charges.
B. The Lender is prohibited from advancing fees on behalf of the Borrower for payment of discount fees.
Waivers of this provision must be granted in writing and submitted to Multifamily Production
Headquarters and reviewed per HUD’s regulatory requirements (See 24 CFR 200.41).
3.1.12
Definition of Affordable Housing
A. Affordable housing for FHA multifamily mortgage insurance programs is defined as projects meeting
either the minimum affordability requirement for Low Income Housing Tax Credits LIHTC) or the
requirements for project-based Section 8.
B. To qualify under the LIHTC affordability requirement, rent and income restrictions must be imposed,
monitored and enforced by a governmental agency for at least 15 years after Final Endorsement by means
of a recorded Regulatory Agreement requiring the project to meet either of the LIHTC restrictions,
including income averaging as applicable: 20% of units at 50% of area median income (AMI); or 40% of
units at 60% of AMI.
C. Projects need not use LIHTCs to qualify for affordable underwriting so long as they meet the
requirements for LIHTC affordability.
D. To qualify as affordable based on project-based Section 8, the project must have a Housing Assistance
Payment contract covering 90% of the units with a minimum remaining term of 15 years.
E. Note that the definition of Affordable in this section is separate and distinct from the definition of
Affordable and Broadly Affordable used to determine eligibility for a reduced MIP (See Section 3.1.10) or
application fees for projects located in Opportunity Zones (See Section 3.1.36).
3.1.13
Fair Housing and Equal Opportunity
A. Borrowers, Management Agents, Contractors, and subcontractors must comply with HUD Fair Housing
and Equal Opportunity requirements. (See 24 CFR 5.105 (a)(1)). Such requirements include selection of
occupants, employment, and project accessibility (See 24 CFR Part 100 and subsequent Sections),
regardless of race, color, national origin, religion, sex, disability, or familial status which are all Fair
Housing Act protected classes. Discrimination by age is also prohibited and the Equal Access Rule (24
CFR 5.105(a)(2)) provides for non-discrimination based on actual or perceived sexual orientation, gender
identity, or marital status. Project accessibility requirements apply to most multifamily properties. For a
complete description of project accessibility requirements see Chapter 5 and Appendix 5, Section A.5.2.
B. Affirmative Fair Housing Marketing requirements are addressed in Chapter 10, Section 10.9 of this
Guide. Also see “Affirmative Fair Housing Marketing to Fair Housing Act Protected Classes” (24 CFR Part
108 and 200.600). Projects with federal financial assistance are required to comply with the accessibility
requirements of Section 504 of the Rehabilitation Act and projects that are a program or activity of a state
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or local government or contain public accommodations are required to comply with Titles II or III of the
Americans with Disabilities Act.
C. Fair Housing and civil rights violations may result in enforcement actions including but not limited to
Limited Denial of Participation.
3.1.14
Previous Participation
A. Individuals and entities in control of a project are subject to a previous participation review as set forth
in 24 C.F.R. Part 200, as the same may be amended from time to time, and must submit information
regarding previous participation in governmental housing transactions either via the electronic Active
Partner Participation System (APPS) or on form HUD-2530, or any successor system or form, for approval
for participation in any mortgage insurance program. Invitation Letters or Firm Commitments may be
issued conditioned on Previous Participation approval, assuming no critical findings and that any flags
can be resolved without being presented to the Multifamily Participation Review Committee.
3.1.15
HUD's Fiscal Procedures
A. HUD’s Fiscal Procedures are contained in HUD Handbook 4410.1 Revision 2.
3.1.16
Bridge or Gap Financing
A. Bridge financing is a short-term loan that is secured by the property or by a pledge of an interest in the
borrowing entity, pending the start of a long-term permanent loan. Bridge loans that are secured by the
property (as distinguished from a bridge loan used to fund equity during construction and which is
secured by ownership interests), are acceptable only in instances of Insurance upon Completion and
before the start of the FHA-insured permanent financing. Bridge financing is permitted as long as the
bridge loan is repaid no later than the time of permanent loan closing or converted in whole or in part to
Secondary Financing within the allowed limits for the FHA program. Bridge loan or other debt intended
to increase the FHA-insured mortgage or circumvent outstanding program requirements will not be
recognized as existing indebtedness in the cost basis. Gap financing is a loan that may be secured by a
subordinate lien behind the permanent first mortgage to provide additional capital funds for the project;
it must meet the Guide’s requirements for secondary financing. See Chapter 14 for a detailed discussion
of the use of bridge financing in relation to the LIHTC program.
3.1.17
Secondary Financing
A. FHA insured mortgages must be first liens. Secondary liens are permitted in the case of FHA insured
second mortgages (supplemental loans and operating loss loans) and under certain conditions. Chapter 8
contains the requirements for secondary financing, as does Chapter 14 regarding secondary financing for
LIHTC transactions.
3.1.18
Statutory Loan Limits
A. The statutory loan limits for each FHA multifamily insurance program are issued annually in the
Federal Register, and are used to determine the maximum per unit loan amount to complete Criterion 4
of the form HUD-92264-A. The Regional Director may grant exceptions to the maximum mortgage limits
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for certain Multifamily Housing Programs by (1) up to 170 percent, (equivalent to a 270 percent
multiplier) in geographical areas where cost levels so require or (2) up to 215 percent in High Cost Areas,
(equivalent to a 315 percent multiplier) where necessary on a project-by-project basis. When Criteria 4
is relevant to sizing the mortgage, the calculated statutory limit may be adjusted for project costs not
attributable to residential use as described in Chapter 5, Section 5.12.2.B.3.c or Section 5.12.2.B.3.d When
refinancing a previously insured property, the loan amount determined by Criterion 4 shall not be less
than the Criterion 4 amount determined for the previously insured loan (assuming no demolition or
reduction of improvements since endorsement of the previously insured loan).
3.1.19
Tax Increment Financing
A. Tax Increment Financing (TIF) is a public financing method that is used as a subsidy for
redevelopment, infrastructure, and other community-improvement projects. States create districts
to administer the program for communities to benefit from the TIF. TIF structures vary by
municipality, state, or local authority. They may use future increases in taxes to subsidize current
improvements. Some states sell bonds backed by a project development's future taxes, while the
bond money helps pay the Developer's construction costs.
B. TIF may or may not be recognized as a source of funds, equity, additional income, or a loan in FHAinsured underwriting. The MAP Lender must:
1. Disclose a proposed or existing TIF Commitment at the Concept Meeting;
2. Determine the amount and terms of the TIF and whether or not the specific work in the TIF
Commitment is included in the improvements for FHA-insured mortgage; and
3. Document that none of the TIF proceeds are used to support FHA-insured mortgage proceeds, or
provide complete analysis and documentation demonstrating that the TIF funds and any tax benefits
are irrevocably committed.
3.1.20
Commercial Space
A. Commercial facilities may be included in a mixed-use project, subject to programmatic space, income,
and vacancy and collection loss limitations. See Chapter 7 for further guidance.
3.1.21
Military Impacted Areas
A. HUD generally will not insure mortgages in designated military impacted areas unless HUD determines
that demand from nonmilitary households is sufficient to sustain occupancy in both the insured project
and the market as a whole. Section 238(c) of the National Housing Act authorizes the provision of
insurance in military impacted areas upon certain findings by the Department of Defense (DOD) and HUD
HQ. In such areas, Borrowers should be encouraged to contact DOD for other potential programs
administered by DOD which could provide alternative sources of financing for the proposed project.
Section 238(c) loans are not eligible for MAP but may be processed under TAP.
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3.1.22
Student Housing
A. Insured projects cannot be designed solely for student occupancy, although students and families are
eligible occupants of insured family housing projects. Insured loans on projects in college areas must be
underwritten at rents that are comparable to family housing in the area. Loans cannot be underwritten
with rental rates assuming multiple student occupants in a unit that would result in a processing rent
higher than a typical family apartment, nor may an appraisal use sales and capitalization rates generated
by comparable student housing properties.
3.1.23
Real Estate Requirements
A. The insured mortgage must be on real property held in one of two forms of estate:
1. A fee simple estate, or
2. A lease with a term of at least (i) ninety-nine years which is renewable, (ii) 50 years from the date the
mortgage is executed, or (iii) for a period of not less than 10 years more than the loan maturity date,
dependent upon the Section of Act (SOA).
3.1.24
Transient Housing/Hotel Services Prohibition
A. Section 513 of the National Housing Act prohibits the use of the insurance programs for transient or
hotel purposes. Leases for less than 30 days are prohibited, and occupants cannot be provided with hotel
services such as maid service, furnishing and laundering of linens, room service, and bellboys. This also
applies to any commercial space funded by the mortgage.
3.1.25
Sustaining Occupancy
A. Sustaining occupancy is a level or percentage of occupancy of tenant units by rent paying tenants
consistent with signed leases such that the monthly rents paid are sufficient to pay all operating expenses
for the month (actual or prorated annual costs as applicable) plus monthly debt service composed of
principal, interest, and MIP. Any subordinate debt requiring current payment must be included in the
sum of debt service. This is equivalent to a debt service coverage ratio (DSCR) of 1.0, a ratio also referred
to as “breakeven.” When this level of occupancy is sustained for a period of consecutive months, it is
referred to as “sustaining occupancy”. The standard number of months for achieving sustaining
occupancy in HUD new construction and/or substantial rehabilitation projects is 6 months. HUD may
vary the number of months of sustaining occupancy required to address specific project risk for individual
cases or cases with identified risk conditions.
3.1.26
Operating Deficit
A. An operating deficit escrow (also known as the Initial Operating Deficit Escrow (IOD) for construction
loans) is required on all applications for new construction and many applications for substantial
rehabilitation to provide funding for operating expenses and debt service when net income is not available
during the initial lease up and stabilization period. A debt service escrow may also be required for Section
223(f) proposals where analysis requires it. This escrow is not mortgageable and unused portions will be
returned to the Borrower. See Chapter 7, Section 7.14 and Chapter 8, Section 8.14 for more detail.
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3.1.27
Short-Term Lease Premiums
A. Projects offering leases with terms of less than 30 days are not eligible for HUD-insured financing under
any circumstances. Treatment of income from short-term leases of at least 30 days, e.g., furnished units,
corporate or business short-term leases, may be considered to the extent that it is present in the local
market. The actual number of furnished or corporate/business units generally may not exceed 10% of
the units. Any higher percentage must be approved by Asset Management at the time of underwriting. In
the case of any such approval, no more than 10% of the units may be underwritten at rents higher than
for unfurnished units of the same unit type (i.e. number of bedrooms, unit size, and configuration).
3.1.28
Replacement Reserve
A. A Reserve for Replacement (RfR) Escrow account is required for all insured mortgages. The escrow
may be funded by an initial deposit at endorsement and by monthly deposits to the Replacement Reserve
as determined in the financial schedule developed by the Lender in the CNA e-Tool and approved by HUD.
The purpose of the Escrow is to set-aside funds to pay for timely replacement of capitalized physical
assets. See Appendix 5, Section A.5.7 for the minimum annual replacement reserve requirements for all
program types and for guidance on completing a CNA. HUD Handbook 4350.4, Chapter 2 Servicing
Manual, details the Lender’s responsibility for managing funds held for the project and describes liquidity,
draws, and investment requirements.
3.1.29
Developer Fees
A. In cost-controlled mortgages for FHA New Construction and Substantial Rehabilitation Programs
(other than Section 231 Substantial Rehabilitation and Section 241(a)), BSPRA is allowed. BSPRA is a
mortgageable cost but not a source of cash. For affordable programs (such as Low-Income Housing Tax
Credits, Rental Assistance Demonstration (RAD), and Section 202 refinancing), a Developer Fee may be
mortgageable as long as BSPRA or SPRA is not also included. In no event may a non-mortgageable
Developer Fee be included as part of a market rate transaction, with or without BSPRA. A summary of
Developer Fee calculations limits for various FHA and assisted programs is included in Appendix 3,
Section A.3.2.
3.1.30
Scattered Sites
A. FHA insured multifamily properties may be traditional multifamily structures on one site, or may be
detached, semi-detached, or row houses. Each property must consist of five or more dwelling units.
Group homes are not eligible properties.
B. The site may consist of two or more noncontiguous parcels of land when the parcels comprise one
marketable, manageable real estate entity and each parcel (or combination of contiguous parcels) has at
least 5 units. (The regulations, 24 CFR 200.73(c), prohibit sites with less than 5 units.) “Contiguous”, in
this context, means adjacent or next to one another. Two parcels separated by a driveway or road may
still be contiguous for purposes of establishing one “single” site.
C. Certain factors should be considered in underwriting, and determining whether a scattered site
property is one marketable, manageable real estate entity:
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1. Degree of Separation. Generally, a greater distance would be acceptable in a rural area than an
urban one, but two sites funded by one FHA insured multifamily mortgage separated by more than 15
or 20 miles in exurban areas or 10 to 15 minutes in travel time in metropolitan locations, or in any
event located in different market areas or different political jurisdictions (township, city, county),
would be considered unacceptable.
2. Physical condition, construction type, and age. If individual sites vary in these criteria, it is more
difficult to make the case that they comprise a single entity, and to evaluate the collateral (e.g.
requiring separate CNA and Appraisal analyses, which are then combined.) If an Underwriter cannot
rely on a single CNA and appraisal to analyze a property, then the property is not a single
mortgageable real estate asset.
3. Occupancy type and turnover history. Combinations of sites with and without age restrictions, or
properties with and without unique tenant populations, e.g., students or military personnel are not
single marketable, manageable real estate entities.
4. Unit configuration and project layouts. This includes single-family homes in a “checkerboard”
configuration. Projects consisting only of single-family homes whether located on one or multiple
sites are strongly discouraged.
5. Expense volatility. This is particularly important for single family structures or more widely
disbursed properties. In such cases, risk must be mitigated by high-end expense estimates, and, in
some cases, shorter amortization periods.
6. Homeowners Associations (HOA). An insured project operating within and governed by an HOA
may be subject to terms and conditions that may be detrimental to the operation of the insured
project, especially when such agreements limit or regulate maintenance or repairs and alterations. In
addition, sites subject to different HOA Associations are not acceptable.
7. Flexibility for Affordable Housing. HUD has and will continue to provide greater flexibility to RAD
and affordable transactions (as well as refinancing Section 202 Project Rental Assistance Contract
(PRAC) projects) with significant outside funding sources. However, the factors outlined above should
be carefully considered in any transaction involving scattered sites.
3.1.31
Condominiums
A. A project built and platted as a condominium complex, but that is now operating as a rental project,
may be refinanced under Section 223(f) if the condominium regime is held by a single owner with no
individual unit ownership and the property meets other program guidelines, including the minimum
occupancy standards.
B. Condominium ownership regimes may be recorded if the property is otherwise operated as a rental
project with a single ownership entity owning all the apartments. Separate condominium units may be
established for commercial use and for housing use which must include all the residential apartments.
The insured loan must be secured by a mortgage on the rental apartments and mortgageable commercial
space. Joint use and maintenance agreements and easements between the insured portion and any
separately demised condominium portion must be defined, and all condominium fees and expenses must
be equitably allocated.
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C. The Regional Center or Satellite Office Director may consider a waiver for a condominium building with
a limited number of individually owned units (i.e., 10% or less of total units) if all such units are located
in a separate building or in a separate section of a single building apart from the rental units. HUD will
not consider a waiver if any ownership units are interspersed with the rental units.
3.1.32
Environmental Review
A. HUD has responsibilities to comply with HUD’s environmental requirements described in MAP Guide
Chapter 9. These include regulatory requirements in 24 CFR Parts 50, 51, 55 and 35, and program
requirements. Potential issues are to be identified at time of concept meeting and in the Lender’s
narrative or preapplication stage (or application if straight to Firm Commitment.) Lenders must submit
an environmental report to HUD using the HUD Environmental Review Online System (HEROS) system
for all projects submitted under MAP and TAP. Projects must comply with the other regulatory and
programmatic requirements described in MAP Guide Chapter 9, Environmental Review. Chapter 9
provides further details about submission content and timing requirements.
3.1.33
Underwritten Vacancy and Collection Loss
A. Underwritten vacancy and collection loss rates shall not be less than the minimum levels shown in
Appendix 3, Section A.3.1. Higher vacancy and collection loss rates may be determined based on the
appraised or actual loss rates at the subject property (see Chapter 7.)
3.1.34
Borrower’s Certifications
A. All certifications executed by the Borrower, in addition to certifications submitted by the Lender in
support of MAP applications should contain the following language:
I hereby certify under penalty of perjury that all of the information I have provided on this form and in any
accompanying documentation is true and accurate. I acknowledge that if I knowingly have made any false,
fictitious, or fraudulent statement, representation, or certification on this form or on any accompanying
documents, I may be subject to criminal, civil, and/or administrative sanctions, including fines, penalties,
and/or imprisonment under applicable federal law, including but not limited to 12 U.S.C. § 1833a; 18 U.S.C.
§§1001, 1006, 1010, 1012, and 1014; 12 U.S.C. §1708 and 1735f-14; and 31 U.S.C. §§3729 and 3802.”
3.1.35
Waivers
A. There are various references in the MAP Guide to HUD’s waiver authority. Regulatory Waivers must
be approved at the Assistant Secretary level, and certain waivers are reserved to HUD Headquarters.
Regional Center Directors retain waiver authority for other provisions of the MAP Guide. While HUD may
consider waiver requests within delegated authority, they will not be approved except for good cause, and
Lenders should not assume approval.
3.1.36
Opportunity Zones
A. The 2017 Tax Cuts and Jobs Act (P.L. 115–97, Dec 22, 2017) created an investment vehicle known as
Qualified Opportunity Funds, which invest capital gains into projects located in Opportunity Zones.
Opportunity Zones are census tracts that are low-income communities as defined in Section 1400Z(c) of
the Act. HUD has reduced application fees (also known as “exam” fees) for FHA multifamily mortgage
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insurance pursuant to the Section 221(d)(4), Section 220, and Section 223(f) for properties located in a
qualified opportunity zone. Application fees are reduced from 0.3% of mortgage amount to 0.2% except
for properties which are Broadly Affordable (see HUD’s Federal Register Notice dated March 31, 2016, 81
FR 18473), in which cases the application fee is reduced to 1% of mortgage amount. The referenced
Federal Register Notice may be found at: https://www.regulations.gov/document?D=HUD-2016-00070001.
3.2
New Construction/Substantial Rehabilitation
Program Requirements
A. Sections 220, 221(d)(4), 231, and 241(a) of the National Housing Act provide FHA multifamily
mortgage insurance for the new construction or substantial rehabilitation of multifamily rental apartment
properties. Section 213 is available for new construction and Section 213(i) is used for substantial
rehabilitation of Cooperatives; these transactions are processed under TAP.
B. The requirements in the subsections below apply to all FHA New Construction/Substantial
Rehabilitation multifamily mortgage insurance programs.
3.2.1
Properties
A. Properties must have 5 or more residential units with individual full kitchens and baths for each unit.
(Section 231 requires at least 8 units.) Group Homes are not eligible for FHA multifamily mortgage
insurance. Single Room Occupancy (SRO) properties will be considered only if they have existing Project
based Section 8 contracts in place.
3.2.2
Insurance for Construction and Permanent Loan Periods
A. HUD can insure both the construction and permanent loan periods (Insurance of Advances) or just the
permanent loan period (Insurance Upon Completion). Davis-Bacon wage requirements apply to new
construction and substantial rehabilitation transactions for both Insurance of Advances and Insurance
Upon Completion.
3.2.3
New Construction Transactions
A. New Construction transactions finance improvements where no construction work has been done to
the site prior to Initial Endorsement. See Chapter 5 and Chapter 9 for additional information and
exceptions.
3.2.4
Substantial Rehabilitation Transactions
A. Substantial Rehabilitation transactions finance repairs and rehabilitation of existing properties that
are or have been previously occupied. (Conversions of a non-residential to residential use are also
included and may be financed as substantial rehabilitation). Projects in which construction of above
ground improvements was started but not completed or inhabited are not eligible. The definition of
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substantial rehabilitation is based on a per unit threshold for the cost of rehabilitation. See Chapter 5,
Section 5.1.4.
3.2.5
Cost Certification
A. The Borrower must submit a cost certification prepared by an independent Certified Public Accountant
(CPA) upon completion of construction or substantial rehabilitation. The mortgage amount that is finally
endorsed for insurance after completion of construction can be reduced based upon HUD review of the
cost certified amounts. General Contractors or subcontractors are required to submit a cost certification
if a cost-plus construction contract is used or there is an identity of interest with the Borrower. See
Chapter 13, Section 13.1 and Section 13.1.B for cost certification exceptions for Low Income Housing Tax
Credit projects.
3.2.6
Federal Labor Standards
A. The General Contractor and all subcontractors for FHA-insured new construction or substantial
rehabilitation transactions are required to comply with federal wage and reporting requirements under
the Davis-Bacon Act and the Copeland Act. Davis-Bacon requires the payment of prevailing wage rates
and regulations under the Copeland Act require the submission of weekly certified payroll reports.
Prevailing wage schedules may be obtained from the appropriate HUD Regional Center or Satellite Office.
There are limited exceptions to this requirement. Davis-Bacon Wage requirements do not apply for
Section 241(a) loans in which the underlying first mortgage is a Section 223(f) loan (or a Section 223(a)(7)
loan) or for Section 241(a) loans for projects with a Secretary-held mortgage, if the project did not
originally have an FHA-insured loan that was subject to Davis-Bacon. Additionally, Davis-Bacon Wage
rates do not apply to off-site improvements, nor do they apply to any site demolition or improvements
completed prior to the creation of a federal nexus, defined as the submission of either a pre-application
or firm commitment application to HUD.
3.2.7
Assurance of Completion
A. The General Contractor shall provide an assurance of completion of construction in the form of a
Combined Performance Payment Bond or cash or a Letter of Credit in an amount approved by HUD. See
Chapter 8, Section 8.14.C.13 for the specific requirements.
3.2.8
Absorption Period
A. The absorption period used in estimating market demand for proposed newly constructed or
substantially rehabilitated units should not exceed 18 months from delivery of the first units. The
absorption period should be supported by the MAP Underwriter and fully explained in the Lender’s
Narrative. Larger projects may phase in additional units under a separate application for mortgage
insurance. An exception to the 18-month limitation on the absorption period may be considered by the
Regional Center or Satellite Office Director for large high-rise buildings, which will be evaluated based on
their own merit and will require a larger initial operating deposit.
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3.2.9
Marketing and Leasing Plan
A. All projects that require absorption of units at economic rents to achieve break-even occupancy must
submit a detailed marketing and leasing plan, and a budget reviewed and confirmed by the proposed
property management company. The plan must discuss when marketing efforts will begin, when the
leasing office and model units will open, how the leasing office will be staffed, and the project’s marketing
and advertising strategy. The plan must address timing of the construction progress schedule with
respect to egress and ingress into the project, landscaping, and access to amenities. These items are in
addition to those required by the Affirmative Fair Housing Marketing Plan.
3.2.10
Working Capital Escrow
A. The Working Capital Escrow is designed to cover accruals of taxes, insurance, and interest above the
amounts capitalized in the mortgage in the case of construction delay. The escrow may also be used to
pay for construction contingencies for cost overruns and change orders, and other miscellaneous
expenses which are not included in the mortgage and required for new construction and substantial
rehabilitation proposals. For new construction the Working Capital Escrow is 4% of the mortgage amount
with 2% set aside specifically as a construction contingency to cover construction cost overruns and
change orders and the other 2% to cover excess soft costs or costs of putting the project in operation. For
substantial rehabilitation, the Working Capital Escrow is 2% (a construction contingency is permitted in
the construction costs of substantial rehabilitation projects). Substantial rehabilitation projects with
Section 8 rental assistance for more than 90% of the units do not require a Working Capital Escrow when
the Lender demonstrates there will be sufficient income generated by the property during the rehab
period to cover items typically funded by the Working Capital Escrow and when interim income is not
being used as a source of financing.
3.2.11
Furniture, Fixture, and Equipment in Cost Basis
A. Reasonable costs of Furniture, Fixture, and Equipment (FF&E) may be included in mortgageable
project costs and in the Reserves for Replacement for new construction and substantial rehabilitation
proposals. See Chapter 5, Section 5.12.3.A.8 for FF&E examples and guidance. All funded FF&E will be
subject to FHA MAP Lender’s security instruments.
3.2.12
Elderly Developments
A. New construction or substantial rehabilitation of apartments specifically designed with occupancy
restricted to the elderly age 62 and over should be processed under Section 231. Age restricted projects
are not eligible under Section 220. Age restricted Multifamily projects may be considered under other
Sections of the Act (e.g., Section 221(d)(4)) as long as they comply with the provisions of Section 3.11.
3.2.13
Occupancy Preference
A. Sponsoring nonprofit organizations such as labor unions, professional groups, religious organizations,
and fraternal or civic organizations may give preference to their members, provided membership in the
organization is open without regard to race, color, national origin, sex, sexual orientation, gender identity,
marital status, familial status, age, disability, or religion. However, Sponsors cannot restrict occupancy
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solely to their members. Preferences may also be given to other groups such as veterans, homeless
persons, victims of domestic violence, etc.
B. Residency preferences require HUD approval (24 CFR 5.655(c)(1)(iii) and may be used only under
conditions specified in the Affirmative Fair Housing Marketing Plan instructions and 24 CFR 5.655(c)(1),
so that they may not create a disparate impact in selection against protected classes. In no case may
special preference be given to children of current residents since the demographics of housing markets
and labor pools change. Similarly, projects (regardless of ownership) may target occupancy to various
demographic groups (such as “workforce housing”) so long as there is sufficient and sustainable market
and Affirmative Fair Housing Marketing Plans and other management plan exhibits demonstrate the
property will not discriminate against any particular race, color, national origin , religion, sex, disability,
familial status, sexual orientation and gender identity and age. Additionally, if an owner adopts a
preference for working families, an applicant shall be given the benefit of the working family preference
if the head and spouse, or sole member, is age 62 or older, or is a person with disabilities. See 24 CFR
5.655 (c)(2).
3.2.14
Builder and Sponsor Profit and Risk Allowance (BSPRA)
A. BSPRA and SPRA are allowed (but not required) for new construction and substantial rehabilitation
applications under Sections 221(d)(4) and 220 for profit motivated and limited distribution Borrowers.
BSPRA and SPRA are allowed for new construction Section 231 applications but not under Section 231
substantial rehabilitation. Non-profit Borrowers are eligible for a Developer’s fee, or they may apply as a
for-profit entity for purposes of applying for FHA mortgage insurance, as provided in Chapter 8.
1. The BSPRA allowance will be credited against the Borrower’s required equity contribution. To use
BSPRA, there must be an identity of interest between the Borrower and General Contractor and there
must be no paid builder’s profit contained in the mortgage calculation. For new construction, BSPRA
is 10% of the estimated cost of: on site improvements, structures, general requirements, general
overhead, Architect's fees, carrying charges and financing, legal, organizational (including third party
report fees), and audit expenses (total of lines 50, 63 and 67 in Section G. of form HUD-92264),
exclusive of land. For substantial rehabilitation projects, BSPRA is 10% of the above costs exclusive
of the as is value of the existing structure.
2. SPRA may be included in replacement cost where no identity of interest exists between the General
Contractor and Borrower, or where there is an Identity of Interest, but the Borrower and General
Contractor have agreed to a General Contractor profit instead of BSPRA. SPRA is 10% of the total
estimated cost of: Architect's fees, carrying and financing charges, legal, organizational, and audit
expenses.
3.2.15
Energy Efficiency
A. New construction projects must comply with the International Energy Conservation Code (IECC) for
buildings of up to three stories, or in the case of buildings over three stories, American Society of Heating,
Refrigeration and Air-conditioning Engineers, ASHRAE Standard 90.1 as adopted by HUD (see Chapter 6,
Section 6.1.1). Substantial rehabilitation projects must conform to these energy codes except where
compliance is not feasible due to required preservation of historic buildings or elements of historic
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buildings. Incentives for improved building performance (i.e. reduced utility consumption) are available
as described in Chapter 6, Section 6.1.2.
3.2.16
Cost vs. Value
A. Most FHA multifamily new construction and substantial rehabilitation programs are based on cost
rather than value when sizing the mortgages (in Criterion 3 of form HUD-92264-A). Exceptions are the
Sections 231 substantial rehabilitation and the 241(a) programs, which are both values based, per statute.
For substantial rehabilitation under all Sections of the Act, the “as is” value of the project is a component
of the cost. “As is” value of a substantial rehabilitation project will be the lesser of the value “as is”,
reflecting actual occupancy and any restrictions on net operating income (NOI), or the purchase price at
closing, if it is an arms-length acquisition transaction.
3.3
Section 221(d)(4)–New Construction and
Substantial Rehabilitation
A. Section 221(d)(4) insures mortgages for the new construction or substantial rehabilitation of rental
housing. In addition to the general requirements in Section 3.1 and Section 3.2, the requirements in this
section apply to the Section 221(d)(4) program.
B. Maximum Loan Ratios and DSCR. The loan ratios and percentages shown in the subsections below
control the loan amount and are the mortgage criteria detailed on the form HUD-92264-A, Supplement to
Project Analysis. The lowest mortgage criterion controls the loan amount.
3.3.1
Criterion 1
A. Loan Amount Requested in the Application. The loan amount requested in the application may be
amended when appropriate, e.g. when a higher mortgage is supportable due to a reduction in the interest
rate.
3.3.2
Criterion 3
A. Amount Based on Replacement Cost. The applicable percentage of the estimated replacement cost
for new construction or the applicable percentage of the estimated replacement cost for substantial
rehabilitation (which includes the “as is” value of the property before substantial rehabilitation) is:
1. 90% for projects with 90% or greater rental assistance;
2. 87% for projects that meet the definition of Affordable Housing and for which the achievable Tax
Credit rents are at least 10% below market rents; or
3. 85% for market rate projects or Tax Credit projects without a significant rent advantage (i.e., the
achievable rents are at least 10% below market.).
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3.3.3
Criterion 4
A. Amount Based on Limitations per Family Unit. Where percentages are required, enter the same
percentage applied under Criterion 3. See Chapter 8 for complete details and the MF Housing website:
https://www.hud.gov/program_offices/administration/hudclips/notices/hsg to locate HUD’s notice of
Annual Revisions to Base City High Cost Percentages providing information for per family unit limitations
and the High Cost Percentage by jurisdiction.
3.3.4
Criterion 5
A. Amount Based on DSCR. The applicable DSCR ratios are as follows (ratios are rounded for
presentation purposes):
1. 90% (1.11 DSCR) for projects with 90% or greater rental assistance;
2. 87% (1.15 DSCR) for projects that meet the definition of Affordable Housing and for which the
achievable Tax Credit rents are at least 10% below market rents; or
3. 85% (1.176 DSCR) for market rate projects or Tax Credit projects without a significant rent advantage
(i.e., the achievable rents are at least 10% below market.).
3.4
Section 220 Mortgage Insurance for
Redevelopment Areas
A. Section 220 insures mortgages for the new construction or substantial rehabilitation of mixed-use
housing projects in urban renewal areas, code enforcement areas and other areas where local
governments have undertaken designated revitalization activities.
B. In addition to the general requirements in Section 3.1 and Section 3.2, the following requirements
apply to Section 220.
3.4.1
Eligible Areas
A. The property must be located in either a concentrated development area approved by the applicable
HUD Multifamily Regional Center or Satellite Office or one of the following:
1. Existing slum clearance and urban redevelopment projects covered by a Federal aid contract before
the effective date of the Housing Act of 1954.
2. Opportunity Zones.
3. An approved urban renewal area under Title I of the Housing Act of 1949.
4. Disaster urban renewal projects assisted under Section III of the Housing Act of 1949 as amended.
5. An area of concentrated code enforcement being carried out under Section 117 of the Housing Act of
1949. The Multifamily Regional Center or Satellite Office will consider proposals in concentrated
development areas in which concentrated housing, physical development and public service activities
are being carried out in a coordinated manner, pursuant to a locally developed strategy for
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neighborhood improvement, conservation or preservation. Locally developed strategies may be
informal, but must do all of the following:
Provide for a combination of physical improvements, necessary public facilities and services,
housing programs, private investment, and citizen self-help activities appropriate to the needs of
the area;
Coordinate public and private development efforts; and
Provide sufficient resources to produce substantial long-term improvements in the area within a
reasonable amount of time, considering the severity of the area’s problems.
3.4.2
Commercial Facilities
A. Commercial space may be included if it will serve the needs of the project residents and other residents
of the area. Commercial space is limited to 25% of total net rentable area and commercial income to 30%
of effective gross project income.
B. See Chapter 7 for requirements where commercial facilities are included in a project.
3.4.3
Maximum Loan Ratios and DSCRs
A. The controlling mortgage criteria for Section 220 loans are the same as for the Section 221(d)(4)
program, detailed above in Section 3.3.
3.4.4
Builder and Sponsor Profit and Risk Allowance (BSPRA)
A. See definition of BSPRA in Section 3.2.14.
3.4.5
Sponsor Profit and Risk Allowance (SPRA)
A. See definition of SPRA in Section 3.2.14.
3.4.6
Age Restriction Prohibited
A. Apartments specifically designed for the elderly, limited to elderly occupancy, and/or seeking to use
the Fair Housing Act’s housing for older persons exemption are not permitted under Section 220.
3.5
Section 231 Mortgage Insurance
A. Section 231 insures mortgages for construction and substantial rehabilitation of rental housing for
elderly persons (aged 62 or older) and/or persons with disabilities. A project must comprise 8 or more
new or substantially rehabilitated units designed for occupancy by elderly persons and may include family
units for occupancy for persons who qualify as disabled.
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3.5.1
Definitions
A. Elderly Person. A person aged 62 or older. For Section 231 occupancy, other than for units designed
for the use and occupancy of disabled persons and their families for up to 25% of the units, all persons
living in a unit must be age 62 or over.
B. Disabled Person. A person who has a physical or mental impairment that substantially limits one or
more major life activities.
3.5.2
Design and Amenities
A. Particular attention is to be given to room layout and unit design to assure they are consistent with the
needs of the elderly or individuals with disabilities. (See 24 CFR 100.205)
3.5.3
BSPRA or SPRA allowances
A. BSPRA or SPRA allowances are eligible under Section 231 new construction transactions as long as
there is no Developer Fee. These allowances are not available for Section 231 substantial rehabilitation
transactions, which may be constrained by value. See Section 3.2.14. for an explanation of these
allowances.
3.5.4
Maximum Loan Ratios and DCRs
A. The controlling mortgage criteria for Section 231 loans are the same as for the Section 221(d)(4)
program, detailed above in Section 3.3, with the exception of criterion 3 for substantial rehabilitation
loans, which is controlled by the applicable percentage of “as rehabilitated” value (not cost).
3.6
3.6.1
Section 241(a) Mortgage Insurance for
Supplemental Loans
Eligibility
A. Section 241(a) is now a MAP-eligible program. It provides secondary financing for improvements or
additions to properties with a HUD-insured first mortgage that need repairs, substantial rehabilitation, or
additional units. Deferred Developer fees carried over from a LIHTC transaction are considered ineligible
costs under the 241(a) loan program.
1. Projects with HUD-held debt (as opposed to FHA-insured), or Risk Share financing are not eligible to
apply for Section 241(a) loans.
2. Improvements consisting of repairs, alterations, or additions to, or substantial rehabilitation of
existing structures may be financed with a Supplemental Loan.
3. Construction of additional units, or expansion of the footprint of the existing building, is allowed, so
long as the number of units in the new addition is equal to or less than the existing building. Such
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work may be completed on the existing parcel secured by the first mortgage, or a contiguous or nearby
parcel acquired and included in an amendment to the existing first mortgage security documents.
4. A cross-default provision should be placed in the Section 241(a) mortgage loan documents such that
a default under a “prior recorded insured mortgage” will trigger a default under the Section 241(a)
mortgage. However, a default under the Section 241(a) loan should not trigger a default under the
first mortgage.
3.6.2
Term
A. The Section 241(a) loan generally should be coterminous with the underlying FHA-insured first
mortgage if that loan has more than 25 years remaining on its term. If less than 25 years remain on the
term of the first mortgage, HUD will consider an amortization period of up to 40 years regardless of the
underlying first mortgage’s amortization period so long as the term is no greater than 75% of the project’s
remaining economic life. Notwithstanding the above, the Regional office has discretion to grant a waiver
to permit the second mortgage term to exceed the term of the first mortgage loan in the event that the
increase in term will reduce overall risk to the transaction and will otherwise meet program obligations.
3.6.3
Equity Requirement and Controlling Mortgage Criteria
A. The owner is required to contribute at least 10% of the total development cost of the transaction.
Existing RfR deposits in excess of the Initial Deposit requirement concluded in the CNA and underwriting
may be used to meet the equity requirement. Similarly, land equity from adjacent or nearby parcels added
and incorporated into the existing first mortgage security and additional cash contributions can be used
to meet the 10% equity contribution requirement. Residual Receipt account funds (e.g., from surplus
Section 8 funding) cannot be used to meet equity requirements. Imputed equity representing the
difference between the “as is” value of the project and the existing indebtedness is not available to meet
the equity requirements. HUD forms HUD-92264 and HUD-92264-A should recognize only the cost of the
addition or improvements but, should include all (i.e. the existing and proposed) NOI in Criterion 5 of
form HUD-92264-A. A supplemental analysis comparing the historical and proposed NOI should be
included as an attachment to the form HUD-92264.
3.6.3.1
Criterion 3–Loan to Value/Cost
A. A Section 241(a) supplemental loan is limited by statute to 90% of the HUD-estimated value of the
improvements, additions, or equipment, regardless of the Section of the Act insuring the underlying first
mortgage. The cost of the repairs and transaction costs (including the acquisition price of an adjacent or
nearby land parcel) will be recognized as the value, as long as any additional land purchased or
contributed is no more than the fair market value. Regardless of the Section of the Act of the underlying
first mortgage, neither BSPRA nor SPRA may be recognized. The cost of the transaction can and should
include builder’s profit (regardless of whether there is an Identity of interest.)
3.6.3.2
Criterion 4–Statutory Limits
A. The Supplemental Loan, when added to the outstanding balance of the mortgage covering the project
or facility, may not exceed the maximum statutory limitation applicable to the building and unit type for
the Section of the Act under which the existing first mortgage is insured.
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3.6.3.3
Criterion 5–Debt Service Coverage Ratio (DSCR)
A. The maximum loan amount under this criterion is limited by debt service (i.e., combined supplemental
and first mortgage payments) supported by 90% of projected NOI, a combined DSCR of 111%.
3.6.4
CNAs, Plans and Cost Estimates
A. A CNA is required for the entire property, including both existing units and any proposed addition. The
portion of the property already existing and not proposed for substantial rehabilitation should be
evaluated in the same manner as for existing buildings in a refinance application to identify and define
any existing critical or non-critical repair needs as well as future needs. These identified critical and noncritical repairs should be included in the loan amount and the approved construction scope of work. Such
repairs should be documented with plans and specifications consistent with the applicable classification
of work as described in Chapter 5. (See Chapter 5, Section 5.11 for architectural review of Section 241(a)
loans.)
B. If the proposed construction includes substantial rehabilitation of the existing property or a portion
thereof, then for that portion of the property, the CNA will only identify future needs.
C. Similarly, for any portion of the property that is an addition, the CNA will only identify future needs.
Future needs for any substantial rehabilitation portion of the property and additions are based on
proposed drawings and specifications, while future needs for other portions of the property are based on
inspected conditions. The cost of all future capital needs is used to size the RfR escrow.
D. Plans, Specifications, and Architecture and Cost Analysis reports for portions of the property that are
substantial rehabilitation or additions must be completed consistent with requirements for Section
221(d)(4) or other new construction or substantial rehabilitation loan programs as described in Chapter
5, Section 5.11.
E. The Section 241(a) loan combined with the original first mortgage shall be considered one project and
the CNA must produce one RfR schedule and budget for future capital needs inclusive of the existing
improvements as well as any proposed substantial rehabilitation or addition.
3.6.5
Davis-Bacon Act Applicability
A. (See Section 3.2.6 for Davis-Bacon Wage applicability.) (See Chapter 19 for closing guidance.)
3.6.6
Insurance of Advances or Insurance upon Completion
A. For Section 241(a) mortgage insurance for Supplemental loans, either the insurance of advances or the
Insurance upon competition approach is acceptable. Construction advances for any Supplemental Loan
may be insured; the minimum amount of advance that may be insured is $200,000. Mortgageable
contingency and construction draw retainage are subject to the same requirements as other New
Construction / Substantial Rehabilitation programs.
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3.6.7
Environmental Review
A. A HEROS environmental review per the requirements of Chapter 9 is required for Section 241(a) loans.
Chapter 9, Section 9.2 provides guidance in determining whether the correct level of review is
Categorically Excluded, or Environmental Assessment is required.
3.6.8
Working Capital and Operating Deficit Reserves
A. The working capital and operating deficit reserves requirements are the same as those of the Section
221(d)(4) program. The Lender can recommend, and HUD may approve, waiving the requirements when
appropriate on specific cases. A default under the first mortgage will constitute a default under the Section
241(a) loan.
3.6.9
Management Exhibits
A. Management exhibits identified in Section 3 of the application exhibits are not required if the
Management Agent’s operations have not materially changed in a negative manner since approval of the
HUD-insured first mortgage. If operations have materially, negatively changed, Management Agent
documentation is required.
3.6.10
Multiple Lenders
A. A new Section 241(a) insured loan may be originated by the first FHA lienholder or a new Lender. The
Lender processing the Section 241(a) FHA insured loan shall create one RfR Account incorporating both
escrow account requirements into a single reserve account. If the holder of the first lien is not the same
entity as the proposed secondary debt Lender (See Section 3.6.1.A.4), the two Lenders shall designate one
as the depository holder of the CNA e-tool and the RfR accounts. This decision shall be determined before
the Section 241(a) application is submitted to HUD. The designated Lender shall maintain the updated
CNA e-tool report and RfR Account incorporating both loans. The processing 241(a) Lender must agree
and certify to obtain an updated CNA e-tool report, funding for a new RfR Account, and other pertinent
information required by the Section 241(a) insured loan. If different from the first lien holder, the Section
241(a) processing Lender shall submit the updated information to the first lien holder for review and
approval based on HUD’s program requirements. The designated Lender, if different than the Section
241(a) Lender, shall submit a written acceptance of the updated CNA report and RfR Account at the time
of the insured Section 241(a) application submission. The designated Lender shall have the authority
over all the RfR accounts and reimbursements and future requirements once Initial Endorsement has
occurred and all other terms and conditions of the FHA Firm Commitment have been satisfied.
3.6.11
MIP
A. Applicants for Section 241(a) mortgage insurance for Supplement loans may apply for reduced initial
and annual MIP based on Green and Energy Efficient Housing qualifications. Both the existing
improvements and the proposed improvements must be evaluated as one property for energy
performance analysis and, as a whole, achieve the selected Green Certification. Upon qualification, the
reduced initial and annual MIP will apply only to the secondary loan processed under Section 241(a)
transaction. See Chapter 6 and particularly Chapter 6, Section 6.8.
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3.7
3.7.1
Section 207/223(f) Refinance or Acquisition
General Requirements
A. Section 207/223(f) insures mortgages for the purchase or refinancing of existing rental housing that
may have been financed originally with conventional mortgages, equity, or with a HUD-insured loan. The
use of Section 223(f) for Cooperative Multifamily Housing is described in Chapter 17. Properties requiring
substantial rehabilitation are not eligible for this program. HUD requires completion of critical-life safety
repairs before endorsement of the mortgage. Critical-accessibility repairs must be completed as soon as
possible, although such repairs can be deferred until after endorsement when earlier completion is not
possible. Non-critical repairs may be deferred until after endorsement. See Chapter 5, Section 5.1 for the
definition of substantial rehabilitation and detailed requirements concerning repairs. The property must
contain at least 5 residential units.
3.7.2
Eligible Properties
A. Applications for refinancing of property with certificates of occupancy issued 3 or more years prior to
application are eligible and will be underwritten consistent with the loan sizing ratios described in Section
3.7.11 below. Applications for these properties must document a pattern of stable occupancy at not less
than 85% and stable operating results. Deficit reserves are generally not required but may be imposed
where extensive repairs, re-pricing of units, or market instability require mitigation of such risks.
B. Newly built or substantially rehabilitated properties (with certificates of occupancy less than 3 years
prior to application) will be accepted as soon as properties achieve the applicable programmatic DSCR for
not less than one full month. However, and notwithstanding this allowance, MAP Lenders should be
careful to submit only those applications for mortgage insurance that will meet the underwriting
requirements set forth below, such that endorsement can reasonably take place no more than sixty days
after issuance of the firm commitment. All projects submitted to HUD for mortgage insurance within three
years of issuance of the final Certificate of Occupancy must meet the following underwriting conditions,
in addition to those currently set forth in the MAP Guide, as part of an application for mortgage insurance.
1. The project must evidence a minimum DSCR consistent with the requirements for Criterion 5, as
stated in Section 3.7.11 below, for a period of three consecutive months prior to loan endorsement.
2. An income and expense statement commencing with initial occupancy to application submission, as
well as a projection of income and expense for the succeeding twelve months, must be submitted.
3. A current rent roll evidencing existing, achieved rents as well rents that were used to underwrite the
existing first mortgage must be submitted.
4. A leasing history of the project commencing from initial occupancy to application submission, as well
as the lease-up projection used to underwrite the existing first mortgage, must be submitted.
5. Rent concessions, other discounts and short-term leases (less than 12 months) that are offered by the
owner to induce a prospective tenant to enter into a lease must be disclosed and discussed in the
Lender's Narrative.
6. HUD will underwrite to actual revenue collected less normalized operating expenses in order to
determine when and if the required programmatic DSCR has been achieved.
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7. A request for cash out is permitted, subject to the maximum loan to value (LTV) ratio for Criterion 10
described in Section 3.7.11 below. However, 50% of the available cash must be held by the Lender as
a debt service reserve until such time as the property achieves the applicable minimum debt service
coverage for six consecutive months.
3.7.3
Ineligible properties
A. Manufactured home parks and group homes are not eligible under this Section.
B. Properties whose required repairs are so extensive that they meet the threshold for substantial
rehabilitation are not eligible under this Section.
C. Projects providing meal services are not eligible, although there is a potential exception to allow
otherwise prohibited services for refinancing Section 202 properties or FHA-insured properties with
Project-Based rental assistance as long as they are offered on an optional basis.
3.7.4
Additional Section 223(f) Requirements
A. In addition to the general requirements in Section 3.1, the following requirements apply to Section
223(f) when used for acquisition or refinancing:
1. Any property acquired by the Borrower before the date of the mortgage insurance application shall
be treated as a refinance transaction.
2. Any property acquired by the Borrower after the date of the mortgage insurance application shall be
treated as a purchase.
3. In a purchase transaction, any identity of interest, however minor an interest, between seller and
purchaser requires the application to be processed as a refinance. (Acquisitions to facilitate
Affordable transactions as defined in Section 3.1.12 of the MAP Guide are an exception to this
requirement.)
4. Borrowers with no experience operating multifamily rental housing will not be considered for
acquisition financing under Section 223(f) unless there are significant mitigants (e.g. the principals
have clean credit, strong diversified financial capacity, a conservative valuation, and the property will
be managed by an experienced HUD third party Management Agent).
3.7.5
Repairs
A. Critical-life safety repairs must be performed prior to endorsement. Critical-accessibility repairs must
be completed as soon as possible but may be deferred to after endorsement when completion prior to
endorsement is not possible. See Chapter 5, Section 5.3 and Section 5.10 concerning repairs and
alterations in Section 223(f) transactions.
B. Non-critical repairs, approved by HUD, may be completed after endorsement. These repairs, together
with any deferred critical-accessibility remedies, must be described with work write-ups sufficiently
detailed to facilitate inspections, schedules for completion of repairs, credible bids on work items greater
than $35,000, and a financial escrow equal to 120% of the cost of deferred repairs which must be
established at closing. The 20% portion of the escrow above the 100% of the deferred repair cost is non-
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mortgageable and may be reduced to 10% for affordable and Section 223(a)(7) transactions. See Chapter
5, Section 5.3 and Section 5.10 concerning repairs and alterations in Section 223(f) transactions.
C. Construction of additional units is not permitted under the Section 223(f) program. Ancillary
improvements such as community buildings and leasing offices or amenities such as swimming pools or
other similar revenue-enhancing improvements are permitted as long as the total size of improvements
do not exceed a gross floor area of 5,000 square feet. Additionally, if new improvements are proposed,
refer to Chapter 9, Section 9.1.3.C for information on environmental reporting.
3.7.6
Accessibility Requirements
A. Any property available for first occupancy after March 13, 1991 that does not comply with the Fair
Housing Act design and construction requirements must, as a condition of insurance, be
modified/retrofitted to comply with Fair Housing Act accessibility guidelines. Similar but distinct
requirements exist for any property now or ever federally assisted (per Section 504 of the National
Rehabilitation Act of 1973). The Americans with Disabilities Act may also apply to portions of a property.
HUD may approve the modifications/retrofits to be completed after endorsement with appropriate
financial escrows at closing, and the work must be performed in accordance with instructions in Section
5B “Accessibility for Persons with Disabilities.”
3.7.7
Age Restricted Projects
A. Projects with existing elderly occupancy or age restrictions are eligible for refinancing under Section
223(f) as long as the property meets the requirements of Section 3.11 and does not contain the features
of the Section 232 program.
3.7.8
Defaults, Claims, or Enforcement Referrals
A. HUD does not prohibit applications for mortgage insurance for projects that have previously
experienced default, assignment, or were formerly HUD-held loans. However, HUD will not accept any
application from a Borrower/Principal who has had a previous loan or other financial relationship with
HUD and not proven to be a good business partner, or for a property which has proven to be unsuccessful
or infeasible in the past, especially if any inherent negative attributes remain uncorrected. The Lender
should accept such applications only after they have documented the economic, physical, operational, or
management changes that have occurred, thereby justifying an application for new insurance. A concept
meeting prior to submission is required to address the history of the loan and of the Borrower/Principal,
including past Regulatory Agreement compliance. Similarly, the Lender should ensure that the Borrower,
the proposed Management Agent, and/or the Project have not been referred to HUD’s Departmental
Enforcement Center (DEC), or if such a referral has been made, that all issues have been or will be
resolved.
3.7.9
Labor Standards
A. Davis-Bacon prevailing wage requirements do not apply to Section 207/223(f).
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3.7.10
Prepayment Provisions and Prohibition
A. The National Housing Act prohibits prepayment of loans insured under Section 223(f) for 5 years from
the date of endorsement for insurance, except where at the time of prepayment:
1. The Borrower enters into an agreement with HUD to maintain the property as rental housing for the
remainder of the specified 5-year term;
2. HUD determines that the conversion of the property to a cooperative or condominium ownership is
sponsored by a bona fide resident organization representing the majority of households in the project;
3. HUD determines that continuation of the property as rental housing is unnecessary to assure
adequate rental housing for low- and moderate-income residents of the community; or
4. HUD determines that continuation of the property as rental housing would have an undesirable and
deleterious effect on the community.
B. The statutorily imposed prepayment restriction is not intended to prohibit refinancing under Section
223(a)(7), though the terms of a Ginnie Mae or other mortgage backed security or bond financing may
restrict prepayment. A Section 223(f) Use Agreement is required for a refinancing of an existing Section
207 insured loan pursuant to Section 223(f)/ 223(a)(7) if the mortgage is aged less than five years from
the Final Endorsement date.
3.7.11
Maximum Loan and Debt Service Coverage Ratios
(DSCR)
A. The following loan ratios and percentages control the loan amount and are detailed on the form HUD92264-A, Supplement to Project Analysis, mortgage criteria. The lowest mortgage criterion controls the
loan amount.
3.7.11.1
Section 223(f) Refinance and Acquisition Processing
A. Criterion 1. Loan Amount Requested on Application. The requested application amount may be
amended when appropriate.
B. Criterion 3. Amount Based on Value: The applicable percentage of the estimated value of the
property after completion of repairs and improvements for loan applications are as follows:
1. 90% for Section 202 & 202/8 direct loans and for projects with 90% or greater rental assistance.
2. 87% for projects that meet the definition of Affordable Housing and for which the achievable Tax
Credit rents are at least 10% below market rents.
3. 85% for market rate projects or Tax Credit projects without a significant rent advantage (i.e. the
achievable rents are not at least 10% below market).
C. Criterion 4. For amount based on limitations per family unit, where percentages are required, enter
the same percentage applied under Criterion 3. See Chapter 8 for complete details and the MF Housing
website: https://www.hud.gov/program_offices/administration/hudclips/notices/hsg on information
for per family unit limitations and the High Cost Percentage by jurisdiction.
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D. Criterion 5. Amount based on DSCR (ratios are rounded for presentation purposes) must be as follows:
1. 90% of NOI (1.11 DSCR) for projects with 90% or greater rental assistance;
2. 87% of NOI (1.15 DSCR) for projects that meet the definition of Affordable Housing and for which the
achievable Tax Credit rents are at least 10% below market rents; or
3. 85% of NOI (1.176 DSCR) for market rate projects or Tax Credit projects without a significant rent
advantage (i.e. the achievable rents are at least 10% below market.)
E. Criterion 7 – Acquisition Applications. For amount based on total cost of acquisition, per Section
223(f), the following percentages apply to Line 7d. (i.e. formula to compute the loan closing charges) and
Line 7h:
1. 90% for projects with 90% or greater rental assistance;
2. 87% for projects that meet the definition of Affordable Housing and for which the achievable Tax
Credit rents are at least 10% below market rents; or
3. 85% for market rate projects or Tax Credit projects without a significant rent advantage (i.e. the
achievable rents are at least 10% below market.)
F. Criterion 10. For this criterion, the limit is the greater of 80% of LTV or the cost to refinance.
3.7.12
For Cash Out/Equity Out Proceeds When Repairs are
Deferred
A. Fifty percent (50%) of any cash out proceeds after funding mortgageable transaction costs and the
assurance of completion requirements must be held in an escrow by the Lender until the deferred repairs
are completed and HUD approves the release of funds remaining in the Repair Escrow. (See Chapter 8,
Section 8.11.1.A.2.c for exceptions and Chapter 12, Section 12.17.1.3 for detailed escrow release
instructions.)
3.7.13
Capitalization Rates and Determination of Value
A. Capitalization rates represent the blended or weighted cost of capital to the investor and the various
methods of calculating capitalization rates utilize the mortgage constant to represent the debt portion of
the cost of capital. Capitalization rates should generally exceed the mortgage constant in nearly all cases,
and the MAP Underwriter should compare the mortgage constant to the capitalization rate as a test of
reasonableness. A capitalization rate that is less than this mortgage constant may indicate a market that
is over-heated or that that the capitalization rate data in the appraisal is flawed. Regardless, a
capitalization rate that is less than the mortgage constant may indicate the need for a more in-depth
review.
3.7.14
Statutory Loan Limits
A. When approved by the Regional Director, the statutory loan limits may be increased for Section 223(f)
projects up to the maximum permitted factors (270% or 315%, as applicable.) But in no event will the
statutory loan limits be increased to increase the amount of available equity on a cash-out transaction
controlled by Criterion 10.
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3.7.15
Cost Not Attributable to Dwelling Space
A. A calculation for cost not attributable for dwelling space may be included in the determination of final
loan amount for purposes of Criterion 4 for Section 223(f) projects. (See Chapter 5, Section 5.12.2.B.3.d.)
3.7.16
Reserve for Replacements (RfR)
A. An Initial Deposit and/or Annual Deposits must be made to the RfR account in accordance with the
CNA and underwriting conclusions. For projects with a recently completed CNA, see Chapter 5, Section
5.10.4.
3.7.17
Secondary Financing
A. HUD permits secured secondary financing on Section 223(f) loans up to total debt of 92.5% Loan-toValue, or as otherwise specified for affordable housing projects. (See Chapter 8 and Chapter 14 for
details.)
3.7.18
Commercial Space
A. Commercial space is limited to 25% of total net rentable area and commercial income to 20% of
effective gross project income.
3.7.19
Real Estate Requirements
A. The mortgage must be on real estate held:
1. In fee simple; or
2. Under a leasehold estate approved by HUD for not less than ninety-nine years which is renewable or
with a minimum term of 50 years from the date the mortgage is executed. Both the land and the
improvements may be subject to the leasehold, so long as Office of General Counsel determines there
is adequate security for the loan.
3.7.20
Mortgage Term
A. The maximum term of the mortgage is 35 years or 75% of the remaining economic life of the property,
whichever is less, provided that the term may not be less than 10 years.
3.7.21
Firm Commitment Processing Only
A. Lenders should participate in a concept meeting with the HUD Regional Center or Satellite Office prior
to application submission if there are concerns about marketability, environment, competing proposals,
or for particularly complex financing structures or projects with less than three years operating history,
significant cash out or for loans over $75M.
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3.7.22
Market Study
A. Section 223(f) applications typically do not require a market study separate from that contained in the
appraisal. However, in volatile or declining markets, the Lender should consider and may be required to
obtain a market study to support the underwriting conclusions of market demand for the property over
the loan term. HUD Regional Center or Satellite Office staff should consult with Economic Market Analysis
Division (EMAD) in such cases. Requirements for market studies are contained in Chapter 7.
3.7.23
Bond Financing Costs
3.7.23.1
Discounts and/or Costs of Issuance
A. Discounts and/or Costs of Issuance associated with bond financing may be eligible for inclusion in the
computation of Criteria 7 and 10.
1. Review documentation regarding permanent financing. Documentation must state the amount of the
discounts, financing fees, and/or costs of issuance to be charged and to whom they will be paid.
2. Permanent Placement Fee. This fee must include all permanent placement expenses, including
Lender’s legal fees, except discounts. Where Ginnie Mae Mortgage-Backed Securities (MBS) are
involved and the mortgagee charges:
The maximum permanent placement fee, it may not assess an additional charge for either the MBS
application fee and/or the securities custodial fee.
Less than the maximum permanent placement fee, it may assess an additional charge for either
the MBS application fee and/or the securities custodial fee provided the total fees and charges do
not exceed the dollar value of the maximum permitted permanent placement fee.
3. Determine if the discounts, financing fees and costs of issuance are reasonable and generally in line
with prevailing market conditions and mortgage credit data. Recognize financing fees and discounts
charged by the permanent Lender, for inclusion in the mortgage:
Where a project is to be financed through the sale of either taxable or tax-exempt bonds, the
maximum financing fees allowable in the mortgage computation and recognizable for cost
certification purposes is 5.5% of the mortgage amount. Any cost beyond the 5.5% must be paid
from sources outside the mortgage.
The maximum financing fee the mortgagee may retain for its own account is 3.5% to cover the
costs of origination, permanent placement, processing, underwriting, closing and delivery
(including the mortgagee's legal fees), escrow monitoring, etc. The remaining 2% (or such greater
percentage as may result from the Lender reducing its maximum retained 3.5% fee) may be used
to offset the bond fees.
Discounts. In a refinancing or purchase transaction, discount fees will be recognized only for
those actual costs charged by the placement Lender, which are determined to be eligible.
Discounts included in the computation of Criteria 7 and 10 must be reasonable based on current
market conditions.
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3.7.23.2
Defeasance Costs Associated with Underlying Bond Financing
A. Defeasance costs associated with underlying bond financing, yield maintenance, swap termination fees,
or costs to satisfy similar derivative instruments will only be recognized in the eligible cost basis up to
10% of the requested FHA loan amount. Defeasance costs greater than 10% of the proposed FHA insured
loan amount may only be paid from equity-out when the loan amount is less than or equal to 80% LTV.
3.8
Section 223(a)(7) Refinancing
A. The Section 223(a)(7) program is more fully described in Chapter 18 of this Guide. The program was
included as a MAP Program in July 2010 and provides for streamlined refinancing of currently insured
FHA loans. Accordingly, some requirements of MAP processing for other multifamily programs are not
required. The following is a summary of the program features:
3.8.1
Eligibility
A. Only currently FHA insured loans are eligible for Section 223(a)(7) refinancing. HUD held loans are
not eligible unless subject to a Mark-to-Market Debt Restructuring under the Multifamily Assisted
Housing Reform and Affordability Act of 1997 (MAHRAA). Risk Share loans are not eligible (by statute).
Properties that need substantial repairs or propose new construction (e.g. of additional units or other
permanent structures) are not eligible.
3.8.2
Terms
A. Most transactions are processed with a lower interest rate, and re-amortized either within the
remaining term or with an extension up to 12 years, including any previous extensions granted.
Exceptions are detailed in Chapter 18; however, Lenders should ensure compliance with this section by
reviewing the loan history in HUD’s database if the most recent financing was through Section 223(a)(7).
Extended amortizations may reduce risk to the Department by lowering debt service requirements as
long as the CNA shows that the physical condition supports the extended term of the mortgage. In every
case, the loan term cannot exceed 75% of the remaining economic life of the property.
3.8.3
Controlling Mortgage Criteria
A. The loan is limited to the lesser of the original principal balance, the existing indebtedness plus
transaction costs, and that which can be supported by 90% of NOI (95% for projects with greater than
90% Project-Based Rental Assistance with a term in excess of 15 years after endorsement).
3.8.4
Lender Fees
A. See Chapter 18 for more detail. The one exception to the prohibition on inducements is the payment
of prepayment penalties on an existing FHA insured loan from Lender’s profit. The Lender may pay such
prepayment penalties on behalf of the Borrower, as long as disclosed to and approved in advance by HUD.
Prepayment penalties payable by Lenders may include the cost of defeasance or penalties associated with
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bond financing, or defeasance of other MBS (including Ginnie Mae securities), as long as the amount does
not exceed 10% of the proposed FHA insured loan amount.
3.8.5
Borrower Fees
A. Lenders cannot pay application or due diligence fees on behalf of the Borrower, or other payments as
an inducement. To do so would be considered a kick-back and a basis for enforcement action. This broad
prohibition applies to affiliates of either the Lender or the Borrower and includes any payment or
contribution from the Lender directly to the Borrower or in support of their Borrower’s interests. Other
than to pay for CNA costs, existing RfR deposits (for HUD held or FHA insured mortgages) are not available
for application fees or other transaction costs.
3.8.6
CNA
A. A complete CNA is required in accordance with Appendix 5, Section A.5.7. For projects with a recently
completed CNA, see Chapter 5, Section 5.10.3.B.
3.8.7
Other Issues
A. Projects in which the repairs or rehabilitation is extensive enough to require an Environmental review
above categorical exclusion not subject to the laws and authorities (CENST) (See Chapter 9, Section
9.1.3.A) or compliance with Davis-Bacon Wages, are not eligible for Section 223(a)(7) refinancing.
B. An officer of the Lender who is an approved signatory must sign the application. Site visits and an
approved MAP Underwriter are generally not required, though the physical condition or other issues in
specific transactions may require such a site visit and Underwriter review.
C. Prepayment approval must be requested by the servicing mortgagee at the time of the application.
When the refinancing is being performed by a different firm than currently services the loan, a letter
accompanying the Firm Commitment application and signed by the Borrower to the Servicing Lender
notifying them of their Borrower’s intent to refinance and requesting their filing of the form HUD-9807
will be accepted in lieu of the actual request for prepayment approval.
3.9
3.9.1
Property Insurance Requirements
Insurance During Construction
A. Public Liability Insurance on a Commercial General Liability form with limits of not less than $1Million
per occurrence, $2 Million in the aggregate to protect the mortgagor during the construction phase from
claims involving bodily injury and/or death and damage to the property of others, is required during
construction Such Commercial General Liability Insurance must be endorsed to include owners' and
Contractors' protective coverage.
B. Vehicle Liability Insurance with limits based on the State or the District of Columbia’s minimum
required liability coverage or not less than $300,000 for one person and $500,000 for more than one
person, whichever is greater, to protect the mortgagor for claims for bodily injury and/or death, and not
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less than $100,000 against claims for damage to property of others arising from the owner's operation of
vehicles is required during construction. Such insurance must include coverage for employer's owned,
non-owned and/or hired vehicles, where applicable.
C. For properties in a Special Flood Hazard Area (SFHA) on a Federal Emergency Management Agency
(FEMA) Flood Insurance Rate Map, flood insurance is required during construction when the property
becomes insurable, and upon completion, in the amount required per Section 102(a) of by the Flood
Disaster Protection Act of 1973 (42 USC 4012a(a)). For each improved structure located in a SFHA, HUD
insurance requirements may go beyond the statutory minimum.
D. HUD requires flood insurance in an amount at least equal to the greater of:
1. The maximum flood insurance available for that type of property under the National Flood Insurance
Program (NFIP); or
2. An amount equal to the replacement cost of the bottom two stories above grade, as determined by
form HUD-92329, or equivalent.
3.9.2
Permanent Insurance
A. Upon acceptance of the project, or any portion thereof from the Contractor, the Lender must provide a
certified duplicate copy of the types of insurance coverage listed in this subsection. In some instances,
continuation of the insurance obtained for the construction period, with proper endorsements thereto,
will be acceptable. In any event, the Lender must assure that there is no gap period in insurance
protection during the transition from the Insurance During Construction to the Permanent Insurance. In
general, however, once the project is completed and accepted, the Lender must provide a certified
duplicate copy of insurance coverage as described below.
3.9.2.1
Public Liability Insurance
A. Property liability insurance is required to be on a Commercial General Liability form with not less than
$1 Million per occurrence and $2 Million in the aggregate, to protect the mortgagor from claims involving
bodily injury and/or death and property damage that may arise from the mortgagor’s operations,
including any use or occupancy of its facilities, grounds and structures. This must include independent
Contractor’s coverage, where applicable.
3.9.2.2
Vehicle Liability Insurance
A. If the mortgagor owns a vehicle in the operation of the project, including non-owned and/or hired
vehicles operated for the benefit of the mortgagor, the mortgagor must maintain Vehicle Liability
Insurance. Such insurance must provide for limits of liability based on the State or the District of
Columbia’s minimum required liability coverage amounts or not less than $300,000 for one person and
$500,000 for more than one person, whichever is greater, to protect the mortgagor from claims for bodily
injury and/or death, and not less than $100,000 against claims for damage to property of others.
3.9.2.3
Flood insurance
A. For properties in a SFHA on a FEMA Flood Insurance Rate Map, flood insurance is required during
construction when the property becomes insurable, and upon completion, in the amount required per
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Section 102(a) of the Flood Disaster Protection Act of 1973 (42 USC 4012a(a)). For each improved
structure located in a SFHA, HUD insurance requirements may go beyond the statutory minimum. HUD
requires flood insurance in an amount at least equal to the greater of:
1. The maximum flood insurance available for that type of property under the NFIP; or
2. An amount equal to the replacement cost of the bottom two stories above grade, as determined by
form HUD-92329, or equivalent.
3.9.2.4
Casualty Insurance
A. Also known as “fire and extended coverage” casualty insurance protects Borrowers (as well as Lenders
and HUD) from losses caused by fire, storm, wind, and similar accidents or natural hazards. The Borrower
must maintain extended coverage on the property, in accordance with terms and conditions established
by the Commissioner, as required by 24 CFR 200.86.
1. Insurable values. The amount of damages covered, and the amount of coverage needed are both
based on the replacement cost of individual buildings not including land or site improvements,
meaning the actual current cost of replacing the building, not value or depreciated original cost. For
each building this sum is known as its “insurable value.” The dollar amount payable in any casualty
event will not exceed the actual cost of damages calculated on a building by building basis and for
each building will not exceed the insurable value for that building. For this reason, methods of
estimating insurable value that prorate gross cost among dissimilar buildings may under (or over)
state actual replacement cost resulting in a risk of loss not covered by insurance. Most states regulate
casualty insurance coverage and prohibit “over insurance” because it is an inducement to arson and
insurance fraud. For HUD programs, replacement cost (insurable value) must be estimated for each
structure in a property and is reported on the CNA report. (See Chapter 5 and Appendix 5, Section
A.5.7).
2. Minimum coverage amount. Provided that any co-insurance requirement is met (see below), the
Borrower must provide casualty insurance with a face amount that is the lower of: 80% of insurable
improvements; or the balance of the insured mortgage(s). (See the form HUD-92447, section 5(a)).
3. Limitations of Borrower’s obligation to share cost of damages. HUD’s minimum coverage
requirements protect Borrowers by limiting their obligation to share the costs of damages when a
casualty occurs and by assuring that the insurance proceeds are sufficient to pay the commensurate
portion of the principal amount of any insured mortgage(s) when a damaged building cannot be
restored. Typically, insurers require Borrowers to share the cost of damages by one (or both) of two
methods: deductibles, and co-insurance requirements. HUD limits Borrowers’ exposure as follows:
Deductibles may not exceed the greater of $50,000 or 1% of the insurable value for any particular
building up to a maximum amount of $250,000.
The Borrower must purchase casualty insurance in an amount that equals or exceeds any
applicable co-insurance requirement. This limitation prevents Borrowers from purchasing
insurance policies that require Borrowers to pay a share of damages on partial claims (i.e. claims
for less than total losses). A co-insurance requirement is expressed as a ratio or percentage that
the maximum insured loss for any casualty event bears to the aggregate of insurable values for a
property. The maximum insured loss is also commonly called the “face amount” of the insurance
policy and is the insurer’s maximum obligation for damages from any casualty event. Recognizing
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that total losses are quite rare, especially for multi-building properties, Borrowers often seek to
reduce premium costs by reducing the face amount of insurance purchased. A co-insurance clause
requires Borrowers to share in any loss if the face amount of insurance purchased is less than the
co-insurance requirement. A co-insurance requirement typically but not always imposed by
insurers is 80%, meaning the face amount of insurance purchased should equal or exceed 80% of
insurable values. With this co-insurance requirement, if a Borrower purchases a face amount of
insurance which is 65% of insurable values, then the insurer’s obligation to pay any claim will be
limited to 65% of the claim, leaving 35% (plus any deductible) to be paid by the Borrower. If the
Borrower purchases a face amount equal to or exceeding the co-insurance requirement, then the
insurer is obligated to pay 100% of any claim (less any deductible) up to the face amount of the
policy.
4. Exceptions. In some circumstances such as large properties with multiple buildings and properties
included in a portfolio with multiple tiers of casualty loss coverage, a waiver of the 80% of insurable
values minimum may be considered provided that the Lender demonstrates the adequacy of coverage
in light of possible casualty events and that the Borrower is not obligated to share in losses arising
from partial claims.
3.9.3
Other Insurance Requirements
A. Both HUD and the Lender must be named as additional insured on the policies of insurance, with the
standard Lender clause reading: “loss payable to the mortgagee, its successors and assigns.” All insurance
carriers or providers that issue policies of insurance on a HUD insured project must have and must
maintain during the policy period a rating that is acceptable to HUD (A.M. Best Financial Strength Rating
[FSR] of B+ or better). Further detail of ongoing requirements for insurance coverage after Endorsement
may be found in the Asset Management Handbook (HUD HB 4350.1). The amount of property insurance
required is further discussed in the Asset Management Handbook.
3.10 Large Loan Risk Mitigation
3.10.1
Purpose
A. This section addresses the greater single-point risk of loss created by very large loans and defines the
underwriting standards for large multifamily loans, primarily those above $75 million. Except where
otherwise stated, these policies do not apply to loans below $75 million or to loan applications under
Section 223(a)(7).
3.10.2
Underwriting Ratios for Large Loans
A. The following DSCR, Loan to Value Ratio (LTVR) and Loan to Cost Ratio (LTCR) underwriting standards
shall be applied as loan sizes increase:
1. For New Construction/Sub Rehab under Sections 220, 221(d)(4), 231, 241(a) on loans at or above
$75M:
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Property Is:
Market Rate & LIHTC with no rent
advantage
Affordable
=> 90% Rent Assisted
Debt Service Coverage
Limits
1.30
Loan To Cost Limits
1.25
1.15
80%
87%
75%
Section 241(a) loans are limited by statue to 90% (see.). Section 3.6
For refinancing under Section 223(f) on loans at or above $75M:
Property Is:
Market Rate & LIHTC with no rent
advantage
Affordable
=> 90% Rent Assisted
Debt Service Coverage
Limits
1.30
Loan to Value (without/with
cash out*)
75%/70%
1.25
1.15
80%/70%
87%/80%
* Note: Loan amount with cash out is determined at Criterion 10 of the form HUD-92264-A.
3.10.3
Increased Reserves for Large Loans
A. New construction/substantial rehabilitation projects need an appropriately sized operating deficit
reserve to help assure success of these projects during their early, most vulnerable stages of rent-up. The
amount of an operating deficit reserve for loans less than $75 million is described at Chapter 8, Section
8.14.C.6. When loan amounts equal or exceed $75 million, minimum operating deficit reserve amounts
are as follows:
Loan size
> $75M
> $100M
Reserve amount shall be the greater of
12 months amortizing debt service plus MIP or the amount calculated per MAP Guide
Chapter 7, Section 7.14
12 months amortizing debt service plus MIP, or the amount calculated per MAP Guide
Chapter 7, Section 7.14 or such amount identified through HUD analysis of the risks and the
mitigants appropriate to the particular loan application
B. For large loans (=> $75 million) under Section 223(f), for properties with certificates of occupancy
issued less than 3 years prior to application, a debt service reserve is required which shall be the greater
of 12 months debt service (principal, interest and MIP) or 50% of any excess loan proceeds (cash out).
The debt service reserve will be released upon 6 consecutive months of operating results meeting or
exceeding the underwritten debt service coverage requirement, including any such months prior to
endorsement. If prior to endorsement 6 consecutive months of underwritten debt service coverage have
been achieved, no operating deficit reserve is required.
C. For loans greater than $100 million, HUD’s analysis of the risks and the mitigants appropriate to the
loan application may require adjustment of the required DSCR, LTCR, or LTVRs, and/or the minimum
operating deficit or debt service reserve requirements. Lenders should detail appropriate risk mitigants
for such transactions, which will be reviewed on a case-by-case basis.
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3.10.4
Extended Lease-Up Period
A. A Large loan is often associated with large property size measured in number of units, which may
indicate a lengthy lease-up or absorption period. The absorption period for estimating market demand is
up to a maximum of 18 months. HUD Regional Office Directors may waive the 18-month absorption
period restriction only in cases where there is an unusually strong market that will support initial rentup to sustaining occupancy beyond 18 months and where the Borrower has clearly demonstrated
successful experience with developing such projects in the recent past. Such projects may require larger
operating deficit or debt service reserves.
3.10.5
Higher Net Worth and Liquidity
A. For large loans, the Principals of the borrowing entity must have, in aggregate, net worth equal to at
least 20% of the loan amount and liquidity equal to at least 7.5% of the loan amount. This requirement
may be waived for Sponsors of subsidized affordable housing properties.
3.11 Age and Family Status Restrictions
3.11.1
Restrictions Authorized by Statute
A. Age and family status discrimination in housing is prohibited except as certain restrictions are
authorized by statute. In order to be eligible for FHA mortgage insurance, properties proposing to restrict
occupancy to elderly families or elderly persons must comply with one of the following three occupancy
categories.
3.11.1.1
Restrictions Allowed by HUD Statutory Authority
A. Properties proposing to restrict occupancy to certain populations pursuant to specific HUD statutory
authorities may be eligible for FHA mortgage insurance. This category includes, without limitation,
properties operating under programs in which, pursuant to statutory authority, HUD has approved
restricting occupancy to a “mixed use” population including elderly and non-elderly disabled families.
Section 231 is one such program. This category also includes, without limitation, properties restricting
occupancy in accordance with statutory authority provided under Sections 221 or 236 of the National
Housing Act or Section 8 of the United States Housing Act of 1937. Several of these programs authorize
properties to restrict occupancy to households in which at least one person is 62 years old and which may
include children under the age of 18. This is FHA’s long-standing definition of elderly families and has
been referred to in previous FHA guidance as “62+ HOH”. A property operating under this design may not
discriminate against familial status in its admission and occupancy policies. However, if a program has
statutory authorization for a specific kind of occupancy restriction, an exemption from the Fair Housing
Act’s familial status provisions is not needed to operate the property in accordance with that program.
B. FHA mortgage insurance is compatible with projects having an elderly preference combined with
project-based Section 8 rental assistance permitting non-elderly families with children under the age of
18. In these cases, the Fair Housing Act’s housing for older persons exemption (which permits the
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exclusion of families with children) is not implicated because the Section 8 statute and regulations require
the inclusion of families with children.
C. If the project allows a “mixed population”, including elderly and non-elderly disabled persons, has been
operating continuously since prior to October 1, 1991 (the effective date of Title VIII, Subtitle A of
“Cranston-Gonzalez National Affordable Housing Act”, Pub. L. 101-625), and is subject to a project-based
Section 8 contract, a regulatory agreement, or a use agreement executed in accordance with statutory
authority, the project would meet the MAP Guide requirement. No waiver would be required as long as
the Lender submits with the application the contract or agreement permitting the use and the proposed
occupancy regime will continue in accordance with existing agreements in place prior to October 1, 1991.
3.11.1.2
Housing for Persons Age 55+ (55+ Exemption)
A. The Fair Housing Act authorizes certain properties to restrict occupancy to families composed only of
adults with a household head aged 55 or older, referred to here as the 55+ Exemption. HUD does not
permit projects with occupancy restricted to age 55 and older under any market rate multifamily
programs or under any New Construction or Substantial Rehabilitation programs. Existing affordable
properties that restrict occupancy to households in which at least one person is at least 55 years old may
be eligible for FHA mortgage insurance for refinancing or acquisition financing if they qualify for an
exemption from the familial status provisions of the Fair Housing Act. To qualify as housing “intended
and operated for occupancy by persons 55 years of age or older,” the housing provider must meet all three
of the following criteria:
1. At least 80 percent of the occupied units are occupied by at least one person who is 55 years of age or
older;
2. The housing community or facility publishes and adheres to policies and procedures that demonstrate
the intent to serve persons 55 years of age and older; and
3. The housing facility or community complies with the rules issued by HUD for verification of
occupancy.
B. The law at 42 U.S.C. § 3607(B)(2)(C)(i)-(iii), as implemented at 24 C.F.R. part 100 addresses these three
requirements in greater detail: the 80 percent minimum occupancy requirement outlined in (i), above is
addressed at 24 C.F.R. § 100.305; the assessment of intent outlined in Section 3.11.1.2.A.2 above is
addressed at 24 C.F.R. § 100.306; and the verification requirements outlined in Section 3.11.1.2.A.3 above
are addressed at 24 C.F.R. § 100.307.
C. Eligible properties must have complied with the Fair Housing Act’s conversion rules, including the rule
covering properties intending to convert from non-exempt to exempt housing after May 3, 2000. In these
projects, the owner/Borrower of an existing property must apply neutral admission policies (admitting
head of household-age-eligible families with children) until the 80 percent threshold of the exemption is
satisfied. For properties constructed after May 3, 2000, the new construction rules dictate that such
properties may exclude families with children until 25 percent of its units are occupied. Once the 25
percent threshold is reached, at least 80 percent of the occupied units must have a resident who is 55
years of age or older. If the property does not meet the 80 percent requirement once the 25 percent
occupation threshold is reached, the owner/Borrower may not thereafter exclude or otherwise
discriminate against familial status.
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D. The Fair Housing Act prohibits “dual purpose housing facilities.” A housing facility or community may
not avail itself of the 55 and older exemption if it designates some units, sections, or buildings for persons
age 55 and older, while designating other units, sections, or buildings for families with children. See 54
Fed. Reg. 3232, 3252 (January 23, 1989) for more information on this issue. Furthermore, properties
applying for purposes of FHA mortgage insurance must be “one marketable, manageable real estate
entity”. Any property proposing one FHA insured loan, with separate management agreements and
procedures for a portion of the units or buildings restricting occupancy to persons age 55 or older and
another portion to other occupancy regimes generally will not be considered one manageable entity and
thus not eligible for mortgage insurance.
3.11.1.3
Housing Restricted to Persons Age 62+
A. Properties proposing to restrict occupancy exclusively to persons 62 years of age or older may be
eligible for FHA mortgage insurance, but only under the Section 231 program. Although housing intended
for, and solely occupied by, persons 62 years of age or older is a recognized exemption from the familial
status provisions of the Fair Housing Act, 42 U.S.C. § 3607(b)(2)(B), it is FHA’s policy to allow this
restriction on occupancy only for Section 231 transactions.
3.11.1.4
Other Fair Housing Act Exemptions
A. The Fair Housing Act recognizes another exemption from its familial status provisions, namely for
housing “provided under any State or Federal program that the Secretary determines is specifically
designed and operated to assist elderly persons (as defined in the State or Federal program)” 42 U.S.C. §
3607(b)(2)(A). Although this is a recognized exemption to the Fair Housing Act’s familial status
protections, it has not heretofore been necessary to rely on this exemption in the context of MAP
multifamily insurance processing. Therefore, FHA policy requires a property to fit into one of the other
three categories described in Section 3.11.1.
3.11.2
Age Restriction in Certain Projects and Programs
A. There are additional FHA mortgage insurance requirements for restriction of tenant age and family
status applicable to specific project types. This section lists additional requirements for each of the kinds
of projects listed.
3.11.2.1
Market Rate Projects
A. Except for projects applying under Section 231 or Section 220, market rate applications for agerestricted projects under all Sections of the Act must have all unit heads of household 62 years or older
and cannot exclude non-elderly family members including children. Section 231 allows age restrictions
detailed at Section 3.11.2.3 below while age restrictions in any form are prohibited in Section 220. For
purposes of this section, market rate projects are those that do not meet the definition of affordable stated
in Section 3.1.12.
3.11.2.2
Affordable Projects and 55+ Exemption
A. Projects availing themselves of the 55+ Exemption under the Fair Housing Act may be eligible for FHA
mortgage insurance if all of the following are true:
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1. The project is an affordable property (as defined in Section 3.1.12);
2. The project is pursuing FHA mortgage insurance for refinancing or acquisition of existing housing
under Section 223(f) or 223(a)(7);
3. The project is already availing itself of the 55+ Exemption for at least the previous three years and is
not using FHA mortgage insurance to facilitate transition into the use of the 55+ Exemption; and
4. There is no statutory or regulatory restriction limiting eligibility to another category of persons (for
example persons or heads of household who are age 62 or older).
5. Properties with project-based Section 8 rental assistance and other federal assistance have
programmatic terms that limit eligibility and thus such projects may not avail themselves of the 55+
Exemption.
B. These potentially eligible properties must operate in full compliance with the 55+ Exemption in the
Fair Housing Act to impose age restrictions and exclude children. To be eligible for FHA mortgage
insurance, a project operating under the 55+ Exemption must provide a Certification of Compliance with
the Fair Housing Act by the Borrower. A sample template is included in Appendix 3, Section A.3.3 of this
guide. In support of the certification, the Borrower must provide the governing age restriction documents
and management documents indicating the property complies with the 55+ Exemption. Governing age
restriction documents include use agreements, bond documents, tax credit qualified allocation plan and
application documents, and zoning documents, as applicable. Management documents include leases,
occupancy policies, marketing plans, and affirmative fair housing marketing plans, as applicable. Though
such management documents may be sufficient to establish eligibility, processing staff should encourage
applicants to provide documents such as use agreements, relevant zoning documents, or bond documents,
whenever available. See 24 C.F.R. § 100.306 for examples of other relevant documents to be considered.
C. HUD processing staff should review the certification to determine whether it is consistent with the age
restriction and management documents submitted by the property. Further, processing staff should
review the certification, age restriction, and management documents to ensure that the project is not
operating as a “dual purpose” property in contravention of the Fair Housing Act.
D. FHA MAP Lender applications and underwriting must document, and HUD processing staff must verify,
the property’s compliance with the Fair Housing Act by requesting and then analyzing the governing age
restriction and management documents to determine whether the documents clearly impose a 55 or older
restriction that is compatible with the 55+ Exemption.
E. If an FHA-financing-eligible property certifies as a 55 or older property, it is important for processing
staff to verify when the property began operating as such. The regulations at 24 C.F.R. § 100.305(e)
specify that properties had the opportunity to establish eligibility for this exemption until May 3, 2000.
After this date, existing projects could avail themselves of this exemption only if they met the criteria
defined in the certification through neutral admission policies.
F. Multifamily HUD staff should consult with Office of General Counsel prior to accepting an application
for FHA mortgage insurance for properties operating under the following programs and seeking to take
advantage of the 55+ Exemption:
1. Old Section 202 Prepaid;
2. Refinance of Prepaid Section 202.
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3.11.2.3
Section 231 Projects, both Market Rate and Affordable projects
A. Section 231 projects have statutory authority to serve persons who are 62 years old or older as well
as statutory authority to serve non-elderly persons with disabilities. FHA may approve transactions in
which up to 25% of the units are available to non-elderly disabled families. See Section 3.11.1.3 above.
Section 231 projects do not require a specific exemption from the Fair Housing Act because they are
statutorily required to provide housing restricted to persons who are 62 and over.
3.11.3
Limitations on Services and Fees
3.11.3.1
Services
A. Projects with extensive resident service packages or that are otherwise specifically designed for elderly
occupancy such that all or a portion of the units would be eligible under Section 232 of the National
Housing Act are not eligible for MAP insurance programs. The following are typical Section 232 project
characteristics that are not eligible for multifamily mortgage insurance or MAP processing (whether
elderly or non-elderly):
1. Projects such as nursing homes, intermediate care facilities, board and care homes, assisted living
facilities, and day care in eligible health care facilities as defined under Section 232, or projects that
contain comparable characteristics.
2. Projects in which any percentage of the units must be licensed or regulated by the state or
municipality in which the facility is located, other than a standard rental housing occupancy or
operating license.
3. Projects in which the Borrower is required to obtain a Certificate of Need or comparable
documentation from the state or municipality.
4. Elderly housing developments that provide “continuous protective oversight” services for residents
in the manner defined under Section 232.
5. Residential accommodations, including any of the following:
Programmatic restrictions on the number of bedrooms per unit from efficiency through 3bedroom units;
Non-self-contained units, i.e., a bathroom shared by different residents; or
A kitchenette or less than what would constitute standard, full kitchen equipment.
6. Mandatory resident meal requirements.
7. Other resident services made a mandatory condition of occupancy.
8. Non-shelter and optional services included in the underwriting of NOI.
B. The prohibition on services and licensure discussed in this sub-section does not apply to formerly or
currently HUD-held or FHA insured multifamily projects which received Assisted Living Conversion
Program Grants for less than 75% of the units.
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3.11.3.2
Meals Service Exceptions
A. By final rule published in 56 FR 42798, central kitchens and the provision of food services in elderly
housing projects are prohibited under any rental housing section of the National Housing Act, including
Sections 223(f) and 221(d)(4). The Regional Center or Satellite Office Director may approve refinancing
transactions for properties, with meal services, in refinanced Section 202 and 202/8 direct loan
properties, or properties with Project-Based rental assistance which are currently insured under other
Sections of the Act, if and only if the all of the following are true:
1. Meals were provided before September 30, 1991 (the effective date of the regulation) and have been
continuously provided since that date;
2. Meals are provided on an optional basis, or with no more than one mandatory meal per day;
3. Income and expenses from the meal service are not included in the underwriting of NOI, and
4. The cost of the meals program is self-sustained by the revenue it generates based on HUD’s review of
the project’s financial statements.
B. Non-shelter spaces including formal dining areas with meal services for projects other than those with
Project-Based rental assistance and a current Section 202 or HUD-insured loan are not eligible for
multifamily mortgage insurance, even if they are provided to residents on an optional basis.
3.11.3.3
Prohibition on Founder’s Fees
A. "Founders' Fees," "admission fees," or similar types of initial occupancy or entry payments are
prohibited.
3.11.3.4
Guest Suites
A. In certain circumstances, multifamily projects may set aside a unit or create a limited number of nonincome units as an amenity for residents. The non-income units provide accommodations for the
resident’s guests or relatives. These non-income guest units are typically located in LIHTC, senior, and
senior cooperative projects, although they may be located in market rate projects as well. Non-income
units are permissible only to the extent their use is consistent with the National Housing Act’s prohibition
against use of FHA-insured multifamily projects for transient or hotel use. Borrowers are legally bound
to comply with these statutory requirements via execution of their Regulatory Agreement (form HUD92466M) and Borrower’s Oath (form HUD-92478M). In assessing whether the non-income units comply
with the prohibition on transient or hotel accommodations, HUD will take the following factors into
consideration:
1. Rental charges for the unit may not be imposed, nor may the project derive any income from the guest
suite.
2. The project may not provide cleaning, linens, or customary hotel services; however, a one-time
cleaning and laundering fee may be charged to the resident that reserves the guest suite.
3. Guests are not responsible or directly charged for any fees for the use of the guest suite, and its use is
limited to friends and family of residents.
4. Guest units are not available to the public.
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5. Only project residents are permitted to reserve the guest unit; the project does not independently
rent the guest suite.
6. Residents are limited to two reservations within a one year period, and up to a maximum of seven
reservation days per resident.
7. The number of guest suites are no more than two percent of the total number of units in the project.
3.12 Tenant Relocation
3.12.1
Relocation-General
A. Substantial rehabilitation of occupied properties pursuant to Section 220, 221(d)(4), and 231 and
acquisition or refinancing of a property pursuant to Section 223(f) with repairs and alterations may result
in permanent displacement or temporary relocation of tenants. When tenants of housing are permanently
displaced or temporarily relocated, owners and Lenders must address relocation with a relocation plan.
B. Statutes, regulations, and guidebooks provide specific requirements and instructions for managing the
permanent displacement and temporary relocation of tenants in projects receiving federal financial
assistance as referenced in Section 3.12.2 below. HUD mortgage insurance as well as LIHTC are not forms
of federal financial assistance for purposes of the Uniform Relocation Assistance and Real Property
Acquisition Act of 1970, as amended (42 U.S.C. 5601 et. seq.) (URA) and use of either or both of these two
federal programs does not trigger the URA.
C. Section 104(d) of the Housing and Community Development Act of 1974 applies only to properties
with HOME Investment Partnership Program (HOME) or Community Development Block Grant (CDBG)
funding and prescribes requirements when relocation is necessary at a property receiving assistance from
these sources.
D. However, even when neither of the statutes described in paragraphs B and C above apply, mortgage
insurance programs financing rehabilitation or renovation activities that displace residents require the
preparation and implementation of a plan for temporary relocation consistent with Section 3.12.3 below.
E. When construction is proposed at an occupied property, Lenders must assure that relocation needs
are identified, and appropriate plans described and implemented consistent with either 3.12.B. or 3.12.C,
as applicable and with Appendix 3, Section A.3.5. Notwithstanding whether an application concerns
housing with federal financial assistance or using HOME or CDBG funds, relocation plans must address
certain common concerns. These include the following:
1. Special expertise is required. A relocation consultant should be retained to assist in preparing a
relocation plan, including preparation of appropriate notices or letters to tenants, identifying units
and tenants who will be displaced, and assessing specific needs of displaced tenants whose health,
age, or physical condition does not permit exposure to anticipated construction activity or temporary
hazards arising from such activity (e.g. dust, chemicals, noise, obstructed access, etc.) even if the
activity does not occur in the dwelling unit occupied by the tenant or tenants for whom special
assistance may be necessary to manage activities of daily living outside their unit.
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2. The relocation plan must detail the schedule of proposed repairs to specifically identify the buildings
and units where construction activities will cause displacement, including the names of occupants by
unit number as well as the expected date displacement will occur and its likely duration.
3. Based on these expectations, the relocation consultant should describe how tenant relocation will be
implemented including addressing unique or special needs of tenants, estimating the costs of
relocation associated with each household displaced, and aggregating such costs by month consistent
with a monthly draw schedule for relocation costs during construction.
4. The relocation plan should describe the tenant relocation expenses that will be paid and/or the
services or facilities that the owner will provide and the means, method, and timeline for such
payments or provision of services or facilities.
5. The relocation plan should provide the text and timing of notices or letters that will be provided to
tenants and the frequency and method for visiting with and/or informing tenants of the expected
cause and timing of displacement, the expenses that will be paid and the services that will be provided,
the methods for affected tenants to respond, and who tenants may contact to address questions or
problems.
6. The relocation plan must identify whether there is any federal financial assistance involved in the
project. If yes, then Section 3.12.2 applies and either or both the URA or Section 104(d) of the Housing
and Community Development Act of 1974 (42 U.S.C Section 5304(d)) (Section 104(d)) also apply. The
relocation plan must adhere to these specific statutory and regulatory requirements and clearly show
how these requirements are met.
3.12.2
Projects with Federal Assistance
A. Where federal financial assistance is received or anticipated in any phase of acquisition, demolition, or
rehabilitation of a property, the permanent displacement or temporary relocation of tenants must comply
with the URA. Likewise, if HOME or CDBG funds are used in any phase of the demolition or conversion of
a lower-income dwelling unit, as defined in 24 CFR part 42, then Section 104(d) shall apply. Minimum
requirements and instructions for managing displacement, giving notice to owners and/or tenants of
properties acquired with Federal financial assistance, and providing relocation compensation or
assistance are described in regulations at 49 CFR part 24, and in HUD Community Planning and
Development Handbook 1378 which may be found at:
https://www.hud.gov/program_offices/administration/hudclips/handbooks/cpd/13780 .
B. The URA establishes the minimum Federal requirements for the acquisition of real property for
Federally funded programs and projects, and for the temporary relocation or permanent displacement of
persons who must move from a property as a direct result of acquisition, rehabilitation, or demolition for
a Federally funded program or project. Insured mortgage applications that contemplate or rely on federal
financial assistance such as Section 8 Housing Assistance Payments (HAP) may trigger the applicability of
the URA, and if HOME or CDBG funds have been or will be invested in the property, the applicability of
both the URA and Section 104(d). HUD’s Office of Community Planning and Development (CPD) has
overall responsibility for HUD compliance with the referenced statutes. Assistance in these cases may be
obtained from CPD’s Regional Relocation Specialists (RRS). A list of these specialist is available in the
“Contacts” section of HUD’s Acquisition and Relocation web-site at:
https://www.hudexchange.info/programs/relocation/contacts/
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C. Additional information and guidance on URA and Section 104(d) matters is available on HUD’s
Acquisition and Relocation website at: https://www.hudexchange.info/programs/relocation/
D. Most relocation of tenants caused by construction activities is temporary. Appendix A to 49 CFR Part
24 provides guidance for temporary relocation and includes requirements that temporarily displaced
tenants must be reimbursed for reasonable out-of-pocket expenses incurred in connection with a
temporary move. These expenses may include moving expenses and increased housing costs during the
temporary relocation. Relocation is considered temporary when the displacement activity is completed,
and the tenant(s) reoccupy their original or a comparable unit at the same property within a one-year
period.
3.12.3
Projects with No Federal Assistance
A. Displacement of tenants from properties that do not receive federal financial assistance and have no
HOME or CDBG funding also requires planning and preparation to assure:
1. Timely completion of construction;
2. Resident health and safety; and
3. Sustained project occupancy and income.
B. Displacement in existing and occupied properties occurs when construction activity prevents tenants
from preparing two or more consecutive meals or sleeping in their units during their normal period of
rest or otherwise prevents occupancy of their units for 8 consecutive hours. (Persons with special needs
and/or frail elderly are considered displaced if they are obligated to vacate their units for any period of
time.) Owners must offer displaced tenants temporary relocation assistance. In general, temporary
relocation will be required when the scope of work will result in any of the following:
1. Requires packing, moving, or storing resident’s furniture or personal items in order to perform the
work;
2. Prevents full use of the kitchen or the bathroom(s) by the resident (e.g. replacing the kitchen cabinets
and countertops, tub surrounds and plumbing fixtures, flooring replacement);
3. Creates odors, dust, debris, noise, or other hazard that negatively impacts the sanitary condition of
the unit or health and safety of the resident;
4. Involves shutting down the heating, ventilation, and air conditioning (HVAC) equipment that prevents
maintaining the interior temperature of the unit between a range of 65 - 75 degrees Fahrenheit for
more than a period of 2 hours;
5. Disrupts the electrical service to the unit for more than a short-term of 2 hours or less;
6. Prevents safe ingress and egress without proper alternative routes at any point during construction;
7. Provided however, that if any of these disruptions are confined to periods of time when tenants
customarily are or plan to be (and actually are) voluntarily absent from their units (e.g. at work, out
of town, etc.) then the disruption is not a cause displacement.
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C. Temporary resident relocation is not required for projects undergoing simple repairs and minor
renovations [i.e. 223(a)(7)s and 223(f) applications with classification of construction work limited to
repairs as described in MAP Guide Chapter 5, Section 5.1 and Section 5.2].
D. When tenants are displaced and must find or prepare meals or lodging outside their units, the owner
must provide reimbursement of costs.
1. For this purpose, owners must pay any displaced tenant the Federal travel per-diem (meals or lodging
as applicable) for the period or periods of displacement. The meals per-diem shall be for each person
in the tenant household.
The lodging per-diem shall be for lodging room or rooms with sleeping capacity consistent with
the number of persons, marital status, and the gender and age of persons in the household without
requirement of adding additional beds or equipment not regularly provided in the room(s) by the
lodging vendor.
The per-diem rates shall be those established for the locality in which the property is located and
shall be paid to tenants without requiring receipts or evidence of actual cost and notwithstanding
whether tenants obtained food service or lodging from a commercial vendor.
2. If tenants’ personal property must be packed and/or moved, owners must pay the actual costs of such
services including insurance against loss of or damage to personal property.
3. Owners must identify displaced tenants who are elderly, disabled or special needs individuals and
must provide additional services such as help locating or identifying alternative housing,
transportation assistance, day care or similar services appropriate to their condition and apart from
the per-diems for meals or lodging except to the extent that meals or lodging are included in day care
or similar services.
4. Notwithstanding the forgoing, tenants are not required to accept owner-designated or recommended
facilities. Without abridging any per-diem compensation due to them, tenants may select lodging and
meals at their discretion provided that such discretion is exercised in writing and in advance of the
scheduled displacement date(s) by such notices and at such intervals as shall be described in the
approved relocation plan and provided further that any tenant having exercised such discretion may
not disrupt the relocation schedule by failing to vacate on the agreed date and for the agreed period.
E. Applications requiring permanent displacement of elderly or disabled residents from a non-assisted
property will not be accepted, provided that HUD will accept such applications if the owner proposes to
meet the relocation requirements applicable to projects receiving Federal financial assistance as
described in Section 3.12.2.
F. Owners are not obligated to provide assistance (i.e. permanent relocation assistance) to tenants
choosing to permanently relocate from a property in lieu of remaining as residents with temporary
relocation benefits.
3.12.4
Relocation Costs on HUD Forms
A. Relocation costs are mortgageable costs but are not construction costs and are not included in the
estimated costs of improvements. They are not included in any calculation of cost thresholds that define
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Substantial Rehabilitation or define levels of construction documentation required for Section 223(f)
applications that propose repairs and alterations (See Chapter 5).
B. The owner’s or the relocation consultant’s estimated cost of relocation should be reviewed by the
Lender, consistent with this Section 3.12 and Appendix 3, Section A.3.5 and then reported on HUD insured
mortgage application forms.
C. For substantial rehabilitation applications, relocation costs are included in the replacement cost
buildup reported for Criterion 3 of the form HUD-92264-A by showing the total of relocation costs,
including any relocation consultant fees on the form HUD-92264 in Section G, line 69, “Consultant Fee
(non-profit only)” relabeled to indicate inclusion of relocation costs (notwithstanding non-profit or forprofit status).
D. Relocation costs should be reported on the form HUD-92013: Section G, Line 43 Relocation Expenses
or if in 223(f) transactions Section G is not used, then the Lender must identify Relocation Costs in the
proposed Sources and Uses for the transaction.
E. Relocation costs should be reported on the form HUD-92264-A for other loan sizing Criteria as
applicable to the Project:
1. Criterion 7, line c. Other Fees
2. Criterion 9, line d. Expense of Relocating Occupants
3. Criterion 10, line c. Other Fees
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Chapter 4
4.1
Application Processing
Introduction/General
A. Only an approved MAP Lender and Underwriter may submit an application for insurance using MAP.
Lenders should contact the MF Regional Center’s Workload Distribution Lead to discuss the submission
of an application for insurance using MAP.
4.1.1
Approval of Lender's Reviewers
A. The Lender is responsible for assigning a MAP-approved Underwriter, who is then responsible for
selection and management of their third-party consultants. If a Regional Center or Satellite Office has
concerns about an Underwriter or a proposed third-party consultant, they should contact the Multifamily
Asset Counterparty Oversight Division before responding to the Lender.
B. The Lender must advise HUD who the Construction Loan Administrator will be, if applicable, prior to
the Firm Commitment stage, if the closing and servicing Lender has been identified, or as soon as
identified.
4.2
Stages of Application
4.2.1
Refinancing Applications (Sections 223(f), 223(a)(7))
4.2.1.1
Concept Meetings
A. Concept meetings (or conference calls) with the MF Regional Center or Satellite Office are optional and
generally not needed for refinancing transactions. They are recommended for projects in volatile
markets, Large Loan requests (per Chapter 3, Section 3.10), questions about the scope of repairs,
significant cash out (e.g. $20M or exceeding 50% of the loan amount), if there are concerns about
marketability, environment, competing proposals, or if there are other unusual risk factors. Upon the
Lender’s request, a concept meeting will be scheduled either in person or by teleconference as soon as
workload permits, generally within two weeks. Site visits by the appropriate HUD staff may be conducted
if practicable. Please refer to Appendix 4 for concept meeting exhibits.
4.2.1.2
HUD Response
A. HUD will respond by written letter or by email within 5 business days of the concept meeting.
Consideration will be given as to the effect on other insured projects in the subject’s market area that are
already in the pipeline or in portfolio, Borrower experience and overall feasibility based on the exhibits
and information presented. Depending on the completeness and quality of the submission, HUD may
recommend that the Lender submit an application, request additional information, specify conditions or
recommendations to consider, and/or identify specific risks or weaknesses of the proposed project that
should be addressed. The written response to the concept meeting does not represent a commitment
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from HUD, which should be clearly stated in the response. Based on the preliminary information
submitted, HUD may encourage an application submission but not approve it after review of the actual
application.
4.2.1.3
Firm Commitment Application Submissions
A. Firm Commitment application submissions will be reviewed for completeness, then processed,
reviewed and underwritten. It will then either be recommended for approval or approval with conditions,
returned to the Lender for modifications, or rejected.
B. Loan Approval is completed either by the National Loan Committee, Regional Center/Satellite Office
Loan Committee, or Regional Director signature authority. Loan Committee requirements are specified
in administrative memoranda to HUD staff.
4.2.1.4
Firm Commitment Issuance
A. The MAP Lender may prepare a draft Firm Commitment for the project for inclusion in the application
to expedite HUD processing.
4.2.1.5
Firm Commitment Acceptance and Rate Lock
A. Firm Commitments may be extended up to no more than 180 days from the date of issuance, plus a
discretional 60 calendar days for good cause to be approved by HUD HQ. At the expiration of all permitted
extensions, a reopening fee is required. The reopening fee for refinance and new construction/substantial
rehabilitation programs is $.50 per $1,000 of the loan amount and the reopening request must be received
within 90 days of the expiration of the Firm Commitment, plus all extensions. In addition to updated third
party reports, all mortgage credit documentation, including financial statements, credit reports and an
updated HUD 92013-SUPP are required. The Lender’s narrative should confirm that no substantive
changes have occurred in the underwriting or the development team as a result of the extension of time.
The new commitment, if issued, will remain in effect for 180 calendar days.
4.2.1.6
Closing
A. A Closing Coordinator will be assigned to the transaction to facilitate communication between the
Lender and HUD housing and Office of General Counsel (OGC) staff and to provide instructions and
guidance on the closing process.
4.2.2
New Construction and Substantial Rehabilitation
Programs
4.2.2.1
Concept Meetings
A. Concept meetings (or conference calls) with the MF Regional Center or Satellite Office are strongly
encouraged for market rate new construction or substantial rehabilitation transactions (unless waived by
the Regional Director) and optional for affordable transactions. Concept meetings are required for
projects intended to be submitted under the LIHTC New Pilot Program. The process for concept meetings
is the same as for refinancing transactions. Lenders may submit applications for market rate deals
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without a concept meeting; however the application fee will be considered “earned” at acceptance of the
application for processing and will not be refunded if the application is rejected or not approved under
terms acceptable to the Lender and Borrower.
4.2.2.2
Pre-Application Stage
A. The Pre-Application stage for new construction or substantial rehabilitation is designed to permit HUD
to review the feasibility of a proposed project prior to the Lender, Borrower, and HUD spending the time
and expense involved in Firm Commitment processing. Pre-Application submissions will be reviewed for
completeness, processed, reviewed and underwritten, and either recommended to be approved,
approved with conditions, returned to the Lender for modifications, or rejected.
B. The Lender may request to skip the Pre-Application stage to go directly to the Firm Commitment
application. Lenders should consider such requests only for projects in strong markets, where the Lender
and Borrower acknowledge in writing the risk of a rejection and that the application fee is nonrefundable,
so long as there are no environmental issues, and the Lender, Borrower, and development team members
have previous positive experience with FHA Multifamily financing.
4.2.2.3
Invitation Letters
A. If an invitation letter is issued, the Lender must advise HUD in writing within 30 calendar days if it
plans to submit a Firm Commitment application. If it fails to notify HUD, the invitation letter will expire,
and the Lender will be required to repeat the Pre-Application process. Letters of invitation are issued and
effective for 120 calendar days.
B. The application for a Firm Commitment must be submitted within 120 days of the date of the letter of
invitation. The Regional Director may or may not authorize one extension up to 90 days. The HUD
Underwriter will review the Lender’s extension request.
C. If there is a justifiable request by the Lender for an extension of time beyond the time period allowed
(210 total days), the Regional Director must request approval for a further extension from the Director of
the Office of Multifamily Production in HQ, stating the additional time requested, the Regional Director’s
recommendation and the reasons for the extension.
4.2.2.4
Firm Commitment
A. Firm commitments are issued upon application review and approval by the National Loan Committee,
Regional Center Loan Committee, or Regional Director signature authority. Loan Committee
requirements are specified in administrative memoranda to HUD staff.
B. Firm Commitments may be extended up to no more than 180 days from date of issuance, plus a
discretional 60 calendar days for good cause to be approved by HUD HQ. Guidance related to expired
commitments and reopening fees for new construction and substantial rehabilitation programs is
identical to the guidance for refinancing programs found in Section 4.2.1.5 of the MAP Guide.
4.2.2.5
Closing
A. Initial Endorsement (also known as Closing) consummates the Firm Commitment.
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B. A Closing Coordinator will be assigned to the transaction to facilitate communication between the
Lender, HUD housing, and OGC staff to provide instructions and guidance on the closing process.
4.2.2.6
Construction Period
A. A Pre-Construction Conference is required prior to Initial Endorsement (see Chapter 12).
B. For new construction and substantial rehabilitation projects, the HUD construction administration
period begins at Initial Endorsement and extends to Final Endorsement.
C. The Borrower and General Contractor must certify actual construction cost consistent with Chapter 13
prior to Final Endorsement.
D. Final Endorsement represents HUD’s insuring of the final loan amount and resolution of all outstanding
program obligations.
4.2.3
Appeals
A. Lenders have the right to appeal HUD decisions regarding the issuance of an Invitation for Firm
Application or Firm Commitment with which they do not agree. There is no appeal process for the concept
meeting recommendation. Other parties (Borrowers, third parties) do not have a formal right to appeal.
Appeals must be filed in writing and delivered electronically and by hard copy to the Regional Director.
The appeal must explicitly address the basis for the appeal and disagreement and include supporting
documentation and background information. It should also include a copy of relevant previous
correspondence and reports.
B. The Regional Director will assign the appeal for review to staff not involved in the original decision.
The Regional Director will issue a written response to the Lender within 30 days of receipt of the appeal,
or such other period of time as practicable. If the original decision being appealed was a result of a
Regional Center Loan Committee which the Regional Director participated in, the Regional Director will
either hear the appeal or may request it be treated as a second level appeal and referred to HUD
Headquarters.
C. If the Lender is not satisfied with the appeal decision, they have the right to a second level appeal, which
should be addressed to the Director of Multifamily Production in HUD Headquarters. The Director will
assign the appeal for review to technical support or other staff not involved in the original decision. The
Director will issue a written response to the Lender within 30 days of receipt of the appeal, or such other
period of time as practicable.
4.3
4.3.1
Lender Processing
General Requirements
A. Borrower Engagement letters are expected as a prudent business practice, but not regulated by HUD.
Only one MAP Lender may be engaged at a time. If Borrower changes MAP Lenders prior to or after
submission of an application, the Borrower must disclose the processing history, and the MAP Lender
submitting the application must address it in the Underwriter Narrative Executive Summary.
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B. Lenders must have a written contract (engagement letter) with Third Party reviewers; HUD
recommends extension clauses as part of the contract.
C. Electronic submission of applications material, the Standard Underwriting Narrative and the LIHTC
Summary Report (LIHTC transactions only), are required. Application checklists are in Appendix 4. HUD
will continue moving to complete electronic submission and processing through a web-based portal.
D. MAP Lenders are required to comply with the procedures and management controls specified in their
Quality Control Plans.
E. Pre-Approval of Principals with Large Concentrations of FHA Insured Debt. The Lender must perform
a thorough mortgage credit and creditworthiness review, and obtain HUD approval, before submission of
an application in cases where principals have greater than $500,000,000 of outstanding FHA insured debt.
Borrowers previously approved for amounts between $250,000,000 and $500,000,000 must continue to
obtain HUD approval upon expiration of any existing decision memo or when approval authority is
exhausted, whichever first occurs. Please refer to Chapter 8, Section 8.8 for additional information.
F. Lenders may produce their own copies of HUD forms, as long as the recreated forms have the correct
Office Management and Budget (OMB) numbers, HUD form numbers, OMB expiration dates, approval
numbers, form titles, and are identical in content and order of the line items on the MAP Form. All forms
must be completed subject to their respective instructions. See HUDClips:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms
G. A complete application submission includes one original, one additional hard copy and one electronic
copy. The additional hard copy should be in a separately bound mortgage credit file, along with the rest
of the application containing the exhibits that do not contain sensitive personal and Privacy Act protected
information. A standardized underwriting narrative and more structured application checklist are now
required as well.
4.3.2
Processing
A. The Lender’s MAP approved Underwriter is responsible for oversight and performance of the following
tasks:
1. Data collection;
2. Due diligence;
3. Loan Processing;
4. Mortgage Credit review;
5. Underwriting;
6. Obtaining internal loan approval (from the Lender’s loan committee or other process);
7. Submission of the loan application to the appropriate Regional Center or Satellite Office and the
application fee to Pay.gov. See Appendix 4 for pay.gov instructions;
8. Responding to HUD deficiency letters and requests for information;
9. Follow-up to get the loan to closing; and
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10. Coordination with construction loan administration, cost certification, and servicing.
4.4
4.4.1
HUD Processing
General Requirements
A. Under the direction of the MF Regional Director, the HUD Underwriter or third-party contract
Underwriter for HUD is responsible for management of the application processing, review, underwriting,
loan approval and closing processes, as well as coordination of turn over to Asset Management at closing.
B. HUD review is a risk-based, underwriting approach. Technical compliance and processing must be
correct and documented, but the primary purpose of HUD’s review is to determine if the loan application
is an acceptable risk to the FHA insurance fund.
C. The HUD Underwriter will review all application exhibits and determine what technical reviews are
necessary, if any, given the level of complexity and risk of the transaction and program type, and perform
or arrange for the underwriting and mortgage credit analysis.
D. Risk-based processing and the single Underwriter model will allow qualified Underwriters to review
architectural/cost exhibits, appraisals, and market analyses and solicit the assistance of appropriate HUD
technical specialists to perform additional reviews as necessary depending on the level of risk and
complexity of each individual transaction. A Construction Analyst may be called upon to advise the
Underwriter in his or her review, or to perform a limited review or full review, as determined by the
Production team. The level of review by the HUD Construction Analyst may vary but the work required
from the Lender’s third-party provider has not changed. The MAP Lender and third-party provider are
responsible for determining the acceptability of the physical improvements, providing conclusions
essential for underwriting determinations to minimize mortgage risk, and ensuring compliance with MAP
Guide instructions and guidance. Similarly, the HUD Appraiser may be called upon to act in an advisory
role or perform limited or full reviews as deemed appropriate by the HUD Production team.
E. HUD has certain responsibilities which it does not assign to the Lender, including responsibility for the
environmental clearance, approval of the owner’s Affirmative Fair Housing Marketing Plan, Previous
Participation review, and issuing the commitment for mortgage insurance.
F. HUD staff must perform a site visit for all applications in which an Environmental Report is required.
Environmental approval is documented by HUD in the HUD Environmental Review Online System
(HEROS). The Lender must submit an environmental report to HUD using the HEROS system for all
projects submitted under MAP. The environmental review in HEROS must also be certified by the
Production Division Director as part of the Firm Commitment approval. The site visit is typically
performed by a HUD Appraiser, Construction Loan Analyst, Senior Underwriter, or other experienced
HUD staff or managers with training and experience in environmental review requirements after review
of the third party and Lender’s environmental analysis. HUD Regional and Headquarters Environmental
Officers may be called on to assist if and as questions arise.
G. Applications that the Regional Center or Satellite Office determine to be unacceptable will be returned
to the Lender and HUD will retain the application fee if the transaction completed screening and entered
underwriting and technical review. If it is clear at the screening stage the transaction is not approvable,
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it will be rejected at that stage. Lenders repeatedly submitting premature, materially deficient, or
otherwise unacceptable applications should be referred to the Multifamily Asset Counterparty Oversight
Division.
H. Review of MAP Lender Team Members. HUD must check the Limited Denial of Participation List and
the Consolidated List of Suspended and Debarred Contractors for all proposed Lender team members, and
review the proposed MAP Lender and Underwriter, and third-party resumes. If there is a concern with
past performance, the Regional Director will consult with the Multifamily Asset Counterparty Oversight
Division for guidance on how to proceed. If appropriate, adverse findings or conclusions should be
communicated to the Lender within 10 business days.
4.4.2
Processing
A. Under the direction of the MF Regional Director, Production Division Director, and Underwriter Branch
Chief, the HUD Underwriter is responsible for the oversight and performance of the following tasks:
1. Concept meetings and follow-up communication;
2. Reviewing of proposed MAP Lender and Underwriters;
3. Working with the Workload Distribution Lead for the Region and other appropriate officials in
managing workload assignments for new applications;
4. Acknowledging receipt of the application;
5. Ensuring the screening of applications for completeness, and fiscal controls for new application
submissions;
6. Using the New Early Warning System (NEWS) to determine what level of Underwriter and technical
specialist review is required given the complexity and risk factors associated the transaction;
7. If during underwriting and technical review, HUD staff determines the application to be deficient,
advising the Lender who will have 5 business days to correct the defects or deficiencies. If the
defects/deficiencies cannot be corrected within the 5 business days, or such other time frame as the
Regional Director deems appropriate, HUD will preliminarily reject the application and stop
processing;
8. Performing technical reviews of Lender underwriting and third-party reports, or arranging for HUD
technical specialist reviews for higher risk or more complex transactions when needed;
9. Consulting with and obtaining reviews from Asset Management, Legal, Labor Relations, Economic and
Market Analysis Division (EMAD), Fair Housing and Equal Opportunity (FHEO), and other HUD staff
as appropriate depending on the program requirements and particular transaction features;
recommending transactions for loan approval (or rejection);
10. Determining whether there are any open referrals to HUD’s Departmental Enforcement Center (DEC)
relating to the Project, the Borrower and/or the proposed Management Agent; and working with the
DEC to resolve the open DEC referrals either prior to, or in tandem with, closing;
11. Preparing and issuing Pre-application Invitation letters and Firm Commitments;
12. Coordinating the closing process with the Closing Coordinators, OGC, the Lender, and Borrower’s
team; and
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13. Coordinating with Asset Management in turnover of files, briefing about conditions of the Firm
Commitment, and providing information necessary for Asset Management’s risk rating of the
transaction.
4.4.3
Construction Period Responsibilities
A. Under MAP, HUD must approve the initial and final construction draws.
B. HUD will perform, contract, or otherwise provide for inspection duties and will provide copies of the
Trip Report to the MAP Lender.
C. The MAP Lender will prepare and approve the documents required for the interim draws during
construction.
D. HUD must approve the construction amount for each item in the initial and final advance and for each
Change Order during construction.
4.4.4
Servicing
A. MAP makes no changes in procedures for servicing or asset management, except for servicing Lenders
with prior approval for delegated responsibility for repair escrow administration. See Chapter 1, Section
1.2.C for guidance on MAP-approved Lenders who only originate loans and transfer loans to another FHAapproved Lender for servicing.
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Chapter 5 Architectural and Construction Analysis
5.1 Eligible Construction Activities
Architectural and Construction Analysis
Eligible Construction Activities
A. Construction activities eligible for the FHA insured mortgage programs include new construction,
substantial rehabilitation, alteration, and repairs.
B. The construction activity with the largest scope of work is new construction, which is erecting new
buildings with all the necessary site work. Substantial rehabilitation of an existing property involves
significant work and describes construction activities that exceed the Aggregate Cost limit defined in this
Chapter. Work on existing structures that is less than substantial rehabilitation is categorized as repairs
and alterations partly as defined by the International Existing Buildings Code (IEBC 2015, Chapter 2
Definitions and Chapter 5 Classification of Work).
C. The MAP Guide categorizes construction activities in terms of the costs and the Class of Work for two
purposes. The first purpose is to determine eligible construction activities under each program, i.e., by
the Section of the National Housing Act. The second is to identify what methods and professional services
are appropriate for the design, documentation, supervision, administration, and inspection of the
proposed work.
5.1.1
New Construction
A. New construction involves building entirely new structures with necessary site preparation. Eligible
work activities include constructing detached, semidetached, row, walkup, or elevator-type residential
multifamily buildings and accessory structures on the property’s improved site as well as any necessary
offsite work.
5.1.2
Substantial Rehabilitation
A. Substantial rehabilitation is work on existing buildings(s) including any additions for which the
Aggregate Cost of construction (the Aggregate Cost) exceeds the Aggregate Cost Limit amount defined as
follows:
1. Aggregate Cost means the total costs of all the proposed construction work at the property, including
General Contractor fees and Project Architect fees. The Aggregate Cost will also include the amounts
spent from the contingency reserve and assurance of completion escrows1 at the end of construction,
as well as any cost increases through change orders.
For LIHTC transactions, 100% of the contingency and assurance of completion amounts should
be assumed to be expended and included in the upfront estimate of the Aggregate Cost.2
The final Aggregate Cost at the completion of all construction, which must include all actual
amounts spent from the contingency reserve and assurance of completion escrows as well as any
1 Construction contingency reserve
escrow and assurance of completion escrow as required per Chapter 8.
2 See Chapter 5.6.2.6 and its related Footnote for further explanation.
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5.1 Eligible Construction Activities
cost increases incurred from change orders, must not exceed the Aggregate Cost Limit 3 for any
applications for refinance or acquisition programs (i.e. Section 223(a)(7) and Section 223(f)).
2. Aggregate Cost Limit is calculated in dollars as follows:
Aggregate Cost Limit Calculation. Aggregate Cost Limit = [Base per Dwelling Unit Limit] X [High
Cost Percentage multiplier] X [Number of Dwelling Units]
Base per Dwelling Unit Limit. HUD set the Base per Dwelling Unit Limit (Base Limit) at $15,000
per unit in 2016 and has annually adjusted it for inflation based on the percentage change
published by the Bureau of Labor Statistics of the Department of Labor or other inflation cost
index.
High Cost Percentage. HUD annually calculates and publishes the High Cost Percentage (HCP)
multipliers for designated cities based on the industry-standard construction cost index. These
published HCP multipliers are used to calculate the threshold for substantial rehabilitation
specific to the project’s location.
Number of Dwelling Units. The total number of dwelling units should be the count of units at
the property upon completion of all proposed construction work, given that the work may include
addition and/or deletion of units at the property. The number should include non-rental units
and commercial spaces in live/work type units.
High Cost Areas Multiplier. The higher limit HCP multiplier for the identified High Cost Areas
(315%) is used only to determine the maximum mortgage amount as an exception granted by
HUD. This higher limit multiplier for High Cost Areas may not be used in the calculation to define
the substantial rehabilitation threshold as described above.
Annual Revision of Base Limits. The revised Base Limits and HCPs are both published in
Housing Notices titled “Annual Revisions to Base City High Cost Percentage, High Cost Area and
Per Unit Substantial Rehabilitation Threshold” for the year and can be located on HUD Website:
https://www.hud.gov/program_offices/administration/hudclips/notices/hsg
5.1.3
Class of Work
A. Class of work defines and categorizes construction work on existing properties that is less than
substantial rehabilitation. HUD has quoted language from the International Existing Building Code (IEBC)
to define classes of work in the context only of this MAP Guide for the purpose of matching appropriate
construction documentation and oversight to differing levels of work.4 The levels of work defined from
the least to the most significant in scope and complexity are as follows:
3 Given that the
actual expenses spent from any contingency escrow or assurance of completion escrow will not be
known until the end of construction, whether the level of work and the cost contemplated for the property are
appropriate for 221(d)(4) Sub-rehab or 223(f) should be determined conservatively and not aggressively close to
the cost threshold limit. The Lenders should take caution that at termination of the Repair Escrow when all the
additional costs incurred during construction including change orders result in the final Aggregate Cost exceeding
the Aggregate Cost Limit, the Lender will be subject to enforcement action by HUD.
4 The IEBC is cited only as a quoted source acknowledging copyright and for no other purpose.
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5.1 Eligible Construction Activities
1. Repair means “the reconstruction or renewal of any part of an existing building for the purpose of its
maintenance or to correct damage.” [IEBC, Section 202 General Definitions] Repairs to site features
(not buildings but otherwise similarly defined) are included in this class of work.
“Repairs,….include the patching or restoration or replacement of damaged materials, elements,
equipment or fixtures for the purpose of maintaining such existing components in good or sound
condition with respect to existing loads or performance requirements.” [IEBC, Section 502.1]
Repairs also include related work, which is defined as “work on non-damaged
components…necessary for the required repair of damaged components.” [IEBC Section 502.3]
In addition, installation of items not previously present in a building or on a site but necessary to
address safety, security, accessibility or communications needs are considered “Repairs” when
such installation and related work do not require alterations. Examples of such installation
include but are not limited to 1) smoke detectors added to bedrooms; 2) signage or pavement
markings added to identify accessible paths; 3) panic bars added to exit doors, etc.
2. Level 1 Alterations: “…include the removal and replacement or the covering of existing materials,
elements, equipment, or fixtures using new materials, elements, equipment, or fixtures that serve the
same purpose.” [IEBC Section 503.1]. Examples include removing and replacing an existing flooring
or wall finish, etc.
3. Level 2 Alterations: “…include the reconfiguration of space, the addition or elimination of any
[exterior] door or window, the reconfiguration or extension of any system, or the installation of any
additional equipment.” [IEBC Section 504.1]
Examples include 1) adding or demolishing interior walls (partition or loadbearing) to reconfigure
dwelling unit layout; 2) adding another bathroom inside a unit; 3) relocating the kitchen within a unit;
4) adding a new air conditioning system that was not previously present to the existing buildings
and/or units; 5) adding an elevator to the building, etc.
4. Level 3 Alterations: “…apply where the work area consisting of all reconfigured spaces exceeds 50%
of the building area.” [IEBC Section 505.1]
5.1.4
Defining Construction Activities
A. “New construction” and “substantial rehabilitation” describe the scope of work proposed for an entire
property and invoke requirements that apply to the whole loan transaction.
B. For work less than substantial rehabilitation, the scope of work must be itemized as individual work
tasks, each described and labeled with a Class of Work. For example, in a single building, there may be
some work items identified as “Repairs” and others that are “Level 2 Alterations.” In other cases, a
property with multiple buildings may need “Level 1 Alterations” in some buildings while other buildings
need “Level 3 Alterations.” The total scope of work in such properties is composed of many work items,
each labeled with the appropriate Class of Work.
C. Therefore, a Class of Work (i.e., Repair, Level 1, 2 or 3 Alterations) describes an individual work item
or a group of closely related work items. Class of Work is not applied to the property as a whole or used
to label an entire loan transaction. The following steps are required for properly labeling work items with
Class of Work:
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1. Describe the proposed work as distinct, separate work items, where each item describes a set of
construction activities that are similar or related in character and scope.
For example, the construction activities of removing aged windows, installing new flashing,
inserting new window units, patching up siding and repainting may all be described as
“replacement of existing windows” as a single work item.
An individual work item should not be too broad or include multiple Classes of Work, such as
using “kitchen remodeling” to describe replacing the cabinets (Level 1 Alteration) as well as
reconfiguring the space by removing existing walls and extending the countertop space to
increase the kitchen area (Level 2 Alterations).
An individual work item must be distinct and described in sufficient detail for accurate estimation
and inspection during construction.
2. Each work item listed in Critical or Non-Critical Repairs (per Appendix 5, Section A.5.7.2) describes
an individual task (commonly referred to as a “repair item”) and should be labeled with the applicable
Class of Work, i.e., as a Repair, Level 1, 2, or 3 Alteration.
For example, “replacement of existing windows” with windows of the same size in the existing
openings should be classified as Level 1 Alteration.
In the case of the “kitchen remodeling” example cited above, such work should be described in
two separate work items, such as: 1) “relocate partition walls to modify existing kitchen layout”
as one work item labeled Level 2 Alteration; and, 2) “replace existing kitchen cabinets” as a
separate Level 1 Alteration.
3. Professional services and documentation required are to be based on the Class of Work of individual
work items.
4. The Lender will review and confirm for HUD the Class of Work for each work item recommended by
the Needs Assessor.
5.1.5
Eligible Construction by Program
A. Sections 220, 221, and 231: New construction and substantial rehabilitation are permitted. Class of
Work does not apply to these programs.
B. Section 241(a): New Construction, Substantial Rehabilitation, Repairs, and all Levels of Alteration
activities are permitted.
C. Section 223(f): Repairs and Level 1, Level 2 and Level 3 Alterations are permitted, provided that the
Aggregate Cost of all such repairs and alterations does not exceed the Aggregate Cost Limit for substantial
rehabilitation described in Section 5.1.2.
1. The Lender must ensure that the cost of repairs and alterations in refinance or acquisition
transactions does not exceed the program eligibility limit notwithstanding any unforeseen
circumstance, change in cost, or estimating error;
2. Additions (defined here as any expansion of a building footprint with conditioned space) are not
permitted to dwelling spaces and residential buildings. Adding a patio or a balcony is considered a
Level 2 Alteration, given that they are not conditioned spaces;
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5.2 Consultant Due Diligence Responsibilities
3. Additions to accessory buildings or additions of minor accessory structures (e.g., carports, storage
sheds, swimming pools) may be deemed Level 2 or 3 Alterations, subject to the approval of the
Director of the Regional Center/Satellite Office;
4. Construction of a new accessory building (e.g., community building, gym) is permitted as a Level 3
Alteration. New accessory buildings may not exceed a gross floor area of 5,000 square feet.
D. Section 223(a)(7): The intent of the 223(a)(7) program is to provide a simple, quick refinance option
for existing insured properties to improve cash flow by lowering the interest rate or extending the
amortization period, reducing the risk of default and improving overall financial performance. Therefore,
all proposed work for 223(a)(7) must be limited to the following:
1. Construction activities must not exceed the definition of “routine maintenance” per CPD Notice 201602;
2. Activities must not exceed the Class of Work level of Repairs;
3. The total cost of repairs and routine maintenance must not exceed $1,500 per unit, excluding the cost
to remedy accessibility deficiencies;
4. Any accessibility related repairs must not exceed the Class of Work level of Repairs;
5. See Chapter 9, Section 9.1.3.C.1 for environmental review requirements.
5.2
Consultant Due Diligence Responsibilities
A. The Lender and the Borrower are required to retain competent third party consultants with skills,
training, and experience appropriate to the scale and scope of the physical characteristics of the property;
the nature of architectural and engineering documents required; the kinds of construction solutions
existing or proposed; and the due diligence typical of multifamily real estate transactions. In this context,
the term “due diligence” is used as a general term for the range of professional examinations, studies,
inquiries, research, investigations, reporting, and documentation needed to determine the physical
condition, utility, and suitability of sites and buildings existing or proposed for multifamily properties.
5.2.1
General
A. HUD requires both the Lender and the Borrower to retain professional consultants with qualifications
appropriate for the due diligence required for each loan application. In general, these due diligence
requirements are:
1. The preparation of a Capital Needs Assessment (CNA) by a Needs Assessor;
2. The preparation of construction documents (plans and specifications) by a Project Architect for new
construction, substantial rehabilitation, and significant alterations at existing properties;
3. The review of construction documents and cost estimates for compliance and acceptability by a
Construction Analyst;
4. For certain utility conservation incentive programs, the evaluation of utility consumption and energy
conservation measures (ECMs) by an energy professional (see MAP Guide Chapter 6, Section 6.4);
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5. Occasional specialized reports as needed (e.g., structural engineers for seismic analysis); and,
6. The preparation of HEROS Environmental Report and the Phase I Environmental Site Assessment
(and Phase II Environmental Site Assessments if needed) required by HUD (see MAP Guide Chapter
9, Section 9.2.4 for qualifications of environmental professionals).
5.2.2
Qualifications for Lender’s Consultants
5.2.2.1
Needs Assessor Qualifications
A. The Lender must select a Needs Assessor with education, professional credentials, and field experience
appropriate to the assessment assignment considering the age, size, type of building systems, construction
methods, and location of the property. The Needs Assessor must be knowledgeable and experienced with
local building standards and construction methods, relevant national and international building codes and
standards (e.g., International Existing Building Code, International Energy Conservation Code), and
specific statutory and regulatory requirements for multifamily housing (e.g., Federal Fair Housing Act
Accessibility Guidelines, Uniform Federal Accessibility Standards and the 2010 ADA Standards). In no
event should the qualifications of the Needs Assessor, and any related consultants employed to prepare
the CNA, be less than as described in ASTM E2018-15 Standard Guide for Property Condition
Assessments: Baseline Property Condition Assessment Process. The Needs Assessor (and any other
consultants, specialists, or trades contractors engaged for purposes of the needs assessment) may not
have any identity-of-interest with the Lender or the Borrower or its principals, and may not have any
personal or business relationship with the Borrower (or its principals) that would create a conflict of
interest.
5.2.2.2
Needs Assessor Responsibilities
A. The Needs Assessor prepares the CNA for existing improvements in refinance and acquisition
transactions. The Needs Assessor identifies and describes all deficiencies and proposed improvements at
the property. All CNAs must be reported using the method prescribed by HUD, which is the CNA e-Tool.
B. CNAs must be prepared by an independent third party hired and paid by the Lender5.
C. For existing properties, except for substantial rehabilitation, the Needs Assessor must conduct onsite
physical inspections, including a representative sampling of units, and prepare the CNA in compliance
with the instructions at Appendix 5, Section A.5.7.
D. The Needs Assessor may prepare dimensioned sketches or diagrams when needed to illustrate
particular repairs and alterations. However, drawings required to describe dimensioned remedies for
accessibility deficiencies must be done by a registered Architect who may be an employee of, or consultant
to, the Needs Assessor’s firm.
5 The owner may hire and pay the third party when CNAs are required for Asset Management oversight of
properties with no insured mortgage, such as budget-based rent increase events where no servicing Lender is
involved.
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E. When a Project Architect and/or a General Contractor are engaged, the Needs Assessor needs to engage
with these professionals to accurately reflect the scope of work and costs in the CNA e-Tool (see Section
5.3.3.4).
F. If the proposed application is for a green Mortgage Insurance Premium (MIP) rate or proposes
adjustments to underwritten operating expenses resulting from reduced utility consumption, the Needs
Assessor must report utility costs rates, estimated utility use of components, and sustainable utilityconserving future replacement alternatives for the project in the CNA e-Tool consistent with Chapter 6.
5.2.2.3
Construction Analysts Qualifications
A. The Lender must hire a qualified Construction Analyst with experience in multifamily construction to
review the drawings and specifications prepared by the Project Architect and any related contracts for
design and construction services. The analyst must be knowledgeable and experienced with local building
standards and construction methods, relevant national and international building codes and standards
(e.g., International Existing Building Code, International Energy Conservation Code) and specific statutory
and regulatory requirements for multifamily housing (e.g., Federal Fair Housing Act Accessibility
Guidelines, Uniform Federal Accessibility Standards, and the 2010 ADA Standards for Accessible Design).
In all cases, the Lender must ensure that the work experience of the Construction Analyst is consistent
with the scale, scope, materials, methods, and technologies existing or proposed at the property.
B. The Lender’s Construction Analyst may be a licensed or registered Architect or professional engineer
but must, at a minimum, have a degree (BS or BA) in architecture, civil or structural engineering or
construction with five years of experience in design, construction, or development of multifamily
buildings. Alternatively, any person who is a construction contract administrator with a current
certification (CCCA) by the Construction Specifications Institute (CSI) and who has administered
construction of not less than three multifamily properties with an aggregate construction cost not less
than $30 million may serve as a Construction Analyst.
5.2.2.4
Construction Analyst Responsibilities
A. The Construction Analyst must:
1. Visit the site and its environs, investing time and attention sufficient to support a knowledgeable and
professional review of the due diligence requirements and products, as well as the design,
specification and construction documents prepared;
2. Evaluate the design of proposed and/or existing buildings and the construction materials, methods,
or technologies employed in the buildings;
3. Review the agreements and contracts between the Borrower, design professionals, and contractors
to ensure that the proposed services are sufficient and clearly defined and that the Borrower’s right
and power to assign the agreement(s) to or for the benefit of the Lender is not impaired.
4. Evaluate the professional qualifications and experience of the Borrower’s design and construction
team members and any due diligence professionals or contractors retained by the Borrower to ensure
conformance to HUD requirements and relevance of qualifications and experience to the anticipated
scope of work;
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5. Determine that the Borrower’s and Project Architect’s due diligence concerning physical attributes of
the site or existing buildings is sufficient to expose and quantify such costs and risks as reasonably
may be expected, based on observed conditions, and identify any unmet due diligence needs;
6. Evaluate architectural design, specification, construction contract, and cost and scheduling
documents for proposed projects and ensure internal consistency, accuracy, reasonableness, and
conformance to HUD requirements, including specifically: the Minimum Property Standards; local
codes and the HUD minimum energy conservation code when this code exceeds local codes;
accessibility requirements for persons with disabilities (see Appendix 5, Section A.5.2); and HUD
standards for architectural drawings and specifications (see Appendix 5, Section A.5.5);
7. Review the Project Architect’s certification stating that the project design complies with the Minimum
Property Standards, all applicable local codes and ordinances, accessibility requirements, and HUD
standards (See Appendix 5, Section A.5.8);
8. Prepare complete cost analysis and review and confirm the reasonableness of Borrower’s costs for
design, specification, construction, contract administration and supervision (and any related due
diligence or other professional services) for the construction, alteration or repair of multifamily
structures (See Appendix 5, Section A.5.9);
9. Evaluate the professional liability and errors and omissions insurance for the Project Architect and
Borrower’s other design or due diligence professionals by comparing the risks covered and the dollar
amount of loss coverage to the scale and cost of construction and/or evident risks, offering an opinion
of the adequacy of such coverage and confirming that such insurance will be maintained through any
warranty inspection period following endorsement;
10. Maintain a dated log of all contacts, messages, and conversations with the Project Architect and the
Borrower’s design team referencing all documents and versions thereof in the log;
11. Ensure that all relevant parties are informed of HUD requirements and communications and
coordinate responses thereto;
12. Prepare or review the schedule of anticipated future capital needs and corresponding estimates of
costs, assuring that all repairs and replacements likely necessary during the CNA Estimate Period are
included in the analysis of future needs. (See Appendix 5, Section A.5.7);
13. Review and confirm as part of the CNA the accuracy of estimates of replacement cost (new) for each
structure (CNA e-Tool Property Insurance Schedule Report, the automated form HUD- 92329).
14. Identify, review, and describe to HUD any identities of interest among any members of the design,
construction and/or due diligence team or between any such member and any principal of the
Borrower or between any such member and the Lender;
15. If the proposed application is for a green MIP rate, then all the reviews, determinations, and evaluation
by the Construction Analyst, as described above, also apply to the requirements and mandated
qualifications and procedures described in Chapter 6 for energy and water conservation measures6;
and,
6 The Construction Analyst must review energy related reports, documentation and exhibits to ensure that HUD’s
program requirements for Green MIP are met and properly documented for HUD’s review.
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16. Provide advice and assistance on design, construction, and physical due diligence issues to Borrowers,
consultants, contractors, and others.
B. Construction analysts must apply the specific standards or criteria enumerated in the Appendices to
Chapter 5. The Construction Analyst is not required to review structural design details and calculations.
5.2.3
Owner’s Consultant Qualifications and Duties
5.2.3.1
Project Architect Qualifications
A. The Borrower must engage an architectural professional with building design and construction
expertise to prepare construction documents and to supervise construction as appropriate for the
proposed construction activity. Such professional services must be provided by a licensed or registered
Architect or a professional engineer who must be the principal lead professional with overall
responsibility for the design development and the execution of the design in construction. This
professional is referred to as the Project Architect in the MAP Guide and must meet the qualifications
described in this section. Failure of the Borrower to engage a Project Architect acceptable to the Lender
and HUD is a basis for rejection of the application:
1. The Project Architect must be licensed or registered by the State in which the project is located.
2. The Project Architect must have substantial experience in the design and construction of
multifamily properties comparable in scale and scope to the proposed property and must be in good
standing professionally and legally.
3. For green MIP rate applications, the Project Architect must meet additional experience and
qualifications requirements (see Chapter 6) when acting as an energy professional.
4. The Project Architect and any other consultants providing professional services for the project must
be covered by an insurance policy (or policies) of professional liability, errors, and omissions.
5. The insurance must be of an amount consistent with the risk of loss based on the scope, scale, and the
total cost of the project. The amount of any payable claim shall be actual damages subject to the policy
limit and shall not be limited to the fee for the service provided.
6. The professional liability insurance policy must be maintained through the twelve-month warranty
inspection period that follows final endorsement. The professional liability insurance carrier must
have and maintain a rating that is acceptable to HUD (A.M. Best Financial Strength Rating [FSR] of B+
or better).
7. At initial closing, each design professional must provide their current certificate of liability insurance
that must substantially conform to the sample Certificate of Professional Liability Insurance contained
in Appendix 5, Section A.5.8.3.
5.2.3.2
Project Architect Duties and Responsibilities
A. The level of professional services and required documentation are determined first by the program for
which the application is made and then the Classes of Work as applicable. Required services and
documentation are:
1. New Construction and Substantial Rehabilitation
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The scope of services shall provide all architectural, structural, mechanical, electrical, civil,
landscape, and interior design and consulting services (Design Services) necessary to prepare
drawings, specifications and other documents setting forth in detail the requirements for
construction of the project.
When basic design services (e.g., civil, mechanical, electrical engineering services) are provided
by professionals outside of the Project Architect’s firm, they should be contracted with the Project
Architect as consultants to the Architect and not directly to the owner. In general, no additional
Owner-Architect Agreement besides the one with the Project Architect is allowed for the design.
A separate civil engineering services under a separate Owner-Architect Agreement (i.e., AIA
B108) may be allowed on a case-by-case basis when warranted (e.g., when civil engineering is
engaged much earlier in the predevelopment phase).
The scope of services shall also provide for the administration of the construction
contract (Construction Administration), including conducting the monthly job site meetings with
meeting agendas and official recordings of the meeting minutes.
There may be separate agreements for design and construction administration services if the
same Project Architect is not employed for each (e.g., when the Project Architect has an identity
of interest with the Borrower). When there is a separate agreement for the administration of the
construction contract, it must be submitted for approval before initial endorsement. Where
separate agreements are made, those sections not applicable shall be deleted.
The Project Architect may have an identity of interest with the owner or General Contractor, but
in that event, may not administer the construction contract. Identity of interest is defined in the
HUD Amendment (form HUD-92408-M).
2. Section 223(f) Transactions with High Costs and/or Complex Alterations:
When the services of a Project Architect are required because the Aggregate Cost of the work is
equal to or greater than $15,000 per unit, or because Level 2 or Level 3 Alterations are proposed
(See Section 5.3.3.1), the Project Architect must meet the same licensing and insurance
requirements as for substantial rehabilitation, including the provision of a certificate of liability
insurance that must substantially conform to the sample Certificate of Professional Liability
Insurance. (See Appendix 5, Section A.5.8.3). The Project Architect’s responsibilities and
liabilities apply to all alterations and repairs included in the scope of work.
3. Section 223(f) Transaction with Green MIP:
Refinance or acquisition applications for a green MIP rate require a Project Architect when the
owner proposes to obtain a green certification to qualify for the green MIP. The Project Architect
must fulfill additional responsibilities described in Chapter 6, Section 6.6.3.A.6 and Section
6.6.3.A.7.
5.2.3.3
Owner-Architect Agreement for Services
A. The agreement between the Architect and the owner for services must be in the form of the American
Institute of Architects (AIA) Contract Documents. The owner must submit the executed contract at the
time of the Firm Commitment application.
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5.2 Consultant Due Diligence Responsibilities
1. For new construction and substantial rehabilitation projects, the agreement must be the AIA
Document B108 Standard Form of Agreement between Owner and Architect for
Housing Services and must include the HUD Amendment to AIA Document B108 (form HUD-92408M).
In general, the document should not be altered except for the deletion of the binding arbitration
and mediation provisions. The only allowable dispute resolution is litigation in a court of
competent jurisdiction. Any modifications that delete or reduce the basic design and construction
administration services of the Project Architect are prohibited. Further, there must be no changes
that reduce, delegate, or leave a gap in the basic responsibilities of the parties involved.
In uncommon circumstances where it becomes necessary to describe special approved
arrangements, the modifications must be noted by striking out any inapplicable language and
inserting additional provisions in Article 12. Any proposed modifications will require additional
review in consultation with the Office of General Counsel of HUD prior to approval.
There may be separate agreements for design and for supervisory services.
If there is one agreement for both design and supervisory services, a specific dollar amount must
be indicated for each service.
Where the Project Architect’s basic fee exceeds that which may be paid from mortgage proceeds
or where the Owner-Architect Agreement provides for reimbursable expenses (note that
reimbursable expenses may not be paid from mortgage proceeds or any excess contingency), the
person/entity responsible for such extra fees must be identified in the HUD Amendment.
HUD shall not be incorporated into any specific provision of the Agreement, and the inclusion of
the HUD Amendment in Article 12 (enumeration of Special Terms and Conditions) is sufficient to
incorporate HUD requirements. No modification of the HUD Amendment is permitted.
2. In Section 223(f) transactions, the required professional design services are typically of limited scope.
Accordingly, the Owner-Architect Agreement shall be the AIA Document B104, Standard Abbreviated
Form of Agreement Between Owner and Architect. AIA B108 is allowable when the scope is extensive.
The agreement must accurately describe the specific services to be provided and include all
services that are necessary to the project, including adequate construction administration duties.
The Architect’s fee must be a fixed sum for the services provided. No other method of stating
compensation is acceptable. Separate fee amounts for design and construction services must be
stated. When the Architect has no identity of interest with the Sponsor or mortgagor, the design
and supervision fees are mortgageable costs and should be included in form HUD- 92264-A for
the loan amount calculation.
The AIA B104 form may not be altered in general, except for the deletion of the binding arbitration
and mediation provisions. There is no standard HUD amendment prescribed for the AIA B104.
3. The Project Architect may be a principal or an employee of the Borrower, or of an affiliate of the
Borrower, provided that the requirements for professional qualifications, licensing or registration,
and professional liability insurance are met and that the construction documents produced are not
diminished by comparison with what would otherwise be required in the AIA Contract.
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The Owner-Architect agreement is still required in such cases as the design professional must be
identified separately from the Sponsor or mortgagor entities or affiliates, but the Lender must
require construction administration services by a separate, unaffiliated qualified professional. In
that event, a separate AIA B 104 would be executed to retain third party construction
administration services during the construction phase.
No Architect’s fee payable to the affiliated principal or employee shall be a mortgageable cost.
5.2.3.4
Project Architect as Owner’s Representative
A. The owner must identify a representative (Owner’s Representative) in the Owner-Architect Agreement
and meet the following requirements:
1. Owner’s Representative must be a member of the Borrower’s entity, typically a general partner or
managing member and may not be a third-party consultant. A prohibited third-party consultant
includes a construction manager hired to act on behalf of the owner;
2. For Non-profit entities, the Owner’s Representative may be an executive officer or a member of the
Board of Directors;
3. When a Public Housing Authority is the owner entity or the principal thereof, the governing board or
commissioner must designate a qualified individual through a passed resolution providing
appropriate authority;
4. The owner must give the Representative the authority to make decisions in a timely manner. The
owner’s Representative must be actively engaged during design and construction such as attending
job site meetings and must have the authority to approve construction draw requests on behalf of the
owner.
5.2.4
Other Technical Specialists
A. The Borrower, the Project Architect, or the Lender may require the services of other technical
specialists. These specialists may include sanitary, environmental, geotechnical, civil or structural
engineers, etc. When engaged for services, a principal of the technical specialist firm must be a licensed
or registered professional, must sign any resulting report or opinion, and when applicable, must affix
his/her professional seal.
B. If utility consumption benchmarking or performance evaluation is required, the owner must hire a
qualified energy professional who meets the requirements in Chapter 6, Section 6.4.8.
5.2.5
HUD Approval of Qualifications
A. The Lender should disclose the identity and qualifications of both the Borrower’s and its own
architectural and construction consultants, Needs Assessors, energy professionals or other technical
specialists at times consistent with efficient completion of due diligence and design work, but in no event
later than the application for Firm Commitment. HUD reserves the right to examine credentials and
experience and to reject individuals HUD deems unqualified for a particular assignment. Accordingly, the
risk of relying on due diligence or design products prepared by unqualified consultants is borne by the
Lender and the Borrower.
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Chapter 5 Architectural and Construction Analysis
5.3 Requirements by Construction Activity and Program
Requirements by Construction Activity and
Program
A. HUD requires professional services, due diligence, and oversight suitable for the program and scope
of work for each project. The Lender and Borrower must employ appropriate levels of professional
services for the proposed work to ensure proper design and documentation, as well as successful
completion of the work. The type of professional services and their responsibilities are determined by 1)
the program (Section of the Act) for which the application is submitted; 2) the Aggregate Cost of the work;
and, 3) the Classes of Work proposed (see MAP Guide Section 5.1). Both the Lender and the owner must
engage qualified professionals for due diligence acceptable to HUD. See Section 5.2 for qualifications and
responsibilities and Chapter 6, Section 6.4.8 and Section 6.6.3.A.7 for green MIP applications.
5.3.1
General
A. Accessibility Repairs. When proposed repairs and alterations remedy accessibility violations, the
necessity of a registered Architect must be determined independently of Class of Work. In general,
remedies that require simple installations or replacements of components (e.g., replacing existing noncompliant doorknobs with lever-type or installing audio-visual fire alarms) do not require an Architect.
However, remedies involving mandated dimensions for spaces or floor area clearances require code
compliant design described in drawings and specifications (plans and specs) by a registered Architect for
code evaluation, precise construction, and inspection. See Appendix 5, Section A.5.2 on applying
accessibility standards.
B. Tenant Relocation.7 Lenders must evaluate the level of disruptions to tenants during construction.
When the degree and duration of disruption are such that the residents need to be displaced to ensure
health and safety, a relocation plan is required. See the MAP Guide Chapter 3, Section 3.2 and Appendix
3, Section A.3.5 for instructions for acceptable relocation plans.
C. Trades Bids. Repairs, Level 1 and some Level 2 Alterations typically do not require a General
Contractor. Regardless of Critical or Non-Critical Repair designation, any closely related work items with
an estimated Aggregate Cost of $35,000 or greater should be based on bid(s) by a qualified licensed
trade(s) contractor with the intent for the Borrower to employ the trade contractor whose bid amount is
selected. The Borrower should execute the contract prior to closing.
D. Detailed Construction Schedule. Successful construction management depends on project planning
and scheduling in detail consistent with the level of construction activity and/or classification of work.
General Contractors are expected to provide project planning and scheduling. A detailed construction
schedule must describe the necessary sequence or order of tasks, dependencies among tasks, milestones,
and other important details involved for project scheduling. Typically, such a schedule is not a simple
calendar but a graph or a table illustrating the elapsed time and sequence of the tasks (i.e., Gantt chart or
critical path schedules).
7 This applies to Section 221(d)(4) Substantial
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Chapter 5 Architectural and Construction Analysis
5.3 Requirements by Construction Activity and Program
5.3.2
Sections 220, 221, and 231
5.3.2.1
Scope of Work
A. A Project Architect responsible for the full scope of work at the property is required. The Project
Architect must fulfill all roles and responsibilities as described in MAP Guide Section 5.2.3.1.
B. The Project Architect’s drawings and specifications (plans and specs) must describe the entire scope
of work involved for design permits and construction and must conform to HUD requirements for format
and content of drawings and specifications (see Appendix 5, Section A.5.5).
C. Lender’s Construction Analyst is required to provide Architectural and Cost Analysis Reports and must
fulfill all roles and responsibilities as described in MAP Guide Section 5.2.2.2.
D. The Lender’s Construction Analyst may prepare the CNA e-Tool for submission based on the proposed
plans and specs by the Project Architect.
E. The use of CNA e-Tool is limited to scheduling and financing the future repairs and replacement of
components (Reserve for Replacement (RfR)) only. No construction work should be described in the CNA
e-Tool as Critical or Non-Critical Repairs.
5.3.2.2
Construction Costs
A. Report costs on HUD forms for processing as described in MAP Guide Section 5.7.
B. The costs of future replacement of components described in the CNA e-Tool should be based on the
hard costs of the General Contractor’s estimate/bid. All anticipated soft costs (e.g., General Contractor’s
general requirements, overhead, profit) should be excluded in the CNA e-Tool’s estimate of components
costs.
5.3.2.3
Schedule
A. A detailed construction schedule is required. (See Section 5.3.1.D above.)
B. HUD’s Construction Progress Schedule (form HUD-5372) is not an acceptable form nor an acceptable
substitute for such a detailed construction schedule described in Section 5.3.1.D. Form HUD-5372 is used
to evaluate percentage of completion and the related costs and may not be used as a detailed construction
schedule.
5.3.3
Section 223(f) with Repairs and Alterations
5.3.3.1
When Project Architects are Required
A. The Borrower must hire a Project Architect to define work at the property when one of the following
conditions is true of the property:
1. The Aggregate Cost (before General Contractor fees or allowances) of all the identified repairs and
alterations equals or exceeds $15,000 per unit.
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This amount of $15,000 Aggregate Costs per unit used here as a threshold is different from the
dollar per unit maximum cost that defines the boundary between Section 223(f) transactions and
Section 221(d)(4) Substantial Rehabilitation. This threshold is not adjusted by the High Cost
Factor or the annual inflation adjustment.
Costs exceeding this threshold are evidence that the proposed repairs and alterations are
sufficiently complex that the services of a Project Architect are required to ensure the clarity and
accuracy of design and specification documents necessary to guide and evaluate all construction.
Remedies for accessibility deficiencies, if any, must be included in both the cost of repairs and
alterations and the design documents.
HUD may waive the requirement to hire a Project Architect when the Aggregate Cost of all repairs
and alterations exceeds $15,000 per unit but work is limited to repairs and Level 1 Alterations.
2. When the Aggregate Cost of repairs and alterations is less than $15,000 per unit but the proposed
work includes Level 2 or Level 3 Alterations, a Project Architect must be retained to prepare drawings
and specifications for the Level 2 or Level 3 Alterations provided as follows:
Work proposed outside the work area where Level 2 or Level 3 Alterations will occur may be
excluded from the Project Architect’s scope of work.; and
When there are only Level 2 alterations proposed (no Level 3 Alterations), and the Level 2
alterations are nominal (e.g., enlarging a closet in a few units with no accessibility ramifications),
the services of a Project Architect are not required.
5.3.3.2
When General Contractors are Required
A. The Borrower must hire a General Contractor to conduct all the work defined by the Project Architect
and provide coordination as a single point of control for costs, scheduling, and conformance of the work
to plans and specifications when one or more of the following conditions are true:
1. The Aggregate Cost of repairs and alterations exceed $15,000 per unit, excluding General Contractor
fees;
2. The proposed work includes Level 3 Alterations; or
3. More than three licensed trade contractors are to be employed for the work.
B. HUD may waive the requirement to hire a General Contractor when:
1. The Aggregate Cost of all repairs and alterations exceeds $15,000 per unit but work is limited
primarily to Repairs and Level 1 Alterations; or,
2. The owner has substantial experience and proven ability planning and staging construction tasks,
coordinating trades, and supplying general requirements.
5.3.3.3
Licensed Trades
A. When a General Contractor is not retained, the work items documented by the Architect (e.g., remedies
for accessibility deficiencies, limited Level 2 Alterations) must be executed by qualified licensed trades
(e.g., a plumber, electrician, framer, tile-setter licensed in the local jurisdiction). Similarly, repairs and
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Level 1 Alterations described as individual work items (or a group of closely related items) with an
estimated cost of $35,000 or greater must be performed by qualified licensed trades contractor(s).
5.3.3.4
Scope of Work
A. All proposed work must be itemized as individual work items and descriptively listed as Critical and
Non-Critical Repairs in the CNA e-Tool by the Needs Assessor preparing the CNA.
B. If and when engaged, the Architect must accurately describe the relevant repairs and alterations in
drawings and specifications (plans and specs).
C. The Needs Assessor must ensure that all of the work described in the Architect’s plans and specs are
accurately summarized and described as separate work items in the Critical and Non-Critical Repairs lists
in the CNA e-Tool with appropriate details and characterization:8
1. The Needs Assessor should identify and reference specific sheets, pages, schedules or specifications
that address the repair work item identified in the CNA e-Tool. This referencing should be done by
entering the relevant sheet/page numbers and/or schedules as the first words in the "Comments" box
on the “Recommendations Screen” in the e-Tool.
2. The comment should direct the Lender and the HUD Reviewer to the location or section of the
Architect’s plans and specs where the listed work item is described, dimensioned, or otherwise
detailed.
D. New LIHTC 223(f) transactions typically follow a development process significantly different from
other HUD Section 223(f) refinancing/acquisition processes and HUD waives the required use of a Needs
Assessor and the CNA e-Tool to describe Critical and Non-Critical Repairs. Instead, LIHTC 223(f)
transactions should follow construction documentation procedures similar to substantial rehabilitation
(see Section 5.6).
5.3.3.5
Construction Costs
A. Costs of the work items (estimates) must be provided in the CNA e-Tool, except for LIHTC transactions.
B. When a General Contractor is hired, the costs in the CNA e-Tool should reflect the price proposal (bid)
and the bids uploaded as attachments.
C. The Lender must ensure that the Needs Assessor has reviewed the General Contractor’s cost estimate
with the assessor’s own independent cost estimate.
8 For example, the architect’s plans show new
replacement windows on the building elevations drawings indicating
location and style, along with a schedule that describe types, sizes and installation details, and in specifications
prescribe material and thermal performance requirements. The Needs Assessor should show it as a work item in
the Non-Critical Repairs list describing it as window replacement, and indicate Class of Work, location, type and
quantity. The needs assessor may choose to list the replacement as multiple work items, distinguished by sizes,
types or other significant distinction such as location and material.
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D. When a Project Architect and/or the General Contractor are involved, form HUD-2328 is not to be
used to report the costs by the General Contractor for 223(f) transactions9. Instead of the HUD -2328,
costs may be organized and reported in the CNA e-Tool as follows:
1. The contractor's price proposal (bid) should be captured in the CNA lists of repairs and alterations.
The contractor’s bid should be expressed as a certain dollar amount per appropriate unit of measure
of the associated Alternative of the Component to be repaired or replaced.10
2. Only the hard costs should be reflected in the CNA e-Tool Repairs lists. Soft costs, if any, should be
separately itemized and reported. Soft costs include any architectural fees, General Contractors
overhead, profit and general requirements, etc. See Appendix 5, Section A.5.12 for the 223(f) Repairs
& Alterations Cost Worksheet11 that properly organizes and reports the summary of costs.
3. The total cost of repairs and alterations that includes both the hard and soft costs should be reported
on form HUD-92264-A, lines 7b and 10b.
4. No fees payable to identity of interest contractors are mortgageable. Justified and itemized general
requirements are mortgageable.
5.3.3.6
Schedule
A. When a General Contractor is retained, the General Contractor must submit a detailed construction
schedule as described in Section 5.3.1.D above. The Needs Assessor must review the schedule and enter
the number for “months to complete” for each work item in the CNA e-Tool. The number entered indicates
the number of months from the initial closing until scheduled completion of the particular work item. The
months elapsed is not necessarily the minimum duration of the construction for that particular item.
B. For all other transactions, the Needs Assessor and Lender, in working with the owner, must develop a
construction timeline that reflects the planned completion of the work items and enter in the CNA e-Tool
as “Months to Complete.” The timeline should ensure that all the proposed work (repairs and alterations)
be completed as soon as possible and within 12 months of closing.
9 The form HUD-2328
was designed to work with a full set of Project Architect prepared plans and specifications
which would detail the location and extent of the work. By contrast, the CNA e-Tool relies on a different schema
originating from the standard outline for CNAs established by ASTM 2018-08 and then expanded by Mortgagee
Letter 2016-26 and the 2016 MAP Guide as the Estimated Useful Life Table. The two different schemes for
categorizing construction work are not compatible. In addition, the form HUD-2328 does not contemplate the
completion of any Critical repairs prior to endorsement. For this reason, the use of the form HUD-2328 in
conjunction with the CNA e-Tool is unworkable.
10In many cases recommended alternatives are most appropriately expressed with "each" as the unit of measure
and the bid price for each times the quantity will equal the bid total for the item.
11 The worksheet provides a printable summary of costs best suited to assure that program cost limiting thresholds
are correctly applied and that a common report of scope of work and related costs exists for all parties, including
HUD reviewers and inspectors. A sample worksheet summary of cost is provided in Appendix 5, Section A.5.12.
Editable spreadsheet will be provided for download at HUD MAP Guide Website.
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Chapter 5 Architectural and Construction Analysis
5.4 Architectural and Other Building Standards
5.3.4
Section 223(a)(7) with Repairs and Alterations
5.3.4.1
Scope of Work
A. Scope of work is limited per Section 5.1.5.
B. All scope of work must be described and listed as Critical and Non-Critical Repairs in CNA e-Tool by
the Needs Assessor preparing the CNA.
C. When the Critical Repairs include accessibility repairs, the Needs Assessor must assess and
recommend to the Lender whether an Architect is required per Section 5.3.1.A. The Needs Assessor may
provide architectural services when the person is a registered Architect.
D. The plans and specs, when produced to address accessibility remedies, must be submitted with the
CNA e-Tool as attachments.
5.3.4.2
Construction Costs
A. Costs of the work items must be provided in the CNA e-Tool.
5.3.4.3
Schedule
A. A construction schedule must be provided in the CNA e-Tool indicated as “Months to Complete” for
each work item.
5.4
Architectural and Other Building Standards
A. Projects that are built, substantially rehabilitated, acquired or re-financed with FHA mortgage
insurance must meet the standards described in the Appendices to this Chapter, as outlined below:
1. Appendix 5, Section A.5.1. Property Standards and Survey Criteria
2. Appendix 5, Section A.5.2. Accessibility for Persons with Disabilities
3. Appendix 5, Section A.5.3. Seismic Resistance and Fire Protection
4. Appendix 5, Section A.5.5. Firm Commitment Drawings and Specifications
5. Appendix 5, Section A.5.7. Capital Needs Assessments
5.5
5.5.1
Construction Contracts
New Construction and Substantial Rehabilitation
A. New construction and substantial rehabilitation projects require a General Contractor and the services
of a Project Architect (See Section 5.3 above.) The contracts between the parties must be coordinated
using the following forms:
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Chapter 5 Architectural and Construction Analysis
5.6 Streamlined Processing
1. Owner and General Contractor
The construction contract between the owner and General Contractor shall be form HUD-92442M
Construction Contract for Insured Advances:
1) Form HUD-92442M, Construction Contract Lump Sum (Article 4 Option 2), may be used when
there is no identity of interest between the Borrower and the contractor.
2) Form HUD- 92442M, Construction Contract Cost Plus (Article 4 Option 1), may be used in any
case, and shall be used when an identity of interest exists between the Borrower and
contractor. A Builder’s Profit will not apply.
Form HUD-92554M Supplementary Conditions to the Contract for Construction must be attached.
AIA Document A201-2017 General Conditions of the Contract for Construction must be attached.
HUD does not specify a form of construction contract for Insurance Upon Completion projects.
However, some form of binding contract must be executed and submitted to HUD for review and
approval.
2. In addition, the Building and Loan Agreement between the Borrower and the Lender (form HUD92441M) must be used.
5.5.2
Section 223(f) Transactions
A. The use of contracts depends on the required professional services (see Section 5.3 above). Whenever
an Architect and/or General Contractor is engaged, the contracts must be in writing using the forms
acceptable to HUD as follows:
1. The Owner and General Contractor agreement shall be AIA A104, and;
2. Other AIA forms for change orders, requisitions of funds, and related processes referenced in these
paired agreements should be used consistent with the terms of the agreements.
5.6
5.6.1
Streamlined Processing
Eligibility for Streamlined Processing12
A. Streamlined processing means that less than 100% complete plans and specifications (construction
documents) may be submitted with the application for Firm Commitment.
1. Proposed final project drawings and specifications must be submitted for HUD’s review and
comment/approval at least thirty calendar days prior to initial endorsement.
12 Streamlined processing of architectural design, specification, construction, and cost estimation exhibits serves
two purposes. The first is to expand the use of HUD mortgage insurance programs for projects with Low Income
Housing Tax Credits (LIHTC). The second is to expedite applications for Borrower development teams with clearly
demonstrated capacity and experience with HUD-insured construction projects.
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5.6 Streamlined Processing
2. Any HUD comments on the proposed final drawings and specifications must be resolved and permitready drawings and specifications13 must be delivered not less than ten calendar days prior to initial
endorsement.
B. All LIHTC project applications are eligible for streamlined processing of design and construction
documents.
C. Other applicants requesting streamlined processing should describe and discuss their qualifications
with the Multifamily (MF) Regional Center/Satellite Office for approval.
1. HUD will discuss and determine eligibility for streamline processing at the concept meeting or preapplication stage.
2. To be considered qualified, the Borrower/Sponsor, the Project Architect, the General Contractor and
due diligence providers must each have successful prior HUD project experience comparable in scope
and scale to the scope of work proposed in the application.
3. Applicants for Section 223(f) without LIHTCs and with repairs and alterations requiring a Project
Architect may request a concept meeting if they consider deferred submission of final plans and
specifications necessary.
D. Factors Limiting Streamline Processing for Non-LIHTC Applications.
1. Lenders and MF Regional Center/Satellite Offices should determine that the project will achieve initial
closing within sixty calendar days after issuance of a Firm Commitment conditioned upon final plan
submission.
2. Lenders and MF Regional Center/Satellite Offices should consider the complexity of the proposed
design and construction when determining whether to permit the deferred submission of final
drawings and specifications. Complex issues unsuited to streamlined processing include, but are not
limited to:
Any claim of exemption from the design and construction requirements of the Fair Housing Act
based on site impracticality (terrain unsuited to accessible paths and building entrances);
Projects where costs not attributable to residential use must be calculated because Criteria 4 of
the form HUD-92264A, Statutory Limitations of cost per family unit, is material to the calculation
of the maximum mortgage amount;
Projects with complex mixed-use, commercial use, or use of new, complex construction
technology; and
Projects with complex environmental remediation issues or issues that cannot be resolved
without the final set of plans and specifications (e.g., noise, historic preservation).
5.6.2
Section 223(f) with new LIHTC Applications
A. New LIHTC 223(f) transactions have a largely, if not fully, developed scope of work for repairs and
alterations early in the development. Accordingly, a separate CNA should not be needed to evaluate
13 “Permit ready”
means approved by the Building Code Official with jurisdiction, subject only to the payment of
required permit fees and charges.
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5.6 Streamlined Processing
property conditions or to define the scope of work for repairs and alterations and HUD will waive the
required use of Needs Assessors and the CNA e-Tool to describe Critical and Non-Critical Repairs.
Applicants for Section 223(f) insured loans with new tax credits should follow the following construction
documentation procedures:
1. The construction scope of work should be defined by the Project Architect in a full set of construction
drawings and specifications as prescribed for substantial rehabilitation, provided that the Architect’s
Agreement will be the AIA B104 and the Architect’s Certificate shall be in the form of Appendix 5,
Section A.5.8.2.
2. A General Contractor should be engaged and should estimate costs using form HUD-2328. The general
contract should be the AIA A104.
3. The Project Architect should provide to HUD a written summary documenting the inspection
procedure employed at the property and identifying conditions or systems determined to require
correction, repair, replacement, or improvement, similar to what is described in Section 5.9.2.A.2 for
Joint Inspection Report.
This written summary is in lieu of a Needs Assessor inspecting and reporting on the property.
The report should specifically identify any conditions that fail to meet the applicable accessibility
requirements at the property for persons with disabilities under relevant statutes: Section 504 of
the Rehabilitation Act, the design and construction requirements of the Fair Housing Act, and the
Americans with Disabilities Act both Title II and Title III.
A comparable document prepared for the application for tax credits or for the tax credit investor
may be acceptable.
4. The CNA e-Tool should only describe future repairs and replacements for purposes of establishing the
appropriate Reserve for Replacement (RfR) Schedule, including any initial deposit to the RfR and
annual deposits to the RfR Escrow. The characterization of future needs should be based on project
conditions, assuming completion of all work described in the Architect’s plans and specifications.
5. The Lender must employ a Cost Analyst to review the plans and specifications and the General
Contractor’s cost estimates (and likely also to prepare the CNA e-Tool for future needs). The cost
review should be completed using the same methods, procedures, and forms as applicable to
substantial rehabilitation applications, including form HUD-92326 and form HUD-92331-B.
6. When reviewing costs of repairs and alterations, the Lender should ensure that the sum of hard costs,
the General Contractor’s soft costs and the Project Architect’s supervision fee, and any contingency or
assurance of completion, do not exceed the cost threshold for substantial rehabilitation. Any
contingency or assurance of completion amounts must be included into the Aggregate Cost calculation
per Section 5.1.2.14
7. All other construction documents should be submitted separately, consistent with procedures for
substantial rehabilitation.
14 This restraint should be imposed at
the time of application for Firm Commitment because LIHTC investors
customarily require that contingencies or assurance of completion funds are fully used, first for necessary change
orders, and then for betterment change orders. There is no expectation that funds will be returned to the Borrower.
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Chapter 5 Architectural and Construction Analysis
5.6 Streamlined Processing
8. Attachments to Firm Commitments should be consistent with the practice for insured substantial
rehabilitation and in compliance with the specific instructions provided in this Section.
5.6.3
Documentation at Firm Commitment
A. The Firm Commitment may be conditioned on the timely receipt and satisfactory review of complete
and final plans, specifications, and cost estimates, provided that the Lender’s submission of less than
100% of the drawings, specifications (i.e., schematic/line/working drawings) and cost estimates provide
the following detail:
1. The static footprint of the building or buildings together with proposed site improvements on the
surveyed site plan as well as any proposed easements and/or off-site improvements with survey
detail, consistent with the requirements for surveys described in Appendix 5, Section A.5.1;
2. The gross building and net residential square footage for the project;
3. Dimensioned unit layouts for each unit type for new construction or substantial rehabilitation or for
reconfigured spaces in Section 223(f);
4. Dimensioned floor plans and elevations for each building type;
5. Sufficient design detail to determine the Davis-Bacon wage rate classification for new construction
and substantial rehabilitation;
6. Sufficient design detail to determine compliance with accessibility requirements in Appendix 5,
Section A.5.2;
7. Sufficient design detail (wall cross-section details) to determine structural framing and exterior wall
finishes for new construction and substantial rehabilitation and other repairs and alterations, when
applicable;
8. A summary interior finish schedule identifying proposed interior finishes for units, including kitchens
and baths, as well as for building common spaces and accessory structures;
9. Sufficient design detail to determine building mechanical systems;
10. Sufficient design detail to determine the scope of site development and off-site construction;
11. A written cost estimate (form HUD-2328) from the General Contractor, if any;
12. The Lender’s Construction Analyst’s cost estimate (HUD-92326);
13. The Lender’s review and comparison of the General Contractor’s cost estimate with the Lender
Construction Analyst’s estimate on form HUD-92331;
14. For new construction and substantial rehabilitation (a) the proposed but unsigned owner-contractor
agreement for construction (form HUD-92442M) indicating any selected options (e.g., incentive
payments) or special conditions and the Supplemental Conditions (form HUD-92554M). For Section
223(f), the AIA A104 agreement is used if General Contractor is used;
15. Project Architect’s or Needs Assessor’s CNA reviewed by the Lender’s Construction Analyst with the
Lender’s financial plan for funding future capital needs, all in accordance with Appendix 5, Section
A.5.7. Such CNA may be based on less than 100% complete construction documents and be amended
at the time the 100% set is submitted;
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5.6 Streamlined Processing
16. For applications in pursuit of Green MIP rate, plans and specs at the level of completion that the
chosen Green Certification standard keeper is able to verify achievement(s) of required milestones
and be on track to achieve the actual Certification within the required timeline; and
17. For substantial rehabilitation, the Project Architect’s detailed inspection report and work write-up.
5.6.4
Requirements for Issuing a Firm Commitment
A. HUD requires that the following are completed prior to issuing a Firm Commitment:
1. An assessment that the estimated project cost based on the Borrower’s or General Contractor’s
estimate of costs and the Lender’s cost estimate and the Lender’s comparison of these estimates is
reasonable and in line with comparable HUD project data and is likely accurate within a deviation of
plus or minus 5%.
2. An assessment that the Borrower’s and General Contractor’s financial capacity to complete the
proposed construction is not materially diminished by an increase in cost of up to 5%.
3. An assessment that the proposed General Contractor is acceptable pursuant to existing requirements
(sufficient working capital, experience, etc.).
4. An assessment that the plans and specifications are in compliance with all applicable requirements
on a preliminary basis, with appropriately qualified certifications executed.
5. The Phase I (ASTM Practice E 1527-13 or most current) environmental site assessment and the
HEROS Environmental Report must contain no significant unresolved environmental issues (see
Chapter 9).
5.6.5
Modifications to the Firm Commitment
A. A modification must be made to the Firm Commitment for those projects determined to be eligible for
deferred submission of final drawings, specifications, and cost estimates. Below is a sample special
condition to be added to the Firm Commitment.
“As an accommodation to the Borrower, this commitment has been issued and based upon
preliminary drawings, instead of the final drawings, specifications and cost estimates. At least 30 days prior
to the scheduled date for Initial Endorsement [Endorsement, if pursuant to 223(f)], HUD must receive the final
drawings, specifications and the Lender’s architectural/cost review report for review and approval to ensure
consistency of design and cost. In the event that there is a net cumulative construction cost change of more
than 5%, or a change in design concept, this commitment shall be subject to and conditioned upon the further
approval of HUD, to be evidenced in writing. Based on such review this commitment may be terminated and
voided by HUD, or additional conditions may be imposed, at HUD’s option.”
5.6.6
Risks Related to Deferred Document Submission
A. All risks related to deferred submission of construction documents are borne by the Lender and the
Borrower. HUD will not refund application fees in the event that the Borrower is unable to provide
acceptable construction documents
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Chapter 5 Architectural and Construction Analysis
5.7 New Construction Processing through Firm Commitment
New Construction Processing through Firm
Commitment
Concept Meeting
A. When a concept meeting is scheduled, its purpose with respect to design and construction topics is to
establish feasibility and to identify key issues. For this reason, the Lender should provide the following:
1. The name, address, contact information, and resume or summary of experience of the Project
Architect and any other design professional(s), due diligence providers and the General Contractor if
known. Of particular importance is the development team’s previous experience with HUD mortgage
insurance programs for new construction.
2. Maps and photographs illustrating the location, boundaries, conditions, and features of the site,
noting, in particular, the location and size of public utility lines available to serve the site, means of
access and egress, and proximate properties. Such survey of the site should identify key issues
presented by the site and its environs, such as, but not limited to the following:
Terrain, rock, or steep slopes that may require detailed exploration, unusual site costs or result in
any claim of site impracticality exemption from the design and construction accessibility
requirements of the Fair Housing Act.
Absence or unavailability of public utilities, required offsite work, unusual public permitting or
development entitlement processes or costs.
Insufficient or deficient access to the site due to limitations on existing streets and grades or lack
thereof and/ or adverse traffic patterns or conditions.
Flood plain or flood hazard areas and the location of recognized environmental conditions that
indicate the presence of contamination as defined by ASTM E 1527, or protected sites or artifacts.
3. The Borrower’s summary design program or concept prepared after inspection of the site and
preliminary review of existing or proposed zoning, subdivision, and building code requirements. The
summary should characterize the contemplated number, size, and kind of buildings and dwelling units
and should include a conceptual site plan and sketch plans of typical units and buildings.
4. The Lender description of existing or ongoing needs for site due diligence and provide a plan or
description of how due diligence tasks will be completed, including appropriate sequencing,
coordination of studies, and the identity of prospective providers. The Lender should include a
discussion of environmental issues and plans to address them.
5. The Lender’s identification of any other contemplated sources of funding that would trigger design
and/or construction requirements and describe such requirements (e.g., any Federal assistance, such
as HOME, will trigger Section 504 and UFAS; state or local assistance, including LIHTCs, may trigger
a state or local agency plan for compliance with Title II of the Americans with Disabilities Act).
6. The Lender‘s statement of whether streamlined processing of design and construction documents is
proposed and, if proposed, the reasons such processing is both needed (e.g., use of LIHTCs is expected)
and realistic (e.g., development team is experienced with HUD-insured mortgage programs for
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5.7 New Construction Processing through Firm Commitment
construction, has successfully executed physically similar projects, and the site and/or environs
present no complex challenges or prospective delays).
5.7.2
Pre-Application
A. The Lender’s Underwriter must have visited and inspected the site, and the Lender must submit the
following Pre-application exhibits to HUD:
1. Form HUD-92013, Application for Project Mortgage Insurance;
2. Location map with property clearly defined;
3. Sketch plan of the site showing overall dimensions of main building(s), major site elements (e.g.,
parking lots, points of access and egress, pedestrian access, and accessible entrances and paths) and
location of existing utilities (e.g., water, sewer, electric, gas) in the streets adjacent to the site:
Contour lines and elevations are not required in the sketch site plan. However, the Lender must
state whether any contours or elevations observed are likely to result in a claim of exemption of
any proposed building or facility from the design and construction requirements for accessibility
of the Fair Housing Act by reason of site impracticality (See Fair Housing Design Manual 1.38);
If so, the Lender must confirm that it has advised the Borrower, the design professional(s) and
the General Contractor of the site feasibility methodology described in the Fair Housing Act
Design Manual. Similarly, the Lender must describe whether and how any design and
construction requirements triggered by other sources of funding (e.g., UFAS or the 2010 ADA
Standards for Accessible Design) will be met:
4. Sketch plans of building(s) that show:
Ground floor plan showing common areas and dimensions;
Building floor plans showing unit types, placement, and dimensions;
Unit floor plans of all unit types;
Building elevations;
Residential and gross building area for each building or building type;
Typical wall sections showing footing, foundation, and wall and floor structure, with notes
indicating the basic materials to be used in the structure, floor, and exterior finishes; and
Anticipated interior finish schedule indicating kind and quality of finishes proposed for units,
including kitchens and baths, as well as building common spaces and accessory structures.
B. The Lender must address any physical due diligence issues identified and ongoing due diligence needed
to complete analysis of the site and its environs. If not addressed at a concept meeting, the Lender should
provide a description of the studies completed or anticipated and the identity of those preparing the
studies. Completed or proposed due diligence should include investigation of the physical requirements
that may be imposed by any other sources of funding anticipated for the project.
C. See Chapter 9 for environmental review requirements.
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Chapter 5 Architectural and Construction Analysis
5.7 New Construction Processing through Firm Commitment
Firm Commitment Application
A. The Lender’s Construction Analyst must have visited and inspected the site and its environs, investing
time and attention to detail sufficient to allow the analyst to appreciate due diligence needs and to
knowledgeably evaluate prepared due diligence and all design and construction documents. The Lender
must submit the following exhibits for review, provided that, if the application is approved for streamlined
processing, the following exhibits may be submitted as substantially completed drafts and resubmitted as
proposed final drafts at least 30 days prior to an initial endorsement (See Section 5.6 above):
1. Form HUD-92013, Application for Project Mortgage Insurance.
2. Owner-Architect Agreement, AIA Document B108 (and HUD Amendment to the B108), fully defining
the services and fees for each prime design professional with which the Borrower/owner contracts
directly. The Project Architect shall have the authority and duty to coordinate all the consultants and
their work involved in the basic design services of the Architect.
3. Completed Surveyor’s Report, form HUD-1073M, with responses to all questions and the completed
HUD certification. See Appendix 5, Section A.5.1.
4. Engineering and specialty reports (e.g., geotechnical, structural).
5. Municipal and utility company letters of confirmation for the provision of services and/or offsite
improvements.
6. Any documents necessary to establish:
Site ingress and egress, utility services and other general acceptability criteria in MPS 4910.1,
Chapter 2; and
Binding or signature-ready drafts of proposed joint use, access and maintenance agreements
where common use easements (e.g., common driveways) exist or are proposed. When proposed,
easements should be platted, and agreements drafted for review in preparation for recording.
7. Certification from Project Architect substantially in the form of Appendix 5, Section A.5.8.1.
8. Drawings and Specifications. One legible full-sized printed set (hard copy) of drawings and one set of
specifications for review that conform to the specific format and requirements described in Appendix
5, Section A.5.5.
9. Description of all work essential to the project but outside the boundaries of the property (see
Appendix 5, Section A.5.5).
10. The General Contractor’s Cost Breakdown, form HUD-2328.
11. The Lender’s CNA based on construction plans and specifications of the improvements to be built. A
qualified energy professional must be engaged to complete section “a” below, as required for green
MIP applications (See Chapter 6. The Lender’s Construction Analyst or the Project Architect may
complete the remaining three sections “b,” “c,” and “d.” The Project Architect should verify the
accuracy of the information reflected in these sections according to the latest plans and specifications
developed by the Project Architect. The CNA must be completed and submitted using the CNA e-Tool
in accordance with Appendix 5, Section A.5.7 and includes:
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For green MIP applications, a HUD Custom Statement of Energy Design Intent (SEDI) from EPA’s
Portfolio Manager based on projected utility consumption for the entire property to be built,
including the entire site and all the buildings. The projected utility consumption data resulting
from the Energy Modeling should be reported to Portfolio Manager and the HUD Custom SEDI
obtained. The resulting HUD Custom SEDI must show an energy score not less than the prescribed
minimum per applicable program requirements. (See Chapter 6.) Note that the HUD Custom SEDI
minimum score is a requirement in addition to, and not in lieu of, the obligation to prepare plans
and specifications meeting the requirements of the applicable version of the International Energy
Conservation Code or the ASHRAE standard 90.1. See Chapter 6 for more details.
A completed physical inventory of the property to be built, (that is, description of the site,
buildings, units, utility types and rates, components and alternatives in the CNA e-Tool).
An estimate of replacement cost, as new, for each structure (form HUD-92329, Schedule of
Insurable Values, automated in the CNA e-Tool). The Aggregate Costs should be consistent with
the Lender’s Construction Analyst’s estimate of costs for structures including general
requirements, contractor’s overhead and profit, and bonding.
The Lender’s financial plan for funding future capital replacement needs based on actual expected
replacements with appropriate adjustments for inflation and other variables as described in
Appendix 5, Section A.5.7. The financial plan will define the schedule of annual deposits to the
RfR escrow.
12. The Lender’s Construction Analyst’s detailed cost estimate package (Cost Report) composed of the
following:
Detailed cost estimate to be reported on form HUD-92326.
A comparison of the General Contractor’s trade line item cost estimate (form HUD-2328) with the
Lender’s Construction Analyst’s estimate (form HUD-92326) with comments and explanations
described on form HUD-92331-B).
Form HUD-2328, signed and dated by the Lender’s Construction Analyst in-the FHA: Processing
Analyst’s box. The Lender’s Underwriter must sign and date form HUD-2328 in the FHA: Chief
Cost Branch or Cost Analyst’s box.
13. Form HUD-92264, signed and dated by the Lender’s Construction Analyst submitted by the Lender as
both “Cost Processor” and “Architectural Processor.” If different analysts execute the architectural
and the cost reviews, then each must sign as appropriate.
14. The Lender’s Construction Analyst’s review and disclosure of identities of interest and application of
the 50%-75% Rule (See Chapter 13, Section 13.14.13 and Section 13.15 for instructions on this Rule.),
which should
Identify and describe any identity of interest relationships between or among the Borrower, any
of the Borrower’s design professionals, the General Contractor, any subcontractors, material
suppliers, equipment lessors, or manufacturers of industrialized housing.
Identify by analysis of form HUD-2328 any single subcontractor that executes 50% or more of the
total construction or any three subcontractors who in the aggregate execute 75% or more of the
total construction measured by dollar value.
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15. The proposed but unsigned owner-contractor agreement for construction (form HUD-92442M)
indicating any selected options (e.g., incentive payments) or special conditions and the
Supplementary Conditions (form HUD-92554M) reviewed and included in the Lender’s Construction
Analyst’s report.
16. Review report prepared by Lender’s Construction Analyst who must state that all exhibits are
acceptable without conditions, and that all deficiencies have been acceptably corrected, except that in
the case of an application approved for streamlined processing, this statement may allow for the
contingency that final plans and specifications have not been completed and that final cost estimates
may vary by up to 5% from the costs estimated in the Firm Commitment application. The report
should address the following:
Completeness of construction documents;
Conformance to local building codes and HUD standards, including the HUD minimum energy
codes when these exceed local code requirements;
Accessibility for persons with disabilities. Refer to the Fair Housing Act design and construction
requirements for accessibility found at 24 CFR 100.205. If the property is federally assisted, refer
also to the Uniform Federal Accessibility Standard (UFAS). For any public space at the property
(e.g., leasing office, commercial space), refer to Title III of the Americans with Disabilities Act (See
Appendix 5, Section A.5.2);
Site design:
1) Placement of buildings, roads, walks and parking on the site;
2) Identification and review of offsite construction;
3) Site erosion and storm drainage; and
4) Soil borings report;
Building design and building circulation:
1) Adequacy of elevators;
2) Number and placement of stairs;
3) Adequacy of lobbies and corridors;
4) Adequacy of fire egress;
5) Typical dwelling units: Adequacy of room sizes and circulation within units;
6) Fire safety: Provision of adequate fire safety measures, e.g., fire sprinklers, firewalls, fire
doors (if required);
7) Structural adequacy: Review of building structure and structural details including measures
implemented to address identified hazards such as seismic risk, coastal high wind and/or
flood zones;
8) Mechanical, electrical and plumbing adequacy: Review of mechanical and electrical and
plumbing plans; and
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5.7 New Construction Processing through Firm Commitment
9) Energy efficiency. Review utility combination for energy efficiency and determine
acceptability of utility combination. Review and submit the Capital Needs Assessment in the
CNA e-Tool per Appendix 5, Section A.5.7 and confirm that the HUD Custom SEDI shows an
energy score of 60 or better. See Appendix 5, Section A.5.4 for applicable International Energy
Conservation Code and ASHRAE standards for new construction.
Submit copies of the Lender’s Construction Analyst’s project files and logs only if requested by the
HUD Office.
Standard certification by Lender’s Construction Analyst(s) (see Chapter 11, Section 11.2).
17. See Chapter 9 for environmental review requirements.
5.7.4
Special Considerations for Industrialized Housing
A. The Lender must contact the Production Chief of the MF Regional Center or Satellite Office to approve
the use of industrialized (aka “modular”) housing.
B. Architectural and engineering services are required for off-site construction of housing (modules or
panels) and the fees for such services must be included in the cost of each manufactured unit.
C. The Lender’s Construction Analyst must determine the acceptability of such services by examining the
drawings and specifications. In addition, architectural services are required for onsite construction
including site work and a prepared foundation for the installation on site of modules or panels constructed
off-site. These services are provided by the Project Architect.
D. The exhibits for off-site work shall be equal in quality to the typical construction documents prepared
by Architects engaged in designing the type of housing proposed and should include the working drawings
and specifications for the typical industrialized housing unit, along with an assembly or installation plan
and manufacturer’s warranty document, which must cover not only off-site construction but also transit
and delivery and the efficacy of the onsite assembly or installation plan.
E. Additional professional services may be required to provide a complete set of construction documents.
These services must be determined by the Lender’s Construction Analyst for each project based on the
percentage of the construction documents for the project that may be provided by the housing
manufacturer. Usually, the Project Architect will integrate the manufacturer’s drawings into his/her set
of drawings and specifications, adapting them to the particular project.
F. The manufacturer shall provide complete professional design services for the modules or panels to be
used. If these services in combination with those of the Project Architect meet in all respects the
qualifications and quality required, the construction documents shall be acceptable.
G. In most states, plans and specifications for industrialized or manufactured housing are pre-approved
by an authorized state office, agency or building code official with plans for particular models evidenced
by a plan approval number. Inspections and or certifications of factory-based construction typically are
managed by states by periodic factory inspections evidenced by stamps and/or numbered approvals. It
is the responsibility of the Project Architect, reviewed by the Lender’s Construction Analyst, to determine
that any and all plan approvals have been obtained.
H. Owner Architect Agreement, AIA Document B108, is required only to cover the services provided by
the Project Architect and is not required for professional services provided by the housing manufacturer.
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5.8 New Construction Processing through Initial Endorsement
I. In all cases, an independent Architect with no identity of interest shall provide general administration
of the construction contract.
J. The logistics of construction with modules constructed off site require detailed consideration as part of
construction planning and should be well understood as early as the concept meeting. In urban areas,
large modules trucked to a construction site must negotiate narrow streets, power lines, trees, and related
obstacles and often cannot be stored in quantity. Cranes and heavy lift equipment may also be required
and may confront similar constricted access challenges. These logistic requirements may impose
additional costs and scheduling problems and may limit feasibility.
K. In addition, modular manufacturers typically require a minimum payment or deposit to initiate or
complete work on a modular unit off-site. Such fees are credited to the owner or General Contractor upon
delivery of the modular units. But until units are delivered, these payments or deposits are not
reimbursable as part of an insured advance. Only the costs of modular units delivered, accepted by the
General Contractor, and installed or stored on site or in an acceptable, owner-controlled location
proximate to the construction site and covered by the owner's or General Contractor’s builder’s risk
insurance may be included in an insured advance.
L. Davis-Bacon wage rates will apply only to the onsite construction work.
M. Loan terms for industrialized housing must be based on proper assessment of the economic life of the
project as determined by the appraiser (see Chapter 7), given the construction quality and material used.
5.8
5.8.1
New Construction Processing through Initial
Endorsement
Plans and Specifications Revisions
A. Except for projects submitted as streamlined applications, drawings and specifications may be
amended by addendum when the change(s) will have no effect on cost or value (final drawings and
specifications are finalized after Firm Commitment in streamline processing). The Lender’s Construction
Analyst must review the addenda for acceptability as follows:
1. Addenda must clearly state or show the change with specific reference to the location of the item on
the drawings or in the specifications.
2. Amendments shall be clearly noted and dated.
3. Addenda are not to be used to correct errors noted during Firm Commitment processing.
5.8.2
Major Changes
A. Firm Commitment reprocessing is required for major changes adding or deleting work representing a
net change of more than 5% of estimated total construction costs, or physical changes that alter
underwritten income and expense so as to change the approved mortgage amount by a sum greater than
5% of total construction cost. Drawings and specifications affected must have sheets and pages revised
and replaced.
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5.8 New Construction Processing through Initial Endorsement
Construction Documents
A. The Lender shall submit the following construction documents to HUD for review and approval prior
to initial endorsement:
1. Final, signature-ready drafts of the Building Loan Agreement, form HUD-92441M, the Construction
Contract, form HUD-92442M and the Supplementary Conditions to the construction contract (form
HUD-92554M).
Ensure the correct identification of drawings and specifications on contract forms.
1) Project name, HUD project number, and Project Architect’s name.
2) Drawings and specifications by sheets, pages, and date or by index with date of last revision
of sheet and page.
3) Addenda, if any, by number and date.
Ensure compliance with any architectural requirement or condition.
2. Survey and Surveyor’s Report, form HUD-91073M, which must be reviewed:
For compliance with Survey Instructions and Certificate.
To confirm that the legal description and survey property boundaries agree.
To confirm consistency of the approved plans and site plan with the survey and the description of
any easements, joint use and access agreements, dedications of land for public rights of way, and
state or local subdivision requirements.
The Survey (plat) shall be full-sized hard copy.
3. Contractor’s Estimated Progress Schedule. Article 3.10.1 of the AIA General Conditions requires the
General Contractor to prepare and submit an “estimated progress schedule for the work” to the
Borrower and Project Architect. (See instructions for how to prepare the progress schedule in Section
5.3.1.D).
The Borrower or Project Architect must submit a copy to the Lender’s Construction Analyst at
least 30 days before initial endorsement, and a final copy must be provided with the permit-ready
drawings not later than 10 days prior to endorsement.
The Lender’s Construction Analyst must review the schedule to ensure it relates to all the
construction activities required by the construction documents, including dates for the stages of
construction.
Copies of the approved schedule are distributed with other construction documents at initial
endorsement and used to monitor construction progress.
4. Drawings and Specifications. Submit three sets and confirm that:
Master Sets No. 1, 2 and 3 are the same as accepted and identified in the Firm Commitment. (For
projects approved for streamlined processing, the Lender must confirm that the final plans and
specifications are acceptable, complete and consistent with Firm Commitment exhibits.) Indicate
the total number of pages in the drawings and specifications. HUD may, at its discretion, eliminate
the requirement for set No. 2 (HUD review set).
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5.8 New Construction Processing through Initial Endorsement
Cover and last drawing sheets, and the first and last specification pages of all sets, are signed by
representatives of the Project Architect, Architect administering the contract, owner, contractor,
Lender, and bonding company, if any.
Master Set is bound and signed as described above on the cover sheet and last sheet of the
drawings and the first and last pages of the specifications. Signatories must initial opposite any
“last minute” revisions not covered by Firm Commitment or addendum. The master set must be
identified as such.
Lender’s signatory is an individual or individuals who are authorized to sign at closing, and who
must sign and initial the plans and specifications (see Appendix 5, Section A.5.5). HUD will accept
only the Lender’s authorized signatory, who must be identified as such for HUD by the Lender.
5. Drawings and Specifications. The Lender must retain one set and confirm that the:
Lender set is the same as the set that was accepted and identified in the Firm Commitment (or
approved after Firm Commitment per streamline processing). Indicate the total number of pages
in the drawings and specifications.
Cover sheets are signed by representatives of the Project Architect, Architect administering
contract, owner, contractor, Lender, and bonding company, if any.
Lender set is signed by signatories on the cover sheet and the last sheet of the drawings and the
first and last pages of the specifications. Signatories must initial opposite any “last minute” minor
revisions not covered by Firm Commitment or addendum or as approved per streamline
processing.
5.8.4
Recommendation for Initial Endorsement
A. If construction documents are correct, the HUD senior Underwriter will recommend initial
endorsement. In the event of errors or inconsistencies, the construction documents will be returned to
the Lender for correction and resubmission.
5.8.5
Distribution of Drawings and Specifications
A. After initial endorsement, the Lender shall distribute the drawings and specifications as follows:
1. Set No. 1, The Master Set, is the legal contract document. The Lender shall deliver the Master Set to
the HUD office (Regional or Satellite office) that will oversee the construction. Prior to closing, HUD
will inform the Lender which HUD office will receive the set. HUD will:
Retain this set until the last guarantee inspection.
1) Add a copy of each change order, form HUD-92437.
2) Add a copy of each Architect’s supplemental instruction.
Use this set for processing change orders, review of inspection reports and similar functions.
Package the specifications in a tightly-rolled bundle with drawings on the outside, attach a memo
indicating the HUD project number, and send it to the Regional Federal Records Center one year
after completion of construction.
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5.8 New Construction Processing through Initial Endorsement
2. Set No. 2 is the Contractor’s Set.
This set is to be delivered to the Contractor to be kept on site.
This set will be the Contractor’s “record set,” where the Contractor will record any updates during
construction as “as-built.”
3. Set No. 3 is the HUD Inspector’s Set.
The HUD inspector will use this set for inspection of the project.
The HUD inspector will conform this set to the contractor’s “record set.” (The Contractor is
required to maintain at the site a record set for the owner.)
The HUD inspector will return this set to the HUD office upon completion of construction. This set
will be the HUD “as-built” set.
Use this set for guarantee inspections.
HUD Inspector will send the “as-built” set to the HUD Regional Center/Satellite Office Director,
one year after completion of construction, for use in loan servicing.
B. Drawings and specifications to be maintained by the Lender (the “Lender Set”):
1. In addition to the prescribed sets above, the Lender must maintain an additional set for a period of
three years after final endorsement.
Add a copy of each change order, form HUD-92437.
Add a copy of each Architect’s supplemental instruction(s).
The Lender may choose to keep electronic copies of the above documents. It is recommended
that the Lender also maintain copies of HUD Trip Reports and other related documents
distributed during the construction period.
2. If the originating Lender will not administer the construction contract, the construction administering
Lender must forward copies of each change order and Architect’s supplemental instruction to the
originating Lender for inclusion in the Lender Set.
5.8.6
Early Start of Construction
A. Construction work to be performed after receipt by HUD of the initial application but before initial
endorsement constitutes an early start of construction. An early start of construction is prohibited in
general but may be allowed only with the prior approval of the Director of the MF Regional
Center/Satellite Office on a case-by-case basis.
B. Examples of permissible early start construction include minor clearing, grading, demolition,
environmental remediation, and other preliminary site work that are not substantial in scope. In some
cases, site improvements or grading work on a neighboring site might result in necessary adjustments to
surface drainage or grades on the subject site, which may be deemed permissible. Similarly, utilities
serving multiple proximate parcels might require installation of a main across the subject site and such
work also may be permissible. Any requests for approval of early construction must be submitted during
the review stage of the application. No work shall proceed without either a HEROS environmental review
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Chapter 5 Architectural and Construction Analysis
5.8 New Construction Processing through Initial Endorsement
or a determination that one is not necessary and the Borrower obtaining and evidencing all state or local
approvals or permits requisite for that work.
C. The following are mandatory conditions for approval of an early start of construction:
1. Firm Commitment. There must be a valid outstanding Firm Commitment, including:
Site control and/or ownership of the land that will ensure the right to legally access the site for
purposes of construction.
HUD-approved set of contract drawings and specifications on file. See Appendix 5, Section A.5.5
for required Firm Commitment contract drawings and specifications.
Required construction contract and other construction documents, including, but not limited to:
1) Construction contract, form HUD-92442M;
2) Supplementary conditions of the contract for construction, form HUD-92554M;
3) Applicable Davis-Bacon wage decision (supplied by HUD Labor Standards and Enforcement);
2. Assurance of Completion for Onsite and Off-Site Work. The early start may not hamper the ability
of the Borrower to obtain a good and marketable title policy when the loan goes to initial closing.
3. Valid Basis for Early Start. The MF Regional Center/Satellite Office Director must document the file
including the reason for granting an early start, after determining the following:
An immediate closing is not practical.
There is reasonable evidence and assurance that closing will occur in the near future.
There is a compelling need to start construction before the anticipated closing date.
An early start of construction will not be detrimental to HUD’s interests.
HUD has no insurance obligation or liability whatsoever for costs incurred during an early start if
the project does not reach initial endorsement.
4. The contractor, Borrower and Lender must execute form HUD-92415, Request for Permission to
Commence Construction Prior to Initial Endorsement for Mortgage Insurance, without change. The
MF Regional Center/Satellite Office Director must sign form HUD-92415.
5. The costs involved for the early start work must be included and reflected as relevant in the line items
of the contractor’s cost estimate (form HUD-2328). A table showing the cost breakdown of the early
start items separately from the rest of the cost estimate should be attached to form HUD-92415 and
be made part of form HUD-92264 Section O, Remarks.
6. Preconstruction conference must be held before the start of any construction (see Chapter 12, Section
12.2).
7. Violations of early start criteria must be referred to the MF Regional Center/Satellite Office Director
for a determination as to whether the project may proceed to initial endorsement.
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Chapter 5 Architectural and Construction Analysis
5.9 Substantial Rehabilitation Processing through Initial Endorsement
Substantial Rehabilitation Processing through
Initial Endorsement
A. All of the previous instructions for standard processing of applications for new construction (Section
5.7 and Section 5.8 of this Chapter) apply to substantial rehabilitation projects except as modified here.
5.9.1
Concept Meeting
A. The concept meeting is an important opportunity to describe and determine the expected scope of
work for existing properties, which may range from significant rehabilitation to more limited repairs and
alterations.
B. A key result of the concept meeting should be consensus on the methods and the professionals that
will be used to evaluate the existing buildings and define the scope of work. The Lender and Project
Architect must describe a process consistent with Appendix 5, Section A.5.7 and a timeline for evaluating
the existing buildings and developing the scope of work and supporting due diligence.
C. Appendix 5, Section A.5.3 defines a step-by-step process for determining whether seismic conditions
warrant further analyses of existing buildings in accordance with the most recent standards of the
American Society of Civil Engineers (ASCE). The threshold is easily determined, requires no onsite
analysis or observation of buildings or sites and should be provided at the concept meeting to indicate
whether seismic analyses are required. (The CNA e-Tool requires a determination of these same
threshold values.)
D. The Lender should describe the existing or expected due diligence analyses including lead-based paint
inspection for buildings constructed prior to January 1, 1978, buildings with asbestos materials and any
other known or reasonably anticipated hazards. See Chapter 9 for other environmental review
requirements.
5.9.2
Pre-Application
A. The Lender’s exhibits for pre-application are the same as those for new construction with these
additional items or considerations:
1. Due diligence and draft scope of work summary. The Lender should submit a draft Scope of Work
Summary prepared by the Project Architect in developing detailed plans, specifications and cost
estimates based on conclusions from the Concept Meeting, the Project Architect’s own detailed
inspection and due diligence of the property.
The draft Scope of Work Summary should describe the overall anticipated scope of work and
identify other due diligence professionals engaged and describe their qualifications.
The composition of the due diligence team should be based on the condition of the property and
address foreseeable issues based on the Borrower’s objectives and the proposed improvements
(scope of work).
The results of any more advanced due diligence agreed upon at the Concept Meeting (e.g., a joint
inspection by the design team) should inform the pre-application.
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The summary descriptions of the proposed improvements should include sketch plans. The final
Scope of Work Summary should be submitted at the Firm Commitment Application per Section
5.9.3.A.3 below.
2. Joint inspection and report. The purpose and the requirements of the joint inspection are as follows:
To establish a common understanding of the existing physical condition of the property and the
necessary improvements to be addressed in the scope of work. All involved parties should agree
on the methods and procedures necessary to adequately evaluate the physical needs, such as
intrusive testing and various professionals to be employed for further assessments and
developing the scope of work.
The Lender is responsible for arranging the joint inspection and reporting the findings.
1) At a minimum, the Borrower, the Lender’s Underwriter or a representative, the lender’s
Construction Analyst and the Project Architect must attend.
2) HUD staff may attend depending on the availability and the complexity anticipated.
3) The local Building Code Official should be encouraged to attend, particularly for the older
properties that were built in compliance with outdated building code. The official should be
asked to provide guidance on any improvements required to meet the current code and safety
standards particular to the jurisdiction.
4) The Lender is responsible for documenting the inspection with notes, annotated photographs
and summary of conclusions in writing and distributed to all involved parties.
The joint inspection should be scheduled as early as feasible and may follow the concept meeting.
If not scheduled prior to the pre-application, it must be scheduled promptly following the preapplication and before the execution of further due diligence or design work.
Except for LIHTC projects, a decision on any request for streamlined processing should be made
only after the joint inspection, or subject to the completion of the joint inspection.
3. Requests for streamlined processing. Given the more contingent and variable circumstances
typical of work with existing buildings (by contrast with new construction), any Borrower or lender
request for streamlined processing for substantial rehabilitation (other than LIHTC projects) must
include documentation demonstrating prior experience and capacity in properties of similar scale,
condition, and building technologies employed. This demonstration should be made for each
participant: Sponsor, Project Architect and design consultants, Needs Assessor and any due diligence
consultants, General Contractor, and the Lender’s Construction Analyst.
4. Sketch plans of existing building(s). The Project Architect should provide “as-is” sketch plans of
existing buildings with the pre-application.
5. Year built. The Lender should determine the year built for each building and whether each building
was built for first occupancy after March 13, 1991, using dates of occupancy permits and building
permits when any doubt exists. (If a CNA is prepared as part of due diligence, the CNA e-Tool will
require the Needs Assessor to obtain and supply this information.) If first occupied after March 13,
1991, each such building must conform to the design and construction requirements of the Fair
Housing Act (42 USC 3604(f)(3)(C), and 24 CFR 100.205). See Appendix 5, Section A.5.2.
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5.9 Substantial Rehabilitation Processing through Initial Endorsement
6. Federal Assistance. The Lender must determine whether the property is proposed to be or ever has
been Federally assisted. The CNA e-Tool requires this information. If so, the property must conform
to the Uniform Federal Accessibility Standards and the requirements of 24 CFR 8.23, 8.26, 8.31, and
8.32. See Appendix 5, Section A.5.2.
7. Lead Based Paint. The Lender should provide lead-based paint (LBP) test reports for projects
constructed prior to January 1, 1978, and asbestos report. Delivery of these due diligence items may
be deferred until Firm Application if consistent with and scheduled as part of an agreed work plan for
due diligence.
8. Environmental Review. See Chapter 9 for environmental review requirements.
5.9.3
Firm Commitment Application
A. The Lender shall submit final drawings, specifications and costs analyses and unsigned contract
agreements similar to applications for new construction except as follows:
1. Form of Drawings and Specifications Matched to Scope of Work. The Borrower’s architectural,
engineering, and cost exhibits for substantial rehabilitation must be based on due diligence studies
and examination of existing conditions. Because existing conditions vary widely, the extent and form
of drawings and specifications (plans and specs) will also vary. For substantial rehabilitation, plans
and specs should be prepared and submitted in the same manner as for new construction.
2. Lender Construction Analyst’s Review Reports. The Construction Analyst should specifically
determine whether the scope of work documented in the plans and specs adequately addresses the
existing conditions and deficiencies including life safety deficiencies and accessibility violations. All
the proposed work must be described adequately with a level of detail that describes measurable
quantities, specified quality or performance standards, precise locations of work, and is both
actionable and amenable to inspection of completed work.
3. Final Scope of Work Summary.15 The Construction Analyst must prepare a final Scope of Work
Summary that concisely and descriptively itemizes all the improvements that the Project Architect
has designed and proposed to do as prescribed in the final plans and specs.
4. Building and Unit Areas and Counts. Building and unit area and unit count breakdowns by
buildings as well as the project totals should be recorded as a schedule (table) of buildings and units
in the drawings prepared by the Project Architect in accordance with Appendix 5, Section A.5.5. These
counts and areas should also be entered in the CNA e-Tool. An approved CNA prepared in the CNA eTool creates a permanent electronic record of this information and should be inclusive of all the
proposed improvements.
5. Operation and Maintenance Plans. For projects that contain lead-based paint (LBP), asbestos, or
have ongoing risks such as radon that may require permanent installation of ventilation, detection, or
alarm devices, the Borrower or Project Architect is responsible for engaging the services of qualified
abatement contractor(s) to prepare a scope of work for the abatement or mitigation. Where the scope
of abatement work consists of permanent enclosure or encapsulation or ongoing monitoring, but not
removal, a qualified consultant or abatement contractor(s) must also prepare, separate from the
15 Previously referred to as “Detailed Work Write-Up”.
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5.10 Standard Processing for Section 223(a)(7) and 223(f)
scope of abatement work, an Operations and Maintenance (O&M) Plan. The O&M Plan must describe
ongoing maintenance procedures to be followed for as long as the hazard remains in place. All
abatement work and ongoing maintenance activities for radon, LBP, asbestos, and/or any other
hazards shall conform to the requirements described in Chapter 9. At the time the CNA is submitted
in the CNA e-Tool, any O&M plans should be attached with the submission. A condition shall be
attached to the Firm Commitment requiring that the Borrower operate and maintain the property
consistent with the referenced O&M plan(s) for the duration of the insured mortgage.
6. Davis-Bacon Wage Standards and the CNA e-Tool. For substantial rehabilitation, the future
replacement costs of the components and systems estimated in the CNA e-Tool for the purposes of
financial planning are not subject to wage decisions. On the other hand, the summation of costs in the
standard trade breakdown in General Contractors estimate (form HUD-2328) should be based on the
contractor’s use of the prevailing wage decision. The Lender’s Construction Analyst’s detailed
estimate (form HUD-92326) and comparison of estimates (form HUD-92331-B), together with the
architectural and cost portions of form HUD-92264 signed by the Construction Analyst, should also
reflect the use of the prevailing wage decision. These forms should be part of the Construction
Analyst’s cost analysis report.
7. Project Architect’s Certification. For applications proposing substantial rehabilitation, the Project
Architect’s certification (Appendix 5, Section A.5.8.1) should be submitted.
8. Construction documents, certifications, and studies. The construction documents (plans and
specs), Project Architect’s certification, due diligence, engineering, and related studies, if any, and the
Lender Construction Analyst’s cost package is submitted in the same manner as for new construction.
9. Historic Preservation. Consultation with the State Historic Preservation Officer (SHPO) is required
as part of HUD’s determination of whether the property is a historic property or is in a designated
historic district, and whether there will be adverse effects to a historic property. The SHPO
consultation must be completed no later than the submission of an application for Firm Commitment.
(See Chapter 9).
10. Environmental Review. See Chapter 9 for environmental review requirements.
5.9.4
Firm Commitment to Initial Endorsement
A. After Firm Commitment and not later than 30 days prior to the initial endorsement, the Lender must
assemble the final, printed plans, drawings, specifications, construction schedule, and contract forms.
Even if such documents were electronically submitted, they must still be printed and signed in the
requisite number of counterparts as described in Section 5.8 and confirmed as sufficient, authentic and
final documents for contract purposes.
5.10 Standard Processing for Section 223(a)(7) and
223(f)
A. The previous instructions in this Chapter apply to projects insured pursuant to Section 223(a)(7) and
223(f) for repairs and alterations, except as modified below.
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5.10.1
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Chapter 5 Architectural and Construction Analysis
5.10 Standard Processing for Section 223(a)(7) and 223(f)
Architectural Standards
A. Eligible properties are existing buildings, and the criteria for acceptance are not the same as for
proposed construction. See Appendices 5A and 5B for architectural standards for existing buildings.
5.10.2
Concept Meetings
A. Neither concept meetings nor pre-applications are needed for 223(a)(7) applications and are not
required for 223(f) applications, and the Firm Commitment applications may be submitted directly to
HUD for review.
1. A concept meeting may be advisable for 223(f) applications with Level 2 and/or Level 3 Alterations
that are significant and approach the threshold definition of substantial rehabilitation (See Section
5.1.2). In that event, the purpose of the concept meeting is to determine the scope of work, or to
establish agreed upon due diligence that will develop the scope of work.
2. A concept meeting is also advisable for Section 223(f) applications receiving new tax credits.
3. Section 223(f) applications with repairs and alterations intended to achieve a green building
certification should be presented in a concept meeting, in which event a purpose of the concept
meeting is to confirm the appropriate choice of a green building certification and achieve mutual
understanding of the requirements for certification.
5.10.3
Capital Needs Assessment
A. Except for properties receiving new tax credits, a CNA based on existing conditions is required for all
applications submitted under Sections 223(a)(7) and 223(f). The Lender must retain a qualified Needs
Assessor who must complete the assessment in accordance with Appendix 5, Section A.5.7 not earlier than
180 days prior to the application for Firm Commitment. The CNA prepared for properties receiving new
tax credits should be prepared to describe future replacement needs consistent with the procedure
described in Section 5.6.2.A.4.
B. A previously completed CNA may be accepted if:
1. It is dated not more than three years prior to the date of application for Firm Commitment;
2. The MF Regional Center/Satellite Office Director approves the use of the existing CNA for purposes of
the application;
3. The CNA contents and scope conform to the requirements of Appendices 5B and 5G and the CNA is
prepared in the CNA e-Tool; and
4. The mortgagor and Lender are required to provide a new CNA not later than 10 years after the date
of the CNA accepted with the application.
B. If the date of the CNA is more than 180 days from the submission date of an acceptable Firm
Commitment application, HUD will return the CNA to the Lender and the Lender must order an updated
CNA. The Needs Assessor must re-inspect the subject property, updating any structure and/or site
conditions observed, and submit the new CNA in the CNA e-Tool.
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Chapter 5 Architectural and Construction Analysis
5.10 Standard Processing for Section 223(a)(7) and 223(f)
Lender’s Review of Costs
A. Lender should ensure that each repair and alteration work items listed in the CNA e-Tool is identified
by Class of Work and properly cross-referenced with any plans and specs, as relevant.
B. When a General Contractor is engaged, the Lender should verify that the costs of repairs and alterations
as reported in the CNA e-Tool’s lists of Critical and Non-Critical repairs are hard costs only 16 and
consistent with any bids obtained or if applicable, General Contractor’s AIA A104.
C. Report costs (both the hard costs and soft costs) in accordance with Section 5.3.3.5 using the Lender’s
223(f) Repairs & Alterations Cost Worksheet (Cost Worksheet) when a Project Architect and/or General
Contractor is involved.
D. No totals from the Cost Worksheet should be transferred to form HUD-92264, Section G. However, the
Lender should ensure that their appraiser is provided with the Cost Worksheet and the lists of repairs and
alterations so that the appraisal may establish value based on the assumption that repairs and alterations
are completed. If the appraiser concludes that repairs and alterations have a material impact on income
(Section C), on amenities and services (Section D), or on expenses (Section E) then these impacts should
be reflected in the relevant section and explained in Remarks (Section O). The CNA e-Tool report entitled
“Property Insurance Schedule” (the automated HUD Form 92329) describes the estimated replacement
cost for all improvements assuming the improvements are reconstructed at current construction pricing.
This figure should be entered in line 72 of Section G. The appraiser’s valuation of the land should be
entered in line 73a and the total entered in line 74.
E. Similarly, on form HUD-92013, the description of the property (Section C), available utilities (Section
D), income (Section E), equipment and services (Section F,) and expense (Section I) should assume the
completion of repairs and alterations. In Section G, the sum of hard and soft costs of repairs and
alterations should be entered in line 20. If a refinance, the amount required to pay-off existing liens should
be entered in Section G, line 23 and the line item renamed “Existing Debt”. If an acquisition, the contract
price should be entered in Section G, line 46 and the line item renamed, Purchase Price. These entries
plus other costs (MIP, financing fees, due diligence fees, relocation, etc., on lines existing in Section G of
form HUD-92013) will be summed in Section J, Line 1.
F. The referenced HUD Forms (92264; 92264A; 92013) are not attachments to the CNA in the CNA eTool.
5.10.5
Certification
A. By submitting the CNA through the CNA e-Tool, the Lender certifies that it has selected a qualified
Needs Assessor with no conflicts of interest in the transaction and has reviewed the assessment for
completeness, accuracy, reasonableness, and conformance to HUD requirements. (See Appendix 5,
Section A.5.7 for certification language.)
16 Soft costs should
not be apportioned to individual repair work items. They are separately recorded. This is
because the cost of any component, either installed for the first time or replaced as other than a "One Time Repair,"
will be scheduled for replacement in the future at the end of its Estimated Useful Life. Adding soft cost to that
component perpetuates the one-time soft cost in each future replacement.
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Chapter 5 Architectural and Construction Analysis
5.10 Standard Processing for Section 223(a)(7) and 223(f)
Firm Commitment
A. Application Exhibits. Required architectural/engineering/cost related exhibits as listed in Appendix
5, Section A.5.4.3 must be submitted at the time of Firm Commitment Application.
B. Attachments to Firm Commitments. For Section 223(f) applications with no new tax credits, the
scope of work for any repairs and alterations may be described by attaching to the Firm Commitment the
printed results of the Lender’s 223(f) Repairs & Alterations Cost Worksheet along with the printed lists
of repairs and alterations from the approved CNA e-Tool. When a detailed construction schedule is
required, it too should be attached. If plans and specifications and AIA contracts exist, they should be
referenced but not attached.
C. Title Surveys and Reports. For specific survey requirements, see Appendix 5, Section A.5.1.11.
5.10.7
Time for Completion of Repairs
A. Appendix 5, Section A.5.7 requires that all repairs and alterations be identified as either critical or noncritical. Critical repairs are further identified as either Life Safety or Accessibility. The “Life Safety” repairs
address any hazards to life and health, while the “Accessibility” repairs are to correct accessibility
deficiencies. While these are not mutually exclusive, only one designation may be applied to each repair
or alteration. All other repairs and alterations are Non-Critical repairs.
B. Life Safety Critical repairs must be completed prior to Endorsement.
C. Accessibility Critical repairs must be completed prior to endorsement. When completion prior to
endorsement is not possible due to an extensive scope, the repairs must be done as soon as possible within
twelve months of closing. The time required to complete each repair must be identified as a number of
months, no greater than twelve. The months identified must reasonably demonstrate “as soon as
possible” and should be supported with reasons considering the difficulty and the scale of the work,
external factors such as the weather, labor market, and logistics, such as scheduling.
D. For any Accessibility repairs that are proposed to exceed twelve months, a corrective action plan must
be referred to HUD headquarters to the attention of the Director of Technical Support in the Office of
Multifamily Housing Production, who will determine whether the proposed corrective action plan is
acceptable.
E. Non-Critical repairs must be scheduled to begin promptly after closing and timely completed within
twelve months of the endorsement. The MF Regional Center/Satellite Office Director may approve an
extended period not to exceed six additional months for unusual circumstances (e.g., work constrained by
weather conditions or work requiring temporary relocation of elderly or disabled tenants). A program of
repairs and alterations, which, because of scale or quantity, is reasonably expected to require more than
a year to complete should be reconsidered as substantial rehabilitation.
5.10.8
Escrow Agreement for Deferred Repairs
A. The costs of the deferred repairs (including materials, labor, permits, profits, etc., trended to the start
of repairs) must be estimated and withheld in cash from mortgage proceeds and placed in escrow. In this
context, deferred repairs include all immediate repairs identified in the CNA that are proposed for
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5.10 Standard Processing for Section 223(a)(7) and 223(f)
completion after endorsement, including both Non-Critical repairs and any accessibility remedies that
cannot be completed prior to endorsement. A letter of credit may not be substituted for this escrow.
B. An additional cash amount (or letter of credit, at the option of the Lender) of not less than 20 percent
of the repair cost estimate will also be placed in escrow as an assurance of completion of deferred repairs,
provided however, that;
1. For Section 223(a)(7) transactions and Section 223(f) for affordable properties, the additional
amount shall be 10% of the repair cost; and,
2. For Section 223(f) applications, the additional deposit may be reduced to 10% of the cost for any
repairs and alterations where:
a design professional has prepared construction drawings, and the Borrower has engaged a nonidentity of interest General Contractor to execute the work; and
the contract provides for the withholding of retainage in the amount of 10% of the value of work
completed.
C. The Lender may release funds from the mortgage proceeds portion of the escrow in proportion to the
cost of work completed consistent with HUD’s instructions for disbursements from repair escrows. See
Chapter 12, Section 12.17.
D. Funds remaining in the escrow may be released to the Borrower when:
1. All repairs have been satisfactorily completed as determined by HUD or Lender when delegated to an
approved Lender;
2. Evidence of clear title has been provided to HUD; and,
3. In cases where the cost of repairs and alterations included in the Repairs Escrow exceeds $400,000,
the Borrower (or the General Contractor in cases where a construction contract was executed) has
provided latent defects assurance in the form of an escrow in cash or letter of credit or surety bond
(at the option of the Lender) equal to 2½% (or a greater percentage, as warranted) of the repair cost,
to be maintained for fifteen months from completion of repairs. See paragraphs 8 and 9 of form HUD92476.1M for further details.
E. Except in the case of existing insured projects, where the current balance in the RfR)escrow may exceed
the initial deposit otherwise required to provide a balanced financial plan for future capital replacement
needs, funds deposited in the RfR escrow account at or after endorsement shall not be used for the
completion of any immediate repairs and alterations.
F. See form HUD-92476.1M, Escrow Agreement for Deferred Repairs, as well as Chapter 8, Section
8.11.1.A.2.c and Chapter 12, Section 12.17.1 for greater detail on repair escrows.
G. If proposed repairs or alterations require occupancy or cash flow disruption, the Lender should
estimate such losses by month and add the aggregate total to an operating deficit escrow, not the repair
escrow.
H. In cases where completion of repairs is deferred and the mortgage amount exceeds the costs of
refinancing and all required costs, including repairs (“cash-out transactions”), the Lender shall withhold
50% of the excess proceeds until all repairs and alterations are completed in a manner acceptable to the
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5.11 Processing Section 241(a) Supplemental Loans
Lender and HUD. The withheld funds will be added to the repair escrow. (See Chapter 8 for more detailed
description of the calculation of surplus cash withheld and escrow release instructions).
5.10.9
Completion of Repairs and Alterations
A. If the Borrower has not completed the required scope of work consistently with the repair schedule
set in the Escrow Agreement (as adjusted for any HUD-approved extensions), the Lender shall complete
the work using the remaining escrowed funds including assurance of completion amounts. The Lender
will provide HUD a new repair schedule. In addition, the Lender will provide the Borrower with a
breakdown of these repairs and the cost(s) of completion (including administrative expenses). Funds
remaining in the escrow account after completion of the repair work will be returned to the Borrower,
less reasonable administrative costs incurred in completing the repairs.
B. In cases where all or a portion of the costs of repairs and alterations support the size of the loan amount
and actual costs are less than estimated, the maximum insurable loan amount must be recalculated and
this recalculated figure compared to the endorsed loan amount. When the recalculated maximum
insurable loan amount is less than the endorsed amount, the Borrower must use the excess proceeds for
one or more of the following purposes:
1. Additional repairs approved by HUD and the Lender; and/or
2. Prepayment of the mortgage in amounts equal to the scheduled monthly principal payments, with any
remainder going to the RfR.
5.11 Processing Section 241(a) Supplemental Loans
5.11.1
Supplemental Loan for New Construction
A. Section 5.3.2 requirements and instructions apply to Section 241(a) applications involving new
construction, except as modified below:
1. A CNA of the existing improvements at the property is required to identify deficiencies and repair
needs as may exist in the existing improvements for which repairs and alterations must be included
in the proposed scope of work. However, a single CNA e-Tool for the entire property must produce
one RfR schedule of all the components, inclusive of future replacements at the existing improvements
as well as for any proposed new structures and additions.
B. Processing requirements for new construction as described in Section 5.7 and Section 5.8 apply.
5.11.2
Supplemental Loan for Existing Structures
A. Section 241(a) applications involving substantial rehabilitation as defined in Section 5.1.2 are required
to meet the following:
1. For the buildings and other structures undergoing substantial rehabilitation at the property, the
requirements in Section 5.3.2 apply regarding required professional services, documentation, and
oversight.
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5.12 Cost Estimating for Lenders
2. Processing requirements for substantial rehabilitation as described in Section 5.7, Section 5.8, and
Section 5.9 apply.
3. When certain existing buildings and improvements are not included in the substantial rehabilitation
scope of work, a CNA for those existing structures is required. Any identified deficiencies and
immediate repair needs must be included in the plans and specs produced by the Project Architect for
the substantial rehabilitation work.
4. The structures to be built or substantially rehabilitated are included in the CNA based only on future
needs planning, derived from plans and specs.
5. The Section 241(a) loan combined with the original first mortgage shall be considered one project
and the CNA must produce one Reserve for Replacement (RfR) schedule and budget inclusive of the
existing improvements, as well as the proposed improvements.
B. Section 241(a) applications involving repairs and alterations require the following:
1. Section 241(a) applications with a scope of work less than substantial rehabilitation must follow the
requirements described in Section 5.3.3 and the following:
The CNA should identify and categorize repair needs in the same manner as Section 223(f)
applications.
The identified repairs must be remedied in the proposed scope of work in the Section 241(a)
application and the cost of such repairs may be included in the Section 241(a) loan amount.
The Section 241(a) loan combined with the original first mortgage shall be considered one project
and the CNA must produce one RfR schedule and budget inclusive of the existing improvements
as well as the proposed improvements.
Processing requirements for Section 223(f) as described in Section 5.10 apply.
5.12 Cost Estimating for Lenders
A. Evaluating the estimates of construction cost prepared by the Borrower, Project Architect, General
Contractor, Needs Assessor, and/or Construction Analyst is a critical element of the Lender’s
underwriting task. It is the Lender’s responsibility to ensure that the Borrower and third-party
professionals have developed and described costs in accordance with Chapter 5. For new construction
and substantial rehabilitation projects under Sections 220, 221(d)(4), and 241(a) supplemental loans,
replacement cost is one of the criteria used to determine the insured mortgage amount. In value-based
programs, Section 231 and Section 223(f), replacement cost is a significant consideration in valuation,
(except for properties 10 or more years old). Cost estimating consists of estimates of the construction
costs for proposed improvements and/or repair and alteration costs for existing improvements.
5.12.1
Estimation Method
A. For new construction and substantial rehabilitation, the cost estimating method should be similar to
that used by General Contractors. For new construction and substantial rehabilitation, data should be
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5.12 Cost Estimating for Lenders
organized by trade division using the Construction Specification Institute (CSI) Format,17 then adjusted to
reflect cost differences due to time, location, and price fluctuations. The cost estimate may be prepared
using a quantity takeoff or a square-foot and per-unit cost approach using established data and making
adjustments. The Lender’s Construction Analyst must develop form HUD-92326 cost estimates
independently and compare with the General Contractor’s HUD -2328 costs using the HUD -92331-B.
B. For repairs and alterations less than substantial rehabilitation, Needs Assessors and Lender
Construction Analysts should develop and document costs in the CNA e-Tool, estimating costs for each
repair item and component replaced or added new.
C. Replacement cost and insurable values for each building are calculated for casualty insurance purposes.
Insurable values by building must be estimated assuming the task of reconstructing the building if it is
destroyed, i.e. for the cost of replacing the building as if new (not restoring the structure as it was
originally built using obsolete methods and materials). Accordingly, for all existing structures,
replacement cost as if new (notwithstanding its condition) should be estimated for each building on a “per
square foot” basis. This figure should be entered in the CNA e-Tool on the Buildings screen. For new
construction, estimated costs are “as if new” and so total estimated costs of buildings, (not site
improvements) including soft costs and fees should be converted to a “per square foot” figure for each
building and entered in the CNA on the Buildings screen. (See Appendix 5, Section A.5.7.5).
D. The data source(s) used to prepare cost estimates must be documented. Acceptable cost data may
come from completed comparable projects, benchmark amounts taken from actual project costs, and
published data from construction cost data publishers. The CNA e-Tool requires that replacement cost
estimates briefly describe data sources/methods.
E. The Lender’s Construction Analyst should use detailed plans and specifications supplied by the Project
Architect as a basis for the cost estimate. Estimates must reflect the general level of construction costs in
the locality where construction takes place. Costs must be projected to the midpoint of the estimated
construction period. Davis-Bacon labor wage rates must be used for new construction and substantial
rehabilitation. It is the Lender’s responsibility to obtain current Davis-Bacon wage rates from HUD and
to ensure that the project design team and General Contractor are provided with the relevant and most
recent, applicable wage decisions. For new construction and substantial rehabilitation, the cost estimate
is tabulated on form HUD-92326, and totals are reported in Sections G, M, and O of form HUD-92264.
5.12.2
Cost Categories
A. The cost estimate consists of the following items:
1. Structures and Land Improvements include:
Costs of all residential buildings, including footings and foundations.
Garages, including all covered parking, from individual carports to complete parking structures.
For new construction and substantial rehabilitation, include free-standing garage structures with
other accessory buildings on the Accessory Structures line on form HUD-92326. Garages are
reported separately in Line G.39 on form HUD-92264, except when the garage space is an integral
portion of a larger structure; in which case individual trade costs should be reported for the entire
17 HUD forms reflect the
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5.12 Cost Estimating for Lenders
structure and not separately for the parking element. Similarly, costs should not be separated
when accessory uses or commercial space is included as part of a larger dwelling structure.
Surface parking, including carports, which are treated as site improvements in the CNA e-Tool. In
a building designed exclusively for parking (or if parking is a use of space in a larger building with
other uses), all enclosed (garage) parking is treated as a common space even if spaces can be or
are assigned to particular tenants or units. In some building configurations (e.g., attached
townhouses) garages may be part of a dwelling unit and available only to a resident of that unit.
Such garages are called “in unit” garages and the square foot area of such “in unit” garages is
included in the area of the unit. “In unit” garages are not common space. Replacement cost is
estimated for each building including all the uses of space in the building.
Onsite land improvements that make up the following trade line items on form HUD-92326:
Earthwork, Site Utilities, Roads and Walks, Site Improvements, Lawns and Planting, and Unusual
Site Conditions. In the CNA e-Tool onsite land improvements are identified as the need category
“site systems.”
In new construction and sometimes in substantial rehabilitation, unusual land improvements
required to address conditions not typical to most construction in the locality (e.g., excessive
excavation, rock excavation, cuts and fills, special foundations, high water table, problem soils,
environmental remediation work or installations). These items are taken from the Unusual Site
Conditions trade line item on form HUD-92326 and are reported separately in Line G.36a of form
HUD-92264. They must be itemized separately because of their possible impact on site value. The
Lender’s Construction Analyst should consult with the Lender’s Underwriter and appraiser to
define and quantify the need for unusual land or site improvements.
Short extensions or connections of roads, walks, and utilities from project site boundaries to
adjacent offsite public improvements are considered onsite land improvements.
B. Supplemental Cost Estimates include:
1. Demolition. Demolition, which is defined as onsite work to remove the existing structure, footings,
foundations, and utilities to prepare a site for new construction.
Include the removal and disposal of debris and fill and compaction of excavations. Include
General Contractors' and subcontractor’s overhead and profit in the estimate.
Report on form HUD-92326, under “demolition,” and form HUD-92264, Section O. Appraiser will
report Demolition costs in Section J of form HUD-92264.
Demolition should not be included in the construction contract.
“Demolition” in this context does not include interior demolition within existing structures
undergoing substantial rehabilitation.
2. Offsite. Offsite work is work not adjacent to project boundaries including utilities, walks, curbs,
gutters, streets, drainage structures, landscaping, etc., that extend away from the project site. These
improvements are not included in the construction contract. Report on form HUD-92326 and Section
M of form HUD-92264.
3. Cost Not Attributable. Cost Not Attributable to dwelling use is the construction cost estimate of
certain project amenities not directly used for residential dwelling and is calculated only for
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5.12 Cost Estimating for Lenders
properties where Criterion 4 is the determining criterion. This cost is calculated by the cost analyst
and used by the appraiser to increase the maximum mortgage amount under Criterion 4 of form HUD92264-A (Statutory maximum insurable mortgage amount per dwelling unit). Criterion 4 is typically
not material in determining the maximum insurable mortgage, and the calculation is material only
when project costs are likely to exceed the statutory limit and when a portion of those costs are not
attributable to dwelling units.
Cost Not Attributable must be included within the estimate of total structures and land
improvements, and the costs must be itemized and reported separately on form HUD-92326 and
Section M of form HUD-92264. The reason to estimate cost-not-attributable is to isolate
construction costs for (A) all improvements and for (B) selected improvements not related to or
necessary for the dwellings (non-residential use). In each case, the total is without general
requirements and fees.
The percentage of (B) divided by (A) is the percentage of costs not attributable. Such a percentage
should be calculated for both residential buildings/spaces and commercial buildings/spaces in
the project, and neither number may exceed a fixed maximum of 15%. The two are added
together to obtain the project percentage of cost-not-attributable.
This figure is used to allocate a proportionate share of all other mortgageable costs (fees,
construction period interest and finance charges, etc.) between dwelling use and costs not
attributable to dwelling use. The total of all Costs Not Attributable times the maximum percentage
loan-to-cost ratio is added to the maximum statutory limit calculated for the number of units by
type. The sum is the maximum mortgage amount per Criteria 4. (See Appendix 5, Section A.5.10).
Cost Not Attributable to dwelling use for Section 223(f) Statutory Limit Constrained deals may be
used to adjust the statutory limits (Criteria 4 of the form HUD-92264A) for all Section 223(f)
insured loans applications. See Appendix 5, Section A.5.11 for calculating Cost Not Attributable
for Section 223(f)s.
5.12.3
Allowances and Fees
A. Allowances and fees are reported on forms HUD-92326 and HUD-92264 as lump-sum dollar amounts
but should be supported with itemized cost schedules attached to these forms. Allowances and fees
include:
1. General Requirements (Job Overhead). Covers project-specific overhead and construction staging
expenses. Include:
Supervision and jobsite engineering;
Onsite job office expenses directly related to the project including clerical wages;
Temporary buildings, tool sheds, shops, and toilets,
Temporary heat, water, light and power for construction;
Temporary walkways, fences, roads, siding and docking facilities, sidewalk and street rental;
Construction equipment rental not included in trade item costs;
Cleanup and disposal of construction debris not included in trade or sub-contract costs;
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5.12 Cost Estimating for Lenders
Medical and first aid supplies and temporary facilities;
Security guard wages and related costs;
Theft and vandalism insurance. (does not include Builders Risk Insurance);
Builders Risk Insurance. Builders Risk Insurance is separate from any theft and vandalism
insurance policy provided by the General Contractor. While Builders Risk Insurance may be
placed by either the General Contractor or the Borrower, it is common industry practice for the
contractor to place the policy, with the contractor named as Insured, and the Borrower named as
“Other Insured.” Regardless of which party is responsible for payment, the Borrower must always
be named as an Insured party, as per Builder’s Risk Insurance requirements in form HUD-92447,
Property Insurance Requirements.
When the contractor pays for the policy, the premium may be included in the General
Requirements or the contractor’s Other Fees. When the Borrower pays for the policy, the
insurance premium is included under Insurance online G-55, Insurance, of Form HUD92264.
Salaries for site visits by owners, partners, or officers of the general contracting firm are included
in General Overhead, except for payment for work done on the job by these individuals in a trade
capacity, as laborers or supervisors.
2. General Overhead. Covers contractor’s home office or principal office and general business
expenses. The amount is fixed at up to two percent of the sum of Total Land Improvements, Total
Structures, and General Requirements.
3. Builder’s Profit or Fee. Builder’s Profit or Fee is calculated as a percentage of the sum of Total Land
Improvements, Total Structures, and General Requirements. The percentage amount is determined
by the nature and location of the project and market conditions and should be compared to the
amount of the fee negotiated between the Borrower and contractor for reasonableness. When the
General Contractor is an independent third party (no identity of interest with the Borrower or
Sponsor), the Builder’s Profit or Fee is an actual cost that must be paid to the General Contractor. This
applies to all non-identity of interest General Contractors participating in any of HUD’s mortgage
insurance programs. When the General Contractor has an identity of interest with the Borrower, see
paragraphs “d” and “e” below.
4. Development fees in Value Based Programs - Sections 231 Substantial Rehabilitation and
223(f). Except for certain affordable housing transactions, development fees payable to affiliates of
the Borrower (i.e., identity of interest participants) are not mortgageable costs and should not be
included in the cost estimate. A reasonable and customary general contractor fees and costs payable
to unaffiliated third parties are eligible. (See Appendix 3, Section A.3.2 for treatment of fees in certain
affordable housing transactions.).
5. Architect’s Fees. The source of this cost is the Owner-Architect Agreement, (see Section 5.3.4). If
there are multiple prime agreements (e.g., separate Design Architect and Supervisory Architect), total
all fees in line G 45 of form HUD-92264 and itemize in Section O, Remarks. The Lender’s Construction
Analyst should copy the fee amounts, unaltered, to the cost estimate. The Construction Analyst should
document Architect’s fees and compare with existing fee data to determine reasonableness. The
Construction Analyst should inform the Lender’s Underwriter if fees are significantly different from
the data range, but the fees should not be altered on the cost estimate without a prior meeting
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5.12 Cost Estimating for Lenders
between the Lender, Lender’s Construction Analyst, Borrower, and Project Architect. For new
construction and substantial rehabilitation applications, fees should be documented as a percentage
of the sum of Total Land Improvements, Total Structures, General Requirements, General Overhead,
and Builder’s Profit. The Architect’s Fee usually consists of a design fee to cover the cost of the
preparation of all construction documents (working drawings and specifications) up to the start of
construction; it typically represents 75 to 80 percent of the total fee. The Architectural Supervision
fee covers the cost of the Project Architect’s construction inspections, reports, and preparation of
change order requests; it typically represents 20 to 25% of the total fee.
6. Bond Premium. This covers the cost of Payment/Performance Bonds used to ensure completion of
construction in event of a default by the General Contractor. The bonding or surety company
determines the premium or cost based on its perception of risk in light of the contractor’s financial
capacity and performance history and the nature of the work. The Letter of Credit Fee can be
mortgaged if the Developer is using a letter of credit for assurance of completion instead of bond.
7. Other Fees. Costs of various required items and services can vary greatly among jurisdictions and
localities. Other Fees can be paid either by the Borrower or the General Contractor. The Borrower
should submit an itemized list of all project-related Other Fees as an aid to the Construction Analyst.
Other Fees paid by the General Contractor should be entered in form HUD-2328. Owner’s Other Fees
entered into form HUD-92264, Section G include the General Contractor’s Other Fees amounts. Other
Fees include:
Site and topographic surveys;
Subsurface exploration (test borings);
Soil tests, concrete tests, and other construction testing;
Fees for utility taps and connections;
Impact fees for public infrastructure;
Building permits and licenses;
General Contractor’s cost certification audit fee (if required). NOTE: The Borrower’s cost
certification audit fee is not to be included in Other Fees since it is recorded separately in Line G.
66 of form HUD-92264; and
Builders Risk Insurance, which may be included with general Requirements or Contractor’s other
fees (only if paid for by General Contractor).
8. Furniture, Fixtures, and Equipment (FF&E). This category includes substantial indoor and outdoor
furniture and equipment (e.g., trash dumpsters, pool or recreational equipment, permanent lobby or
reception area furnishings, golf carts). It may not include titled vehicles, minor items of relatively
insignificant cost such as furniture accessories, rental unit furnishings, hand tools and hand power
tools, or expendable items. An itemized schedule of FF&E with cost for each item will be submitted
with the cost documents and reviewed by the Lender’s Construction Analyst for acceptability. Costs
may include only delivery and placement of the item. The dollar amount of FF&E will be reported in
line G.60 of form HUD-92264; “AMPO percent (nonprofit only)” will be lined out and substituted with
“FF&E”.
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Chapter 5 Architectural and Construction Analysis
5.12 Cost Estimating for Lenders
Builder’s and Sponsor’s Profit and Risk Allowance
(BSPRA)
A. BSPRA is a presumed profit for development and construction of a multifamily project. It is unique to
applications for new construction or substantial rehabilitation under HUD’s “cost-based” programs
(Sections 220 and 221(d)(4)) when an identity of interest exists between the Borrower and the General
Contractor.
B. BSPRA is always 10% of replacement cost, not including land but is itself not an actual cost or fee to be
paid to the identity of interest General Contractor and/or development entity (Sponsor). It is used to
calculate the mortgage amount in Criterion 3 on the form HUD-92264-A.
C. Its effect is to allow the identity of interest Borrower/Developer/contractor to contribute its presumed
builder/Developer profit (BSPRA) as equity whenever the mortgage amount is limited by Criterion 3. In
a balanced summation of sources (loan proceeds, equity, etc.) and uses (costs of land, development,
construction, capitalized interest, etc.) this imputed profit or BSPRA is added both to uses and sources.
1. When Criterion 3 prevails, the mortgage amount will be a fixed percentage of costs.
2. The “B” in BSPRA refers to the presumed fee of the builder or General Contractor.
3. The “S” refers to development cost of the Sponsor/Borrower outside the general contract and is called
SPRA. The appraiser calculates the BSPRA amount and enters it in line G 68 of form HUD-92264.
D. Use of BSPRA is not mandatory. A Borrower may pay an affiliated General Contractor an actual
builder’s fee or profit provided that:
1. The amounts of the fee are reasonable and customary;
2. The form of the construction contract is cost plus fixed fee; the mortgagor and General Contractor cost
certify; and,
3. The amount of the fee is funded in the construction escrow established at initial endorsement. When
BSPRA is used, the Lender should:
Calculate an equivalent builder’s profit (the “B” portion of BSPRA) and an equivalent subtotal; and
On the Builder’s Profit line of form HUD-92326 and in Line G 44 of form HUD-92264, enter the
word “BSPRA”. The equivalent builder’s profit calculated above is not included in the Total for All
Improvements (bottom of form HUD-92326 and Line G.50 of form HUD-92264).
5.12.5
Construction Time
A. For substantial rehabilitation and new construction, report the construction time in months in Line
G.52 of form HUD-92264.
B. This figure will be used to estimate the amount of capitalized interest and carrying costs during the
construction period.
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5.13 CNAs are Required for All Applications
5.13 CNAs are Required for All Applications
A. For new construction and substantial rehabilitation, the Lender’s Construction Analyst may prepare
the CNA based on the Project Architect’s proposed plans and specifications assuming construction
completion (that is, the CNA will estimate only future repairs and replacements and not immediate
construction). In other applications, the CNA is prepared by the Needs Assessor based on existing
conditions. In either instance, it is the Lender’s responsibility to ensure that the estimated remaining
useful life of components and the costs of future replacements and any immediate repairs are estimated
consistent with Chapter 5 and its appendices. The Lender’s Underwriter will develop a financial plan for
funding future capital needs by using the “Financial Factors” screen (see Appendix 5, Section A.5.7). Based
on the financial factors, the CNA e-Tool will generate a schedule of annual deposits to the RfR escrow. In
accordance with Appendix 5, Section A.5.7, the Lender must adjust the financial factors so as to plan
funding sufficient to pay estimated future capital needs. The Borrower’s schedule of deposits to the RFR
will be based on actual expected capital needs, not on a percentage of construction cost or mortgage
amount.
B. Whether prepared based on conditions at an existing property or for a property to be built, the CNA eTool will generate an estimated replacement cost for each structure, which should be used as the Schedule
of Insurable Values, (HUD Form 92329). In the case of CNAs based on construction to be completed, the
Lender’s Construction Analyst should ensure that the replacement cost per square foot entered on the
“Buildings ” screen of the CNA e-Tool is consistent with cost estimates for each identified building.
5.14 Firm Commitment Cost Package
5.14.1
Detailed Cost Estimate
A. As part of the Firm Commitment application, the Lender’s Construction Analyst will prepare a detailed
cost estimate and all required reports and recommendations as described below. For streamlined
processing, these same documents will be prepared in draft consistent with the draft drawings and
specifications. However, these documents must be corrected as needed and submitted in final form based
on the final drawings and specifications no later than 30 days prior to initial endorsement.
B. Required Forms:
1. Form HUD-92326. Used for preparation of detailed construction cost estimate for new construction
and substantial rehabilitation projects.
2. Form HUD-92331-B. Used to make a detailed comparison of trade line items between Estimators’
cost estimate (form HUD-92326) and Contractor’s trade payment breakdown (form HUD-2328) for
new construction and substantial rehabilitation projects.
3. Form HUD-92329. Property Insurance Schedule, prepared in the CNA e-Tool, used to determine the
Insurable Value for each project structure and the aggregate sum for all structures for all applications.
Form HUD-92447, Property Insurance Requirements, will be prepared by HUD and provided to the
Lender at closing.
4. Form HUD-92264. Project Income Analysis and Appraisal.
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5.14 Firm Commitment Cost Package
Section G. Estimated Replacement Cost, Line 36a through 52 is used to summarize Total
Structures, Land Improvements, General Requirements, and Fees from form HUD-92326, and also
records estimated construction time. This section is primarily used for substantial rehabilitation
and new construction.
Section M. This is used to summarize Cost Not Attributable to Dwelling Use (lines 10 through
15), and Offsite Requirements (lines 16 and 17).
Section O. The ”Remarks” Is used to explain Unusual Land Improvements, Other Fees, itemization
of professional fees (e.g., engineers), the overall difference between Lender's and Borrower's cost
estimates, and other cost items.
C. For new construction and substantial rehabilitation proposals, prepare detailed cost estimate on form
HUD-92326 using instructions in Section 5.11; sign form on the “Estimate Prepared by” line and certify.
Refer to standard certification in Chapter 11, Section 11.2.
D. Resolve differences in Lender’s and contractor’s construction cost estimates. Before the Firm
Commitment application can be submitted for HUD review, the construction cost estimates prepared by
the General Contractor and the Lender’s Construction Analyst must be reconciled. The Lender’s
Construction Analyst is responsible for resolving major differences between the two estimates. When the
two estimates are generally consistent, the Lender may use the contractor's cost figures as shown on form
HUD-2328 as its cost estimate. The Lender’s Construction Analyst will use the following review procedure
for new construction and substantial rehabilitation applications:
1. Prepare trade line-item comparison of Lender’s and contractor’s cost estimates using form HUD92331-B.
Enter costs from forms HUD-92326 andHUD-2328. For multiple-structure type projects, a
separate form HUD -2328 must be submitted for each structure type, and a master form HUD2328 for the entire project.
Calculate and list line item percentage differences.
2. Review trade line item differences and note all variations beyond normal ranges. The range of trade
line item differences varies from trade to trade. Major trades (e.g., engineers, carpentry) should have
a smaller range difference than minor trades (e.g., sheet metal). The Construction Analyst should
judge the variations based on established data.
3. The Construction Analyst should be alert for a pattern of front-end loading in trade items, where the
contractor inflates costs for trade items needed early in the job schedule in order to secure more
mortgage proceeds early. Such a pattern may indicate inadequate working capital or risky business
practices by the contractor. Advances of funds from loan proceeds should always accurately reflect
the cost of work completed, and payment should follow, never precede, the completion of work or
portions thereof for which payment is requested.
4. Meet with the contractor to discuss and resolve all questionable trade line item differences. The
resolution process may result in either the estimator or the contractor, or both, recalculating costs of
various trade line items based on discussions.
If differences are resolved, accept costs in form HUD-2328 and use as Lender’s Cost Estimate in
form HUD-92264.
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When dealing with suspected front-end loading, require rigorous documentation of early trade
items that are higher than normal.
If differences cannot be resolved, do not accept costs in form HUD-2328.
Use the Construction Analyst’s cost estimate as to the Lender’s cost estimate.
Inform the Lender’s Underwriter that the contractor’s form HUD-2328 is unacceptable.
Advise the Lender’s Underwriter to meet with the Borrower and the contractor for further
attempts at resolution.
E. Prepare cost portions of form HUD-92264, using instructions in Section 5.12. Sign the form in the “Cost
Processor” box and certify (see standard certification in Chapter 11, Section 11.2).
F. Complete the property insurance schedule, form HUD-92329, based on CNA e-Tool replacement cost
per building. Common equipment that serves the entire property or portions thereof (e.g., a boiler and
cooling tower assembly) should be included with the cost of the building where it is located and not
prorated among the buildings served by the equipment.
G. Prior approval of identity-of-interest subcontractors’ proposed costs including overhead and profit is
required.
1. Identity of interest is a relationship that exists giving the Borrower or General Contractor apparent
control or influence over a subcontractor, equipment lessor, material supplier, or manufacturer of
industrialized housing. (See General Contractor’s cost certification instructions in Chapter 13, Cost
Certification, for definition of relationships).
2. When subcontractors, material suppliers, or equipment lessors have an identity of interest with a
Borrower or General Contractor, the Lender must approve the subcontract amounts, including
specific amounts for subcontractor general overhead and profit.
3. Approval is required before work begins under the subcontract. Failure to secure prior approval will
result in the disallowance of the total general overhead and profit of the subcontractor at cost
certification.
4. Request for approval (with the subcontracts, agreements, or leases) is submitted to the Lender’s
Construction Analyst, whose recommendations must include:
Acceptability of the documents.
Reasonableness of guaranteed maximum prices for the subcontract work.
Appropriateness of general overhead and profit dollar amounts.
5. Mandatory conditions for approval include the following:
Subcontracts. There are general requirements for the use of subcontracts.
1) There must be a separate subcontract for each trade.
2) They must clearly identify the scope of work.
3) They must be on a cost-plus fixed fee basis, which includes:
a) Guaranteed maximum dollar amount for work.
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5.14 Firm Commitment Cost Package
b) Specific dollar amount for general overhead and profit.
4) Disapprove “paper conduit” arrangements where work is to be done by General Contractor
personnel or other subcontractors, suppliers or lessors.
Subcontract prices. For this criterion, recent reliable data is a better test than whether higher
bids were submitted.
1) The total price must not exceed the amount shown for the trade item on the accepted form
HUD-2328.
2) Total price must not exceed reasonable prices taken from available data.
3) The Lender’s cost analyst must resolve disagreements in trade prices with the subcontractor.
Overhead and Profit. The amounts for general overhead and profit shall be no higher than the
typical prices for the specific trade.
Subcontractor entity. The burden of proof of 1, 2, and 3 below is on the subcontractor.
1) The firm must operate and have documented the experience as a subcontractor for the
specific field covered in the subcontract.
2) The firm must control labor, materials, and equipment typical for the trade.
3) The firm must do significant business in its specific field with Borrowers and General
Contractors having no identity of interest.
6. If a total of all identity of interest subcontracts, purchases and leases are less than ½ of 1 percent of
the mortgage amount, the requirements for each identity of interest subcontractor to cost certify may
be waived by the MF Regional Center/Satellite office Director upon notification by the Lender.
7. The Lender’s Cost Analyst must prepare a letter of approval or disapproval to the Borrower or General
Contractor. The letter must address all mandatory conditions.
Approval will indicate any conditions, including whether or not subcontractor must cost certify.
Disapproval will state the reason for disapproval and indicate any cost certification requirements.
5.14.2
Substantial Rehabilitation Costs
A. The detailed cost estimate should include and evaluate the following:
1. Interior demolition and removal of floors, walls, roofs, doors and windows, finishes, cabinets,
appliances, plumbing, HVAC, and electrical, including boilers and central air conditioning. Also
includes abatement of asbestos and lead-based paint. Enter the amount in Special Construction trade
line in form HUD-92326. If individual trades include removal (e.g., remove and replace cabinets),
removal costs may be included in the trade line item.
2. Site preparation demolition is not part of the Construction Contract and should be estimated and
recorded in the same way as for new construction.
3. Allowances and Fees for substantial rehabilitation, especially General Requirements and Architect’s
Fees, are calculated the same way as for new construction, but they should reflect the risk and
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responsibility inherent in rehabilitation and consider the location of the project. It is recommended
that the Construction Analyst keep separate data for this item.
4. Rehabilitation time is determined the same way as construction time for new construction, but the
data used must take into account the time required for interior demolition, as repair and
rehabilitation cannot begin until such demolition is complete.
5. Rehabilitation Cost Not Attributable to dwelling use includes an “as-is” value for non-attributable
items in addition to a value for actual work performed. Calculate by using the format in Appendix 5,
Section A.5.10.2. The Construction Analyst completes steps 1, 2, and 3; steps 4 through 8 are
completed by the appraiser.
6. The contingency reserve amount is based on available data for the type and condition of structure.
Calculate as percentage of the sum of structures, land improvements, and general requirements.
Percentage ranges from 10 to 15%, depending on the condition of the project, extent of rehabilitation,
and experience and financial capacity of the Borrower and contractor. Enter amount in line G.71 and
in Section O of form HUD-92264. Subject to Lender and HUD approval, the Borrower may elect to
apply any funds remaining in the substantial rehabilitation construction contingency account after
completion of the approved rehabilitation, to:
further improvements, betterments or upgrades to the property, provided however, that these
additional improvements will not be considered as the basis for a request for an increased
mortgage amount;
an initial deposit to the RfR account; or
reducing the mortgage balance.
5.14.3
Refinance/Acquisition Costs
A. For Section 223(f) acquisition/refinance loans or Section 223(a)(7) refinance applications the Lender
must determine that:
1. The CNA describes, quantifies and estimates immediate repairs and future needs consistent with
Chapter 5 and Appendix 5, Section A.5.7 and that replacement costs data sources are identified;
2. The assessed remaining useful lives of components and estimated useful lives for alternatives are
justified whenever the entered values depart from the Standard Estimated Useful Life Table; and
3. The warning flags obtained from validation of the needs assessment in the CNA e-Tool are either
removed by amending the needs assessment or explained in a flag comment.
B. The cost portions of form HUD-92264 should be completed based on the replacement cost of buildings
as reported in the CNA e-Tool.
1. The Lender must review the Needs Assessor’s “Repair, Replace Add New Recommendations” and
determine that life safety and accessibility repairs have been identified with a “yes” in the appropriate
indicator and that the recommended timing, cost, and other action are appropriate and consistent
with observed conditions.
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Chapter 5 Architectural and Construction Analysis
5.15 HUD Procedures
2. The Lenders should review any immediate repairs for Section 223(a)(7) applications to ensure that
repairs are limited and do not exceed routine maintenance, except for needed remedies for
accessibility deficiencies.
5.15 HUD Procedures
5.15.1
HUD Underwriting Assignment
A. All applications will be assigned to a Senior Underwriter or underwriting team by the Production Chief.
The underwriting team will complete an early warning system (EWS) review of each application and
identify which applications can be assigned to and reviewed by a single Underwriter and which may
require the assistance of the Technical Branch Chief and/or a HUD Construction Analyst (Architect, cost
analyst).
1. In general, all new construction and substantial rehabilitation applications should be reviewed by a
HUD Construction Analyst.
2. In addition, refinance and acquisition applications with combinations of repairs and alterations
exceeding $15,000 per unit in cost and/or including Level 2 and Level 3 alterations should be
reviewed by a HUD Construction Analyst.
3. Applications for Section 223(f) for properties less than 10 years old and for Section 223(a)(7) should
not require the assistance of a Construction Analyst unless the CNA contains a corrective action plan
for accessibility deficiencies, or the HUD Underwriter observes that such a plan is required but not
submitted.
4. Section 223(f) applications for properties older than 10 years with repairs and Level 1 Alterations
will require the Underwriter to determine whether any issues are observed that might require a
technical review.
B. When engaged to complete a technical review or consider a particular Lender exhibit, the HUD
Construction Analyst should not redo or correct the Lender’s work. Instead, the review should be
summarized in writing for the HUD Underwriter.
1. Review the Lender deliverables for completeness.
2. Examine the review report and the A/E and cost exhibits and recommend either acceptance,
acceptance assuming specified modifications or rejection of the A/E and cost portion of the Firm
Commitment submission; report to the Underwriter on the form(s) at Appendix 5, Section A.5.6 and
following as appropriate for the application stage and program.
C. Any application for an existing property proposing repairs and alterations in any combination that
results in uncertainty about program eligibility (refinance/acquisition vs. substantial rehabilitation)
should be reviewed by the HUD Construction Analyst, who shall review the immediate repairs identified
in the CNA e-Tool.
D. The costs of all repairs should be totaled and compared to the cost per unit threshold (Section 5.1.4)
adjusted for the applicable Hight Cost Percentage. If the total cost of immediate repairs exceeds the
threshold, the application must be for substantial rehabilitation.
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Chapter 5 Architectural and Construction Analysis
5.15 HUD Procedures
CNA e-Tool and HUD Underwriting
A. The review functions of the CNA e-Tool are available only to authorized HUD staff. Use of the CNA eTool should be consistent with the single Underwriter approach and requires that completed work be
presented to senior managers before a CNA is approved as part of an underwriting decision on an
application for mortgage insurance. Each user will be assigned at least one of three possible roles:
1. Assigner. Assigners generally will include the Production Chief, and Branch Chiefs and may include
Senior Underwriters. Assigners should have dual roles, i.e., Assigners typically will also have a
reviewer role. Assigners receive compiled reports on all CNAs submitted to HUD including
information on the program for which application is made or the purpose of the CNA, the name and
location of the subject property and the status of the CNA (submitted, under review, ready for
decision, returned and approved.). Assigners will also receive a compiled workload report indicating
the number of CNAs assigned to each reviewer and certain information useful to assess relative
workloads. Using these reports, Assigners will assign submitted CNAs to staff for review. Assigners
also have the responsibility to open CNAs made “ready for decision” by their staff, and to modify or
edit the reviewer’s comments. If an Assigner desires a Reviewer to modify comments or reconsider
issues or seeks additional review from technical staff on a CNA made ready for decision, the Assigner
can return the CNA to the reviewer with instructions, or identify a different Reviewer and reassign
the CNA. If satisfied that the review is complete and the CNA acceptable the Assigner can approve the
CNA, or if comments or identified issues require a Lender response, the Assigner or the Reviewer may
“return” the CNA to the Lender. When the Lender addresses comments and resubmits the CNA, the
process is repeated until the Assigner is satisfied that all CNA and other underwriting requirements
have been addressed and a Firm Commitment can be issued, whereupon the Assigner “approves” the
CNA. Attachments and reports from the approved CNA may be printed for use as attachments to the
Firm Commitment as needed. The approved CNA, including all attachments, is recorded permanently
in the CNA e-Tool database and can be retrieved for comparative purposes and/or for use in asset
management functions. Approval of a CNA should be closely associated with the conclusion of
underwriting and the issuance of a Firm Commitment. But circumstances may require a change,
typically an amendment to the Firm Commitment. The Assigner may enable a change to an approved
CNA by selecting “Undo Approval” which action restores the CNA to an “Under Review” status
whereupon the reviewer or the assigner can return the CNA to the Lender so the Lender can make the
necessary changes.
2. Reviewer. Reviewers receive assignments from Assigners. Generally, reviewers are Underwriters
and HUD construction analysts. When opening the CNA e-Tool, reviewers see a list of all CNAs
assigned to them and may open any one of these and complete or continue a review. Reviewers may
search for other CNAs not assigned to them but may only read, not write, to such files. Reviewers
analyze the assigned CNA, enter comments both general and specific and upon completion of review
indicate that the CNA is “ready for decision.” A Reviewer may “reassign” to another reviewer a CNA
assigned to him which enables staff to share work or solicit assistance. If a reviewer identifies issues
or deficiencies in the CNA, the reviewer can enter comments and return the CNA to the Lender. When
satisfied that the CNA addresses all relevant and material issues, the reviewer changes the CNA status
to “ready for decision” whereupon the assigner is able to consider the reviewer’s work, modify the
reviewer’s comments and either assign it back to the same or another reviewer for further work,
return it to the Lender for the Lender to address comments, or approve the CNA.
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5.15 HUD Procedures
3. Viewer. A viewer is any staff person who regularly needs to see CNAs but not act on them.
B. The CNA e-Tool supports work-sharing across all HUD offices geographically and among different
program offices, e.g., Office of Multifamily Production, Office of Recapitalization, and Office of Asset
Management and Portfolio Oversight. Any HUD staff provided access to and a role in the CNA e-Tool can
use the Tool to read CNAs selected by search or to review CNAs assigned to them for review.
5.15.3
Instructions and Training for Users
A. Detailed instructions for users are available at the CNA e-Tool homepage at:
https://www.hud.gov/program_offices/housing/mfh/cna
An extensive library of training resources, references, bulletins and announcements concerning
preparation of CNAs and use of the CNA e-Tool may be found at this website.
5.15.4
Consultation and Review Timeliness
A. Timely consultation and review by other, appropriately experienced, HUD staff may expedite
applications and avoid delays at closing. In particular, survey issues, proposed easements, and joint use
and access agreements that impact design, construction or operating expense estimates should be
reviewed by Regional Counsel before final underwriting is completed.
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Chapter 6
6.1
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Chapter 6 Energy and Water Conservation
6.1 Purpose and Summary Requirements
Energy and Water Conservation
Purpose and Summary Requirements
A. Conservation of energy and water at multifamily properties reduces property operating costs and
increases physical durability. Conservation is achieved by good design and engineering, superior
products, careful construction, conscientious maintenance and property management practices, and
incentives that change utility consumption behavior of tenants and employees. This chapter describes
the minimum energy efficiency requirements for FHA-insured properties, available incentives for energy
and water conservation and the requirements for obtaining these incentives.
6.1.1
New Construction and Substantial Rehabilitation
Standards
A. All buildings proposed for new construction or substantial rehabilitation with FHA-insured mortgage
proceeds must meet or exceed the International Energy Conservation Code (IECC version 2009) or, if
greater than 3 stories above grade, the American Society of Heating, Refrigerating and Air Conditioning
Engineers Standard 90.1 (ASHRAE 90.1 version 2007) or such later versions of these standards as HUD
adopts. These HUD minimum standards do not over-ride or replace existing state or local requirements
when such state or local requirements exceed the HUD minimum standards.
6.1.2
Incentives for Improved Building Performance
A. Owners of existing buildings may use reduced, underwritten operating expenses by documenting
estimated reductions in energy and water consumption and costs (See Section 6.9). Also, as detailed in
HUD’s annual Federal Register publication of mortgage insurance premium (MIP) rates, Lenders may
qualify for a green MIP rate for loans on properties that obtain a green building certification and
demonstrate continuing energy efficiency performance (See Section 6.3 and Section 6.4).
6.2
Statutes and Regulations
A. The Energy Independence and Security Act of 2007 (EISA) requires HUD (and USDA) to adopt energy
conservation standards. Section 481 of EISA amended section 109 of the Cranston-Gonzalez National
Affordable Housing Act of 1990 (Cranston-Gonzalez) (42 U.S.C. 12709), establishing procedures for
setting minimum energy standards for certain HUD programs, including HUD-FHA multifamily mortgage
insurance programs for new construction and substantial rehabilitation. On May 6, 2015, HUD and USDA
jointly adopted the IECC 2009 and ASHRAE 90.1 2007 codes by Federal Register notice (80 FR 25901).
B. On March 31, 2016, HUD published revised mortgage insurance premiums in the Federal Register (81
FR, page 18473, the “MIP Notice”). Section D of the MIP Notice outlined an MIP rate category for loans on
properties that obtain a recognized green building certification and maintain performance thereafter as
evidenced by annual submission of an ENERGY STAR® Score of not less than 75. The MIP Notice
authorizes HUD to recognize additional green building certifications.
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Chapter 6 Energy and Water Conservation
6.3 Green Building Certifications Specifications Recognized for Green MIP
Green Building Certifications Specifications
Recognized for Green MIP
A. Multiple organizations sponsor and maintain green building certifications. These organizations,
(sometimes also referred to as “standard-keepers”), and their certification programs vary widely in the
types of projects that can be certified, the jurisdictions in which the certification is available, and the
methods used to verify green building features and compliance. It is the responsibility of the Lender and
Borrower, acting in concert with the Project Architect, to select a certification appropriate for their
proposed project, and to ensure that the property will meet continuing performance requirements
including annual whole building data reporting.
6.3.1
New Construction and Substantial Rehabilitation
Certifications
A. The following green building certifications are accepted for the purpose of earning green MIP rates for
new construction and substantial rehabilitation projects or for such projects recently completed and
proposed for refinancing or acquisition:
B. Enterprise Green Communities Criteria; LEED-Home, LEED Home Midrise and LEED-New
Construction; ENERGY STAR® New Construction Single Family (covers 1 and 2 family structures and
townhouses); ENERGY STAR® New Construction Multifamily; ENERGY STAR® Multifamily Hi-Rise;
EarthCraft House and EarthCraft Multifamily; Earth Advantage New Homes; Greenpoint Rated New Home;
National Green Building Standard; Passive Building Certification from Passive House Institute US or
International Passive Housing Association; and Living Building Challenge from the International Living
Future Institute.
6.3.2
Certifications for Existing Buildings
A. The following green building certifications qualify for green MIP rates for acquisition or refinancing of
existing properties: Enterprise Green Communities Criteria; EarthCraft House and EarthCraft
Multifamily; Greenpoint Rated Existing Home-Whole Building Label; and National Green Building
Standard. If a building is occupied for the period necessary for benchmarking and is benchmarked (See
Section 6.6.3), then an existing building certification may be used even if HUD defines the proposed scope
of work as substantial rehabilitation.
B. For existing but newly constructed buildings, ENERGY STAR® Existing Building Certification will
qualify for green MIP in limited circumstances (See Section 6.6.2).
6.3.3
Certifications Not Recognized by HUD
A. HUD may accept other national or multistate green building certifications to qualify for green MIP
rates for applications proposing new construction or improvements to existing buildings provided that
the Project Architect certifies to HUD that the procedures and requirements of the proposed certification
meet all of the following requirements:
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6.4 General Requirements for Green MIP
1. Minimum Performance Improvement for Non-Recognized Certifications. For new construction
and substantial rehabilitation (of properties with no benchmarked recent history) the certification
must require designed building performance that achieves not less than a 25% reduction in estimated
energy use (not energy costs) by comparison with the energy use estimated for the same structures
if built to the HUD minimum codes (See Section 6.1.1). For existing buildings (with a benchmarked
recent history, see Section 6.6.3) the certification must require a reduction in energy use (not energy
cost) of not less than 15% by comparison with the benchmarked energy use.
2. Independent Verification of Design & Construction. The proposed certification requires
independent verification of energy conservation measures and sustainable products and methods.
Such verification should occur at appropriate, identified milestones during design and during the
progress of construction. (Appropriate milestones include: review of final drawings and
specifications prior to application for firm commitment; on-site inspections of the building envelop
and rough mechanical installation prior to drywall or closing of wall cavities; and a final inspection or
commissioning after construction completion). The standard-keeper must designate or approve the
verifier(s). The independent verifier may have no identity of interest with the Sponsor, the Borrower,
the Lender, the Project Architect, the General Contractor or any subcontractor or engaged trades.
3. Documentation of Procedures, Findings, Award of Certification. The standard-keeper for any
national or multi-state green building certification must require from the verifier and furnish to the
Project Architect and/or Borrower timely written documentation of results or conclusions at each
milestone of practice or achievement that is necessary for certification including the final award (or
denial) of the certification after construction completion.
4. Architect’s Certification. The identity of the standard keeper, the name of the proposed national or
multi-state green building certification, the selected level or grade of achievement (e.g., silver, gold,
platinum, etc.) as well as the Project Architect’s certification, must accompany the mortgage
insurance application. (See Project Architect’s Certification, Appendix 5, Section A.5.8.1 for new
construction or substantial rehabilitation or Appendix 5, Section A.5.8.2 for refinance or acquisition
of existing properties).
6.4
General Requirements for Green MIP
A. Applications proposing a green MIP rate are subject to requirements over and above those for all other
insured mortgages, including the following for applications under all Sections of the Act.
6.4.1
Continuing Performance Required under Green MIP
A. All Borrowers with loans endorsed at green MIP rates and secured by properties of 20 or more units
must annually demonstrate continuing performance by delivering to HUD an ENERGY STAR® Statement
of Energy Performance (SEP) showing an ENERGY STAR® Score of not less than 75. (See Section 6.4.5 on
planning for future data collection for purposes of demonstrating continuing performance.) It is the
property owner’s obligation to maintain, repair, and replace components as necessary to retain this
minimum performance score for the life of the insured mortgage.
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Chapter 6 Energy and Water Conservation
6.4 General Requirements for Green MIP
ENERGY STAR® Appliances and High-Performance
Components
A. The Capital Needs Assessment (CNA) prepared in the CNA e-Tool must specify all appliances and
heating and air conditioning systems as ENERGY STAR® as and when replaced, and for lighting, electrical
and mechanical equipment, and building envelope components with no available ENERGY STAR® label,
the Capital Needs Assessment must specify high performance and/or sustainable replacements.
6.4.3
HUD Forms – Borrower’s Certifications
A. Form HUD-91070M, titled “Consolidated Certification-Borrower,” evidences the applicant’s
commitment to achieve and/or deliver an indicated green building certification. The executed form must
be submitted with the Application for Firm Commitment, and among other purposes, identifies the
specific green building certification the property has or will obtain. Lender requests to switch the
identified green building certification after submitting an application for Firm Commitment will result in
HUD returning the application pending Lender submission of a fully revised set of plans and specifications
consistent with the newly selected certification. HUD will not consider changes in the selection of green
building certification after the issuance of a Firm Commitment. At endorsement, form HUD-91070M,
titled “Consolidated Certification-Borrower,” states the Borrower’s commitment to deliver a named green
building certification and to demonstrate continuing performance with an ENERGY STAR® Score of 75 or
more in each year of the mortgage term.
6.4.4
Regulatory Agreement Rider 5 Required for Green MIP
A. Form HUD-92466-R-5 (Rider 5) is a rider to the Regulatory Agreement that the Borrower must execute
at initial endorsement. Rider 5 obligates the Borrower to complete all construction as well as any and all
tests, evidence, or assurances as may be necessary to perfect and obtain the selected green building
certification. In addition, Rider 5 specifies the Borrower’s on-going energy performance obligations
during the life of the insured mortgage.
B. The Office of Asset Management and Portfolio Oversight (OAMPO) provides instructions to Borrowers
and Lenders on how to comply with green MIP continuing performance requirements in Mortgagee Letter
2020-1 (ML 2020-1). Borrower’s failure to deliver a correctly prepared and verified Statement of Energy
Performance (SEP) and/or failure to maintain a minimum ENERGY STAR® Score of 75 (or in the event of
a change in the calibration of the Score, failure to maintain the expected Energy Use Intensity Score [EUI
Score] equivalent to a score of 75 at the time of application), after notice and opportunity to cure will
result in sanctions consistent with ML 2020-1. The EUI Score is energy use, expressed in British Thermal
Units (BTUs) per square foot per annum. The EUI is reported on the SEP in addition to the ENERGY
STAR® Score.
6.4.5
Data Collection Plan
A. Because the Borrower is obligated to demonstrate continuing performance through the maturity of
the green MIP mortgage using EPA’s Portfolio Manager, a web-based utility benchmarking application, it
is essential that the Borrower prepare a plan for collecting valid energy consumption data for each month
and correctly entering this data in Portfolio Manager. The most valid and convenient solution is to obtain
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6.4 General Requirements for Green MIP
100% whole building data from the utility provider(s) or to install energy consumption monitoring
technology that collects monthly data from all meters on the property (Whole building data means
recording of all energy consumption on site, both owner and tenant paid). The data collection plan should
identify and describe the method(s) to be used and describe exactly how data will be collected and
recorded, what persons or officers will be responsible and how the data will be entered in Portfolio
Manager. The data collection plan should be prepared by the energy professional in consultation with the
Borrower and the property manager and must conform to the instructions in numbers 1 and 2 as follows:
1. Instructions for Preparing an SEP to Evidence Continuing Performance. The SEP must be verified
by a qualified energy professional evidenced by the energy professional’s signature on the SEP.
Verification means that the energy professional has reviewed the data entered in Portfolio Manager,
compared these entries to the Borrower’s documentation of energy consumption reported for each
utility meter on the property, and compared the utilities and meters currently reported to prior SEP
or project records, and confirmed the accuracy of data entered. Note that a verified SEP is not the
same as an application for ENERGY STAR® Certification and does not require a site visit nor the seal
and signature of a registered Architect or professional engineer. (In some cases, the energy
professional may need to visit a site to resolve conflicting information and to assure that all existing
utility meters and/or uses of energy are reported.) Firms providing energy consumption monitoring
services may serve as energy professionals for purposes of verifying a Borrower’s continuing
performance.
2. Sampling of Tenant Meters Not Permitted. For purposes of demonstrating continuing
performance, extrapolation of energy use data from a sample of units at a property is not acceptable.
Owners applying for green MIP rates must propose and implement a plan to obtain 100% whole
building utility data for all utilities, whether from the utility providers, or through the installation of
energy consumption monitoring technology capable of measuring, recording and reporting energy
consumption for all meters, including metered tenant spaces.
6.4.6
Real-Time Consumption Monitoring, Smart Home Tools
A. In addition to providing utility consumption data needed for continuing compliance, hardware and
software that delivers valid, real-time energy use data to owners and tenants allows users to make
informed choices, change behavior, and reduce their utility costs. (Studies have shown that tenants with
real-time feedback on utility consumption reduce usage by an average of 10%). Applicants are
encouraged to augment their data collection plan with such technology.
6.4.7
Design and Construction Team Qualifications
A. When planning project development, the Developer/Sponsor should pay attention to highperformance building experience and qualifications when assembling the project team. When preparing
an application for a green MIP mortgage, the Lender also should give attention to the experience and
qualifications of key firms and personnel. The Lender should also note that some green building
certifications specify additional qualifications for members of the design team.
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Chapter 6 Energy and Water Conservation
6.4 General Requirements for Green MIP
Energy Professionals Qualifications
A. Energy professionals must be persons with not less than three years work experience evaluating utility
consumption in multifamily buildings and employing energy modeling and benchmarking software,
including specifically EPA’s Portfolio Manager and related ENERGY STAR® resources and products.
Energy professionals must have professional certifications or credentials appropriate for analyzing
multifamily properties and must remain current with new energy monitoring, measurement methods,
and technologies.
1. Expected Tasks for Energy Professionals. The energy professional’s primary tasks include: a)
benchmarking existing buildings including obtaining and/or reviewing and consolidating raw
consumption data (monthly bills, utility-provider supplied data); b) managing use of EPA Portfolio
Manager software and assuring correct data entry; c) conducting site inspections and energy audits
per ASHRAE Level II or III standards and conducting field tests, e.g., blower door tests for detecting
air infiltration and air handling leaks; d) selecting appropriate energy modeling software and e)
correctly modeling various design assumptions, e.g., a building built to current code, the same building
with energy conservation features that exceed the current code; f) advising the Project Architect of
building components most likely to improve performance; g) preparing the Borrower’s data
collection plan; h) reviewing and entering data to Portfolio Manager and verifying resulting
Statements of Energy Performance to support Borrower’s annual demonstration of continuing
performance; and i) estimating the local utility providers average price per unit of use for each utility
at a site (see Section 6.9.3 for obstacles to estimating utility price per unit of use).
2. Specialization of Energy Professional’s Experience and Qualifications. The qualifications and
experience of the energy professional(s) on a green MIP application must be appropriate to the
subject building types.
RESNET Home Energy Raters, utilizing the software and products for RESNET Home Energy Ratings,
are acceptable for single homes, townhouses and or multi-unit structures up to three stories with no
common space (assuming site energy is included). These building types (buildings up to three stories),
as described at Section 6.1.1, must comply with the International Energy Conservation Code.
Generally, software and products used by RESNET Home Energy Raters do not accommodate
appropriate analysis of the most common multifamily building types, as the appropriate methods and
software used to analyze energy use in houses, townhouses, and small buildings differ substantially
from those necessary for larger buildings. Further, buildings of four or more stories must comply with
ASHRAE Standard 90.1, and RESNET Home Energy Raters generally do not work with ASHRAE 90.1.
Therefore, RESNET Home Energy Ratings are not acceptable for the more common building and
property types found in multifamily mortgage applications, where larger buildings including common
spaces and all site improvements must be considered.
3. Professional Certifications Required for Energy Professionals. Registered Architects or licensed
professional engineers (PE) may serve as energy professionals provided that they have demonstrated
the requisite experience. Other professional certifications for qualified energy professionals include
one or more of the following: a) American Energy Engineers Association’s Certified Energy Manager
(CEM) or Certified Energy Auditor (CEA) designations; b) American Society of Heating, Refrigerating
and Air Conditioning Engineers (ASHRAE) High Performance Building Design Professional (HPBDP)
designation; c) Building Performance Institute (BPI) Multifamily Building Analyst (MFBA)
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6.5 Requirements for Section 223(a)(7) Applications
designation; or d) for townhouses and buildings up to three stories with no common space, a
Residential Energy Services Network (RESNET) Home Energy Rating System (HERS) Rater. When
building energy modeling is employed the lead modeler or energy professional must hold a
professional certification specific to simulation modeling: ASHRAE Building Energy Modeling
Professional (BEMP) or Association of Energy Engineers Building Energy Simulation Analyst (BESA).
6.4.9
Energy Modeling and Modeling Software
A. Modeling or simulation of expected building performance is a common technique for estimating and
comparing utility use results achievable with alternative designs or construction methods. Certifications
that allow performance-based options require modeling to verify expected results. Many green building
certifications allow the designer a choice of a “prescriptive” option for meeting certification requirements
or a “performance” option. Prescriptive in this context means a fixed “recipe” of building parts and
components each with an individual qualitative metric or specification, e.g., fiberglass batt insulation
rated R-30. By contrast a performance standard allows the design professional flexibility to create a
unique “recipe” provided the whole building design is modeled to estimate overall performance.
Prescriptive options do not require modeling. The energy professional and the Project Architect are
responsible for selection and proper use of appropriate, industry recognized energy modeling software.
In general, selected modeling software must simulate the actual buildings, common spaces, accessory
structures and site improvements proposed (See Section 6.4.8 above). For buildings over three stories or
containing common spaces, the modeling must be completed in accordance with the requirements of
ASHRAE 90.1 Appendix G. For buildings up to three stories with no common space, the HERS Resnet
rating system may be used, provided that other specialized modeling software or methods, (e.g., for site
lighting, clubhouse and pool, etc) are used to document all energy use apart from the residential buildings.
In a property with buildings of both kinds, the energy professional may use ASHRAE 90.1 Appendix G or
a combination of both methodologies provided that all energy use for the entire property is included in
results. Plans and specifications for construction should be at least 80% complete and include all design
elements that impact energy use. All factors other than design variations must be held constant from one
modeled iteration to the next. Modeling for an existing property must incorporate as-built design as
modified by proposed repairs and alterations, and for any buildings, units or spaces unchanged, the model
should incorporate benchmarked consumption. Recognized software and modeling standards are
described in Appendix 6.
6.4.10
Change Orders Modifying Energy Measures
A. For properties where construction is proposed to achieve green building certification, change orders
that modify construction (including repairs and alterations to existing buildings) by reducing the
proposed level of performance or reducing the approved level of certification may only be approved if
HUD determines that the change is a necessary change order. In no event may a change order result in
construction that will fail to achieve the approved green building certification.
6.5
Requirements for Section 223(a)(7) Applications
A. Green MIP rates are available to 223(a)(7) applicants only when the existing mortgage has a green MIP
rate, or when the property is previously certified by one of the green building certifications named above
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6.5 Requirements for Section 223(a)(7) Applications
(Section 6.3.1 and Section 6.3.2). In either circumstance, the qualifying certification must have been
earned not more than 15 years prior to the date of application. The Borrower must demonstrate
continuing performance as described in Section 6.5.1, Section 6.5.2, and Section 6.5.3 below:
6.5.1
Existing Green MIP Mortgages
A. If the existing mortgage is green MIP then all Statements of Energy Performance for all prior years
must have been correctly prepared, timely submitted and have a score of 75 or higher.
6.5.2
Proving Continuing Performance Under ENERGY STAR®
Existing Building Certification
A. Whether the existing insured mortgage is Green MIP or not, an ENERGY STAR® for Existing Building
Certification must be provided with the application to establish continuing performance and to
demonstrate that 100% whole building data is available. The Existing Building Certification should be
based on a performance period ending less than six months before the date of loan application. The
Existing Building Certification requires 100% whole building data. No sampling of units is permitted. The
application for the Existing Building recognition must be signed and sealed by a Registered Architect or
Professional Engineer as required by EPA.
6.5.3
Delivery of ENERGY STAR® Existing Building
Certification
A. The Existing Building Certification must be delivered with the application. It may not be deferred. The
Firm Commitment may not be conditioned upon receipt or future delivery of the Existing Building
Certification. A single exception is permitted if the Existing Building Certification cannot be obtained
because the Borrower is unable to provide consumption data for twelve consecutive, whole months for
every meter on the property, including any and all tenant meters. In this circumstance, the application
must include a Statement of Energy Performance consistent with the benchmarking procedures described
at Section 6.6.3.A.2 indicating that the property likely will achieve the minimum ENERGY STAR® Score
after 100% whole building data is available. In addition, the Borrower must include as non-critical repairs
the installation of energy consumption monitoring technology (as described at Section 6.4.5.A.2) to
provide 100% whole building consumption data collection. If the Existing Building Certification is
deferred, it must be delivered not more than 15 months after the completion of the non-critical repairs.
6.5.4
Recording Baseline Data - CNA
A. Section 223(a)(7) applications qualify for green MIP only if previously certified and construction
activity in such applications is limited to repairs not exceeding aggregate cost per unit as defined in
Chapter 5 (See Chapter 5, Section 5.1.5.D). Accordingly, the needs assessor or energy professional is not
required to enter utility consumption data for each component identified in the CNA. However, the needs
assessor or energy professional must download the HUD Custom SEP (an excel spreadsheet) and attach it
to the CNA in the CNA e-Tool. This will automatically record the actual (or expected) ENERGY STAR®
Score as well as the related Energy Use Intensity (BTUs per square foot). In the event that EPA revises or
recalibrates the multifamily ENERGY STAR® Score resulting in a property reporting an annual continuing
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Chapter 6 Energy and Water Conservation
6.6 Green MIP Requirements for Section 223(f) Applications
performance less than the minimum 75, the Energy Use Intensity reported with the application will
become the minimum performance requirement.
6.6
Green MIP Requirements for Section 223(f)
Applications
A. Existing properties proposed for 223(f) financing may qualify for green MIP in one of two ways. The
first is by providing a previously earned certification recognized by HUD (See Section 6.3.1 or Section
6.3.2) earned not more than 15 years prior to the date of the loan application. The second is by committing
to obtain a certification (either a HUD recognized certification or a non-recognized certification per
Section 6.3.3) after completing repairs and alterations sufficient to earn the selected certification.
6.6.1
Properties with Previously Earned Certifications
A. An existing property with a HUD recognized certification earned within 15 years of the date of
application may qualify for a green MIP rate provided that the Borrower evidences continuing
performance in the same manner as prescribed for Section 223(a)(7) loans (See Section 6.5.1, Section
6.5.2, and Section 6.5.3). Baseline data for these properties should be recorded by downloading the HUD
Custom SEP and attaching it to the CNA prepared for the property in the CNA e-Tool.
B. Some recently built properties may not have achieved and sustained occupancy for a time-period
sufficient to permit benchmarking consistent with Section 6.6.3.A.2 below. These recently built projects
may qualify for green MIP rates if the owner delivers with the application one of the certifications named
in Section 6.3.1 (for new construction or substantial rehab) and has complied with the general
requirements described at Section 6.4.1 through Section 6.4.5 (data collection plan, Rider 5, etc.) In
addition, any recently built project must have been equipped with ENERGY STAR® appliances and
conform to other requirements for new construction or substantial rehabilitation as described in Section
6.7.1. Recording baseline data for recently built projects with no benchmarked results is accomplished
by downloading a HUD Custom SEDI (Statement of Energy Design Intent) based on the as-built drawings
and specifications and attaching it to the CNA in the CNA e-Tool.
6.6.2
Newly Built Properties with No Prior Certification
A. Recently built properties without a HUD recognized green building certification will not qualify for
green MIP. Owners and Developers contemplating a possible future FHA-insured mortgage refinancing
with a green MIP rate for a prospective new development should select and implement a HUD recognized
green building certification appropriate for new construction before beginning the prospective
development.
However, to allow Lenders and Borrowers time to plan projects, the ENERGY STAR® for Existing
Buildings Certification will qualify for green MIP for Section 223(f) applications filed within two years
after publication of this MAP Guide provided the application is consistent with the general provisions of
Section 6.4 as well as the following additional conditions:
1. The Certificate of Occupancy must be issued within three years of the date of mortgage application.
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6.6 Green MIP Requirements for Section 223(f) Applications
2. Properties that have achieved at least 12 months of occupancy meeting the minimum occupancy for
the ENERGY STAR® for Existing Buildings Certification must deliver the Certification with the
application for firm commitment.
3. If a property lacks the 12 consecutive months of minimum occupancy, a Statement of Energy Design
Intent (SEDI) based on the as-built drawings and specifications of the property and signed by the
Project Architect may qualify provided that the owner commits to deliver the ENERGY STAR® for
Existing Building Certification within three months after the 12 consecutive months at or above the
minimum occupancy is achieved. Repairs or alterations are not permitted as a means of achieving a
prospective Certification.
4. The minimum ENERGY STAR® Score required for use of the ENERGY STAR® for Existing Building
Certification is 90.
5. Baseline data will be recorded by attaching the HUD Custom SEP, or SEDI as applicable, to the Capital
Needs Assessment prepared for the property.
6.6.3
Existing Properties with No Prior HUD Recognized
Green Building Certification
A. Properties not recently built (See Section 6.6.2, above) and without a prior HUD recognized green
building certification (a certification named in Section 6.3.1 or Section 6.3.2 earned within 15 years of the
date of application) may qualify by committing to obtain one of the certifications available for existing
buildings (Section 6.3.2) or an unrecognized certification appropriate for renovations of existing buildings
and selected consistent with Section 6.3.3. The owner must propose repairs and alterations consistent
with and sufficient to achieve the selected certification. In addition, Borrowers must meet the following
requirements:
1. Existing Properties-Selection and Achievement of Green Building Certification. The Project
Architect must assure the Lender and HUD that the green building certification selected is appropriate
for the building(s) composing the property and for the level of construction activity proposed and
must certify that the Borrower’s proposed repairs and alterations when completed will reasonably
achieve the requirements of the designated green building certification. The Borrower is responsible
for achieving the selected certification and maintaining performance for the life of the mortgage.
2. Energy Due Diligence-Benchmarking. All owners of existing properties proposing repairs and
alterations in order to obtain a green building certification must benchmark their property to
establish the annual energy utility consumption against which the expected result of proposed
improvements is measured. (Note that Section 6.4.5 specifies an annual benchmarking procedure to
demonstrate continuing performance by green MIP properties during the mortgage term and that
procedure does not permit sampling. By contrast, this paragraph requires a one-time benchmarking
procedure required for candidate properties which procedure does contemplate sampling.) While
sampling is permitted to benchmark energy use prior to certification, Lenders/Borrowers able to
obtain and use 100% whole building data for establishing the benchmark must do so because this is
a conclusive demonstration of the ability to meet the future, continuing performance requirement.
Whole building, whole property data means 100% of all meters on the property or at the building
and/or all fuels delivered to the property or the building.
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6.6 Green MIP Requirements for Section 223(f) Applications
The Borrower must retain a qualified, third-party, energy professional who must benchmark energy
consumption for twelve whole, consecutive months, or consecutive utility billing periods consistent
with a 12-month period, with the last month ending not more than six months prior to firm
commitment application. Physical occupancy for each month must be at least 85%.
If 100% whole-building data is not available, a sampling regimen consistent with the requirements
for ASHRAE Level II Energy Audits may be used, provided that tenant usage must be determined based
on a sample of not less than 25% of units. If whole building data is available for some but not all
buildings in a property, then the sampling requirements may be applied to the buildings lacking whole
building data. Similarly, if some (but not all) utility providers serving the property provide whole
building data, then sampling may be used to estimate usage for the utility where 100% whole building
data is not available. For any sample, the applicant must demonstrate how the sample is
representative and clearly identify sampled units and buildings. Actual usage must be documented
with copies of source material, i.e., utility bills or statements from the utility provider. If sampling is
used, the documentation must identify the unit and the time period for which usage is reported. If a
utility provides whole building data, the utility’s documentation must show the name and address of
the property and/or building and a count of tenant meters and owner meters by building or by site
utility use as applicable.
The benchmarked results and documentation should be reported in the energy professional’s
ASHRAE Energy Audit, which should summarize aggregate, annual consumption for each energy
source and organize supporting documentation so that a Lender or HUD Underwriter can quickly
verify the accuracy of the information. When a sample is used, the method of extrapolating the sample
results to the whole must be shown. When the data collection and extrapolation of any sampled data
is complete, the energy professional should enter monthly usage in the Borrower’s EPA Portfolio
Manager account. A Statement of Energy Performance (not the HUD Custom SEP) representing the
benchmarked results should be included in the ASHRAE Energy Audit. The ASHRAE Energy Audit
should be attached to the CNA prepared in the CNA e-Tool.
3. Energy Due Diligence-Energy Audits. The Borrower’s energy professional must conduct an energy
audit for the property in accordance with the standard of work for an ASHRAE Level II Energy Audit.
Key features of Level II audits include: a) benchmarking existing use; b) identifying specific
components, assemblies, appliances, equipment or systems that use, move or transmit energy; c)
allocating benchmarked usage to these same items; d) recommending specific repairs, replacements
and alterations to these items likely to reduce energy consumption; e) estimating per item and total
cost of such items together with the per item and total reduction in energy use and cost resulting from
the recommendation. In addition, a Level II Energy Audit should calculate the number of years
required for the estimated annual energy savings to equal or exceed the cost of the recommendation
for each item (the payback period). Level III audits provide an investment grade report that adds the
following: a) whole building computer simulation (modeling) calibrated with field data; b) modeling
of conservation measures and corresponding changes in energy consumption; and c) bid-level
construction cost estimating. Accordingly, for Section 223(f) applications where a General Contractor
is retained to estimate total costs and complete construction, an ASHRAE Level II Energy Audit is
required, but if no General Contractor is retained, a Level III audit is required to provide bid-level
construction cost estimating for energy conservation measures.
4. Energy Due Diligence-Capital Needs Assessment. The Capital Needs Assessment prepared in the
CNA e-Tool for a green MIP application for an existing building must indicate that an ASHRAE Energy
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6.6 Green MIP Requirements for Section 223(f) Applications
Audit has been prepared and must identify the energy professional as a participant. (Note that many
due diligence providers may qualify as both needs assessors and energy professionals.) In addition,
energy usage for each item or component named in the Energy Audit should be entered for each
component and alternative. If a component (e.g., windows) does not use, but rather transmits, energy
then the usage entered for the existing component is “0” and the usage entered for each alternative
for that component is either a negative number (indicating expected energy saved relative to the
existing component) or a positive number (indicating additional expected energy use). The CNA eTool will calculate the Total Cost of Operation (TCO) per item for each component and alternative.
Also, it will compare the TCO of a component to each of its alternatives, allowing the user to see and
demonstrate the relative life cycle cost. At a future date, the CNA e-Tool will also calculate and display
net energy dollar savings for each recommended action (e.g., recommended replacement of 52
existing refrigerators with new ENERGY STAR® refrigerators saves $XX in energy costs per year.) In
the meantime, such dollar savings (increases) should be provided in the ASHRAE Energy Audit.
5. Demonstrating Ability to Achieve and Maintain Minimum ENERGY STAR® Score. In addition to
obtaining green building certification, a green MIP property must achieve and maintain an ENERGY
STAR® Score of 75 or better. To demonstrate a high probability that this score will be achieved, the
energy professional must calculate the estimated, annual, whole building, whole property energy use
expected upon completion of all proposed repairs and alterations. If the selected green building
certification allows a performance-based method for compliance, and the performance option is used
for purposes of certification, then modeling or simulated results should be reported (See Section
6.4.9). The energy professional must then enter these estimated results in EPA’s Portfolio Manager to
obtain a Statement of Energy Design Intent (SEDI) displaying an ENERGY STAR® Score that must
equal or exceed the required minimum score of 75. The energy professional must download a HUD
Custom SEDI, an excel spreadsheet, which should be attached to the CNA in the CNA e-Tool. This
attachment records the expected ENERGY STAR® Score. It also records the expected Energy Use
Intensity (i.e., BTUs per square foot) against which continuing performance will be measured in the
event that EPA at a future time recalibrates or revises its multifamily ENERGY STAR® Score.
6. Project Architect Required. Borrowers applying for green MIP under Section 223(f) with a proposed
(not already earned) green building certification must retain a Project Architect (or Professional
Engineer) whose green MIP responsibilities include the same responsibilities as described for
construction at Section 6.7.2. In addition, the Project Architect must certify the acceptability of any
national or multi-state green building certification selected by the Borrower but not recognized by
HUD (See Section 6.3.3). An Architect may not serve as both Project Architect representing the
Borrower, and green building certification verifier or validator representing the standard-keeper of
the green building certification.
7. Green MIP - HUD Repair Escrow Administration. For green MIP applications, HUD will not
delegate repair escrow administration to Lenders. HUD will administer the repair escrow, approve
any and all changes to the scope of work, and conduct periodic inspections of the work in progress.
8. Delivery of Green Building Certification - Extension of Repair Escrow. HUD may approve, if
necessary to achieve the designated green building certification, an extended completion period of up
to fifteen months. The green building certification must be earned and delivered prior to the release
of the Borrower’s assurance of completion and any hold-back of surplus loan proceeds.
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Chapter 6 Energy and Water Conservation
6.7 Green MIP Requirements for Sections 220, 221(d)(4), 231-New Construction, Sub-Rehab
Green MIP Requirements for Sections 220,
221(d)(4), 231-New Construction, Sub-Rehab
A. All new construction and/or substantial rehabilitation applicants can qualify for green MIP by
obtaining a HUD recognized green building certification (See Section 6.3.1) or an alternative national or
multi-state certification consistent with Section 6.3.3. The selected green building certification must be
earned and delivered prior to Final Endorsement consistent with the Project Architect’s Certification (See
Appendix 5, Section 5.8.1).
6.7.1
ENERGY STAR® Appliances and Systems Required
A. All new construction or substantial rehabilitation applications for green MIP rates must specify
installation of ENERGY STAR® appliances and central air conditioning systems (if applicable). Other
electrical and mechanical equipment (motors, fans, pumps, etc.) should be high performing, energy
efficient products. For water-consuming appliances and components, EPA WaterSense labeled products
must be specified.
6.7.2
Project Architect’s Green MIP Responsibilities
A. In addition to the general responsibilities of the Project Architect (See Chapter 5), in green MIP projects
the Architect has these additional responsibilities: a) assure that the selected green building certification
is applicable to the contemplated design and scope of construction work; b) coordinate with the green
building certification standard-keeper or its designated verifier to assure that the plans and specifications
meet all certification requirements, including any requisite verifying proofs, exhibits or procedures; c)
when a performance based compliance method is used, select or approve the selection of appropriate
building performance modeling software and complete or supervise completion of performance models
comparing designed performance to any designated baseline code or benchmarked prior performance
using in each modeled design the same assumptions concerning climate, degree days, set temperatures,
owner/tenant behavior, etc.; d) prepare or coordinate with an energy professional to prepare an estimate
of expected utility consumption based on the assumed completion of the project as designed and
operating at stabilized occupancy by the intended tenant profile; e) enter or work with an energy
professional to enter estimated utility consumption in Portfolio Manager and obtain a HUD Custom
Statement of Energy Design Intent evidencing that the project as designed will achieve and maintain an
ENERGY STAR® Score not less than 75; f) coordinate with the Contractor(s) to prepare a detailed
construction schedule that includes all milestones for completion and inspections required by the green
building certification procedures; g) coordinate with the verifier, the Contractor(s) and the HUD Inspector
to assure that all certification inspections, and any resulting corrective actions are timely completed
consistent with the detailed construction schedule; h) coordinate with the verifier, the Contractor(s) and
the HUD Inspector, to assure that any and all tests, commissioning or similar routines required to perfect
the green building certification are completed. (See Appendix 5, Section A.5.8.1.)
6.7.3
Recording Baseline Data-CNA
A. The Lender’s cost analyst will prepare a CNA in the CNA e-Tool reporting future repair and replacement
needs only. No utility consumption data for individual components is required. The cost analyst should
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6.8 Green MIP Requirements for Section 241(a)
obtain the HUD Custom SEDI (an excel spreadsheet) and attach it to the CNA in the CNA e-Tool. This will
automatically record the expected ENERGY STAR® Score as well as the related Energy Use Intensity
(BTUs per square foot). In the event that EPA revises or recalibrates the multifamily ENERGY STAR®
Score resulting in a property reporting an annual continuing performance less than the minimum 75, the
Energy Use Intensity reported with the application will become the minimum performance requirement.
6.8
Green MIP Requirements for Section 241(a)
A. Section 241(a) Supplemental Loan proceeds may be used for eligible construction costs including
repairs and alterations to existing buildings or site improvements, additions to existing buildings or site
improvements, as well as construction of new buildings and site improvements. Regardless, a
supplemental loan is secured by the entire premises subject to the lien of the first mortgage, and all
requirements of both liens apply to the entire premises. Therefore, if green MIP is proposed for a
supplemental loan, the entire property must obtain a green building certification. Two green building
certifications may be necessary to achieve certification if both renovations of existing, and construction
of new buildings, are proposed in a supplemental loan (few, if any, green building certifications
contemplate both activities in a single certification). In the event two certifications are proposed, one for
existing buildings, the other for new buildings, the property may be characterized as two phases to the
extent needed for certification, provided that no exception exists to the requirement that the Borrower be
a single asset entity. After completion of construction and delivery of the certifications, continuing
performance will be demonstrated with a single Statement of Energy Performance (SEP) prepared for the
entire property. One or two certifications, as applicable, must be delivered prior to Final Endorsement of
the supplemental loan.
6.9
Underwriting Owner’s Utility Cost as Part of
Operating Expenses
A. For most existing buildings, utility costs are underwritten as part of expected operating expenses based
on three years of operating history. But for applications where savings result from utility conservation
measures included in the Repair Escrow, these savings may reduce the estimated operating budget for
the relevant utility. (Properties with less than three years of operating history are not eligible for
underwriting of reduced utility costs as compared to proven annual utility costs.) While substantial
rehabilitation involves existing buildings, the estimation of utility cost as a portion of forecasted operating
expense is not based on three prior years of expense history, unless the existing building is fully occupied
for the three years prior to application and either will remain occupied during construction, or the
majority of existing tenants will resume occupancy after temporary relocation. When an application for
a stabilized, operating property proposes green building certification, then 100% of projected savings
may offset historic expense, but if no new certification is proposed then only 75% of projected savings
may be underwritten. In all other cases of substantial rehabilitation, and in new construction proposals,
utility costs included in forecasted operating expense must be derived as follows: a) for green MIP
applications, from the modeled or simulated utility consumption calculated for the proposed project; and
b) for applications with no green building certification, utility costs may be estimated by comparison to
other recently built, non-green-building-certified properties in the same utility pricing market.
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6.9.1
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Chapter 6 Energy and Water Conservation
6.9 Underwriting Owner’s Utility Cost as Part of Operating Expenses
Methods for Underwriting Owner’s Utility Costs
Changes
A. For existing properties with energy conservation measures included in the Repair Escrow,
underwritten utility expenses based on the prior three years of operating history may be adjusted based
on the utility cost results of the repairs and alterations as documented in an ASHRAE Level II Energy Audit.
The savings (or possible increases) estimated must be for specific utilities or fuels and for the specific uses
of these utilities or fuels. For example, forecasted reductions and/or increases in electric consumption
must be detailed for each repair, replace, or add-new action that impacts electric usage. When the net of
these itemized increases or decreases in usage is converted to dollar costs given the local per unit cost of
the utility, only these net costs may be used to offset (or increase) historic costs for electric power. (See
Section 6.9.3 below on obstacles to determining utility price per unit of use.) In cases where the
alterations and repairs alter the mix and use of owner-paid fuels or utilities, (e.g., gas heat replaces electric
heat; or solar hot water replaces or supplements an existing fuel for water heating), the altered and/or
substituted mix and cost of fuels must be shown in the calculation of utility cost used to adjust comparable
historic costs. It is not sufficient merely to claim a net change and adjust the aggregate historic utility cost.
The specific change derived from each repair, replace, or add-new action must be shown.
6.9.2
Underwriting Owner Utility Operating Expense for New
Projects
A. Green MIP applications for new construction and most substantial rehabilitation projects have no
history of utility use as a benchmark. The energy professional should determine local utility rates and
forecast utility operating expense based the simulated or estimated utility consumption for each ownerpaid fuel or utility used on the site. Consumption should be estimated in the unit of measure used by the
local utility provider to price the fuel, power or water and cost per unit of measure should be the local
price per unit of the utility used.
6.9.3
CAUTION: Changed Energy Use Not Proportionate to
Resulting Change in Cost
A. A complicating factor when estimating the utility cost results of repairs and alterations, or forecasting
utility costs for a new development, is the variability of pricing methods and fixed and variable costs used
by utility providers. For example, many providers charge a minimum monthly amount regardless of
usage, and other usage-based or flat-fee capital cost surcharges, and usage-based price schedules may
include bundled service discounts, volume discounts or surcharges, multiple pricing tiers and peak
demand period pricing. It is the responsibility of the energy professional to investigate and determine the
appropriate average price per unit of use for each utility used at a property. Therefore, changes in utility
consumption often DO NOT result in proportional changes in costs. It is the Lender’s responsibility to
assure that appropriate expertise and attention are given to estimating utility prices.
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7.1
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Chapter 7 Valuation & Market Analysis
7.1 Introduction
Valuation & Market Analysis
Introduction
A. This chapter provides guidance on HUD’s Valuation and Market Study requirements for Third-Party
MAP Appraisers and Market Analysts, MAP Lenders and Underwriters, and HUD staff involved in
reviewing appraisals.
B. A Valuation Analysis evaluates the existing or proposed project as collateral and security for a longterm mortgage. Depending on program requirements, this includes an estimation of the market value of
the land and/or the property as well as an analysis of the project’s market need, location, residential and
commercial rent and other income, and operating expenses.
C. The Valuation Analysis develops conclusions with respect to feasibility; suitability of improvements;
extent, quality, and duration of earning capacity; and other factors that have a bearing on the economic
soundness of the project. The objective of the appraisal and market study, if applicable, is to establish
value for use in underwriting the supportable loan amount and to determine if the project will meet the
market demand at rents that will pay operating expenses, service debt, and provide for sufficient deposits
to any reserve accounts.
D. The Department has statutory authority (12 USC 1708(g)) to prescribe standards for the appraisal of
all projects to be insured by the Federal Housing Administration. Such appraisals shall be performed in
accordance with uniform standards, by individuals who have demonstrated competence and whose
professional conduct is subject to effective supervision. Under the MAP Program, HUD relies on the MAP
Approved Lender to provide such supervision through the underwriting, loan approval, quality control,
and compliance program and protocols. Additionally, the Department requires a Uniform Standards of
Professional Appraisal Practice (USPAP)-Compliant appraisal review by a HUD Review Appraiser (HRA)
for medium- to high-risk transactions.
E. The Multifamily Regional Center Director has authority to rely on the Lender’s appraisal review
without a HUD staff appraiser review. Exercise of such authority may be appropriate for low-risk
(minimal Level 1 repairs or alterations) and some medium-risk transactions in which the application is
complete, reliable, and not particularly complicated. In all cases, a qualified HUD employee must review
each appraisal for compliance with USPAP and HUD requirements.
1. Low-Risk Transactions. These include, for example, most Section 223(f) projects with minimal
(Level 1 or less) repairs or alterations.
2. Medium-Risk Transactions. These include, for example, 223(f) projects where significant repairs
may be required, RAD or Tax Credit projects as well as Substantial Rehabilitation projects where there
is minimal tenant displacement. This does not include projects that meet the criteria for large loan
underwriting. New Construction projects may be included where the Lender’s Underwriter is
experienced, and the market is well established.
3. High-Risk Transactions. These include, for example, most New Construction Projects and projects
that meet large loan underwriting criteria as set forth in Chapter 3, Section 3.10. Also includes
transactions with leasehold (versus fee simple) ownership interests.
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Chapter 7 Valuation & Market Analysis
7.2 Selection of Appraisers and Market Analysts
Selection of Appraisers and Market Analysts
A. The Lender is responsible for the selection and approval of appraisers and market analysts who are
familiar with MAP guidelines. Lenders must ensure that each selected appraiser and market analyst is
qualified to appraise or perform market analyses for multifamily properties by reviewing their education,
quality and frequency of multifamily appraisal experience, sample appraisals and market studies,
professional affiliations, and state licenses or certifications. The ability to complete various HUD forms
related to the appraisal (e.g., forms HUD-92264, 92273, 92274, etc.) is also a requirement. The Lender
may assist the appraiser in the preparation of these forms, but the appraiser must sign them. Form HUD92264-A is an underwriting form prepared by the MAP Lender’s Underwriter and is not a required
appraisal exhibit.
B. The appraiser or the market analyst must be independent of, and may not be affiliated with, the loan
originator, broker, Developer, Borrower, MAP Lender, or any individual or institution involved in any
other financial role in the application. The Underwriter shall not act as the appraiser or market analyst.
C. The MAP Lender’s responsibility for supervision of the appraisal and market study (and any other
third-party reports) requires that the third-party appraiser be selected by the MAP Lender’s Underwriter.
The appraisal must be ordered and paid for by the MAP Lender, and not by the originator, broker,
Developer, or Borrower. The appraisal must identify HUD as an intended user of the report. Appraisals
prepared by any entity not engaged and paid for by the Lender are not acceptable and will not meet HUD’s
appraisal requirements.
D. The market study should be ordered and paid for by the Lender. However, a market study that has been
prepared for the Borrower by a third-party market analyst and meets all other market study requirements
of the Guide, including timeliness, is acceptable. The Lender is responsible for the review and acceptance
of all market studies submitted with the application.
E. In accordance with the Fair Housing Act, there shall be no discrimination on the basis of race, color,
national origin, religion, sex, disability, or familial status in the selection of an appraiser or market analyst.
Discrimination by age is also prohibited by the Age Discrimination Act of 1975. The Equal Access Rule
(24 CFR 5.105(a)(2)) provides for non-discrimination based upon actual or perceived sexual orientation,
gender identity, or marital status.
F. HUD reserves the right to examine the credentials of all appraisers and market analysts hired by the
Lender, and to reject any individuals that it considers unqualified. HUD staff with concerns about a third
party’s capability, competence, or experience should contact the Counterparty Oversight Branch (COB)
through their supervisory chain. HUD will not reject any third-party contractor without having first issued
warning letters to the Lender highlighting the areas of non-compliance in their submitted reports. Thirdparty contractors will be afforded the right of appeal and due process in defending their work, consistent
with COB procedures.
G. HUD does not formally approve appraisers or appraisal firms as being “MAP Approved.” Rather, the
MAP Lender is responsible for ensuring the professionalism and competence of its contracted appraiser
as well as the quality of the ultimate appraisal product submitted as a component of the Lender’s
application.
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7.3 Appraiser and Market Analyst Qualifications
H. The most current appraiser Certification required by USPAP must be signed by the appraiser. In
addition, the appraiser must include a certification that the racial/ethnic composition of the neighborhood
surrounding the project in no way affected the appraisal determination.
7.3
7.3.1
Appraiser and Market Analyst Qualifications
Appraiser Qualifications
A. Each third-party appraiser must meet the following minimum qualification requirements:
1. Be a Certified General Appraiser under the appraiser certification requirements of the state in which
the subject project is located;
2. Be currently active and regularly engaged in the appraisal of multifamily properties;
3. Meet all requirements of the Competency Rule described in USPAP, which applies to each certified
appraiser who signs the report. If any of the persons involved in preparing the report is a trainee
acting as an assistant, this must be disclosed in the report;
4. Have at least three years of income project appraisal experience; and
5. Be knowledgeable concerning current real estate market conditions and financing trends in the
geographic market area where the subject project is located and be experienced in appraising
multifamily properties with the complexity and characteristics similar to those of the subject project.
If the subject contains commercial space, Low Income Housing Tax Credits (LIHTC), or other
subsidies, the appraiser must have acceptable prior experience in the appraisal of comparable
properties.
B. The above requirements apply to each Certified General Appraiser signing the report. It is not
permissible for an appraiser who is not certified in the appropriate jurisdiction to circumvent certification
requirements by having a locally certified appraiser co-sign the report. Appraisers who are not certified
in the appropriate jurisdiction may not perform the required project inspections of the subject or
comparable properties. The appraiser must disclose any of the persons involved in preparing the report
who are not certified general appraisers and are acting as an analyst, assistant, or trainee.
C. Temporary certifications are permissible; however, the above competency requirements still apply.
The appraiser is responsible for checking the accuracy of all information obtained from local sources and
must indicate the names of all individuals who provided material assistance in preparing the appraisal. A
temporary certification must be obtained prior to beginning the assignment. The Lender may select
appraisers with a temporary certification who have documented how they will achieve competence in the
subject area in accordance with USPAP.
7.3.2
Market Analyst Qualifications
A. Each Market Analyst must meet the following minimum qualification requirements:
1. Have at least 3 years of experience in performing market studies for income-producing properties;
2. Be currently active and regularly engaged in performing market studies for multifamily properties;
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7.4 Valuation Reviews of Third-Party Reports
3. Be knowledgeable concerning real estate market conditions and financing trends in the geographic
market area where the project is located; and
4. Be experienced in performing market studies for multifamily properties with the complexity and
characteristics similar to those of the subject project. If the subject contains commercial space, LIHTC,
or other subsidies, the market analyst must have acceptable prior experience with comparable
properties.
B. COB will investigate any Regional Center or Satellite Office complaints that a Lender is contracting
unqualified or unlicensed appraisers or market analysts.
7.4
Valuation Reviews of Third-Party Reports
A. Certain underwriting functions may be transferred to HUD staff who are in locations that are distant
from the project under review. These functions may include, but are not limited to, appraisal and market
study review.
B. Third Party Appraisers and Market Analysts working on MAP transactions should assume that HUD
staff who are performing reviews may not always be able to physically inspect the subject and
comparables, and that the market information used to verify and determine the validity of conclusions
may be purchased from national data sources such as, but not limited to, CoStar and REIS. (Note: In all
cases, the project will be physically inspected by a qualified HUD staff member for purposes of an
environmental review.)
C. Project locations that are outside the urbanized areas covered by these national data sources are
affected by market forces for which there will be little property-specific information available to HUD
staff. HUD staff will not typically have the same level of knowledge of a particular project or location as
the professional who has done the extensive research and analysis necessary to develop credible
conclusions. The review function would not be efficient or sensible if it involved the same level of time
required to develop and prepare an appraisal report/study. However, reviewers must take the time
needed to make contacts with market participants to develop as much knowledge as possible to reach
reliable conclusions about the work under review.
D. Third-party report providers and MAP Underwriters must ensure the application and supporting
material contain sufficient information for remotely located HUD staff to make an informed decision. For
projects in a location that are not adequately covered by national data sources, the reports must reference
the local sources and contrast them with recognized national sources. The goal is to assure that the
reviewer can fully understand the nuances of the local market.
7.5
7.5.1
Content and Format of the Market Study
Purpose and Focus of the Study
A. The purpose of the market study is to assure that there is enough sustainable demand for additional
units without adversely impacting the existing supply, so as to maintain a balanced overall market. The
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focus of the market study is on the overall demand within a defined market area, and of the proposed
project’s ability to capture and sustain a share of the total (incremental demand). The primary and
secondary market areas analyzed by the Lender’s market analyst may be narrower in scope than the
market analysis prepared by the HUD Economic and Market Analysis Division (EMAD), which analyzes
the broader Metropolitan Statistical Area (MSA), county, or smaller submarket area as appropriate. The
market analyst must, however, also discuss the larger MSA or county. The study must estimate the
number of renter households with sufficient incomes to afford the type of housing at the rents proposed
at present, as well as any expected changes in rental housing demand in the foreseeable future (typically
the next 3 to 5 years). The study must also identify and discuss any risks associated with longer-term
changes in rental housing demand (during the term of the mortgage). In addition, the study must estimate
the number of units that the market could reasonably absorb over a specified forecast period, which is
typically 3 years, taking into consideration competitive units in the existing inventory, units currently
under construction, and units in the planning pipeline, as well as the gross and contract rents of those
units.
B. For projects designed for the elderly, families, and persons aged 62 and over, the study must define the
age restrictions, the anticipated household configuration, and any anticipated household services. The
study must also estimate the number of elderly households with sufficient incomes to afford the type of
housing and services (if any) under study, any expected change in the number of such households, the
proportion of those households that would need and demand such housing, and the number of units that
the market could reasonably absorb and sustain over the forecast period.
C. The market study and appraisal should be completed by two separate entities in order to preserve
independent analysis and conclusions. Any alternative, such as two individuals from the same firm
completing separate reports, must be documented/supported by the MAP Lender, approved by HUD at
the concept meeting, and documented in the encouragement letter issued by HUD.
D. No market study, other than that which would be provided in the appraisal, is required for projects
with 90% or more project-based rental assistance.
7.5.2
Effective Date
A. The effective date of completion of the market study for purposes of a pre-application submission must
be within 120 days prior to the submission of the pre-application package. The date for submission of the
market study for a firm commitment application must be within 180 days prior to the issuance of the Firm
Commitment. The date of the market study can be the date of the site inspection or the date the analyst
completes his/her research on active and proposed competitive properties (the effective date), but not to
exceed 30 days from the date of the site inspection in either case (these dates should be noted by the
analyst in the market study). The effective date is defined as the date that the opinion applies and may or
may not be the same as the date of inspection. Expired reports must be updated as necessary by analyzing
all relevant data. In cases where a Firm Commitment is delayed and the market has remained stable, HUD
may, at its discretion, consider waivers to allow the Lender’s Underwriter to resurvey the data and
provide an update letter referencing any changes or impact to the conclusion contained in the report.
B. Assuming a two-stage application process, the Lender must either submit an updated market study or
a Limited Scope Update to the original market study with the submission of the firm commitment
application. A Limited Scope Update report requires revisiting the demographic and competitive
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environment (including supply), a recalculation of Net Demand and Effective Demand, and a discussion of
subject property’s proposed rents in the current competitive environment. It should also include any
material changes in the primary market area including unemployment rates, adjustments to the labor
force, and any large layoffs or employment losses that may have occurred since the original market study.
It does not require updating all contextual information included in the original market study and can
typically be conducted as a desktop analysis.
7.5.3
Forecast Period for Market Study
A. The Forecast period for the Net Demand Analysis should be a three-year period starting at the effective
date. Extenuating circumstances may require construction and lease up to stretch to a fourth year due to
the regulatory environment or the nature of construction in the subject market (e.g., dense markets, high
rises in central business districts). If the demand period exceeds three years, demand should be adjusted
to match the specific term of the Forecast period. The longer demand periods must include an estimate
of new supply beyond three years.
7.5.4
Project Rents Used in Market Study
A. The rents as determined by the appraisal are to be compared to those concluded in the final market
study. Variations in rents between the market analyst and appraiser may have only a minor impact on
effective demand indicators but may have a significant impact on the market analyst’s opinion about
absorption, since absorption is contingent on a specific rent level. The impact of this must be reflected in
the final report. The market analyst must evaluate the rents for the subject and discuss the
appropriateness of the rents based on current market conditions and an evaluation of the subject site and
product offered, including suggested changes. Rents analyzed in the market study must be compared with
the independent analysis completed by the appraiser and reconciled by the Lender.
7.5.5
HUD as an Intended User
A. All studies should designate HUD as an intended user, along with the Lender and Sponsor/Developer.
7.5.6
Executive Summary
A. All market studies must contain an Executive Summary with a concise summary of the data, analyses,
and conclusions, including the following:
1. A description of the site and the immediate surrounding area;
2. A summary of the project, including the proposed targeted population;
3. Summary statements describing the condition of the economic, demographic, and competitive
environment;
4. A statement of key conclusions reached by the analyst, including but not limited to the Net Demand
and Effective Demand for the subject and forecast average annual change in the number of households
for a specified period of time;
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5. A summary of competitive advantages and disadvantages, and issues that will affect the project’s
marketability, performance, and lease-up, as well as points that will mitigate or reduce any negative
attributes;
6. The number of units currently under construction or in the development pipeline;
7. A statement of the analyst's opinion of market feasibility of the project; and
8. Recommendations and/or suggested modifications to the proposed project, if appropriate.
7.5.7
Description of the Proposed Project
A. The market study must include a thorough description of the proposed project, including:
1. The number of units by type and size with information on the number of bedrooms and bathrooms,
structure type, square footage, etc. Actual (paint to paint) size should be noted as well as the size in
published brochures or other media.
2. The proposed contract, utility allowance, and resulting gross rents by unit type. (Gross rent is defined
as the cost of renting the unit, including the cost of resident-paid utilities.)
3. Description of any income or rent restrictions imposed on the project by the use of public financing
and/or subsidies (e.g., LIHTC, tax-exempt bonds, or subordinate loans). Identify any project-based
rental subsidies to be offered, specify the number of subsidized units, the type and form of the
assistance, and rent levels compared to market rents.
4. Utility policy describing which costs are paid by the tenant and which costs are paid by the
owner/landlord.
5. The unit features, project amenities and services, and associated cost.
6. For rehabilitation projects, provide:
A description of the proposed scope of rehabilitation including a breakdown of hard and soft costs,
if available.
An estimate of total construction cost and cost per unit.
Identification of the existing unit mix and rents including any existing housing subsidies. Current
and proposed rents should be compared.
Current and historical (if available) occupancy information.
An analysis of the current rent roll (if available) to determine if existing tenants will remain
income-qualified and/or able to afford the proposed rents.
7. The project location, in terms of:
Characteristics of the neighborhood in relation to schools, transportation, shopping, employment
centers, social and community services, etc., to include a study of the adequacy of the public
facilities that will service the site. The report must include a map showing the site and important
neighborhood facilities and amenities.
Any other locational considerations relevant to the market and marketability of the proposed
project.
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A conclusion concerning the suitability/appropriateness of the site for the proposed use.
8. Other Characteristics, if any, of the proposal that will have a specific bearing on its market prospects
and overall marketability.
7.5.8
Primary Market Area
A. The Primary Market Area (PMA) is the geographic area in which units with similar characteristics (e.g.,
number of bedrooms and rents) are in equal competition. The location of the competing projects and the
expected origin of the majority of the residents must be discussed. The size of the PMA for general
occupancy rental housing can vary significantly depending on the extent and location of comparable and
competitive products within a specific area and geography. In some cases, both a primary and secondary
market area must be defined. When defining the boundary of a market area, the analyst should consider
the locations of comparable and competitive rental developments (existing, under construction, and
developments in planning) and commuting times from employment. Data on place of work or residence,
population from the Decennial Census, American Community Survey (ACS), private data services, and
local sources will aid in this determination.
B. The market area analysis must include the following:
1. A legible map of the PMA, showing delineated boundaries, location of the subject, major highways and
thoroughfares, geographic features like rivers and lakes, and political divisions such as state lines and
city limits. The map must have a title, bar scale, north arrow, and legend.
2. A description of the geographic boundaries of the PMA and a justification for the delineation, including
a discussion of the location of competitive housing, relevant services and amenities, and
concentrations of employment opportunities.
7.5.9
Economic Context
A. The market study must include a thorough description of the current and forecast economic
characteristics and conditions of the PMA, county, "micropolitan", or metropolitan area (whichever are
applicable). The description is necessary to provide background and justification for the subsequent
demographic analysis and estimates of demand for additional rental housing. Current economic
conditions and employment characteristics must be discussed, including:
1. Identification of growth sectors in the economy and emerging trends, including a detailed discussion
of the sectors in the economy that have a major impact on the local housing market, such as military
facilities, colleges and universities, federal and state government, major employers, or tourism.
2. A study of recent trends in employment, including unemployment statistics and new job creation or
loss, with a detailed discussion of historical nonfarm and resident employment levels and changes.
3. Any anticipated changes in employment as a result of expected closings, openings, expansions, or
cutbacks by leading employers, with a particular emphasis on how this would affect the rental market
during the forecast period, including any seasonal employment markets.
4. Information on the types of jobs being created and lost, including data on pay scales and how these
wage levels relate to the affordability of the proposed rental units.
5. A list of major employers in the PMA, the type of businesses, and the number employed.
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6. In relevant markets (such as resort areas), comment on the availability of affordable housing for
employees of businesses and industries that draw from the PMA.
7. A forecast of employment for the specified forecast period and how this forecast supports demand for
additional new rental housing.
7.5.10
Demographic Analysis
A. The market study must include a thorough description of the current and forecast demographic
characteristics and conditions of the PMA with a comparison to the secondary market, including a detailed
explanation of all significant trends and changes addressing:
1. Recent trends in population and household growth from the most recent decennial census, current
estimates, and growth projections over the next 5 years covering such subjects as population change,
migration, net natural change, household growth or decline, and changes in the average household
size.
2. For senior communities, current and projected senior household base with 55+ and/or 62+
householders.
3. A thorough discussion of past building trends in comparison to household trends.
4. Characteristics of the current household base, including family type, current and change in tenure, age
distribution and household type, and rent burden.
5. Current income characteristics of the population and income by tenure.
6. For senior communities, tenure breakdown, income characteristics, and rent burden of senior
households.
7.5.11
Current Housing Market Conditions
A. The market study must include a comprehensive description of the current conditions of the rental
market in the PMA, and of the sales market, if relevant. This description should include a summary
statement on the current condition of the overall rental market and of the rent levels in the market of
comparable projects, looking at both market-rate communities and affordable units/communities. If
appropriate to analyze, subsidized communities in which tenants are not responsible for all rent being
charged should be discussed separately from market-rate/affordable communities.
B. The analyses should include the following:
1. An estimate of the current competitive rental inventory of professionally managed units in the PMA,
with data on the number of units by structure type, number of bedrooms, rent levels, year built, and
location.
2. A thorough discussion of recent market trends analyzing the following:
Current vacancy levels and recent trends in occupancy/vacancy in existing rental projects.
Occupancy levels should be reported for market-rate as well as affordable communities, and/or
age-restricted communities, if applicable.
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Absorption experience of recently completed rental developments, including estimates at a
project level of per unit per month absorption rates, with particular emphasis on comparable and
competitive projects that have entered the market within the past 24 months.
Current effective rents for comparable and competitive projects, reflecting incentives and utility
policies. Include a discussion of rent trends in this inventory during the past 24 to 36 months.
The description should identify any services included in base rents or offered at a premium.
Where relevant, the report should include information on the extent of rent concessions or similar
incentives, particularly in projects in initial occupancy, and must address the impact of
concessions on rent levels and whether the quoted rents are overstated due to concessions or
other factors.
Estimated current overall rental vacancy rate and vacancy rate for units similar to those in the
proposed project. Significant seasonal variations in vacancy rates, if applicable, should be
discussed.
Discussion of any vacancy or absorption problems in the market, particularly in the segments of
the market most relevant to the subject project.
The impact, if any, of the single family and condominium market conditions, including an analysis
of the cost to rent versus to own, and the impact of foreclosures and of the shadow inventory of
single family and condominium units.
3. The report must include a map showing locations of existing competing rental projects, projects
currently under construction, and those in the planning and development process.
4. If appropriate, analyze inventory, occupancy levels, and waiting list of deeply subsidized communities
in the PMA.
5. If appropriate in markets without a significant inventory of professionally managed rental units,
provide an overview discussion of the scattered-site rental market that might compete with the
subject property, including type of structure, units available, and rents.
7.5.12
Rental Units in the Pipeline
A. The market study must include separate estimates of the numbers of rental units currently under
construction and in the planning and development process that are likely to enter the housing market
during the specified forecast period. These estimates should include all rental developments known, not
solely those determined by the analyst to be comparable and competitive. The description of the pipeline
activity should clearly identify any significant characteristics of specific developments with rent
restrictions or rent limits, such as LIHTC or age-restricted occupancy. The report should provide:
1. An estimate of the number of projects currently under construction, the total number of units, the
numbers by bedroom size (number of bedrooms) by rent range, structure type, and amenities (if
available).
2. An estimate of the number of projects in planning stages that are likely to be developed, including but
not limited to those with building permits or firm financial commitments, with details on the number
of units by bedroom size, rents, locations, and stage of development.
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3. A list of LIHTC projects in or near the market area that are not yet placed in service, giving as much
known detail as possible on estimated placed-in-service dates, unit mix, and income levels to be
served.
4. For senior proposals, a list of all existing and anticipated senior projects within or near the market
area, including characteristics such as type of age restriction (55+ or 62+), number of units by
bedroom size, income restrictions (if applicable), location, rents, and any features, amenities, etc.
included with the rents. For future projects, include as much known detail as possible on estimated
placed-in-service dates.
5. A map locating all proposed communities.
7.5.13
Demand Estimate and Analysis
7.5.13.1
Net Demand Analysis
A. The market study must include an estimate of future demand for the specified forecast period, typically
36 months. The estimate of demand must be based on a calculation of incremental demand (i.e. demand
for additional new units) and must address the following factors:
1. Renter household growth during the forecast period.
2. Recent trends in tenure broken down by homeownership and rental that may increase/decrease the
demand for rental units (e.g., households shifting from renter to owner tenure.)
3. Replacement of existing rental units lost from the inventory due to demolition, conversion, shifting of
owner units into the rental market, and by other means.
4. The effect of any current excess vacant supply, based on an estimate of the balanced market vacancy
rate, which is typically assumed at five percent.
5. Reconciliation of the number of units in the proposed project with the demand estimate for the PMA,
taking into consideration current housing market conditions, available vacancy, and forecast
additions to the supply (planned and under construction).
6. The impact of demand on occupancy levels. Analysts must comment on the potential impact of the
net demand conclusion on future occupancy levels in the market by the end of the forecast period,
especially if net demand indicates supply and demand are concluded to be out of balance.
7.5.13.2
Effective Demand
A. The estimate of "effective demand" is the pool of households with sufficient income and/or applicable
household size that would be expected to demand such housing during the forecast period, including the
income levels and rent- to-income ratio(s) assumed in the study. Evaluation of Effective Demand includes
an analysis of Capture Rate and Penetration Rate:
1. Renter Capture Rate is defined as the percentage of qualified potential renter households in the PMA
that the property must capture to fill the units and achieve stabilized occupancy. Qualified Renter
Households is defined as households that meet any applicable age and household size restrictions and
are within any limiting income eligibility band, such as LIHTC Income Limits, and who have sufficient
minimum income to pay the proposed rent without being rent overburdened. The Renter Capture
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Rate is calculated by dividing the total number of units at the property by the total number of renter
households that meet the applicable age and any income band requirements.
2. Penetration Rate is defined as the percentage of Qualified Renter Households in the PMA that the
property and similar existing and proposed competing properties must capture to fill all units and
achieve stabilized occupancy. The Penetration Rate is calculated by dividing the total number of units
in the competitive inventory (including the subject property, current competitive properties, and
proposed relevant competitive properties) by the total number of renter households that meet the
applicable age and income eligibility band requirements.
3. For communities with subsidized units, affordability and penetration rate sensitivity analyses should
be conducted both with and without project-based rental assistance.
4. The capture and penetration rate analysis must be completed for each unit type at the subject
property.
7.5.13.3
Evaluation of Net Demand and Effective Demand
A. The evaluation of Net Demand and Effective Demand should take into consideration:
1. The current and anticipated supply/demand conditions in the overall rental market;
2. The potential depth of the market of income-eligible households in comparison to the number of units
at the proposed rents; and
3. The marketability of the proposed units considering the project's amenities, rents, and location
relative to comparable and competitive projects and other available housing options.
7.5.13.4
Demand for LIHTC Projects
A. Provide an estimate of demand, including capture and penetration rates, based on potential incomeeligible residents. An income-eligible resident is one whose income does not exceed the maximum
permitted by the affordability restrictions, but who has sufficient minimum income to pay the proposed
rent without being excessively rent-burdened. Households are considered "rent-burdened" if they pay
more than 30 percent of their household income in gross rent, and "severely rent-burdened" if they pay
more than 50 percent. The market study must describe what basis is used for rent-burdened (e.g., 30
percent, or some other percent, but in all cases less than 50 percent.) To make these determinations,
consider the following information and guidance:
1. The market study should specify the applicable LIHTC maximum rents, market rents, and impact on
achievable rents and project-based subsidy rents.
2. When the proposed rents are set at the LIHTC maximums, the market of income-qualified residents
for the restricted units may be comprised of a relatively narrow band of income-eligible renters whose
incomes do not exceed the maximum but are sufficiently high to pay the rent without being rentburdened. This can result in problems with the market feasibility of the project. Depending on income
and rental market conditions in the area, there may not be a sufficient number of potential renters
who meet the income limit and are also able to afford the restricted rent. In many markets, LIHTC
project rents need to be set below the maximum permitted.
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3. Some LIHTC projects include additional types of assistance (such as Section 8 rental assistance or
various forms of subordinate financing) which further reduce the tenant-paid rents and thus expand
the pool of potential income-eligible residents. The market study must identify the estimated number
of households who are eligible but are not excessively rent-burdened when paying gross rent
(including utilities).
4. The determination of demand and capture/penetration rates should take into consideration:
the current and anticipated supply/demand conditions in the overall rental market,
the potential depth of the market of income-eligible households in comparison to the number of
units at the proposed rents, and
the marketability of the proposed units, taking into account the project's amenities, rents, and
location relative to comparable and competitive projects and other available housing options.
B. The Regional Center/Satellite office staff should consult with EMAD in assessing the determination of
eligible income band, capture rate, and absorption rate contained in the market study. Projects with
insufficient demand for the units at the proposed rents should be rejected.
7.5.14
Findings and Conclusions
A. Provide a Project Evaluation. Evaluate the subject property within the context of the site, economic,
demographic, and competitive characteristics. Comment on the strengths and weaknesses of the
proposed project in terms of location, project size, unit breakdown, unit sizes, amenities, features, and
rents.
B. Address the absorption rate, which is defined as a projection of the pace of unit lease up as units
become available for occupancy. The study should also include an estimate of the absorption period
needed for the project to reach a balanced market occupancy rate (e.g., 5% or the market’s typical
stabilized occupancy level based on current market data and the Net and Effective Demand estimates.)
C. The market study must include an assessment of the impact the proposed project will have on existing
rental developments. Specifically, the study must address the impact on existing insured properties and
show whether sufficient demand will be derived from new renter households, the shifting of households
into the rental market, or the replacement of lost or sub-standard units. It must be demonstrated
quantitatively that the number of units under construction and the proposed supply, including the subject,
will not create over-supplied or overall soft market conditions. Even if the subject does not directly
compete with existing insured or uninsured properties, an oversupply of units could spill over into all
segments of the market.
D. For age-restricted properties, the market analyst must describe the intended occupancy regime. The
MAP Lender’s Underwriter narrative must ensure that the analysis and owner’s intent based on their
representations comply with FHA program guidance and Fair Housing law.
E. When projects have a commercial component, the market analyst shall acknowledge and describe the
presence of any commercial space. The description should include information on: traffic counts; trends
in commercial vacancy rates and commercial rents in the submarket in which the subject site is located;
inventory of competitive centers in the immediate vicinity of the subject site; representative sample of
rents presently available in the market; pipeline of commercial properties; evaluation of expenditures
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compared to supply to determine gaps in the market for retail; an opinion on commercial development
opportunities on the subject site; and an opinion on achievable rent levels for such space. This level of
detail is likely not necessary for commercial space under 5,000 square feet. A more detailed analysis will
be completed by the MAP Appraiser. See Section 7.7.14.
7.5.15
Guidance for Income-Restricted Projects
A. According to USPAP Advisory Opinion 14:
“Subsidized housing may be defined as single- or multifamily residential real estate targeted for ownership
or occupancy by low- or moderate-income households as a result of public programs and other financial
tools that assist or subsidize the Developer, purchaser, or resident in exchange for restrictions on use and
occupancy.” While HUD provides the primary definition of income and asset eligibility standards for lowand moderate-income households, other federal, state, and local agencies define income eligibility
standards for specific programs and developments under their jurisdictions.
The competency required of appraisers and market analysts to appraise or prepare market studies for
subsidized housing extends beyond typical multifamily residential experience and requires an
understanding of the various programs and definitions involved in the particular subsidy program
applicable to the development. Practitioners should be capable of analyzing the impact of a particular
subsidy program in both the general market and the local subsidized housing submarket. Political changes
may affect these requirements and therefore must be fully understood.
7.5.16
Data, Estimates, and Forecasts
A. The study should document the methods and techniques used to develop all estimates and forecasts
and provide relevant and current citations on the sources of all data, estimates, and forecasts. Conclusions
in the study must be consistent with the facts presented; findings and recommendations should be based
on a reasonable forecast of market supply/demand conditions and sound assumptions regarding capture
rates, absorption, achievable rents, income affordability, and similar factors. To the extent possible, the
qualitative and quantitative estimates of demand for additional rental units should address the changes
in renter households by household size, not just in total. Although data for all household sizes may be
used, a study of the trend of change by household size may derive a more representative and accurate
demand estimate consistent with the characteristics of the target market.
7.6
Appraisal Requirements
A. The Development of the appraisal must comply with USPAP Standards Rule 1, the Scope of Work Rule,
and assignment conditions outlined throughout this MAP Guide. The report shall be in a narrative format,
comply with USPAP Standards Rule 2, and contain all of the information necessary for loan underwriting
and for the reviewer to easily understand the reasoning employed by the appraiser. Standard Rule 2 does
not dictate the form, format, or style of real property appraisal reports. The form, format, and style of a
report are functions of the needs of the client and intended users. The substantive content of a report
determines its compliance.
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7.6 Appraisal Requirements
Effective Date
A. For pre-applications, all appraisals must have an effective date within 120 calendar days before the
date of the pre-application package. For Firm Commitments, the effective date of the appraisal must be
within 180 calendar days prior to the issuance of the Firm Commitment. The MF Regional Center/Satellite
Office may require an updated appraisal prior to an amendment, re-issuance, or an extension of the Firm
Commitment (e.g., if there is a material change in the terms of the mortgage or in the market conditions
and market data upon which the Firm Commitment was based.) Expired reports may be amended or
updated as needed by re-surveying all relevant data. HUD defines the effective date as the most current
date that the appraiser inspected the subject and comparables and developed estimates of rents and
expenses. Updated appraisals can be submitted if the appraiser re-inspects the exterior of the subject
project, re-surveys the rental comparables, and reviews the market for any additional sales comparables.
USPAP Advisory Opinion 3 should be followed for guidance on completing and reporting appraisal
updates. Lenders should provide for updates in their response to the invitation letter in case of processing
delays prior to issuance of the Firm Commitment. The Regional Center/Satellite Office has the authority
to waive the 180-day requirement or decrease the amount of time until expiration of the report depending
on market conditions.
B. HUD recognizes that occasionally there may be situations where the Inspection Date and Effective Date
may differ, but there should not be a significant difference between the Inspection Date and the Effective
Date. While in the course of preparing the appraisal report, new market information may become
available that has a material effect on the results of the appraisal. This should be noted in the appraisal
report. If there are questions, the Regional/Satellite Office (rather than HUD HQ) should be consulted.
7.6.2
Brevity
A. The appraisal report should be clear and concise. The appraiser should reference in the body of the
report conclusions derived by the analysis of large tables of data, and the actual data should be included
as an addendum. Appraisals must be submitted as an electronically signed and searchable PDF file.
7.6.3
Complex or Unusual Appraisal Assignments
A. When an appraisal assignment involves a subject with property rights issues or other unusual
circumstances, third-party appraisers must be sure to comply with USPAP Standards Rule 1-1(a), “In
developing a real property appraisal, an appraiser must be aware of, understand, and correctly employ
those recognized methods and techniques that are necessary to produce a credible appraisal.” When
these issues occur, the Lender and appraiser (if identified) should consult with the Regional
Center/Satellite Office at a concept meeting before the appraisal assignment begins.
7.6.4
HUD Forms to Include in the Report
A. Form HUD-92264 and supporting forms HUD-92273, HUD-92274, and HUD-92264T (if applicable)
must also be prepared and included in the report.
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7.6 Appraisal Requirements
USPAP Jurisdictional Exception Rule
A. The USPAP Jurisdictional Exception rule is not generally applicable in HUD appraisal assignments.
Nevertheless, the USPAP Jurisdictional Exception Rule clearly states that if an applicable law or
administrative rule such as the MAP Guide or a HUD Notice preclude compliance with any part of USPAP,
then that part of USPAP becomes void for that assignment.
7.6.6
Occupancy Percentage
A. Unless otherwise noted, the occupancy used in the valuation of properties for acquisition or refinance
should be based on the occupancy that is prevalent for the subject’s area. This is reflected in Criterion 3
on form HUD 92264-A. The Underwriters may need to use more conservative (lower occupancy/higher
vacancy) rates to comply with FHA program guidance in sizing the debt-service constrained mortgage
comparisons. The estimate of occupancy should consider the historical performance of the subject and
the vacancy and collection loss typical for the subject’s market area to determine the occupancy
percentage. The appraiser should ignore unsustainable market conditions and short-term spikes in the
occupancy rate due to seasonal changes and short-term demand for specialized employment (e.g., disaster
relief workers.)
7.6.7
Sections 220, 221(d)(4), and 231
A. Sections 220, 221(d)(4), and 231 (new construction only) do not call for an “as complete” value
conclusion. The Department considers valuation work for these assignments to be an appraisal that is
developed and reported in compliance with USPAP Standards 1 and 2.
1. By statute, FHA Multifamily new construction programs are replacement cost-limited mortgages and
require a valuation of the land, a debt service analysis, and a cost approach to value. An estimate of
the market value after completion is not required or relevant. The appraiser must fully examine the
proposed construction costs of the subject project at the Firm Application stage. The MAP Lender’s
Appraiser must present, analyze, and support the cost approach based on the plans, specifications,
and development costs using either a subscription cost service, the lender’s third-party cost analyst,
or a direct comparative analysis of recently completed similar developments. Substantial
Rehabilitation projects require an estimate of the “As Is” value of the project (as opposed to only the
land) by use of the income and direct sales comparison approaches to value when possible.
Unoccupied or “shell” structures may be appraised using the sales comparison approach and/or cost
approach.
NOTE: The Section 231 Sub Rehab Program is an exception – those projects require calculation of both
a cost and an “as completed value” limited mortgage amount.
For apartments that are occupied, the primary method to determining value is the Income Approach.
The value should be what the typical purchaser would pay for the income stream currently associated
with the subject based on its actual condition and occupancy restrictions. The as-is value must not be
based on after-rehab projected income or any advantages that will accrue as a part of the transaction.
NOTE: See special instructions for Cost Certification as it relates to As Is Valuation in Chapter 13,
Section 13.21.
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2. The appraiser and the MAP Underwriter must assure that there is a sufficient narrative and exhibits
to allow a reliable underwriting decision to be reached. This should include, but is not limited to,
location maps, photographs of the subject, rent and expense comparables, site and floor plans, along
with thorough explanations of all adjustments.
7.6.8
Section 223(f)
A. For Section 223(f), calculate all three approaches to value for subjects that have an actual age of less
than ten years. The appraisal for the 223(f) refinancing should assume market value for purposes of
developing Criterion 3 and should further assume that any proposed repairs/improvements have been
completed, as rents, expenses, and value must reflect completion of any proposed repairs or
improvements. Not all repairs/improvements will result in an increase in value. Structural repairs, utility
line improvements, or other repairs that do not directly result in an increase in market share or would
not result in a resident’s willingness to pay an increased rental amount likely will not increase value. Any
proposed rental increase must be demonstrated by market data.
7.6.8.1
Value for Rent Controlled Properties
A. The appraisal should use market rents for purposes of developing Criterion 3 except in cases where
rent control or a legislative restriction exists that limits the maximum rents in perpetuity and where such
limits survive foreclosure. In these limited cases, the controlled or legislatively limited rents should be
used to develop Criterion 3.
7.6.8.2
Cost/ Summation Approach
A. The cost or summation approach must consider all applicable forms of depreciation, functional, and
external obsolescence. The cost/summation approach shall not automatically set the upper limit of value
for these programs. The appraiser should provide a final reconciliation of the three approaches to value,
and consider the basic principle of substitution in that no prudent purchaser would pay more for a project
than the cost to acquire a similar site and construct improvements of equal desirability and utility. This
approach may be eliminated at the discretion of the appraiser for subjects that are ten or more years old.
7.6.8.3
Sales Comparison Approach
A. In multifamily housing, the entire project as a whole typically does not offer a convenient basis for
comparison with other entire projects due to differences in size, composition, areas, units, and rooms. In
such cases, acceptable units of comparison are price per living unit, price per room, and price per square
foot of gross building area (GBA). Adjustments to the sales should reflect market conditions and be
supported through appropriate analysis. A comparative adjustment for a Net Operating Income (NOI)
differential in the Sales Comparison Approach (more commonly known as an NOI adjustment) is not
permitted under any circumstances.
7.6.8.4
Income Approach
A. The annual net operating income remaining after the payment of expenses is considered to be the
primary source of value to the project. The preferred method of capitalizing the NOI into a value estimate
is Direct Capitalization. Note that the overall capitalization rate verified from Actual Sales is preferable to
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those used in the Sales Comparison Approach or developed by the Band of Investment Model or Investor
Surveys, especially in the cases where rent restrictions are factored into Criterion 3 due to legislative
restrictions on rent that survive foreclosure. There are several acceptable techniques for deriving
capitalization rates. All of the following should be employed and thoroughly discussed:
1. Comparable Sales. Rate Extraction based on recent (preferably within the past year) comparable
sales is the most preferred. Pending sales are also encouraged if reliable information is available.
These must include ALL of the market comparables used in the Sales Comparison Approach or an
explanation must be provided. Comparables should be similar to the subject in location, design,
quality of construction, and similar risk factors associated with ownership. They should also be
similar in the type of expenses, specifically noting variances in deposits to reserves for replacement.
2. Band of Investment Model. Band of Investment is based on the premise that most properties are
purchased with a combination of debt and equity. The overall capitalization rate derived by this
model must satisfy the market-indicated requirements of both investment positions. Lenders
anticipate obtaining a competitive interest rate commensurate with the perceived risk of the
investment, and they expect the loan principal to be repaid through periodic payments. The property
investors expect a competitive return through the equity capitalization rate commensurate with the
perceived risk.
3. Published Surveys. These are to be discussed as supporting information.
7.6.9
Reconciliation of the Approaches to Value
A. Reconciliation involves the data, analyses, and value indications from each of the approaches to value
that were developed. It also includes the information comprising the appraisal problem and the
underlying analyses of the apartment market, the property’s location, and the property itself. All
approaches must be internally consistent in order to achieve a reliable estimate of market value. The
result of the reconciliation should be a well-reasoned value opinion that discusses conflicting issues and
inconsistencies that were revealed by the research conducted and explains them such that a logical and
credible conclusion is reached.
7.6.10
Section 231 Substantial Rehabilitation
A. For Section 231 Substantial Rehabilitation cases, follow the instructions for Section 223(f). Substantial
rehabilitation under Section 231 differs from Sections 220 and 221(d)(4) in that a market value based on
the completion of the rehabilitation is required.
7.6.11
Remaining Economic Life (REL)
A. HUD Multifamily Housing programs allow for long term amortization periods. The HUD Underwriter
must determine the REL and the remaining useful/physical life based on review and reconciliation of the
appraisal, capital needs assessment (CNA), recommendations from the appraisal review, and their own
observation. This estimate is not a strictly formulaic calculation. REL is defined as the estimated period
during which improvements will continue to contribute to project value and an estimate of the number of
years remaining in the economic life of the structure or structural components as of the date of the
appraisal. For new construction and substantial rehabilitation projects, the maximum mortgage term is
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7.6 Appraisal Requirements
the lesser of 40 years, or 75 percent of the REL. For existing properties, the maximum mortgage term is
the lesser of 35 years, or 75 percent of the REL.
B. When used in this section, the words and terms below are defined as follows:
1. Physical Life. The period from the time of completion (as new or after substantial rehabilitation) of
a structure until it is no longer fit or safe for use, or when maintaining the building in a safe, usable
manner is no longer practicable. Because a building is subject to physical deterioration and
obsolescence, its period of usefulness is limited. As a building deteriorates or becomes obsolete, its
ability to serve useful purposes decreases and eventually ends. This may occur gradually or rapidly.
2. Economic Life. The period over which improvements to real property contribute to property value.
Economic life can never be longer than the physical life but may be shorter. Both Physical and
Economic life will be affected by the underlying construction quality, market incentives, level of
maintenance/updating to correct physical deterioration, and/or functional obsolescence.
3. Functional Obsolescence. Reduction in the usefulness or desirability of the improvements to real
property due to the presence of outmoded features, such as lack of closet space or the number of
bathrooms commensurate with the number of bedrooms. Such features are often not curable and
may or may not be relevant in evaluating the REL.
4. Effective Age. The apparent age of the improvements to the real property, which may vary from its
actual or chronological age. The effective age is determined by the appraiser assuming the required
repairs to be made as specified in the CNA are a condition of refinancing, and based on the following
factors:
Workmanship, durability of construction, and the rate with which natural forces cause physical
deterioration;
The physical condition and probable cost of maintenance and repair, the maintenance policy of
owners and occupants, and the use or abuse to which structures are subjected;
The economic background of the community or region and the need for accommodations of the
type represented;
The relationship between the property and the immediate environment, the architectural design,
style, and utility from a functional point of view, and the likelihood of obsolescence as attributable
to new inventions, new materials, and changes in tastes; and
The trends and rate of change of characteristics of the neighborhood and their effect on land
values.
C. Remaining Economic Life is the Economic Life less the Effective Age. The effective age is determined
by the appraiser based on the actual condition of the subject considering all applicable forms of
depreciation. The appraiser should assume the required repairs to be made as specified in the CNA are a
condition of refinancing, and consider the type and quality of construction, maintenance factors, and any
other relevant market and economic factors that might influence the long-term success of the project. The
following are examples that illustrate the implementation of these concepts:
1. An older structure with functional obsolescence remains competitive in an area characterized by
chronic high costs and a shortage of moderately priced apartments.
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Such structure could be a market-rate project in a particularly desirable location, or a former
affordable housing project. The MAP Appraiser's market analysis indicates that there is sustained
demand in the market area that likely will allow the project to remain competitive for a long term.
This can cause the effective age to be lower, with a commensurate increase in REL.
2. A structure that is sound and in good physical condition with many years of physical life remaining
may have reached the end of its economic life - if its remaining years of physical usefulness will not
provide a competitive return on investment.
Low rise apartment projects in a given market area are no longer consistent with emerging trends or
investment patterns, e.g., changes resulting from construction of a new transit system or facility
stimulate demand for higher density commercial and residential uses.
D. The presence or prevalence in a market area of persons or families of any race, color, national origin,
religion, sex, disability, or familial status, (which are all are Fair Housing Act protected classes) shall never
be considered when conducting an appraisal.
7.6.12
Confidentiality Rule of USPAP
A. HUD is the regulatory enforcement agency identified in the Confidentiality Rule of USPAP. Appraisers
will be required to present their entire work file and fully disclose the identity and source of confidential
information should the Department determine a review of the appraiser’s work file is in order. (Note that,
per USPAP, disclosure to enforcement agencies does not constitute a violation of the Confidentiality Rule.)
7.6.13
Appraiser’s Certification
A. Include an appraiser’s Certification with the format in Chapter 11, Section 11.2.3 of the MAP Guide as
well as the most current USPAP certification.
7.6.14
Inspection of the Subject and Comparables
A. The primary appraiser designated by the Lender and accepted by HUD must physically inspect the
subject (both exterior and interior) and all of the comparables used as part of the analysis. The primary
appraiser must also sign the Certification within the appraisal report and the supporting HUD forms.
1. The primary appraiser must inspect at least one of each bedroom/unit type. The total number of units
inspected must equal or exceed 5% of the total number of units for projects of up to 200-units, or 4%
of the total number of units for projects greater than 200-units. If the characteristics and/or condition
of the subject indicate that a higher level of inspection is necessary, it is the appraiser's responsibility
to expand the scope of the work as may be necessitated by the observations made by the primary
appraiser during the inspection of the subject. This is especially important where the improvements
are high-rise structures and individual units within the building demonstrate varying degrees of light
and view qualities. If there are hazardous conditions or other factors that preclude a thorough
inspection of the interior, the appraiser must clearly indicate these circumstances in the appraisal
report.
2. For large projects exceeding 500 units, the Lender may permit a lesser percentage but reasonable
number of units to be inspected by the appraiser. In addition, the appraiser may employ assistants to
inspect individual units so as to encourage a thorough inspection. The names and qualifications of
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7.6 Appraisal Requirements
these assistants must be disclosed in the appraisal report. The assistants are not required to sign the
report.
3. The primary appraiser must inspect all of the comparables used in deriving an estimate of value,
including land comparables (if applicable), improved comparables sales, expense comparables, and
rental comparables. The appraiser must verify the condition of the comparables with management
or other personnel familiar with the project, whose contact information must also be documented in
the appraisal report.
7.6.15
Required Appraisal Report Exhibits
A. The following exhibits are required with all submissions: photographs (subject, and all comparables
including rentals), regional map, location map, satellite scans (if available from Google, Bing, etc.), flood
hazard map, survey (if available), floor plans (for each type of unit being offered - if available), site plan,
zoning map, tax map, land sales comparable map, rental comparable map, and improved sales comparable
map.
7.6.16
Market Analysis
A. The appraisal must also contain, depending on the complexity of the project and prevailing market
conditions, a Level B or C Market Analysis of the local market with an emphasis on multifamily housing
to determine the ability of an existing project to continue usage as multifamily housing. In the case of
proposed construction or substantial rehabilitation, the purpose is to determine overall feasibility and
demand for new housing units. The following is a brief outline of a Level C analysis:
1. Location. This includes a general description, specific analyses of site linkages and urban growth
determinants, and detailed competitive location rating.
2. Demand Analysis. This includes a discussion of general evidence of sales/leasing activity, general
city/area growth trends, market absorption, demand and need forecast based on population,
employment and income, and a demand forecast of the subject market segment.
3. Competitive Supply Analysis. This includes vacancy rates for comparables and from market surveys
(secondary data), field research on all competitive and proposed properties, building permit analysis,
identification of proposed sites, and a detailed competitive amenities rating.
B. The detailed requirements for performing a Level B or C analysis can be found in “Market Analysis for
Real Estate” published by the Appraisal Institute. In general, a stable market evidenced by recent sales,
and balanced supply and demand, is an indication that a lower level “B” analysis will be sufficient. If there
is uncertainty in determining the level of analysis, the Lender and appraiser should jointly consult with
the Regional Center or Satellite Office.
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7.7
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Chapter 7 Valuation & Market Analysis
7.7 Estimating Project Income
Estimating Project Income
Rental Estimates
A. The appraiser must estimate the annual gross income of the subject project including estimates of
income from market comparables, rental concessions, and an assessment of the general health of the
rental market. The gross income estimate assumes a full occupancy level and reflects rent levels current
as of the appraisal date or date of the market study. Also consider the effect that any proposed repairs to
the project will have on rents, expenses, and net income; however, not all repairs will increase rents,
occupancy, or net income, and/or decrease expenses.
7.7.1.1
Rent Comparables
A. Market rent by comparison shall be estimated by the appraiser and documented on form HUD-92273
or form HUD-92273-S8 if the appraisal is also being used as a Rent Comparability Study (RCS). A separate
form HUD-92273 is to be prepared for each type and size of rental unit in the subject project (if
significantly different).
B. Market rents attributed to the subject property should not be speculative. If rents are based on levels
achievable assuming that proposed repairs are completed, then those units that have had repairs
completed and are leased are most reflective of market or near market rent levels. The rent comparables
and units selected for comparison must be as similar as possible to the subject project and units as to
location, structural type, number of bedrooms, and average unit size. In order to ensure they are truly
comparable and competitive with the subject project, appraisers should generally not use rent
comparables located outside of the subject’s market area, instead they should be from areas similar to the
subject and should be fully explained in the report. Market-rate units from partially assisted projects can
be used as rental comparables in the absence of better rental data.
7.7.2
Adjustments
A. Consistent adjustments for significant differences between the comparables and the subject units shall
be derived from the market, applied to the subject rent estimate, and fully explained. Rental adjustments
are always made to the comparables reflecting differences with the subject project.
7.7.3
Final Rent Estimate
A. The appraiser should select the final rent estimate based on the comparables that are the most similar
to the subject in location, size, style, and desirability. In situations where the appraiser gives the greatest
weight to the highest or lowest comparables, the appraiser must explain and substantiate with market
data why the chosen comparables are the most reliable. Often the best comparables are those that require
the least amount of adjustment. Just as the most appropriate rent comparable must receive more weight,
the general health of the rental market must be recognized before relying upon one or two optimistic
indicators.
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Chapter 7 Valuation & Market Analysis
7.7 Estimating Project Income
LIHTC and/or Bond Financed Projects
A. On LIHTC and/or bond financed projects, form HUD-92264T must be completed to determine the
appropriate processing rents.
7.7.5
Trending of Rents
A. Rental estimates shall be made as of the appraisal or market study date and may not be trended to a
future date. Since rent estimates are made based on street rents currently being obtained by the
comparables, no time adjustment is needed for an estimate as of the appraisal or market study date.
Estimate Gross Potential Income (GPI) based on in-place rents at the subject property as evidenced by
current rent rolls. However, rents may be adjusted based upon improvements to be made as part of the
refinancing when these improvements will increase marketability.
7.7.6
Equipment Included in Rent
A. Equipment included in the subject rent such as ranges, refrigerators, microwave ovens, air conditioning
equipment, and laundry facilities must be identified. Services included in the subject rent frequently
include heat, air conditioning, water, and trash removal, and must also be identified. Comparable project
equipment and services must correspond to the same items of equipment and services provided in the
subject proposal and the adjustment process must reconcile any differences. This approach also applies
to the analysis of expenses.
7.7.7
Occupancy/Vacancy and Collection Losses
A. The appraiser must establish a factor for vacancy and collection loss when determining the effective
gross annual income for the residential units. The factor must consider both historical and current data
(applicable for existing properties) of the subject project, the rental comparables, and any anticipated
changes in the market. The factor selected must reflect long-term occupancy rates that are expected to
continue. The estimate of occupancy should be based on the actual occupancy of the subject without
regard to programmatic constraints imposed on the maximum underwritten occupancy when calculating
debt service coverage. The estimate of occupancy must take into account the vacancy and collection (bad
debt) loss typical for the subject’s market area and, if applicable, be consistent with the subject’s historical
performance.
B. In most cases the appraiser should use income from actual operations and market conditions in
determining value. In sizing the loan for purposes of debt service, the underwritten vacancy rates will be
the greater of the minimums below and the vacancy loss rates for the subject property. However, the
following minimums may be used to develop market value if deemed appropriate by the appraiser.
Minimum Vacancy
and Collection
Loss Rate
3%
5%
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Property Type
⚫ Properties with HAP contracts covering 90% or more of the units
⚫ Properties meeting at least the minimum LIHTC set aside requirements (20% of
the units set aside for tenants earning no more than 50% of median income; 40%
of the units set aside for tenants earning no more than 60% of median income; or
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Minimum Vacancy
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Loss Rate
7%
7.7.8
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Chapter 7 Valuation & Market Analysis
7.7 Estimating Project Income
Property Type
with income averaging, 40% of the units at an average income of no more than 60%
of the area median income); and
⚫ Attainable tax credit rents at least 10% below market.
⚫ LIHTC properties with any percentage of units set aside but without a 10%
discount to market; or
⚫ Other properties that do not meet the requirement for a 5% or 3% minimum
vacancy
Project Rent Concessions
A. Rent concessions in comparable projects must be included in the analysis and an appropriate
adjustment made to the subject rent based on the comparable units. The adjustments must reflect the
actual impact on gross annual income resulting from the comparable rental concession.
7.7.9
Occupancy
A. When the occupancy rate in a comparable project is significantly less than the long-term occupancy
rate estimated for the subject, a downward adjustment should be made to the comparable’s rent. If other
factors such as condition have an effect on occupancy, care should be taken to avoid excessive and
duplicative adjustments for interdependent factors. The appraiser must note the actual market-derived
commercial vacancy/occupancy rate in the appraisal report. However, the appraised value of the
commercial space component for acquisition/refinance, or the underwritten net operating income for
new construction/substantial rehabilitation projects, must assume either the lesser of what is indicated
by the market or the occupancy limitations of the specific program.
7.7.10
Utilities/Services
A. All of the items for consideration under this heading refer to the cost of the services of water, sewer,
gas, and electricity that may be included in the rent. In some cases, even though both the subject and the
comparable units have the same service included in the rent, an adjustment may still be warranted to
bring the comparable in line with the subject, due to size, equipment, utility rate, type of utility, etc. If
included in the comparable rent, but not in the subject, enter a negative adjustment reflecting that portion
of the comparables rent attributable to the inclusion of the service. If excluded from the comparable rent,
but included in the subject rent, enter a positive adjustment reflecting the estimated increase in rental
value attributable to including the service in the subject’s rent.
7.7.11
Project Location, Amenities, and Other Factors
A. Consider the subject location relative to distance from shopping, recreational, social, medical and
employment centers, neighborhood desirability, transportation, special hazards, and nuisances.
1. “Other” items that may be considered include, but are not limited to, the following:
Livability – reflect good or poor unit design and configuration, including room sizes, layout,
adequacy of closets, lighting, elevators, and laundry facilities, etc.
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7.7 Estimating Project Income
Condition of improvements – reflect lack of maintenance, soundproofing, etc.
Parking – reflect parking rates, adequacy of parking for visitors, proximity of parking to the units,
inclusion/exclusion of parking space with unit rental, etc.
Project density – consider open space or crowding of units, if the degree of either is such that it
would affect the level of attainable rental.
Unit location – reflect features of location of a unit within the project, such as view, proximity to
swimming pool, tennis, or other recreational facility, and/or other similar factors.
2. Generally, only high-rise elevator comparables are to be compared with a subject elevator high-rise
proposal. Mid-floor level rents of the comparables are compared with the mid-floor level of the
subject project. Rent adjustments for heights of the comparables above and below the mid-floor level
of the subject also must be made, as indicated by the market.
7.7.12
Other Income
7.7.12.1
Ancillary Income
A. The appraiser may consider other income based upon the operating history of the project only where
these sources of income are common in the market. Other income might include, but is not limited to,
recurring and reliable sources such as laundry facilities, parking, equipment rental, and vending
machines. The appraiser may consider the net amount of this other income based on the actual
(historical) amount received. Any projections of other income must be supported by market information
and should not automatically assume a direct relationship to residential occupancy. This analysis must
be discussed in the appraisal report
7.7.12.2
Resale/Submetering of Utilities
A. This type of income may be recognized so long as it is legally acceptable, is typical for the market, and
is transferable.
7.7.12.3
Resale of Internet and Media Services
A. Income from the resale of internet and media services must be both legally acceptable and typical for
the market. The MAP Appraiser and Underwriter must address the issue of competition with other
service providers as well how this service is provided, specifically taking into account changing
technology. Contracts between service providers must be assessed for risk due to factors such as
transferability upon the sale of the project, long-term financial strength of the service provider, the length
of the contract, and the upfront cost of procuring a contract. For 223(f) or existing 231 projects, there
must be clear market-derived indications that having this service results in an increase in a project’s value.
7.7.12.4
Cell Tower Income
A. This is a form of commercial income. Its inclusion in the estimate of value is discouraged unless there
is an established long-term lease with a reliable lessee. If cell tower income is to be recognized for either
underwriting or valuation purposes, the MAP Appraiser and MAP Underwriter should address the risk
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7.7 Estimating Project Income
associated with present and future competition as well as technological changes, and a higher
capitalization rate may be used if income is recognized for valuation purposes.
7.7.12.5
Short-Term Lease Premiums
A. Projects with lease terms that are less than 30 days are not eligible for HUD-insured financing under
any circumstances and should be distinguished from Corporate Leases defined below. Income from other
short-term leases may be considered to the extent that it exists in the local market. There must be a
thorough discussion of the prevalence of short-term leases in both the appraisal and underwriting
summary. The amount of the premium is the difference between the rent for a unit with a term that is
typical for the market (generally one year) and the rent for a short-term lease. This premium is residentrelated and is treated as ancillary income. Units with short term leases do not require a separate form
HUD-92273, but the rental amount must be based on market information.
7.7.12.6
Corporate Leases
A. Corporations and businesses are eligible residential residents in insured projects so long as the lease
term equals or exceeds 30 days, although compliance with the policy on Short-Term Lease Premiums
above is required and the number of units subject to the leases cannot exceed 10% of the units. For
underwriting and valuation purposes, the percentage of total gross income obtained from corporate
leases shall not exceed 10%. Requests to waive this guidance will rarely, if ever, be approved.
7.7.12.7
Pool and Pet Fees
A. These fees may be recognized based on operating history and prevailing market conditions. For
existing projects (223(f) and occupied substantial rehabilitation) the greatest weight should be given to
operating history. For new construction cases, any projected income from these fees must be supported
by hard data and a thorough discussion of competing and comparable properties.
7.7.12.8
Ineligible Income
A. Ineligible income should be noted and discussed in both the narrative appraisal report and the remarks
section of form HUD-92264. There is no prohibition on this category of income, but it cannot be included
in the income calculation for the purposes of determining value or the maximum insurable mortgage.
Ineligible income includes the following:
1. Interest Income. The appraiser must not include in the calculation of income any interest income,
including interest on reserves.
2. Ineligible Fee Income. Non-recurring and non-regular income that is not reliable may not be
included in the calculation of income. Examples may include, but are not limited to, forfeited security
deposits, or forfeited rent. Reliance on a forfeited security deposit or forfeited rent may be common
due to management practices in a project or market but will not be recognized by HUD/ FHA for either
the valuation or underwriting.
3. Furnished Units. Furnished units must be underwritten at the same rental rate as unfurnished units.
This applies to all units, including those having corporate and short-term leases. For valuation
purposes, furnished units can be valued based on the prevailing market conditions.
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7.7 Estimating Project Income
4. Non-Shelter Services/Elderly Developments: Refer to Chapter 3, Section 3.11.3.
7.7.12.9
Commercial Income
A. Where commercial facilities are included in a mixed-use project, a separate analysis must be made of
the effect that the commercial operation will have on the project. The appraiser must calculate income,
vacancy and collection loss, operating expenses, and replacement reserves attributable to commercial
space separately from the residential space. Project-paid tenant improvements must be accounted for as
a leasing expense, and if applicable, a separate commercial-space operating deficit must be calculated in
addition to the required residential operating deficit.
B. The term "Commercial" is applied to any space or facility permitted and acceptable for "Nonresidential
Use" from which income is derived or anticipated. Income from residents for the use of facilities such as
community rooms and parking are not considered commercial even though fees may be collected. This
income is considered ancillary income and is treated separately from commercial income. However,
income from non-residents related to parking or other community facilities must be treated as
commercial income and is subject to the restrictions on the underwritten occupancy rate as noted in
Chapter 3.
C. The space occupied by parking and community facilities is not included in the calculation for allowable
commercial space. Non-tenant parking income from commercial parking spaces reserved for use by
motorists who are not project residents or are not parking to use the on-site commercial tenant’s facilities
must be included in the Commercial Space and Income limitations. The income and space attributable to
parking spaces reserved for non-residential or non-commercial tenants must be included in the
limitations, based on applying the percentage of the total spaces that are reserved for non-tenant use. For
existing properties that provide parking for a monthly fee and are to be acquired, refinanced, or will
undergo substantial rehabilitation, the Lender must identify the percentage of monthly parkers who are
non-tenants so as to include these in the commercial income limitations. The maximum occupancy factor
to be applied to the parking income attributable to parkers who are not associated with either the project’s
residential or commercial tenants shall be the lower of:
1. The amount indicated by the market and by the historic performance of the subject; or
2. 50 percent.
NOTE: For proposed construction, or where new commercial parking facilities are to be
constructed, the demand for this parking must be addressed in the appraisal and Underwriter’s
narrative. If the Borrower operates a parking facility that provides parking for residential or
commercial tenants of the project, the Lender must determine underwritten parking income
based on an analysis of the past 3 years of operation and the trailing 12-month period prior to
application. If the parking facility is operated by a third party, the Lender may use the amount of
income collected under the contract if it is a fixed monthly payment. Parking contracts that specify
a percentage rent in addition to or in place of a fixed rent are not permitted without a waiver.
D. A separate analysis must be performed for each type of space using form HUD-92273 or a similar
format to summarize appropriate adjustments to comparable data. These studies can be incorporated as
a separate section in the overall residential market study submitted at the pre-application or firm stages,
depending on the program requirements, and must also comply with Appendix 7, Section A.7.1. Care must
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7.7 Estimating Project Income
be taken in reviewing the allowable square footage and income percentage attributable to the
commercial/office space since these requirements vary by program. See the table below.
SOA
221(d)(4) and 231
220
223(f)
Commercial Space and Income Limitations
Maximum Allowable Percentage
Maximum Allowable Percentage
of Total Net Rentable Area
of Effective Gross Income
25%
15%
25%
30%
25%
20%
E. For all programs except Section 223(f), the maximum underwritten commercial occupancy rate shall
be the lesser of: a) that indicated by the market, or b) 80 percent. For Section 223(f), the maximum
underwritten commercial occupancy rate shall be the lesser of: a) that indicated by the market, b) the
actual occupancy rate of the subject, or c) 90 percent. For special instructions related to the maximum
underwritten occupancy rate for non-tenant parking income, see Section 7.7.12.9.C above.
7.7.13
Limited Waiver of Commercial Income and Space Limits
A. Regional Center Directors may issue waivers of the commercial income limits in Section 7.7.12.9, so
long as the amount does not reflect a property that is primarily commercial rather than residential. New
construction and substantial rehabilitation projects with commercial income greater than 20% of the
effective income should, if located in a Section 220 eligible location, use the Section 220 program rather
than a waiver of the 221(d)(4) limit. The Regional Center Director’s approval must document that the
project’s commercial component will contribute to meeting the Department’s Strategic Plan Goals,
including promoting sustainable communities or supporting transit-oriented development. If the Lender
requests a waiver of the commercial income limits, HUD may require that the request be supplemented
by a complete credit analysis of all existing or pre-leased commercial tenants. Waivers may be granted
where there are clear mitigating circumstances that justify such a waiver. Examples include, but are not
limited to:
1. A long-term lease with a credit-worthy tenant, such as a government agency or a large, wellestablished business;
2. A multi-tenant commercial space where most of the tenants have a long history of occupancy (5 or
more years) and full occupancy of this space is not needed to provide a break-even cash flow for the
project; or
3. There is substantial Borrower equity and/or local government funds that mitigate risk.
4. Existing Section 223(f) projects with an established history of commercial income exceeding the 20%
limitation, but less than or equal to 30%.
B. Regional Center Directors may issue waivers to exceed the commercial space limits in Section 7.7.12.9.
In order to justify a request to waive the commercial space limitation, the owner must demonstrate:
1. that the additional space will not negatively impact on the use of the project by its residential tenants
and will not create a nuisance to the surrounding community, so as to create a situation where the
project is no longer residential in nature;
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7.8 Project Operating Expenses, NOI
2. there is ample market support to assure occupancy of the space within the projected absorption
period; and
3. any issues involving easements, liability insurance, parking and zoning must be resolved prior to
granting the waiver.
7.7.14
Commercial Space Valuation
A. Unlike the valuation of the residential portion of a mixed-use project, the appraiser must value the
commercial portion of the project by applying the programmatic income and space limitations used to
establish the commercial NOI for calculating debt service coverage (see Chapter 3). The appraiser must:
1. Conduct a complete analysis of at least three commercial income and expense comparables and
provide a photograph, the tenant’s name, type and address of business, square feet, rent, vacancy, any
concessions, and major lease terms for each comparable.
2. Provide data to support the subject’s commercial vacancy rate in relation to the market commercial
vacancy rate and review the rollover risk and cost of resident improvements to re-lease space. Use a
vacancy factor of not less than 10% for Section 223(f), and 20% for Section 221(d) and Section 220
new construction or substantial rehabilitation, to obtain effective gross commercial income for
underwriting purposes.
3. Provide the term, commencement date, expiration date, and name of the tenant, square footage, and
calculation of gross rents, expenses, reimbursement of expenses, cancellation clauses, and renewal
clauses for each lease.
4. Include as project operating expense all commercial expenses payable by the project owner. The
analysis of all commercial income and expenses must be reflected on form HUD-92264 with all the
supporting data attached to the form.
7.8
7.8.1
Project Operating Expenses, NOI
Purpose
A. The appraiser shall determine the costs to maintain, operate, and repair the project and to defray the
costs of ownership. An accurate analysis of operating expenses is essential to determining a realistic
estimate of net income before debt, depreciation, or the Borrower’s other non-operating costs. This net
income is commonly known as net operating income (NOI).
B. Appraisers must use form HUD-92274 (Operating Expense Analysis Worksheet) to develop project
expense estimates to be included in Section E of form HUD-92264 (Project Income Analysis and
Appraisal). Form HUD-92274 must be included in the processing file as supporting documentation for
form HUD-92264.
C. Market expenses attributed to the subject should not be speculative and should bear some reasonable
relationship to the project operating history, understanding that some savings in operating expense line
items may be gained when proposed repairs are completed. An example of savings might be reduced
utility expenses based on the installation of certain energy-efficient features. Reduced real estate taxes
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7.8 Project Operating Expenses, NOI
based on a new assessment classification would also be justification for estimating operating expenses
lower than indicated by the project-specific operating history.
7.8.2
Sources of Expense Data
A. For new construction projects, operating expenses must be estimated on the basis of comparable
projects.
B. For existing projects, for both valuation and debt service, operating expenses must be adjusted on the
basis of comparable projects but will primarily be based on the past 3 years of operating experience for
the subject project. In addition, the Lenders should provide trailing 12 months of income and expenses
for the appraiser to compare to the historical statements.
1. The most current year project financial statement must have a third-party CPA or IPA review. Owner
certified financial statements may be submitted for the years prior to the last full Fiscal Year. Any
owner-certified financial statement or owner-certified balance sheet and operating statement must
include the following acknowledgment:
“WARNING: 18 U.S.C. 1001 provides, among other things, that whoever knowingly and willingly
makes or uses a document or writing containing any false, fictitious, or fraudulent statement or entry,
in any matter within jurisdiction of any department or agency of the United States, shall be fined under
that title or imprisoned for not more than five years, or both.”
2. For refinance transactions where the project may not have been under the current ownership for the
3-year period, financial statements for the entire 3 years may not be available. This is particularly
true for bankruptcies or the acquisition of defaulted properties. Also, in purchase transactions, not
all the required information may be available for reasons beyond the purchaser’s control. In these
situations:
The Borrower must submit a statement through the Lender that explains why all the required
records cannot be obtained.
The Lender must also certify that they have evaluated the Borrower’s statement and agree that
the information is not available.
3. The Regional Center Director may waive the requirement for past 3-year period financial statements.
However, the Borrower must submit the project financial statements that are available including an
owner-certified year-to-date balance sheet and operating statement.
C. All projects must be analyzed as independent operations and must not reflect shared expenses from
nearby projects under the same management, including shared insurance premiums. If the nearby project
should be subject to foreclosure, the subject project would be adversely affected, thereby constituting an
unacceptable underwriting risk. For the same reason, estimated expenses must reflect typical long-term
operation and must not reflect a specific Sponsor or Management Entity whose operation would not be
typical.
7.8.3
General
A. Operating expenses are periodic expenses needed to maintain the project and to continue the
production of effective gross income, and represent the totality of all expense items as recognized under
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7.8 Project Operating Expenses, NOI
Generally Accepted Accounting Principles (GAAP), except to the extent modified by HUD Program
Obligations. Operating expenses must include the annual amounts deposited to the Reserve for
Replacement. Operating expenses shall not include interest charges, or charges or allowances for
depreciation of real or personal property, or amortization of financing expense, or payments to any officer
or director of the corporation, unless such payments are for services which are necessary to the operation
of the project. For appraisal purposes, an operating statement that conforms to the above definition of
operating expenses may differ from statements prepared for accounting purposes. Current or historic
statements must be prepared on a cash basis. It is important to verify the accounting basis for the
operating statement since project operating expenses for appraisal purposes must be reported on a cash
basis. Typical categories of expenses are as follows:
1. Fixed Expenses. Fixed expenses are those that generally do not vary with occupancy and have to be
paid regardless of whether the project is occupied or vacant, and generally do not fluctuate greatly
from year to year. Real estate taxes and insurance costs are typically included as fixed expenses.
2. Variable Expenses. Variable expenses are operating expenses that vary with the level of occupancy
or the intensity of project operation. Operating expenses for large properties frequently list many
types of expense variables, but typical broad categories include the following:
Management charges
Utilities – electricity, gas, water, sewer charges
Heating, ventilation, and air conditioning (HVAC)
General payroll and security
Cleaning expenses
Maintenance and repairs
Decorating
Grounds maintenance
Exterminating
Trash removal
Miscellaneous (supplies, etc.).
3. Reserve for Replacements. This reserve category provides for the periodic replacement of the
building components that wear out more rapidly than the building shell itself and must be replaced
periodically during the building’s economic life. These components may include but are not limited
to roof covering, carpeting, plumbing fixtures, appliances, and HVAC. The estimate of the reserve for
replacements should be based on reserves that are typically collected for comparable properties in
the subject’s market area, without regard to FHA programmatic requirements used for determining
the required replacement reserves when calculating debt service coverage. The appraiser must
document the research conducted to make this determination. The MAP Lender’s underwriting
narrative must address any variance between the market reserve cost used on the appraisal and the
FHA-required deposits included in the underwriting.
4. Total Operating Expenses. Total operating expenses for residential properties are the sum of the
fixed expenses and variable expenses updated to the appraisal date, plus the reserve for replacements.
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7.8 Project Operating Expenses, NOI
5. Commercial Facilities. Where commercial facilities are included in the subject project, a separate
analysis must be made to determine the effect that the commercial operation will have on the project
expense estimate.
7.8.4
Estimate of Operating Expenses by Units of Comparison
A. Items of expense shown under each comparable and the expense items applicable to the subject
proposal must be expressed as suitable unit of comparison–such as expense per unit per annum (PUPA),
and expense per square foot of net rentable area per annum (PSFPA), or percent of effective gross income.
The expense comparables and units selected must be as similar as possible to the subject project and units
as they relate to the subject location, structural type, number of bedrooms, and average unit size.
B. For consistency purposes, expense components must be expressed in the same units of comparison so
that the expenses for the subject proposal can be totaled. In cases where the unit of comparison for a
specific component is different from the basic unit of comparison for the other expense items, this
different unit of comparison must be explained in the expense narrative. The dollar amount of the expense
item can afterwards be converted to the same unit of comparison selected for the other expense
components. Additional documentation must be submitted, as needed, for all component estimates that
are not self-explanatory.
7.8.5
Expense Comparables
A. All HUD-insured properties used as expense comparables must be identified and disclosed in the
appraiser’s form HUD-92274 (Operating Expense Analysis Worksheet) and in the appraisal, except as
noted below.
1. General Requirements. All comparables (confidential and disclosed) must be representative of the
physical and location-specific characteristics of the subject project. Appraisers must always present
the best comparables available for their analysis and must refrain from repeatedly using the same
disclosed comparable merely to meet the disclosure requirement.
2. Confidential Expense Data. The appraiser may include confidential expense comparables in the
expense analysis; however, the analysis must include at least one fully identified and disclosed
expense comparable to serve as a benchmark. Confidential expense data sources must be disclosed
to a HUD review appraiser upon request (and are subject to confidentiality requirements similarly
imposed on licensed HUD review appraisers). Appraisers may only use confidential expense
comparables that are supportive and consistent with the fully disclosed comparables used in the
analysis. When submitting confidential expense comparables, the appraiser must redact only the
minimum amount of information necessary to protect the confidentiality of their client. The city, state,
and general market area within the city must be disclosed unless this information would clearly
identify the comparable and thus breach the appraiser’s confidentiality requirement. The project
description, unit mix, and the physical characteristics of the comparables’ units must be disclosed. It
is unacceptable for the appraiser to base conclusions on confidential expense comparables that are
not supported by the fully disclosed comparables used in the analysis.
3. Review of Insured Expense Comparables. The HRA will compare the FASS or OPIIS systems file for
the insured expense comparables used by the appraiser to confirm the data. In order to accomplish
this, the HRA will combine the following accounts: Acct. No. 6263T (Administrative Expenses,
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7.8 Project Operating Expenses, NOI
subtracting Acct. No. 6203 (Conventions and Meetings) and Acct. No. 6370 (Bad Debts)), Acct. No.
6400T (Utility Expenses), Acct. No. 6500T (Operating and Maintenance Expenses), and Acct. No.
6700T (Taxes and Insurance).
7.8.6
Expense Adjustments
A. Project expenses must be expressed in the same units of comparison in order to ensure accurate
adjustments and correct reporting of expense estimates. Consistent adjustments for significant
differences between the comparables and the subject units shall be derived from the market and applied
to the subject expense estimate.
B. The appraiser must enter the dollar amounts attributable to significant differences between the subject
proposal and each of the expense comparables, such as for physical characteristics, equipment, services
provided, the level of management furnished to residents, and any differences in rates between tax and
utility jurisdictions. The appraiser must also correlate the comparable expense for each component which
is applicable to the subject project.
7.8.7
Updating Procedures
A. Appraisers must not trend expenses to reflect a time adjustment from the effective date of the most
recent expense comparable to the anticipated date of project occupancy following construction and initial
endorsement. Instead, expense estimates must be effective as of the date of the appraisal and must reflect
the same year of operation.
B. The appraiser may use a factor expressed as a percentage to adjust expense comparables up to the
same date as the most current expense comparable in order to make a more creditable comparison.
However, if all of the expense comparables have data from the same operating year, no adjustment for
updating is necessary.
C. Adjusting expense data is a two-stage process, as follows:
1. First, the oldest comparables are updated to the date of the most recent comparable, so that all
comparable data is representative of the same effective time period. Second, after updating the
comparables to the same effective time period, the line items are correlated, and the subject’s expense
estimate is updated to the date of the appraisal.
The most current comparable is entered in the first column on form HUD-92274. This comparable
serves as the benchmark for updating the remaining comparables.
The effective date of the operating expense data is always the beginning date of the operating
year. For example, the beginning date of a financial statement dated January 1st to December 31st
is January 1st of that year. If the financial statement fiscal year ends June 30, 2000, the beginning
date is July 1, 1999.
Other than the first comparable being the most recent, the remaining comparables do not
necessarily need to be in chronological order.
The appraiser must enter the comparables’ itemized expenses as reported on audited, reviewed,
or certified financial statements. Per unit expenses or per square foot expenses are treated
similarly:
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7.8 Project Operating Expenses, NOI
1) The actual expense amount must be entered in the first column, without any adjustments.
2) Once the adjusted per unit expenses are determined for each comparable, the subject project’s
expenses are then correlated from the array.
3) Once the correlated line item expenses for the subject project are determined, they are added
and updated to the date of the appraisal.
4) The correlated subject expenses are updated based upon the beginning date of the expense
period of the most recent (the benchmark) comparable. HUD may request from the appraiser
the names and addresses of any confidential expense comparables used in the expense
analysis, pursuant to the Confidentiality sub-section of the Ethics Rule, along with Standards
3.1.e and 3.2.f of the USPAP. If the appraiser still refuses to provide this information, the HRA
may request additional non-confidential comparables.
7.8.8
Consistent Expense Line Items
A. The expense line items included in Section E. of form HUD-92264 should be consistent with the
individual line items as updated on form HUD-92274.
7.8.9
Underwritten NOI and Program Guidance
A. Underwriters should use the following general guidance. Underwriters should stress-test assumptions
that raise risks and evaluate worst case scenarios.
1. Projects must have an average physical occupancy rate of at least 85%. For market rate properties,
the maximum underwritten economic occupancy rate is 93%. For affordable properties, refer to the
Section 7.6.6.
2. Projects must demonstrate a pattern of stable physical occupancy (i.e., the average occupancy
standards noted above), for a period of six months prior to submission of the Firm Commitment
application, and maintain that average occupancy through to the date of Initial/Final Endorsement.
Continued occupancy consistent with the underwriting conclusions must be documented with an
updated rent roll no more than 30 days prior to closing. (For newly built projects, i.e., certificates of
occupancy issued less than three years prior to application, see Chapter 3, Section 3.7.2.B.)
3. The Borrower must submit an updated, certified rent roll detailing the occupancy level at the project.
The rent roll must be dated no more than 30 days prior to endorsement. If HUD determines that the
updated rent roll shows a significant change in occupancy from that submitted at the time of
application and that was assumed in the loan approval, then any Commitment issued shall be of no
force or effect and may be cancelled by HUD or amended.
4. Operating Expenses will be stabilized based on the previous three-year operating history where
available. Operating expenses, as evidenced by the three-year operating history may require
adjustment if capital expenditures (normally considered a reserve for replacement item) have been
paid out of the operating budget. Additionally, adjustments to management fee may be made provided
a new management contract is executed that reflects a different percentage of gross collection.
Adjustments to real estate taxes may be permissible if there is an anticipated tax reduction based on
reassessment or reclassification. Annual deposit for the reserve for replacement will be based on the
estimate made by the Needs Assessor in the capital needs assessment. (For newly built projects, i.e.,
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7.8 Project Operating Expenses, NOI
certificates of occupancy issued less than three years prior to application, see Chapter 3, Section
3.7.2.B.)
5. Exceptions: Set forth below are exceptions to developing NOI for underwriting Criterion 5 (debt
service):
For projects with units assisted under a Section 8 HAP contract subject to mark-down to market
or having short terms, the Underwriter should size the debt service mortgage at the lower of
either:
1) Market rents as estimated by the third-party appraiser, or
2) Section 8 HAP rents.
For projects with Section 8 HAP contracts at above-market rents for a long term, the Underwriter
may amortize the additional debt supportable with the above-market portion of rent (per the
Criterion 5, debt service approach) based on two tranches, an A and B piece.
1) The A piece will be determined by underwriting to the market rent levels over the entire term
of the mortgage.
2) The B piece will be underwritten as the difference between the market rents and the higher
Section 8 rents over the remaining term of the HAP Contract.
For Criterion 5 in the first refinance of a 202 direct loan, the Underwriter may use the Section 8
HAP rents (even if they exceed the market) as well as actual project expenses, as evidenced by the
three-year operating history as stabilized. This assumes that these projects are not subject to
restructuring under Mark-to-Market and that no equity will be extracted in the transaction based
on above market rents.
For a second refinance of projects which previously had Section 202 direct loans, the Underwriter
will use the two-tranche method described above. These projects are no longer exempt from
mark-to-market under MAHRA at the next HAP contract renewal.
Tax Increment Financing (TIF) income may be underwritten as a second tranche for the term of
the TIF, only to the extent the offset request NOI is guaranteed or refinanced to obtain anticipated
benefits and the TIF would unquestionably not result in a default. The underwritten narrative
must provide a complete explanation of the TIF and stress test analysis.
For (LIHTC) Projects, debt service rents will be the lower of market or tax credit
restricted/achievable rents unless there is a Section 8 HAP contract that covers the LIHTC rental
units. In the case where there is a long-term Section 8 contract in place with rents comparable to
market the Section 8 rents will be used. If the HAP has less than 15 years remaining, no renewals
are necessary, but the Lender must underwrite to the lesser of Section 8, market, or LIHTC
achievable rents or see Section 7.8.9.A.5.b (above) for Section 8 rents that exceed market.
When an application for a stabilized, operating property proposes green building certification,
then 100% of projected energy/utility savings may offset historic expense, but if energy saving
repairs and alterations are proposed without a green building certification, then only 75% of
projected savings may be underwritten. Refer to Chapter 6 of the MAP guide or underwriting
guidance for projects with energy savings.
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Chapter 7 Valuation & Market Analysis
7.9 Site Analysis
Site Analysis
A. Key analyses for consideration of site acceptability for a proposed project are described in this section.
7.9.1
Analysis of Location
A. The analysis of location involves a determination of the desirability and utility of the site, probable
future neighborhood trends, the pattern of project and neighborhood improvements, and rents in the
area.
7.9.2
Specific Location
A. Consider the specific site in relation to neighborhood and city-wide physical, social, and economic
influences, limitations of use imposed by zoning or deed restrictions, development trends, stability, decay
and rehabilitation, availability of utilities, services, and appropriateness of the intended use. Review and
analyze the various influences which affect its market and income potential, including a review of the
crime rate in the area, its impact on the project and how the impact, if any, can be addressed through
design or staffing. Race, color, national origin, religion, sex, disability, and familial status, which are all
Fair Housing Act protected classes, shall never be taken into account when conducting an appraisal. No
decisions should be made based on pre-conceived notions about characteristics of the area based on the
demographics in lieu of statistics. (For further guidance, consult USPAP Advisory Opinion 16, “Fair
Housing Laws and Appraisal Report Content”).
7.9.3
Civic, Social, and Commercial Centers
A. Consider the sufficiency of community facilities as they relate to the needs of residents of the proposed
project. A location for a multifamily project must be adequately served by elementary and secondary
schools, neighborhood shopping centers, transportation, churches, playgrounds, parks, libraries,
hospitals, and theaters and other appropriate services.
7.9.3.1
Schools
A. Accessibility to schools will be judged by the transportation time required, rather than by walking
distance alone. Thus, if school bus service will be provided and the time involved is reasonable, the
location may be acceptable even if schools are not within walking distance. School capacity is the
responsibility of the community and a project that is otherwise feasible will not be rejected because the
local schools are considered overcrowded, unless it can be proven that marketability is adversely affected.
7.9.3.2
Neighborhood Shopping
A. The convenience of shopping should be judged on the basis of time rather than distance. The
importance of grocery, drugstore, and other neighborhood shopping facilities to be within a reasonable
walking distance will be heightened based on the number of residents who do not have private
transportation.
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7.9 Site Analysis
Religious and Recreation Centers
A. Ready access to religious and recreation centers is desirable. Projects designed for large families have
a greater need for playgrounds and active recreation areas. Adequate on-site provisions for playgrounds
and other recreation amenities must be incorporated into the proposal where adequate facilities are not
in close proximity to the project site and available for use by occupants.
7.9.4
Transportation
A. Convenient transportation to places of employment, major shopping districts, and civic and social
centers is a prerequisite to site acceptability. In those communities where local public transportation is
the principal means of commuting by the prospective residents, the location of a project designed for such
occupancy shall be within a reasonable walking distance to mass transit.
7.9.5
Special Hazards and Nuisances
A. Such conditions include unusual topography, subsidence, flooding, unstable soils, unusual traffic
hazards and noise, danger from fire and explosion, exposure to airport noise and low-flying airplanes,
smoke, chemical fumes, noxious odors, stagnant ponds or marshes, and sewage disposal failure. Any of
these, or similar conditions, if serious and infeasible to overcome, will cause a specific location to be
ineligible for mortgage insurance.
7.9.6
Parking Facilities
A. The Lender and the third-party reports must consider the impact that parking requirements for the
project will have on parking facilities in the neighborhood and on all-night parking, including the
availability of other off-street parking, if the project site lacks adequate parking for residents. The loan
proposal must estimate the number of parking spaces that would be required and whether or not the
proposed parking facilities will meet the estimated need of the residents and their guests. The Lender
and the third-party reports must consider convenient access to reliable public transportation, because it
may in some cases mitigate parking availability concerns.
7.9.7
Site Suitability
A. The site must be adequate in size, shape, exposure, and contour for the proposed project. Building
height limitation, project unit size and numbers, necessary on-site parking, and play areas must be
considered.
7.9.8
Land/Site Valuation
A. The site value of land in new construction is to be estimated using all applicable approaches to value,
as if the project were unrestricted and market rate.
B. The “As Is” value in substantial rehabilitation cases is to be estimated using all applicable approaches
to value based on the current operation of the project.
C. For both Section 7.9.8.A and Section 7.9.8.B above, no consideration will be given to:
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7.9 Site Analysis
1. Any additional value that may be attributable to subsidies available to the project or any LIHTCs or
other tax benefits the project will receive; or
2. Any value reduction due to any NOI or value limitations caused by regulatory agreements or
affordability restrictions imposed by any subsidy program or tax regulation. This valuation
methodology permits Sponsors to acquire a project at its market value for new construction or
rehabilitation of affordable housing. The value attributable to the presence of LIHTCs diminishes over
time and is not always freely transferable, and thus should not be taken into consideration.
NOTE: See special instructions for Cost Certification as it relates to As Is Valuation in Chapter 13,
Section 13.21.
D. The site value of land in new construction or the “As Is” value will be noted in the MAP appraiser’s
narrative report and in the Remarks section of form HUD-92264. For the purpose of developing the cost
build-up in Section G of form HUD-92264, the lesser of market value or the acquisition cost will be entered
in Section G. Line 74 (Total Estimated Replacement Cost of the Project) is to be entered in Criterion 3 of
form HUD-92264-A.
E. For underwriting purposes, where sites/projects are sold by a public body to the Developer for a
specific re-use purpose, the value of land fully improved is the lesser of:
1. The amount determined by comparison with other sites possessing the improvements and amenities
that the subject site will have upon completion.
2. The dollar amount paid by the purchaser under the purchase contract with the public body, plus an
estimate of any additional costs imposed by its terms or by the insurance program. Such costs are
those to be borne by the purchaser under the purchase contract, including real estate taxes and special
assessments accruing from date of purchase to date of commitment, legal fees incident to the
land/project purchase, re-zoning costs, installation of certain designated off-site improvements,
razing structures and clearance of the site (after allowance for any income to the purchaser), and
environmental abatement. This is not a complete list of items covered but serves as a guide to the
acceptability of costs required by the purchase contract.
3. The actual values are noted in the MAP Appraiser’s narrative and in the Remarks Section of the 92264.
4. In the case of non-LIHTC developments that otherwise meet the definition of affordable per Chapter
3, Section 3.1.12 of the MAP Guide, all or a portion of the residual land value assignable to the
affordable units in the transaction may be included in Criterion 3, as long as the land value is
constrained by a valuation consistent with an affordable development (as opposed to a market-rate
site valuation). For purposes of clarification, the site value used for affordable housing may be lower
than the corresponding value if all of the units were operated at market. The units that are restricted
to rents below area market rents (established in the appraisal) would not contribute the same value
to the underlying land as the market rate units. In some cases, the value may pose a negative impact
for each unit restricted as the amount of rent generated would likely not cover expenses. Thus, the
impact of the rents in this case must be thoroughly analyzed.
5. The appraised value of the land may be included in Criterion 3 in the event that the public entity
maintains ownership in the transaction, and the project meets the definition of affordable per MAP
Guide Chapter 3, Section 3.1.12.
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7.10 Pre-Application for 220, 221(d), and 231
F. HUD’s estimated value of land or project “as is” for cost certification may include all of the items in
Section 7.9.8.E.2 above with the exceptions of: the installation of off-site improvements and the cost of
razing structures and clearing the site (less income received). This is intended to avoid duplication of
costs that might be reflected in the estimated value of land “as is” and also allows for the Sponsor to
include them as separate items in cost certification which includes both off-site costs and demolition. The
dollar amount of the land purchase contract plus a breakdown of the estimate of additional costs must be
fully itemized and documented.
NOTE: Cost Certification instructions (enforced by Statute) dictate that, in substantial
rehabilitation cases, the lesser of the “as is” value of the land and improvements (before repair or
rehabilitation) or the purchase price of the land and improvements is used in the cost build up for
Criterion 3 of form HUD 92264A. Consequently, when mortgage proceeds will be used to fund the
acquisition of the project, the “as is” value estimation will be used as a test of the reasonableness
of the acquisition price.
G. When the acquisition price is less than the “as is” value of the land and improvements (as accepted by
HUD), and mortgage proceeds will be used to fund the acquisition of the project, the acquisition price will
be used in the cost build up for Criterion 3, forming the cost basis for the Firm Commitment
H. When the acquisition price exceeds the “as is” value of the land and improvements (as accepted by
HUD), then the acquisition price must be reduced to the “as is” value and will, subsequently, comprise the
basis of the cost build up for the Firm Commitment.
I. When mortgage proceeds will not be used to fund the acquisition of the project, the “as is” market value
of the project will be used in the cost build up for Criterion 3, forming the cost basis for the Firm
Commitment. This is particularly significant when below-market rent restrictions are in place (such as in
the case of LIHTC-limited rents or Section 8 rent subsidy) and the use of market rents in valuing the
project will result in a premium over these rent restrictions.
7.9.9
Warehousing of “Excess” Land Area
A. Warehousing of “excess” land area is not encouraged, but where un-avoidable it may be permitted but
may not be funded with insured mortgage proceeds.
7.10 Pre-Application for 220, 221(d), and 231
7.10.1
Lender’s Responsibilities
A. Based upon the market study prepared by the market analyst and the rental income and expense
estimates prepared by the appraiser, the Lender is responsible for making the following determinations
before submitting the application:
1. Determine the current occupancy levels, market absorption rates, and market demand for the number
and type of units proposed.
2. Analyze site for acceptability.
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7.10 Pre-Application for 220, 221(d), and 231
3. Determine market rents reflecting amenities, services, and equipment offered, and estimate project
income.
4. Estimate total operating expenses. HUD’s Environmental Review Online System (HEROS) reports,
including the Phase I ESA, should be consulted to determine if additional carrying costs are to be
included in the operating expense summary.
5. Estimate mortgage amount based on form HUD-92264-A, Criteria 5, and Debt Service Ratio.
6. Make a determination of feasibility or non-feasibility of the Sponsor’s proposal.
7. Evaluate the market study and appraisal report. The Lender will either accept their conclusions for
use in underwriting or may revise them for underwriting purposes. Any such revisions must be
explained and justified. The Lender may adjust the appraised value downwards but may not adjust
it upwards. Once accepted by the Lender and submitted to HUD as part of the Lender’s application,
the Lender assumes the validity of the findings and conclusions of the appraisal.
B. The HEROS report, including a Phase I ESA, must be prepared in accordance with Chapter 9 and the
Lender should advise the market analyst and the appraiser of any conditions which might affect the
marketability or value of the project.
C. The appraiser or market analyst must prepare the market study in accordance with the requirements
of this Chapter.
D. The appraiser must determine project rents, estimated rental income, operating expenses, and the
warranted price of land or “as is” value (of land and buildings for substantial rehabilitation cases). The
Lender must ensure that forms HUD-92273 (Estimate of Market Rent by Comparison) and HUD-92274
(Operating Expense Analysis Worksheet) are prepared. For substantial rehabilitation projects, the
appraiser must estimate the rents and expenses based on the assumption that all proposed substantial
rehabilitation to the project has been completed and is used as the basis for NOI in the debt service
criterion. However, pre-rehabilitation rents and operating expenses must be used for purposes of
developing the cost build up and determining as-is value.
E. The Lender must consider cost information from various sources, including the Sponsor, appraiser,
and cost consultant (including soft-cost and land cost information) to calculate the total replacement cost,
and will compare its estimate of total replacement cost with the costs estimated by the Borrower.
F. The Lender must ensure that forms HUD-92264, HUD92264-A, and supporting forms are completed.
G. The Lender must compare the calculations on form HUD-92013 with those proposed by the Borrower
and either accept the Borrower’s proposal, recommend its modification, or reject it and advise the
Borrower that the project is infeasible.
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7.11 Firm Commitment for 220, 221(d), and 231 (New Construction)
7.11 Firm Commitment for 220, 221(d), and 231 (New
Construction)
7.11.1
Lender’s Responsibilities
A. Contract for an appraisal establishing the replacement cost for the project utilizing the cost approaches
in accordance with requirements found in Section 7.6. The appraiser will update the rental and expense
analyses provided in the Pre-Application.
B. The appraiser is also required to determine the “warranted price of the land” for new construction
projects and the "as is" value of the project for substantial rehabilitation projects. In addition, for Section
231 substantial rehabilitation projects, the appraiser must also determine the “value fully improved” of
the project site.
C. The Lender must forward or otherwise coordinate sharing information prepared by its cost analyst,
and any soft cost and land cost information provided by the Sponsor, with the appraiser for assistance in
the calculation of the total replacement cost.
D. In accordance with USPAP Standard 2-3, “When a signing appraiser(s) has relied on work done by
appraisers and others who do not sign the certification, the signing appraiser is responsible for the
decision to rely on their work. The signing appraiser(s) is required to have a reasonable basis for believing
that those individuals performing the work are competent. The signing appraiser(s) also must have no
reason to doubt that the work of those individuals is credible.”
E. The Lender must assure that all applicable sections of the Rental Housing Project Income Analysis and
Appraisal, form HUD-92264, are completed in accordance with current policy, for the type of project
proposed.
F. Form HUD-92664 items to be calculated by the appraiser include:
1. Market rents and estimated income,
2. Estimated total operating expenses,
3. Total estimated replacement cost of the project,
4. “Warranted Price of the Land” for new construction projects and the "As Is" value of the land and
building for substantial rehabilitation projects,
5. Estimate of operating deficit and replacement reserve,
6. Estimate of REL, and
7. Estimate of Interest during Construction (line 53 in section G of form HUD-92264), to be calculated as
the greater of a or b below:
By formula. The amount of the mortgage multiplied by 0.5, multiplied by construction interest
rate and multiplied by construction years. (Construction Years is the construction time in months
from line 52 in section G of form HUD-92264 plus 2 months, then divided by 12).
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7.12 Firm Commitment for 223(f)
Lender’s estimate (optional). The Lender’s estimate of interest during construction must be
documented with a pro-forma draw schedule or its equivalent, subject to USPAP Standard.
8. The Lender must also provide written explanations in the Underwriter’s narrative of any major
changes to the pre-application invitation letter. Any inconsistency between the data reported on a
form HUD-92264 prepared by the appraiser and the Lender’s form HUD-92264 must be explained in
the Underwriting.
7.11.2
HUD Review
A. HUD’s HRAs and Underwriters may suggest modifications to elements of the appraisal and
methodology of the appraisal conclusions internally or may return the application to the Lender for
modification. See Chapter 11, Section 11.3 for review by Multifamily Regional Center/Satellite Office staff.
7.12 Firm Commitment for 223(f)
7.12.1
Lender’s Responsibilities
A. The Underwriting Narrative must demonstrate that the MAP Underwriter performed adequate due
diligence in reviewing the appraisal, which shall include a thorough discussion comparing the appraiser’s
market analysis to the conclusions from the market study (in cases where a separate market study is
required.) There must also be a full discussion by the Underwriter of the approaches to value and the
appraiser’s reconciliation and value conclusion.
B. The Lender must state any reasons for disagreement with the appraisal report. The underwriting
summary should contain a thorough discussion of any differences between the value conclusions made
by the appraiser and those conclusions used in underwriting the loan. The appraiser’s value conclusions
may be adjusted downwards by the Underwriter but may not be adjusted upwards.
C. The appraiser must complete an appraisal of the project establishing market value utilizing the cost,
income, and comparable sale approaches. The Cost Approach may be eliminated at the discretion of the
appraiser for subjects that are ten or more years old, although an estimate of the land value must still be
provided.
D. The appraiser should participate in the inspection of the project with the capital needs assessor where
practicable.
E. The appraiser must consider the eligibility of the project, confirm the project occupancy level, and
verify the owner’s rent roll during the inspection. When the appraiser has established that the owner’s
rent roll is correct, the actual occupancy based on the owner’s rent roll must be entered in the Remarks
section of form HUD-92264. The appraiser must also determine whether the apartments are furnished
or unfurnished.
F. The appraiser must analyze the project for acceptability.
G. The Lender must confirm that the HEROS report, including the Phase I ESA, is prepared in accordance
with Chapter 9 of the MAP Guide and with all appropriate directives.
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7.13 Substantial Rehabilitation for 220, 221(d)(4), and 231
H. The Lender must assure that the appraiser completed forms HUD-92273 (Estimate of Market Rents)
and HUD-92274 (Operating Expense Analysis Worksheet). This is based on the determination made by
the appraiser of the project’s income and operating expenses including a review of the operating history
of the project (rent roll and financial statements).
I. The Lender must assure that all applicable sections of the Rental Housing Project Income Analysis and
Appraisal (form HUD-92264) are completed in accordance with current policy, for the type of project
proposed. Form HUD-92264 items to be calculated by the appraiser include:
1. Market rents and estimated income,
2. Estimated total operating expenses,
3. Total estimated replacement cost,
4. “Warranted Price of the Land”,
5. Market value of the project,
6. Estimate of operating deficit as necessary and replacement reserve,
7. Estimated and actual occupancy rate, and
8. REL.
J. The data provided in the Lender's form HUD-92013 and Lender’s form HUD-92264 must be consistent,
and any inconsistency between the data reported on a form HUD-92264 prepared by the appraiser and
the Lender’s form HUD-92264 must be explained in the Underwriting Summary.
7.13 Substantial Rehabilitation for 220, 221(d)(4), and
231
7.13.1
General
A. In general, a substantial rehabilitation project is processed in accordance with the instructions found
in Section 7.10 and Section 7.11 above, except as noted below.
7.13.2
Completing Form HUD-92264
A. Form HUD-92264 must be completed in accordance with basic valuation instructions for Sections
221(d)(4) and 220 processing, with the following modifications:
1. Development of the “As Is” value must be in accordance with the pertinent requirements of Standards
1 and 2 and the applicable approaches to value. A supplemental form HUD-92264 is not required.
2. The forms HUD-92273 and HUD-92274 analysis used to support the income and expenses on form
HUD-92264 must reflect the “as completed” project conditions that will exist after substantial
rehabilitation has taken place.
3. A value for the land without improvements must be estimated and entered using the analysis grid in
Section H of form HUD-92264.
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7.13 Substantial Rehabilitation for 220, 221(d)(4), and 231
4. The “as is” value and the value of the land without improvements must be entered in Section “O”
(Remarks) of form HUD-92264.
7.13.3
Applicable Approaches for "As Is" Value
A. The estimate of “As Is” value of the land and building before rehabilitation should be estimated by the
direct market comparison approach and the income approach to value. The “As Is” value by the residual
approach is not mandatory but can be used in cases where there is a lack of market sales. This estimate
of value assumes an arm’s length transaction between the subject and a typical purchaser of the subject
in its current state with respect to condition and income, including the current presence of a subsidized
income stream. To determine value based upon the income approach, the appraiser should use the lesser
of market rent or the income derived from any rental assistance contract, as applicable, to avoid
inappropriately inflating income and thereby the estimate of value. Moreover, the estimate does not
assume any advantages or disadvantages associated with the current sale or refinancing of the subject
that would involve issuance of tax credits or other development advantages.
NOTE: See special instructions for Cost Certification as it relates to As Is Valuation in Chapter 13,
Section 13.21.
7.13.4
Valuation for 220 and 221(d)(4)
A. Determine the market value of the project "As Is". Complete the Location and Description of the Project,
Information concerning Land or Project, Estimate of Income, Equipment and Services Provided in Rent,
Estimate of Annual Expenses, Income Computations, Income Approach to Value, and Sales Comparison
Approach to Value within the report. If the project involves rehabilitation and new construction with
additional land to be added, also complete a land appraisal for that portion of the land to be added for the
new construction portion of the development proposal.
B. Use the Replacement Cost by Formula, Rehab Projects, with or without Builder and Sponsor's Profit
and Risk Allowance (BSPRA), to find the total project cost (summation estimate) using the "As Is" market
value of the project, and the rehabilitation cost estimate furnished by the cost analyst, plus carrying
charges and financing.
C. Complete form HUD-92264. In Section G, the "As Is" market value of the project before rehabilitation
will be shown on the line titled "As Is" value of project except as noted below.
D. Instructions for limiting the “As Is” value of project before rehabilitation, when that project is acquired
as a leasehold estate, are found in Ground Leases, Section 7.15.
E. To find the project mortgage amount for Section 220 and Section 221, use the lowest of Criteria 1, 3, 4,
or 5 on form HUD-92264-A. Estimate the "As Is" value of the project before rehabilitation, add the total
for all improvements plus soft costs to the As-Is Value to obtain the sum of the above costs. Then multiply
the sum of the project costs listed above by the applicable percentage based upon Criterion 3 to obtain
the maximum project mortgage amount.
NOTE: Cost Certification instructions (set by Statute) dictate that, in substantial rehabilitation
cases, the lesser of the “as is” value of the land and improvements (before repair or rehabilitation)
or the purchase price of the land and improvements is used in the cost build up for Criterion 3 of
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7.13 Substantial Rehabilitation for 220, 221(d)(4), and 231
form HUD 92264A,. Consequently, when mortgage proceeds will be used to fund the acquisition
of the project, the “as is” value estimation will be used as a test of the reasonableness of the
acquisition price.
F. When the acquisition price is less than the “as is” value of the land and improvements (as accepted by
HUD) and mortgage proceeds will be used to fund the acquisition of the project, the acquisition price will
be used in the cost build up for Criterion 3, forming the cost basis for the Firm Commitment
G. When the acquisition price exceeds the “as is” value of the land and improvements (as accepted by
HUD), then the acquisition price must be reduced to the “as is” value and will, subsequently, comprise the
basis of the cost build up for the Firm Commitment.
H. When mortgage proceeds will not be used to fund the acquisition of the project, the “as is” market
value of the project will be used in the cost build up for Criterion 3, forming the cost basis for the Firm
Commitment. This is particularly significant when below-market rent restrictions are in place (such as in
the case of LIHTC-limited rents or Section 8 rent subsidy) and the use of market rents in valuing the
project will result in a premium over these rent restrictions. (See Section 7.13.3, defining how rents are
derived as the basis for the “as is” value)
7.13.5
Valuation for Section 231 Substantial Rehabilitation
A. Section 231 substantial rehabilitation cases require two value estimates: 1) a value subject to the
completion of rehabilitation using all applicable approaches, which shall be used in Criterion 3 of form
HUD-92264-A, and 2) an “As Is” value entered in Section G, line 73b of form HUD-92264 to determine the
Total Replacement Cost of the Project, in a manner similar to the procedure used in Sections 220 and
221(d) (4). Depreciation is not included. The value upon completion of the project should reflect that
which could be obtained through an arms-length sale. If rental restrictions exist and will survive postsale, then the value will be based upon these limitations. Alternatively, if the restrictions terminate upon
sale, then the As-Is estimate would reflect the higher value. The “As Is” value is also used in completing
Criterion 6 of form HUD-92264-A.
B. If the Total Estimated Replacement Cost of the Project (Line 74 of Section G of form HUD-92264)
exceeds the value after rehabilitation, the residual “As Is” value by formula must be completed. This
amount must be entered on line 73b of Section G, and Section G, line 74 will be considered to be the value
of the project after rehabilitation, and this amount must be entered in Criterion 3 of form HUD-92264-A.
7.13.6
Valuation for RAD Transactions
A. On RAD 221(d) (4) substantial rehabilitation transactions, the appraiser should use the Commitment
to Enter into a Housing Assistance Payments (CHAP) rents along with historical occupancy and operating
expenses, if available, to set value.
7.13.7
Contingency Reserves
A. To address unanticipated costs inherent in the rehabilitation of older structures, there will normally
be included in the mortgage amount a reserve for contingencies based on the percentage of estimated
rehabilitation cost without fees. This percent may range between 10 and 15 percent, depending upon the
scope and type of rehabilitation and the experience and financial ability of the Sponsor, the Borrower, and
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7.13 Substantial Rehabilitation for 220, 221(d)(4), and 231
contractor, and on whether the contractor’s bid already contains a reserve for contingencies. This
percentage, determined by the cost analyst, must be included as a separate line item in the estimate of
replacement cost on form HUD-92264.
7.13.8
Interest During Construction
A. Interest during construction for substantial rehabilitation (line 53 in section G of form HUD-92264)
must be calculated as the greater of:
1. By Formula. The amount of the mortgage multiplied by 50 percent, multiplied by construction
interest rate, and multiplied by construction years. (Construction Years is the construction time in
months from line 52 in section G of form HUD-92264 plus 2 months, then divided by 12).
2. Lender’s Estimate (optional). The Lender’s estimate of interest during construction must be
documented by a pro forma draw schedule or equivalent.
7.13.9
Inspection Fee
A. The inspection fee is calculated as half of one percent (0.5%) of the loan amount when the project
involves new construction. For substantial rehabilitation projects, the inspection fee is calculated as the
sum of Total for All Improvements times one half of one percent (0.5%) rounded to the next higher $100.
7.13.10
Offsite Costs
A. If there are any offsite costs associated with the rehabilitation, enter them as a line item in the
Estimated Replacement Cost. This separate entry is necessary in rehabilitation processing, since the "As
Is" value does not include offsite cost requirements.
7.13.11
Rehabilitation Cost not Attributable to Residential Use
A. This entry must be completed for all rehabilitation projects and is prepared on Rehabilitation Cost Not
Attributable to Residential Use, found in the MAP Form Book, and transferred to line 4b under Criterion
4 (Amount Based on Limitations per Family Unit) on form HUD-92264A.
7.13.12
Developer’s Fee, when Applicable
A. HUD may include a nonprofit Developer’s fee in the estimated replacement cost of a project, in addition
to the legal, organizational and audit fees normally included in the estimated replacement cost of a project.
1. The fee will be based on a sliding scale at eight percent of the mortgage, but not less than $40,000 or
more than $400,000.
2. The following exceptions apply:
For mortgages in excess of $5,000,000, increase the maximum fee to provide an additional 2
percent based on that portion of the mortgage that is in excess of $5,000,000.
At the option of the nonprofit Sponsor/Borrower, the fee included in the replacement cost may
be reduced.
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7.14 Calculating Operating Deficits
3. Part of or the entire fee may be used to pay for transactional costs related to developing the subject
project, including but not limited to:
Reduction of the estimated closing costs of the project,
Staff salaries,
Nonprofit working capital deposit,
Relocation expenses,
Operating deficit escrow,
Financing fees above the 3.5 percent included in the estimated replacement cost of the project,
Environmental studies, and/or
Housing Consultant services provided by either in-house staff or contractor.
4. Funds not used to meet the estimated cash requirements of the project will be released to the
nonprofit based on a percentage of completion method.
7.13.13
Exclusions to Estimated Replacement Cost
A. HUD will no longer include in the estimated replacement cost of a project an Allowance to Make Project
Operational (AMPO) nor an amount for Housing Consultant services, except as part of the Developer’s fee
noted above.
7.14 Calculating Operating Deficits
7.14.1
Estimate of a Project’s Operating Deficit
A. When it is anticipated that the project’s net income will be inadequate to support the insured loan
during the initial rent-up period, the appraiser must estimate the anticipated project operating deficit
utilizing the following steps:
1. Estimate the total project operating expenses, add the debt service requirement (including principal,
interest, and mortgage insurance premium (MIP)) and divide the total by the potential gross income
for the project. The resultant ratio is the break-even occupancy level. Multiply that percentage times
the total project units to obtain the number of units required for break-even occupancy (rounding up
any fraction of a unit).
2. Estimate the total number of units expected to be occupied at the time of Final Endorsement. The
difference between the total units required for break-even occupancy and those occupied units at the
time of Final Endorsement represent the total number of units that must be rented in order to reach
a break-even occupancy level.
3. Estimate the likely rate of absorption of the available units, taking into account the current and
proposed supply of housing units in the subject’s market balanced against demographic and demand
considerations. The absorption or lease-up rate must be supported by comparison to similar projects’
historic rates of absorption during their lease-up period, whenever such a comparison can be made.
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7.14 Calculating Operating Deficits
The number of units to be absorbed, divided by the monthly absorption rate, will yield the total
number of months of the entire operating deficit period.
Absorption Period. The Absorption Period is the period of time necessary for a newly
constructed or renovated project to achieve stabilized occupancy. The absorption period begins
when the first certificate of occupancy is issued and ends when the last unit to reach stabilized
occupancy has a signed lease and is actually occupied by a resident. A typical pre-marketing
period begins about three to six months prior to the issuance of the certificate of occupancy,
therefore the month that leasing is assumed to begin should accompany all absorption estimates.
It is important to consider that the absorption of restricted/low-income units may be different,
depending on the differential in rent between low-income rents and market rents, and the number
of income-qualified potential residents in the Housing Market Area (HMA.)
Maximum Allowable Absorption Period. As a result of risk mitigation guidance, the absorption
period used in estimating market demand for the proposed number of units has been reduced
from 24 to 18 months. Larger projects may phase additional units under a separate application
for mortgage insurance (e.g., under Section 241(a)). An exception to the 18-month absorption
period limitation may be waived by the Regional Center Director for large high-rise buildings.
Such projects will be evaluated based on their own merit and will require a larger initial operating
reserve to insure against the risk inherent in a longer absorption period.
Absorption Rate. The Absorption Rate is the average number of units rented each month during
the absorption period.
4. Because the deficit period can begin at certificate of occupancy and continue through the cost
certification phase and the amortization phase, there are three distinct expense intervals to consider
when calculating the total deficit period, although not every project will require using all three
intervals.
Interval 1 covers the time between certificate of occupancy and the end of the construction
period and cost certification. (Note that the construction period is defined as construction time
plus two months for cost certification purposes). This is an optional interval, because some
projects may have the same certificate of occupancy and construction completion dates and thus
would not need an Interval 1. When calculating expenses for this Interval, no debt service is to be
included as an expense since the mortgage interest for this interval is included in the mortgage in
Section G Line 53 "Construction Interest". Replacement Reserves and ground rent are not to be
included in Interval 1. This interval must only include the appraiser's estimate of all of the
applicable operating and leasing expenses for each month (period).
Interval 2 begins at the end of the construction period/cost certification process (construction
time plus two months) and ends at the beginning of loan principal amortization. This period can
be no greater than 2 months and is also an optional interval. (Chapter 8, Section 8.9.1.B.1 requires
amortization to begin "no later than 4 months after construction completion for insurance of
advances and first day of second month after final endorsement for insurance of completion
cases"). If amortization begins at the end of the construction period, this interval will not be
necessary. Debt service must include payment of interest and MIP, but not amortization, as the
beginning of amortization signals the beginning of Interval 3. (Section G Line 53 of form HUD92264 includes mortgage interest for the construction period plus two months. If amortization is
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7.15 Leaseholds/Ground Leases
for interest and MIP that must be included in the Initial Operating Deficit (IOD)). Ground rent
must be included if the project is a leasehold since only ground rent during construction can be
included in the mortgage, and this interval begins after construction completion. Replacement
reserves are not included in interval 2. This interval must include the appraiser's estimate of
applicable operating expenses for each month (period).
Interval 3 begins at the beginning of amortization. Amortized debt service is mandatory in this
interval, and must include payment of principal, interest, and MIP. Ground rent, if applicable, and
replacement reserves are also mandatory in interval 3. This interval must include the appraiser's
estimate of applicable operating expenses for each month (period). Interval 3 ends when NOI
becomes positive and is sufficient for breakeven coverage of the mortgage debt.
B. Operating deficits can occur before and after the start of amortization. The operating deficit calculation
for the first interval must begin when the Certificate of Occupancy is secured.
C. If the dollar amount of debt service for a period is greater than the net income for that period, the
difference represents the estimate of the operating deficit. One period of positive income does not cancel
a prior period of income deficiency.
D. The operating deficit represents the total of all cumulative losses projected to occur before the project
reaches breaks even and produces a positive cash flow. These losses may not be offset by intermittent
periods of positive cash flow.
E. Where commercial facilities are included in the project, a separate operating deficit estimate of income
loss for commercial rent-up must be prepared. The appraiser must ensure that expenses included in the
residential deficit estimate are not duplicated in the commercial space deficit estimate so as to unfairly
penalize the project. The commercial space deficit is added to the residential operating income deficit to
determine the total project operating deficit escrow funding that will be necessary. Any positive income
attributable to the commercial space during the deficit period will not offset the residential operating
deficit requirements.
7.15 Leaseholds/Ground Leases
A. HUD may insure a leasehold deed of trust (or mortgages) that constitutes a mortgageable interest
under the law of the state in which the project is located and otherwise meets the requirements of the
National Housing Act and this Section. However, HUD prefers to provide insurance on deeds of trust and
mortgages secured by a project owned in Fee Simple. The MAP Lender’s underwriting and appraisal
analysis must fully describe the interest in a Leasehold Estate transaction and related values. Except as
specifically noted below, waivers of this Section and modifications to the HUD Lease Addendum (form
HUD-92070M) are not permitted in the field and must be processed in HQ except for affordable
transactions with a governmental entity as the lessor.
7.15.1
Definitions
A. Fee Simple (Estate). An ownership interest in land that is the broadest property interest allowed by
law, extending beneath the soil to the air above, and which endures until the last holder dies without heirs.
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7.15 Leaseholds/Ground Leases
B. Leasehold (Estate). A Tenant’s possessory interest in land for a term of years granted to the Tenant
pursuant to a lease agreement. Upon expiration of the Lease term, all rights to possess and use the land
revert back to the Landlord (Fee Simple owner) and the leasehold estate terminates. A leasehold interest
can be in the land only (ground lease) or the land and building and improvements.
C. Leased Fee. A Landlord’s interest and rights to the leased property, including the right to receive
rental income and a right to possess the property at the end of the lease.
D. Tenant. An entity with a possessory interest in the land granted by the Landlord through a Lease,
typically the single asset Borrower entity, i.e., the HUD Borrower.
E. Landlord. The owner of the Fee Simple interest in the land (and sometimes improvement on the land)
who grants the Tenant the temporary possessory interest in the land (and improvements, if applicable).
F. Lease. A contract for exclusive possession of lands or tenements for a determined period. Note that
the Lease Addendum – Multifamily (form HUD-92070M)) uses the term Lease to refer to Leasehold Estates
comprised of the land (or air) and Improvements, but for purposes of this Section, Lease may refer
generally to a lease of land and improvements, a Ground Lease, or an Air Rights Lease.
G. Ground Lease. A particular form of Lease, typically a long-term contract between the Landlord and
Tenant granting the Tenant an exclusive possessory interest in land for a term of years in return for lease
payments or rent. A Ground Lease for purposes of this Section does not include improvements.
H. Rent or Ground Rent. Money paid by Lessor to Lessee in exchange for the exclusive use and
enjoyment of the land or improvements.
I. Improvements: Improvements are a permanent addition to real property (land).
J. Operating Expenses. See Section 7.7.
K. Taxes: Project taxes and special assessments. Taxes shall not include income taxes. Net income before
Debt Service Payments shall mean the annual amount which remains after operating expenses and taxes
are subtracted from Effective Gross Income.
L. Debt Service Payment. The annual amount paid to mortgage principal, interest, and MIP.
M. Net Cash Flow. The annual amount remaining after Debt Service Payments are subtracted from net
income.
N. Air Rights. The right to undisturbed use and control of designated air space above a specific land area
within stated elevations. Air rights may be acquired to construct a building above the land or building, or
to protect the light and air of an existing or proposed structure on an adjoining lot. The rights may be
transferable, which is an air right, that cannot be used by the landowner, or that the owner chooses not to
use, but can be conveyed to landowners in another location.
7.15.2
Legal Requirements
A. The Tenant/Borrower must have a mortgageable interest in the property comprised of:
1. A Leasehold interest in the land – Lease Addendum – Multifamily (form HUD-92070M) (Option 1
“Ground Lease”); or
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7.15 Leaseholds/Ground Leases
2. A Leasehold interest in the land and building/improvements – Lease Addendum – Multifamily (form
HUD-92070M)) (Option 2 “Lease,” permitted only in cases where the Landlord is a
public/governmental entity); or
3. A Leasehold interest in the air rights – Lease Addendum – Multifamily (form HUD-92070M) (Option 1
“Air Rights Ground Lease”).
4. A Leasehold interest in air rights and improvements – Lease Addendum – Multifamily (form HUD92070M) (Option 2 “Air Rights Lease,” permitted only in cases where the Landlord is a
public/governmental entity).
5. For Leaseholds of trust lands or Native American tribal land, HUD must ensure that the Lease
provisions, including the term of the lease and any waivers of Lease Addendum provisions, are
acceptable to both HUD Headquarters and the Bureau of Indian Affairs.
NOTE: In all cases the Landlord must be the Fee Simple owner of the property and must grant the
leasehold estate directly to the Tenant (i.e., the Borrower). This prohibition against insurance of
mortgages on sub-leasehold estates is statutory for Sections 207/223(f) and 231 and cannot be
waived for these programs.
B. The Lease must meet the following requirements:
1. Term of Lease. The term of the lease must comply with the National Housing Act and cannot be
waived.
Sections 221(d) and 220: the term of the lease must run at least ten (10) years beyond the
maturity date of the mortgage or for a period of not less than 99 years which is renewable.
Sections 207/223(f) and 231: the term of the lease must run at least fifty (50) years beyond the
date of mortgage execution or for a period of not less than 99 years which is renewable.
Section 223(a)(7): the term of the lease is subject to the requirements of the original mortgage
program for the project being refinanced.
Section 241(a): the term of Lease (from the insured first mortgage) may remain the same except
if the 241(a) loan is being extended beyond that of the insured first mortgage. The term of Lease
must be extended by a corresponding number of years in cases where the original Lease term is
other than 99 years and renewable.
2. Recording. The Lease or a Memorandum of Lease must be recorded in the applicable land records
office and must contain the following information (in addition to any information required by state
law):
The names of the parties (Landlord and Tenant);
A legal description;
Term of the Lease and any option to renew;
Reference to the HUD Lease Addendum – Multifamily, form HUD-92070M; and
Specific reference to HUD’s option to purchase in Section 7 in the HUD Lease Addendum (unless
Section 7 is expressly waived in writing by HUD in accordance with Program Obligations).
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7.15 Leaseholds/Ground Leases
3. Lease Addendum – Multifamily (form HUD-92070M). The Lease Addendum must be included and
used as follows:
The Lease must incorporate the Lease Addendum - Multifamily form HUD-92070M (“Lease
Addendum”). If the Lease has been recorded, the Lease Addendum must also be recorded in the
official records to amend the previously recorded Lease. If a Memorandum of Lease has been
recorded, it must be amended in the official records to reference the incorporation of the Lease
Addendum as noted above.
The Lease, through the incorporation of the Lease Addendum, must grant HUD the option to
purchase good and marketable fee simple title to the property and the Landlord’s interest, if any,
in the building and improvements (Section 7 of form HUD-92070M).
1) Option Price: HUD’s option price must be the value of the Leased Fee Estate (net present value
of Ground Lease) at the time of Firm Commitment (see Section 7.15.4 regarding valuation of
the leasehold interest).
2) Waiver: If the Landlord is a state or local unit of government or public entity created pursuant
to state law, the Regional Center Director may waive the purchase option requirement at the
time of issuance of the Firm Commitment. To be eligible for this waiver, the project must also:
a) Be “affordable” as defined in Chapter 3, Section 3.1.12, OR be a low-leverage, low-risk loan
with significant public purpose and benefit;
b) Be appraised for both Leased Fee and Leasehold interests, as well as the Fee Simple
interest in the land (the Leased Fee is the net present value of the Ground Lease); and
c) Provide a thorough discussion in the appraisal and underwriting narrative of the Lease
terms, and a determination by Lender that both the Leasehold Estate is marketable and
the Leased Fee is less than the Fee Simple interest in the land.
d) Additionally, HUD will permit the use of discounted cash flow analysis and/or direct
capitalization in determining the value of the Leased Fee. The Lender must include a
thorough discussion of the parameters and methods used in the determination of the
discount rate. The value of the Leasehold Estate will be accounted for in form HUD92264A on line 3(a) and will be used to calculate the maximum insured mortgage for
purposes of Criterion 3. No value is given to the Leased Fee under either Criterion 3 or 4.
Execution of a new Lease Addendum is not required for 223(a)(7) transactions.
4. Estoppel Certificate. The Tenant/Borrower must provide an estoppel certificate signed by the
Landlord that identifies the Lease documents, including all amendments, and confirms: the legal
description; that the Lease is in full force and effect; and that there are no defaults, pending defaults,
or conditions that could give rise to a default under the Lease. The estoppel certificate must also
contain the required language from 24 C.F.R. § 200.62 and the “warning” language from the Lease
Addendum. The estoppel certificate must be dated within 30 days of closing.
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Chapter 7 Valuation & Market Analysis
7.15 Leaseholds/Ground Leases
7.15.3
Lease Payments (Ground Rent)
7.15.3.1
Acceptable Form of Ground Rent Computation
A. For all Leasehold projects, the Ground Rent must meet the underwriting standards of this MAP Guide.
Ground Rents may be computed using one of the following three methods:
1. A fixed percentage of Gross Collections (or Effective Gross Income). The percentage must remain the
same throughout the term of the Lease.
2. A fixed percentage of net cash flow to equity (after Debt Service Payments but before Lease
payments). The percentage must remain the same throughout the term of the Lease.
3. A stated dollar amount per year which must remain fixed for at least ten years beyond the term of the
insured mortgage. If monthly or quarterly payments are required, these will be converted to annual
amounts by the appraiser. When the Lease contains more than one method of computing the Ground
Rent, it must also indicate whether the amount to be paid is to be the greatest or the least, or the sum
of, these amounts. The stated annual dollar amount may be described as a minimum payment.
B. The MAP appraiser must evaluate the payment based upon the acceptable Ground Rent computations
and incorporate the payment into their conclusion of net operating income.
7.15.3.2
Unacceptable Lease Payments (Ground Rent)
A. HUD will not accept variable Ground Rents, including (1) graduated schedule of future increases on a
lump sum/year-by-year basis, (2) Cost of Living Allowance (COLA) or Consumer Price Index (CPI)
increase, and (3) increases based on the results of future appraisals or arbitration.
7.15.3.3
Ground Rent During Construction
A. Ground Rent during construction must be included in the estimated replacement cost of the project
and in the certified cost, subject to the following conditions:
1. The period for which Ground Rent is estimated must be the same as that for which interest and other
related charges are calculated, or the estimated construction time plus two months.
2. Ground Rent during construction must be entered in Line G 69 of form HUD-92264 (currently labeled
“Construction Fee”). A remark must be entered in Section H, indicating that the amount in Line G 69
represents Ground Rent during construction.
3. Ground Rent must not be included in the base on which Section 220, 221(d) BSPRA is calculated.
4. The annual amount of Ground Rent during construction may not exceed the test for acceptability of
Lease payments.
5. For rehabilitation under all Sections of the Act, Ground Rent during rehabilitation must be included
in the replacement cost.
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7.15.4
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Chapter 7 Valuation & Market Analysis
7.15 Leaseholds/Ground Leases
Valuation of the Leasehold Estate
A. The value of the Leasehold Estate is determined by analyzing the factors used by the MAP Appraiser in
developing a value for Criterion 3 such as income capitalization supported by comparable sales and
included on line 3.a of form HUD-92264-A.
1. For affordable projects that involve a ground lease on land or on both land and improvements without
an option to buy, the Department will not insure a loan that will recognize a leasehold interest for
security unless the property meets these requirements:
The lessor must be governmental body or a housing authority, or a non-profit entity. There are
no exceptions and no waivers at the Regional level.
The property must qualify as affordable housing, as defined in Chapter 3, Section 3.1.12;
No deviations from form HUD-92070M are permitted, except for those previously stated.
The project must be a low leverage, low risk loan with significant public purpose benefit.
2. Valuation methodology and analysis must clearly outline the various components of the lease, and the
Highest and Best Use section of the Appraisal must present the appropriate analysis and methodology
that reflects the following:
Value of the Fee Simple Interest in the Land per requirements in the MAP Guide, typically
supported by comparable sales and reflected elsewhere in the appraisal. The specific components
of the fee simple estate must be clearly defined (i.e., land, land and shell, land and building, etc.)
Value of the Leased Fee must reflect the Net Present Value of all lease payments and the
appropriate risk to collecting those payments. The value must reflect the typical terms in the
market by a typical investor and may be appropriately reflected by both a capitalization of the
initial income for the current year lease and by using a Discounted Cash Flow. Any/all variances
in value between these two methodologies must be analyzed and explained in terms of the risk to
HUD.
The impact of the Leased Fee Value on the Leasehold Estate must be clearly discussed and
reflected in the Leasehold Value estimated in the Income Approach, and any/all adjustments must
be reflected in the value determined by the Sales Comparison Approach.
The resulting value of the Leasehold Estate must be analyzed and reported in Section G, Line 73b
of form HUD-92264 and Line 3a of form HUD-2264-A respectively.
Upfront land lease payments essentially reflect the Net Present Value of annual payments that
would have otherwise occurred under a Land Lease, subject to any/all HUD requirements. The
appraiser must analyze that payment as it reflects the Net Present Value of the income stream
that would have otherwise been an operating expense, thereby reducing the NOI. This up-front
payment may also affect Leasehold Value as set forth in Criterion 3, potentially impacting the
requested loan amount.
The appraiser must support all Overall Rates, Discount Rates, Internal Rates of Return, etc. as it
relates to the various components of Leased Fee and Leasehold Estate Values in the Market and
clearly explain the impact on the Value Estimates. The Leased Fee value may not exceed the Fee
Simple Interest in the property (i.e., land, land and shell, land and building, etc.)
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Chapter 7 Valuation & Market Analysis
7.15 Leaseholds/Ground Leases
Rehabilitation of an Existing Project
A. When Building/Improvements are owned by the Tenant/ Borrower and the Leasehold mortgage is to
be insured and contains existing buildings, the valuation processing shall be as follows:
1. “As Is” Leasehold Value of both land and building(s) must be established by capitalization of income
and/or by comparable sales, as appropriate.
2. Value of the land without building/improvements must be established by market comparison based
on sales of similar sites. When the existing improvements are in poor condition and have little or no
inherent value, their contributory value may be added to the value of the site plus any demolition cost
in order to render the structure ready for development.
3. The total “As Is” value of the entire project is the value of the site plus contributory value of the
improvements, plus any demolition costs, so that the site is ready and available for development.
7.15.6
Maximum Mortgage Amount for Criterion 3
A. The value or replacement cost of the project described in the mortgage shall be the value or
replacement cost of the Leasehold Estate (as determined by HUD), which in all cases shall be less than the
value or replacement cost of the property in fee simple.
7.15.7
Fee-Joinders
A. Under certain limited circumstances, HUD may insure mortgages even when the Borrower entity does
not directly own the requisite Fee Simple Estate and/or eligible Leasehold interest with appropriate
closing documentation to ensure compliance with the National Housing Act, as discussed below.
B. Certain states have statutorily authorized programs that provide tax abatements to residential rental
projects. In order to take advantage of such programs, private Developers will transfer Fee Simple
ownership of their project to the state or local development agency, and then enter into a Lease with the
state or local development agency for a duration that is shorter than required under the National Housing
Act. Through a joinder to the FHA-insured mortgage, as an accommodation to gain FHA-insured financing,
the governmental agency agrees to allow its Fee Simple Estate to serve as security for the FHA-insured
loan. This arrangement is deemed a subordination of the fee (or “Joinder of the Fee”).
C. For FHA purposes, a document titled Rider to the Security Instrument – Fee Joinder (the “Rider”), must
be used in these situations. Through this document, the governmental agency/Landlord agrees to subject
its Fee Simple interest to the FHA-insured Security Instrument so that the MAP Lender has a first mortgage
on real estate in Fee Simple for the entire term of the FHA loan. If the Borrower defaults under its
obligations, then the FHA Lender, HUD, or other purchaser at foreclosure sale (as applicable) will acquire
Fee Simple title to the project.
D. MAP transactions requesting HUD approval for Joinder of the Fee must meet the following
requirements:
1. The project, Borrower, and transaction must otherwise be eligible pursuant to this MAP Guide;
2. The project must benefit from a state or locally authorized tax abatement program;
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Chapter 7 Valuation & Market Analysis
7.15 Leaseholds/Ground Leases
3. The Landlord must be a state or local unit of government or public entity created pursuant to state
law;
4. Lender’s counsel and the HUD closing attorney must ensure that under state law, the FHA Security
Instrument (mortgage or deed of trust) represents a first lien on the entire Fee Simple Estate of the
project for the duration of the FHA-insured Note;
5. The Rider must be executed and attached to the Security Instrument; and
6. Borrower must provide a title insurance policy satisfactory to the MAP Lender and HUD.
E. For valuation purposes, Fee joinder structures must be underwritten to the full amount of the project
taxes.
F. Additional Requirements:
1. Security Instrument.
The Landlord must be added to the first paragraph of the Security Instrument as an
accommodating “Joinder Party.” This addition is necessary to ensure the proper indexing of the
Fee Simple security interest granted by the Rider. While the Landlord will be added as a party in
the first paragraph of the Security Instrument, it will not be a signatory to the Security Instrument
itself.
The Rider must be executed by the Landlord and the Borrower and must meet the state-law
specific signature and attestation requirements.
The Security Instrument must not be referred to or titled as a Leasehold Mortgage/Leasehold
Deed to Secure Debt/Leasehold Deed of Trust because the Rider results in the Security Instrument
encumbering the entire Fee Simple Estate as collateral for the loan.
2. Title Insurance Policy.
The title insurance policy must not be a “Leasehold Loan Policy.” Instead, Schedule A2 must list
both the Fee Estate and Leasehold Estate. Schedule A3 should similarly list both the Landlord and
the Borrower. In Schedule A4, where the Security Instrument is listed, the Rider must be
appropriately referenced. Schedule B, Parts I and II, must list all exceptions and encumbrances
pertaining to both the Fee Simple and Leasehold Estates. Any exceptions must be acceptable to
HUD.
3. Lease Addendum – Multifamily, form HUD-92070M.
The Borrower must use the Lease Addendum, striking paragraphs 7, 11, and 12, as they are not
applicable in this Fee Joinder context. Further, paragraph 10 regarding condemnation must be
stricken and replaced with the following (no HQ approval is needed): “All awards and /or
proceeds from the condemnation, or the negotiated sale in lieu of condemnation, of all or any part
of the Tenant's and/or Landlord's interests in the Property, Improvements or the leasehold estate,
shall be paid to Lender and applied as provided in the Security Instrument between Lender and
Tenant.”
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Chapter 7 Valuation & Market Analysis
7.16 Tax Abatement Procedures
7.16 Tax Abatement Procedures
7.16.1
General Comments and Exceptions
A. Tax Abatement is a reduction of project taxes for a specified term by the taxing authority. Properties
with abatement are eligible for additional mortgage funds under certain circumstances. The abatement
must run with the real estate and not with the type of sponsorship if it is to secure additional mortgage
proceeds based upon value (Criterion 3). The debt service approach (Criterion 5) used for underwriting
must include an amount for the expected project taxes (including abatement or PILOT) in the project
operating expenses. The terms of the tax abatement must be analyzed and a stress test demonstrating the
risk must be performed even if the present owner or its transferee may benefit from the abatement for
the term of the mortgage. The risk that a transferee of the project or an assignee of the mortgage in the
future might cause the tax abatement to be lost is an unacceptable risk to the insurance fund. Exceptions
to these requirements include the following:
1. If the property is subject to LIHTC covenants to maintain affordability, or if over 90% of the units are
covered by a Section 8 project based rental assistance contract, and if the tax abatement runs with the
sponsorship (Borrower) entity, then the Regional Center Director may waive the MAP Guide so that
the underwriting does not have to include a provision for project taxes during the period of the tax
abatement. This exception is justified for low loan-to-value mortgages on LIHTC projects and the
additional due diligence and oversight by private equity investors. A real estate tax abatement will
be recognized in both value (Criterion 3) and underwriting (Criterion 5) calculations even if the
abatement runs with the owner rather than with the land, so long as the owner is non-profit
sponsored.
2. Some properties are leased from a governmental body to either a non-profit or for-profit Developer,
where the project is exempt from taxes and the abatement flows to the leasehold improvements.
There is usually a requirement for a percentage of units to be set aside as affordable housing, which
is imposed by a land use restriction or regulatory agreement. Regional Center Directors may grant a
waiver, after appropriate review, to promote affordable housing.
7.16.2
Full Term Tax Abatement
A. If the amount of the tax abatement is fixed and runs the entire term of the mortgage, the real estate tax
expense reported on form HUD-92264 must be the actual amount of taxes the project will pay, if any. The
full amount of the real estate taxes without the abatement must be noted in the remarks section of form
HUD-92264. The project will benefit from an increased mortgage amount due to the lower pro-forma
operating expenses and an increased NOI estimate. When the abatement runs for the full term of the
mortgage, the NOI used for form HUD-92264-A Criteria 5 may also be processed at the reduced tax
amount.
B. Also, if value attributable to long term tax abatement is recognized in the subject’s market area, the
same NOI may be capitalized and the resulting value may be used in Criterion 3. Attributing value to the
abatement is allowable only if the abatement is transferable.
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7.16.3
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Chapter 7 Valuation & Market Analysis
7.16 Tax Abatement Procedures
Partial Term or Variable Tax Abatement
A. If the abatement is partial term or variable, it may still be used to secure additional mortgage proceeds.
The additional mortgage will be the amount that will amortize over the term of the tax abatement. A
special amortization plan must be requested which has debt service payments that are increased by the
additional net income generated during the term of the abatement. When processing a partial term or
variable abatement, the full amount of the project taxes must be estimated and included in the total project
expenses on form HUD-92264 as if there were no abatement. The additional debt service carry resulting
from the abatement must be calculated on line I, Criteria 5 of form HUD-92264-A.
B. If Criterion 5 (Amount Based on Debt Service Ratio) is not the controlling criterion, partial term or
variable abatements cannot be used to secure additional mortgage proceeds. Also, the appraiser must not
include extra value associated with partial-term abatement in either the estimate of land value, the “As Is”
value for substantial rehabilitation, or the “As Repaired” or “As Is” value for existing projects, and it must
not be included in Criterion 3.
1. Partial Term Abatements: Assume that Project A has been awarded a 5-year tax abatement of
$5,000/year and the interest rate on the insured loan is quoted at 7.5% and the MIP is 0.5%. The
amount of additional mortgage is calculated by dividing the annual abatement, $5,000 by the
applicable debt service constant (P, I, and MIP). In this example the debt service constant is
0.245455383.
$5,000 / 0.245455383 = $20,370
The additional mortgage amount based upon debt service (Criterion 5 of form HUD-92264-A) would
be an increase of $20,370 and a special amortization schedule would be required with a debt service
payment that is $5,000/year greater in years 1 through 5.
2. Variable Abatements: Variable tax abatements are more complex to quantify but are essentially
calculated in the same manner. Assume that Project B has been awarded 15-year tax abatement. In
years 1 through 5, the abatement is $25,000; in years 6 through 10 the abatement is $10,000; and in
years 11 through 15 the abated amount is $5,000. The interest rate on the insured loan is quoted at
7.5% and the MIP is 0.5%. The amount of additional mortgage is calculated as the amount that could
be fully amortized by the variable payments over the 15-year period based on the stated financing
terms. The graph below illustrates the calculation.
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7.16 Tax Abatement Procedures
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$25,000
($5,000)
$20,000
($5,000)
$15,000
($5,000)
$10,000
($5,000)
($5,000)
$5,000
($5,000)
($5,000)
Abatement Period 1
$25,000 -$10,000 = $15,000
$15,000 / 0.245455 = $61,111
Abatement Period 2
$10,000 - $5,000 = $5,000
$5,000 / 0.147422 = $33,912
($5,000)
Abatement Period 3
$5,000 - $0 = $5,000
$5,000 / 0.116241 = $43,014
When there are two or more abatement amounts and periods, and the amounts decline, the abatement
amount for each period is found by subtracting the abatement amount of the next period. Period 1
will run for 5 years, Period 2 will run for 10 years, and Period 3 will run for 15 years. Because all three
periods begin amortization at the same point in year 0, the amount of the abatement for the next
period must be subtracted to avoid double counting.
Abatement Period 1: $25,000 minus $10,000 (the amount of abatement in period 2) = $15,000 for
5 years. The debt service constant for a 5-year term at 7.5% interest with 5% MIP is 0.245455383.
Dividing $15,000 by 0.245455383 indicates additional mortgage proceeds of $61,111 attributable
to period 1.
Abatement Period 2: $10,000 minus $5,000 (the amount of abatement in period 3) = $5,000 for
10 years. The debt service constant for a 10-year term at 7.5% interest with 0.5% MIP is
0.147442123. Dividing $5,000 by 0.147442123 indicates additional mortgage proceeds of
$33,912 attributable to period 2.
Abatement Period 3: $5,000 minus $0 (since there are no periods remaining) = $5,000 for 15
years. The debt service constant for a 15-year term at 7.5% interest with 0.5% MIP is
0.116241483. Dividing $5,000 by 0.116241483 indicates additional mortgage proceeds of
$43,014 attributable to period 3.
Adding the supportable mortgages from each of the abatement periods results in a total additional
supportable mortgage of:
1) Period 1
=
$ 61,111
2) Period 2
=
$ 33,912
3) Period 3
=
$ 43,014
4) Total
=
$138,037
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Chapter 7 Valuation & Market Analysis
7.17 Project-Based Section 8 and LIHTC
The mortgage amount based on debt service (Criteria 5 of HUD 92264-A) would be increased by
$138,037 and a special amortization schedule would be required with a debt service payment that
reflects $25,000 per year in years 1 through 5, $10,000 per year in years 6 through10, and $5,000
per year in years 11 through 15. The appraiser must not include extra value associated with
variable abatement in either the estimate of land value, the “As Is” value for substantial
rehabilitation, or the “As Repaired” or “As Is” value for existing projects, and it must not be
included in Criterion 3.
7.16.4
Deferral of Real Estate Taxes
A. A real estate tax deferral must be distinguished from a real estate tax abatement. A tax deferral only
postpones the payment of real estate tax until some future date. The Borrower shall not participate in a
real estate tax deferral program unless approved by HUD Headquarters in writing. HUD will not approve
participation in any real estate tax deferral program unless participation will not result in the creation of
a lien that has priority over the insured mortgage and, if applicable, any second mortgage held by the
Commissioner. However, if any deferred taxes result in a first lien on the property, the tax lien must be
paid before HUD will allow an FHA insurance claim, and the payment will not be reimbursed by HUD as
part of any insurance claim.
7.17 Project-Based Section 8 and LIHTC
7.17.1
For Section 223(f)
A. The project must be evaluated under two scenarios: a) the “hypothetical market value” of the project
without regard to any Section 8 project-based subsidies, rent restrictions, or LIHTC; and b) a debt service
analysis must be performed that considers all Section 8 project-based subsidies and other low income
rent restrictions. Two independent Section C rent schedules must be prepared, one for a hypothetical
market rent estimate and one that recognizes all rent restrictions and subsidies.
7.17.1.1
Criterion 3 Market Value
A. The appraiser must ignore the Section 8 contract rents and tax exempt bond or LIHTC restricted rents
when determining market value and the income to be capitalized for a determination of market value for
the purposes of determining Section K, form HUD-92264, and Criterion 3, form HUD-92264-A Value. To
be consistent, the appraiser must use a market capitalization rate and must assume market rents in the
income approach to value. Note that the comparable sales approach to value must be completed without
regard to Section 8 or LIHTC awards.
7.17.1.2
Criterion 5 Debt Service Analysis
A. In calculating net operating income to be used for Criterion 5 Debt Service, rent restrictions must be
observed. For the Criterion 5 debt service analysis, the Line 6, form HUD-92264-T rents must be used.
This applies to projects receiving LIHTCs that may use either tax exempt bond or market-rate financing.
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Chapter 7 Valuation & Market Analysis
7.17 Project-Based Section 8 and LIHTC
Form HUD-92264T for LIHTC Projects without Section 8
A. Follow the existing form instructions. Processing will be based upon the lesser of Lines 1, 4, or 5.
7.17.1.4
Form HUD-92264T for Section 8 Project-Based Assistance without
LIHTC
A. Enter the market rent by comparison on Line 1.
B. Enter Personal Benefit Expenses on Line 2.
C. Line 3 is Not Applicable.
D. Line 4 is Not Applicable.
E. Enter the Project Based Section 8 Contract Rent on Line 5.
F. Subtract Line 2 from Line 5 (if applicable).
G. Process using the lesser of Line 1 or Line 5.
7.17.1.5
Form HUD-92264T for Section 8 Project-Based Assistance with
LIHTC
A. The LIHTC rent must be recorded but is not used as a limiting criterion because the total income to the
project is the LIHTC rent combined with the Section 8 rent, so that the actual amount of rental income to
the project will be the Project-Based Section 8 rent, as follows:
2 Bedroom Section 8 Contract Rent:
2 Bedroom LIHTC Rent limit:
Resident’s Rent Obligation to Project:
Section 8 Payment to Project:
Total Income to Project:
7.17.2
$850/Month
$350/Month
$350/Month
$500/Month
$850/Month
Fee Income
A. If additional fees for project amenities are mandatory for all residents, the mandatory fee income from
restricted units must be excluded from the calculation of net income. The mandatory fee income from
non-restricted units may be included if these amenity fees are indicated by comparable properties in the
market and it must be explained in the remarks section of form HUD-92264.
7.17.3
Income Limits
A. The appraiser must ascertain that the correct income limits are employed in calculating the maximum
LIHTC rents and in completing form HUD-92264-T. The Housing and Economic Recovery Act of 2008
(HERA) modified HUD’s income limit methodology for calendar years after 2008 to require HUD to
increase applicable area median incomes by the amount area median incomes rise, even if the HUDdetermined area median incomes would be frozen under HUD’s 2007 and 2008 income limit
methodology.
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Chapter 7 Valuation & Market Analysis
7.18 Appraisal Review Policy and Requirements
Expenses/Fees
A. Properties with LIHTC-restricted units will commonly have a higher operating expense ratio per unit
than market rate properties, which may be due to increased administrative costs for tax credit compliance
monitoring, performing resident income certifications, and staffing to provide on-site resident services.
Estimating operating expenses for projects that are to be funded through the sale of LIHTC requires the
analysis of LIHTC comparables if available, and consultation with other experts (i.e. appraisers and project
managers) in the context of current market conditions, which should consider the size of the project and
unit mix. Utility expense unit rent adjustments in LIHTC projects may be estimated by the analysis of
actual costs supplied by the Developer, the utility company, or by use of the Section 8 utility allowances.
1. If the project has the same operating expenses under LIHTC or Project-Based Section 8 operation as
it would under market rate operation, enter expenses as usual.
2. If a project has different expense needs as a subsidized project, the expenses used for Criterion 3 must
be market rate expenses and the expenses used for Criterion 5 debt service shall be the actual
expenses under its proposed usage. This will ensure that the Criterion 5 debt service analysis of the
form HUD 92264a is calculated based on the actual estimate of the rent restricted NOI for the project.
7.18 Appraisal Review Policy and Requirements
7.18.1
Scope of Work
A. Scope of Work includes project identification, extent of inspection, the type and extent of data
researched, and the kind of analysis needed to arrive at opinions or conclusions. The rule also states that
appraisers have broad flexibility and significant responsibility in determining the appropriate scope of
work for an appraisal or appraisal review assignment.
B. According to USPAP, appraisers, including HRAs, are responsible for determining the scope of work.
However, as an employer who is also the client, the Department may issue guidance as to what is the
extent of an assignment for a review appraisal. It is not a violation of USPAP for an appraiser to accept an
assignment, in which a limited scope of work is appropriate, so long as the assignment and scope of work
are clearly defined, produces credible results, and is performed objectively without bias.
C. HRAs may have to expand the scope of work and do additional research in performing an assignment.
The HRA should discuss such situations with management to determine whether additional work by HUD
staff is appropriate, or if the application should be rejected or approved with conditions.
D. According to USPAP, if relevant information is not available because of assignment conditions that limit
research opportunities (such as conditions that place limitations on inspection or information gathering),
an appraiser must withdraw from the assignment unless the appraiser can still develop credible
assignment results. For example, they may be able to modify the assignment conditions to expand the
scope of work to include gathering the information or use an extraordinary assumption.
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7.18.2
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Chapter 7 Valuation & Market Analysis
7.18 Appraisal Review Policy and Requirements
Jurisdictional Exception Rule
A. The Jurisdictional Exception Rule provides a saving or severability clause intended to preserve the
balance of USPAP if compliance with one or more of its parts is precluded by the law or regulation of a
jurisdiction. When an appraiser properly follows this Rule in disregarding a part of USPAP, there is no
violation of USPAP.
B. USPAP defines law as including constitutions, legislative and court-made law, administrative rules, and
ordinances. Regulations include rules or orders having legal force, issued by an administrative agency,
such as HUD. This would include Handbooks, Notices, and the MAP Guide. Instructions from an attorney
or a client do not establish a jurisdictional exception.
C. The need to take a Jurisdictional Exception should be rare. If it is needed, the appraiser or HRA must
specifically cite the regulation and the portion of USPAP that is affected. Verbal direction from
management is not sufficient to justify an exception. The HRA must cite a citation from the MAP Guide or
other appropriate authority.
7.18.3
Record Keeping Rule
A. This rule specifies record keeping procedures for appraisers. The rule does not mandate that an
appraiser have possession of assignment work files. The Department does not permit permanent or
personal possession of records relating to a review appraiser's work. The Department retains these
records for far more than the time required under USPAP and will, with due process of law, cooperate
with appraiser regulatory agencies, professional peer review committees, and to assist obtaining a
professional designation. Appraiser work-files will be maintained in the Satellite office. When an HRA
leaves employment, they shall be transferred to the Regional Office. Records should be stored on the local
or regional network drive. Paper records should be scanned as needed.
7.18.4
Loan Committee
A. HRAs are expected to complete workload assignments to facilitate loan approval (or rejection)
including an executive summary and other material needed for Regional Center or National Loan
Committees. The summary is intended to allow peers and management the ability to efficiently complete
their reviews and conclusions. The Department allows the use of an alternative format for the NLC
narrative as long as it is approved by the Regional Center Director and contains an executive summary. It
is the Department’s position that its programs and instructions are in compliance with USPAP.
Management has the right to disagree with conclusions made by HRAs or any other technicians.
Management should document the file with the reasons for any disagreement. The original conclusions
are part of the permanent project file.
7.18.5
Workload Sharing
A. Workload Sharing arrangements may require HRAs to perform reviews without the benefit of being
able to do a physical inspection. The assignment will generally be completed with the HRA making certain
assumptions, such as the condition to be consistent with the photographs and other reports.
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Chapter 7 Valuation & Market Analysis
7.18 Appraisal Review Policy and Requirements
Consultations with Other Staff
A. HRAs may be required to provide consultation with Senior Underwriters and other staff who have been
asked to review an appraisal. A Frequently Asked Questions grid included in Addendum 7 discusses tasks
which can be accomplished, as well as the level of required USPAP compliance.
7.18.7
Environmental Processing
A. The responsibility for environmental processing has been typically assigned to the HRA, though other
appropriately trained HUD staff may also perform these reviews. In accordance with 24 CFR 50.32, HUD,
not the Lender, is responsible for independently evaluating the information supplied by the Lender,
supplementing that information as needed, and making the required findings in HEROS as the
environmental review record for the project. HUD will determine whether the proposed project site is
out of compliance with applicable laws, Executive Orders, or regulations or otherwise would endanger
residents’ health or safety or put FHA mortgage insurance or the US Government at financial risk or
liability. Federal regulations at (24 CFR 50.11) further require that a Program Approving Official take
responsibility for the scope and content and the environmental finding. These functions cannot be
delegated to a Lender or the Lender’s or owner’s consultants. In order for HUD to complete these
functions, the Lender or Lender’s consultant must submit an environmental report to HUD using the
HEROS system for all projects submitted under MAP. Additional details are provided in Chapter 9 of this
Guide.
B. When HUD staff appraisers are assigned this duty, it is not considered an appraisal assignment subject
to USPAP requirements. In accordance with Chapter 9 of this Guide, the Department expects the appraiser
or other responsible staff to perform the environmental review under the National Environmental
Protection Act (as required) and HUD’s regulation at 24 CFR Part 50, and ensure compliance with related
environmental laws and authorities including the Wetlands/Floodplain Executive Orders, Endangered
Species Act, National Historic Preservation Act , etc. HUD staff must review the HEROS report, including
the Phase I Environmental Site Assessment submitted by the Lender, obtain additional information as
needed from other governmental or private sources, and complete the review in HEROS. The Regional/
Satellite Director who issues the commitment is responsible for certifying the review in HEROS as the
Program Approving Official. Chapter 9 requires that HUD staff must make a site visit.
7.18.8
Technical Appraisal Review Requirements
A. The HRA or Senior Underwriter must follow the review requirements listed below:
1. Exhibits. The Lender must submit the exhibits listed in Section 7.10.1 to HUD.
2. Market Study Review. The HRA or Senior Underwriter and the EMAD economist must each provide
a desk review of the market study to determine reasonableness and compliance with Market Study
requirements. The Reviewer must make final recommendations to the team leader regarding market
demand for the project.
3. Level of Inspection. The HRA or Senior Underwriter must state the level of inspection. Preferably,
they should inspect the subject site and as many as possible of the comparables used in the appraiser’s
forms HUD-92273 and HUD-92274 analysis.
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7.18 Appraisal Review Policy and Requirements
4. Environmental Review. The HRA (or other designated employees) must review the Lender’s
submitted HEROS report, including the Phase I ESA, supplement the information as needed, and make
the required findings in HEROS.
5. Site Review. The HRA must review site characteristics and make a recommendation regarding site
acceptability to the team leader.
6. Comparables. The HRA must determine that the comparables submitted are acceptable.
7. Recommendation. From a review of forms HUD-92264, HUD-92273, HUD-92274, and supporting
information, the HRA must make a recommendation to the team leader regarding:
The acceptability of the proposed rents and estimated rental income,
The acceptability of the total operating expenses,
The acceptability of the site and the estimated warranted price of land or “as is” value,
If applicable, the estimate of market value, and
Any recommended modifications necessary to approve the application instead of a categorical
rejection. Any value conclusions made by HRA that differ from the appraisal under review require
preparation of a work file in accordance with Standard 1 of USPAP. Only licensed appraisers may
develop a different value. In determining acceptability, the Department prefers that the HRA or
Senior Underwriter only opine on the quality of the work under review and as to whether or not
it is reliable for use in underwriting mortgage insurance.
8. Compliance with USPAP. The HRA or Senior Underwriter must also ascertain if the appraisal
complies with Standards 1 and 2 of the Current USPAP. Senior Underwriters must be familiar with
USPAP or consult as necessary with the HRA. USPAP does not require that reviews to determine
USPAP compliance be made by an appraiser.
7.18.9
Documentation of the Appraisal Review
A. The Department’s SharePoint site contains a number of appraisal review templates as well as review
forms from the previous MAP Guide. HRAs and Senior Underwriters have a great deal of flexibility in the
format that they use, so long as it is approved by the Regional Center Director and contains an executive
summary.
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Chapter 8 Mortgage Credit
8.1 Introduction
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Chapter 8
8.1
Mortgage Credit
Introduction
A. This chapter is designed to explain FHA’s underwriting criteria for determining the creditworthiness
of a Principal, i.e., the Principal’s capacity of credit, experience and financial histories. It also covers
determining the maximum insurable mortgage as well as other financial requirements for issuing a Firm
Commitment and closing under the different sections of the National Housing Act.
B. Principals of the borrowing entity and of other entities participating in FHA multifamily mortgage
insurance programs must have a positive credit history demonstrating that they will honor their legal,
financial and contractual obligations. All Principals must be identified and analyzed with respect to their
creditworthiness. Regulatory standards established in the Code of Federal Regulations (24 C.F.R.) Part
200 Subpart H Participation and Compliance Requirements determine the appropriate review of previous
participation in multifamily insured programs, based upon past performance and other aspects of a
Principal’s records.
C. In certain standards addressed in this chapter, separate policy has been developed for Low Income
Housing Tax Credit projects and this policy is presented in Chapter 14. If apparent conflicts arise between
this Chapter and Chapter 14, Chapter 14 guidance will prevail in the underwriting of Tax Credit Projects.
8.2
Borrower Types – Single Asset Borrower Entity
A. A single asset Borrower entity is required for all multifamily FHA mortgage insurance projects. The
single asset Borrower entity must be registered in the United States and in the State where its corporate
office is located. Natural Persons, Delaware Statutory Trusts, Maryland Business Trusts, foreign entities,
and Tenants in Common are not eligible single asset Borrower entities, although such entities may have
ownership interests in the single asset entity Borrower. Acceptable forms of single asset entities that may
participate in FHA insured transactions include the following:
1. General Partnership (GP); An ownership structure may have two or more general partners. A written
partnership agreement may be accepted in lieu of a state registration.
2. Limited Partnership (LP); A limited partnership must have at least one GP and at least one LP and
must also conform to the laws of the jurisdiction in which it was established.
3. Corporation, C Corporation, or S Corporation with shareholder owners and corporate officers and
directors who may or may not be shareholders.
4. Limited Liability Company (LLC) composed of members, with one or more managing members and
one or more investor members.
5. Trust with beneficiaries and one or more trustees (when the Borrower is a trust, the duration of the
trust must be equal to or longer than the term on the FHA Note).
6. Nonprofit Corporation with officers and directors.
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7. Any other public or private single asset Borrower entity.
8. Any combination of acceptable ownership forms can be used to establish a joint venture for the
purpose of jointly sharing the risks and the rewards and contributing the appropriate knowledge,
skills or assets necessary to a successfully developed project. However, the Borrower must always be
a single asset entity.
8.3
Reviewing Principals and Other Parties in Control
A. The individual(s) and entity(ies) who exercise operational and financial control over a project are
subject to a mortgage credit review. This review includes creditworthiness review and a review of
previous participation of such individual(s) and entity(ies) in federal programs.
8.3.1
Determining Principals and Who is in Control
A. The term Principal refers to individual(s) and entity(ies) who exercise operational and/or financial
control over a project. MAP Underwriters will consider a Principal(s) in three contexts: (1) individual(s)
or entity(ies) who possess financial and/or legal control of the Borrower, thereby requiring financial and
credit analysis; (2) person(s) or entity(ies) who will execute Section 50 of the HUD Regulatory Agreement
and also require financial and credit analysis; and (3)individual(s) or entity(ies) who must disclose for
Previous Participation Certification review.
B. “Principals” may include any of the following:
1. “Active Principals” are individuals or entities who singly or with others direct and control the
Borrower and are responsible for the Borrower’s ability to execute any and all actions for the benefit
of the project, regardless of the extent of their equity interest. A Principal is any entity that has an
ownership interest of 25% or more in the project to be insured, which is reduced to 10% or more for
corporations. However, and regardless of the percentage of ownership interest, principals are subject
to both a financial underwriting review and a previous participation review if they possess a
substantial financial interest or have decision making authority in the Borrower.
Active principals of a borrowing entity that possess a substantial financial interest and/or have
decision making authority are subject to a credit and financial underwriting review. A substantial
financial interest is an interest that would create an ability by the investor to direct the operations
of the Borrower, or influence, either directly or indirectly, the decision-making authority of the
managing member or general partner and those member(s) of business entities which, if they
suffered material negative financial or legal problems, would pose a risk to HUD. The MAP Lender
must determine whether a principal is Active by reviewing the organizational chart and
identifying the various partners and their relation to the borrowing entity and to each other.
2. “Passive Principals” are persons or entities who singly or with others have limited or no decisionmaking power or control over the Borrower but who have an ownership interest of 25% or more
(10% for corporations) in the Borrower. Language in the Partnership Agreement or Organizational
Documents should evidence that the Passive Principal has no operational or decision-making
authority.
3. “Borrower” is the single asset Borrower entity.
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4. Foreign National individual and/or business entity. See Section 8.3.5.
5. A Special Limited Partner Entity (SLP) [This principal type applies only to LIHTC transactions]. This
permits the admission of a “Special Limited Partner” in case of default by or other failure of the initial
General Partner. Provision of Notice to the Investor by HUD and pre-approval of a Special Limited
Partner can be achieved through a “Rider to the Security Agreement for LIHTC Properties” available
at: http://portal.hud.gov/hudportal/documents/huddoc?id=Security_Instrument_Rider.pdf. In
addition,
instructions
for
the
use
of
this
Rider
are
provided
at:
http://portal.hud.gov/hudportal/documents/huddoc?id=Pre-appr_Process_Instru.pdf.
When
passive partners are replaced after final endorsement, HUD requires a modified Transfer of Physical
Assets (“TPA”). The Production Office will process submissions for Pre-Approval of the Special
Limited Partner Entity, which must occur at or before Initial Endorsement or Initial/Final
Endorsement; otherwise the SLP shall be treated as a passive investor.
6. Requirements for General Contractors (GC): A General Contractor will be treated as a principal if it
has an ownership interest in the project of over 10%.
7. A Principal may be a public or private entity, whether an individual or business, proposing to
participate in a project as an owner or General Contractor. Under certain conditions specified in
Section 8.3.5, the individual or entity may also be a foreign national. A Principal maintains significant
decision-making authority regarding an FHA-insured loan transaction, and/or retains the significant
percentage of ownership in a single asset Borrower entity. The Principal’s role can involve active
participation in directing the activities and affairs of the Borrower entity or passive participation
when an ownership interest has been acquired in the entity. All types of Principals are subject to
financial and credit disclosure and underwriting.
8.3.2
Underwriting Active Principals and Those with Control
A. Principals must have positive experience and qualifications in developing, owning or building
multifamily properties reasonably comparable in kind and scale to the subject of the proposed
transaction. Comparable in kind and scale means: (a) similar in physical size (e.g. number of units) and
building type and uses (e.g., low rise, high rise, commercial spaces); (b) similar financially (e.g. revenues,
expenses, size of mortgage, required liquidity ); (c) similar operationally (e.g. target markets/tenant
population, elderly, subsidized or affordable); and (d) similar in kind of transaction purpose (e.g.
acquisition, re-positioning/turn-around, rehabilitation, new construction).
B. Underwriting a Principal requires their financial and credit disclosure including: (1) a designated
person and an entity to sign Section 50 of the Regulatory Agreement, (2) individual or entity credit
reports, (3) individual or entity financial statements, HUD forms, documents and Schedule of Real Estate
Owned (REO)/debt schedules, (4) Internet searches (e.g. SAM.gov (System for Award Management) and
searches of debarment and delinquencies (i.e. MDDR Multifamily Delinquency and Default Report), OFAC
(Office of Foreign Assets Control) and any other relevant databases, and (5) pre-approval in cases where
their total FHA-insured debt is greater than $500,000,000.
C. Credit and Financial Underwriting Review Required on Other Principals (individuals and entities):
1. Investors (passive principals) that have exceeded the $500,000,000 threshold or wish to avoid
exceeding that threshold and wish to invest in a project as a passive investor.
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2. An investor (passive principal) whom the Borrower relies upon for both their financial strength and
cash requirement contribution.
D. Principal Types Not Subject to Credit Review:
1. Investor entities with limited liability benefiting from tax credits, including but not limited to lowincome housing tax credits pursuant to Section 42 of Title 26 of the United States Code, whether such
investors are syndicators, direct investors or investors in such syndicators and/or investors.
2. Parties whose sole interest is that of a purchaser or owner of less than five individual unit(s) in the
same condominium or cooperative development; (ii) parties whose sole interest is that of a tenant in
not more than two units in an FHA mortgaged insured property.
3. Public Housing Agencies (PHAs) where the PHA is acting in its capacity as a PHA owning and/or
operating public housing. However, PHAs are expected to form single asset entities to hold properties
financed with FHA mortgage insurance.
4. Passive Principals who have limited or no decision-making power or control over the ownership
entity. A passive Principal’s financial or other obligations to the Borrower and the property must be
fixed and defined before endorsement, with the Borrower or its Principals having limited or no power
to compel a passive Principal to increase its obligations. A passive Principal may have limited power
singly or with others, or no power to remove, replace or diminish the powers, or alter the
compensation of Principals. As used here “limited” means that the rights of a passive Principal to
exert control or effect decisions that are defined in organizational documents and are limited to
specific actions intended to remedy negligence or default by a Principal, or to protect the passive
Principal from loss due to a default or failure of performance by the Borrower.
5. Shell Entities that do not take actions themselves but only serve as legal vehicles through which the
partners, members or owners of such entity take actions.
E. Organizational Charts. An organizational chart of the single asset Borrower entity must be submitted
with each application. Organizational charts are a visual/graphical disclosure of the participants that
constitute the ownership structure, which facilitate HUD’s loan underwriting and the separate process of
a Previous Participation certification and review.
F. Acceptable organizational charts for the typical HUD project have the following attributes:
1. Depicts all tiers of the ownership structure, starting with the single asset Borrower entity and
concluding with the ultimate source of equity. Ultimate sources of equity are often an individual, trust,
or a widely held corporation.
2. Displays all intermediate entities such as pass-through entities, which results in a full disclosure of all
participants.
Controlling and limited ownerships are depicted as separate intermediate
individuals/entities.
3. Displays each entity’s legal name, type (e.g. LLC or LP) and ownership percentage of its parent.
Ownership percentages reconcile to 100% for entities (including intermediate entities).
4. Lists at least one natural person. Tax credit investors and limited investors need not always trace to
a natural person.
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5. Denotes individuals or entities that will sign Section 50 of the HUD regulatory agreement (i.e. using
an asterisk and footnote or other means).
6. Discloses if any entity is publicly held, its exchange, and ticker symbol (e.g. “XYZ Corp. (NYSE: XYZ)”).
7. Consolidates or groups widely held interests to achieve conciseness. For example, a group may be
labeled on the organizational chart (e.g. “10 Additional Limited Partners”), along with aggregate
ownership percentage.
8. Provides additional disclosure in narrative form or a separate organizational chart, avoiding
unnecessary visual complexity of the Borrower’s organizational chart.
8.3.3
Previous Participation Certification Requirements
A. Certain Principals are subject to a previous participation certification review as set forth in 24 C.F.R.
Subpart H 200.220, as may be amended from time to time. This review is in addition to any underwriting
considerations or review. Those individuals and entities subject to previous participation certification
review in accordance with 24 C.F.R. Subpart H 200.212 must submit form HUD-2530 or any successor
form or electronically through the Active Partners Performance System (APPS) or any successor
electronic system. Individuals and entities that are excluded from underwriting review are also excluded
from previous participation review. Guidance with respect to previous participation certification review
may be updated from time to time through Mortgagee Letters or other appropriate means.
B. For any multifamily project, with an insured or proposed FHA insured mortgage under the National
Housing Act (a “Covered Project”), an individual or entity serving in any of the following capacities is also
considered to be a “Participant” for purposes of this previous participation section. Participants are
natural persons (individual) or entities who may or may not be an Active and/or Passive Principal but
who are required to file for previous participation certification review, i.e. form HUD-2530 or APPS.
C. Notwithstanding the foregoing or anything else in this Guide, if HUD determines that an individual or
entity does not actually exercise financial or operational control of a Covered Project or Specified Capacity,
such individual or entity shall not be considered a Controlling Participant.
D. Active Principals must possess and disclose social security numbers (SSN) and employer identification
numbers (EIN). This is required by 24 C.F.R. 5.216(c), (d) & (f) for applicants and participants under 24
C.F.R. 200.6 and 24 C.F.R. 200.1101.
1. Controlling Participants for Previous Participation Review Purposes. Controlling Participants are
those entities and individuals (i) serving as a Specified Capacity with respect to a Covered Project as
both terms are defined below; and (ii) the entities and individuals in control of the Specified
Capacities. At least one natural person must be identified as a Controlling Participant for each
Specified Capacity.
Specified Capacities are:
The Borrower entity;
The owner, if different from the Borrower entity, e.g. in a transfer of physical assets (TPA) or
change in role;
The Management Agent;
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The General Contractor; and/or
The foreign national (individual and/or business entity). The foreign national Active Principal,
who is an individual, must possess and provide an SSN, and a business entity must possess and
provide its EIN. An Individual Tax Identification Number (ITIN) may not be used in place of the
SSN or EIN for a foreign national Active Principal. HUD will not require a foreign national Passive
Principal to provide an SSN or EIN. An SSN or EIN is required if the Passive Principal’s role later
changes to Active Principal.
2. In addition to the entities named above, an individual or entity determined by HUD to have control
over the day-to-day financial or operational decisions of an FHA-insured property shall also make a
previous participation certification review submission. If a Controlling Participant is an entity, the
submission must include those individuals who exercise the day-to-day financial or operational control for
that entity.
3. The previous participation certification procedure assesses the experience of applicants with FHAHUD insured mortgage programs and with the United States Department of Agriculture Rural
Development (USDA-RD) multifamily programs. All submissions must include a previous
participation certification and may be made via the Active Partners Performance System (APPS), or
paper form HUD-2530. Submission of the previous participation certification review or form HUD2530 is not a substitute for processing the application for project acceptability, credit capacity, or
competency. Paper submissions are acceptable if the Participants are having trouble with the APPS
access. All Participants must certify and sign the certificate personally as to their individual record
and are responsible for its timely filing with the Regional Center having jurisdiction over the project.
Any Participant experiencing trouble with or wants to learn more about APPS, to register, access the
user guide, or use the tutorial can visit HUD’s website by clicking the following link:
https://www.hud.gov/program_offices/housing/mfh/apps/appsmfhm.
4. A Previous Participation Certification is required from the following List of Controlling Participant
types:
Tax credit syndicators or investors with an identity of interest in the general partner or managing
member.
For-profit entities; officers of the entity’s board of directors (BOD); officers and the executive
management team of the entity (such as the President, Chief Executive Officer etc.), if different
from the officers of the BOD; or any other individuals determined by HUD to control the entity.
Nonprofit borrowing entities, including the:
1) Executive Director or another manager or officer of the non-profit corporation. Non-profit
board members who do not exercise control over the corporation in another capacity (for
example, as Executive Director or other manager or officer of the non-profit corporation) are
excluded from the requirement of filing for the previous participation certification and
review.
Special Limited Partner (SLP) Entity in a LIHTC transaction seeking pre-approval.
Investors (passive principal) that have exceeded the $500 million threshold or investors who
wish to avoid exceeding that threshold and want to invest in a project as a passive investor with
less than a 25% interest (10% for corporations) so as not to trigger the threshold.
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An investor (passive principal) who the Borrower relies upon for both financial strength and cash
requirement contribution but still maintains an ownership interest of less than 25% (10% for
corporations).
Foreign nationals who are Controlling Participants (as defined in 24 C.F.R. 200.212 & 200.216 and
Housing N-2016-15) for the Specified Capacity (owner, Borrower, Management Agent, General
Contractor, as set forth in the Regulations and Housing Notice) are required to register in the
Business Partner Registration System of APPS (Active Partners Performance System).
Participants will either prepare and submit the electronic filing of the Previous Participation
Certification (form HUD-2530) through APPS or submit a non-electronic (paper) filing of the form
HUD-2530. The Controlling Participant must file using either an SSN or EIN. Passive Principals
are not required to file a Previous Participation Certification. See Housing Notice H 2016-15 and
24 CFR Part 200, Subpart H (2018) for more detailed information.
If the applicant or MAP Lender has any reason to believe that any Controlling Participant is not of
sound mind or body or is otherwise incapacitated, such information must be disclosed to HUD to
review and determine whether another individual is acting as a Controlling Participant.
5. List of Exclusions. Except that any Specified Capacity is a Controlling Participant, and unless
otherwise determined in writing by HUD in a specific transaction to exercise day-to-day control of a
Covered Project or Specified Capacity, Controlling Participants do not include the following:
Wholly-owned entities. Any entity that is 100% owned or controlled by one individual or entity
is excluded. Such entities are not exercising control; the individual or entity that wholly owns
them is exercising control. An organizational chart may include one or more tiers of wholly-owned
entities. All wholly-owned entities in all tiers are excluded.
Shell entities. Entities that do not take actions themselves but only serve as legal vehicles through
which the partners, members or owners of such entity take actions are excluded. These entities
are not exercising control; the partners, members or owners of such entities are controlling. The
"middle tiers" of an organizational chart are often shell entities.
For example, if a Borrower ("Borrower LLC") has a managing member ("Managing Member") that
is a joint venture partnership of two entities ("Partner 1" and "Partner 2") and day-to-day control
of Managing Member is exercised by Partner 1, then Partner 1 is the Controlling Participant of the
Borrower. In this example, neither Managing Member nor Partner 2 are exercising control and
are excluded. If Partner 1 is itself a shell LLC, with three members, then the individual(s) or
entity(ies) that exercise day-today control of Partner 1 would be the Controlling Participant(s). If
day-to-day control of Partner 1 is exercised by Member A, then Partner 1 would be excluded, and
Member A would be the Controlling Participant. If the organizational chart reflects this
arrangement and unless additional information or special circumstances warrant further inquiry,
HUD will accept Member A's certification that it is the Controlling Participant and will not require
an examination of the various entities' organizational documents to confirm that Managing
Member and Partner 1 are excluded shell entities.
Individuals who provide a certification in one capacity need not provide a separate duplicate
certification. When a corporation (for-profit or nonprofit) is a Principal, all its officers, directors
and principal stockholders need not individually sign, certify nor file the certificate when they all
have the same record. When their previous participation records are identical the officer
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authorized to sign for the corporation will list on the certificate the full names for all such
principals connected with the corporation who do not elect to sign. Those principals who have a
separate participation record outside that of their corporation must certify, sign and file. The
objective is full disclosure.
Attorneys and Architects with only an arms-length fee arrangement for services.
Sub-contractors.
Minor corporate officers who do not exercise control over an entity or who have no significant
involvement in a project, as determined by HUD, need not complete a previous participation
submission.
In the event HUD requests an officer who has not provided a Previous Participation Review
submission to provide a submission, HUD shall accept certification from the officer that (s)he has
limited involvement in the Covered Project, does not exercise operational or financial control over
the Covered Project and does not have the ability to prevent or resolve violations or
circumstances giving rise to flags related to the Covered Project (See Notice 2016-15 Section G for
details on "Flags".)
Less than 25% ownership interest. Unless exercising control through another capacity, members,
partners, stakeholders, and owners of entities with less than a 25% interest in an entity are
excluded. This exclusion does not apply to any such member, partner, stakeholder or other owner
of an entity ("Proposed Excluded Member") who would have an interest greater than 25% if the
combined percentages of all other members, partners, stakeholders or other owners (including
beneficial interests in trusts) with whom the Proposed Excluded Member has an "Identity of
Interest," or a conflict of interest because of familial relation or common financial interest, exceeds
25%. Whether an Identity of Interest or conflict of interest exists is determined by HUD. If the
program requirements of the applicable program in which the Covered Project is participating
speak to Identify of Interest or conflict of interest, those program requirements control.
Members of a Board of Directors. Members of a non-profit or for-profit corporation's board of
directors who do not exercise control over the corporation in another capacity (for example, as
Executive Director or other manager or officer of the non-profit corporation) are excluded.
Parties whose sole interest is that of purchaser or owner of less than five individual unit(s) in the
same condominium or cooperative development; and parties whose sole interest is that of a
resident.
Tax Credit investors, Passive Investor Principals, Syndicators and direct investor entities in LowIncome Housing Tax Credits, Historic Tax Credits, New Markets Tax Credits or other tax credits
(if HUD determines such credits are substantially similar to the listed tax credits) are excluded
unless such entities exercise day-to-day control or seek other involvement that would trigger the
need for previous participation review. For these passive investors, HUD requires the
“Identification and Certification of Limited Liability Investor Entities (ILLC),”. The certification is
found in Appendix 8, Section A.8.8.
If during the underwriting it is found that an entity has triggered the need for a previous
participation review because it will exercise day-to-day control or other involvement exists that
would trigger a review, or the entity does not want to provide an ICLLIE, they must submit in place
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of the required certifications the following items: organizational documents, form HUD 92013SUPP, a credit authorization, EIN verification, and credit report.
Public Housing Agencies/Authorities, whether in their capacity as owning and operating public
housing or otherwise, are excluded. Public housing agencies are subject to different oversight and
review by HUD's Office of Public and Indian Housing, and who are subject to separate treatment
for projects redeveloped under the RAD program.
Brokers whose services are limited to referring the loan to a Lender and presenting information
on behalf of the Borrower.
A Qualified Opportunity Zone Fund that has invested in an insured project structured as a shell
entity need not file; however, the fund and its participants must be identified on the
organizational chart.
Publicly Held Companies. For publicly held companies, the chief executive officer (or equivalent
position), the controlling shareholder (if any), and other individual(s), if any, identified as having
day-to-day control over a Specified Capacity or Covered Project, including any relevant project
manager(s), must file but the publicly held company shall otherwise be treated as an individual
without need for other individual shareholders to file certifications in their individual capacity or
identify their social security or tax identification numbers.
Mortgagees. Mortgagees acting in their capacity as such are excluded.
No Exercise of Financial or Operational Control. Any individual or entity determined by HUD not
to exercise financial or operational control of a Covered Project or Specified Capacity shall not be
considered a Controlling Participant.
For the Sections 223(a)(7), 223(t), 241(a), 232(i) and 223(d) programs Controlling Participants
are only subject to Previous Participation review if they were not previously approved to
participate in that project (provided they have not changed roles in the project without prior
approval).
8.3.4
Nonprofit Principals
A. Nonprofit Principal is understood to mean “the Single Asset Entity (SAE) Borrower and its Board of
Directors” (BODs). The BODs acting as officers and/or member/directors who do not exercise control
over the corporation in another capacity are excluded from filing. However, an Executive Director or
other managing officer of the nonprofit corporation are considered Controlling Participants.
B. Nonprofit entities and sponsoring parent organizations that are Principals with control and exercise
day-to-day financial or operational control of the SAE must demonstrate financial strength, credit history,
experience and capacity Executive officers must provide resumes evidencing experience commensurate
with the requirements of the project. Generally, analysis of personal financial information, including
credit reports, form HUD-92013-SUPP, and financial statements including verifications of deposit or
available liquidity are not required of board members or officers of the nonprofit. Any Officers that exert
management control and other executive management including the Executive Director of the nonprofit
corporation will provide only the previous participation certification.
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C. Where a nonprofit is not a Principal but proposes a role such as property manager, service provider,
or an intermediary with a local community or constituency, the nonprofit must demonstrate experience,
management ability and financial capacity to execute the proposed services. For its role as property
manager, the non-profit entity must provide the previous participation certification.
D. “Sponsor” is an informal term use for persons or entities who may do one or more of the following:
locate and control the site; assemble the development team, provide financial assistance to the project or
provide development experience and expertise to the project in ways other than as a paid consultant. The
Sponsor is not the SAE though they may also act as a Principal in the ownership entity.
8.3.5
Foreign National Participation in FHA-Insured
Multifamily Programs
A. Foreign national individuals and business entities may participate as either Active or Passive Principals
in FHA-insured Multifamily programs (as defined in Section 8.3 of the MAP Guide and as clarified below).
The formed single-asset-entity Borrower must be registered in the United States and in the State where
its corporate office is located. At least one Principal with operational decision-making authority must be
a United States citizen or a foreign national who is a lawful permanent resident of the United States, having
an immigration status granted by the United States government that enables that Principal to exercise
operational decision-making authority. It is the MAP Lender’s responsibility to confirm that foreign
national entities are properly identified as Active or Passive Principals. This analysis is to ensure that
Passive Principals have no decision-making authority, or operational control, and do not represent a
financial or legal risk to HUD.
B. As required under Section 8.3 above, each foreign national individual or foreign national controlled
private entity that is an Active or Passive Principal must be listed on the Borrower entity’s organizational
chart.
C. Background Evaluations of Foreign National Principals. In addition to the existing requirements
applicable to all Active and Passive Principals under Section 8.3 above, the MAP Lender must perform a
thorough and independent background evaluation for all foreign national Principals including:
1. A review of organizational documents, personal resumes, history of past business relationships and
litigation, i.e. foreign and domestic criminal and civil; and
2. Research of the foreign national Principal on the following internet and database systems: SAM.gov
(System for Award Management); Office of Foreign Asset Control (OFAC) and the MDDR (Multifamily
Delinquency and Default Reporting). The analysis of a foreign national business entity is conducted
at the business entity level in addition to the executive who is authorized to execute actions of the
entity.
3. Based upon the content of this background evaluation, HUD may require additional information
and/or an investigation to better assess the foreign national Principal in terms of risk to HUD. The
MAP Lender will summarize the results of their background evaluation from the legal risk and the
business relationships in the MAP Lender’s Underwriter Narrative.
D. A Domestic Principal is an individual that acts on behalf of the partnership in cases where the
remaining principals in the partnership are Passive foreign nationals. Similar to an Active Principal,
Domestic Principals with operational decision-making authority must be a United States citizen or a
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lawful permanent resident of the United States. This authority to act on behalf of the Borrower presumes
that the Domestic Principal has similar credit and financial strength and real estate development
experience with those he/she is representing, such as an executive level officer (if employed by a real
estate development organization). The MAP Lender has the responsibility to determine that the Domestic
Principal has significant liquid assets and net worth (e.g., a net worth equal to at least 3-5% of the
proposed loan amount) that are commensurate with the level of financial obligation of the loan being
insured, notwithstanding the requirement for the other Active (or Passive) Principals to provide
necessary equity. The Domestic Principal should also evidence a high level of experience in similar real
estate projects to that being proposed.
E. The MAP Lender must conduct a thorough underwriting of the Domestic Principal, focusing on the
relationship of the Domestic Principal to the foreign national principal/entity, in the single asset entity.
This investigation should include any past partnerships and joint ventures, the length of time that the
parties have known or done business with each other, and any financial or legal obligations created by
one to the other.
F. E-2 Treaty Investors are not eligible as Active Principals or Domestic Principals, given their
nonimmigrant classification and temporary status (subject to renewal every two years:
https://www.uscis.gov/working-united-states/temporary-workers/e-2-treaty-investors). Their shortterm status conflicts with the need for longer term operational decision-making authority and stability of
the foreign national Active and Domestic Principals within single asset Borrower entities due to the
lengthy maturity terms of FHA-insured Multifamily loans.
8.3.6
Definition of Principal for Regulatory Agreement
Section 50
A. For privately held entities, the provision generally requires two signatures for project Sponsors. In
most cases, HUD, upon the Lender’s recommendation, shall approve an individual signatory to sign in his
or her individual capacity and the project parent/Sponsor entity to sign in a corporate capacity. In any
specific deal, underwriting may conclude that an entity with the requisite control and involvement or
interest in the Project that possesses a positive credit history and adequate financial strength relative to
the size of the loan may serve in the capacity required by Section 50. In some circumstances, particularly
involving large, capitalized, and experienced corporate entities with complex corporate organizational
structures, the underwriting may not reveal any apparent individual to reasonably serve in the required
capacity, whereas the parent/Sponsor entity itself may possess such necessary characteristics to act as
the sole necessary signatory.
B. The Lender may consider whether the entity has been approved as an appropriate signatory to
provisions similar to Section 50 in a recent Government Sponsored Enterprise (GSE) transaction. A GSE
transaction means any Fannie Mae DUS or Risk Sharing or Freddie Mac loan program, in which they have
approved the signatory on their comparable carve out provisions. HUD will also consider the Federal
Home Loan Bank as a GSE, if they also have similar approval. The GSE-approved entity may be an
appropriate sole signatory for Section 50 if the entity has positive credit history and adequate financial
strength. A copy of relevant excerpts from the recently closed transactions would evidence such GSE
approval.
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C. For publicly traded corporations, Real Estate Investment Trust (REITs), or nonprofit Borrower: The
parent/Sponsor entity itself is acceptable as the sole signatory. For such entities, any individual signing
on behalf of the corporate entity does not sign in an individual capacity, but to bind the parent/Sponsor.
No personal liability will be claimed against the individuals signing in such a capacity.
D. For nonprofit Borrowers, the parent or other Principal must be named as the signatory for Section 50.
In the event the parent or other Principal is not the entity, the nonprofit Single Asset Entity is the signatory
named in Section 50. The MAP Underwriter’s Narrative should contain a brief explanation as to the reason
why the nonprofit entity is named as the signatory.
E. For any corporate entities required to execute Section 50: An officer or entity or other person
authorized to bind the company in connection with the proposed transaction may sign.
F. The following prohibitions relate to Section 50:
1. Insertions of “or successors” language to the identification of signatories is not allowed. The
Regulatory Agreement can and should be amended when there is a new individual who is responsible
for the provisions of Section 50.
2. Riders to the regulatory agreement that attempt to limit a signatory’s liability are not allowed.
3. Section 50 may not be omitted simply because a currently insured project has been processed as a
Section 223(a)(7).
G. The Domestic Principal or foreign national Active Principal who is a lawful permanent resident of the
U.S. may each sign Section 50 of the Regulatory Agreement in his or her individual capacity. A foreign
national Active Principal Section 50 signatory must either remain a lawful permanent resident of the U.S.
for the life of the loan or be replaced, with HUD’s prior written approval, by a U.S. citizen or lawful
permanent resident of the U.S.
H. The Lender is responsible for the mortgage credit review of the parent/Sponsor entity and to identify
and verify the identity of the signatory of Section 50 of the Regulatory Agreement. The signatory will be
identified in the Firm Commitment (or in a letter Amendment to the Firm Commitment).
8.4
Investigating Credit and Character
A. The MAP Lender’s Underwriter is responsible for analysis and review of the mortgage credit exhibits,
identifying credit issues and/or resolving discrepancies in order to determine that the Borrower and the
Principals have demonstrated: (a) both the willingness and the ability to pay creditors in accordance with
agreed terms, (b) the ability to deliver timely and satisfactory performance of contractual or business
obligations, and (c) the mitigation of litigation risks by honoring prior loan obligations (especially during
adverse market/financial conditions).
8.4.1
Use of Credit Reports and Credit Investigation
A. Credit reports or credit histories are a means of validating and cross-checking information received
from the Borrower and Principals in financial statements and in application exhibits. Credit reports give
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a picture of payment history and financial interactions with creditors. The Lender must reconcile any
contradictions with a summary statement.
B. A commercial credit report for a business or a residential mortgage credit report (RMCR) for
individuals must be current within 60 days of the application acceptance date, and HUD may require
updated reports during processing. Merged credit reports from the three major credit bureaus are
acceptable, but compiled infile reports are not acceptable. Infile reports have the potential of containing
select or less reporting rather than the full reporting as in a single credit report.
C. For Principals who are individuals, credit reports are needed for the individual and for that individual’s
other business concerns (i.e. ownership of property management firm, general contracting or
subcontracting firm, or land or property development entities, etc.). The Lender should randomly select
an overall 10% or more of these other business ventures or property operating companies for credit
review for the individual and its other business concerns. The report should contain information on
pending judgment(s), legal actions and bankruptcy claims.
D. The General Contractor’s credit reports are required on the business entity/firm, and its operating
affiliates, if any. The Lender must provide credit reports for Principal(s) of the General Contractor if the
financial capacity and track record of the General Contractor entity is deemed insufficient to assess a
credit risk.
8.4.2
Lender’s Review of the Credit Report
A. The Lender is required to do all of the following:
1. Compare all information obtained from credit reports and histories to the financial statements
provided by the relevant Borrower or principal(s). Resolve or explain contradictory information.
2. Make reasonable inquiries to determine if the applicant or any principal is in default on any type of
federal debt including direct loans, HUD insured loans, student loans, Small Business Administration
loans or judgment liens against the property.
3. Investigate any adverse credit information that appears on the credit report and obtain a written
explanation of any late payments, actions, judgments or derogatory information.
8.4.3
Delinquent Federal Debt, Judgments and Pending
Litigation
A. When delinquent federal debt is identified, the Lender must include as part of the required application
exhibits:
1. A detailed written explanation from any applicant or principal with a prior federal default or claim, or
whose credit report and financial statements contain conflicting or adverse information.
2. A letter from the creditor agency stating that the delinquent federal debt is current or satisfactory
arrangements for repayments have been made.
3. The Lender’s reason(s) for recommendation of the applicant, which may be included in the Lender
Underwriter’s review and recommendation.
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B. The Lender shall also investigate any other serious adverse information, including but not limited to
bankruptcies, defaults on real estate mortgages, tax liens, foreclosures or deeds-in-lieu of foreclosures,
judgments and pending litigation.
8.4.4
Trade and Credit References
A. HUD requires a completed Fannie Mae Form 1006, Request for Verification of Deposit or bank
statements (including a three-month average balance on the VOD or three months of consecutive bank
statements) to verify Borrower’s/Principal’s liquid assets for each bank account submitted for review.
Deposits and/or marketable securities of the Principal must be verified and examined in consideration of
the Principal’s liquid assets reported on financial statements. Both sources should be reasonably
consistent, and any significant differences should be explained. When a Principal’s financial statements
show real estate owned and other mortgage debt, the credit references must include a sampling of the
Principal’s mortgage payment histories and must confirm the character, business acumen, expertise and
timeliness of the Principal in meeting their business obligations.
B. A credit report with sufficient data may be used in place of trade or credit references.
C. Written inquiries of trade references should include a copy of the certification authorizing the release
of credit information.
8.4.5
Rejection Due to Unacceptable Character and Credit
A. The Lender’s professional judgment is required in approving or rejecting Principals on the basis of
character and credit.
B. The Principal should be a credit rejection if:
1. The Principal has a history of late payment or non-payment of creditors or has defaulted on debt
without making reasonable attempts to remedy or cure the default. The Lender’s Underwriter may
not recommend approval of a Principal with a history of default without contacting the defaulted
Lender to determine the circumstances surrounding the default with a summary of these discussions
included in the Lender’s narrative.
2. Delinquent federal debt has not been resolved or satisfactory arrangements made for repayment.
3. There are judgments or actions against the party, that:
Could significantly impact the financial position of the individual/ firm or corporation; or
Result in a determination that the individual/firm or corporation is an unacceptable credit risk.
4. The Principal is insolvent or is the subject of a pending bankruptcy or insolvency proceeding at the
time of application, issuance of the Firm Commitment, or at the time of loan closing.
5. Active Principals are currently flagged in the Active Partners Performance System (APPS) for FHAinsured mortgage defaults or other financial improprieties as determined by HUD.
C. The MAP Lender is responsible for amending or withdrawing the Commitment application if there is a
material adverse change in the Borrower’s credit after application submission.
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D. Principals with repaired credit may be considered for approval provided that a positive credit history
has been established and sustained for a period of time encompassing both favorable and unfavorable
economic conditions and that the principal has during that time been engaged in financial transactions
and/or business enterprise comparable in scale to the proposed insured mortgage transaction. It is
unlikely that this period would be less than 7 years.
E. Departmental Enforcement Center (DEC) Referrals. The MAP Lender should discuss with the Borrower
and its Principals to ensure that any matters pending with the DEC relating to the Borrower, the
Management Agent and/or the Project have been resolved.
8.5
Evaluating Financial Capacity
8.5.1
Financial Statement Analysis
A. MAP Lenders have the responsibility to review financial statements of the Borrower and its Principals
to determine that the Borrower, and/or the Principals have the financial capacity to own and operate the
property. For construction proposals, an analysis of financial statements is used to determine whether
the owner and the General Contractor have the singular ability to deliver the project. Financial analysis
is performed on Active Principals as identified in the Borrower entity’s organizational structure. The
Lender’s Underwriter must determine which Principals have control of the single asset entity and the
property; and review their financial statements along with any financial schedules to assess the Principal’s
financial stability and assess any potential risk to FHA. Also, the Underwriter must analyze and disclose
to HUD as part of their recommendation any financial interests that do not rise to the level of Principal,
but nevertheless have a material impact on the creditworthiness of the proposed Borrower or its
Principals.
B. These determinations are based on:
1. Past financial condition;
2. Present liquidity; and
3. Projected future financial capacity.
8.5.1.1
Submission of Financial Statements–New Construction
A. The Active Principals and the General Contractor must submit with the loan application current
financial statements to include a balance sheet, income and expense statement, supporting schedules a
REO schedule history and the schedule of mortgage debt. Individuals will submit a Personal Financial and
Credit Statement, form HUD-92417 (or an acceptable form of financial statement, e.g., balance sheet that
contains a certification and criminal warning statement) and if applicable, an REO schedule and schedule
of mortgage debt. The General Contractor must submit a REO schedule if it has a significant financial
interest or contribution or has a role to direct project operations. A non-identity of interest General
Contractor with only a nominal equity interest need not submit REO. See Appendix 8, Section A.8.1 for
detailed requirements.
B. The financial analysis is used to determine the amounts available for investment in the project by
performing an analysis of working capital. Working capital is the difference between current assets and
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current liabilities and is the cash or liquidity that exists to purchase assets, pay off debt and make up
deficits from operations or fund new activities or projects. The financial analysis also determines which
non-pledged assets can be readily used as collateral or pledged as security to obtain cash. See Appendix
8, Section A.8.2 for instructions on how to correctly analyze financial statements when determining the
financial capability of the Active Principal, Sponsor, General Contractor and/or Manager of an LLC.
8.5.1.2
Existing Project Financial Statements
A. The Borrower entity must submit:
1. The last three (3) fiscal years of unaudited financial statements on the project and, if more than three
(3) months have elapsed since the closing date of the most recent financial statements, a year-to-date
balance sheet and operating statement. If three years have not elapsed from certificate of occupancy
to application submission, a trailing twelve month or year-to-date balance sheet and operating
statement is required.
2. Copies of the most recent insurance and property tax bills.
3. Three years of financial statements reviewed, audited, compiled, or consolidated by a CPA.
B. If the 3 years of financial statements are audited by an independent CPA or IPA, no further review is
needed to validate the statements.
C. For refinance applications, if the financial statements are not audited, submit a CPA or IPA “reviewed”
statement for the last complete fiscal year. “Audited,” and “Reviewed,” are defined professional standards
for reports understood by CPAs. The intent of this requirement is to obtain an independent (non-identity
of interest) professional review of the financial statements certified by the Owner.
D. Year-to-date financial statements may also require CPA or IPA review, or if the project has a history of
stabilized occupancy and financial performance, a Borrower-certified year-to-date statements may also
be acceptable. Examples of when year-to-date financial statements might require CPA or IPA review
include factors such as: 1) period covered is all but the last month of the fiscal year, 2) there is a soft
market or case-specific risk factors, and 3) the project is applying under the three-year rule waiver and
has just reached sustaining occupancy. For this purpose, “CPA reviewed” means a review by a Certified
Public Accountant and “IPA reviewed” means a review by an Independent Public Accountant of the
records and statements of the Borrower specifically including:
1. The property’s financial statement(s) for the period;
2. Rent rolls for each month of the period;
3. Bank statements for not less than the last 6 months of the period;
4. The Borrower’s income tax return for the past year; and
5. Reconciliations of rent rolls to financial statements and financial statements to normalized
operations, cash receipts and tax returns.
E. There may be circumstances beyond the Borrower’ s control where the required financial statements
are not available because of loss by fire, arson, theft, flood event etc.
1. The Borrower must submit:
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Evidence satisfactory to the Lender that the financial statements are not obtainable; and
Project financial statements that are available including an owner-certified balance sheet and
operating statement.
2. Lender’s case file must contain a statement from the Borrower that explains why all the required
records are not obtainable and a memorandum from the Underwriter to the Regional or Satellite
Office Director stating that he/she has evaluated the Borrower’s statement and agrees that the
information is not available.
F. Owner-certified financial statement or owner-certified balance sheet and operating statement must
include the entire certification and criminal warning found in Appendix 8, Section A.8.1.A.1.b.i, Section
A.8.1.A.1.b.ii, and Section A.8.1.A.1.b.iii.
G. Past due accounts payable and outstanding liabilities for project operating expenses must be cleared
and released, or otherwise fully resolved, before or at Initial Closing. Examples of such items include
deferred management fees, over-due utility bills or real estate taxes, and trade payables. These items are
not to be included in the eligible debt basis in the calculation of the cost of refinance/ acquisition.
H. If the transaction does not involve a Transfer of Physical Assets (TPA), and if approved by the Regional
Center Director, surplus cash notes may be established for payables owed to a related entity. Accounts
payable and outstanding liabilities that are not past due do not need to be resolved at or before closing.
8.5.1.3
Review of Financial Statements and Other Documents
A. A current financial statement must be no more than 3 months old when the form HUD-92013 is
submitted to the Lender for Firm Commitment review. The Lender must determine financial stability and
financial strength unless the Active Principal and/or the Sponsor are a public company with an investment
grade credit rating.
B. Exceptions:
1. The credit investigation or other circumstances may warrant more current financial statements.
Assess the adequacy of each Active Principal’s liquidity and its ability to provide immediate and
ongoing support to the property, as well as to any asset that is in financial difficulty. For those
properties in financial difficulty, consider that property’s strength as well as liquidity sources
outside the property, such as the Principals and/or the Sponsor, as applicable. The Lender must
look for likely future events that may drain cash resources from the Principals (e.g., loans held by
an Active Principal that mature within five years).
The Lender may include other sources of Principal cash flow in the analysis, if the source and
stability of the cash flow has been verified by reviewing historical tax returns. It is not necessary
to include interest income from notes receivable, real estate investment income, dividend income
and Principal salaries in the analysis.
2. Audited or reviewed financial statements prepared by a CPA or IPA may be up to 1 year old. The
audited or reviewed statements must be supplemented with year-to-date financial statements and
supporting documentation, which may be Management Agent-prepared if more than 6 months have
elapsed since the closing date of the audited statement.
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C. A Borrower that is fully funded with adequate capital in an account in the name of the Borrower must
still provide financial statements for the Active Principals.
D. Make a working capital determination for the Borrower, its Active Principals and the General
Contractor based upon a review of their financial statements and projects currently planned or in the
development process/construction stage as applicable. Adjust the net working capital for the effect of
contingent liabilities, pledged financial requirements and the financial needs of other projects in the
planning stage or under construction, adjusted by the percentage of completion.
E. Net worth in lieu of working capital (hypothecation of fixed assets) occurs when existing assets can
secure loans or lines of credit to cover the project’s financial requirements and such loans or lines of credit
are confirmed as being available. In this case, the Underwriter should recommend approval based on
“true net worth” rather than on working capital; and require the Active Principal to provide a commitment
letter from a lending institution that states:
1. The rate, amount, term and conditions, if any, of the loan or line of credit that the lending institution
is willing to provide. (See Section 8.5.1.4.F below)
2. The date by which the commitment letter must be exercised. The date must extend at least to the
anticipated date for initial endorsement.
3. The party that will be responsible for repayment of the loan or line of credit, if the commitment is
exercised.
Repayment may not be an obligation of the Borrower entity.
A certification from the Lender affirming that the lending institution will not make any claim
against the mortgaged property, mortgage proceeds, any reserve or deposit required by HUD, or
against the rents or other income from the mortgaged property for payment of the loan or line of
credit. This certification must contain the criminal certification found in Appendix 8, Section
A.8.1.
F. Funds provided by a parent company/Sponsor or affiliate of the Principals will require a certification
from the Board of Directors or authorized agent that specifies the funds the parent company/Sponsor or
affiliate will commit. Establish the availability of funds from the parent company/affiliate. Consider
whether:
1. Individual corporations have any excess operating capital (e.g. restricted assets);
2. Laws under which they are incorporated or their banks permit:
Withdrawals, loans or advances to owners or Sponsors.
Stock investment in affiliated corporations.
Guarantee of debts of associated corporations.
8.5.1.4
Letters and Lines of Credit
A. Letters of intent and letters of credit cannot be used to establish financial capability. At initial
endorsement, however, letters of credit may be substituted for cash to set up many of the escrows
required at initial and final endorsement or during construction. If a Borrower draws down cash at initial
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closing to satisfy the escrow requirement, a letter of credit may not be substituted to establish the same
escrow requirement.
B. Ratings and requirements for bank issued letters of credit. When a letter of credit is permitted, the
ratings and requirements for banks issuing letters of credit for all multifamily project escrows must meet
criteria in the Ginnie Mae Guide, as follows:
1. Bank Rating Requirements: Irrespective if the loan is pooled with Ginnie Mae, the bank must meet
rating requirements for depository institutions and deposit accounts found in Ginnie Mae MBS Guide
5500.3, Chapter 16, Part 8, Section B. It is available at the following link:
https://www.ginniemae.gov/issuers/program_guidelines/MBSGuideLib/Chapter_16.pdf
2. Form and Terms. For loans pooled with Ginnie Mae, the letter of credit must be in the form specified
by Ginnie Mae MBS Guide 5500.3, Appendix VI-3 found at the following link:
https://www.ginniemae.gov/issuers/program_guidelines/MBSGuideAppendicesLib/Appendix_VI03.pdf
C. If the loan is not pooled with Ginnie Mae, MAP Lenders must prepare beneficiary forms acceptable to
HUD at closing (with substantially the same terms as Ginnie Mae). MAP Lenders should coordinate
drafting and approval of the proposed forms directly with the Regional Center.
D. The Lender of record (as having a financial stake in the Borrower’s position) may not be the issuer of
any letter of credit without prior written consent of the Regional Center Director. Such consent will be
granted only on an exception basis with sufficient investigation of a potential conflict of interest. If a
demand under any letter of credit is not met immediately, the Lender must provide the cash equivalent to
the remaining balance of the letter of credit.
E. On an exception basis and with prior written consent of the Regional Office Director, lines of credit may
be used to establish a portion of the principal’s financial capability. With the Firm Commitment
application, the Lender must have the principal provide a letter from a lending institution that confirms:
1. The existence of the line of credit, original amount and available balance, repayment terms, and
expiration date.
2. The line of credit must not expire prior to project completion.
8.5.1.5
Sponsor’s Continuing Commitments
A. A written statement must be submitted from Active Principals who are Sponsors and are relied on for
financial capacity; it must indicate the parameters of their financial commitment to and contractual
relationship(s) with the Borrower:
1. If the relationship is not intended to continue until the project reaches sustaining occupancy, the
financial requirements have not been met.
2. Any Sponsor relied on for financial support but not having an ownership interest in the Borrower
must also certify in writing the amount of funds it will commit.
B. The Firm Commitment will contain special conditions to ensure the contractual association of the
Sponsor to the project:
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1. The condition must indicate that the withdrawal of any individual/firm relied on for financial capacity
requires prior HUD approval. If there is a change in sponsorship or of the individuals/firms relied on
for financial capacity and the Sponsor or the remaining Principals do not demonstrate the capacity to
meet the financial requirements of the project at any processing stage of the application, this is
considered a significant deviation from the original proposal and a cause for rejection of an
application. Additionally, the withdrawal of any individual/firm relied on for financial capacity could
result in HUD declaring the Firm Commitment, if issued, null and void.
2. Identification of the individuals/firms relied on for financial capacity. For confidentiality reasons, do
not indicate their alphabetic designation or their dollar contribution as they are listed in the Remarks
Section on form HUD-92264-A.
3. Require organizational documents reflecting such continuing contractual relationships, (i.e., for
nonprofits).
C. Individuals are prohibited from submitting financial statements as Sponsor and then abandoning the
project and the Borrower after the Firm Commitment is issued. The Lender should require a certified
statement from such Sponsor stating their commitment to the project and specifying the amount of funds
that will be reserved for contingent needs through Final Endorsement and sustaining occupancy.
D. The submission of a financial statement that is used to influence Federal Officials concerning a
mortgage insurance risk determination when the Sponsor does not plan a continuing relationship with
the Borrower could result in appropriate sanctions being taken against the Sponsor including suspension
or debarment.
8.5.1.6
General Contractor with Adequate Capital
A. The General Contractor’s adjusted working capital position should equal 5% or more of the estimated
construction contracts in place.
1. The instructions for hypothecation (See Section 8.5.1.3.D) of fixed assets may be applied if the General
Contractor does not have an acceptable working capital position.
2. The General Contractor’s ability to obtain a performance-payment bond does not negate or lessen this
requirement.
3. Adjust the working capital amount for projects in construction.
4. If the General Contractor does not have an acceptable working capital position or sufficient fixed
assets that can be hypothecated, a joint venture may be established with a financially stronger General
Contractor provided these firms’ combined working capital equals at least 5% of all construction
contract amounts for projects in construction and development.
5. Waiver of the working capital requirement is reserved to Regional Center Directors and will be
considered only when there are specific strongly supported mitigating factors.
6. Pay When Paid subcontracts affect the timing of the payments to the subcontractor, not the
requirement to pay, and therefore should have no effect on the working capital calculation. Pay if Paid
contracts will relieve the General Contractor’s obligation to pay the subcontractor; however these
type contracts, while not prohibited, are generally discouraged for both policy and risk reasons.
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Therefore, HUD will generally not permit an adjustment to the General Contractor’s working capital
requirements if either contract is used.
8.5.1.7
LIHTC, Historic Tax Credit or New Market Tax Credit Transactions
A. In the case of LIHTC, Historic Tax Credit or New Market Tax Credit transactions, the application must
include a Letter of Commitment/Letter of Intent to fund the required equity from a syndicator or investor.
This Letter of Commitment/Letter of Intent must specify the total equity amount, pay-in schedule, and
conditional equity pay-in benchmarks so the Lender can verify the availability of equity. The Lender must
identify the funding and use of any syndicator or investor-required reserves in comparison to HUD’s
reserve and escrow requirements and reconcile any differences in the Lender’s Narrative.
B. The Lender must also review additional documentation (e.g. financial statements, syndication track
record/history, etc.) to determine the syndicator or investor’s ability to make all future equity
installments. The Lender should focus on and evaluate the syndicator’s or the investor’s financial
strength, experience, and reputation. The Lender should also identify whether they syndicator or investor
has a majority ownership interest or identity of interest in the Borrower entity, as addressed in Section
8.3. See Chapter 14 for further guidance on underwriting an application with tax credits.
8.5.1.8
Real Estate Owned Schedule and Mortgage Debt Schedule
A. Real Estate Owned (REO) Schedule and Mortgage Debt Schedule must disclose the latest entire
calendar year of operations. The purpose of requiring the REO and Mortgage Debt Schedules is to
determine an Active Principal’s exposure to any risk associated with their real estate portfolio (e.g.
multifamily rental, assisted living, commercial, office, undeveloped land, and new construction versus
stabilized properties, etc.). Generally, the REO Schedule lends credibility to asset values reported on the
principal’s financial statements by requiring detailed information on each real estate asset and serves as
a cross-check to the financial statements. The mortgage debt schedule should include loans that are
maturing within the next 5 years or have floating-rate resets within the next 5 years. Other debt that has
a material impact on the Principals’ creditworthiness should be included as well (e.g. if they are in default
or are likely to have problems with a loan over the next few years) to determine if any of the properties
should be classified as a troubled asset. A troubled asset is one that has, or is likely to, defaulted on its
mortgage obligations, or has significant financial management or operational problems. The credit
evaluation shall include:
1. An analysis of the various properties’ net operating income, outstanding indebtedness, cash flow and
valuation estimates must detail and support the Lender’s assessment of the likelihood of the
Borrower’s successfully refinancing projects that have maturing balloon debt, assuming current
capital markets conditions and current availability of alternative long-term financing sources. The
analysis should pay particular attention to Principals with a history or anticipated incidence of
adverse credit actions including (but not limited to) bankruptcies, foreclosures or a pattern of
renegotiating debt.
2. A financing plan that should include both conventional financing and other FHA insured loans,
including healthcare loans, for any shortfall or anticipated lack of available credit.
3. An analysis of large nonprofit or for-profit entities/ owners with large portfolios and audited
summary financial statements. Generally, the Lender can provide summary data, including a
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description of exposure to maturing debt obligations, a detailed listing and analysis of troubled
projects, including those with recent or anticipated defaults or other material adverse actions.
4. If a tax credit syndicator is identified, a brief overview and analyses of the entity. Typically, a tax credit
syndicator is an investor intermediary with only a limited ongoing obligation to LIHTC rental
properties. Accordingly, an REO schedule is not required for tax credit syndicators or investors.
However, the syndicator’s liquidity, track record, asset management and monitoring capability and
ability to perform on its commitment to provide equity to the Borrower after Initial Endorsement are
material issues for the HUD Senior Underwriter’s analysis of the tax credit investor/LP.
5. The REO and mortgage debt schedule in tabular format containing the information described below
and any other information sufficient to present their analysis and conclusions. Typically, the format
is a spreadsheet accompanied by a summary description and analysis of each project. When the REO
schedule materially differs from the financial statements and are not minor variations arising from
timing of statements or changes in principal balances, then the Lender should investigate, reconcile
and explain the differences. Refer to Appendix 8, Section A.8.1 for the itemized physical property list
and the schedule of mortgage debt.
8.6
Required Prior Credit Approval of
Principals/Borrowers
8.6.1
FHA Insured Balances Greater than $500 Million
8.6.1.1
Purpose
A. Prior credit approval of a principal is a specialized review of a large Borrower to manage risk and
promote efficient program application processing.
B. HUD manages risk with a prior approval review by:
1. Determining whether an active principal represents a reasonable credit risk given the operating
performance, age, utility and physical condition of the principal’s existing FHA insured, including HUD
assisted and other properties;
2. Determining the amount of any new mortgage insurance commitments that may be extended to a
principal given their credit history, cash flow, net worth, liquidity, scheduled debt maturities and
operational stability; and
3. Identifying and evaluating the risks arising from any unique combination of assets that may suggest
an adverse circumstance that could impact the stability of the principal’s portfolio, such as
concentration in a particular asset type, industry sector or geographic or market concentration.
C. Over time, the levels of aggregate loan balances for some principals have increased, with balances
well exceeding $500 million. These portfolios can also involve varied degrees of Borrower risk
generated by factors such as:
1. An imbalance of new construction in the Borrower portfolio;
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2. Concentrations of insured loans in similar geographic areas;
3. Risk associated with excess and/or unwarranted litigation, including asset management and financial
deficiencies; or
4. An aggregate loan balance that presents a single point of failure risk to the FHA insurance fund if a
key principal (or principals) of the business entity would suffer an event that would materially,
negatively affect their portfolio.
D. The prior approval of principals also assures a consistent, timely and efficient response to active
principals with portfolio holdings that may be scattered among numerous Multifamily Regional Centers.
E. In addition, it enables the largest users of FHA programs to plan for future property development or
acquisition relying on financing available through the insurance programs.
8.6.2
Principal Types
A. Two Principal types must receive HUD’s prior credit approval before submission of the application, if
the REO portfolio exceeds a threshold (see next section):
1. Principals normally subject to application-level mortgage credit underwriting as defined in Section
8.3.2.A and Section 8.3.2.C and Active Principals, defined as those member(s) of business entities
which, if they suffered material negative financial or legal problems, would pose a risk to HUD.
2. Investors participating exclusively as Passive Principals, as described in Section 8.3.2.D, except whose
interest is not fixed or some form of continuing or contingent responsibility exists (e.g. a future equity
investment obligation).
8.6.3
Threshold
A. The threshold for a mandatory review is the principal is a participant in FHA insured projects with
outstanding loan balances greater than $500 million (unadjusted for ownership interest). Changes in the
principal’s REO schedule resulting from Transfer of Physical Asset (TPA) transactions may trigger a
mandatory prior credit approval request or, in cases where an active prior credit approval exists, the lead
Lender must ensure a TPA is in compliance with the decision’s insured loan balance limit.
8.6.4
Threshold Applies to Current and Expected Balance
A. Prior approval applies to future applications of MAP multifamily and healthcare loan programs. It does
not apply to future refinancing applications pursuant to Section 223(a)(7) or Housing Finance Agency or
Government Sponsored Enterprise risk-sharing loans. This also applies to all applications for Transfer of
Physical Assets in cases where the ownership interest of the transferee meets the definition of an Active
Principal in accordance with Section 8.3.1.B.1.a above.
8.6.5
Effective Date and Duration
A. A prior approval decision will be effective and may be relied upon for 24 months or lesser period
specified by HUD, from the date of the credit approval.
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8.6.6
Lender Submission and Procedure
A. The MAP Lender must prepare a specialized mortgage credit review for the subject principal(s). Key
areas include individual/corporate financial analysis, REO analysis and key performance metrics (both
overall and FHA insured segment), ownership/investment strategy analysis, geographic concentration
risk, key person dependency risk, proposed FHA financing analysis, and Management Agent analysis.
B. Appendix 8, Section A.8.3 and Section A.8.7 sets forth the instructions and requirements for MAP
Lenders to file a prior approval request. The Lender should deliver the prior approval submission to the
HUD Regional Center most relevant to future application activity. The Regional Center will then forward
this presentation to HUD Headquarters Office of Multifamily Housing Production for review.
8.7
Secondary Financing
A. The amount, form, terms and conditions of any permitted secondary financing must comply with the
guidance herein and 24 CFR Sections 200.71 and 200.85. This section provides guidance when secondary
funding is included in the project financing plan. Except as specifically noted in this section, the term of
any subordinate loan may not mature before the term of the HUD-insured first mortgage. Additional
secondary financing guidance for Low Income Housing Tax Credit projects is found in Chapter 14, Section
14.14. Identify all subordinate loan funds in Section III “Source of Funds to Meet Cash Requirements”
form HUD-92264-A.
8.7.1
Public Sources
A. For all Sections of the Act (SOA), when secondary financing is funded by sources such as HOME funds,
Affordable Housing Program, Federal Home Loan Banks (FHLB), Grants, or other quasi-public, federal,
state, or local governmental sources, the following is applicable:
1. The subordinate loan must be documented by a promissory note (with terms similar to form HUD92223M, Surplus Cash Note) and may be secured with a mortgage lien as prescribed by the
governmental funding source and reviewed and approved by HUD and made subordinate to the HUDinsured first mortgage using form HUD-92420-M, entitled “Subordination Agreement - Public.” At a
minimum, the associated note will need to contain the following language from Section 8.7.5 below.
Note that the parties will need to execute and record a Subordination Agreement and the note will
need to conform to the terms in Section 3 of the Subordination Agreement.
2. Secondary financing (or grants lent to the property as a secondary loan) may be used to offset up to
100% of the applicable SOA equity requirements, and may also be used to finance non-mortgageable
costs, which when added to the HUD mortgage and required equity contribution, may exceed 100%
of the project’s total cost. None of these sources may be substituted for Tax Credit Equity and all
remain subject to the cumulative 75% limit on payments from surplus cash.
3. Non-mortgageable costs (i.e. replacement cost items, not eligible for inclusion in the HUD insured
loan) to be financed by the secondary loan, must be certified by the funding source to be reasonable
and necessary to complete the project. Documentation to this effect must be included with the
application submission.
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4. The term of a subordinate loan should generally be coterminous with the HUD insured first mortgage.
However, the HUD Underwriter may consider exceptions on a case-by-case basis for public debt when
other HUD programs (e.g., the HOME program, National Housing Trust Fund) require shorter
amortizations and the risk is mitigated. Examples of mitigants include items such as significant
additional public funds, low loan-to-value or loan-to-cost ratios, below market rents or higher than
minimum debt service coverage.
5. Any restrictive covenants in the secondary financing must expire upon foreclosure of the HUD insured
loan’s mortgage or deed to trust. However, when the source of the secondary financing is HOME
program funds, HUD will permit the Rider/Restrictive Covenant Agreement to be modified such that
the restrictive covenants will survive foreclosure of the FHA insured security instrument.
Additionally, state lending programs that provide secondary financing on terms similar to those under
the HOME Program may also be considered under this policy on a case by case basis.
8.7.2
Private Sources – Section 223(f)
A. Secondary financing from a private lending source must be evidenced by a promissory note (form HUD92223M Surplus Cash Note or form HUD-92908M Residual Receipts Note) that may not be modified or
altered in any manner without the written consent of HUD. If secured by the Project, the private loan must
be subordinated to HUD-insured loan with form HUD-92907M Subordination Agreement – Private.
B. Private secondary financing is permitted to offset mortgageable and nonmortgageable costs up to the
difference between the loan-to-value percentage and a maximum combined debt of 92.5% of the fair
market value (FMV), except in instances when private secondary financing is combined with federal, state
or local governmental agency secondary financing. (In these instances, the governmental loan, in
aggregate with the HUD first and private second, may exceed the property’s FMV.) The 92.5% limitation
on combined debt does not apply to Low Income Housing Tax Credit transactions, in which primary and
secondary debt together may equal but not exceed 100% of total development costs. (See Chapter 14 for
details.)
C. Private secondary financing up to 92.5% total LTV (including both HUD-insured and private secondary
financing) may be secured by a lien encumbering the real property.
D. Mezzanine financing is a subordinate loan usually secured by a pledge of ownership interests, rather
than by a secondary lien on the real estate or an obligation of the Single Asset Mortgagor Entity.
Mezzanine debt terms must be fully disclosed to and approved in writing by HUD. Any mezzanine debt
that remains from a previous financing of the property is subject to the secondary financing guidance in
this section. Payments on mezzanine financing may be made only from surplus cash, and the debt may
not mature before the FHA insured loan. Mezzanine loan interest rates will typically be higher than that
of the first mortgage but must be reasonably consistent with market rates for mezzanine debt.
Additionally, the interest rate must not be so high that it jeopardizes the ownership stability of the
property, or that the interest due cannot reasonably be expected to be repaid from surplus cash. Interest
due or accruing on the mezzanine loan must be approved as reasonable by HUD.
E. In the event of nonpayment or default on the mezzanine debt, any transfer of an ownership interest in
the Borrower entity or in its principals to the mezzanine Lender must have prior written approval by HUD,
through the Transfer of Physical Assets (TPA) process. The mezzanine Lender may exercise no
enforcement remedies against the real estate or against the Borrower entity during the term of the
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mezzanine loan, nor may the mezzanine Lender take action that would trigger a Transfer of Physical
Assets (TPA) without HUD approval.
NOTE: Project-specific exceptions or waivers to these policies for mezzanine financing must be
approved in writing by HUD and documented in a HUD-2 waiver form.
8.7.3
Private Source – New Construction/Substantial Rehab
A.
Private secondary financing is not permitted under Section 221(d)(4) or other new
construction/substantial rehabilitation first mortgage programs. The only exception to this consideration
is Seller-financed secondary debt (aka seller take-back note). The Seller-financed secondary debt must
meet the follow criteria:
1. The FHA loan to replacement cost ratio is less than 50% (80% loan ratio for tax credit applications)
of mortgageable cost; and
2. The Seller financed secondary debt is either:
An arms-length transaction; or
It involves an identity of interest transaction and the selling price of the land or building is not
greater than the property’s “as is” value.”
3. Seller-financed secondary debt must also meet all of the following:
It is an inferior cash flow debt, such that cumulative payments for that and any other subordinate
debt must not exceed 75% of surplus cash, if available.
It is documented in a promissory note that is not recorded and not secured with a lien against the
property; this prohibition on a lien does not apply to LIHTC transactions (see Chapter 14).
It does not contain any provision of foreclosure that would threaten the first mortgage.
It is subject to automatic re-subordination in any subsequent refinancing of the first mortgage;
and
The subordinate debt does not have a balloon payment or maturity prior to maturity of the FHAinsured first mortgage.
8.7.4
Section 223(a)(7) Refinance Program
A. For Section 223(a)(7) applications, secondary financing terms are governed by the SOA of the
underlying insured mortgage but shall not be used directly or indirectly to provide funds for an equity
takeout or a Transfer of Physical Assets.
8.7.5
Condition for Repayment of Secondary Financing
A. (Subordination Agreement – Public (form HUD-92420M) and Subordination Agreement – Private form
HUD-92907M). Required repayment of this and any other secondary debt, including interest, must be
made solely payable cumulatively from up to 75% of available surplus cash. Consider using form HUD92223M or including the following language in the secondary financing promissory note, or otherwise
ensure the transaction provides for the following:
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"So long as the Secretary of Housing and Urban Development or his/her successors or assigns, are the insurers
or holders of the first mortgage on (insert project name and FHA Project No.), the total payment(s) due
under this Note, and all other secondary debt instruments shall be payable and shall not cumulatively exceed
75% of available surplus cash. Non-project sources that are outside the Mortgaged Property may also be used
to repay subordinate financing. The term surplus cash is defined in the Regulatory Agreement dated (insert
date) between HUD and (insert name of Borrower). The restriction on payment(s) imposed by this
paragraph shall not excuse any default caused by the failure of the maker to pay the indebtedness evidenced
by this Note."
B. This language does not need to be added to the Subordination Agreement – Public (form HUD-92420M)
or the Surplus Cash Note (form HUD-92223M)
8.7.6
Secured Public Secondary Financing Conditions
A. The Borrower may secure a Surplus Cash Note (form HUD-92223M) with a subordinate lien from a
governmental agency against the property under the following conditions:
1. The Lender on the insured mortgage must consent to the placing of the subordinate lien and agree
that its existence could not create a basis for default on the first mortgage.
2. There must be a simultaneous closing of the subordinate financing documents and the insured first
mortgage loan documents. Both the subordinate and first mortgage closing documents must be
recorded prior to or on the day of closing. Though recordable closing documents are frequently
recorded in advance of actual closing, funds may not flow until closing. See Chapter 19, Section
19.1.3.4 for details on closing arrangements.
3. The terms of the subordinate mortgage must comply with the following requirements:
The term of the subordinate mortgage must be approved by the Field Counsel.
The term of the subordinate mortgage must be consistent with the terms of the insured Surplus
Cash Note, the first mortgage, the Regulatory Agreement and all HUD regulations and
requirements.
The subordinate mortgage shall not contain a cross default provision or any right of foreclosure
before the termination of the FHA insured mortgage.
The term of the subordinate mortgage must be extended if any of the following occur:
The Promissory Note is due, and there are no surplus cash funds or residual receipts available for
repayment, and the first mortgage has not been repaid in full. (Distribution of residual receipts
must be approved by HUD Asset Management and can only be approved by the terms of a written
agreement between HUD and the owner.)
HUD grants a deferment of amortization or forbearance that results in an extended maturity of
the insured mortgage.
The maturity date of the subordinate mortgage is prior to the term of the FHA-Insured mortgage.
The subordinate mortgage must be assumable when a sale or transfer of physical assets occurs,
and the insured mortgage remains in place.
The subordinate mortgage must automatically terminate if HUD acquires title to the project by a
deed in lieu of foreclosure.
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No more than 75% of surplus cash may be pledged to the repayment of the subordinate loan(s).
8.7.7
Unsecured Private Secondary Financing Conditions
A. Terms of unsecured private Promissory Notes must reflect those provisions found in: form HUD91710M, Residual Receipts Note [Non-profit Borrower], or form HUD-91712, Residual Receipts Note
[Limited Dividend Borrower], or form HUD-92223M, Surplus Cash Note [Profit Motivated Mortgagors]
based upon the type of Borrower; or Form Residual Receipts Note (form HUD-92908M), when Borrower’s
distributions are restricted through a Residual Receipts Rider to the Regulatory Agreement. See the Closing
Chapter 19, Section 19.4.8.2 for further details.
1. Form HUD-91710M, Residual Receipts Note (for Non-profit Mortgagors) and form HUD-91712M,
Residual Receipts Note (for Limited Dividend Mortgagors).
Principal and interest shall be due and payable on or after the maturity date of the HUD-insured
mortgage.
If the HUD-insured mortgage is prepaid in full, the holder of the residual receipts note has the
right to declare the entire principal sum or any remaining balance including any accrued interest
immediately due and payable.
Prepayments to principal and interest:
1) may be made (a) from the residual receipts as defined in the Regulatory Agreement only after
obtaining written approval from HUD or (b) from sources other than Project Income or
Project Assets, e.g., syndication proceeds.
2) may be made only after final endorsement of the insured mortgage and after the end of a
semiannual or annual fiscal period.
if unauthorized prepayment is accepted, the funds shall be returned to the project immediately
upon discovery.
The residual receipts note is nonnegotiable and may not be sold, transferred, assigned, or pledged
by the payee.
Presentation, demand and notice of demand, nonpayment and protest of the residual receipts
note are waived.
Interest on the note must not compound; however, for LIHTC projects, HUD will consider
compounding of interest pursuant to the instructions in Chapter 14, Section 14.11.B.5 of the MAP
Guide.
2. Form HUD-92223M, Surplus Cash Note (for all other mortgagor entities). The conditions and
limitations are the same as form HUD-91710M, except that:
Provisions may be made for interest payments annually or semiannually or at the end of a fiscal
period. However, the Note should provide for interest to accrue and be payable in full at maturity.
Prepayment of principal or any payment of interest must be limited to sources other than Project
Income or Project Assets, e.g., syndication proceeds or surplus cash as defined in the Regulatory
Agreement.
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Payments on promissory notes will be made only as permitted by the applicable Regulatory
Agreement, but prepayment of the promissory notes from sources other than the project is
permitted without HUD approval.
Should any unauthorized prepayments be made, as determined by HUD, it shall be the
responsibility of the Borrower to return them to the project.
Interest on the Note must not be compounded, however for LIHTC and otherwise affordable
projects, HUD will consider compounding of interest pursuant to the instructions in Chapter 14,
Section 14.11.B.5 of the MAP Guide.
8.7.8
Tax Credit Equity Bridge Loans
A. Tax credit equity syndicators or investors (with or without an identity of interest with the MAP Lender)
may make bridge loans to fund required equity contributions for LIHTC, Historic or New Market Tax
Credits during the construction or substantial rehabilitation period as described in Chapter 14, Section
14.14.
8.8
Application Exhibits and Responsibilities
A. The Lender shall utilize HUD’s standardized application exhibit checklist to facilitate the electronic
submission of the application to aid in HUD’s completeness review of deliverables and to record
underwriting processing results and conclusions for both pre-application and firm applications. The
standardized checklist is a concise structured template organized with separate sections directly related
to each technical discipline. The template will permit the HUD-delegated Underwriter and Lender to
locate exhibits within the application binder, which will in turn expedite the application review process
while reducing HUD’s risk during the underwriting analysis of the application. These application
templates are for use for all program applications submitted under the Multifamily Accelerated
Processing with the exception of Section 223(a)(7) applications. The Lender’s application submission
templates for mortgage insurance are:
1. Underwriter’s Narrative
2. Application Checklist
3. Form HUD-92013-C, LIHTC Summary Report (LIHTC transactions only)
8.8.1
General Responsibilities of Lender’s Underwriter
A. Underwriting multifamily projects is a process for evaluating the character, capacity and
creditworthiness of the Sponsor, Borrower and its principals, the General Contractor, and in the instance
of an identity of interest, the property management company, in order to reach specific conclusions
resulting in the approval (with conditions, as appropriate) or denial of a mortgage insurance application.
B. The Lender must assess the Borrower’s ability to manage all of the responsibilities of the ongoing
operations of multifamily properties, including the development, construction, completion, and lease-up
for new construction proposals and property maintenance, tenant relations, financial and performance
reporting and effective management for existing properties.
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C. The Lender’s Underwriter must:
1. Identify the Borrower and its principal entities or individuals and present a complete, consistent and
coherent picture of the financial capacity and creditworthiness of the Borrower and the various Active
Principals.
2. Analyze the creditworthiness of the Sponsor(s), the Borrower entity, if formed, and its principals and/
or individuals and the contractor. If a borrowing entity is not yet formed at the time the firm
application is submitted, the MAP Underwriter must still perform the financial and credit analysis on
the Active Principals and/or individuals. The Underwriter must demonstrate that the principals
and/or individuals have the character, capability, creditworthiness and commitment to provide
expert leadership, working capital and cash needed to close the proposed transaction(s), complete
the development process, as applicable, and to support the operations of the property. This
determination is made in light of the obligations that may already be required of the principal, or are
expected to arise due to ownership of other business interests and real estate projects.
3. For existing mortgagor entities and properties, evaluate the financial performance of the mortgagor
and the property based on its financial statements and other operating reports, (e.g., rent rolls) and
credit history to determine eligibility, mortgage amount and conformance to program requirements.
4. Conduct a mortgage credit review to include:
The balance sheets for principals as discussed in Appendix 8, Section A.8.2, “How to Analyze
Financial Statements” and in addition to the Schedule of Real Estate Owned and other relevant
schedules.
In each case the Lender will conduct sufficient diligence to determine what should be an
appropriate period of past financial review. Character is best demonstrated during periods of
economic distress and so a review of at least one complete business cycle (means the entity’s fiscal
year) is necessary. Any material credit problems in the last 2 to 5 years should be carefully
reviewed and may result in an application rejection. Events that occurred before that period if,
for example more than 8 or 10 years have passed, would not have as material an impact on
creditworthiness but may still be relevant. The Lender should consider all relevant factors in the
analysis and credit approval decision.
Determine whether the Sponsor(s) has (or will have, given proposed transactions) existing
insured mortgage balances exceeding $500,000,000. If a Sponsor has obtained prior approval to
exceed this amount, submit a copy of the Prior Approval Decision together with any other
documents identified as required by the Prior Approval Decision. (See Appendix 8, Section A.8.3
for prior credit approval instruction.).
5. Determine if there is incomplete or inconsistent information, or discrepancies between the
information included on the financial statements and in the credit reports. Any inconsistencies must
be reconciled.
6. In addition to the formal documents and credit investigation described above, the Lender’s
Underwriter must conduct and describe the results of an internet search of each principal and
determine if there is any information that raises concerns about creditworthiness and address any
negative information.
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7. Provide the Office of Foreign Assets Control (OFAC)/Terrorism checks and verifications on principals
which are required by the U.S. Patriot Act. These checks must be completed and documented no later
than the time of Initial Endorsement, whether or not the Lender is a regulated financial institution.
The OFAC verification is not part of MF Regional/Satellite Office review except to the extent that the
Lender has identified problems during the OFAC check. OFAC requirements are administered by the
Department of the Treasury and Lenders should refer to the Treasury’s website
http://www.ustreas.gov/offices/enforcement/ofac, for any questions.
8.8.2
Additional Exhibits Required of Project Participants
A. The Borrower shall provide the following exhibits for participating professionals and officers of
corporations:
1. Identity of Interest of Borrowers Using Builders and Sponsors Profit and Risk Allowance
(BSPRA). General Contractors with an identity of interest with the Borrower may be either
independent businesses with an ownership interest created in the Borrower entity primarily to obtain
the Builders and Sponsors Profit and Risk Allowance (BSPRA) or businesses owned and operated by
a Principal of the Borrower. Notwithstanding any identity of interest, the General Contractor is
required to provide the identical exhibits as a participant.
2. Management Agent. A detailed resume is required for Management Agents even when they have no
ownership interest in the Borrower entity or identity of interest with a Principal. Credit reports are
required for the Management Agent only in cases where there is an identity of interest between the
owner and the Management Agent, or in cases where the Management Agent holds an equity interest
in the Borrower. Also, receipt of negative information concerning the performance or capacity of the
Management Agent could require a credit review. Analysis of financial statements is generally not
required, unless the agent has an identity-of-interest with the Borrower or a Principal, or where
financial statements are necessary to evaluate the capacity of the management entity to perform its
management role.
3. Fee Developer/Consultant. Fee Developers, packagers, consultants and other professional persons
or organizations are sometimes retained to assist nonprofit Sponsors that might lack needed
experience. Such services might include assisting with project development, financial structuring or
HUD processing. Packagers and consultants must provide resumes evidencing their qualifications,
and the Developer must provide credit reports and financial statements when their services are
critical to project viability.
4. Design Architect/Engineers. Design professionals must provide resumes establishing their
credentials, competence and experience commensurate with levels of expertise and experience
required by the project. Absent an ownership interest in the Borrower that would otherwise qualify
the design professional as a Principal, no other mortgage credit exhibits are required.
5. Executive Officers of Borrower. Officers with less than 10% of the voting stock of a for-profit
corporation but who qualify as a principal of the Borrower, may be required to submit resumes and
demonstrate appropriate competence and experience to provide an accurate picture of character,
capacity and commitment.
6. Executive Officers and Directors of Publicly Traded Corporations. These individuals are not
required to submit mortgage credit exhibits as individuals, notwithstanding their stock ownership
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inasmuch as such firms are regulated by the U.S. Securities and Exchange Commission (SEC). The SECrequired annual corporate report (Form 10-K) and quarterly corporate report (10-Q) provide
complete financial statements, background and history of corporate operations as well as resumes
and compensation of corporate officers and disclosure of conflicts of interest of officers and directors.
In addition, the credit of publicly traded corporations is rated by agencies such as Standard and Poor’s,
Fitch and Moody’s. When a publicly traded corporation is a Principal, Forms 10-K and 10-Q and
agency credit ratings may be accepted in lieu of mortgage credit exhibits.
8.8.3
Evaluating Nonprofit Sponsors and Borrowers
A. Nonprofit Borrower/Sponsors (whether national, regional, or local) must have the experience and
financial strength appropriate for the development and ownership of the proposed property, see Section
8.3.2. The nonprofit Sponsor being evaluated may not have equal strength with respect to all criteria. In
transactions where the Borrower/Sponsor’s ownership structure contains multiple entities performing
differing functions, the Lender must evaluate the nonprofit and each of the other entities on their capacity
to perform its particular function, e.g. ownership, property management, acquisition, development,
resident services or asset management. This includes the need for prior acceptable history of successful
development, ownership and management of assets similar in size and complexity as the proposed
project. Therefore, only the criteria for the areas in which the nonprofit entity has direct responsibility
or authority need to be applied during the evaluation process. The eligibility of prospective nonprofit
Sponsor/Borrower must be determined before a Pre-application approval or Firm Commitment is issued.
B. The Lender must include in the Underwriter Narrative summary a description of the party(s) paying
pre-development costs, in addition to the follow written explanations:
1. Details of any proposed rent/income restrictions on the property to be developed by the nonprofit.
2. Developer’s Agreement or any other document which shows the relationship and work
responsibilities of all parties associated with the transaction.
3. Explanation of the terms and conditions of the Housing Consultant’s contract, if applicable. The fee
for the Housing Consultant shall be an expense of the Borrower.
4. Memorandum of findings and recommendations:
Must include a description of the relationship between the nonprofit and any profit motivated
entities involved in the transaction.
The determination of eligibility or ineligibility of the nonprofit Sponsor/Borrower must be
approved by the HUD office with jurisdiction.
At the Firm Application stage and prior to initial endorsement (beginning of construction in the
case of Insurance Upon Completion), describe the Sponsor’s and Borrower’s relationships with
parties or firms furnishing land and services.
Describe any signed agreements of relationship between such parties or firms with the Sponsor
and Borrower.
All relationships are subject to HUD approval therefore the Sponsor and the Borrower must inform
HUD in writing if there is a change in any signed agreements of relationship.
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5. Explain any nonperforming assets in nonprofit Borrower/Sponsor portfolio in conjunction with the
REO review.
6. Detailed explanation of the motivation for sponsoring the project including a history of the
organization's involvement in multifamily housing.
7. The Management Agent must have a minimum of 3 years of experience in directing and overseeing
the management of at least 3 properties serving the same resident clientele and comparable to the
proposed property in scale, complexity, tenant profile and regulatory compliance requirements. A
property manager must demonstrate adequate property management experience with properties
comparable to the subject property.
8. Signed written resolution of the nonprofit’s directors or trustees, acknowledging the responsibilities
and obligations of sponsorship and continuing ownership, and that the subject proposal reflects the
will of the board and/or the membership of the organization.
9. Detailed statement of arrangements made or proposed for the following (listing principals involved,
their relationship with the nonprofit Sponsor/Borrower, the terms of the arrangements and the
circumstances surrounding each):
Land on which the project will be built including the existing length of ownership.
Project construction/rehabilitation, including selection of General Contractor, subcontractors,
and Architect.
Legal and consulting services.
Project financing, including any discounts.
NOTE: A national, State, or regional organization acting as a cosponsor must submit a separate
form HUD-3433 and Supplemental documentation.
10. The nonprofit Sponsor must have diverse and stable funding sources with recurring revenue and, if
required, a proven record of raising sufficient funds to meet its operating needs. The Lender must
identify whether the nonprofit Sponsor’s primary funding sources are from fees on development
projects or from sources such as public funding, public contracts, grants, or donations that may be
subject to budget or funding constraints.
8.8.4
Credit Review of a Nonprofit Sponsor and Borrower
A. The Lender’s Underwriter narrative should describe how the nonprofit Sponsor/Borrower is qualified
to start, complete, and operate a project under the insured loan programs. The Lender must determine
that the nonprofit Sponsor/Borrower is acting on its own behalf, or if either knowingly or unwittingly
acting under the influence, control or direction of any outside party seeking to derive a profit or gain from
the proposed project—such as a landowner, real estate broker, contractor, Architect, attorney or
consultant.
B. Credit investigation analysis:
1. As with for-profit Sponsors, the Lender’s Underwriter must make a determination of the individuals
and entities with decision-making and operational authority over the project. The Underwriter will
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provide an in-depth written analysis on the aspects of the mortgage credit review in the Underwriter’s
narrative.
2. Check that the Borrower/Sponsor has no unresolved issues related to payment history and check
credit references.
C. Financial data analysis:
1. Determine the amount of cash and liquid assets available for investment in the project and overall
financial condition of the sponsoring group, and in particular whether the financial statements
indicate that income will be sufficient to meet the expenses incurred by the group.
2. Financial statements of many large nonprofit organizations show various fund accounts, such as
general and building fund, etc.
Identify any inter-fund receivables and payables that cancel each other.
Do not consider restricted-use funds in the analysis.
Review the Public Records section of the credit report to eliminate any assets that were used as
collateral in secured borrowing.
3. The project size and complexity should be consistent with the abilities of the sponsoring organization.
8.8.5
Nonprofit Developer Fees
A. Nonprofits may earn a non-profit Developer Fee, but not BSPRA, on a new construction or substantial
rehabilitation proposal under Sections 220, 221(d)(4), 231, or 241(a).
8.8.6
Consultant Fees
A. Nonprofit Borrowers may include a consultant fee as part of the replacement cost to be paid from the
Organizational line item. The selection of a housing consultant is the responsibility of the Sponsor/Owner
who will execute a consultant contract or agreement that engages the consultant to assist the
Sponsor/Owner in the development process. The MAP Lender will review and explain the terms of the
housing consultant contract in the Underwriter’s Narrative but does not approve the contract nor
determine compensation limits. The resume(s) are to be submitted with the FHA loan application. HUD
will permit a consultant fee under the following conditions:
1. As currently permitted, a consultant fee may be part of the Developer Fee where one exists.
2. Where a Developer’s Fee is not permitted in the loan, a consultant fee may be paid from the
Organizational line item in Section G on form HUD-92264.
3. Use of a consultant fee is limited to nonprofit sponsored projects that have retained a consultant to
assist in the origination, development, financial services (non-tax credit deals) and/or loan processing
of the project. The agreement between the Nonprofit Borrower and consultant shall outline the
services to be provided and fee amount.
4. The fee amount shall be based upon complexity of the transaction but limited to the greater of $40,000
or 10 percent of the estimated total for all improvements, total carrying charges and total legal,
organizational and audit fees; and
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5. No more than 50% of the consultant fee shall be paid at initial endorsement, with the remainder to be
paid during the construction period and final endorsement as described in the consultant contract.
8.8.7
Establishing a Profit-Motivated Borrower Entity
A. A nonprofit Sponsor may establish a profit-motivated Borrower entity for the purpose of owning a tax
credit project or obtaining BSPRA. Distributions are limited to 75% of available surplus cash. Such a
request may be approved provided:
1. The Borrower’s legal counsel’s opinion determines that there is no legal impediment that would
prohibit approval of this relationship structure.
2. The profit-motivated Borrower entity agrees to be regulated by the terms and conditions of the
regulatory agreement (form HUD-92466M, Regulatory Agreement Multifamily Housing Projects)
applicable to a profit-motivated entity.
3. The nonprofit is subject to the mortgage limitations applicable to a profit-motivated entity.
4. A working capital deposit is required.
5. A nonprofit Developer’s Fee is not included in the mortgage; the nonprofit can include BSPRA.
6. If the nonprofit provides evidence that it has obtained exemption from real estate taxes, the tax
exemption must run with the real estate and not with the type of sponsorship.
7. The Borrower’s legal counsel’s opinion addresses any potential tax consequences and determines
there will be no change in the nonprofit’s Section 501(c)(3) tax-exempt status with IRS.
8. The nonprofit Sponsor is the Section 50 signatory, see Section 8.3.6.G for guidance.
8.8.8
Lender’s Review and Recommendation
A. The Lender’s Underwriter’s recommendation, after review of all processing materials and third-party
reports, is made in a separately bound report addressed to HUD included in the Underwriter’s narrative.
1. The report must detail the project’s financial requirements and the credit capacity of the Sponsors,
Borrower entity, its principals, and the General Contractor. The Lender’s Underwriter’s narrative
must detail the project’s financial feasibility with an analysis of the primary risks, any mitigating
factors, and the rationale for any waivers requested. The mortgage credit analysis must contain
evidence of the financial feasibility and acceptability of the single asset entity, of each principal with
decision making control and of investors providing funds for initial closing. Include at a minimum,
the:
Name of the Borrower entity.
Composition of the Borrower entity include the tiers showing principals with control and
providing the financing.
Name of the General Contractor, disclosing any relationship(s) with the Borrower entity.
Mortgage amount and controlling criterion.
Financial requirements for closing.
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Sources of funds to meet cash requirements, including all sources and disclosing how the money
will be used.
Ratio of loan proceeds to actual cost for the purpose of cost certification.
The experience level of the development team relative to the proposed project.
A credit and financial review of Sponsor(s)/Borrower and principals and General Contractor.
This review must provide an overview of their financial strength, liquidity, experience, and
creditworthiness and address positive and negative findings known by the Lender.
Completion Assurance requirements. (See Chapter 3, Section 3.2.7)
Recommendation to accept or reject the proposed project.
If accepted, any conditions to be included in the commitment. (See Chapter 11)
2. Complete form HUD-92264-A and exhibits for the type of mortgage proposed.
3. The Lender must transmit to HUD all Borrower submissions and related documents. The Lender will
analyze the stability of the principal’s portfolio ownership and management structure, portfolio
characteristics and market conditions and recommend prior approval of creditworthiness. The
analysis shall include:
Review of the stability of ownership and management.
Evaluation of any problems and challenges confronting the principal and the principal’s plans for
action in response to such challenges including:
1) Underperforming properties, (e.g., properties at less than 90% occupancy; properties at less
than 1.1 to 1 debt service coverage; properties with significant physical or management
problems).
2) A review of REAC scores for existing HUD properties. Explanation and corrective action for
properties having a score of less than 65.
3) Existing defaults and/or pending capital transactions, (e.g., anticipated refinancing or
refunding, pending balloon payments, interest rate resets).
4) Property or Asset Management deficiencies, (e.g., underfunded reserves, deferred
management fees).
5) Suits, judgments, liens, or related adverse actions.
6) Weak or unstable markets affecting geographically concentrated properties or other actual
or prospective adverse conditions affecting a unique combination of assets and the impact of
such conditions on the portfolio.
7) A determination whether the principal’s reputation, past performance and capacity support
a conclusion that insured assets will be maintained in good physical condition, with timely
capital replacements and prompt, effective action to remedy problems.
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8.8.9
Mortgage Credit Duties of HUD
A. Concentrated Risk Prior Approval. Confirm that the Lender has correctly determined if prior
approval is required for the Sponsor to file an application. (See Appendix 8, Section A.8.3 for prior credit
approval instruction).
B. Previous Participation. Perform the electronic 2530 review and approval process.
C. Underwriting Conclusions. Review Lender’s preliminary analysis and recommendation about the
Development Team’s financial capacity, experience and creditworthiness and the Lender’s analysis of any
defaults, mortgage relief, assignments, and foreclosures relating to these projects.
D. Verify Sources of Funds. HUD will verify, through use of the form HUD-92264-A and documents
supplied by the Lender, the source(s) of funds to meet cash requirements
8.9
8.9.1
Mortgage Term and Amortization
Commencement
Sections 220, 221(d)(4), 241(a) and 231 Projects
A. Term: The term of the mortgage is the lesser of 75% of the estimated remaining economic life of the
physical improvements or 40 years from the date of the first payment to principal. Express the mortgage
term in whole or partial years, with a partial year expressed on months, for example 26 years, 3 months.
B. Amortization starts on the following date:
1. For Insurance of Advances projects amortization begins 4 months (after the scheduled construction
completion date as estimated in the Firm Commitment. (For example: with a 16-month construction
period, amortization begins in the 21st month).
2. For Insurance Upon Completion project, the first day of the second month following the date of Final
Endorsement.
C. Section 241(a) projects:
1. Term. The Section 241(a) loan should generally be coterminous with the underlying FHA-insured
first mortgage, if that loan has more than 25 years remaining on its term.
2. Amortization. If fewer than 25 years remain on the term of the first mortgage and so long as the
term of the insured mortgage is no greater than 75% of the project’s remaining useful life, HUD will
consider an amortization period up to 40 years regardless of the underlying first mortgage’s
amortization period.
8.9.2
Section 207 Pursuant to 223(f) Projects
A. The maximum term of the mortgage is 35 years or 75% of the estimated remaining economic life of
the physical improvements, whichever is less, provided that the term may not be less than 10 years.
1. The mortgage term shall be the eligible number of whole or partial years between 10 and 35.
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2. Express a partial year in months for example 26 years and 3 months.
B. Amortization starts on the first day of the second month following the date of the Initial/Final
Endorsement.
8.9.3
Section 223(a)(7) Projects
A. Most transactions are processed with a lower interest rate and re-amortized either within the
remaining term or with an extension of up to 12 years. Exceptions are detailed in Chapter 18. Extended
amortizations may reduce risk to the Department by lowering debt service requirements so long as the
physical condition of the property supports the extended term of the mortgage. In every case, the loan
term cannot exceed 75% of the remaining useful life of the property.
B. Amortization starts on the first day of the second month following the date of the Initial/Final
Endorsement of the mortgage.
8.10 Commitment Processing 220, 221(d), 231, 241(a)
8.10.1
Mortgage Amounts and Cash Requirements
A. Firm Commitment Processing.
1. For new construction, the insurable loan amount is the lowest of four criteria on form HUD-92264-A,
Supplement to Project Analysis: the application amount, the cost amount, the statutory limits amount,
and the debt service amount, which are described below. Refer to Appendix 3, Section A.3.1 for the
applicable program’s required maximum loan ratios and the debt service coverage ratios needed to
complete criteria for Firm applications for new construction and substantial rehabilitation:
The Application amount.
The Amount Based on Value or Replacement Cost. The result of Lender's estimate of the
replacement cost after completion, multiplied by the applicable program percentage.
The Amount Based on Limitations Per Family Unit - Statutory Limits:
1) The Statutory limits are determined by an amount attributable to per unit limitation type as
adjusted by the High Cost Percentage (HCP) and dwelling use (excluding land).
2) Record the sum of costs not attributable to dwelling use from Section M Line 15, form HUD92264 into Criterion Line 4.b. Insert the same program percentage loan-to-cost ratio noted
in A.1 above in the percentage space in Line 4.b. Multiply the sum of costs not attributable
with the percentage loan-to-cost ratio and record the sum.
3) On Line 4.c. insert the full value of the “warranted price of the land” (see Section G Line 73a,
form HUD-92264) or the full amount of the “As Is” value of the Land Without the
Improvements (strike through “warranted price of the land” and insert “As Is Value”) if the
transaction is a substantial rehabilitation loan (see Section H Remarks Section, form HUD92264).
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4) On Line 4.e. total costs not attributable multiplied by the percentage of the loan-to-cost ratio,
plus (added to) the maximum statutory limit calculated for the number of each by-unit-type.
The sum calculated is the criterion mortgage amount. Strike a line through Line 4.e “Total
Number of Spaces” field or leave blank, this field is no longer applicable.
5) For the latest High Cost Percentages visit the HUD web site at:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/mfinfo .
Amount Based on Debt Service Limit. The loan amount supported by the applicable percentage of
the projects’ estimated net income. The NOI used to support this mortgage criterion may be split
into two or more income streams, for example to capitalize the savings from tax abatement or to
recognize other revenue sources such as from an IRP decoupling or the difference between
market rents and HAP contract rents.
1) That portion of the maximum mortgage supported by the tax abatement or other source must
be amortized over the same period as the additional NOI is available.
2) In order to be recognized in the mortgage proceeds, any tax abatement must run with the real
estate and not with the type of sponsorship.
2. Substantial Rehabilitation Loan Limits. Amount of Loan Rehabilitation under Section 220 and 221(d).
(This includes only projects involving substantial rehabilitation.) The insurable loan amount is the
lowest of four criteria on form HUD-92264-A, Supplement to Project Analysis: the application amount,
the cost amount, the statutory limits amount or the debt service amount, as described below. Refer
to Chapter 3 for the applicable program required maximum loan ratios and the debt service coverage
ratios needed to complete the criteria for substantial rehabilitation Firm Commitment applications.
The Application amounts.
The Lender’s estimate of the rehabilitation cost plus the “as is” value of the land and existing
improvements before rehabilitation, multiplied by the applicable percentages in Chapter 3.
Amount of Loan – Rehabilitation under Section 231. (Only for projects involving substantial
rehabilitation.) The amount as permitted under the new construction program except the loan
limitation is based on the estimate of value rather than the replacement cost. The insurable
amount is the lowest of:
1) The application amounts.
2) Property owned – 100% of the estimated cost of rehabilitation plus the lesser of:
a) Principal amount of existing indebtedness against the property and closing charges, or
b) For all Borrowers, apply the amounts in Chapter 3, to calculate the Lender’s estimated
appraised value of the property before rehabilitation and closing charges less:
i.
Value of leased fee, if leasehold, and/or
ii. Principal amount of special assessment
3) Property to be acquired – For all Borrowers apply the amounts in Chapter 3 to calculate the
Lender’s estimated current cost of rehabilitation/reconstruction plus the lesser of:
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a) Apply the amounts in Chapter 3 for all Borrowers to calculate the actual purchase price
of the property and closing charges, or
b) For-profit Borrowers apply the amounts in Chapter 3, of the Lender’s estimated appraised
value of the property before rehabilitation and closing charges and/or principal amount
of special assessment.
B. Insurance of Advances and Related Matters. See Chapter 12, Section 12.7 and Appendix 12 for
processing instructions.
8.11 Sections 223(a)(7) and 223(f) Firm Commitment
Processing
8.11.1
Determining Mortgage Amounts, Cash Requirements,
and Related Matters
A. Firm Commitment Processing for Section 207 Pursuant to Section 223(f)
1. Amount of loan in a purchase transaction. In a purchase transaction involving an arm’s length sale,
the mortgage may not exceed the lowest of 5 criteria on form HUD-92264-A, Supplement to Project
Analysis: the application amount, the loan to value amount, the statutory limits amount, the debt
service amount, and the cost amount, which are described below. Refer to Chapter 3 for the applicable
maximum loan ratios and the debt service coverage ratios needed to complete criteria for a Firm
application for a purchase transaction.
Application amount.
Loan-to-Value Ratio amount. Refer to Chapter 3 for ratios. These loan-to-values apply to both
for-profit and nonprofit Borrowers. (The amount based on value for Section 202 or 202/8 Direct
Loan purchase transactions is 90%.).
Statutory Limits Amount. This limit is based on maximum costs. The maximum per family unit
limitation for refinance under Section 207 may be increased by the percentage of the High Cost
Percentages (HCP) plus the percentage loan ratio noted in Section 8.11.1.A.1.b, above. Follow the
same guidance for inclusion of cost not attributable as set forth in Section 8.10.1.A.1.c.
NOTE: Per family unit limits may be increased by the High Cost Percentages. The per-unit limits
and HCP may be obtained on the HUD web site at:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/hicost/hicost
Debt Service Amount. Debt service is the loan amount supported by the applicable percentage
of the project’s estimated net operating income (NOI). The mortgage may exceed this limit by
capitalizing the savings from any tax abatement. In such cases, the net earnings estimate will not
reflect that temporary tax abatement.
The NOI used to support this mortgage criterion may be split into two or more income streams to
capitalize the savings from tax abatement or to recognize other revenue sources such as from an
IRP decoupling or the difference between market rents and HAP contract rents.
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1) That portion of the maximum mortgage supported by the tax abatement or other source of
revenue must be amortized over the same period as the additional NOI is available.
2) Any tax abatement must run with the real estate and not with the type of sponsorship if it will
be recognized in the mortgage proceeds.
Acquisition Cost. The applicable percentage from Appendix 3, Section A.3.2 must be applied to
the Borrower’s acquisition cost. Acquisition cost is defined as the sum of the items:
1) Purchase price shown in the purchase agreement and determined allowable by the Lender.
2) The Lender’s estimate of repair cost, if any, provided such costs are paid by the Borrower and
are not included in the purchase price.
3) The sum of reasonable financing charges, legal, organizational, and title and recording
expenses paid by the Borrower.
4) Eligible discounts paid by the Borrower at property acquisition.
NOTE: Any fees, discounts or other amounts paid by the seller for or on behalf of the
purchaser must be reflected as a reduction to the acquisition cost.
5) Eligible Architect's fees, mechanical engineering fees, municipal inspection fees, HUD
inspection fees, if applicable, and other fees as may be determined eligible by the Lender
including the cost of Lender third party reports.
2. Amount of Loan in a Refinancing Transaction. The subject loan will be the lesser of a or b:
Amounts in Section 8.11.1.A.1 above, except e.
Cost to Refinance. An amount that equals the greater of the following:
1) 80% of the Lender's estimate of the value of the project, or
2) The cost to refinance the project, which is defined as the sum of:
a) The amount needed to pay off the existing indebtedness as determined eligible by the
Lender.
b) The initial deposit to the Reserve for Replacements.
c) The sum of reasonable financing charges, legal and organizational, and title and recording
expenses paid by the Borrower.
d) The Lender’s estimate of repair cost, if any.
e) Eligible discounts paid by the Borrower.
f)
Eligible Architect's fees, mechanical engineering fees, municipal inspection fees, HUD
inspection fees, if applicable, and other fees as may be determined eligible by the Lender
including the cost of Lender third party reports.
g) Less the amount of any Reserve escrow for replacement and/or major movable
equipment that will be purchased as an asset of the project.
Cash-Out / Equity from Loan Proceeds. The maximum loan-to-value ratio for cash-out
refinances is 80%. In cases where the completion of repairs is deferred (i.e., non-critical repairs
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and any deferred accessibility remedies) and the mortgage amount exceeds the costs of
refinancing and all required costs including repairs (“cash-out transaction”), the Lender must
withhold fifty percent (50%) of the cash-out proceeds in a dedicated account until all repairs are
completed in a manner acceptable to the MAP Lender and to HUD. When the sum of cash held
back from cash-out proceeds exceeds $1,000,000, HUD will allow Regional/Satellite Offices the
discretion to reduce the holdback amount when the following criteria are satisfied: (1) the noncritical repairs are minimal, (2) the owner has demonstrated both the ability to complete repairs
in a timely manner and a commitment to keeping the property in good repair with no deferred
maintenance; and (3) that any reduction in the holdback below the $1,000,000 represents no risk
to HUD.
Critical repairs are not subject to this cash-out or withholding of proceeds. Critical repairs are
completed before Initial/Final Endorsement and are not deferred. Refer to Chapter 12, Section
12.17 to see the guidance on when and how repair funds are released from escrow.
Funding Repair Escrow and an Additional Assurance of Completion (Escrow Agreement for
Deferred Repairs (form HUD-92476.1M (6/2018).
1) 100% cash escrow equal to the total cost of estimated repairs must be established and
withheld in cash from mortgage proceeds to cover the total cost of the estimated repairs
(non-critical repairs/deferred repairs) identified in the CNA (Chapter 5, Section 5.10.8.H) for
completion after endorsement. See also Chapter 14 for funding of completion escrow for
LIHTC transactions.
2) Additional escrow for an assurance of completion is a percentage of the repair cost. The
additional escrow is broken down as follows:
a) Section 223(f) 20% in cash or letter of credit,
b) Section 223(a)(7) 10% in cash or letter of credit, and
c) For Tax Credits 10% tax credit equity or letter of credit.
B. Identity of Interest Purchase Transaction. Refer to Chapter 13, Section 13.16.
C. Determining Existing Indebtedness in a Refinancing Transaction. Existing indebtedness in a
refinancing transaction is defined as:
1. Outstanding mortgage(s) incurred in connection with the construction or acquisition of the project or
with capital improvements made to the property, as confirmed by the current mortgagee. Use the
pay-off letter located in Appendix 8, Section A.8.5 of this Guide to record amounts.
2. Other recorded indebtedness such as mechanic's liens and tax liens, provided the liens do not result
from personal obligations of the Borrower.
3. Unrecorded debt directly connected with the project supported by documentation from the Borrower.
For such debt to be recognized, the Borrower must provide the Lender with documentation that
unquestionably identifies the indebtedness with the project and is not the result of unpaid operational
expenses such as delinquent interest, accounts payable or deferred management fee. Examples are:
Prepayment penalties on the mortgage.
Indebtedness incurred in making significant betterments to the property.
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NOTE: Program penalties arising from the defeasance of tax-exempt and taxable bonds greater
than 10% of the proposed FHA insured loan amount cannot be recognized. Similarly, the costs of
settling prepayment penalties or yield maintenance fees associated with swaps or other
derivatives (e.g., swap breakage fees) greater than 10% of the proposed FHA insured loan amount
are not eligible to be included in the calculation of existing indebtedness. Prepayment penalty,
defeasance costs and/or the costs associated with prepayment of derivative instruments which
are greater than 10% of the proposed FHA insured loan amount may be paid only from equity out
(i.e. when the loan amount is 80% of LTV or less on a Section 223(f) refinancing).
4. Mezzanine Debt. Mezzanine debt may be considered in the eligible basis for refinancing only where
there is no identity of interest between the principals and the Mezzanine Lender or any affiliates of
either party, or in cases where the funds were used to fund capital improvements.
5. Do not recognize indebtedness:
Recently placed against the project to increase the mortgage or circumvent program intent.
NOTE: “Recent indebtedness” for multifamily properties is defined as any debt incurred up to 1
year before the submission of an application for mortgage. Recent indebtedness can be
recognized only if it was used for a non-identity of interest acquisition, for construction, or capital
improvements to an existing project. Bridge loans to retire maturing debt used for such purposes
are acceptable. The Borrower must provide sufficient documentation that supports recent
indebtedness.
Created by wrap mortgages:
1) The Borrower and Lender must give a detailed explanation of the purpose of the wrap and a
documented accounting of the use and disbursement of the loan proceeds.
2) The Lender may recognize loan proceeds used for capital improvements or project
operations.
D. Reserve for Replacements. The cost of an initial deposit to the Reserve for Replacements is eligible
for inclusion in the maximum insurable mortgage.
1. Purchase Transaction:
The purchase agreement must specify:
1) Whether or not the transfer includes the Reserve for Replacements or other escrows as an
asset of the project.
2) Dollar amounts of escrow and/or items which the seller will pay on behalf of the Borrower,
e.g., the operating deficit, discounts, initial deposit to the Reserve for Replacements.
Apply existing Reserve funds transferred as an asset of the project as a reduction of acquisition
cost when computing Criterion 7 on form HUD 92264-A.
2. Refinancing Transaction:
The Borrower must submit a list of escrows currently on deposit with the project. This applies to
both FHA insured and non-insured projects. Details of the disposition of escrow funds will depend
on the type and terms of the transaction and the specific escrow account.
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The real estate tax and insurance escrow account and Reserve for Replacements (RFR) must
remain with the project.
The balance of the existing RFR is applied to fund the initial deposit to the reserve for replacement
(IDRR). Any excess is applied as a reduction to the cost of refinancing under criterion 10 on form
HUD 92264-A, or as an additional source of funds.
E. Discounts and/or Costs of Issuance associated with bond financing may be eligible for inclusion in the
computation of Criteria 7 and 10. See Chapter 3 for further details.
8.12 Firm Commitment Processing with Grants and
Loans
8.12.1
General
A. These instructions apply to:
1. Grants and loans to the Borrower or its Principals from a federal, state or local government agency or
instrumentality.
2. Grants and loans to the Borrower or its Principals from national, regional and local community service
organizations (nongovernmental source) or foundations.
3. Refer to Chapter 14 for guidance on LIHTC, Historic Tax Credit and New Markets Tax Credit equity
syndication proceeds.
8.12.2
Application for Mortgage Insurance
A. At the Firm Commitment processing stage, the applicant must:
1. Identify the use of grant/loan funds on form HUD-92013, Application for Project Mortgage Insurance.
2. Submit: A commitment letter signed by an authorized agent of the governmental agency or
instrumentality or the non-government source identifying:
Amount of grant/loan funds including all repayment terms and conditions and any regulatory
restrictions that affect the operation of the property.
Intended use of the grant/loan funds.
Any conditions to the grant/loan and any reasons the commitment letter could be withdrawn.
That the grant/loan is not subject to a future appropriation or funding availability that is not
currently in the hands of and available for disbursement by the governmental agency or
instrumentality or the non-government source.
B. Any type of grant/loan not disclosed by the Borrower may result in a rejected application or the issued
Firm Commitment made null and void.
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8.12.3
Grants and Loans from a Government Agency or
Instrumentality
8.12.3.1
Firm Commitment
A. HUD will review the proposed grant/loan structure, terms and conditions and the draft grant/loan
documents during Firm Commitment processing or earlier, as needed. HUD will consider waivers with
reasonable terms in order to facilitate coordination between FHA requirements and those of the
governmental agencies.
8.12.3.2
Initial Endorsement
A. Before scheduling the closing, Field Counsel must review the grant/loan documents to assure their
legal sufficiency.
B. The MAP Lender must consent in writing to the placing of the subordinate mortgage and agree that its
existence could not create a basis for default on the first mortgage.
C. The governmental secondary financing Lender must enter into the HUD prescribed form of
Subordination Agreement.
D. The Borrower, instead of that portion of the front money escrow provided by the grant/loan, may use
either:
1. An unconditional irrevocable letter of credit issued by a banking institution with a rating and term
acceptable to HUD; or
2. An agreement between the governmental agency or instrumentality, the MAP Lender and the
Borrower, which provides the following:
MAP Lender has:
1) The right to approve construction advances after considering any reported noncompliance by
the agency or instrumentality if the project is proceeding in compliance with approved plans
and specifications.
2) A joint review and agreement between the MAP Lender, and the governmental agency or
instrumentality on the construction progress schedules and allocation of draws.
3) Sole authority to resolve differences in the inspection process and the process of disbursing
grant/loan proceeds.
The MAP Lender will furnish both HUD and the governmental agency with copies of the approved
interim advances form HUD-92448, Contractor’s Requisition, form HUD-92403, Application for
Insurance of Advances of Mortgage Proceeds, and supporting documentation. HUD approves the
initial and final advances.
The governmental agency or instrumentality must process the advance from its grant or loan
funding promptly and without adjustment. HUD or the MAP Lender will:
1) Send the governmental agency a copy of the approved requisition for its records.
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2) The governmental agency must notify HUD and the Lender of a need to make an adjustment
the following month.
The governmental agency assumes the risk for any grant/loan funds disbursed in excess of the
amount approved by HUD or the Lender and agrees to replenish the excess funds within 10
working days of notification by HUD or the Lender.
If a default occurs before completion of construction, the governmental agency must disburse the
remaining grant/loan funds so long as the request for funds remains in the same ratio as
previously authorized.
The governmental agency’s attorney must render an opinion that the agreement and grant/loan
commitment is legally binding on present and all future administrations.
8.12.3.3
Grant and Loan Proceeds Must be Advanced
A. Before the insured mortgage proceeds, or
B. Concurrently and on a pro rata basis with the disbursement of the insured mortgage proceeds.
1. If the grant/loan proceeds are not available at initial endorsement, HUD may either:
Proceed to initial endorsement, but not disburse any insured mortgage proceeds until the
grant/loan is in place and the funds are available for disbursement, or
Recommend the Borrower/Sponsor fund an escrow equal to the grant/loan. Advances from this
escrow must follow outstanding instructions for the disbursement of the grant/loan.
C. Release of grant/loan proceeds cannot be conditioned on the completion of specific project
improvements.
D. See Appendix 12, Section A.12.1 for front money requirements and disbursement of mortgage
proceeds on LIHTC projects.
8.12.4
Grants and Loans from a Non-Governmental Source
A. Commitment Processing.
1. The last 3 years of audited financial statements, if available, must be submitted evidencing that the
providing source has the financial capacity to meet its funding commitment.
2. If audited financial statements are not available, unaudited statements meeting the requirements of
Section 8.4.3 must be provided.
B. Initial Endorsement.
1. Before scheduling the closing, HUD must review the grant/loan documents to assure the legal
sufficiency of the documents.
2. The grant/loan funds must be disbursed before insured mortgage proceeds.
3. Release of grant/loan proceeds cannot be conditioned on the completion of specific project
improvements.
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C. All work performed with the grant/loan proceeds:
1. Must be cost certified.
2. Must conform to Davis-Bacon requirements including submission of payrolls, certifications, etc., if
payment of Davis-Bacon wage rates is required by the grant/loan program.
8.13 Insurance Upon Completion
A. Insurance Upon Completion (IUC) is an option for new construction and substantial rehabilitation
projects financed under Sections 220, 221(d)(4), and 231. Mortgage insurance is provided after project
completion and issuance of Certificates of Occupancy for all units. The following instructions apply to IUC
projects:
1. A financial and credit investigation is required on the Borrower, its Principals and any identity of
interest General Contractor.
2. MIP is not included in form HUD-92264 nor is it charged until the project reaches endorsement.
3. Working Capital and Operating Deficit Escrows. Projects that apply under IUC must meet the
operating deficit escrow and working capital requirements as outlined in Section 8.14 below, except
for the extra 2% construction contingency portion of the working capital, which is not required.
4. Assurance of Completion is not applicable to IUC projects. However, at endorsement, the General
Contractor must address latent defects by completing the Latent Defects Escrow, form HUD-92414M.
An escrow of 2½% of the total amount of the construction contract in the form of a surety bond, cash
escrow, or an irrevocable letter of credit issued by a banking institution is required at endorsement.
(See Chapter 12, Section 12.16.S Builder’s Warranty)
5. Breakdown of Financing Charges: In IUC projects before issuance of the Firm Commitment.
The mortgagee must provide:
1) A breakdown of financing charges and discounts by submitting form HUD-92455M Request
for Endorsement of Credit Instrument, Certificate of Mortgagee, Borrower and General
Contractor, with the Certificate of Mortgagee portion completed. The balance of the Form is
to be completed before Final Endorsement in lieu of form HUD-92023M.
2) Information relative to the construction and permanent interest rates and mortgage term.
Each item is reviewed to ensure its reasonableness in relation to comparable projects and market
conditions.
HUD will inform the Borrower of the fees that are recognizable for cost certification.
6. Building Loan Agreement, form HUD-92441M, is not applicable to IUC projects.
8.14 Determining Cash Requirements for Completion
A. The MAP Lender has the obligation to collect and hold all funds, escrows, and deposits (initial draw,
mortgage proceeds) specified for the transaction; this includes all other funds held by or at the order of
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the Lender in connection with the loan transaction. All funds are held by the Lender or a depository
institution satisfactory to the Lender and must be pursuant to any applicable escrow agreement(s).
B. The MAP Lender must evaluate the Borrower’s and its Principals’ financial strength and
creditworthiness, including their ability to meet the financial requirements for completing a project. The
Lender’s Underwriter is responsible for completing the form HUD-92264-A and the form HUD-92013-C,
LIHTC Summary Report required only for applications with LIHTCs to present their analysis of cash
requirement to close the transaction.
C. To calculate the financial requirements, the Lender must total the following:
1. Total estimated development cost, including the amount by which the:
Contractor’s and/or Borrower’s estimate for construction exceeds Lender’s estimate;
Owner/Architect Agreement for design and/or supervisory services exceeds Lender’s estimate;
or
Consultant’s contract for services exceeds Lenders estimate.
2. Amount necessary to clear all debts on the land (or property if substantial rehabilitation). The Lender
must verify all indebtedness that must be paid off at endorsement. In purchase transactions, include
other costs associated with the acquisition that will not be recoverable from mortgage proceeds, such
as zoning expenses.
3. Estimated cost of offsite improvements and demolition.
4. Cost of equipping and furnishing a project with non-realty items, if applicable. Use the higher of
Lender’s estimate or the Borrower’s estimate.
5. Working capital deposit, if required.
The working capital escrow requirement for new construction transactions is 4% of the mortgage
amount, half of which is a construction contingency for cost overruns and approved change
orders. Separate provisions within the working capital escrow will govern the remaining 2%
construction contingency. Any unused portion of the construction contingency escrow is
refunded to the Developer at Final Endorsement. Construction funded from the contingency
portion of the working capital escrow may be considered as the basis for a request for an
increased mortgage amount. A waiver of the 2% Working Capital Escrow requirement for
substantial rehabilitation transactions with Section 8 rental assistance covering 90% or more of
the units (with or without LIHTC restrictions), may be granted when the Lender is able to
demonstrate there will be enough income generated by the project during the rehabilitation
period to cover items typically funded by the Working Capital Escrow. See Chapter 3, Section
3.2.10 of the MAP Guide.
Working capital funds are not mortgageable and the unused portion may be released to the
Borrower. See Chapter 12, Section 12.15.5 for release of the escrow.
For LIHTC projects with a funded working capital reserve held by the partnership (even though
controlled by the syndicator or investor and not by HUD or the Lender), the funded reserve will
be credited towards the increased construction reserve requirement, although the Lendercontrolled account must still meet the 2% working capital escrow requirement.
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The working capital escrow requirement for substantial rehabilitation projects is 2% of the
mortgage amount.
Use form HUD-92412-M, Escrow Agreement for Working Capital. The Lender will deposit said
funds in an account insured or guaranteed by a federal agency. See Handbooks 4350.4, Insured
Multifamily Mortgagee Servicing and Regional Office Director/PC for the depository
requirements.
6. Operating deficit escrow.
For all new construction and for substantial rehabilitation projects in which there will be
significant resident displacement resulting in negative cash flow during the rehabilitation period,
the operating deficit escrow will be the greater of:
1) What the appraisal and underwriting analysis determines to be appropriate; or
2) 3% of the mortgage amount; or
3) 4 months debt service (Principal & Interest and Mortgage Insurance Premium) if the property
is a garden apartment, or 6 months debt service (Principal & Interest and Mortgage Insurance
Premium) if the property is an elevator building where a single Certificate of Occupancy will
be issued before any of the units or any of the entire floors can be rented.
HUD will consider Lender requests for operating deficit escrow draws during lease-up based on
the adequacy of the remaining amount of operating deficit escrow on deposit with the project.
See Chapter 12, Section 12.15.5 for further mitigation and release guidance.
The amount of the operating deficit escrow for substantial rehabilitation projects with at least
90% Project-Based Rental Assistance shall be based only upon the conclusions of the appraisal
and underwriting analysis and need not be the higher of 3% of the mortgage amount or 4 months
of debt service. The underwriting presentation should provide a detailed estimate of the
projected cash flow through the period of the rehabilitation to support the lower escrow amount.
For LIHTC projects with a funded operating deficit reserve held by the partnership (even if
controlled by the investor and not by HUD or the Lender), the funded reserve will be credited
towards the increased reserve requirements of 3% of the mortgage amount or 4 months of debt
service, although the Lender-controlled account must still meet what the appraisal and
underwriting analysis determines to be an appropriate operating deficit amount.
Use form HUD-92476a-M, Escrow Agreement for Operating Deficit. The Lender will deposit said
funds in an account insured or guaranteed by a federal agency. See Handbook 4350.4, Insured
Multifamily Mortgagee Servicing and Regional/Satellite Office for the depository requirements.
7. Commitment, marketing fees, and discounts must be paid out-of-pocket by the Sponsor/Borrower
and may not be paid from the operating deficit escrow.
8. For tax-exempt or taxable bond financing, cost of issuance must be paid out-of-pocket by the
Sponsor/Borrower and may not be paid from the operating deficit escrow.
9. The operating deficit escrow may be used to pay relocation expense that was not included in MAP
Lender’s estimated replacement cost on form HUD-92264-A.
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10. Calculate the cash investment required. The Lender must deduct from the estimated development
cost: the maximum insurable mortgage, any grant/ loan funds or tax credit equity attributable to
replacement cost items, and fees not to be paid in cash. The remaining balance is the estimated
financial requirements to complete the project. Record this calculation on form HUD-92264-A Line 7.
11. Cash-Out Escrow from Land Equity. If land, or the “as is” property value for a substantial rehabilitation
project, is contributed to meet the Borrower’s equity requirement, any cash-out from the excess land
value above what is required at initial endorsement must be deferred until the project is complete
and has demonstrated to the satisfaction of the Regional Office that it has achieved 6 consecutive
months of break-even occupancy (or 12 months break-even occupancy for transactions meeting Large
Loan parameters). The Borrower may apply any excess land value to fund the operating deficit, the
working capital escrow (including the construction contingency escrow) or other (i.e. nonmortgageable) cash requirements at initial endorsement. To the extent that excess mortgage
proceeds remain after capitalizing the required escrows, any remaining balance may be used for the
purposes described in Appendix 12, Section A.12.1.4. See also Chapter 12, Section 12.8 and Section
12.15 of the MAP Guide for specific instructions. After all escrows and cash requirements are
established at initial endorsement, any balance shall be escrowed with the Lender until the project
has achieved the occupancy thresholds described above. After these minimum thresholds have been
met, the balance of the escrow may be released to the Borrower. (See Chapter 12, Section 12.15.3 for
working capital details and Chapter 12, Section 12.15.4 for the IOD details).
12. Employment-Based Fifth Preference.EB-5 Equity Source. EB-5 is a U.S. Citizenship and Immigration
Services (USCIS) program created in 1990 to stimulate the U.S. economy through job creation and
capital investment by foreign investors and is used to raise equity. See the U.S. Citizenship and
Immigration Services (USCIS) website at: https://www.uscis.gov/eb-5. Any contribution of EB-5
equity must be available at the time of initial closing, therefore, an equity deferred pay-in schedule
cannot be applied. Projects that propose EB-5 investments as debt rather than equity are subject to
the limitations on secondary financing. HUD will only consider waivers only if there are significant
affordable rent and income restrictions and there is some public interest motivation (beyond the EB5 program incentive itself.)
13. Assurance of Completion. Performance Bond and Payment Bond. The General Contractor must
provide for the protection of HUD and Lender and to meet state and local requirements protecting
material suppliers, mechanics, and subcontractors. The General Contractor’s assurance of completion
must provide:
For non-elevator buildings, or elevator buildings with four (4) stories or less, where the cost of
construction or rehabilitation is more than $500,000, the assurance shall be in the form of
corporate surety bonds for payment and performance, each in the amount of 100% of HUD’s
estimated cost of construction or rehabilitation including an assumed builder's profit on BSPRA
transactions (see Section G Line 50, form HUD-92246, less Architect’s design and supervisory fee
and mortgagor’s other fees). Alternatively, the completion assurance agreement may be secured
by a cash deposit or Letter of Credit in the amount of 15% of the HUD estimated cost of
construction or rehabilitation.
For elevator buildings of five (5) stories or more, the assurance shall be in the form of corporate
surety bonds for payment and performance, each in the amount of 100% of HUD’s estimated cost
of construction or rehabilitation including an imposed builder's profit on BSPRA transactions.
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Alternatively, the completion assurance agreement may be secured by a cash deposit or Letter of
Credit in the amount of 25% of the HUD estimated cost of construction or rehabilitation.
The Completion Assurance Agreement, form HUD-92450 is secured by a cash deposit (or
unconditional, irrevocable letter of credit).
8.15 Bond Financed Projects and Tax-Exempt Agency
Loans
8.15.1
Review of Financing Documents
A. A tax-exempt bond is a security issued by a governmental agency in which the interest income
produced is free from federal income tax and sometimes free from state and/or local income tax. In
addition, many public agencies may make tax-exempt loans under the same principals without the
issuance of bonds. Financing documents associated with mortgage bonds or tax-exempt bonds and loans
are prepared and reviewed by the issuer, their counsel and, with respect to bonds, the bond Underwriter,
and their counsel. The tax-exempt loan and/or bonds are secured by one or more assets, which may be
cash, a letter of credit, GNMA mortgage-backed security issued by the Lender (Ginnie Mae Security),
and/or a mortgage. In FHA insured transactions, these tax-exempt loans and bonds are typically backed
by cash collateral held by the trustee, or by the Ginnie Mae Security, but may also be backed indirectly by
an interest in the insured loan.
1. The Sponsor must submit, with the application for Commitment processing, a separate statement
itemizing the estimated costs of issuance, fees and discounts and financing fees for the tax-exempt
loan or bond to be paid out of pocket by the Sponsor/Borrower with an explanation of the necessity
and reasonableness of each cost. The Lender’s Underwriter must check the statement for
reasonableness, using the data from previously processed tax-exempted financed projects and adjust
costs where appropriate. This information is used to develop the Total Estimated Cash Requirement
form HUD-92264-A, Supplement to Project Analysis.
8.15.2
Loan Rates
A. The construction loan and the permanent loan rates may exceed the interest rate on the bond
obligations. When this occurs, the spread will create a surplus of funds which must be held by the bond
trustee. At initial closing, the bond counsel must supply HUD with a legal opinion that any investment
income received by the mortgagee but not held for its own account must be under the control of the
trustee or agent holding the product funds relating to the tax-exempt financing and will not flow through
the books and records of the project. The tax-exempt financing documents will instruct the holder of the
projects funds to invest the funds in a federally-insured interest bearing account, submit the project’s
financial statement, or permit the Borrower to use the surplus of funds to cover costs associated with the
tax-exempt financing transaction.
B. In all cases, the interest rate on the tax-exempt financing will not be known during the Commitment
processing, therefore the underwritten rate will almost certainly change once the tax-exempt interest rate
has been established (e.g. the sale of the bonds). Upon determination of the mortgage rate, an amendment
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letter to the Firm Commitment will be issued reflecting the actual interest rate. If, due to time constraints,
HUD does not have sufficient time to reprocess a higher mortgage for the project, the Firm Commitment
must contain the following condition:
C. “Any interest savings resulting purely from a differential between the HUD-processed interest rate and
the actual, final interest rate may not be construed as excess funds that may be used to offset costs in other
categories at the time of cost certification. Any such savings must be applied as a mortgage reduction.”
NOTE: An exception to the above is that savings resulting from the early completion of
construction may be used to offset cost certifiable overruns in other cost categories. Compute
interest savings by:
1. Recalculating the interest line item on form HUD-92264, using the actual interest rate for the
scheduled construction period.
2. Subtracting the actual interest cost recognized at cost certification from the revised interest figure
developed in (1) above.
3. HUD will allow a total financing and placement fee of 5.5% on tax-exempt financing applications. This
limit applies to all multifamily Sections of the Act except Section 223(a)(7) and is reflected in the
replacement cost mortgage amount confirmed at cost certification.
8.15.3
Tax-Exempt Loans and/or Bonds
A. Tax-exempt loans and/or bonds may be sold at a premium to investors, whereby the investor pays an
amount in excess of the face value of the tax-exempt loans and/or bonds. The premium results from the
tax-exempt financing carrying a higher rate than is generally available in the marketplace.
1. Any premium raised by a transaction is considered part of the mortgagee, bond Underwriter, and/or
issuer’s profit, as applicable. However, if a mortgagee gives something of value without the
expectation of being repaid, HUD considers this to be a kickback. The one exception involves taxexempt financing transactions where the issuer of loans and/or bonds permits the Borrower to
receive some portion of the premium to offset the cost of issuance so that the mortgagee, bond
Underwriter and/or issuer, as applicable are simply conduits for the transfer of funds.
2. If any of the premium is remitted to the Borrower, it will be considered excess investment income,
treated as project income, and used to reduce the total allowable cost of the project.
3. On tax-exempt financed projects, the premiums may be treated as project income under the following
conditions:
The Sponsor/Borrower cannot benefit monetarily from the excess investment income.
The premium, if accessible to or given to the Sponsor/Borrower, is considered as excess
investment income.
Closing documents must detail the amount of the premium being given to the Sponsor/Borrower.
The premium may be used to pay for additional cost associated with the cost of issuance and may
be applied to other recognizable cost overruns.
The Borrower’s accountant or the Borrower must detail in the notes to the financial statement
the amount of excess income received.
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4. For nonprofit applications, excess income generated from premiums may be applied to recognizable
cost overruns. Any excess income over and above that used towards recognizable cost overruns must
be transferred to the reserve for replacement account.
5. On Section 223(f) applications, excess income generated from premiums must be transferred to the
reserve for replacement account.
8.15.4
Itemized Statement of Costs
A. An itemized statement of the costs of issuance of the obligations, discounts and financing fees paid
through the mortgagee must be attached to and reflected in the Lender’s Certificate, form HUD-92434M.
1. The statement must detail the use of each individual item necessary for the issuance of the obligations.
2. The Lender must review the amount of each item to ensure its reasonableness in relation to
comparable projects.
3. A letter from the Regional Office Director will inform the mortgagee that HUD will recognize for cost
certification purposes the costs of issuance, discounts and financing fees in an aggregate amount not
to exceed 5.5% of the insured loan amount, which may be included in the mortgage for all programs
(except Section 223(a)(7)).
4. The mortgagee, bond Underwriter, and/or issuer, as applicable have the option of deferring collection
of additional discounts, financing fees, slow draw fees, etc., through the provision of Paragraph 20(G)
of the Lender’s Certificate (form HUD-92434M).
The deferred collection of these items must be an obligation of a third party. Each of the third
party and the mortgagee’s bond Underwriter, and/or issuer, as applicable must attest in writing
that they will not look for payment from the:
1) Borrower,
2) Mortgaged property,
3) Mortgage proceeds,
4) Any reserve or deposit required by HUD and/or the mortgagee in connection with the insured
mortgage transaction; or
5) Rents or other income from the mortgaged property.
The Borrower may (but is not required to) issue, as evidence of the debt, promissory note to the
third party for costs identified in this paragraph which contains surplus cash limitations and
which HUD otherwise determines to be reasonable.
8.15.5
State and Local Tax-Exempt Financed Projects
8.15.5.1
Prepayment of Note
A. State and local bond financed projects are subject to prepayment restrictions and penalty charges as
provided in Chapter 11, Section 11.8.3. However, in the case of so-called short-term cash-collateralized
tax-exempt financing issued in conjunction with an allocation of 4 percent LIHTCs, the tax-exempt
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financing is non-recourse to the Borrower and the financing is fully secured by cash collateral or an
interest in project loan documents, and will mature shortly after construction completion (for
construction loans) or project repairs (for projects insured under Sections 207/223(f) and 223(a)(7)). In
such cases, the tax-exempt financing documents, which may include promissory note, loan agreements,
collateral agreements, etc. are generally not subject to HUD’s requirements for secondary financing unless
the short term cash-collateralized tax-exempt bonds are secured against the insured project using a
recorded Bond Mortgage.
8.15.5.2
State/Local Occupancy Use and/or Rent Restrictions
A. Use or rent restrictions sought by the State or local jurisdiction for projects financed by proceeds from
State/local tax-exempt obligations are often more restrictive than the minimum requirements of the
Internal Revenue Code. The Regional/Satellite Office Director may approve a State or local restriction
exceeding the minimum requirements of the Internal Revenue Code, but only if the following conditions
are met:
1. The Regional/Satellite Office Director must determine that the restriction is not likely to have an
adverse impact on project occupancy, marketability, or long-term feasibility. This determination
must be made on a project-by-project basis.
2. The restriction must not conflict with any applicable HUD mortgage insurance regulations or related
administrative requirements.
3. The restriction must not appear in the Note, Mortgage, Regulatory Agreement, or any other HUD/FHA
loan document.
4. Unless otherwise approved in writing by HUD, the restriction must be qualified to provide that it will
automatically terminate in the event of either foreclosure or transfer of title by deed in lieu of
foreclosure. Such a termination provision must be included in every legal instrument (e.g., deed, land
use restriction agreement, Security Agreement, or financing agreement) in which the restriction
appears.
8.15.6
Pre-Cost Certification Conference Information
A. The Lender must demonstrate at the pre-cost certification conference that:
1. The net cost of negative arbitrage (i.e.: the tax-exempt escrow account yield vs. capitalized interest
expense) may be recognized if there are offsetting savings in the mortgage.
2. Any rebate to the Sponsor/Borrower from the mortgagee, issuer, or bond Underwriter, as applicable,
will reduce the mortgageable cost certification. The following are two samples of the most common
types of rebates:
If mortgagee/issuer/bond Underwriter contributes a portion of the initial service charge that was
collected to pay discounts or other fees.
If mortgagee/ issuer/bond Underwriter refunds a portion of the construction loan interest to the
Borrower or Sponsor.
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Chapter 9
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Chapter 9 Environmental Review and Requirements
9.1 Introduction
Environmental Review and Requirements
Introduction
A. This chapter outlines for the Lender and HUD staff the policies and procedures that must be followed
to meet environmental review responsibilities. An environmental review is the process of reviewing a
project and its potential environmental impacts to determine whether it meets federal, state, and local
environmental standards and to determine whether the project is environmentally acceptable. The
environmental review process is required for all insured projects to ensure that the proposed project does
not negatively impact the environment, and that the property site itself will not have an adverse
environmental or health effect on residents.
9.1.1
Legal Authorities, Guidance, Standards, and
Documentation
A. All Federal agencies are required to comply with the National Environmental Policy Act of 1969 (42
U.S.C. 4321 et seq.) (NEPA) and the implementing procedures issued by the Council on Environmental
Quality at 40 CFR Parts 1500-1508. HUD regulations implementing NEPA are contained in 24 CFR, Part
50, “Protection and Enhancement of Environmental Quality.” Related Federal laws and authorities are
listed in 24 CFR 50.4 and 50.3(i). Under Part 50, HUD may not delegate its environmental responsibilities
to others; it is required to prepare the environmental review, make the appropriate environmental
finding, and obtain all required review, comment and approvals prior to issuing a Firm Commitment. (See
24 CFR 50.11.)
B. HUD has guidance on complying with environmental requirements at the HUD Exchange
Environmental Review website.18 Housing has additional FHA-specific guidance at the Office of Housing
Environmental Review Resources website.19
C. HUD has established the HUD Environmental Review Online System (HEROS) to document compliance
with NEPA and other Federal environmental laws, authorities, Executive Orders, and HUD standards. This
system replaced the form HUD-4128 for MAP projects in May 2016. The use of HEROS to document
environmental reviews is required under 24 CFR 50.18(a). All required source documentation, including
the ASTM Phase I Environmental Site Assessment, must be uploaded to the relevant HEROS screens.
HEROS source documentation, including but not limited to the ASTM Phase I Environmental Site
Assessment, will be made available to the public for one year after HUD issues a Firm Commitment. See
Section 9.2.2.M for details.
D. This chapter cites many standards and guidance documents, such as ASTM standards. These are
frequently updated, amended or superseded, and as such this chapter may include references that become
outdated. Wherever standards or guidance are cited in this chapter, HUD requires reliance on the most
recent edition in force or superseding document. This also applies wherever sections, chapters, or
18
19
https://www.hudexchange.info/programs/environmental-review/
https://www.hudexchange.info/programs/environmental-review/housing/
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addenda of the standards or guidance are cited. The comparable sections, chapters, or addenda of the
most recent edition in force should be referenced and relied upon.
E. Requirements in this chapter may exceed those of many State agencies. One reason for this is HUD
may become the project owner if a mortgagor defaults on an FHA-insured project. Under Section 120(h)
of the Comprehensive Environmental Response and Liability Act (CERCLA), Federal agencies that own
properties are required to take “all remedial action necessary to protect human health and the
environment” with respect to known hazardous substances upon disposition of the property. This
requirement is beyond any liability releases under State or Federal law and any due diligence
requirements under CERCLA.
9.1.2
Project Description, Aggregation, and Extent of Review
A. A complete project description is necessary to determine the correct approach to an environmental
review.
The project description should capture the maximum anticipated scope of the activity. All physical
aspects of the project, such as plans for multiple phases of development, size and number of
buildings, size of parcel(s), and activities to be undertaken should be included in the description, as
well as details of the physical impacts of the project, including whether there will be ground
disturbance.
1. HUD must aggregate together related activities when determining what should be included as part of
the project. Where a multifamily parcel that secures the FHA mortgage is part of a larger site, the
project should be defined as the multifamily parcel plus the parts of the rest of the site that are directly
related to the multifamily development (access roads, parking, storm water detention systems, open
spaces, utilities, etc.). What gets defined as directly related is contextual; it depends on project
circumstances and may vary from project to project.20 Note that off-site improvements that may be
included as part of an aggregated environmental review are not to be considered for the purposes of
calculating Davis-Bacon wage rates.
For all projects, the environmental review can and often must extend beyond the defined project
boundaries in order to comply with the laws and authorities. The area of impact may differ based
on the individual 50.3(i) or 50.4 authority under review and the type of activity undertaken. For
example, an Area of Potential Effect considered under the National Historic Preservation Act can
extend beyond the boundaries of a project site, especially if a project is in a historic district.
Similarly, off-site endangered species may be impacted by the FHA action.
In most cases, the Lender is required to cover only the FHA collateral parcel for the Phase I
Environmental Site Assessment conducted under ASTM E1527-13. (This applies to ASTM E152713 in-scope items only). However, the Phase I Environmental Site Assessment must consider the
impact of contamination from offsite parcels on the collateral parcel. Remediation would be
required for non-collateral areas only to the extent the hazard could affect the health and safety
of occupants of the property securing the mortgage or conflict with the intended utilization of the
property and as per Section 9.4.7.
20 For examples, visit
https://www.hudexchange.info/programs/environmental-review/housing/#faq.
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2. Housing staff are considering an application for FHA mortgage insurance at a particular site and
therefore are limited to considering three alternatives: the action as proposed, modifications within
the aggregated project site, or no action, i.e., rejection of the application. This applies to the
Environmental Assessment, floodplain and wetland 8-step, and any other law and authority that
requires alternative analysis.
9.1.3
Levels of Environmental Review
A. All projects submitted under MAP require an environmental review. The level of environmental review
varies based on the HUD program and proposed activity.
B. Projects are categorized by activities into four levels of review under 24 CFR Part 50:
1. Categorically Excluded Not Subject to the laws and authorities at 50.4 (CENST)
2. Categorically Excluded Subject to the laws and authorities at 50.4. (CEST)
3. Environmental Assessment (EA)
4. Environmental Impact Statement (EIS)
C. In general, the level of environmental review does not directly correspond to the HUD program. For
example, a 221(d)(4) substantial rehabilitation project can be reviewed as CEST if below certain
thresholds, or as an EA if above those thresholds. The following discussion outlines level of review
determinations by HUD program and project specific activities.
1. Categorically Excluded Not Subject to Related Laws and Authorities (CENST): 223(a)(7). HUD
has determined programmatically that Section 223(a)(7) projects are categorically excluded, not
subject to the laws and authorities at 50.4 as per 24 CFR 50.19(b)(21) other than the flood insurance
requirements specified at 24 CFR 50.4(b)(1) and described at Section 9.6.6. 21 Compliance with MAP
radon requirements described at Section 9.6.3 is encouraged.
2. Categorically Excluded Not Subject to Related Laws and Authorities (CENST): 223(f) under
limited circumstances. The categorical exclusion at 24 CFR 50.19(b)(21) also applies to currently
HUD-insured Section 223(f) refinancing transactions that will not allow new construction or
rehabilitation, nor result in any physical impacts or changes except for maintenance. 22. HUD must
determine for each currently insured 223(f) whether the physical impacts meet the environmental
definition of the term "maintenance" and must document this in the description of the proposed
project in the project summary screen in HEROS.
For environmental review purposes, the term “maintenance” means an activity that slows or halts
deterioration of a building and does not materially add to its value or adapt it to new uses. A more
detailed explanation including examples is found in in “Guidance for Categorizing an Activity as
Maintenance for Compliance with HUD Environmental Regulations, 24 CFR Parts 50 and 58.”23
21 Unless
extraordinary circumstances require an EA or EIS as per 24 CFR 50.19(a).
extraordinary circumstances require an EA or EIS as per 24 CFR 50.19(a).
23 HUD Notice CPD 16-02: https://www.hudexchange.info/resource/3197/guidance-categorizing-activity-asmaintenance-environmental-regulations-24-cfr-parts-50-and-58/
22 Unless
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Note that this definition of maintenance is specifically for environmental review purposes. Please
see Chapter 5, Section 5.1 for definitions of alterations and repairs that apply for other program
purposes.
The flood insurance requirements specified at 24 CFR 50.4(b)(1) and MAP Guide Section 9.6.6 are
still applicable, as are the Lead Based Paint requirements discussed in Section 9.6.1. Compliance
with MAP radon requirements described at Section 9.6.3 is encouraged.
3. Categorically Excluded Subject to Related Laws and Authorities (CEST): 223(f). Pursuant to 24
CFR 50.20(a)(5), the purchase or refinance of housing or medical facilities under section 223(f) of the
National Housing Act is categorically excluded from NEPA but still subject to the laws and authorities
listed at 24 CFR 50.4.
Almost all 223(f) projects will be CEST, with two limited exceptions:
1) Currently HUD-insured Section 223(f) refinancing transactions that will not incorporate new
construction or rehabilitation, nor result in any physical impacts or changes except for
maintenance as discussed in Section 9.1.3; or
2) Extraordinary circumstances with the potential for a significant impact (see 24 CFR 50.20(a)
and (b)).
CEST projects must comply with all of the laws and authorities listed in Section 9.3.G.1. Projects
must also comply with the requirements related to Nuisances and Hazards in Section 9.6.19
unless otherwise noted in the guidance.
For 223(f) projects that include new construction of accessory structures or ancillary
improvements, the level of review remains the same as a traditional 223(f) refinance (CEST), but
because the project will include ground disturbance, there is a greater risk of environmental
impact. The project description must include the extent of the ground disturbance and the HEROS
review must consider the laws and authorities at 24 CFR 50.4 and Section 9.3.G.1 in the context
of new construction, including:
1) Consultation with federally recognized Tribes in addition to the State Historic Preservation
Officer (SHPO) under the National Historic Preservation Act.
2) Noise assessment and mitigation as required if the new construction is a noise sensitive use.
3) Above Ground Storage Tank requirements for new construction.
4) Airport clear zone requirements for new construction.
5) The 8-step analysis for construction in a floodplain or wetland.
6) Consideration of Endangered Species, Farmlands, Sole Source Aquifers, Wild and Scenic
Rivers, Coastal Zones and Air Quality.
4. Categorically Excluded Subject to Related Laws and Authorities (CEST): rehabilitation under
221(d)(4), 220, 231 and 241(a) under limited circumstances. Rehabilitation projects under the
221(d)(4), 220, 231 or 241(a) programs may also be reviewed as CEST if they are not considered
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substantial rehabilitation under HUD’s environmental regulations (see 24 CFR 50.20(a)(2)(ii)). 24
Note that for environmental review purposes, the term “substantial rehabilitation” refers to
rehabilitation that does not qualify as CEST in 24 CFR 50.20(a)(2)(ii). Please see Chapter 5 for a
definition of substantial rehabilitation that applies for FHA program purposes.
Projects that exceed the 50.20(a)(2)(ii) thresholds are considered substantial rehabilitation for
purposes of the environmental review and must complete an Environmental Assessment.
Projects at or below these thresholds may complete a CEST-level environmental review
documenting compliance with the related laws and authorities at 24 CFR 50.4 and Section 9.3.G.1
and the requirements related to Nuisances and Hazards in Section 9.6.19 unless otherwise noted
in the guidance.
In order to consider a CEST level environmental review for a rehabilitation project under the
221(d)(4), 220, 231 and 241(a) programs, Lenders must document and HUD staff must confirm
that the project meets the categorical exclusion threshold in the description of the proposed
project in the project summary screen in HEROS. In the absence of this documentation,
rehabilitation projects under these programs will require an Environmental Assessment level of
review.
5. Environmental Assessment (EA): All 221(d)(4), 220, 231 or 241(a) new construction projects and
rehabilitation projects that fall above the Part 50 definition of substantial rehabilitation as discussed
in Section 9.1.3. Environmental Assessments must include all of the laws and authorities listed at 24
CFR 50.4 and Section 9.3.G.1, Additional Nuisances and Hazards at Section 9.6.19 and the
Environmental Assessment requirements at Section 9.6.20.
6. Environmental Impact Statement (EIS): Projects over 2500 units, as discussed at 24 CFR 50.42(b).
Contact HUD staff immediately if the project is close to 2500 units.
7. The Section 213 Cooperative Housing Program follows Traditional Application Processing (TAP), not
MAP. Section 213 projects must follow environmental review thresholds as discussed in 24 CFR 50.20
and described in Section 9.1.3.B.4 And Section 9.1.3.B.5.
9.1.4
Local, State, Tribal or Federal Requirements
A. The acronym “LSTF” as used in this chapter refers to “local, state, tribal or Federal”.
B. In cases where local, state, or tribal laws, ordinances, codes or regulations are more restrictive than
Federal requirements, the Borrower must comply with the stricter local, state, or tribal standard unless
Federal law states otherwise. An Application for Firm Commitment does not relieve an owner of
responsibility for compliance with local, state, or tribal requirements.
C. HUD will not assume any responsibility with respect to inspection, enforcement, interpretation or
determination of compliance with such local, state, or tribal requirements.
24 Current regulations define
rehabilitation for multifamily residential buildings as CEST if unit density is not
changed more than 20%, the project does not involve changes in land use from residential to non-residential; and
estimated cost of rehabilitation is less than 75 percent of the total estimated replacement cost after rehabilitation.
Projects should refer to the latest CEST regulations.
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Chapter 9 Environmental Review and Requirements
9.2 Procedures
D. Where the project is located on a Native American reservation, the tribal authority may assume the
responsibilities of the state or local environmental protection agencies.
E. This chapter is not a substitute for requirements in the laws, regulations, and Executive Orders
regarding environmental analysis and mitigation.
9.2
9.2.1
Procedures
Lender Responsibilities and Limitations
A. The Lender must submit an environmental report to HUD using the HEROS system for all projects
submitted under MAP. The HEROS submission must follow the requirements as described in this chapter.
The failure to submit a complete environmental report, including applicable supporting documentation,
may cause delays in the environmental review process.
B. The Lender must identify any environmental issues to be resolved in the HEROS submission and in the
Lender Narrative, including a plan accompanied by a timeframe to resolve identified issues, cost estimates
and identification of those responsible for implementing the plan. To the extent possible, all
environmental issues should be resolved prior to submission of the application. HUD will not upload the
Lender Narrative to HEROS.
C. HUD environmental policy requires that there be a limitation of certain activities or actions by any
direct or indirect parties25 to the transaction from the time of pre-application (or application for straight
to Firm deals) until HUD has completed the environmental review process. Specifically, no action
concerning the proposal shall be taken prior to completion of the environmental review which could: (1)
have an adverse environmental impact, (2) limit the choice of reasonable alternatives, or (3) prejudice the
ultimate decision on the proposal. Activities that limit the choice of reasonable alternatives include an
action or commitment to repair, rehabilitate, construct, demolish or clear the site.
1. Certain actions are permitted prior to the completion of an environmental review, such as
development of plans or designs, or performance of other work necessary to support an application
for Federal, State or local permits. Planning activities include rezoning, platting or replatting. Site
studies and assessments that will not have an environmental impact include Phase I and Phase II
Environmental Site Assessments, wetlands delineations, and minimal associated soil borings. Ground
disturbing activities beyond minimal soil borings or minimal archaeological tests for site assessment
purposes are choice limiting actions and cannot be taken prior to completion of the environmental
review.
2. Existing multifamily residential properties may continue normal operations during the FHA
application process including leasing to new tenants, completing maintenance and repairs related to
unit turnover, and drawing from reserve for replacement accounts for regularly scheduled or
emergency repairs. Existing properties may not undergo critical or non-critical repairs that are
included as part of the FHA application for mortgage insurance prior to a completed environmental
review.
25 Direct or indirect parties
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9.2 Procedures
3. Other actions are strictly prohibited until an environmental review is completed, such as demolition,
modification of a wetland, or actions that adversely affect a historic property. Pursuant to the
“anticipatory demolition” requirements of Section 110(k) of the National Historic Preservation Act
(54 U.S.C. 306113), even before application submission takes place, any action by a potential Lender
or Borrower, or any action by another party that the Lender or Borrower has the legal power to
prevent, that is taken with the intent to avoid Section 106 review and that significantly adversely
affects a historic property, could result in rejection of an application.
4. If a project has received an encouragement letter or invitation letter after a concept meeting or
submission of a pre-application, respectively, and an application is not submitted for mortgage
insurance by the lender within the approved timeframes, or is submitted for mortgage insurance but
withdrawn by the lender prior to the issuance of a commitment to insure, then the project is no longer
federalized. If the project is resubmitted for mortgage insurance at a later date, then any
environmental compliance concerns noted by HUD during the project’s original concept meeting/preapplication/firm commitment application must be addressed at re-submission. The revised
application must describe any actions taken at the project site post HUD review that might have
adversely affected or otherwise threatened compliance with any originally noted environmental
concerns. These actions, if taken by the owner, may impact the acceptability of the project and may
result in rejection of the re-submission.
5. If any party is unsure as to whether an action would fall within such limitations it should seek advice
and possibly determination by HUD.
6. This section does not change the long-standing FHA prohibitions on any construction (other than
outlined in Section 9.2.1.C.1-2) after a concept meeting without HUD approval. The Lender must
instruct the Developer that modification of the site (e.g. grading, clearing, filling) after a concept
meeting is expressly prohibited.
7. These restrictions apply to early start of contractually-related construction activities discussed in
Chapter 12 and pre-endorsement improvements discussed in Chapter 5, Section 5.8.
9.2.2
HUD Responsibilities
A. In accordance with 24 CFR 50.32, HUD, not the Lender, is responsible for independently evaluating the
information supplied by the Lender in HEROS, supplementing that information as needed, and making the
required findings in HEROS as the environmental review record for the project. HUD will determine
whether the proposed project site is out of compliance with applicable laws, Executive Orders, or
regulations, would otherwise endanger residents’ health or safety, or would put FHA mortgage insurance
or the U.S. Government at financial risk or liability.
B. HUD staff shall promptly notify the Lender that HUD will take appropriate action to ensure that the
objectives and procedures of HUD environmental policy are achieved if it becomes aware that an action
subject to limitation as discussed in Section 9.2.1.C has taken place or may be about to take place.
C. Trained HUD staff must review the documentation submitted by the Lender and must make a site visit.
The site visit will help validate the information provided in the HEROS Environmental Report. HUD staff
should use the latest Multifamily Site Assessment Form to prepare for and document the site visit. HUD
staff will analyze each response, conduct consultation when required, supplement the Lender’s
documentation as needed, and make the required findings in HEROS. As part of its environmental review
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Chapter 9 Environmental Review and Requirements
9.2 Procedures
responsibilities, HUD may require additional environmental material from a Lender, such as a Phase II
Environmental Site Assessment or a Biological Evaluation, even when the Lender might not believe that
such additional environmental material is necessary.
D. HUD staff must certify the completed environmental review in HEROS as the preparer. The Approving
Official for the program must also certify the HEROS environmental review. 26
E. Regulations at 24 CFR 50.32 require that Environmental Assessment-level reviews for projects with
more than 200 units (or as specified at 24 CFR 50.32) be sent for review and comment to the Regional or
Field Environmental Officer (REO/FEO) in whose jurisdiction the project is located. The REO/FEO must
also review and comment on Environmental Assessment-level new construction projects or projects that
convert land uses to residential when noise is in the unacceptable noise zone (above 75 DNL (a weighted
day-night average sound level)). Neither requirement applies to categorically excluded projects.
F. The REO/FEOs are the regional experts on environmental review requirements and should be
consulted for technical assistance on complex environmental issues, such as:
1. projects in the normally unacceptable noise zone;
2. projects in a floodplain or wetland, particularly when the project uses the incidental exception
discussed in Section 9.6.5.F.1;
3. projects with an adverse effect on historic properties including archaeological resources;
4. projects with contamination issues; or
5. any other environmental issue that requires specialized knowledge or a mitigation plan to resolve
potential impacts.
6. REO/FEOs should also review special environmental conditions in the Firm Commitment, particularly
when they have given technical assistance on an issue.
G. Housing staff are strongly encouraged to consult with the REO/FEO (regardless of the number of units)
for CEST and EA projects that:
1. Are located on or adjacent to a designated Superfund Site or a Formerly Used Defense Site (FUD).
2. Have an unresolved contamination issue with the potential to affect the health and safety of
occupants. 27 For example:
An ASTM Phase I or Phase II Environmental Site Assessment (ESA) indicates a release or threat of
release of hazardous substances or petroleum products but does not identify a Recognized
Environmental Condition (REC), or
There is current or proposed remediation, mitigation or monitoring at the site; or
Issues are raised in the Phase I or Phase II ESA but not addressed in the mitigation plan.
3. Are located on or directly adjacent to a parcel with a floodway.
26 The Production Division Director is the Approving Official for
27 Not including
Multifamily Production.
Asbestos, Lead Based Paint or Radon.
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Chapter 9 Environmental Review and Requirements
9.2 Procedures
H. When Housing staff determine they should or must consult with the REO/FEO, they should do so at
the earliest possible time after receipt of the required information from the Lender. Housing staff should
also invite REO/FEOs to the concept meeting for new construction projects over 200 units or if there is a
complex environmental issue.
I. HUD will discuss any environmental conditions in the letter of invitation for Sections 221(d)(4), 220,
241(a) and 231. Any requirements that affect project design will be fully detailed. The Lender must
assure that any requirements affecting project design are conveyed to the design Architect for
incorporation into the contract drawings and specifications.
J. Housing staff shall ensure that all environmental conditions are identified, any required mitigation
plans are approved, and the environmental review in HEROS is completed and approved prior to issuance
of a Firm Commitment.
K. When environmental reviews reveal environmental conditions that require mitigation, HUD will
require an acceptable plan for mitigation prior to Firm Commitment and will condition the Firm
Commitment on completion.28 HUD will discuss the requirements for completion of mitigation in HEROS
on the Mitigation Measures and Conditions Screen. HUD staff will identify who is responsible for
implementing a special condition along with the associated timelines (e.g. by initial endorsement, final
endorsement, or ongoing by Asset Management). Mitigation plans must be detailed in the Firm
Commitment, Closing Agreement and other relevant documents.
L. HUD staff must update and record the completion of the environmental conditions in HEROS using the
Mitigation Follow-up Screen. Regional Production Division Directors will determine the appropriate staff
positions in each office to review and upload the mitigation resolutions after construction completion and
final endorsement. This screen appears only after an environmental review has been marked Completed
in HEROS. Note that HEROS will allow HUD to continue editing environmental reviews to document that
mitigation measures and conditions are fulfilled.
M. HUD shall distribute completed environmental reviews to those who have requested them. Additional
efforts for involving agencies, Tribes or the public shall be made when required by the implementing
procedures of the laws and authorities cited in 24 CFR 50.4. HUD staff shall also ‘archive’ HEROS reports
at the time the Multifamily office issues the Firm Commitment. This archive step posts the environmental
review record and all uploaded documentation online and makes it available to the public for one year.
9.2.3
Timing Considerations
A. Lenders are required to submit all the exhibits necessary to identify and resolve any environmental
issues with the Firm application submission via HEROS. For Lenders that use the pre-application process
for new construction or substantial rehabilitation proposals, HUD requires the environmental
documentation to be submitted via HEROS at pre-application. The purpose of completing HEROS at preapplication is to help make an early evaluation of any environmental issues so HUD can determine if all
environmental issues can be resolved or a plan for mitigation can be approved prior to issuance of the
Firm Commitment. The letter of invitation will condition the issuance of a Firm Commitment upon the
environmental review finding that there are no unresolved environmental concerns.
28 For examples of
acceptable conditions to the Firm visit
https://www.hudexchange.info/programs/environmental-review/housing/#faq.
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9.2 Procedures
B. Certain environmental issues cannot be resolved until the final plans and specifications have been
submitted, which may result in HUD finalizing the environmental review during the Firm application
rather than at pre-application.
C. Any environmental problems present at the site will require a discussion of impacts to human health
and appropriate mitigation measures. The Lender must provide mitigation plans for those environmental
problems, as discussed in Section 9.2.1.B.
D. The implementation of mitigation and remediation plans may, with HUD approval, commence prior to
initial endorsement or at commencement of and continuing throughout the construction period. HUD will
review the Lender’s plan and make it a condition of the Firm Commitment if HUD considers the plan
acceptable.
E. Lenders are strongly encouraged to request a HUD concept meeting to discuss all known and/or
suspected environmental issues and concerns, and HUD staff are strongly encouraged to invite REO/FEOs
to the concept meeting as discussed in Section 9.2.2.H.
9.2.4
Verifying Qualifications of Professionals
A. The Lender will generally select the professionals who prepare the HEROS Environmental Report, the
Phase I ESA, or any other environmental information required by HUD, and must verify that the
professionals used are qualified for their assigned responsibilities.
1. The Environmental Professional preparing the Phase I ESA must meet the qualification and
license/certification, education, or experience requirements of Appendix X2 of ASTM E1527-13.
2. When a Phase II study is conducted, the Phase II Assessor must meet the qualification requirements
in ASTM E1903-19.
3. Professionals may be required to evaluate technical areas, such as lead-based paint, asbestos, radon,
noise, wetlands, flooding, endangered species, historic preservation, soil stability conditions,
engineered fall distances, pipeline hazards, or other areas. Multiple subject matter experts or firms
with subject matter experts may be required.
9.2.5
Consulting with Regional or Satellite Offices
A. Lenders should consult early with Regional Multifamily program staff 29 on HUD environmental
requirements. Local conditions and interagency relations affecting environmental review requirements
differ from state to state and from field office to field office. For instance, coastal zone management
requirements are not applicable in most states, but in states where they are applicable, compliance
procedures differ. In some states, a letter from the state coastal zone management agency for projects in
the coastal zone is required but in others, alternative review procedures make this unnecessary. Some
states require special licensure of professionals evaluating asbestos, lead-based paint, radon, and soil
stability conditions.
29 For contact information, please
see
https://www.hud.gov/program_offices/housing/mfh/hsgmfbus/abouthubspcs.
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Chapter 9 Environmental Review and Requirements
9.3 HEROS Environmental Reports
HEROS Environmental Reports
A. The Lender must provide information in HEROS regarding compliance with NEPA, the laws and
authorities listed at 24 CFR 50.4, and the HUD-specific requirements described herein, as applicable, as
well as any issues that might affect the acceptability of the project, including any issues of compliance with
state environmental laws. The HEROS submission and uploaded documentation constitutes the
Environmental Report.
B. The HEROS submission must address each authority at the appropriate level based on the activity and
level of environmental review. In cases where the MAP Guide has requirements that go beyond what is
required in HEROS, Lenders and HUD staff must include MAP compliance on the appropriate HEROS
screen.
C. The Environmental Report must include and appropriately cite supporting documentation. Maps must
clearly identify the subject site(s). Failure to submit applicable supporting documentation may cause
delays in the environmental review process.
D. HUD will post its environmental review for one-year post-initial endorsement, including the ASTM
Phase I report and all other environmental documentation. These records may be found on the HUD
Exchange,30 a public-facing website, for one year after the review is posted.
E. Lenders and third parties will find information about registering for HEROS, HEROS training materials,
and HEROS Guidance for Multifamily FHA Partners at:
https://www.hudexchange.info/programs/environmental-review/housing/.
F. Section 9.4 and Section 9.6 of the MAP Guide provide background information on the laws and
authorities and Multifamily Housing specific requirements; more information, including where to find
maps and specific compliance steps, can be found on the HUD Exchange Environmental website31 and on
the Housing environmental website32. The MAP summaries do not substitute for the requirements in the
statutes, regulations, Executive Orders, and handbooks.
G. The following environmental issues must be addressed in HEROS, as applicable:
1. Laws and Authorities
9.4.
Contamination and Toxic Substances (and related Section 9.5 HUD Staff Responsibility in
Cases Requiring Remediation of Contamination and Toxic Substances).
9.6.1.1
Lead-Based Paint
9.6.1.2
Asbestos
9.6.1.3
Radon
9.6.1.4
Historic Preservation
9.6.1.5
Floodplain Management
30 https://www.hudexchange.info/programs/environmental-review/environmental-review-records/
31 https://www.hudexchange.info/programs/environmental-review/
32 https://www.hudexchange.info/programs/environmental-review/housing/
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Chapter 9 Environmental Review and Requirements
9.4 Contamination and Toxic Substances
9.6.1.6
Flood Insurance
9.6.1.7
Wetlands Protection
9.6.1.8
Noise Abatement and Control
9.6.1.9
Explosive and Flammable Hazards
9.6.1.10 Air Quality
9.6.1.11 Airport Hazards
9.6.1.12 Coastal Barrier Resource
9.6.1.13 Coastal Zone Management
9.6.1.14 Endangered Species
9.6.1.15 Farmlands Protection
9.6.1.16 Sole Source Aquifers
9.6.1.17 Wild and Scenic Rivers
9.6.1.18 Environmental Justice
2. Housing and EA Requirements
9.6.1.19 Additional Hazards and Nuisances
9.6.1.20 Environmental Assessment Factors
9.4
Contamination and Toxic Substances
A. The purpose of the requirements of this section is to identify manmade contamination on a site, other
than contamination from in-place building components such as asbestos containing materials (but see
Section 9.6.2) or lead-based paint (but see Section 9.6.1), and to ensure that any contamination so
identified is mitigated to the point where it would be unlikely to “affect the health and safety of occupants
or conflict with the intended utilization of the property” as stated in HUD-wide policy at 24 CFR 50.3(i)(1).
Laboratory analysis may reveal naturally occurring contaminants in the pathway vectors (air, water,
groundwater, soil or sediment) surrounding the proposed HUD-assisted project at levels that pose a
health or safety risk to sensitive receptors. Mitigation might be required depending on the intended use
of the proposed project, the direction, the transmissivity, the proximity and the use of the pathway vectors
with respect to the location of the proposed project. Specific requirements for radon are described in
Section 9.6.3.
B. Lenders are strongly encouraged to request a HUD concept meeting to discuss any potential
contamination issues. It is recommended that Lenders consult with HUD before preparing an ASTM
E1903-19 “Standard Practice for Environmental Site Assessments: Phase II Environmental Site
Assessment Process (Phase II ESA).”
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Chapter 9 Environmental Review and Requirements
9.4 Contamination and Toxic Substances
Phase I Environmental Site Assessment Requirements
A. Submission: The Lender must submit a complete and final Phase I ESA with the pre-application or, if
the pre-application stage is omitted, with the application for Firm Commitment as part of the HEROS
submission. A summary submission is not acceptable. The Lender must inform the ESA preparer of all of
the following Phase I ESA requirements:
1. Purpose: The Phase I ESA will make an initial determination as to the presence or likely presence of
“hazardous substances” as defined by CERCLA, and of petroleum and petroleum products. The Phase
I ESA can meet EPA’s All Appropriate Inquiry requirements for CERCLA liability protection for the
property owner.33 However, HUD’s purpose is to document compliance with 24 CFR 50.3(i), which
states HUD’s policy that all properties proposed for use in HUD programs be free of hazardous
materials, contamination, toxic chemicals and gases, and radioactive substances, where a hazard
could affect the health and safety of occupants or conflict with the intended utilization of the property.
This purpose must be described in the “Purpose” subsection to the required “Introduction” Section of
the Phase I ESA. To meet this purpose, in addition to the standard Phase I determination of whether
Recognized Environmental Conditions (RECs) have been identified in connection with the site, the
Evaluation section’s discussion of Findings, Opinions, and Conclusions must state whether further
investigation or corrective action is recommended to meet §50.3(i).
2. Format: The Phase I ESA must be prepared in accordance with the requirements of ASTM E1527-13
“Standard Practice for Environmental Site Assessments, Phase I Environmental Site Assessment
Process”. The Phase I ESA must utilize the table of contents and report format specified in Appendix
X4. The Phase I ESA must incorporate a vapor encroachment screen performed in accordance with
ASTM E2600-15. The Phase I must clearly indicate that HUD is an authorized user of the report. The
Phase I preparer must also be notified that HUD will post its HEROS environmental review online,
including documentation such as the Phase I ESA report, for one year following its completion.
3. Timing: The Phase I ESA must be conducted (meaning the earliest of the date of the site visit, records
review documents, or interviews) within one-year of the submission to HUD. HUD may require
updates or additional analysis in specific circumstances. A Phase I ESA that was conducted more than
180 days prior to the submission date to HUD, but within the allowable one-year period, must be
updated pursuant to Section 4.6 of ASTM E1527-13. A Phase I ESA prepared more than one year prior
to submission to HUD, even if updated within 180 days of being submitted, is not acceptable.
4. Preparer’s Qualifications: The Qualifications section of the Phase I ESA must describe the preparer’s
qualifications. The Environmental Professional preparing the Phase I ESA must meet all of the
qualification requirements of Appendix X2 of ASTM E1527-13.
5. Findings Section: The Findings section of the Phase I ESA must list all known or suspect Recognized
Environmental Conditions (REC), Controlled Recognized Environmental Conditions (CREC),
Historical Recognized Environmental Conditions (HREC) and de minimis conditions (such as minor
soil staining). The Findings section must also list Vapor Encroachment Conditions (VECs), likely VECs,
and circumstances in which VECs cannot be ruled out.
33 For more information on the
All Appropriate Inquiry Rule, please see
https://www.epa.gov/brownfields/brownfields-all-appropriate-inquiries.
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6. Opinions Section: The Opinions Section must discuss each finding from the Findings section and
whether it is a REC pursuant to Section 12.6 of ASTM E1527-13. The justification for any Finding
deemed not to be a REC must be included in the Opinions section. If the ESA preparer cannot make a
statement as to whether a condition is or is not a REC, the Opinion Section must state what
information or further investigation would be deemed necessary to make such a determination. The
ESA preparer must also identify any data gaps and state whether the data gaps are significant. When
previous remediation has been performed or is ongoing, i.e., not yet an HREC at the proposed site, the
Phase I ESA must fully discuss the extent of such remediation in this section of the Phase I ESA,
including any involvement of LSTF Authorities. The Phase I preparer must justify whether such
ongoing remediation should resolve any RECs or undecided issues identified in the ESA. Note that
even if the Environmental Professional preparing the Phase I ESA determines that a Finding does not
rise to the level of a REC, HUD may determine that the finding warrants Phase II investigation based
on HUD’s toxics policy at §50.3(i).
7. Conclusions Section: The Conclusions Section must make a determination of whether a REC,
including a CREC, exists on the site in accordance with one of the two quoted statements at Section
12.8 of ASTM E1527-13.
8. Evaluation Section: In addition to the standard Phase I determination of whether RECs have been
identified in connection with the site, the Evaluation section’s discussion of Findings and Conclusions
should state whether further investigation or corrective action is recommended to meet 24 CFR
50.3(i).
9. User Provided Information Section: The Borrower or the current property owner (if different from
the Borrower) shall complete the User Questionnaire(s) as per Appendix X3 of ASTM E1527-13, which
must be included in the “User Provided Information Section” of the Phase I ESA, and the preparer must
take into account any information provided in the preparation of the Phase I ESA.
10. Testing Not Required: The Phase I ESA does not require sampling and testing. A Phase II ESA or
remediation plan, if required, would include sampling and testing (see below). If a Phase II ESA had
been previously completed at the property, the Phase I must reference and discuss any prior Phase II
ESA performed in general accordance with ASTM E1903-19, including whether a condition is a REC.
11. Vapor Encroachment Screen: The Phase I ESA shall incorporate an initial vapor (a.k.a. gas)
encroachment screen following ASTM E 2600-15 to determine if there is a potential for vapors to
occur in the subsurface below existing and/or proposed on-site structures. Those hazardous
substances may be petroleum and petroleum products that consist of volatile organic compounds
(VOC), semi-volatile organic compounds (SVOC), and inorganic volatile compounds. The initial vapor
encroachment screen shall be performed using Tier 1 “non-invasive” screening pursuant to ASTM E
2600-15 “Standard Guide for Vapor Encroachment Screening on Property Involved in Real Estate
Transactions, Section 8". If the Tier 1 vapor encroachment screen determines that, as indicated in
ASTM E2600-15, Section 8.7.1, there is a “vapor encroachment condition” (VEC) which is the
“presence or likely presence” of such vapors in the subsurface below existing and/or proposed onsite structures, it must be reviewed under the Phase I ESA to determine if it is a REC as per the ASTM
E1527-13 standard. Vapor encroachment screen analyses must be included in their own section in
the report but also integrated into the findings, opinions and conclusions sections of the Phase I ESA.
12. Lead-based Paint (LBP) Chips: LBP chips that are not inside or part of a structure may be deemed
to be a hazardous substance. Therefore, if there is or was a structure on the site that was built prior
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to 1978, any evidence of paint chips not inside or part of any current structures must be discussed in
the “Site Reconnaissance” section of the Phase I ESA, must be listed in the Findings Section, and must
be discussed further as to whether the paint chips are either a REC or a de minimis condition in the
Opinions section.
13. Underground Storage Tanks (UST) containing hazardous waste or petroleum products: The
Phase I ESA must identify onsite USTs containing, or previously containing, hazardous waste or
petroleum products. For tanks regulated by the state, the Phase I must document that the UST is in
compliance with state regulations, including confirmation of tank integrity. For tanks not regulated
by the state, HUD will require an integrity test and an O&M plan as discussed in Section 9.4.13. These
requirements do not apply to propane USTs.
14. Previous Remediation: When previous remediation has been performed, or remediation is currently
taking place, the Phase I ESA must fully document such remediation, including any involvement from
LSTF Authorities, No Further Action letters as discussed at Section 9.4.5.D.3, and narrative
descriptions of any on-going remediation work and monitoring. The Phase I ESA must discuss
whether the previous or ongoing remediation is consistent with current applicable LSTF standards.
15. Evaluation of the ESA: The Phase I ESA will be evaluated by HUD to determine if the property is
acceptable for the hazards reviewed. HUD may require additional information, or a Phase II ESA based
on findings that indicate an unacceptable risk under HUD’s toxics policy at §50.3(i), or an
unacceptable business risk. Any Phase I ESA that identifies a REC will require a Phase II ESA, unless
it can be determined from the Phase I ESA that corrective action is not feasible. If no corrective action
is feasible, HUD may reject the property.
9.4.2
Phase II Environmental Site Assessment Requirements
A. Purpose: The purpose of the Phase II ESA is to determine if the RECs or risks related to HUD’s toxics
policy identified in the Phase I ESA have resulted in the presence of hazardous substances or petroleum
products that exceed unrestricted use criteria. The Phase II ESA must be prepared in accordance with the
ASTM E1903-19, “Standard Practice for Environmental Site Assessments: Phase II Environmental Site
Assessment Process.” The Phase II ESA need not necessarily be a complete site characterization (total
nature and distribution) of contamination, but must proceed to a point where it indicates the location of
greatest concentration and risk, taking into consideration all of the Recognized Environmental Conditions
(RECs) identified in the Phase I ESA or other hazards that affect the health and safety or occupants or
conflict with the intended utilization of the property. A Limited Phase II ESA or a Limited Site Assessment
is acceptable if it meets the requirements outlined above.
B. Timing: The Phase II ESA shall be submitted with the pre-application or, if the pre-application stage is
omitted, with the application for Firm Commitment. It is recommended that Lenders consult with HUD
before preparing a Phase II ESA.
C. When Required: A Phase II ESA is required if:
1. The Phase I ESA indicates that there is a REC; or
2. HUD requires a Phase II ESA for reasons that are described to the Lender, including that the Phase I
indicates an unacceptable risk under HUD’s toxics policy at §50.3(i).
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D. Exception to Submission Requirement: If it is obvious that remediation will be required, with HUD’s
approval the Phase II ESA may be incorporated within the “site characterization” segment of the
remediation plan referenced in Section 9.4.3.B.1.
E. Standards to Use: The Phase II ESA shall be performed pursuant to the logic model of ASTM E190319, Section 7, including developing the conceptual model and validation.
F. Report Format: The Phase II ESA must be prepared in accordance with the requirements of ASTM
E1903-19 using the table of contents and report format specified in Appendix X3.2 as amended by X3.3.
Some of the steps that a Phase II assessor might perform may be intuitive in nature, but they nevertheless
must be documented in the report to demonstrate its scientific validity.
G. HREC: If the Phase I ESA indicates that there is a HREC, as described in ASTM E1527-13, i.e., a hazard
has been remedied and an LSTF Authority has issued a No Further Action (NFA) letter or similar approval
and, as consistent with current applicable LSTF standards, HUD may either deem the NFA as completion
of the remediation or it may require a Phase II ESA and/or further remediation. Any ongoing
commitments associated with operation, maintenance and monitoring must be incorporated as a
condition of the Firm Commitment.
H. Vapor Encroachment/Vapor Intrusion: If it is determined that there is a potential for vapors to occur
in the subsurface below existing and/or proposed on-site structures, the Phase II ESA shall include either
a Tier 2 vapor encroachment screen (per ASTM E2600-15, Section 9), a vapor intrusion assessment (VIA)
pursuant to LSTF policy and/or procedure (as discussed in ASTM E2600-15, Appendix X7.1), or go directly
to a Tier 4 “mitigation” (per ASTM E2600-15, Appendix X7).
1. If a Tier 2 screen was performed and it determined that a VEC exists, either a vapor intrusion
assessment (VIA) pursuant to LSTF policy and/or procedure or a Tier 4 “mitigation” (per ASTM
E2600-15, Appendix X7) is required.
2. If a VIA was performed, any mitigation (or remediation) deemed necessary must follow LSTF policy
and/or procedure or go through a Tier 4 “mitigation” as per ASTM E2600-15, Appendix X7.
I. Phase II Conclusion: The Phase II ESA must conclude that:
1. There are hazardous substances as defined by CERCLA, and/or petroleum products and/or other
hazards that HUD considers an environmental risk under §50.3(i) at levels that exceed LSTF
unrestricted criteria and list any chemicals so found, or
2. No hazardous substances, petroleum or petroleum products or environmental risks under §50.3(i)
have been identified above LSTF unrestricted criteria.
J. Off-site contamination conclusion: The Phase II ESA must indicate whether there is a risk of off-site
contamination migrating on to the proposed site, including if:
1. There is no known or perceived off-site contamination in the vicinity of the proposed site,
It is unlikely that any known or perceived off-site contamination will migrate on to the site, or
2. It is likely that known or perceived off-site contamination will migrate on to the site.
K. Description of Remediation: If there is off-site contamination, the preparer must describe the
remediation underway for the off-site contamination and whether the remediation has effectively brought
migration under control.
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L. Conformance to LSTF Requirements: The Phase II ESA written report must describe how it conforms
to any applicable LSTF requirements and must include a detailed, common language summary.
M. Exception of requirement for Phase II preparation and submission for ongoing remediation: A
Phase II ESA is not required when remediation is ongoing to the point of not yet being an HREC (see
Section 9.4.1.A.5, above), if the Phase I ESA preparer states that such remediation should resolve any RECs
and undecided Phase I ESA issues, (see Section 9.4.1.A.6, above), and if the remediation plan preparer
indicates that all of the Phase II ESA requirements have been met. However, an NFA or similar from the
LSTF authority must be submitted to HUD as per Section 9.4.3 and Section9.4.4 or Section 9.4.5.
9.4.3
Remediation Response Planning
A. Remediation plans are required if the Phase II ESA concludes that hazardous waste or petroleum
products are present at levels that exceed LSTF unrestricted (de minimis) criteria, and/or that it is likely
that known or expected off-site contamination will migrate on to the site.
B. The following requirements apply to all remediation plans:
1. A site characterization must be prepared.
Anytime a site has been identified from a Phase I or Phase II ESA as having contamination (or
contamination exposure pathways), be it vapor (gas), liquid, solid, dissolved, or non-aqueous
phase liquid (NAPL) above LSTF residential/unrestricted criteria, a site characterization
(sometimes known as a special site assessment report, a remedial investigation report, a detailed
Phase II ESA, or a Phase III ESA) must be prepared as the initial step of any remediation plan.
It must determine the total nature and distribution of such contamination, exposure pathways,
and potential receptors (a.k.a., a conceptual site model). However, if the remediation plan
preparer determines that the Phase II ESA preparer has already determined the nature and
distribution of such contamination, exposure pathways and potential receptors, then such
determination shall be so indicated, and the Phase II ESA shall be made a part of the remediation
plan.
It must be based on LSTF requirements, or on the appropriate combination of ASTM Practices and
Guides, as determined by the remediator’s environmental investigator.
2. Any remediation studies and plans must be in the form of a report which includes a detailed, common
language summary.
3. The remediation plan preparer’s qualifications must be discussed in any remediation reports.
4. The remediation plan must cover all relevant contaminant phases: vapor (gas), liquid, solid, dissolved,
and NAPL.
5. The remediation plan must require either the removal of contamination to LSTF unrestricted criteria
pursuant to Section 9.4.4 or incomplete removal of contamination to restricted residential levels in
the form of a Risk-Based Corrective Action or other accepted cleanup program pursuant to Section
9.4.5.
6. Any remediation studies and plans must be submitted to HUD with the pre-application or, if the preapplication stage is omitted, with the application for Firm Commitment. Evidence of approval of the
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remediation plan by the LSTF authority must be submitted with the Application for Firm
Commitment. For Lenders using the pre-application process, HUD will review remediation plans
before an invitation letter is issued.
7. HUD may require that the project implement the remediation plan, including completing clearance
testing and obtaining No Further Action letters from the LSTF, prior to HUD issuing the Firm
Commitment. In these cases, the remediation work cannot take place until HUD completes the HEROS
review and approves an early start as per Chapter 12 or pre-endorsement improvements as per
Chapter 5, Section 5.8.
8. If the extent and cost of removing the contamination can be definitively determined, and the cost of
removing that contamination can be specified pursuant to a contract for remediation (see Section 9.5),
HUD may allow a remediation plan that has been approved by the LSTF authority as long as:
It permits the remediation including site testing, any clearance and closure documents, and the
approval by the LSTF, prior to Initial Endorsement (as long as HEROS is complete and HUD has
approved an early start as per Chapter 12), or
If the Lender can show why it would be impractical to complete remediation prior to Initial
Endorsement, it permits the remediation including site testing, any clearance and closure
documents, and the approval by the LSTF, prior to Final Endorsement and initial occupancy.
9. All residents living regularly and construction workers working regularly on site while remediation
is taking place shall be informed of the remediation activities and protected from any potential
contamination. This requirement must be a part of the remediation plan.
10. Unless HUD determines otherwise, the remediation contract shall require cost cap and reopener
insurance coverages, copies of which are to be included in the remediation plan.
11. If remediation is taking place or has been completed but has yet to receive approval by the LSTF at
the time of submission of the Phase I ESA, the remediation plan and all remediation studies shall be
submitted, along with a detailed common language summary, at the same time as the Phase I ESA.
9.4.4
Remediation Plans with Complete Removal of
Contamination
A. Except for situations where Section 9.4.5 (Remediation Plans with Incomplete Removal of
Contamination) applies, the Lender must submit a remediation plan designed to bring the contamination
identified by a complete site characterization per Section 9.4.3.B.1 to LSTF unrestricted criteria levels,
with no ongoing active or passive remediation. There must not be any need for engineering controls,
institutional controls, or monitoring wells.
B. All of the requirements for Section 9.4.3 must be met.
C. A remediation plan that involves control of off-site contamination per Section 9.4.7 and/or Tier 4 vapor
encroachment mitigation per Section 9.4.2.B.10 is not permitted under this section but may be allowed
under Section 9.4.5.
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9.4 Contamination and Toxic Substances
Remediation Plans with Incomplete Removal of
Contamination
A. If the LSTF authority determines that remediation to LSTF unrestricted criteria levels is infeasible,
HUD may accept a Risk Based Corrective Action (RBCA) or other accepted remediation plan approved by
the LSTF authority that allows for incomplete removal to LSTF restricted residential criteria levels.
B. Justification for incomplete removal of contamination must be submitted along with the remediation
plan and must include documentation that shows that the cost of the incomplete removal of
contamination, including any life cycle costs for Operation and Maintenance and any applicable
enforcement requirements of LSTF authorities, are sufficiently below the costs of complete contamination
removal, per Section 9.4.4 above.
C. The RBCA or other accepted cleanup program report(s) must:
1. Meet all of the requirements of Section 9.4.3;
2. Discuss how the remediation plan complies with the regulatory procedures as discussed in Section
9.4.5.B, above;
3. Discuss how it meets or will meet all of the requirements of Section 9.4.5.D; and
4. Discuss how it meets or will meet all of the requirements of Section 9.4.6 through Section 9.4.10 (plus
Section 9.4.11 through Section 9.4.13 if applicable).
D. The RBCA or other accepted cleanup program must be supported by the applicable combination of:
1. Engineering and Institutional Controls (EC/IC): An Engineering Control is a physical measure that
reduces or eliminates exposure to contamination. An Institutional Control is a non-engineered
instrument, such as administrative and legal control. ICs typically limit land and/or resource use or
provide information that helps modify or guide human behavior at a site. An appropriate mix of ECs
such as capping and slurry walls, and ICs such as protective covenants, access restrictions and tenant
and employee notification, are usually required for all RBCAs or other accepted cleanup program as
approved by the LSTF authority.34 EC/IC may include:
Hard/Soft Cap Engineering Control: A hard cap EC, such as concrete, generally is required if any
contamination will remain on the site after Final Endorsement. Unless the Lender can justify why
a lesser depth to contamination would be protective of the health and safety of occupants, the
depth of any remaining contamination should be greater than the deepest of the following:
1) the depth of the foundations of any existing or proposed structures including sumps;
2) the depth of any existing or proposed utilities on site; or
3) five feet below the surface.
HUD may allow for a soft cap (e.g. dirt) if other engineering controls such as an impenetrable
geotextile fabric are included. If EC is not required for a soft cap, IC is still required.
34 Additional information about
IC and ECs can be found on EPA’s website at
https://www.epa.gov/superfund/superfund-institutional-controls-guidance-and-policy and
https://www.epa.gov/sites/production/files/2015-09/documents/ec_information_guide.pdf.
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Slurry Wall or Equivalent Engineering Control: A slurry wall or equivalent type EC may be
required to prevent offsite contamination from migrating onsite or to prevent onsite
contamination from migrating onsite or offsite. If the Phase I and/or Phase II ESA determines that
the likely existence of off-site contamination presents a risk to the site, such a slurry wall or
equivalent type EC will be required.
Monitored Natural Attenuation and Enhanced Passive Remediation (MNA/EPR): MNA/EPR
such as by bio-augmentation where no additional active input is required and passive engineering
controls such as a slurry wall may be allowed as part of the RBCA. In such cases, the LSTF
authority must issue a conditional No Further Action Letter or similar approval. Monitoring wells
pursuant to the above RBCAs and meeting the requirements of Section 9.4.6 will be required to
monitor the progress of the remediation. When MNA/EPR is part of the RBCA or other accepted
cleanup program, the remediation may continue beyond Final Endorsement provided that the
LSTF authority has determined in writing that such undertakings would present no threat to
health, safety or the environment.
Vapor Encroachment/Vapor Intrusion Mitigation: If a VEC is present, as per an ASTM E260015 Tier 1 Vapor Encroachment Screen, then mitigation as discussed in ASTM E2600-15, Appendix
X7 is required, unless a vapor intrusion assessment (VIA) has been, or will be, performed pursuant
to LSTF policy and/or procedure. When remediation goes directly from a Tier 1 screen or a Tier
2 screen, such controls shall, where feasible, consist of a poured-on vapor barrier to be used in
conjunction with active and passive venting systems.
IC regarding groundwater contamination, if applicable, must be put in place.
HUD may require ICs beyond LSTF requirements in order to support the ECs and ensure
protection of the residents throughout the term of the mortgage.
2. Operations and Maintenance (O&M) Plans: Any time there is an EC there must be an O&M plan.
The O&M plan must be approved by the LSTF authority and must discuss any associated enforcement
required by LSTF authorities. An O&M plan must be in place for management of all contamination
remaining on the site and any controls thereof. If HUD determines that the mortgagor does not have
sufficient capacity to manage the O&M plan, the mortgagor must contract an appropriate servicer to
do so. The O&M Plan must ensure maintenance of any engineering controls and assign responsibility
for that maintenance. (See Section 9.5 for guidance on cost determination.)
3. No Further Action Letter (NFA): The LSTF authority must issue an NFA, or similar approval, except
that a conditional NFA may be allowed pursuant to MNA/EPR (see Section 9.4.5.D.1.c). 35 The LSTF
authority must indicate in the NFA that the remediation that has taken place or will take place protects
the health and safety of occupants and does not conflict with the intended utilization of the property.
Usually, this will be satisfied by a statement that the remediation meets LSTF residential use
standards. The NFA must be submitted to HUD pursuant to the timeline required by Section 9.4.3.B.7
and Section 9.4.3.B.8.
4. Groundwater Requirement: A site is or will be otherwise acceptable if contamination exists in the
groundwater after completion of remediation, if:
35 For a
list of state approvals that meet MAP requirements, visit
https://www.hudexchange.info/programs/environmental-review/housing/#faq.
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IC regarding the groundwater is/will be put in place, along with approval by the LSTF authority,
and any applicable enforcement requirements of LSTF authorities. The ICs must prohibit any and
all uses of the groundwater. Municipal restrictions on groundwater may substitute for LSTF
approval if the restrictions are included as an IC on the property deed and requirements of Section
9.4.5.D.2.b and Section 9.4.5.D.2.c are met;
The highest anticipated levels of groundwater based on high groundwater and/or 100 year
flooding events are below the levels of any construction or potentially anticipated utility work
unless it can be shown how such high groundwater levels will not modify the horizontal and
vertical extent of contamination to such a degree that it could affect the health and safety of
residents and workers; and
Any vapors from groundwater and/or soils are shown not to present a significant risk pursuant
to Tier 1 vapor encroachment assessment, Tier 2 vapor encroachment assessment, vapor
intrusion assessment, or mitigation.
5. Safety of and Disclosure to Residents and Workers: Any time contamination above LSTF
unrestricted criteria is allowed to remain on site after initial occupancy and final closing, all
maintenance workers who might perform activities that could compromise the EC/IC, construction
workers, and building residents, etc. are to be informed of the general type and extent of
contamination and the protective measures that have been taken. It would be up to residents to
inform any of their visitors/guests of these conditions.
6. Hazardous Substance Quantification: If any RBCA or other accepted program remediation plan
identifies hazardous substances (listed in 40 CFR 302.4) that will remain on the property after Final
Endorsement, such plan shall determine the quantity of such hazardous substances and whether it
equals or exceeds the levels indicated at 40 CFR 373.2(b). (This is information that HUD is required
to report under CERCLA in the event that HUD will own the property or take over its management.)
9.4.6
Monitoring Wells, Flushing Wells, and Testing Wells
9.4.6.1
General Requirements
A. The presence of a testing or monitoring well on the property does not bar the property from
consideration for mortgage insurance. If a monitoring well is required to confirm that contaminants have
been removed to intended levels or that an MNA/EPR is working properly, EC/IC will be required until
such time as contaminants are reduced to LSTF criteria and a Final NFA letter is issued.
9.4.6.2
Monitoring Well Protocols
A. Monitoring protocols must be specified in the RBCA or other accepted program report, and monitoring
must proceed until contaminants have been removed to intended levels or passive MNA/EPR is working
properly.
9.4.6.3
Monitoring Wells for Off-site Contamination
A. If a monitoring well is required to determine if existing or assumed off-site contamination has migrated
or might migrate on-site, the site is generally not acceptable unless associated EC/IC are put in place
pursuant to a RBCA or other accepted program, or unless the LSTF authority provides a statement that
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such off-site contamination would not present a risk to the health of the project’s occupants if it were to
migrate on-site.
9.4.6.4
Flushing Wells
A. In no case may Final Endorsement/initial occupancy take place when a flushing well is in operation or
will be required.
9.4.6.5
Testing or Monitoring Wells Ordered by LSTF
A. A testing or monitoring well may also be placed on the property by order of the LSTF to test or monitor
contamination on the site or from a neighboring site. If a monitoring well would be required or exists
solely to monitor the general health of an aquifer used as a water supply or potential water supply, but
not in relation to an existing or potentially hazardous condition, this is not a bar to environmental
approval. However, the Lender must notify HUD if there is any current or intended placement of a
monitoring or testing well.
9.4.6.6
Non-operating Wells
A. Non-operating wells are not a bar to environmental approval but must be capped over and closed out
pursuant to the appropriate LSTF authority.
9.4.7
Off-Site Contamination
A. If the Phase I and/or Phase II ESA determine that the existence of off-site contamination presents a
risk to the site or the residents of the project and the Sponsor has no control over the off-site locations of
the contamination, the site is not acceptable unless such off-site contamination is subject to a RBCA or
other accepted program meeting all of the requirements of Section 9.4.3 and Section 9.4.5.
9.4.8
Escrow
A. Any monitoring wells and engineering controls, such as caps or slurry walls, may warrant an escrow
account to be established by the Lender at Initial Endorsement to offset the cost of any ongoing
maintenance. See Section 9.5.3. for further discussion.
9.4.9
Waivers
A. If a Regional Office intends to waive any of the requirements in this Section 9.4 that are not regulatory
in nature, the advice of the Departmental and/or Housing Environmental Officer, or the applicable
REO/FEO in whose district the project is located, should be obtained before the waiver is granted to
ensure that such waiver is in compliance with the environmental requirements of 24 CFR 50.3(i).
9.4.10
LSTF Approvals and Reviews
A. The LSTF must have jurisdiction over the project. EPA has jurisdiction over most Superfund sites (see
Section 9.4.11), but not sites that are solely on federal facility property, such as the Department of Defense.
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The U.S. Army Corps of Engineers has jurisdiction over most Formerly Used Defense Sites. A project may
need clearance from multiple LSTF authorities.
B. Any approvals by an LSTF authority must be given directly by that authority and may not be given by
a third party approved by that authority to act in lieu of the authority itself. Approvals by local authorities
are only acceptable when such authority is acting under delegation from the State.
9.4.11
Superfund Sites
A. A site located on an existing or proposed Superfund site requires consultation with EPA. Sites adjacent
or proximate to a Superfund site may require consultation with EPA to confirm that the contamination
will not impact the HUD site.
9.4.11.1
Superfund National Priority List (NPL) Sites
A. The first step is to determine the extent to which EPA has completed a site characterization at the NPL
site.36
1. In some cases EPA has conducted a remedial investigation or other characterization work that allows
for an assessment of the area that includes the property of HUD interest, and EPA’s site
characterization work may be so detailed and thorough that it can substitute for MAP requirements
regarding an ASTM Phase II and/or a site characterization report. HUD would make the
determination on the adequacy of available information to substitute for MAP requirements in
conjunction with EPA and relevant state regulatory agencies.
2. In other cases EPA has conducted a remedial investigation or other characterization work at the site
that shows the NPL site related contamination does not extend to the property that HUD may want to
support. Examples include ground water at depth with no potential for vapor intrusion at levels of
concern, or a very large site with uncontaminated areas within the boundary of the overall site.
3. Sometimes EPA has not yet completed a remedial investigation or other site characterization work
for the area that includes the property of HUD interest. Generally, this will include sites that are newly
listed to the NPL or very large sites. These sites generally undergo at least some characterization to
ensure that there are no unacceptable risks that require immediate action.
B. Projects on existing or proposed NPL sites need written documentation from EPA (and sometimes also
from the relevant LSTF authority) that the project is suitable for residential use. This written
documentation can take four forms:
1. Where EPA has deleted the site from the NPL and published a deletion notice in the Federal Register.
Because a site could be deleted from the NPL for a planned nonresidential use, HUD must confirm that
the site is suitable for residential use.
2. Where EPA has issued a Site Wide Ready for Anticipated Use (SWRAU) status for the site. This
indicates that the entire site is safe for the intended use and institutional and engineering controls are
36 Information about
proposed NPL sites, NPL sites, and deleted NPL Sites, including maps and EPA contact
information can be found at https://www.epa.gov/superfund/superfund-national-priorities-list-npl.
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9.4 Contamination and Toxic Substances
in place.37 Because a site could achieve SWRAU status for a planned nonresidential use, HUD must
confirm that the SWRAU is for residential use.
3. Where EPA has issued a Ready for Reuse (RfR) Determination for the site. The RfR determination can
apply to all of the site or to a part of the site where clean up or EC/IC has been implemented. HUD
must consult with EPA to determine if the RfR determination applies to the proposed project site and
that cleanup is to residential standards.
4. Where a site has not yet reached SWRAU or RfR status. In this case, HUD will need written
documentation from EPA that an NPL site is suitable for residential use.
9.4.11.2
Superfund Sites Not on the NPL
A. Superfund sites that are not on the NPL will only be acceptable if the site is cleaned up to residential
levels and HUD receives written documentation from EPA that the site is suitable for residential use.
9.4.11.3
EC/IC Put in Place by EPA
A. HUD must incorporate any EC/IC put in place by EPA into its environmental conditions and subsequent
program commitments. HUD may impose additional ICs to ensure long term safety at the site. HUD must
conduct its own due diligence at Superfund sites and may determine that the property is unacceptable for
FHA mortgage insurance or other HUD assistance.
9.4.12
Unacceptable Sites
A. A site over a former solid waste or hazardous waste landfill/dump site is not acceptable for
development unless the hazardous substances, petroleum, and petroleum products are completely
removed or remediated to restricted residential standards and the LSTF with management authority over
the site gives written approval of the site for residential usage.
9.4.13
Underground Storage Tanks Not Regulated by the LSTF
A. For Underground Storage Tanks (USTs) containing, or previously containing, hazardous waste or
petroleum products not regulated by the LSTF, HUD will require an integrity test and an O&M plan.38 The
UST and its service lines must pass an integrity test before HUD completes the environmental review. In
addition, an O&M plan must include periodic testing of the tank and its service lines, as well as repair,
maintenance and emergency response procedures. These requirements do not apply to propane USTs.
37 The list of sites that have
achieved SWRAU status can be found at https://www.epa.gov/superfundredevelopment-initiative/sitewide-ready-anticipated-use-swrau-superfund-sites.
38 Guidance available at https://www.hudexchange.info/programs/environmental-review/housing/#faq.
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Chapter 9 Environmental Review and Requirements
9.5 HUD Responsibilities when Projects Require Remediation
HUD Responsibilities when Projects Require
Remediation
General Responsibilities
A. The Department assumes greater risk any time a Firm Commitment is issued on a contaminated site,
which risk is even greater when a loan is on a site where complete removal of contamination is not
possible, requiring monitoring possibly with continuous remediation techniques such as MNA/EPR.
Therefore, HUD staff must exercise great care in the review process to assure that all reasonable measures
are taken to mitigate HUD’s risk exposure and that an accurate determination is made of any remediation
costs that are included in the HUD-insured mortgage. Any special site assessment reports, Phase II or
Phase III ESAs should be reviewed so that the extent of the contamination is fully understood. Although
the Lender is responsible for assuring that environmental remediation contractors are qualified and
experienced, field staff must still review references and qualifications and are strongly encouraged to
consult with an REO/FEO at the start of any remediation discussion.
9.5.2
Projects with Complete Removal of Site Contamination
9.5.2.1
Technical Reviews
A. Trained Underwriting or Technical staff (often an Appraiser) is responsible for the review of all
environmental documentation and for completing the environmental review in HEROS, which may be
supplemented as needed to document the review and HUD’s conclusions as to the adequacy of the
proposed remediation plan.
B. Any estimates of value or rents should be made as if the project is unaffected by contamination and
conditioned on successful removal. The appraisal must address any effect of marketability that may be
present due to the prior environmental history.
9.5.2.2
Architecture/Engineering and Cost
A. A construction analyst should review the cost estimate of the remediation plan to determine whether
it is reasonable and if the remediation and removal contractor is appropriately bonded and qualified. Cost
data for remediation is not as plentiful as with more routine construction tasks. The HUD construction
analyst may consult with local environmental remediation professionals about costs for similar work.
9.5.2.3
Mortgage Credit
A. The HUD Underwriter shall determine escrow, performance and bond payment requirements. The
cost of the mitigation work based upon the estimated cost from the contractor may be included in the
insured loan. The amount of the escrow or bond shall be at least 150% of the total of the estimated cost
of the mitigation work. The cash requirements for the escrow or bond, and the Lender and Mortgage
Credits procedures for administering the escrow, shall be in accordance with existing closing instructions
in the Chapter 19 of the MAP Guide. Higher escrow or bonding requirements will be necessary if
Multifamily Regional staff and/or the REO/FEO determine that there is a greater than average risk that
unforeseen problems may arise, resulting in increased cost based on previous experience with similar
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Chapter 9 Environmental Review and Requirements
9.5 HUD Responsibilities when Projects Require Remediation
work and/or research through local environmental remediation contractors about their experience in
containing the cost within their stated estimate.
9.5.3
Projects with Incomplete Removal of Site
Contamination
A. HUD staff should follow the guidance in Section 9.5.2 regarding initial removal or mitigation costs.
B. HUD staff must assure that the cost of any requirement for continuous monitoring and/or mitigation
is accommodated. An escrow account established by the Lender at Endorsement may be the most
appropriate choice. This may also be accomplished by including the cost in Section E of the form HUD92264 under “Other Maintenance” and would include fees charged by service providers who are engaged
to perform monitoring. If an expense is for actual or anticipated replacement of a component such as a
pump, it should be included in the Reserves for Replacement. The basis for the expense or additional
replacement reserve will be obtained from a qualified engineer and/or contractor.
The
engineer/contractor’s estimate should be sufficiently detailed and supported to allow review by the
construction analyst as well as the appraiser.
C.
Any effect on project marketability, value or rents due to the need for continuous
monitoring/mitigation must be quantified and discussed in the appraisal.
9.5.4
Insurance and Guarantee Requirements
A. Borrowers are required to obtain separate insurance for environmental hazards from an insurer
acceptable to HUD if remediation work will be done on the site during the insured loan period, if the
coverage is available. Environmental hazard insurance typically covers liability (including occurrence
coverage for harm that manifests itself during or after the remediation work) and cost of completion.
B. The environmental remediation contractor will almost always be different from the project's General
Contractor. Aside from the contractor qualifications, licensure and bonding that are addressed above, the
remediation contractor must provide HUD a separate guarantee of completion for their work on a form
prescribed by HUD.
9.5.5
Management, Coordination, and Communication
A. The Department assumes greater risk in cases involving environmental mitigation that will occur after
Initial Endorsement especially when mortgage proceeds are used to fund the cost of remediation. Extra
attention must be given to the need for frequent communication, preferably with written documentation,
between disciplines that are coordinated by branch chiefs and regional production division directors
relating to levels of contamination, cost estimates and the certainty of the effectiveness of mitigation.
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Chapter 9 Environmental Review and Requirements
9.6 Environmental Laws and Authorities
Environmental Laws and Authorities
Lead-Based Paint (24 CFR Part 35.115(a))
A. Lead-based paint requirements are applicable to multifamily housing constructed before 1978, in
accordance with 24 CFR Part 35.
B. There are three exceptions:
1. The project is proposed for demolition, provided the property will remain unoccupied until
demolition.
2. The housing is designated exclusively for the elderly or persons with disabilities, unless a child of less
than 6 years of age resides or is expected to reside there.
3. The housing is zero-bedroom dwelling units, unless a child of less than 6 years of age resides or is
expected to reside there.
4. The property that has been found to be free of lead-based paint by a certified lead-based paint
inspector.
5. The property where all lead-based paint has been identified, removed, and clearance has been
achieved.
C. There is one exemption: 223(a)(7) transactions do not require an appraisal and are therefore exempt
from lead-based paint requirements.
D. HUD regulations regarding lead-based paint are found at 24 CFR Part 35, copies of which, along with
guidance materials, may be downloaded from:
https://www.hud.gov/program_offices/healthy_homes/enforcement/lshr, or obtained by telephoning 1800-424-LEAD (TTY: 800-877-8339).
The helpful Lead Rule Compliance Advisor is available at:
http://portalapps.hud.gov/CorvidRpt/HUDLBP/welcome.html.
E. For pre-1960 residential properties that do not involve conversions or major rehabilitation, the leadbased paint report shall consist of a risk assessment to identify lead-based paint hazards, performed in
accordance with 24 CFR 35.1320(b), by a certified lead risk assessor. Any identified lead-based paint
hazards must be treated with “interim controls” in accordance with 24 CFR 35.1330 or “abatement” in
accordance with 24 CFR 35.1325 (as authorized by 24 CFR 35.155) and shall be considered to be
completed when clearance is achieved in accordance with 24 CFR 35.1340. Interim controls or abatement
shall be completed prior to issuance of the Firm Commitment, unless HUD approves their completion
prior to Final Closing under conditions in the Firm Commitment that require an escrow of sufficient repair
or rehabilitation funds. Before the issuance of the Firm Commitment the Sponsor shall agree to
incorporate ongoing lead-based paint maintenance into regular building operations and maintenance
activities in accordance with 24 CFR 35.1355(a) unless abatement through removal of all of the lead-based
paint has been performed. See 24 CFR 35.620.
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1. Interim controls must be conducted by a firm certified as a Lead-Safe Certified Renovation, Repair and
Painting Rule firm by the EPA or by the state, if authorized by EPA to issue such certification, and
performed by a supervisor and workers who are certified renovators based on their having passed a
lead renovator course in accordance with 40 CFR 745.90 or 745.326, respectively. Interim controls
are a set of measures designed to reduce temporarily human exposure or likely exposure to leadbased paint hazards, such as repairs, painting, temporary containment, specialized cleaning,
clearance, ongoing lead-based paint maintenance activities, and the establishment and operation of
management and resident education programs (24 CFR 35.110).
2. Abatement must be conducted by a firm certified as a Lead Abatement firm by the EPA or by the state,
if authorized by EPA to issue such certification, and performed by workers who are certified lead
abatement workers and a supervisor who is a certified lead abatement supervisor who has passed an
accredited lead abatement supervisor course in accordance with 40 CFR 745.226 or 745.325,
respectively. Abatement means any set of measures designed to permanently eliminate lead-based
paint or lead-based paint hazards (see definition of “permanent”). Abatement includes the removal
of lead-based paint and dust-lead hazards, the permanent enclosure or encapsulation of lead-based
paint, the replacement of components or fixtures painted with lead-based paint, and the removal or
permanent covering of soil-lead hazards; and all preparation, cleanup, disposal, and post abatement
clearance testing activities associated with such measures. (24 CFR 35.110).
3. Information and guidance are in the HUD Guidelines for the Evaluation and Control of Lead-Based
Paint Hazards in Housing, especially Chapter 11 through Chapter 15. (See the HUD Office of Lead
Hazard Control and Healthy Homes’ (OLHCHH’s) website, specifically, the Guidelines’ page at
https://www.hud.gov/program_offices/healthy_homes/lbp/hudguidelines.)
4. Details about the revisions to the Lead Safe Housing Rule (LSHR) are on the OLHCHH’s LSHR webpage
at https://www.hud.gov/program_offices/healthy_homes/enforcement/lshr.
F. For multifamily properties constructed after 1959 and before 1978 that do not involve conversions or
major rehabilitation, before the issuance of the Firm Commitment the Sponsor shall agree to incorporate
ongoing lead-based paint maintenance practices into regular building operations in accordance with 24
CFR 35.1355(a). See 24 CFR 35.625.
G. For conversions and major rehabilitations (defined in this context as “rehabilitation that is estimated
to cost more than 50% of the estimated replacement cost after rehabilitation”), of multifamily properties
constructed before 1978, a “lead-based paint inspection” to identity the presence of lead-based paint shall
be performed in accordance with 24 CFR 35.1320(a), by a certified lead-based paint inspector. The Firm
Commitment shall require that any lead-based paint identified on the property shall undergo “abatement”
in accordance with 24 CFR 35.1325 with the abatement to be completed prior to both initial occupancy
and Final Closing. HUD will generally require that such abatement be achieved through paint removal or
component replacement.
1. If the Sponsor can demonstrate that paint removal or component replacement is not practicable
because the substrate material is architecturally significant and would be damaged by so doing, HUD
may approve permanent encapsulation or enclosure and, if it does, shall approve incorporation of
ongoing lead-based paint maintenance into regular building operations maintenance activities.
2. Upon request by the State Historic Preservation Office, the Sponsor may conduct interim controls of
the lead-based paint in accordance with 24 CFR 35.1330 instead of lead-based paint abatement. If
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interim controls are conducted, ongoing lead-based paint maintenance and reevaluation shall be
conducted in accordance with 24 CFR 35.1355.
3. See Section 9.6.21 for more information about maintenance plans. Abatement or interim control is
considered complete when clearance is achieved in accordance with 24 CFR 35.1340. See 24 CFR
35.630.
H. If an evaluation (such as a lead-based paint inspection or risk assessment) or hazard reduction is
undertaken, the Sponsor shall provide a notice to occupants in accordance with 24 CFR 35.125. The
Sponsor shall also provide the lead hazard information pamphlet in accordance with 24 CFR 35.130 if it
has not already been provided.
I. Where required, the LBP report must be submitted with the application as part of the HEROS
Environmental Report.
J. The cost of lead-based paint abatement or hazard control work may be included in the proposed
mortgage loan with HUD approval.
K. Sale and rental transactions or properties covered by Section 9.6.1 are also subject to the HUD-EPA
lead-based paint disclosure rule at 24 CFR Part 35, Subpart A.
9.6.2
Asbestos (24 CFR 50.3(i))
A. While specific uses of asbestos are technically allowed today, several uses of asbestos have been
banned starting in the early 1970s, and many commercial enterprises stopped installing asbestos
products as of the late 1970s. In 1989, the U.S. Environmental Protection Agency instituted a partial ban
on the manufacture, import, processing and distribution of some asbestos containing products. Some of
the more common examples of asbestos containing materials include insulation, fireproofing, sprayed on
finishes such as acoustical ceiling texture, joint compound, ceiling tiles, vinyl floor tile, glazing compound
and mastic or caulk used to fix the tile in place, siding, and roofing, although they can be found in many
construction material types installed before 1989 that are still in use today. These asbestos-containing
materials (ACM) can be found in both friable39 and non-friable states.
B. Asbestos studies and information must be included in the Environmental Report, in accordance with
HUD’s environmental policy articulated at 24 CFR 50.3(i) which states that all properties proposed for
use in HUD programs be free of hazardous materials, contamination, toxic chemicals and gasses, and
radioactive substances, where a hazard could affect the health and safety of occupants or conflict with the
intended utilization of the property.
C. Knowledge of the location, quantity, type and condition of ACM in the facilities, building, and, if
applicable, the surrounding area of the property, are critical for proper management of the hazard. These
factors will determine if ACM will need to be selectively removed for maintenance, removed prior to
renovation, removed prior to demolition, left in place and encapsulated or enclosed with procedures
outlined in the Operation & Maintenance (O&M) Program, or a combination of these strategies.
39 Friable material is a material that is easily crumbled or
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D. An asbestos survey is not required for applications that are categorically excluded not subject to the
laws and authorities at 50.4 (CENST) under 24 CFR 50.19(b)(21) (see Section 9.1.3.C.1 and Section
9.1.3.C.2).
E. However, applicants are encouraged to complete a survey even at the CENST level of review to provide
the basis for an asbestos O&M program for protection of workers and residents.
F. Any structures or ancillary facilities on the site built before 1989 must be assessed as per the ASTM E
2356-18, “Standard Practice for Comprehensive Building Asbestos Surveys” or the city, county, or state
requirements if they exceed the ASTM E2356-18 standards. For structures built in 1989 or later, HUD
requires projects to report any knowledge of asbestos use at the property and to verify the composition
of roofing materials, either through direct documentation (e.g. receipts or labels) or through sampling and
analysis.
1. At minimum, structures built before 1989 must undergo a Baseline Survey, or stricter standard if
applicable in the jurisdiction, to determine if ACMs are present or suspected to be present at the site.
2. The ASTM E 2356-18 Baseline Survey is a building-wide or facility-wide inspection that provides a
general sense of the overall location, type, quantity, and condition of asbestos-containing materials
present. It is thorough in that most accessible functional spaces are inspected, and that bulk samples
are taken of suspect materials observed. The baseline survey provides information for long-term
management of ACM and prioritization of response actions. The presence of asbestos in suspect
materials may be assumed or presumed in some cases without bulk samples being taken or analyzed.
In a baseline survey, destructive testing is minimized, e.g. concealed spaces are not normally
breached.
3. Any structures or ancillary facilities built before 1989 that are planned to be demolished or planned
to undergo rehabilitation above the level of repair as defined in MAP Guide Chapter5, Section 5.1.3
must complete a building asbestos survey by a qualified asbestos inspector performed pursuant to
the “Pre-Construction Survey” requirements of ASTM E 2356-18 or stricter standards if applicable in
the jurisdiction. At minimum, the survey must include all spaces within the limits of construction, as
well as adjacent areas where ACM may be disturbed by construction activities.
The Pre-Construction Survey is performed in anticipation of a demolition or rehabilitation project.
The Pre-Construction Survey requires destructive testing if concealed spaces are to be breached
during construction. The Pre-Construction Survey satisfies the EPA NESHAP requirements for
renovation or demolition to “thoroughly inspect the affected facility.”
G. An accredited asbestos professional will determine whether projects that complete a Pre-Construction
Survey must also complete a Baseline Survey. The asbestos professional will also determine if the project
requires additional surveys beyond the minimum HUD requirements.
H. The practices outlined in the ASTM E 2356-18 apply to all activities (unless following a stricter local,
state or tribal standard) and all surveys or sample analysis must be completed by a licensed/accredited
professional and laboratory.
1. Asbestos professionals must be accredited by EPA or an EPA approved state program under the Model
Accreditation Plan. The professional must also be licensed by the state, city, or local jurisdiction in
which the work is being conducted if the jurisdiction has this requirement.
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2. Transmission electron microscopy (TEM) bulk sample analyses may be necessary for samples
originating from jurisdictions that require this analysis. Additionally, TEM analyses is commonly used
to verify a reported no asbestos detected result for non-friable organically bound material (NOB) and
other non-friable materials by polarized light microscopy (PLM).
I. If prior surveys for ACM have been completed within the building, facilities, and project site by a
licensed professional and accredited asbestos laboratory, HUD may accept the earlier documentation. If
there is question about its validity, HUD will request a determination by an accredited asbestos
professional. The determination of the applicability and usability of prior ACM surveys will be based upon
the determination of the current licensed/credentialed asbestos professional or by HUD.
J. If ACM or suspected ACM is identified at a facility, HUD requires a response action to address the risk.
Response actions may include complete removal, limited removal/repair, encapsulation, enclosure or
management of the ACM under an O&M Program, or a combination of these, as recommended by an
accredited asbestos professional. If ACM or suspected ACM remains after the initial identification and, if
applicable, response actions, an asbestos O&M program shall be implemented. The following are
examples for when certain response actions may be appropriate, but they do not encompass all response
actions.
1. Removal:
Damaged friable materials
Friable materials in good condition with high potential for disturbance (e.g., accessible pipe or
tank insulation, ceiling tiles where air exchanges occur in plenum above, ceiling tiles that are
required to be moved to access mechanical equipment or piping on a routine basis, etc.)
2. Limited removal/repair, encapsulation or enclosure:
Damaged non-friable materials (limited removal/repair)
Limited damage to ceiling texture (limited removal/repair)
More extensive wall and/or ceiling texture damage or highly friable texture
Pipe insulation with limited damage but with limited potential for disturbance/impact (enclosure
or removal)
3. O&M Plan:
Non-friable materials in good condition.
Joint compound or wall and ceiling textures in good condition.
Adhesive ceiling tiles with no real potential for disturbance.
Friable pipe insulation materials in mechanical areas in good condition with limited potential for
disturbance/impact by maintenance activities.
K. The asbestos survey(s) must be submitted with the application as part of the HEROS Environmental
Report. If the survey identifies asbestos or asbestos is assumed, HUD must receive a remediation plan
from an accredited asbestos professional with an appropriate mix of asbestos abatement and an asbestos
O&M plan in accordance with EPA’s How to Develop and Maintain a Building Asbestos Operations and
Maintenance (O&M) Program website (https://www.epa.gov/asbestos/how-develop-and-maintainMAP Guide, December 2020
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building-asbestos-operations-and-maintenance-om-program) or any applicable LSTF requirements if
more protective of health and the environment. See Section 9.6.21 for more information about Operation
and Maintenance Plans. The asbestos survey report(s), O&M plans, and updated records if materials are
removed or identified subsequently should be maintained by the operator and owner(s) of the property
and made available to appropriate staff.
L. Other than for asbestos abatement on a structure that will be completely demolished, the cost of any
asbestos abatement activities may be included in the proposed mortgage loan.
M. All asbestos abatement shall be done in accordance with EPA requirements for air pollution prevention
pursuant to 40 CFR Part 61, subpart M especially 40 CFR 61.145, and OSHA requirements for Worker
Protection, pursuant to 29 CFR 1926.1101, asbestos safety and health regulations for construction, and
any LSTF asbestos abatement and worker protection rules. All asbestos abatement must be performed
by a qualified asbestos abatement contractor with a supervisor (‘competent person’) trained in
accordance with OSHA and, if applicable, EPA standards, and workers trained in accordance with the
OSHA standard.
9.6.3
Radon (Supersedes ML 2013-07)
9.6.3.1
Background
A. One common constituent of soil and rock is the unstable element uranium. One of the decay products
of uranium is radon, a colorless, odorless gas. Under certain natural conditions, the radon gas can enter
surface soils and become part of the “soil gas” environment, which then can enter the air, including air
inside of buildings. When soil gas that contains radon enters a building, radon and its decay products are
either directly inhaled, or attached to dust on walls, floors and in the air, which then can be inhaled. These
decay products then undergo further decay, resulting in the release of subatomic alpha particles. This
alpha particle radiation can cause mutations in lung tissue which can lead to lung cancer. The risk of
contracting lung cancer from radon increases with an increase in the concentration of radon in the air that
is breathed by building occupants. EPA recommends mitigation for residences with radon concentrations
at or above 4 picocuries per liter of air (pCi/L).
9.6.3.2
General Requirements
A. Radon Report:
1. A radon report is required unless an exception listed in Section 9.6.3.2.C applies.
2. The radon report shall be included in the pre-application, or application, as applicable. For new
construction, or substantial rehabilitations or conversions where early testing is not feasible, the
radon report must be submitted to HUD at the final completion inspection. Applications (including
those for which early testing is not feasible) must include the radon mitigation system in the
architectural plans, as HUD relies on the Project Architect to design and incorporate any required
radon mitigation system consistent with the relevant standard. HUD encourages the Architect to seek
technical advice from a radon professional should the Architect believe it to be necessary in their
professional judgment or if it is required by the relevant mitigation standard.
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3. The radon report shall include the results of any testing performed, the sampling strategy as
applicable, the details of any mitigation deemed necessary, and the timing of any such mitigation. The
radon report must be signed and certified as to its compliance with the requirements of this section
by a Radon Professional and include copies of appropriate certifications and/or licenses.
B. Radon Professionals:
1. All testing of existing properties, post-construction testing, and any mitigation required as a result of
this testing must be performed by, or under the direct supervision of a Radon Professional, in
accordance with the protocols referenced in this section.
2. Radon Certification/License of the Radon Professional is required as follows:
Certification from either the American Association of Radon Scientists and Technologists (AARST)
National Radon Proficiency Program (NRPP) or the National Radon Safety Board (NRSB); and
Certification/License from the state in which the testing or mitigation work is being conducted if
the state has this requirement.
C. Exceptions to a Radon Report:
1. A Radon Professional may conclude that testing or mitigation is not necessary based on exemptions
laid out in the relevant state or ANSI-AARST radon standard. Any such justifications as to why testing
or mitigation is not necessary must be provided in the Environmental Report in the form of a signed
letter from the radon professional that references the appropriate standard. Housing staff will
determine whether to grant the exception.
2. A radon report is not required for applications that are categorically excluded not subject to the laws
and authorities at 50.4 (CENST) as per 24 CFR 50.19(b)(21) (see Section 9.1.3.C.1 and Section
9.1.3.C.2).
However, applicants are encouraged to test for radon even at the CENST level of review. Any such
testing must follow the testing protocols and resident notification protocols below and must then be
incorporated within a radon report as described within this section. If the results of such testing
indicate levels of radon at or above the threshold for unacceptability, mitigation as described in this
section is required, following Section 9.6.3.2.F.
D. Testing Protocols:
1. Radon testing must follow the protocols set by the American Association of Radon Scientists and
Technologists, Protocol for Conducting Radon and Radon Decay Product Measurements in
Multifamily Buildings (ANSI-AARST MAMF-2017) (available at www.standards.aarst.org). This
includes testing 100% of ground floor units and 10% of upper floor units in all buildings included in
the project.
2. As an alternative to a full testing assessment, all ground level units/rooms in all buildings included in
the project must be mitigated following the appropriate mitigation standard listed at Section 9.6.3.2.F.
3. The threshold for unacceptability is 4.0 picocuries per liter (4.0 pCi/L) based on initial and any
confirmatory testing, if performed.
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E. Occupant Notification:
1. Occupants of all new applications for Multifamily MAP mortgage insurance programs shall be
informed of forthcoming testing in the manner described in AARST MAMF-2017, Section II.B and
Section III. 2.2.1.
2. Occupants shall be informed both prior to and after mitigation activities. In the case of new
construction, incoming occupants shall be informed of radon mitigation activities.
F. Mitigation Standards:
1. Radon resistant construction is required for all new construction, and radon mitigation is required
for existing construction where testing has revealed that radon levels exceed the threshold for
unacceptability. The radon resistant construction or radon mitigation, when required, must conform
to the following standards, which include post-mitigation testing requirements. All standards listed
below are available at www.standards.aarst.org.
For existing buildings:
1) Multifamily structures reference ANSI-AARST RMS-MF 2018, Radon Mitigation Standards for
Multifamily Buildings.
2) Single Family structures reference ANSI/AARST Standard SGM-SF-2017, Soil Gas Mitigation
Standards for Existing Homes.
For new construction:
1) Multifamily structures reference ANSI-AARST CC-1000-2018, Soil Gas Control Systems in
New Construction of Buildings or ANSI-ASHRAE 189.1-2017, Standard for the Design of HighPerformance Green Buildings except Low Rise Residential Buildings, Sections 801.3.4,
1001.3.1.9, and 1001.3.2.1.4.5.d.
2) Single Family structures reference ANSI-AARST CCAH-2020, Reducing Radon in New
Construction of 1 & 2 Family Dwellings and Townhouses.
G. Mitigation Timing:
1. For new construction and substantial rehabilitation properties, all mitigation reports, including
follow-up testing, must be submitted to HUD staff at the final completion inspection. Radon mitigation
included as part of a Section 223(f) project’s repairs must be completed as quickly as practicable, and
in any event, no later than 12 months after Closing. The scope of work and related costs identified in
the Firm application must include all repairs related to radon.
H. Certificate of completion:
1. A certificate of completion from the Radon Professional must be submitted and appended to the radon
report once radon testing and/or mitigation is completed. HUD staff must upload this to HEROS.
I. Operation and Maintenance Plans:
1. An operation and maintenance plan (called an operation, maintenance and monitoring (OM+M) plan
under the ANSI-AARST standards) must be administered in accordance with the applicable mitigation
standard for any mitigation project. A condition shall be attached to the Firm Commitment requiring
that the Borrower operate and maintain the property consistent with the referenced OM+M plan for
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the duration of the insured mortgage. The project must submit the final OM+M plan to HUD after the
radon mitigation system is installed. Given the ongoing risk associated with radon, the OM+M
requirement for maintaining mitigation systems must be implemented when a mitigation system is
present on the property.
J. Existing Mitigation Systems:
1. All existing mitigation systems installed at the property must be evaluated to ensure that they function
properly, and if applicable, corrective action must be taken by a qualified radon professional.
K. Cost estimates:
1. It is the responsibility of the Lender to provide the cost estimate for radon remediation to be included
into the overall construction cost. The cost estimate must be accurate to the proposed construction
and include ongoing O+M costs. Estimates must be based on the locality of the project as well as the
proposed time of construction.
9.6.3.3
Requirements for Section 223(f) Projects
A. All Section 223(f) projects must be tested for radon.
1. Testing must be performed no earlier than 1 year prior to application submission.
2. Exception: The applicant may elect to proceed directly to mitigation without prior testing.
B. For mitigation, see the requirements at Section 9.6.3.2.F, which include post mitigation testing. If
estimated costs exceed the allowable cost for the Section 223(f) program, the application cannot be
approved but may be considered under the substantial rehabilitation program.
9.6.3.4
Requirements for Substantial Rehabilitation and Conversion
A. All substantial rehabilitation and conversion projects must be tested for radon.
B. Regarding testing prior to substantial rehabilitation or conversion:
1. Early testing may not be feasible. For some proposals, such as a conversion of an existing building
from non-residential to residential, the building envelope may change to such an extent that early
testing would not be appropriate and in some cases not possible. If this is the case, proceed directly
to mitigation as discussed at Section 9.6.3.4.C.
2. When early testing is feasible:
It must be performed no earlier than 1 year prior to application submission in accordance with
Section 9.6.3.2.D.
If test results are below the threshold, no mitigation is required.
If test results are at or above the threshold, mitigation must be built into the project design per
Section 9.6.3.4.C.
C. Regarding mitigation:
1. If mitigation is built into project design, it must be conducted in accordance with the requirements at
Section 9.6.3.2.F, which require post mitigation testing.
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9.6 Environmental Laws and Authorities
2. If mitigation is not built into project design, a radon report must be submitted to HUD at the final
completion inspection. If testing results are at or above the threshold, retrofit mitigation pursuant to
the requirements at Section 9.6.3.2.F is required.
9.6.3.5
Requirements for New Construction
A. All new construction projects must follow radon resistant construction requirements.
1. Multifamily structures reference ANSI-AARST CC-1000-2018, Soil Gas Control Systems in New
Construction of Buildings.
2. Single Family structures reference ANSI-AARST CCAH-2020, Reducing Radon in New Construction of
1 & 2 Family Dwellings and Townhouses.
Post-construction testing is required prior to final completion inspection. If post-construction
testing results are above the threshold, the project must be brought into compliance by activating
the mitigation system or through retrofit mitigation.
All testing and mitigation required as a result of this testing must be performed by, or under the
direct supervision of a Radon Professional, in accordance with the protocols referenced in this
section.
9.6.4
Historic Preservation (24 CFR 50.4(a))
A. HUD must comply with the National Historic Preservation Act (54 U.S.C. 300101 et seq.) and its
implementing regulations at 36 CFR Part 800, which require Federal agencies to take into account the
effects of their undertakings on historic properties, consult with the State Historic Preservation Officer
(SHPO) and/or Tribal Historic Preservation Officer as appropriate, and afford the Advisory Council on
Historic Preservation a reasonable opportunity to comment. The process is known as Section 106 review.
B. Applications for Firm Commitment, whether for new construction, rehabilitation, refinancing or
conversion from non-residential to residential property are considered “federal undertakings” which
require HUD to make a determination of no historic properties affected, no adverse effect, or adverse
effect upon historic properties. An historic property means any prehistoric or historic district, site,
building, structure, object, or traditional property or landscape included in, or eligible for inclusion in, the
National Register of Historic Places maintained by the Secretary of the Interior. Also, HUD must consider
the area of potential effect (APE), which is often the site boundary, but occasionally the block on which
the site is located or the immediate site environs.
C. Pursuant to the “anticipatory demolition” requirements of Section 110(k) of the National Historic
Preservation Act (54 U.S.C. 306113), even before the concept meeting or application submission takes
place, any action by a potential Lender or Borrower, or any action by another party that the Lender or
Borrower has the legal power to prevent, which is taken with the intent to circumvent Section 106 review
and that significantly adversely affects a historic property, could result in rejection of an application.
D. There are three exceptions (if applicable, a statement identifying the exception and supporting
documentation must be included in the application):
1. Categorical exclusions not subject to related laws and authorities (CENST) under 24 CFR 50.19(b)(21)
(see Section 9.1.3.C.1 and Section 9.1.3.C.2).
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2. HUD has determined that some undertakings have No Potential to Cause Effects under 36 CFR
800.3(a)(1), because there is no physical impact beyond maintenance. These determinations are
made by HUD’s Office of Environment and Energy and include certain Rental Assistance
Demonstration (RAD) transactions and certain 223(f) refinance transactions with no site work
beyond maintenance, as defined in HUD Notice CPD-16-0240. In order to use this exception, a project
must meet the conditions in an applicable No Potential to Cause Effects Memo that is found on HUD’s
website41. For such transactions, there is no requirement to contact the State Historic Preservation
Officer (SHPO), and historic preservation responsibilities are limited to documenting this
determination in HEROS by marking No Potential to Cause Effects on the Historic Preservation Screen
and uploading a copy of the relevant Memo. Only projects that meet the conditions of one of the
posted Memos can use this finding.
3. Some states may have a Programmatic Agreement (PA) with HUD and the proposal may be part of a
class of actions that do not require Section 106 consultation under the PA.42 Historic preservation
responsibilities of HUD staff are limited to documenting this determination in HEROS by marking
Programmatic Agreement on the Historic Preservation screen, uploading the Programmatic
Agreement into HEROS, and copying the applicable part of the PA agreement into HEROS.
E. If an exception does not apply, HUD must conduct a Section 106 review and make a finding of effect.
Multifamily production staff typically conduct the Section 106 review with information provided to HUD
by Lenders and their authorized representatives. Also, HUD has determined that MAP-approved Lenders
and their authorized representatives may act on behalf of HUD to consult with SHPOs and other consulting
parties to initiate the Section 106 review process, identify and evaluate historic properties, and assess
effects. This delegation does not extend to consultation with Tribes. HUD must initiate and conduct
consultation with Indian Tribes (see Section 9.6.4.I).
1. The material provided to the SHPO should include a narrative explaining the proposal, a map
identifying the site location and proposed Area of Potential Effect (APE), a list of potential interested
consulting parties that have been or will be invited to consult, a description of identified historic
properties (listed and eligible), digital photos of buildings and setting, a description of the proposed
project activities, a description of direct or indirect effects on the historic properties, and a
determination of No Historic Properties Affected, No Adverse Effect, or Adverse Effect. The
information must be submitted to the SHPO following the procedures outlined by the individual SHPO
office.
40 Guidance
for Categorizing an Activity as Maintenance can be found in HUD Notice CPD 16-02 at
https://www.hudexchange.info/resource/3197/guidance-categorizing-activity-as-maintenance-environmentalregulations-24-cfr-parts-50-and-58/.
41 No Potential to Cause Effect memos can be found at https://www.hudexchange.info/resource/3865/nopotential-to-cause-effects-to-historic-properties-memos/.
42 HUD’s Programmatic Agreement Database can be found at:
https://www.hudexchange.info/resource/3675/section-106-agreement-database/. Specific information about
states with Part 50 Programmatic Agreements at Housing’s environmental FAQ website:
https://www.hudexchange.info/programs/environmental-review/housing/#faq.
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2. Lenders and their authorized representatives using the delegated process must include a copy of
HUD’s delegation Memorandum43 with each submission to the SHPO. The submission must include
the information discussed in Section 9.6.4.E.1 plus the HUD program followed by the section of the
National Housing Act and an appropriate contact person at both the Lender’s organization and the
authorized representative hired to coordinate the review. In addition, for Lenders and their
authorized representatives using the delegation, if a project involves demolition of a building over 45
years old, new construction in or adjacent to a historic district, substantial ground disturbance44, or
exterior rehabilitation of a building more than 45 years old, Lenders must retain a Qualified Historic
Preservation Professional45 in the discipline relevant to the project activities to prepare submissions
to SHPO and manage consultation with interested parties and the public, as well as coordinate with
HUD on HUD’s consultation with Indian Tribes.
3. Lenders that do not use the delegated process must still provide HUD the information required in
Section 9.6.4.E.1.
4. All submission materials, a copy of the letter to the SHPO and a copy of the response must be included
in the HEROS Environmental Report along with any comments received from consulting parties and
the public. HUD remains legally responsible for all findings and determinations, regardless of who
initiates the Section 106 review. HUD will independently review and confirm the APE, the
determination of effect finding and the SHPO’s response and may request additional information if
needed. Only HUD staff can complete the Section 106 HEROS screen by documenting whether
compliance steps or mitigation are required.
5. The SHPO has 30 calendar days to respond from receipt of an adequately documented submission. If
the submission is inadequate, the SHPO may request additional information and the 30-day clock
resets to the date that SHPO receives it.
F. Because of the technical nature of historic property identification, evaluation and treatment, it may be
appropriate to retain a qualified historic preservation professional to prepare the initial consultation and
supporting documentation even for projects where HUD is conducting the consultation directly or for
delegated projects that do not otherwise require it under Section 9.6.4.E.2. Such consultant should meet
the Secretary of the Interior’s Professional Qualifications Standards (36 CFR Part 61) and have experience
in Section 106 reviews. Examples of when retention of a qualified historic preservation professional may
be appropriate include when National Register eligibility of a property is unclear, when adverse effects
are expected, when the property contains archeological sites, and/or when the project is controversial.
G. For a No Historic Properties Affected or No Adverse Effect determination, after a SHPO concurrence
has been received and/or 30 calendar days after the SHPO’s receipt of an adequately documented finding
have elapsed without objection from the SHPO or consulting parties, obligations under Section 106 are
43 Delegation Memorandum can be found at
https://www.hudexchange.info/programs/environmentalreview/historic-preservation/.
44 Does not include minor ground disturbance for installing posts for a fence, deck, ramp, handrail, etc.; routine
landscaping; or repaving a parking lot or sidewalk.
45 A Qualified Historic Preservation Professional is one who meets the Secretary of the Interior’s Professional
Qualifications Standards for Archeology, History, Architectural History, Architecture, or Historic Architecture and
has substantial experience in conducting Section 106 reviews of historic properties. Detailed information can be
found at https://www.nps.gov/history/local-law/arch_stnds_9.htm.
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fulfilled. No Historic Properties Affected is appropriate when there are no historic properties or there are
no direct or indirect effects on historic properties. No Adverse Effect is used when there is an historic
property that is affected by the project, but the effects are not adverse.
H. HUD will participate in and complete the Section 106 process when: an undertaking may adversely
affect a historic property or historic district; there is a disagreement between the applicant or their
authorized representative and the SHPO regarding identification and evaluation or historic properties
and/or assessment of effects; there is potential for a foreclosure situation per 36 CFR 800.9(b) or
anticipatory demolition as specified in Section 110(k) of the National Historic Preservation Act; there is
an objection from Tribes, consulting parties or the public regarding their involvement in the review
process, recommended Section 106 findings and determinations, or the implementation of agreed upon
provisions; or HUD deems the consultation record inadequate. This process may result in a design change,
research and preservation, salvage, or in rare cases, rejection of the application for Firm Commitment.
Consultation to resolve adverse effects may take considerable time and must be completed generally
through execution of a Memorandum of Agreement (MOA) before a commitment can be issued.
I. For Tribal Consultation:
1. In addition to consultation with the SHPO, or THPO if the project is on tribal lands, consultation with
federally recognized Indian Tribes and Native Hawaiian Organizations may be required. HUD must
follow the guidance on tribal consultation in HUD Notice CPD-12-006 and supplemental
Memorandum46. Not all projects that require Section 106 review require consultation with Indian
Tribes. Consultation with federally recognized Tribes is only required when a project includes
activities that have the potential to affect historic properties of religious and cultural significance to
Tribes. These types of activities include:
ground disturbance (digging),
new construction in undeveloped natural areas,
introduction of incongruent visual, audible, or atmospheric changes,
work on a building or structure with significant tribal association, or
transfer, lease or sale of historic properties of religious and cultural significance.
2. When tribal consultation is required, the Lender will utilize the HUD Tribal Directory Assessment Tool
(https://egis.hud.gov/tdat/) to determine if the site is located in an area where a Tribe has indicated
interest or significance and present this information to HUD.
The Lender must submit the same information discussed in Section 9.6.4.E.1 to HUD in the form
of draft letters to each Tribe. HUD will review the information, prepare the letters on HUD
letterhead, and mail or email the letters, as appropriate for each Tribe.
Only HUD can consult with the Tribes.
46 HUD Notice
CPD-12-006 can be found at https://files.hudexchange.info/resources/documents/Notice-CPD-12006-Tribal-Consultation-Under-24-Cfr-Part-58.pdf.
Supplemental Memorandum can be found at https://files.hudexchange.info/resources/documents/HUD-MemoSection-106-Tribal-Consultation-in-Projects-Reviewed-Under-24-CFR-Part-50.pdf.
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The tribal consultation requirement applies to properties off tribal lands as well as on tribal lands.
Properties with religious and cultural significance to native people may include ancestral
archaeological sites and natural areas where traditional practices or ceremonies have been
carried out as well as more familiar historic properties. Some traditionally used places have very
strong religious associations, and it may be difficult or even inappropriate for native people to
talk about their significance. If this situation arises, hiring a qualified professional with
experience in tribal consultation may be required. The cost of such a professional shall be paid
by the Borrower.
J. The Section 106 review must be completed before HUD approves and/or commits assistance to a
project.
Additional guidance on the Section 106 review process is available at
https://www.hudexchange.info/programs/environmental-review/historic-preservation
and
https://www.achp.gov/protecting-historic-properties.
K. For projects receiving federal and/or state historic tax credits (HTC) the HTC process does not replace
HUD’s obligations under Section 106. Projects with HTC must still consult with the SHPO, Tribes, other
consulting Tribes and the public as appropriate. The materials used in the HTC application (Parts 1 and
2) should be useful in the Section 106 consultation. More information about HTC available at
https://www.hudexchange.info/programs/environmental-review/historic-preservation/tax-credit/.
L. The cost of historic preservation mitigation may be included in the proposed mortgage loan.
9.6.5
Floodplain Management (24 CFR 50.4(b)(2))
A. Applications for Firm Commitment are subject to regulations regarding floodplain management found
at 24 CFR Part 55 which implements Executive Order 11988 (Floodplain Management). Lenders must
provide the effective FEMA Flood Insurance Rate Map (FIRM) with the subject site(s) clearly marked to
determine whether the project is in or near a floodplain. In most areas, FIRMs are available online through
the FEMA Map Service Center at https://msc.fema.gov.
B. In addition, Lenders must provide any FEMA-supplied preliminary or pending floodplain maps or
studies or Advisory Base Flood Elevations (ABFE) for the site, as HUD must use the latest of these sources
unless the ABFE or preliminary FIRM indicates a lower Base Flood Elevation (BFE) than the current FIRM
and Flood Insurance Study (FIS). Preliminary FIRMs can be found through the FEMA Map Service Center
by clicking "Show ALL Products", or at a central Flood Map Changes Viewer
(https://fema.maps.arcgis.com/apps/webappviewer/index.html?id=e7a7dc3ebd7f4ad39bb8e485bb64
ce44). FEMA issues Advisory Base Flood Elevations after major flood disasters and disseminates them by
region.
C. FEMA maps indicate floodplains as follows:
1. 100-year floodplains (a.k.a. the Special Flood Hazard Area (SFHA) and the 1% annual chance
floodplain) are designated as Zone A1–30, AE, A, AH, AO, AR, or A99.
2. 500-year floodplains (a.k.a. the moderate flood hazard area and the 0.2% annual chance floodplain)
are designated as Zone B or a shaded Zone X.
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3. Floodways are the portion of the floodplain which is effective in carrying the flow of flood waters and
will generally be the most dangerous part of the floodplain during riverine flooding. Floodways are
designated as Zone AE hatched.
4. Coastal high hazard areas are areas subject to high velocity waters and wave action, and they are
designated as Zone V1–30, VE, or V.
5. Limit of Moderate Wave Action (LiMWA) are coastal areas in updated FEMA maps that are outside of
the coastal high hazard area, but which are expected to receive between 1.5 and 3 foot breaking waves
during a 1% annual chance flood. LiMWAs are designated with an informational line.
6. Areas where FEMA has not completed a detailed study sufficient to identify the flood risk are
designated as Zone D. As these areas have the potential for unidentified flood hazards, HUD will rely
on best available information to assess risk.
D. If any part of the site or integral offsite development (i.e., ingress, egress and/or parking) is located
within the 100-year floodplain or within a 500-year floodplain for critical actions47, according to the best
available data, the project must comply with HUD’s floodplain management regulations at 24 CFR Part 55.
E. An application for mortgage insurance shall not be approved for a property located in: (a) a floodway;
(b) a coastal high hazard area; or (c) a FEMA identified special flood hazard area in which the community
has been suspended from or does not participate in the National Flood Insurance Program. If a stream
coursing through a proposed site is designated as being in the 100-year floodplain according to FEMA’s
best available data, but there is no designated floodway area, development will be prohibited in the
channel of the stream.
F. 24 CFR 55.12(c) lists categories of proposed actions for which the floodplain management
requirements in 24 CFR 55 are not applicable. These exceptions include:
1. An incidental exception, if only an incidental portion of the project is in the 100-year floodplain,
floodway, or coastal high hazard area (or for critical actions, the 500-year floodplain), and certain
conditions are met (see 24 CFR 55.12(c)(7)).
HUD does not consider improvements48 to be incidental, meaning that this exception does not
apply if there are any buildings or improvements in any portion of the floodplain.
The incidental exception does not apply to sites that plan to bring in fill for a Letter of Map
Revision because the fill modifies the floodplain.
For
a
visual
representation of
the
incidental
floodplain
exception,
https://www.hudexchange.info/resources/documents/Incidental-Floodplain-ExceptionIllustration.pdf.
see
47 Critical Actions
are defined at 24 CFR 55.2(b)(3). Critical actions include roadways providing sole egress from
flood-prone areas, and projects likely to contain occupants who may not be sufficiently mobile to avoid loss of life
or injury during flood or storm events, e.g., persons who reside in hospitals, nursing homes, convalescent homes,
intermediate care facilities, board and care facilities, and retirement service centers. Housing for independent
living for the elderly is not considered a critical action.
48 HUD defines improvements as buildings, roads, sidewalks, parking lots, permanent recreational areas with
impervious surfaces, or other man-made structures or impervious surfaces other than landscaping.
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When invoking the incidental portion exception at 24 CFR 55.12(c)(7), a protective covenant or
comparable restriction must be placed on the property’s continued use to preserve the floodplain.
This covenant must protect the entire portion of the site in the floodplain. The covenant or
comparable restriction must run with the land to provide for permanent preservation of the
floodplain. A restriction that is contained in a document that would expire at the conclusion of
the HUD-insured mortgage does not meet the requirement for permanent preservation of the
floodplain.
2. Refinances of currently HUD-insured mortgages are exempt from the 24 CFR Part 55 requirements
when the refinance will not result in any physical impacts or changes except for maintenance under
24 CFR 50.19(b)(21) (CENST). However, the flood insurance requirements specified at 24 CFR
50.4(b)(1) and Section 9.6.6 are still applicable.
3. The requirement for a 5- or 8-step analysis does not apply if the project is not on a wetland and has a
Conditional Letter of Map Amendment (CLOMA) or of Map Revision (CLOMR) removing the entire site
from the applicable floodplain prior to submission of the pre-application or, in the absence of a preapplication, prior to submission of the application for Firm Commitment. If the Borrower has a
CLOMA or CLOMR, HUD approval for a Firm Commitment will be conditioned on the Borrower: (1)
meeting the requirements of the CLOMA or CLOMR; (2) obtaining a Final Letter of Map Amendment
(LOMA) or Map Revision (LOMR) removing the entire property from the applicable floodplain prior
to Final Endorsement; and, (3) maintaining flood insurance on any building during the construction
period until the LOMA or LOMR is issued. If any portion of the HUD-insured property remains in the
floodplain or floodway after the CLOMA/CLOMR, the project will not qualify for this exception and
must proceed with a 5- or 8-step decision making process (see 24 CFR 55.12(c)(8).)
G. Projects that are converting from a non-residential to a residential use are considered the same as
“new construction” for floodplain management.
H. In considering the safety of the residents, offsite floodways and other flood hazards will be evaluated
in terms of separation distance, elevation differences, and the nature of the hazard in question.
Unacceptable proximity to hazards may result in rejection of the application.
I. Due to the potential for significant wave damage in Limit of Moderate Wave Action (LiMWA) areas, HUD
will not approve applications for any new construction or substantial rehabilitation project in the LiMWA.
HUD strongly discourages approving currently uninsured 223(f)s or currently insured 223(f)s with
repairs at Level Two or above in the LiMWA and will only do so if the work meets the current standards
for coastal high hazard areas in FEMA regulations (44 CFR 60.3(e)). HUD will consider on a case by case
basis approving currently insured refinance transactions that do not exceed Level One repairs (as defined
in Chapter 5 of this MAP guide) or currently assisted projects with minor rehabilitation.
J. New construction and substantial improvement, as defined at 24 CFR 55.2(b)(10), in 100-year
floodplains are strongly discouraged. This flood buffer zone is extended to the 500-year floodplain for
proposed rehabilitation, refinancing, or new construction for facilities housing or serving mobilityimpaired individuals, a critical action. Such sites in the applicable floodplain according to the best
available data will not be considered for mortgage insurance unless the following steps are taken:
1. HUD must determine if there may be extraordinary circumstances which lead to the conclusion that
there are no practicable alternatives to the project site being in the floodplain. In order to make this
determination, HUD must conduct an 8-step decision making process which includes publishing two
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public notices and taking comments, as summarized in 24 CFR 55.2049. Prior to issuing the first public
notice, HUD will require detailed information about how the property will be altered and
improvements designed. This information includes the elevation of the property, the base flood
elevation, and the location of life support systems and other data that may be necessary to assess the
safety of the site.
The 8-step process may require as a condition of any project approval that a CLOMA or CLOMR
for the buildings be issued prior to initial endorsement, a LOMA or LOMR be issued prior to Final
Endorsement, and flood insurance be maintained on any building during the construction period
until the issuance of the LOMA or LOMR.
The 8-step process shall require that the lowest floor of new construction be elevated at or above
the Base Flood Elevation of the applicable floodplain based on the best available FEMA data, plus
two feet of freeboard. Substantial rehabilitation projects must elevate or mitigate following
National Flood Insurance program requirements (as instituted by state and local codes).
The 8-step process requires that all “critical actions” as defined in 24 CFR 55.2(b) (3) must comply
with the requirements of 24 CFR 55.20(e).
Instead of elevating non-residential or mixed-use structures that are not critical actions, the
project may be designed and constructed such that below the flood level, the structure is nonresidential and floodproofed to the level of the best available flood data plus two feet.
Floodproofing requires structures to be watertight with walls substantially impermeable to the
passage of water and with structural components having the capability of resisting hydrostatic
loads, hydrodynamic loads, the effects of buoyancy, or higher standards required by the FEMA
National Flood Insurance Program as well as state and locally adopted codes.
The 8-step process shall be completed by HUD before issuance of the Firm Commitment. HUD
will develop the 8-step, including the two notices, but the costs of publication will be borne by the
Borrower.
The 8-step process shall consider three alternatives: the action as proposed, modifications within
the aggregated project site, or no action, i.e., rejection of the application.
K. For purchase or refinancing actions described in 24 CFR 55.12(a)(2) or non-substantial repair,
rehabilitation, modernization or improvement actions described in 24 CFR 55.12(a)(3), an abbreviated 5step process pursuant to 24 CFR 55.12(a) may be used by HUD to determine their acceptability. The
abbreviated process eliminates the two public notices and the alternatives analysis. Detailed information
about the proposed actions, and about any plans for mitigation, must be submitted with the application
or preapplication. HUD will evaluate risks and mitigation measures in making its decision. HUD
discourages these actions if the lowest floor and/or the life support facilities, or egress and ingress of the
existing building, are below the 100-year base flood elevation. The abbreviated review process shall be
completed by HUD before issuance of the Firm Commitment.
L. Where a site does not appear to be located in the floodplain on official FEMA maps, but shows evidence
of flooding or has a history of flooding, HUD shall qualitatively evaluate the acceptability of the site.
49 Additional guidance, including an example 8-step process and sample notices,
can be found at
https://www.hudexchange.info/programs/environmental-review/floodplain-management/.
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Lenders will be required to provide extensive data to aid HUD in evaluating previously flooded or
floodplain sites.
M. The cost of floodplain mitigation may be included in the proposed mortgage loan.
9.6.6
Flood Insurance (24 CFR 50.4(b)(1))
A. Flood insurance is property insurance that covers damages caused by flooding, ranging from the need
for full replacement to repairs such as replacing flooring and walls. This type of insurance is typically not
included in a standard property insurance policy. Flooding can cause a great deal of damage. Even if it
does not destroy the property, it can fill the property with mud, silt, and other debris, and the moisture
from the flooding may lead to rot, mold, mildew, and other problems. Many items may need to be rebuilt
or replaced, forcing residents to stay in temporary facilities while their unit is made livable. Flood
insurance mitigates these costs.
B. A project located in the 100-year flood zone, also known as the Special Flood Hazard Area (SFHA), has
a 26% chance of flooding over the life of a 30-year mortgage. A project located in the moderate flood
hazard zone (500-year floodplain) has a 6% chance of flooding over the life of a 30-year mortgage.
C. Any insurable structure that is located within a FEMA mapped SFHA is required to carry flood
insurance under the National Flood Insurance Program for the term of the loan50. General flood insurance
requirements as well as required insurance coverage amounts are set forth in MAP Guide Chapter 3.
D. At the time of Application for Firm Commitment, the Lender must submit a completed Standard Flood
Hazard
Determination
Form
(found
online
at
https://www.fema.gov/medialibrary/assets/documents/225) with proof that the new mortgagor has a commitment for flood insurance
effective as of loan closing.
E. HUD will also require flood insurance on any building where the Advisory Base Flood Elevations
(ABFE) or preliminary FEMA Flood Insurance Rate Map (FIRM) indicates it will be in a Special Flood
Hazard Area. Additionally, Housing Approving Officials have the discretion to require flood insurance for
buildings located51:
1. In the moderate flood hazard area (FEMA zones B or shaded X),
2. On a parcel that includes a SFHA (including those considered incidental for floodplain management),
in coastal areas not in a SFHA but subject to tidal flooding, tsunami, wave action or storm surge,
including LiMWAs, and
50 FEMA
defines structure as a walled and roofed building, including a gas or liquid storage tank, that is principally
above ground, as well as a manufactured home. Structure, for insurance purposes, means: (1) A building with two
or more outside rigid walls and a fully secured roof, that is affixed to a permanent site; (2) A manufactured home
(``a manufactured home,’’ also known as a mobile home, is a structure: built on a permanent chassis, transported to
its site in one or more sections, and affixed to a permanent foundation); or (3) A travel trailer without wheels, built
on a chassis and affixed to a permanent foundation, that is regulated under the community’s floodplain
management and building ordinances or laws. For the latter purpose, ”structure” does not mean a recreational
vehicle or a park trailer or other similar vehicle, except as described in paragraph (3) of this definition, or a gas or
liquid storage tank (44 CFR 59.1).
51 According to FEMA, 20 to 25% of claims nationally are for properties located outside of the 100-year flood zone.
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Chapter 9 Environmental Review and Requirements
9.6 Environmental Laws and Authorities
3. where topography or past flooding create a high risk for flood events.
F. All new and renewal leases for projects where HUD has required flood insurance must contain
acknowledgements signed by residents indicating that they have been advised that the property is in a
floodplain and flood insurance is available for their personal property.
G. Owners can significantly lower flood insurance premiums by elevating or flood proofing structures.
HUD encourages these measures and may require them in some cases.
9.6.7
Wetlands Protection (24 CFR 50.4(b)(3))
A. Applications for Firm Commitment are subject to regulations regarding wetlands at 24 CFR Part 55,
which implement Executive Order (EO) 11990 “Protection of Wetlands.” EO 11990 prohibits the
development or disturbance of wetlands and proposals impacting wetlands unless there is no practicable
alternative and the proposed action includes all practicable measures to minimize harm to the wetland.
Proposals impacting wetlands must be reviewed by HUD under the 8-step process in 24 CFR 55.20 to
determine consistency with HUD’s wetland protection policy.
B. The term "wetlands" means those areas that are inundated by surface or ground water with a
frequency sufficient to support, and under normal circumstances does or would support, a prevalence of
vegetative or aquatic life that requires saturated or seasonally saturated soil conditions for growth and
reproduction. Wetlands generally include swamps, marshes, bogs, and similar areas such as sloughs,
potholes, wet meadows, river overflows, mud flats, and natural ponds. This definition includes both
wetlands subject to and those not subject to section 404 of the Clean Water Act (i.e. jurisdictional and nonjurisdictional wetlands). Manmade retention/detention ponds are not considered wetlands unless they
have the characteristics of a wetland as noted above. Lenders shall use the Fish and Wildlife Service’s
National Wetlands Inventory (NWI) as a primary screening tool but must also submit observed or known
wetlands not indicated on NWI maps. HUD must consider onsite and off-site impacts that result in
draining, impounding, or destroying wetlands.
C. If an NWI map indicates the presence of wetlands, FWS staff, if available, must find that no wetland is
present in order for the action to proceed without further processing. Where FWS staff is unavailable to
resolve any NWI map ambiguity or controversy, an appropriate wetlands professional must find that no
wetland is present in order for the action to proceed without Section 55.20 processing.
D. New construction or rehabilitation projects that develop or disturb onsite or offsite wetlands will be
considered only after HUD conducts an 8-step decision-making process as described in 24 CFR 55.20 and
includes consultation, issuing two public notices and taking public comment. Developing or disturbing
onsite or offsite wetlands includes draining, dredging, channelizing, filling, diking, impounding and
related activities.
E. The first five steps of the 8-step process are not required if the project involves new construction
outside the 100-year floodplain 52 and the applicant has submitted with its application to HUD an
individual Section 404 permit (including approval conditions) issued by the U.S. Army Corps of Engineers,
or by a State or Tribal government under Section 404(h) of the Clean Water Act, and all wetlands adversely
52 500 year floodplain for
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affected by the project are covered by the permit53. This streamlining approach is not available to sites
with a general Section 404 permit. Wetlands under local or state jurisdiction are subject to state or local
review as appropriate. However, compliance with state or local requirements is not a substitute for the
8-step process.
F. If a project impacts wetland, the Lender should consult early with the Multifamily field office and must
provide extensive data to aid HUD in evaluating wetland impacts.
1. HUD may require that the Lender submit a wetlands delineation performed by a qualified professional
to evaluate the direct and/or indirect wetland impacts of the project.
2. Appropriate and practicable compensatory mitigation is recommended for unavoidable adverse
impacts to more than one acre of wetlands. Compensatory mitigation is defined at 24 CFR 55.2(b)(2)
and includes but is not limited to: permittee-responsible mitigation, mitigation banking, in-lieu fee
mitigation, the use of preservation easements or protective covenants, and any form of mitigation
promoted by state or Federal agencies.
3. The 8-step process shall consider three alternatives: the action as proposed, modifications within the
site controlled by the applicant, or no action, i.e., rejection of the application.
G. When on-site wetlands exist but will not be developed or disturbed, HUD will require assurance from
the Borrower that no activities that may impact a wetland will be undertaken without prior approval from
HUD. Where appropriate, this will take the form of a restrictive covenant.
9.6.8
Noise Abatement and Control (24 CFR Part 51, Subpart
B)
A. HUD standards regarding the acceptability of noise impacts on residential property are found at 24
CFR Part 51 Subpart B. The noise regulation applies to all projects as noted below except those
categorically excluded (CENST) under 24 CFR 50.19 (see Section 9.1.3.C.1 and Section 9.1.3.C.2.)
B. For new construction and conversions from non-residential to residential located above the noise
threshold criteria, projects shall incorporate noise attenuation features as required by HUD
environmental criteria and standards at 24 CFR 51.104. The interior standard is 45 dB (decibels).
C. The "Normally Unacceptable" noise zone includes community noise levels from above 65 dB to 75 dB.
Approvals in this noise zone require a minimum of 5 dB additional sound attenuation for buildings having
noise-sensitive uses if the day-night average sound level is greater than 65 dB but does not exceed 70 dB,
or a minimum of 10 decibels of additional sound attenuation if the day-night average sound level is greater
than 70 dB but does not exceed 75 dB. Where the sound attenuation is determined using the online Sound
Transmission Classification Assessment Tool (STrraCAT), the required attenuation value provided by the
tool may be used (https://www.hudexchange.info/stracat/).
D. Locations with day-night average noise levels above 75 dB have “Unacceptable” noise exposure. Noise
assessments must be projected out 10 years.
53 See 24 CFR 55.28.
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E. For rehabilitation projects that require an Environmental Assessment level of review, HUD will actively
seek noise mitigation for projects in the “Normally Unacceptable” or “Unacceptable” noise zones. For
projects in the “Unacceptable” zone where HUD policy strongly encourages conversion of noise exposed
sites to land uses compatible with the high noise levels, HUD will also critically evaluate the application to
determine the project’s compatibility with HUD’s interior noise goal of a day-night average of 45 decibels,
and to determine the noise level’s effect on marketability.
F. For 223(f) and other refinance or rehabilitation projects at the CEST level of review, HUD will
encourage appropriate noise attenuation measures for inclusion in the project. Noise exposure by itself
will not result in the rejection of existing residential properties for mortgage insurance but is a
marketability factor that HUD will consider in determining if the amount of any insurance or other
assistance that may be given. Projects at the CEST level of review are not required to complete a noise
calculation but must complete preliminary noise screening of distance from noise sources. The
preliminary screening must include distance from the project to each noise source.
G. Lenders should contact regional Multifamily staff prior to attempting to design mitigation measures.
H. New construction or conversions of existing structures to residential housing in the Unacceptable
Noise Zone, where outdoor noise levels are above 75 dB, are generally prohibited. If the Regional Office
wants to consider such a proposal, it must:
1. Require an Environmental Impact Statement (EIS). If the Regional Office believes that the proposal is
acceptable based on the EIS, it must then obtain project approval, including approval of noise
mitigation measures, from the appropriate Assistant Secretary as required in HUD’s noise regulations.
2. If the Regional Office determines that noise is the only environmental issue and no outdoor noise
sensitive activity that is not mitigated to below HUD’s 65 dB standard will take place on the site, it
may request a waiver of the EIS Requirement by the appropriate Assistant Secretary as required in
HUD’s noise regulations and must also obtain project approval, including approval of noise mitigation
measures, from that Assistant Secretary.54
I. Balconies55:
1. There are generally no restrictions on balconies for existing residential projects, although HUD
encourages noise attenuation. For new construction projects or existing projects that convert from
non-residential to residential in Unacceptable and Normally Unacceptable noise areas, bedrooms and
studio apartments may have direct access to balconies if:
The interior noise levels have been mitigated to not exceed a day-night average noise level of 45
dB as documented by the Sound Transmission Classification of the dwelling unit’s exterior walls
factoring in fenestration.
Appropriate ventilation is provided by a mechanical ventilation system and not by opening doors
or windows, and
54 Information about
HUD’s EIS waiver process for sites in the Unacceptable Noise Zone can be found at
https://www.hudexchange.info/programs/environmental-review/housing/#faq.
55 Notice CPD-16-19: Balcony Policy Under 24 CFR 51, Subpart B as it Applies to Parts 50 and 58 Regarding
Building Facades Exposed to Noise.
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An Operations and Maintenance plan is in place that requires periodically inspecting seals and
repairing or replacing building components when their performance diminishes.
2. Bedrooms and studio apartments may not have direct access to balconies if there is no mechanical
ventilation and there is no Operations and Maintenance plan requiring periodic inspection and repair
or replacement of all window and door seals as needed.
3. HUD Approving Officials may require additional mitigation measures or deny approval of balconies
based on noise or other concerns. In addition, Environmental Assessment or Environmental Impact
Statement levels of environmental review must consider potential health effects stemming from
issues related to noise sources, such as air quality (24 CFR 50.4(h)) and toxic hazard exposure near
transportation (24 CFR 50.3(i)).
J. The HUD noise regulation allows flexibility for non-acoustic benefits in limited situations. The project
must meet all of the conditions at 24 CFR 51.105 and receive the approval of a Regional or Field
Environmental Officer.
K. Regarding Railroad Vibration, Noise, and Location:
1. Buildings closer than 100 feet to a railroad track are often subject to excessive vibration transmitted
through the ground. For existing properties, the structure should be examined for damage caused by
vibrations. A railroad vibration study and vibration mitigating measures may be required. These
studies should be performed by a registered professional engineer with experience in structural
vibration analysis.
2. Whenever rail lines are less than 100 feet from a facility, HUD approval should be obtained prior to
the application submission. In addition to concerns about vibration, HUD will want documentation
that the project complies with applicable LSTF safety standards.
3. Railyards (areas of multiple track sections used for assembling and disassembling trains) have been
determined to create loud, impulsive sounds. For projects within 3,000 ft of actively operating rail
yards, HUD may require up to 8 dB additional noise attenuation to be incorporated in the project. In
determining whether this is necessary, HUD will consider the impact of existing or proposed barriers,
topography, and nature of the rail yard operations.
9.6.9
Explosive and Flammable Hazards (24 CFR Part 51
Subpart C)
A. HUD will not insure a property where structures and residents will be exposed to unacceptable risks
posed by proximity to explosive or flammable hazards.
B. For new construction projects, rehabilitation projects where residential density is increased, projects
where there is a conversion from non-residential to residential use, or projects where a vacant building is
made habitable:
1. Aboveground storage facilities with explosive or flammable material contents must comply with the
Acceptable Separation Distance (ASD) standards at 24 CFR Part 51 Subpart C as amended by the final
rule permitting the application of NFPA Code 58 (2017) in lieu of HUD ASD standards for residential
propane tanks (85 FR_4225_(January 24, 2020)). Analysis of sites within one mile of these types of
facilities must be submitted by the Lender and reviewed by HUD as part of the HEROS review, as per
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the guidance on the HUD Exchange
review/explosive-and-flammable-facilities/.
at
https://www.hudexchange.info/environmental-
2. If propane tanks meet the new exemption, submit documentation that the specific tanks meet the
NFPA Code 58 (2017) requirements, including separation distance.
3. If a plan is agreed upon with HUD before the issuance of a Firm Commitment, these hazards may be
mitigated during the construction period, if the work can be done on the subject property. In cases
where off-site mitigation is required, the remediation must be completed prior to initial closing.
C. A useful tool for calculating ASDs can be found on the HUD
https://www.hudexchange.info/programs/environmental-review/asd-calculator/.
Exchange
at
D. If a barrier will be constructed as hazard mitigation, HUD's Barrier Design Guidance (Guidebook
6600.G) for flammable/explosive hazards mitigation is available on the HUD Exchange at
https://www.hudexchange.info/resources/documents/Barrier-Design-Guidance-HUD-Projects-NearHazardous-Facilities.pdf.
E. Only a licensed professional engineer (civil or structural) should design and oversee the construction
of mitigation barriers.
F. For existing residential projects to be refinanced or purchased that do not involve an increase in
residential density, HUD will substantively evaluate the risks associated with proximity to hazardous
facilities. HUD reviews of such projects will consider the potential danger presented by existing and
proposed liquid fuel and gas storage tanks, and may require mitigation.
1. Whenever stationary aboveground storage tanks (ASTs) containing liquid fuel (other than
LPG/propane tanks that do not exceed 1,000 gallons in water capacity and which submit
documentation that they are in compliance with NFPA Code 58 (2017), or common liquid industrial
fuels with a capacity of 100 gallons or less), or tanks of any size containing pressurized gas exist on
site or on an adjacent site that could impact the HUD project, a conformance letter from the governing
Fire Department/District must be requested. The letter must specifically address the safety of the
AST(s). Correspondence with the fire department must be included in the application submission.
2. In cases where safety letters cannot be obtained for existing ASTs or where new ASTs are being added,
an acceptable separation distance (ASD) calculation must be included in the application, and HUD may
require mitigation.
9.6.10
Air Quality (24 CFR 50.4(h))
A. The Clean Air Act was implemented to remedy the damaging effects that poor air quality can have on
human health and the environment. The Clean Air Act is administered by the U.S. Environmental
Protection Agency (EPA), which sets National Ambient Air Quality Standards (NAAQS). These are limits
on certain “criteria” air pollutants, including limits on how much of these pollutants can be in the air
anywhere in the United States. Geographic areas that are in compliance with standards are called
“attainment areas,” while areas that do not meet standards are called “nonattainment” areas. The location
of areas designated by U.S. EPA as polluted under the Clean Air Act is documented in the U.S. EPA’s
Nonattainment Areas for Criteria Pollutants (Green Book) (https://www.epa.gov/green-book).
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9.6 Environmental Laws and Authorities
B. In addition to the EPA, the Clean Air Act is administered by state, tribal, and local agencies, which are
responsible for developing local solutions to air quality problems. States must develop State
Implementation Plans (SIPs) to regulate their state air quality. In order to show compliance with the
NAAQS, projects funded by HUD must demonstrate that they conform to the appropriate SIP.
C. For new construction projects located in a nonattainment or maintenance area, HUD must determine
if the estimated emission levels exceed de minimis emissions levels for the nonattainment or maintenance
level pollutants. If the estimated emissions levels exceed de minimis levels, HUD must determine whether
the project can be brought into compliance with the State Implementation Plan through modification or
mitigation.
D. The HEROS website includes an FAQ on completing the Clean Air Act Screen in HEROS.
(https://www.hudexchange.info/faqs/2794/im-not-sure-what-im-supposed-to-enter-in-the-airquality-screen).
E.
Additional information about complying with the Clean Air Act can be found at
https://www.hudexchange.info/programs/environmental-review/air-quality/.
9.6.11
Airport Hazards (24 CFR Part 51 Subpart D)
A. HUD standards regarding the acceptability of property located in Runway Clear Zones (also known as
Runway Protection Zones), Clear Zones, and Accident Potential Zones are found at 24 CFR Part 51 Subpart
D. An Accident Potential Zone (Zones I and II) is an area at military airfields that is beyond the Clear Zone.
B. Construction or major rehabilitation of any property located within a Clear Zone is prohibited.
Acquisition and refinance of projects within Clear Zones are allowed with notification requirements as
per Section 9.6.11.C. HUD must determine that projects located in Accident Potential Zones are generally
consistent with Department of Defense land use compatibility guidelines for Accident Potential Zones.
C. HUD, as part of its environmental review for an existing property, shall advise the Lender who will
advise the mortgagor purchasing the property that the property is in a Runway Clear Zone, and what the
implications of such a location are. The mortgagor purchasing the property must sign a statement
acknowledging receipt of this information. HUD may reject applications for existing properties within a
Runway Clear Zone or Clear Zone because of the possibility that the property may be acquired at a later
date by the airport operator.
9.6.12
Coastal Barrier Resources (24 CFR 50.4(c)(1))
A. Under the Coastal Barriers Resources Act, HUD is prohibited from insuring a project located within
designated coastal barriers of the Atlantic Ocean, Gulf of Mexico, or the Great Lakes, known as Coastal
Barrier Resource System (CBRS) units and shown on associated Fish and Wildlife Service maps (see the
Official CBRS Maps webpage at https://www.fws.gov/cbra/maps/index.html for instructions on
obtaining an official CBRS map and unit number). A project located within a CBRS unit or that includes a
facility (such as a water main or a utility conduit) leading to a CBRS unit will not be eligible for application
processing.
B. Additional information can be found at:
https://www.hudexchange.info/programs/environmental-review/coastal-barrier-resources.
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Chapter 9 Environmental Review and Requirements
9.6 Environmental Laws and Authorities
Coastal Zone Management (24 CFR 50.4(c)(2))
A. Projects located within a state’s coastal management zone must be determined to be consistent with
the approved state Coastal Zone Management program. In many states, HUD will require a letter from the
State Coastal Zone Management Agency confirming consistency with the approved program. Mortgagees
should be aware of the extent of coastal management zones in coastal states and contact the field office
early when examining a proposal in a coastal zone. Additional information can be found at:
https://www.hudexchange.info/programs/environmental-review/coastal-zone-management, including
state specific information at https://coast.noaa.gov/czm/consistency/states/.
9.6.14
Endangered Species (24 CFR 50.4(e))
A. Under Section 7 of the Endangered Species Act (ESA), HUD must consult with the U.S. Fish and Wildlife
Service and/or the National Marine Fisheries Service (the Services) whenever a proposal may affect an
endangered or threatened species or its habitat. The ESA is jointly administered by the Secretaries of the
Interior and Commerce. The U.S. Fish and Wildlife Service (FWS) is responsible for terrestrial and
freshwater species and the National Marine Fisheries Service (NMFS) is responsible for marine species
and anadromous fish, such as salmon. Some projects, especially those in the Pacific Northwest, may need
to consult with both agencies.
B. A required consultation should be assumed for any site within the critical habitat (as defined in 50 CFR
Part 17 and Part 226) of a listed species; consultation may also be required even if no critical habitat is
present. As of 2015, critical habitat has been designated for a little less than 50% of threatened and
endangered species. The lack of critical habitat is not an indicator of the presence or lack of presence of a
listed species.
C. In areas where impacts on endangered or threatened species are a concern, all appropriate information
regarding possible impacts of the project should be provided to HUD as early as possible. The Services
may have a regional letter, memorandum or other document that allows HUD to make a No Effect
determination for projects that meet specific criteria.
D. The HEROS Environmental Report should include review of published information, including but not
limited to information on the Services’ websites (for example, Information for Planning and Consultation
(iPaC, at https://ecos.fws.gov/ipac/)) regarding the possible presence and associated critical habitat of
any listed species in the vicinity of the proposal, and provide HUD with the results of the research.
Furthermore, if a proposal is in an area of potential impacts on a listed species or its critical habitat, any
possible associated impacts caused by the proposal should be discussed in the HEROS Environmental
Report. Lenders and third-party consultants can request species lists, prepare Biological Assessments for
HUD’s review, and provide the information needed for consultation, but HUD must initiate formal and
informal consultation with the Services.
E. If the project activity could affect an endangered/threatened species or its habitat, HUD must make a
determination of effect. HUD must document a “no effect” determination with scientific information or a
regional letter or memorandum but does not need to consult with the Services on projects it determines
will have no effect. HUD must seek concurrence of the Services on any “may affect, not likely to adversely
affect” determination and associated mitigation measures. HUD must initiate formal consultation under
Section 7 of the Endangered Species Act for a “may affect, likely to adversely affect” determination. For
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all effect determinations, the Lender may be required to obtain special studies such as habitat
assessments, surveys or biological assessments at the Borrower’s cost.
F. Consultation under Section 7 of the Endangered Species Act may result in more stringent conservation
measures than would otherwise be imposed.
9.6.15
Farmlands Protection (24 CFR 50.4(j))
A. The purpose of the Farmland Protection Policy Act is to minimize the effect of Federal programs on the
unnecessary and irreversible conversion of important farmland to nonagricultural uses. Important
Farmland includes prime farmland, unique farmland, and/or land of statewide or local importance.
Farmland subject to Farmland Protection Policy Act requirements does not have to be currently used for
cropland.
B. For new construction, HUD must consider whether the project will have an impact on important
farmland. There are a few exemptions to the Farmland Protection Policy Act, including one for land
already in or committed to urban development. USDA/NRCS regulations contained at 7 CFR 658.2 define
“committed to urban development” as land with a density of 30 structures per 40-acre area; lands
identified as ‘‘urbanized area’’ (UA) on the Census Bureau Map or as urban area mapped with a ‘‘tint
overprint’’ on USGS topographical maps; or as ‘‘urban-built-up’’ on the USDA Important Farmland Maps.
Note that land “zoned” for development, i.e. non-agricultural use, does not exempt a project from
compliance with the FPPA.
C. Additional information about farmland, including consulting with the USDA Natural Resources
Conservation Service, can be found at https://www.hudexchange.info/programs/environmentalreview/farmlands-protection/.
9.6.16
Sole Source Aquifers (24 CFR 50.4(d))
A. Aquifers are drinking water systems that may be impacted by development. The Safe Drinking Water
Act of 1974 requires protection of drinking water systems that are the sole or principal drinking water
source for an area and which, if contaminated, would create a significant hazard to public health.
B. New construction and Environmental Assessment level rehabilitation projects located within the
boundaries of a sole source aquifer or the recharge area of a designated sole source aquifer must be
reviewed by EPA for the potential to contaminate the sole source aquifer.
C. Additional information about sole source aquifers, including a national map of sole source aquifer
locations, can be found at https://www.hudexchange.info/programs/environmental-review/solesource-aquifers.
D. Some HUD regions have established MOUs or other agreements for HUD projects which can be found
at
https://www.hudexchange.info/resource/5778/regional-sole-source-aquifer-mous-between-hudand-epa/.
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Wild and Scenic Rivers (24 CFR 50.4(f))
A. The Wild and Scenic Rivers Act provides federal protection for certain free-flowing, wild, scenic, and
recreational rivers designated as components or potential components of the National Wild and Scenic
Rivers System (NWSRS)56.
B. For new construction and rehabilitation, HUD must consider whether projects in proximity to a wild
and scenic river could impact the designated river or be inconsistent with the management and land use
plan for the designated river area.
C. Additional information about the Wild and Scenic Rivers Act and compliance requirements can be
found at https://www.hudexchange.info/programs/environmental-review/wild-and-scenic-rivers/.
9.6.18
Environmental Justice (24 CFR 50.4(l))
A. Executive Order 12898, Federal Actions to Address Environmental Justice in Minority Populations and
Low-Income Populations, requires that federal actions not result in disproportionately high and adverse
health of environmental effects on minority or low-income populations.
B. When a project impacts a minority or low-income population and there are unmitigated adverse
environmental impacts such as a location in a floodplain or a noise impacted site, HUD will perform the
necessary analysis before determining the acceptability of the project. A project that will receive a LowIncome Housing Tax Credit or a Section 8 HAP contract and has unmitigated adverse environmental
impacts is an example of when environmental justice concerns should be evaluated.
C. HUD will request information to complete this analysis as necessary and will advise the Lender of any
Environmental Justice concerns including recommendations on their resolution. In most cases the
preferred resolution would be to modify the project to eliminate or at least reduce the adverse effects,
when feasible.
D. Additional information on complying with Environmental Justice, including notification and
involvement of the impacted community when there are unmitigated adverse environmental impacts, can
be found at https://www.hudexchange.info/programs/environmental-review/environmental-justice/.
9.6.19
Additional Nuisances and Hazards
A. These requirements are applicable to all transaction types except those categorically excluded from all
environmental review (CENST), as discussed at Section 9.1.3.C.1 and Section 9.1.3.C.2, or as noted below.
B. Pressurized pipelines transferring flammable or combustible liquids and gases are a recognized
potential hazard to properties and their occupants. 57 Because of the potential hazard, HUD has
determined that:
56 The Act requires
projects to consider Wild and Scenic Rivers, Study Rivers and the Nationwide Rivers Inventory.
Follow link in 9.6.Q.3 for details.
57 Pressurized pipelines transferring flammable and combustible liquids and gases does not include vertical or
horizontal drilling used in Conventional or Hydraulic Fracturing for mineral exploration or recovery.
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1. No structures, ancillary facilities or structures, common areas, parking areas or like related property
improvements or features may be constructed or located within 10 feet of or on the easement of a
pressurized pipeline transferring flammable or combustible liquids and gases that exceed 200 psi
operating pressure (pressurized pipelines). This does not apply to distribution lines supplying only
the facility itself.
2. All new construction, rehabilitation projects where residential density is increased, projects where
there is a conversion from non-residential to residential use, or projects where a vacant building is
made habitable must consider the potential hazard of pressurized pipelines. The analysis must
identify all buried and aboveground pressurized pipelines within a one (1) mile radius of the property
that exceed 200 psi operating pressure. Suggested resources include the National Pipeline Mapping
System (NPMS), State and Local Agencies, pipeline markings identified on site, the 811 system, and
property surveys. Once the pipelines are identified and relevant pipeline diameter and operating
pressure has been obtained, refer to the table found in the Appendix A to determine the Baseline
Pipeline Impact Radius.
3. Once the steps above are completed, one of the two outcomes below will need to be completed:
If any of the properties’ buildings, ancillary facilities or structures, common areas, parking areas
or like related property improvements or features are located within the Baseline Pipeline Impact
Radius, the Lender must obtain an engineering report to assess the Thermal Radiation and Blast
Overpressure hazard58 to the HUD assisted property or occupants, and determine any mitigation
measures as required.
If none of the properties’ buildings, ancillary facilities or structures, common areas, parking areas
or like related property improvements or features are located within the Baseline Pipeline Impact
Radius, these facts should be noted in the environmental analysis and no further assessment will
be needed.
4. If the pipeline poses a safety hazard, HUD requires mitigation to address the issues and may reject the
project if no mitigation is possible. Mitigation can include modifying the building design using heat
retardant and high tensile strength materials; rearranging the site plan and exterior building shapes;
or constructing a barrier designed by a licensed professional structural or civil engineer.
C. HUD recognizes that certain free-standing structures may pose a hazard to properties and their
occupants through structural failure or other causes. Structures considered under this part include high
voltage utility post and towers; free-standing radio/TV/cell towers; free-standing water towers; wind
turbines; and other like free-standing structures. Exclusions from this definition include items affixed to
the structure (such as a radio/TV antenna, satellite dishes, cellphone towers, and similar features), unless
specifically identified as a hazard during the review. Additional exclusions include local service electric
lines and poles. Because of the potential hazards of such structures, HUD has determined that:
1. No buildings, ancillary facilities, structures or common areas may be constructed or located within
the easement of these fall hazards.
58 Thermal heat flux exposure threshold of 450 BTU/hr/ft 2 for people in open spaces where people congregate,
such as parks and playgrounds; thermal heat flux exposure threshold of 10,000 BTU/hr/ft2 for buildings; and blast
overpressure threshold of 0.5 psi as the maximum allowable pressure that can be measured at a distance from an
explosive hazard applicable to buildings, building occupants and outdoor unprotected facilities.
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9.6 Environmental Laws and Authorities
2. All buildings, ancillary facilities, structures or common areas, must consider the potential fall hazards
from such free-standing structures. The first step is to determine the maximum fall distance of the
free-standing structure.
If the maximum fall distance does not include any buildings, ancillary facilities, structures, or
common areas, document this in the environmental analysis in HEROS.
If any of the property’s buildings, ancillary facilities, structures or common areas are located
within the maximum fall distance around the free-standing structure, the Lender must submit an
engineering report to evaluate the engineered fall distance of the structure, which may be less
than the maximum fall distance. The engineered fall distance must be calculated by a registered
professional engineer.
D. For new construction projects, projects that convert a building to residential use, or projects that
increase residential density, all structures must be outside of the engineered fall distance. For monopoles
with no seams, welds, connections or weak points where a sustained load could cause failure to the pole
length, HUD will accept certifications by a licensed structural engineer that the monopole and base are in
good condition and comply with all structural requirements in lieu of a specified fall distance.
E. For existing residential facilities that do not increase residential density that are within the engineered
fall distance, the Lender may submit a report from a registered professional engineer that includes the
condition of the tower, the tower specifications, the date of the last tower maintenance, pictures of the
tower including the foundation, an assessment of the hazard to the HUD project, and a discussion of any
mitigation measures that could minimize this risk. Housing staff will determine whether to grant an
exception to the prohibition on being within the engineered fall distance.
F. HUD has requirements for oil or gas wells, sour gas wells and slush pits.
1. For an operating or planned drilling site, no residential structures may be within 300 feet of the
boundary of the drilling site.
2. For an operating well, no residential structures may be within 75 feet, unless the following mitigating
measures are taken:
Controls on nuisances;
Controls on noise caused by pumping; and
Spill controls to reduce risk of contamination.
3. For abandoned wells:
Confirmation by the State government that the well is safely and permanently abandoned. No
residential structures may be located within 10 feet.
If there is no confirmation letter, no residential structures may be located within 300 feet of an
abandoned well.
4. For sour gas (hydrogen sulfide bi-product) wells, separation distance must be determined by a
Petroleum Engineer, with concurrence by State government.
5. For slush pits (used for drilling mud mixes for well lubrication):
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If on-site, hazards analysis is required to be performed pursuant to Section 9.4. Mitigation must
include, but not necessarily be limited to, removal of all drilling mud from the site and backfilling
with clean compacted material.
If offsite, hazards analysis must be performed pursuant to Section 9.4.
6. Hydraulic fracturing (fracking) activities within or adjacent to the project site:
Fracking well pads. No residential structure may be within 300 feet of the boundary of an existing
or planned fracking well pad.
If fracking well pads are greater than 300 feet but within 1000 feet of a proposed MF project, HUD
requires a hazard analysis from a qualified party such as a geologist or a geotechnical engineer
evidencing that lateral fracking would not negatively affect soil stability, cause petroleum
releases, or create other risks to the HUD property and/or residents. etc. The analysis should
include information about extraction wells and other above ground fracking operations within
1000 feet of the project site and an assessment of risks from these operations. The report should
include information regarding the status of each horizontal well and future plans for new drilling
at or adjacent to the site.
MAP requirements related to above ground storage tanks (Section 9.6.9) and pressurized
pipelines (Section 9.6.19.B) apply to the above-ground fracturing operations.
If issues are identified, HUD requires mitigation to address the issues and may reject the project
if no mitigation is possible.
G. If any part of a site is to be developed on filled ground, HUD may require that all grading be properly
controlled to prevent differential earth movement, sliding, erosion, and/or other occurrences which might
damage dwellings, streets or other improvements. Excessive slopes, soil compatibility, and potential for
erosion are important site planning factors that impact the cost of development and the ultimate success
of the project.
H. HUD may require mitigation of a variety of additional nuisances and hazards on the property which
would affect the health and safety of residents and the security of the collateral.
I. Regional Centers or Satellite Offices may adopt additional requirements to address unique local
concerns, but, if any local requirement is mandated, the Regional Office must inform the Deputy Assistant
Secretary for Multifamily Housing and the HUD Headquarters Housing Environmental Clearance Officer
of the requirement and its rationale.
9.6.20
Environmental Assessments (24 CFR 50 Subpart E)
A. An Environmental Assessment (EA) level review requires compliance with NEPA in addition to the
laws and authorities listed at Section 9.3.G.1 and the additional Housing Specific requirements at Section
9.6.19. When an EA level of review is required (See Section 9.1.3.C.5), HUD will require and analyze
information to determine if the project results in any significant impact and if an environmental impact
statement is needed.
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9.6 Environmental Laws and Authorities
B. The following are EA requirements that must be included in the HEROS submission59:
1. Purpose and Need: HUD’s EA review requires a project justification that outlines the objectives of
the environmental review. The purpose and need statement provides a framework for environmental
decision-making.
2. Existing Conditions and Trends: HUD’s EA review must determine existing physical conditions of
the project area and also describe the character, features and resources of the project area and its
surrounding. This section should identify the trends that are likely to continue in the absence of the
project.
3. Effects Analysis: HUD’s EA review must consider any changes to the human environment that are
reasonably foreseeable and have a reasonably close causal relationship to the HUD project. Consistent
with 40 CFR 1508.1(g), HUD’s EAs must discuss both effects that occur at the same time and place as
the proposed project and any effects that are farther removed in time or distance from the project
area (e.g. potential changes to the land use and development patterns of the surrounding community.)
This analysis must include the full aggregated project site.
4. Alternatives: Projects must always consider the No Action alternative. HUD staff are considering an
application for FHA at a particular site and therefore are limited to considering three alternatives: the
action as proposed, modifications within the site controlled by the applicant, or no action, i.e.,
rejection of the application.
5. Environmental Assessment Factors: The EA must analyze the project’s impacts on land
development, socioeconomic factors, community facilities and services, and natural features.60 The
analysis will vary from project to project. For example, a project designed to house families will focus
on access to schools, parks and recreation while a project designed to house seniors would instead
focus on healthcare and social services. Some EA factors are listed below. For a full list with suggested
resources, see footnote 41.
Conformance with comprehensive plans, zoning compatibility, site safety, energy consumption,
and urban impact.
Availability of services like educational facilities, commercial facilities, health care and social
services.
Availability of supporting infrastructure such as solid waste, wastewater, storm water, and access
to municipal water supply, public safety (Police, Fire, and Emergency Medical Services), open
space and recreation, cultural facilities, and transportation.
59 Additional details and examples of
the EA requirements provided at
https://www.hudexchange.info/programs/environmental-review/housing/#faq. The HEROS Partner EA form also
gives a good overview of EA requirements, which can be found at
https://files.hudexchange.info/resources/documents/Environmental-Assessment-Factors-and-Analysis-PartnerWorksheet.docx.
60 Guidance on considering EA factors can be found at
https://files.hudexchange.info/resources/documents/Environmental-Assessment-Factors-Guidance.pdf.
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Chapter 9 Environmental Review and Requirements
9.6 Environmental Laws and Authorities
Operation and Maintenance Plans
A. For projects that contain lead based paint (LBP) or asbestos, or have ongoing risks such as radon or
contamination that may require permanent installation of ventilation, detection or alarm devices, the
Borrower or Project Architect is responsible for engaging the services of qualified abatement
contractor(s) as required by the relevant standard to prepare a scope of work for the abatement or
mitigation. Where the scope of abatement work consists of permanent enclosure or encapsulation or
ongoing monitoring, but not removal, a qualified consultant or abatement contractor(s) must also
prepare, separate from the scope of abatement work, an Operations and Maintenance (O&M) Plan. The
O&M Plan must describe ongoing maintenance procedures to be followed for as long as the hazard
remains in place. All abatement work and ongoing maintenance activities for radon, LBP, asbestos, and/or
any other hazards shall conform to the requirements described in this chapter. A condition shall be
attached to the Firm Commitment requiring that the Borrower operate and maintain the property
consistent with the referenced O&M plan(s) for the duration of the insured mortgage.
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10.1 Introduction
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Chapter 10 Management Analysis
10.1 Introduction
A. Management Agents that operate insured multifamily properties play a key role in providing quality
housing. While it is the ultimate responsibility of the project owner/mortgagor to select and oversee the
Management Agent of an insured property, the establishment of an effective relationship among HUD, the
owner, and the Management Agent is critical to the success of the property over the life of the mortgage.
The management agreement and related documents must be submitted with the Firm Commitment
application or can be submitted at the pre-application stage if the Management Agent has been identified
at that stage.
B. The Lender must review whether the proposed Management Agent demonstrates the qualifications,
capability and experience to assure that the property will be managed in a prudent, efficient, and costeffective manner and in accordance with all HUD requirements. Documentation submitted by the Lender
in support of the choice of Management Agent must demonstrate that the agent:
1. Is eligible for approval and is in good standing with HUD. HUD may condition its participation
eligibility approval of the Management Agent upon the resolution of referrals with HUD’s
Departmental Enforcement Center (DEC) that relate to the Management Agent, particularly as those
referrals may relate to the project;
2. Demonstrates effective management experience and acceptable operating procedures commensurate
with the type of project;
3. Has adequate fidelity bond coverage;
4. Is in compliance with all state and local laws, regulations and requirements; and
5. Is able to positively and effectively communicate and cooperate with legitimate resident associations.
10.2 Exhibits Required for Firm Commitment
A. Evidence of Previous Participation Review. Participants are permitted to submit to HUD their
Previous Participation Review submission package for electronic review (currently via Active Partners
Performance System (“APPS”)) or by paper (currently form HUD-2530) as early as the pre-application
processing stage for all principals and affiliates of the Management Agent.
B. Form HUD-9832, Management Entity Profile for the Agent. This form provides detailed
information regarding the organization, operation, and experience of the proposed Management Agent.
The management plan should provide a narrative overview and should include any pertinent leasing or
management strategies that are not covered in form HUD-9832.
C. Form HUD-9839 A, B, or C - Owner’s/Management Agent’s Certification, as appropriate. This
certification is subject to 18 U.S.C. Sec. 1001, which applies to anyone who makes false, fictitious, or
fraudulent statements/ false certifications. The agent and owner must certify that (1) HUD requirements
and contract obligations will be complied with, and that an acceptable Management Agreement will be
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executed, and (2) no payments have been made to the owner in return for awarding the management
contract to the agent, and that no such payments will be made in the future.
D. Proposed Staffing for the Project. Information is required regarding the job-titles, duties, and
salaries of all employees of the Management Agent who will work at the project which will be reviewed
to determine if the number, salaries, and duties of the proposed staff is reasonable and adequate for the
size and type of the proposed project. If there is a non-customary situation or arrangement, resulting in
the need for more or less staff than usual, an explanation of this must be provided.
E. Resident Complaints Resolution Procedure. Provide a description of the procedure used by the
agent to resolve resident complaints, as well as examples of how the system has been implemented and
maintained.
F. Management Agreement, if Applicable. Projects with identity-of-interest Management Agents or
independent fee Management Agents must execute a Management Agreement. An agreement is
recommended, but not required, for owner-managed projects or projects managed by a project
administrator.
G. Marketing, Leasing, and (if applicable) Relocation Plan:
1. All projects which require absorption of units at economic rents to achieve break-even occupancy
must submit a detailed marketing and leasing plan and budget that has been reviewed and confirmed
by the proposed Management Agent. The plan must discuss when marketing efforts will begin, when
the leasing office and model units will be opened, how the leasing office will be staffed, and the
project’s marketing and advertising strategy. The plan must address timing of the construction
progress schedule with respect to egress and ingress into the project, landscaping, and access to
amenities. These items are in addition to those required by the Affirmative Fair Housing Marketing
Plan.
2. For substantial rehabilitation projects involving temporary relocation or displacement of existing
residents, the plan must address details of timing, funding and management of the relocation process.
3. The Lender’s Underwriter, the field office team leader and the Asset Management staff should review
the marketing plan. Although not required, the Lender may retain a third-party property
management or leasing consultant to review such plans for large or complex deals or where the
proposed property manager is not fully experienced.
H. Affirmative Fair Housing Marketing Plan, form HUD-935.2A, if applicable. See Section 10.9 for
more detail on when the plan applies and the regulatory reference.
I. Additional Information Required by the Field Office. It may be necessary to provide the field office with
additional information so that a determination of the acceptability of the proposed Management Agent
can be made.
10.3 Lender Review of Management Documents
A. As part of the Firm Commitment application package, the Lender must provide documentation to
demonstrate the acceptability of the proposed Management Agent, with the Management Entity Profile of
particular importance. The Lender must review the qualifications of the proposed agent to assess its
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ability to manage the project effectively and in compliance with HUD requirements, and must consider
each of the following factors:
1. Past and Current Management
The Lender must review the proposed agent’s past experience and current performance with
respect to the following indicators:
1) Experience with projects similar in size and configuration to the subject;
2) Billing practices;
3) Controlling operating expenses;
4) Vacancy rates;
5) Resident turnover;
6) Rent collection and accounts receivable;
7) Physical security;
8) Physical condition and maintenance;
9) Financial reporting;
10) Resident relations;
11) Resident income certification, record keeping and reporting if an affordable or subsidized
project;
12) Appropriate applicant outreach and affirmative marketing in accordance with a HUDapproved AFHMP; and
13) Tenant selection in accordance with Fair Housing principles.
If problems are identified with any of these indicators, the Lender must assess whether the agent
has adequately improved its procedures to prevent the recurrence of such problems or whether
management initiatives by the agent and owner are sufficient to correct the problems and their
causes.
2. Ability to Manage Troubled Projects
If the property has physical, financial or social problems that require special expertise or skills to
manage effectively, the Lender must determine whether the agent has the necessary skills and
expertise and whether the agent’s proposed remedies for these problems are appropriate. Agents
proposed for these projects should have prior experience successfully addressing similar issues.
3. Management Qualifications
The proposed Management Agent should have at least one senior staff person who drafts the
agent’s policies and supervises project operations with the following qualifications:
1) A professional designation in housing management from a national organization that
provides such accreditation; and
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2) A minimum of 3 years of experience in directing and overseeing the management of at least
three multifamily projects serving a similar resident clientele and comparable to the
proposed property in scale, complexity, tenant profile and regulatory compliance.
The Lender may accept a proposed agent without the experience requirements listed in this
section if the agent is satisfactorily managing other insured or subsidized projects and has
consistently done so for a reasonable period of time determined by FHA.
4. Past Performance with Identity-of-Interest Contractors
If the Management Agent purchases goods or services from identity-of-interest companies and
has previously managed insured projects, the Lender must assess the agent’s past use of such
companies and whether this use resulted in costs to the project that exceed the prices paid in
arms–length transactions. The review should especially consider:
1) Goods and services purchased through any “pass-through” arrangements described in item
11(b) of the Management Entity Profile.
2) Evidence that the agent has compared prices and that the use of any identity-of-interest
companies or pass-through arrangements has been more advantageous to the project than
purchasing through arms-length transactions would have been.
3) Evidence that the Management Agent followed HUD contracting and hiring guidelines.
5. The Lender can utilize the following additional sources to determine the capability and expertise of
the proposed Management Agent:
Management Entity Profile. The Lender can use the information listed on the form to solicit
opinions from HUD offices that have worked with this agent.
Performance Evaluations for the proposed agent and projects which the agent has managed or is
currently managing if those projects are under Flexible Subsidy contracts or Workout
Agreements.
Monthly and Annual Financial Statements of the Project including the Independent Public Auditor
(IPA) Internal Controls Questionnaire.
Additional documentation that the Lender may review includes:
1) HUD/mortgagee on-site review reports;
2) Correspondence;
3) Resident complaint files;
4) Previous management reviews;
5) Previous REAC inspections/scores, and
6) Reviews from federal, state or local government agencies of the Management Agent’s past
experience with properties using affordable housing or subsidy programs, if applicable.
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10.4 HUD Asset Management Review
A. Asset Management Firm Commitment reviews will be assigned by the Chief, Account Executive Branch.
B. The Account Executive will review the various management documents and application exhibits and
advise the HUD Underwriter of their conclusions and recommendations.
C. The HUD Underwriter will provide the Account Executive with the data necessary for Asset
Management to rate the asset once a Firm Commitment is issued.
D. The HUD Underwriter, Account Executive, and Closing Coordinator will coordinate as needed and
appropriate to ensure that Firm Commitment special conditions are met, and timely review of closing
documents, turnover of files, and post-closing monitoring.
10.5 Review of Previous Participation
A. The Active Partners Performance System (APPS) was developed to automate the previous participation
review process (currently paper form HUD-2530). If the Management Agent makes a submission in APPS,
select Property submission reason as: "Application for Mortgage Insurance" with role as “Management
Agent.” Use of the APPS system requires that all participants must register in the Business Partner
Registration System (BPRS).
B. While performing a previous participation review, HUD staff will check for all non-compliance issues
based on previous participation records and other relevant information in HUD database or from other
sources. In addition:
1. Notwithstanding the issuance of the Commitment, previous participation approval of the
Management Agent must be obtained prior to and as a condition of Initial Endorsement.
2. Firm Commitments may only be issued with a condition when the commitment processing is
otherwise completed, and all principals of the Management Agent are determined to be acceptable.
10.6 Bonding Requirements for Agents
A. The Lender must determine that the agent has adequate bonding to provide a basic level of protection
for the multifamily project assets.
B. The Management Agent must certify in the Management Certification that it carries fidelity bond or
employee dishonesty coverage for:
1. All principals of the management entity; and
2. All persons who participate directly or indirectly in the management and maintenance of the project
and its assets, accounts, and records.
C. The fidelity bond or coverage must name the mortgagee and HUD as additional loss payees.
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D. Coverage may be through one or more bonds, and one bond may cover more than one project, including
projects whose mortgages are not insured or held by HUD. The agent’s principals and supervisory and
front-line staff may be covered under the same bond.
E. Each project must be bonded for at least the value of two months’ gross potential income for the project.
If a bond covers more than one project, this minimum must be computed using the project with the highest
gross potential income.
10.7 Management Agreement Requirements
10.7.1
Applicability
A. Projects with identity-of-interest agents or independent fee agents must execute a Management
Agreement. An Agreement is recommended, but not required, for owner-managed projects or projects
managed by a project administrator.
10.7.2
Required Contents
A. The owner and agent may negotiate their own form of agreement provided that it contains language
which meets the following requirements:
1. Scope of services. All management agreements must describe the services the agent is responsible
for performing and for which the management fee will be paid.
2. Required clauses. All management agreements must contain the following required provisions, in
addition to the language from the Regulatory Agreement, form HUD-92466M (see sections 17. Books
Maintained by Management Agents, and 21. Management, or any successor provisions), and the
requirements in the Project Owner’s Management Agent’s Certification form HUD-9839-B (see
paragraphs 1.b, 8 and 9, or any successor provisions.
Management fees will be computed and paid according to HUD requirements.
HUD may require the owner to terminate the agreement:
1) Immediately without penalty if an event of default occurs under the Security Instrument, Note
or Regulatory Agreement; or
2) Upon 30 days written notice, for failure to comply with the provisions of the Management
Certification or for other good cause; or
3) When HUD takes over the property as Mortgagee in Possession.
NOTE: The management agreement must always give the owner the ability to terminate the
contract for cause, with no more than a 30-day notice period.
If HUD terminates the agreement pursuant to its authority under the loan documents (form HUD92466M, Regulatory Agreement provision 21), the owner will promptly make arrangements for
obtaining an alternative Management Agent that is satisfactory to HUD.
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HUD’s rights and requirements will prevail in the event of any conflicts with the terms of the
management agreement.
The Management Agent must turn over to the owner all of the project’s cash, accounts, deposits,
investments, and records immediately, but in no event no longer than 30 days after the date the
management agreement is terminated.
10.7.3
Length/term of the Agreement
A. The length/term of the Management Agreement will be negotiated between the owner and the
Management Agent. However, HUD will require a minimum one-year term. HUD may also impose a
maximum term on the Management Agreement if the agent was approved by HUD on a conditional basis.
1. The Agreement may provide for a fixed term or an open-ended term (e.g., automatically renewable or
“to remain in effect until cancelled by HUD, the owner, or the agent”).
2. If the length /term of the Agreement changes before initial endorsement, the owner/agent must
submit a new Management Certification.
10.7.4
Management Fee
A. The Agreement must include all specifics of the Management Agent compensation and how the
management fee will be calculated, including any incentive management fees to be paid from surplus cash.
HUD will review the fee for adequacy and reasonableness for a project of the size and complexity as what
is proposed. The management fee must be equivalent to, and be no less than, a market rate fee that would
be charged by a replacement, third party Management Agent, if the replacement agent were to assume
responsibility for management of the property.
10.8 Approval of Proposed Management Agent
A. The Lender will recommend approval to the Hub Satellite office of the proposed agent if the agent has
demonstrated capacity to effectively manage the property within HUD requirements, the Management
Agent has shown adequate fidelity bond coverage and the Previous Participation Certification is approved.
In some instances, the Lender may find it necessary to recommend conditional approval if there are areas
of the agent’s procedures that are considered weak or that need to be changed. All conditional approvals
will be discussed with the proposed agent and any agreements/conditions that are imposed will be shown
both in the letter approving the agent, and in the Firm Commitment.
B. The Lender must provide a report regarding its review and recommendation which includes the
following information:
1. Name of the proposed Management Agent.
2. Composition of the proposed Management Agent.
3. Narrative of the agent’s experience and capacity to operate the subject property, with particular
emphasis on its past experience and capacity to manage affordable or subsidized properties, if
applicable.
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4. Demonstration that adequate fidelity bond coverage is in effect and that the proposed management
agreement meets HUD’s requirements.
5. A recommendation to approve the proposed Management Agent.
C. The Hub/Satellite office may disapprove a proposed Management Agent based on the decision of the
Review Committee to deny or withhold approval for the proposed agent’s participation. The Committee
may base its disapproval on the lack of the Management Agent’s capacity to effectively manage the project
within HUD requirements and to adequately meet the requirements of this Chapter. To proceed with a
Firm Commitment review, the owner must then propose an alternative Management Agent (and supply
all required documentation). The owner may appeal the decision of the Previous Participation Committee
under 24 CFR, Part 200.222.
D. HUD will review the Lender’s report and the management entity profile and make the final
determination to accept or reject the proposed Management Agent.
10.9 Affirmative Fair Housing Marketing
A. The Affirmative Fair Housing Marketing Requirements (24 CFR 200.600, Subpart M) apply to all
insured new construction and substantial rehabilitation projects. Each applicant for insurance must
submit an Affirmative Fair Housing Marketing Plan (AFHMP) or form HUD-935.2A. The plan must
describe an affirmative program to attract residents regardless of race, color, religion, sex, disability,
familial status, or national origin to the housing for initial rental. The plan must show use of a marketing
area with a diverse population and targeted outreach to demographic groups in the diverse area that are
least likely to apply for the housing. The affirmative advertising program shall use majority and minority
media and organizations and target those groups within the market area that would not ordinarily apply
without concerted outreach. The plan should include information on the applicant’s nondiscriminatory
hiring policy, its training program on nondiscrimination for its rental staff, and the display of the
Department’s Equal Housing Opportunity logo type and slogan. The Hub Satellite Office has the
responsibility to review the Plan and must review approve the Plan prior to Initial Endorsement. This
does not change the timing of the Plan’s submission; it is still required with firm application or preapplication submission. The HUD approved AFHMP must be closely followed by the owner and
Management Agent and must be regularly updated in accordance with HUD requirements.
B. Applications under Section 223(f), while covered by the nondiscrimination provisions of the Fair
Housing Act and Executive Order 11063, are exempt from the submission of a written plan. However, a
Section 223(f) applicant is required to maintain records of its affirmative marketing efforts.
10.10 Management Agents and Escrow Administration
A. Management Agents must cooperate with the Lender and with the Hub/Satellite office staff in
administration of the Initial Operating Deficit (IOD) escrow, including any disbursements permitted and
the release of any escrow balance remaining. The terms and procedures for release of the IOD are
addressed in Chapter 12, Section 12.15.4.C.
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B. Management Agents must cooperate with the Lender and with the Hub/Satellite office staff in
administration of the Reserve for Replacements account (per the reserve schedule and deposit
requirements included in the Firm Commitment) and in the requirement to obtain a new Capital Needs
Assessment (CNA) every 10 years during the loan term. See Appendix 5 for more details on PCNAs.
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Chapter 11 Lender Underwriting, HUD Review and Closing
11.1 General
Chapter 11 Lender Underwriting, HUD Review and
Closing
11.1 General
A. The MAP program delegates due diligence and underwriting responsibility to MAP approved Lenders
and their Underwriters. The MAP approved Underwriter must be completely familiar with the contents
of the MAP Guide, have demonstrated experience and mastery of commercial lending practices and real
estate finance, and have a working knowledge of HUD regulatory and statutory authority.
B. HUD retains commitment authority and responsibility for final determination of acceptable risk to the
insurance fund, as well as certain technical and compliance responsibilities. However, this in no way
relieves the MAP Lender from responsibility for their underwriting and programmatic compliance.
C. The basic function of a MAP approved Underwriter is to objectively evaluate the following factors in
making a credit approval recommendation:
1. Character, creditworthiness, competence, and capacity of the Borrower and development team
members.
2. Cash flow sufficient to service the proposed loan.
3. Collateral quality, including valuation, physical condition, environmental factors and location.
4. Capital structure, including all proposed indebtedness and equity.
5. Cash available to close, given the total mortgageable and non-mortgageable costs of the transaction;
and
6. Compliance with HUD program and processing requirements.
D. The Underwriter must identify all material risks and weaknesses, with appropriate mitigants including
quantitative analysis and stress testing to identify the impact of “worst case” scenarios. If a transaction
recommended by a Lender is properly underwritten and processed, and is complete and technically
compliant, HUD’s role is to review the application and the Lender can assume a timely determination.
E. If the application fails to identify material underwriting risks and mitigants, or has material processing
or compliance deficiencies, HUD has the option to reject the application, re-underwrite it and approve
with conditions, or return the application to the Lender for modifications to address deficiencies.
F. The responsibilities of MAP Lender and HUD Underwriters are addressed in Chapter 4 (Processing)
and in this chapter.
11.2 Lender Underwriting
A. The Lender is responsible for assigning a MAP approved Underwriter for the Pre-application or Firm
Commitment submission. The MAP approved Underwriter is responsible for the selection and
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11.2 Lender Underwriting
performance of the third-party professionals (both the firms and individuals). The Construction Loan
Administrator must be approved prior to the Firm Commitment stage if the closing and servicing Lender
has been identified, or as soon as identified.
B. The MAP Lender is responsible for underwriting the loan. This responsibility necessarily requires the
Lender’s oversight, acceptance and recommendation to HUD for approval of the conclusions and
recommendations of the third-party reports, except as modified by the Lender, and as explained, and
justified in the Lender’s underwriting. The Lender’s MAP approved Underwriter is responsible for
oversight and performance of the following tasks:
1. Due diligence, including selection and management of their third-party consultants;
2. Loan Processing;
3. Mortgage Credit review;
4. Underwriting;
5. Obtaining internal loan approval (from the Lender’s loan committee or other process);
6. Submission of the loan application to the appropriate Regional Center or Satellite Office and payment
of the application fee;
7. Responding to HUD deficiency letters and requests for information;
8. Coordinating with the Borrower and their counsel, and follow-up to get the loan to closing; and
9. Coordination with construction loan administration, cost certification, and servicing.
C. The MAP Underwriter should perform the site visit for new construction properties and for existing
properties an on-site lease audit and physical inspection representing a sample of each unit
type. Alternatively, an analyst, Underwriter trainee, or different MAP approved Underwriter of the Lender
acting under the direction of the MAP Underwriter (i.e., one that does not report to the originator) may
perform the site visit and physical inspection of the units. The Underwriter or trainee who conducts the
inspection must be identified in the narrative. Typically, the leases that are audited will be the same as
the units that are inspected, as follows:
1. For projects 50 units or less, inspect at least 1 of each unit type, to include a representative sample of
10% of the units.
2. For projects between 51 and 250 units, inspect at least 1 of each unit type, to include a representative
sample of 10 units plus 5% of the total number of units greater than 50.
3. For projects greater than 250 units, inspect at least 1 of each unit type, to include a representative
sample of 15 units, plus 2% of the total number of units greater than 250, for a maximum of 50 units.
4. The terms of the leases must be compared to the rent roll, verifying the unit number, resident name,
lease commencement date, expiration date, concessions, if any, and monthly rent. The Underwriter
must confirm that this data is consistent with the assumptions used in the underwriting analysis.
5. Any inconsistencies or conflicts between the leases, rent roll and the underwritten revenue
assumptions must be fully investigated and explained. The scope and results of the lease audit review
must be discussed in the Underwriter’s Narrative. The Underwriter is required to retain a copy of the
individual leases reviewed in the Underwriter’s working papers, which may be subject to audit but
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Chapter 11 Lender Underwriting, HUD Review and Closing
11.2 Lender Underwriting
should not be included in the Firm Commitment application submission. Some lease files, especially
for long-term residents, may be extensive. Only the most recent leases from the audit review should
be retained. However, if irregularities exist in the leasing history (such as missing lease pages,
unexplained modifications to lease terms or parties to the lease, for example), the entire leasing
history for the applicable unit should be retained by the Lender, and any irregularities must be
explained in the Lender’s Underwriters Narrative that is submitted with the loan application.
11.2.1
Pre-application
A. The Lender's Underwriter must determine that the submission meets the requirements of this Guide
and represents an acceptable risk to the insurance fund. The pre-application submission to the field office
must include a Standardized Underwriter Narrative together with any additional information and all
narrative attachments, which provide:
1. A summary of the relevant data and quantitative analysis.
2. Strengths, weaknesses, risks and mitigants.
3. A summary of programmatic eligibility and technical factors considered.
4. A description of the proposed project and the surrounding market conditions, including demand,
extent of competition, vacancy rates, market absorption, details about features of the proposal (e.g.,
zoning, unusual site conditions, environmental) which may present potential problems, and any other
information that would be useful to analyze the proposal.
5. A description of the individual or entity in control of the Borrower (plus General Contractor and
Management Agent, if known), their qualifications, the identification of principals and a preliminary
mortgage credit and creditworthiness review.
6. Explanations for any differences between the underwriting conclusions and the third-party due
diligence.
7. List of proposed in-house and third-party reviewers of the application and their qualifications.
B. Further details on the required content of the Standardized Underwriter’s Narrative and the materials
to be included in the pre-application can be found in this Guide and appendices.
11.2.2
Firm Commitment Application
A. The Lender’s MAP Underwriter must review the in-house and third-party reports to ensure the
processing of the loan is in accordance with the requirements of HUD program and processing
requirements and determine that the loan recommendation represents an acceptable risk and is
financially sound.
B. The MAP Underwriter must document any changes made to the technical reports and must submit an
updated, signed Standardized Underwriter’s Narrative describing all relevant aspects of the mortgage
transaction including a full discussion of the following:
1. Characteristics of the proposed mortgage loan that make it financially sound or an acceptable risk,
with the reasons the Lender recommends the loan.
2. All significant risk factors and risk mitigants.
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11.2 Lender Underwriting
3. Changes in the project from the pre-application stage including changes in sponsorship, proposed
development team and Lender reviewers.
4. Evaluation of the mortgage credit and financial capacity of the principals of the Borrower and its
ability to repay the loan.
5. Evaluation of the financial and technical capacity of the General Contractor to build/rehabilitate the
project.
6. Property financial analysis including both actual operating history and projected trends.
7. Property physical description.
8. History of Borrower’s involvement including the Borrower’s equity investment in the property, and
if applicable, any previous engagements to obtain FHA financing for the property.
9. Analysis of market, rents, expenses and estimated rent-up and operating deficit.
10. Adequacy of the proposed Reserve for Replacement.
11. Summary of environmental conditions, including any issues or potential issues and their mitigants.
12. Documentation of any changes the Underwriter made to the conclusions of the appraisal/technical
reports with justification.
13. Requests for any waivers of HUD program and processing requirements with supporting
documentation and justification summary.
14. Certifications from the individual reviewers (see Section 11.2.3.B).
15. Notify HUD of the rate lock and allow sufficient time to process any required amendment to the Firm
Commitment prior to endorsement. If the Borrower and the Lender choose to rate lock prior to the
submission of draft closing documents to HUD, they do so at their own risk. As always, Lenders and
Borrowers assume the risk of having to pay extension fees.
16. Further details on the required content of the Standardized Underwriter’s Narrative and the materials
to be included in the Firm Commitment application can be found in this Guide and appendices.
C. The MAP Underwriter is responsible for the review and reconciliation of the third-party reports and
the results of the mortgage credit review and other due diligence.
D. Lender Due Diligence Certification: With each Firm Commitment package, the Lender must submit a
letter signed by the MAP approved Underwriter which certifies that:
1. The Lender has reviewed all in-house and third-party forms/reports/reviews.
2. The preparer of the forms/reports/reviews is qualified as required by this Guide and has all required
insurance coverage(s).
3. The forms/reports/reviews were prepared in the manner required by the Guide and are complete
and accurate.
4. The Lender has identified all staff and third-party contractors who contributed to the underwriting
presentation and their role.
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11.2 Lender Underwriting
5. The proposed loan represents an acceptable risk to the Department and is financially sound, based
upon the Lender's review and analysis, and that the application complies with all HUD program and
processing requirements.
6. The letter must include the following certification and language:
I am an authorized agent of the Lender and employed full time by the MAP Lender. I have no side deals,
agreements, or other financial considerations in connection with this transaction and will not enter into such
arrangement in connection with this transaction.
11.2.3
Third-Party Report Certifications
A. The following Certification must be included in the Lender’s third-party reports:
I understand that my (appraisal, market study or architectural, cost, environmental, or other
specialized report) will be used by _______ (name of MAP Lender) to document to the U.S. Department
of Housing and Urban Development that the MAP Lender’s application for FHA multifamily mortgage
insurance was prepared and reviewed in accordance with HUD requirements. This report has been
made, presented, and delivered for the purpose of influencing an official action of the FHA, and of the
Commissioner, and may be relied upon by the Commissioner as a true statement of the facts contained
therein. I certify that my review was in compliance with HUD program and processing requirements
applicable on the date of my review and that I have no financial interest or family relationship with the
officers, directors, shareholders, members or partners of the Lender or affiliated entities, Borrower or
affiliated entities, the General Contractor, any subcontractors, the buyer or seller of the proposed
property and that I have not engaged in any business that might present a conflict of interest.
B. Both the MAP Underwriter and third-party certifications must contain the following warning language:
_______________________________________
I hereby certify under penalty of perjury that all of the information I have provided on this form and in
any accompanying documentation is true and accurate. I acknowledge that if I knowingly have made
any false, fictitious, or fraudulent statement, representation, or certification on this form or on any
accompanying documents, I may be subject to criminal, civil, and/or administrative sanctions,
including fines, penalties, and/or imprisonment under applicable federal law, including but not limited
to 12 U.S.C. §§ 1708 and 1735f-14, and 1833a; 18 U.S.C. §§1001, 1006, 1010, 1012, and 1014; and 31
U.S.C. §§3729 and 3802.
11.2.4
HUD Forms Submission
A. The Lender must submit a Standardized Underwriting Narrative and form HUD-92013-C, LIHTC
Summary Report required only for applications with LIHTC. The form HUD-92264 and form HUD-92264A are still required to be submitted and signed by the Lender and third parties preparing the documents.
The Lender must certify that all parties preparing forms, reports or reviews are qualified as required by
the HUD program and processing requirements.
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Chapter 11 Lender Underwriting, HUD Review and Closing
11.3 HUD Regional Center or Satellite Office Underwriting Review
11.3 HUD Regional Center or Satellite Office
Underwriting Review
11.3.1
HUD Underwriter Responsibilities
A. Under the direction of the MF Regional Center Director or other appropriate managers, the HUD
Underwriter is responsible for coordinating with technical support and other HUD staff, and the oversight
and performance of the following tasks:
1. Conduct of Concept meetings and follow-up communication.
2. Review of proposed MAP Lender and Underwriters and reporting to Asset Management and
Counterparty Oversight Division of any concerns.
3. Working with the Workload Distribution Lead for the Regional Center and/or Satellite Office and
other appropriate officials in managing workload assignments for new applications.
4. Screening applications for completeness, and fiscal controls for new application submissions.
5. Conducting an “Early Warning System” screening to determine what level of Underwriter and
technical specialist review is required given the complexity and risk factors associated with the
transaction, and specific risk issues in the transaction.
6. After screening or during the underwriting and technical review, the Regional Center or Satellite
Office will advise the Lender of deficiencies in the application, and the Lender will have 5 business
days to correct the defects or deficiencies. If the defects/deficiencies cannot be corrected within the
5 business days, or such other time frame as the Regional Center Director determines as appropriate,
HUD will reject the application.
7. Acknowledging receipt of the application, management of the queue and estimating processing target
dates.
8. Advising the Lender if there are deficiencies or additional information is needed.
9. Performing technical reviews based on Lender underwriting and third-party reports or arranging for
technical specialist reviews for higher risk or complex transactions or functions that need specific
technical analysis given the features of a particular transaction.
10. Recommending transactions for loan approval (or rejection) decisions.
11. Preparing and issuing Pre-application Invitation letters and Firm Commitments.
12. Assisting the closing coordinator as needed in coordinating the closing process with OGC, the Lender,
and Borrower’s team.
13. Coordinating with Asset Management in turnover of files, briefing about conditions of the Firm
Commitment, and providing information necessary for Asset Management’s risk rating of the
transaction; and
14. Coordinating with Asset Management and/or HUD’s Departmental Enforcement Center (DEC) to
ensure that any open DEC referrals with respect to the Borrower or the proposed managing agent are
resolved.
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Chapter 11 Lender Underwriting, HUD Review and Closing
11.3 HUD Regional Center or Satellite Office Underwriting Review
Pre-Application and Firm Commitment Processing
A. The HUD Underwriter will conduct or arrange for the Pre-application or Firm Commitment review,
including any required technical specialist reviews. The HUD Underwriter will coordinate the technical
reviews, resolve any inconsistencies and make a recommendation as to whether an application should be
approved, modified or rejected. The HUD Underwriter must document and justify any recommendation
to approve a loan or to require conditions with which one or more technical reviewers does not concur.
B. If a HUD technical review does not concur with the conclusions approved by the Regional Center or
Satellite Office Director, the technical reviewer may document the non-concurrence separately in the file.
The HUD Underwriter should address the non-concurrence and document how the issues were addressed
in the loan approval decision.
C. Upon completion of the technical reviews and the environmental assessment, the HUD Underwriter
must prepare a memorandum to the Regional Center or Satellite Office Director summarizing the
individual reviews of the specialists, any proposed waivers of Guide requirements and the Team Leader’s
overall recommendation.
11.3.3
Underwriting Recommendation
A. The memorandum recommending loan approval will be in the standard loan committee report or
alternative format, and specifically address:
1. The adequacy of the initial operating deficit for any new construction or substantial rehabilitation
loans.
2. The adequacy of the working capital escrow and construction contingency for any new construction
or substantial rehabilitation loans.
3. The adequacy of the initial deposit and ongoing payments to the reserve for replacement.
4. A description of any non-critical repairs to be performed after closing for Section 223(f) loans.
5. In a tax credit transaction, the schedule of the equity contribution at closing and remainder during
various stages of the construction period.
6. The architectural drawings and specifications.
7. Any environmental conditions or other concerns.
B. Back-up documentation necessary to prepare and issue the Firm Commitment must be attached or
available, including Previous Participation Certification from APPS, the technical staff reviews, the Lender
narrative summary, the Lender’s technical reviews, form HUD-92264 and form HUD-92264-A signed by
the HUD reviewers and Team Leader. Where the HUD Underwriter has rejected a conclusion by a
technical reviewer or has modified any technical recommendation by the Lender or HUD reviewer,
documentation and justification must be included in the memorandum.
C. HUD’s review appraisers have the option to modify appraisal conclusions internally or to return the
application to the Lender for revision of the appraisal. Should the HUD review appraiser choose to modify
the appraised value, rent or expense conclusions internally, as per USPAP Standard 3, this opinion
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11.3 HUD Regional Center or Satellite Office Underwriting Review
becomes its own appraisal whether it concurs with the opinion of value in the work under review or
differs from the opinion of value.
11.3.4
Firm Commitment Issuance, Extensions, Amendments
and Reissuance
A. Upon issuance of a Firm Commitment, the HUD Underwriter must provide such support as needed and
requested to the closing coordinator to prepare for closing, and provide files, data, and information as
needed by the Account Executive to facilitate Asset Management’s rating and servicing of the loan.
B. Firm Commitments will be issued for a term of 60 calendar days. The Lender has the option of
requesting an extension of the Commitment to prepare for the Initial Endorsement submission. The
Regional Center Director may grant one or more extensions, for up to a total of 120 calendar days from
the original expiration date. An additional 60-day extension for good cause may be approved by the
Director of Multifamily Production in HUD Headquarters, after which a reopening fee will be required.
C. When the Regional Center Director determines that extenuating circumstances justify a limited
extension of an outstanding Firm Commitment, the Lender must certify and Regional Center Director must
concur that the documentation provided by the Lender demonstrates that granting the extension will not
likely change the underwriting data and assumptions on which the Firm Commitment was issued or
undermine the feasibility of the project. Such factors include but are not limited to a change in the
Borrower’s or development team’s configuration or financial capacity, market, inflation or other factors
impacting cost. A change in the interest rate or other terms or conditions of the Firm Commitment may
require reprocessing and amendment of the Firm Commitment.
D. If a Firm Commitment has been extended beyond 120 calendar days from its original date, the Lender
must provide an updated appraisal/market study, cost and mortgage credit, or other information as
required by the Regional Center or Satellite Office for review prior to loan closing.
E. Only the Regional Director, Production Division Director, and other officials formally designated to act
in these capacities are authorized to sign Firm Commitments and/or endorse Insured Mortgage Notes.
F. The Department has limited flexibility to permit the resubmission of rejected applications. In
accordance with the procedures contained in HUD Handbook 4410.1 Rev-2, Project Fiscal Procedures will
apply.
G. An amended commitment bears the same date as the original commitment, followed by the date of the
amendment, although the applicable regulations are those in effect on the original commitment issuance
date. Most underwriting changes, such as changes in mortgage amount and/or interest rate, will be
incorporated in letter amendments to the commitment.
H. Additional conditions are part of the Firm Commitment. Changes to the specific terms of such
conditions or allowing closings to proceed when conditions are not yet met, must be documented with a
letter amendment to the Firm Commitment.
I. A reissued commitment will have its own date which will control what regulations apply and how long
the commitment will remain in effect and will substitute for the originally issued commitment. A Lender
which accepts a reissued commitment will no longer have rights granted under the original, or a
previously amended, commitment. A re-issued commitment is required for:
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11.3 HUD Regional Center or Satellite Office Underwriting Review
1. Requests for reconsideration of an expired or terminated commitment.
2. Changes in project location.
3. Major changes in plans and specifications.
4. Reprocessing to reflect changes in the MIP.
11.3.5
Waivers
A. Statutory requirements shall not be waived under any circumstance. Regulations may only be waived
by an Assistant Secretary (usually the FHA Commissioner for MAP loan issues other than environmental
regulatory waivers).
B. Requested waivers of this Guide must be submitted for Regional Counsel review to ensure there is no
conflict with a statute or regulation. The Regional Center Director may waive requirements of this Guide
that are not statutory or regulatory except for the following matters which must be approved in HQ:
1. Debt coverage ratios for all programs.
2. Loan to value ratios for Section 223(f) loans.
3. Loan to cost ratios for the 221(d) and 220 programs.
4. Traditional Application Processing for MAP eligible transactions.
5. Substantive modifications to the Ground Lease addendum form (form HUD-92070M).
6. The requirement for a Single Asset Borrower Entity (see 24 CFR 200.5).
7. The prohibition on a Lender advancing fees for payment of discounts on behalf of the Borrower.
8. Payment of broker or referral fees to any party with an identity of interest with the Borrower or its
affiliates.
9. Extensions of Firm Commitments beyond 180 days of issuance (original term of 60 days plus up to a
120-day extension).
10. Approval of applications in which the Regional Environmental Officer recommends disapproval of an
FHA mortgage insurance application.
11. Waivers of Chapter 19 (Closing Guide) as well as any waiver of, or revision to, closing documents must
be processed pursuant to the procedures in Chapter 19, Section 19.4.1.
C. The Regional Center Director will submit to the Director of the Office of Multifamily Housing Production
all waiver requests requiring HQ approval as early as possible. Requests for regulatory waivers will take
longer to process since they require review and concurrence from the Office of General Counsel and the
Deputy Assistant Secretary for Multifamily Housing, as well as the approval of the FHA Commissioner. HQ
will not consider waiver requests submitted directly by MAP Lenders.
D. Any waiver granted in connection with the proposed transaction must be documented in the field office
docket and HQ docket, along with the Lender’s request and field office request using form HUD-2, as
further set forth in Chapter 1, Section 1.4.E. Waivers granted by the Regional Center, along with
supporting documentation, must be submitted to the Office of Multifamily Housing Production to
determine if changes to this Guide or the regulations are necessary.
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Chapter 11 Lender Underwriting, HUD Review and Closing
11.4 Program Closing Provisions
Interest Rate Lock
A. The Lender must notify HUD of interest rate lock (e.g. Ginnie Mae investor trade agreement) to allow
sufficient time to process any amendments to the Firm Commitment. While the Lender may elect to lock
rate after receipt of a commitment to insure, Lenders and Borrowers assume all risk of fees due (e.g.
investor extension or delivery fees) associated with the timing of transaction closing and mortgagebacked security pooling or issuance.
11.4 Program Closing Provisions
A. Chapter 19 (Closing Guide) addresses various program closing provisions and procedures that the
Lender must be aware of to prepare for initial closing, final closing and initial/final closing events. The
HUD Underwriter’s responsibilities (or Closing Coordinator, as applicable) include:
1. Ensuring all special conditions to the Commitment have been individually addressed and satisfied,
including the resolution of any open DEC referrals, prior to or in tandem with closing.
2. Reprocessing and amending Firm Commitments as necessary and appropriate [Cross references: FHA
Closing Guide Section 19.1.02 and Regulations 24 CFR 200.46 for Commitment Issuance & 200.47 for
Firm Commitment].
3. Extending or Re-issuing Firm Commitments. [Note: The Reopening fee for an expired Firm
Commitment is $0.50 per thousand (Regulations 24 CFR 200.40(g)); Cross references: 24 CFR 200.46
and 200.47].
4. Coordinating with Asset Management staff to ensure the orderly transition from Production to
Servicing.
5. Coordinating the closing schedule with OGC, the Lender, and Borrower.
11.5 Loan Fees
A. Lenders may charge loan origination and placement fees, both of which are mortgageable, and the
combination of which cannot exceed 3.5% of the mortgage amount (or 5.5% for tax-exempt bond
financing) for Section 223(f) refinancing transactions and new construction or substantial rehabilitation
transactions. The maximum fees for Section 223(a)(7) loans is 2% for loans greater than $2 million, and
up to $40,000 for loan amounts less than $2 million. In addition to loan origination and placement fees,
Lenders may realize trade profit (also known as marketing gain) on the sale of Ginnie Mae or other
mortgage backed securities.
B. Lenders are required to report loan fees earned that exceed five percent (5%) of the insured loan
amount on each FHA-insured loan over $2,000,000 endorsed during the Lender’s fiscal year period
covered in its audited financial statements. Loan fees include: (a) origination and placement fees as
permitted by this Guide, plus (b) trade profit, trade premium or marketing gain earned on the sale of the
Ginnie Mae security at a value above par, even if the security sale is delayed until after endorsement, minus
(c) loan fees applied by the Lender to its legal expenses incurred in connection with loan closing. This
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11.5 Loan Fees
reporting is confidential and is not subject to release under the Freedom of Information Act but will be
examined by HUD in evaluating counterparty risk as part of the Lender monitoring responsibility.
C. The loan fees on a particular transaction that exceed 5% must be reported by both the originating
Lender and closing Lender when the loan is assigned for closing and fees are split between the two
entities. Trade profit fees used to pay prepayment penalties on behalf of a Borrower in a Section 223(a)(7)
transaction are not net out of the loan fees in calculating whether or not the loan fees exceeded 5%.
D. Loan fees are earned as follows:
1. Construction loan fees are earned at initial closing, except to the extent that the loan documents defer
a portion to a later date. Construction loan extension fees are not earned until the time such
extensions are granted.
2. Permanent loan fees and permanent loan extension fees, to the extent a separate permanent loan is
anticipated, are earned at final closing.
3. Construction/Permanent loan fees (for construction loans anticipated to convert to permanent loans)
are earned at initial closing, except to the extent that the loan documents defer a portion to a later
date.
11.5.1
Deferred Fee Collection
A. Chapter 8, Section 8.15.4.A.4 sets forth provisions for the deferred collection of fees in connection with
tax-exempt bond financing.
11.5.2
Broker’s Fees
A. Fees to mortgage brokers are allowed so long as they are disclosed in the Underwriting Narrative and
form HUD-92434M (or form HUD-92455M, as appropriate), there is no identity of interest between the
mortgage broker or its affiliates, or the Lender and its affiliates, and the Borrower or its affiliates, and the
broker is actively engaged in the business of mortgage loan origination.
B. Referral fees to other parties, such as consultants, Management Agents, or entities or individuals with
any identity of interest with the Borrower or its affiliates are prohibited.
C. Lender or affiliates of Lenders may not pay anything of value directly or indirectly to any person or
entity in connection with an insured transaction if the person or entity has received any other
compensation from Borrower, seller, builder or any other person for services related to the transaction,
or related to the purchase or sale of the mortgaged property, except as approved by the Director of
Multifamily Production in HUD Headquarters. See 24 CFR 202.5(l). Refer also to Chapter 2, Section 2.4 of
the MAP Guide.
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11.6 Title Matters
11.6 Title Matters
11.6.1
Preliminary Title Report
A. As noted in the Application Checklist, a preliminary title commitment or report should be reviewed as
part of the Firm Commitment processing. It is used to validate existing indebtedness, ensure correct legal
description of the parcel(s) to be mortgaged, and the adequacy of title with respect to matters such as
liens, easements, restrictions and other exceptions. See Chapter 19 (Closing Guide) for additional
requirements related to title and survey matters.
11.6.2
Air Rights and Other Shared Interest Projects
A. A three-dimensional air rights map for air rights projects is required. The existence of adequate
vertical ways to the ground for required services, e.g., utility and fire suppression lines, chimneys, trash
chutes, elevators and emergency exit stairs must be verified. In addition, there must be an acceptable
discharge to a public way from all building egresses, including emergency exits, and services, e.g., trash
removal.
B. Maintenance, joint use, easement and other agreements may be required. In cases where common
facilities exist between the insured parcel and an adjacent parcel, Borrower must provide for recordation
of an agreement for the common use land and facilities, e.g., common drives, common lobbies, elevators,
walkways, utility roads, parking structures, recreation facilities, storm water management facilities
(retention ponds detention ponds, swales and culverts) or other air rights project common facilities. The
agreement must grant rights to the HUD project site and its residents to use the common facilities. If the
HUD project is subject to property/homeowner association documents such as with a cooperative, these
documents may provide for maintenance, access and cost sharing, which must be determined acceptable
to HUD prior to or as a condition of the Firm Commitment.
C. If the air rights parcel is on a leasehold, it must include the Ground Lease addendum form (form HUD92070M) with minimal modifications to reflect an air rights lease.
D. The Regional Center or Satellite Office Director must:
1. Assure that the integrity and maintenance of air rights platform foundations and other structural
members are defined as the air rights provider's responsibility.
2. Verify that shared maintenance/operating costs are equitable and that enforcement rights protect the
project interests.
3. Require easements, cross easements or other documents to provide the HUD project and its residents
the right to use the common facilities.
11.7 Borrower Entity’s Organizational Documents
A. Draft (or final) organizational documents should be reviewed as part of the creditworthiness analysis
during Firm Commitment underwriting. Organizational documents for the Borrower entity must be
submitted at closing. The specific documents required for each type of Borrower entity are set forth in
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11.8 Note
Chapter 19 (Closing Guide). These requirements apply to all types of closings including initial, initial/final,
and final endorsements.
B. The documents terms must include the required language found in Chapter 19 (Closing Guide).
11.8 Note
11.8.1
Term
A. The term must be the same as specified in the Firm Commitment, which must be within the maximum
terms allowed by the program and not less than 10 years.
1. Generally, for most new construction or substantial rehabilitation rental projects, the term, calculated
from the date of completion of construction, may not exceed the lesser of 40 years or 75% of the
project's remaining economic life.
2. For existing projects (insured under Section 207 pursuant to Section 223(f)), the term must be not
less than 10 years, and may not exceed the lesser of:
35 years, or
75% of the estimated remaining economic life of the physical improvements.
3. For 223(a)(7) projects, the term of the mortgage is statutorily limited to 12 years beyond the
remaining term of the existing mortgage (excluding any previous Section 223(a)(7) loan) so long as
the PCNA and underwriting determine that the loan term is no more than 75% of the remaining useful
life of the property.
11.8.2
Prepayment Provisions
A. Generally, prepayment lockout and/or penalty structures that are commercially reasonable and
consistent with industry practice, that expire after 10 years and are no more than 10% during any of the
first 10 years, and no more than 1% thereafter are acceptable, so long as the interest rate is commercially
reasonable at the time of the rate lock.
B. The following additional conditions and terms apply:
1. Market rate properties.
Prepayment must be permitted in whole or in part so long as 30 days advance written notice is
given to Lender of intent to prepay, except for Section 223(f) loans (subject to statutory five year
prepayment lockout), which must meet certain conditions and receive HUD approval if the
property will be converted to a use other than rental housing, in order to prepay within the five
year prepayment lockout.
Prepayments must be permitted for up to 15% of the original principal amount in any one
calendar year without a prepayment charge. Prepayments exceeding 15% may be subject to a
reasonable charge agreed to by Borrower and Lender and included in the Mortgage.
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11.8 Note
Notwithstanding the Borrower’s right to prepay, a HUD 9807 must be processed in order for HUD
to release the recorded Regulatory Agreement.
2. Affordable or subsidized properties.
FHA insured projects which are, or formerly were, affordable or subsidized and are subject to a
Use Agreement, Regulatory Agreement, or similar restrictive covenants require prior written
consent of HUD to prepay the mortgage debt.
HUD may approve partial prepayments to reduce succeeding monthly payments over the
remaining portion of the original mortgage term or may also approve partial prepayments made
after 30 days written notice. Prepayments exceeding 15% of the original principal amount may
be subject to a reasonable charge on such excess as agreed to by Borrower and Lender and
included in the Mortgage.
3. Prepayment of bond financed or Ginnie Mae securitized mortgages. Where the mortgage is given to
secure Ginnie Mae mortgage-backed securities or a loan made by a Lender that has obtained the funds
for the loan by the issuance and sale of bonds or bond anticipation notes, or both, the mortgage may
contain a prepayment restriction and prepayment penalty charge acceptable to the Commissioner as
to term, amount, and conditions.
11.8.3
Conditions for Including Lockouts and/or Penalties
A. Compliance with the following conditions is required when prepayment lockouts and/or penalties are
permitted.
1. Lender’s Certificate and Request for Endorsement. The Lender’s Certificate, form HUD-92434M and
the Request for Endorsement, form HUD-92455M, requires the Lender to certify that in the event of a
default during the term of the prepayment lockout and/or penalty (i.e., prior to the date on which
prepayment may be made with a penalty of one percent or less), it will comply with Program
Obligations. The Lender, in order to comply, must:
Request a 90-day extension of the deadline prescribed by 24 C.F.R. Section 207.258(a)(2) for filing
a notice of its intention to file an insurance claim and its election to assign the mortgage.
Assist the Borrower to arrange refinancing to cure the default and avert an insurance claim if HUD
grants the requested (or shorter) extension of the notice filing deadline.
Report to HUD at least monthly on any progress in arranging a refinancing.
Otherwise cooperate with HUD in taking reasonable steps to avoid an insurance claim.
Require any successors or assigns to certify in writing that they agree to be bound by these
conditions for the remainder of the term of the prepayment lockout and/or penalty period; and
Notify HUD of the delinquency where a payment is not received by the 16th day of the month in
which it is due.
11.8.4
Late Charge Provisions
A. Lender may collect a late charge for the cost of handling delinquent payments, subject to the following:
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11.8 Note
1. Charges must not exceed two cents per dollar of unpaid principal and interest that is more than 10
days in arrears.
2. Late charges must be separately charged to and collected from Borrower and cannot be deducted
from any total monthly mortgage payment, or collected from any reserve escrow, residual receipts
funds, or from any interest accruals thereto.
11.8.5
Override of Prepayment Lockout
A. Where obligations pursuant to tax-exempt bond financing or Ginnie Mae involvement do not impose
restrictions independent of the Lender’s restrictions, HUD may consider exercising an override of
prepayment lockout and/or premium provisions imposed by the Lender if:
1. Borrower has defaulted on the insured loan and HUD has received notice as required by the
regulations.
2. HUD determines that the project has been experiencing a net income deficiency, which has not been
caused solely by management inadequacy or lack of owner interest, and which is of such a magnitude
that the Borrower is currently unable to make required debt service payments on the insured loan,
pay all project operating expenses and fund all required HUD reserves;
3. HUD finds there is a reasonable likelihood that the Borrower can arrange to refinance the defaulted
loan at a lower interest rate or otherwise reduce the debt service payments through partial
prepayment; and
4. HUD determines that refinancing the defaulted loan at a lower rate or partial prepayment is necessary
to restore the project to a financially viable condition and to avoid a full insurance claim.
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Chapter 12 Construction Period
12.1 HUD Construction Administration Roles and Responsibilities
Chapter 12 Construction Period
12.1 HUD Construction Administration Roles and
Responsibilities
12.1.1
General
A. For new construction and substantial rehabilitation projects the HUD construction administration
period begins at initial endorsement and extends to final closing. For refinance transactions with repairs
and alterations, the construction administration period begins at endorsement and ends at the closing of
the Repair Escrow. Construction administration involves managing risks during construction and
ensuring compliance with all contractual obligations upon completion. HUD’s personnel tasked with
construction administration roles and related duties are as follows:
12.1.2
HUD Construction Analyst (CA)
A. HUD regional production chiefs or designated technical branch chiefs will assign HUD construction
analysts to administer construction for each project. The assigned construction analyst (CA) serves as a
single point of contact on behalf of HUD to the Lenders and the external development team (e.g., owner,
General Contractor, Architect, etc.) during the construction administration period. In general, the CA is
responsible for overseeing construction progress and the development team’s performance during
construction and the contractor’s warranty period. The HUD CA must be familiar with all program and
contractual requirements particular to the project. Where existing HUD forms (e.g. the Trip Report, form
HUD 95379) refer to the HUD “construction manager” or “CM” the reference is to the HUD construction
analyst designated as the HUD point of contact for construction administration of the project.
12.1.3
HUD Inspector
A. The HUD inspector monitors construction on HUD’s behalf by visiting the site, participating in progress
meetings, and generating inspection reports based on observations and interviews of the project
development team in order to protect HUD’s interests during construction. As HUD's agent, the inspector
ensures that the construction conforms to the drawings, specifications, and sound construction practice
within the scope of the contract.
1. The HUD inspector is typically an independent third-party contracted by HUD to serve as HUD’s agent
managed by HUD CA.
2. The HUD CA or another designated HUD construction analyst may act as HUD inspectors on a projectby-project basis.
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12.2 Pre-Construction Conference
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12.2 Pre-Construction Conference
12.2.1
General Requirements
A. A pre-construction conference is required for every new construction and substantial rehabilitation
project and must precede the initial start of construction, including early start of construction. A preconstruction conference is optional for Section 223(f) projects depending upon the size and scope of the
project, complexity of the repairs and experience of the development team. A pre-construction conference
is not required for refinance projects where work is limited to repairs and level 1 alterations but is
recommended when the cost and/or classification of work requires a Project Architect, except when the
Architect’s task is limited to design of accessibility remedies. The HUD Inspector or the HUD CA conducts
the pre-construction conference as the HUD representative and the conference should be held at initial
endorsement or early start approval where feasible but may be scheduled shortly before or after
endorsement if necessary. The necessary attendees and the topics to be covered are set forth below:
1. Expected attendees:
Borrower’s representative;
Borrower’s supervisory Architect;
General Contractor;
Major subcontractor(s), i.e., principal trades, MEP, site, structural, finish or any with 15% or more
of the work measured in hard cost;
HUD representative (HUD CA or HUD Inspector);
HUD’s Underwriter;
Lender’s representative; and,
Representative from the Office of Davis-Bacon and Labor Standards for Davis-Bacon Wage related
issues.
B. For new construction and substantial rehabilitation projects, the HUD representative should review
the Supplementary Conditions of the Contract for Construction, form HUD-92554M, covering Davis-Bacon
wage rates, special environmental conditions related to construction including issues regarding leadbased paint, asbestos, site contamination or the need for archaeological monitoring on site during
excavation, Federal labor standards and equal employment provisions-related issues, including contract
obligations of the General Contractor and all subcontractors as follows:
1. Certification of compliance with Davis-Bacon wage rates with each request for advances;
2. That Davis-Bacon wage rates are applicable to a second mortgage securing a governmental loan.
3. Statement of sanctions that may be imposed for not complying with the supplemental conditions.
4. Applicable Davis-Bacon wage decision and form HUD-92554M must be made part of the subcontracts
for all tiers.
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5. Importance of Federal wage payments, prompt certified payroll submissions and proper
recordkeeping. A copy of the applicable Davis-Bacon wage decision and Form WH-1321, Notice to
Employees, must be conspicuously posted at the job site.
6. Identifying HUD Labor Standards and Enforcement staff that will review labor standards compliance
and answer any further inquiries concerning Davis-Bacon wage and reporting requirements.
7. The URL for Universal Source Locator to obtain the Equal Opportunity poster with instructions to post
conspicuously at the job site.
8. Contractor’s Guide to Davis-Bacon.
9. Contractor’s registration with Elation Systems for Davis-Bacon prevailing wage payroll certification.
12.2.2
Contract Administration
A. The HUD representative should describe the contract provisions for administering the work, including:
1. General contract administration responsibilities of the Lender, Borrower, Borrower’s Architect
and/or supervising Architect, General Contractor, and HUD representative.
2. Procedures for:
Change orders;
Requesting clarification of construction documents;
Reporting and correcting non-compliant work;
Requesting periodic payments and release of escrowed funds;
Substantial completion of work or portions thereof; and,
Permissions to occupy, including management plans and rent rolls.
3. Work changes completed in anticipation of a future change order will be regarded as non-compliant.
There will be no insured advances for such work or other work dependent on it.
4. Periodic advances:
Borrower’s and General Contractor’s required preparation of requests, including the field
approval and subsequent processing;
Provisions for submitting surveys, title reports, and other documentation in support of
construction advances;
Requirements for contractor’s retainage and its release.
5. Stored materials and procedures to request payment for materials stored onsite, and components
stored offsite where applicable (see Appendices 12B and 12C).
6. Offsite work and procedures to request payment for completed offsite work, the required retainage
and its release.
7. Termination of contract(s). Provisions for terminating the construction contract and/or Architect’s
contract, and the Lender’s responsibilities during the construction stage and in the event of a default.
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12.2.3
Cost Certification
A. Cost certification requirements for the mortgagor and (if applicable) the General Contractor,
subcontractors, equipment lessors and suppliers, industrialized housing manufacturers and relocationrelated costs. Where there is a second mortgage securing a Governmental loan, the cost certification also
applies to the second mortgage.
B. HUD staff to inform all parties that HUD will initiate a pre-cost certification conference to be held when
construction is 90% complete and that detailed instructions will be provided at that point. (See Chapter
13 for cost certification procedures.)
C. Matters concerning identity of interest are as follows:
1. Identities of interest that develop or become known after initial closing must be reported to the
Lender and to HUD within 5 working days of having such knowledge;
2. HUD must give prior approval for all identity of interest subcontractors and apply penalties where
this is not done;
3. Self-owned equipment must be certified; and
4. Shell companies are prohibited. In this context a shell company is a firm organized for the apparent
purpose of acting as a General Contractor but in practice subcontracts the preponderance of its
responsibility measured both in the substance of the work as well as in monetary value to one or two
other de facto General Contractors, collecting a fee but performing little or no commensurate service.
See the 50/75 percent rule in Chapter 13, Section 13.15.3.D.
12.3 HUD Construction Inspection and Monitoring
12.3.1
Purpose of Inspection
A. Inspection means periodic observations made of construction activity at the site by a HUD Inspector
for the purpose of protecting HUD's interests. Inspections are conducted to:
1. Evaluate the contractor's and Architect's performance;
2. Confirm construction is in accordance with the contract documents; and,
3. Report on conformance with prevailing wages and other contract requirements.
B. The inspection instructions are the same for projects involving the insurance of advances and those to
be insured upon completion, except for those variations specifically stated to be applicable to one or the
other.
12.3.2
Access
A. At all times, HUD has the right of access to the property and the right to inspect all work performed
and materials furnished to complete the project.
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12.3.3
HUD Construction Analyst’s Duties
12.3.3.1
Assignment
A. HUD CA will assign a third-party inspector to conduct inspections for the project. Upon assignment,
the CA will issue the following to the inspector:
1. Set No. 3 of the contract drawings and specifications. This set will be HUD’s “As-Built” document for
the inspector to redline throughout construction to conform it to the contractor's "Record Set."
2. Copy of the Construction Contract, form HUD-92442M for insured advances projects and other
acceptable construction contract for Insurance Upon Completion projects (see Chapter 5, Section 5.5)
or AIA A104 when applicable for certain refinance or acquisition transactions.
3. Owner-Architect Agreement (AIA Document B108 or B104) when an Architect is required to
administer the construction contract (see Chapter 5, Section 5.2.3.3).
4. Contractor's and/or Borrower's cost breakdown. Schedule of Values, form HUD-2328 when insured
advances are involved or list of repairs and alterations with costs summary as applicable for certain
refinance or acquisition transactions.
5. Drawings and specifications pertaining to off-site improvements.
6. Agreements or contracts providing for off-site construction.
7. Construction Schedule.
8. Other construction-related documents such as repairs lists, relocation plans, etc.
12.3.3.2
Offsite Fabricated Construction
A. HUD will not conduct inspections of construction progress for modular or panelized products
fabricated in off-site manufacturing facilities. (See Chapter 5, Section 5.7.4.G)
12.3.3.3
Trip Report Review
A. The CA shall review and evaluate all form HUD-95379 Trip Reports completed by the HUD Inspectors
and initiate appropriate actions as necessary.
1. The CA should be aware of progress, trends, new or uncorrected non-compliance, unusual conditions,
etc., in order to be familiar with the work and to initiate any required corrective action immediately
(see Section 12.3.6).
2. The CA shall review Trip Reports for quality and identify any absence of significant facts, findings, and
evaluation comments.
The CA shall advise the HUD Inspector of any unsatisfactory action or detail in the report, or any
error in its preparation to prevent repeat of similar errors.
A field review inspection by the CA may be necessary to evaluate the quality of the reports.
Any differences of opinion or findings between the HUD Inspector and other technical specialists
involved during inspection must be resolved by the CA prior to the official submission of the Trip
Report to the Architect and the Lender.
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12.3.3.4
HUD Inspector Oversight
A. The CA shall keep informed of the general quality of the performance of HUD Inspectors. A protocol for
supervising HUD Inspector’s field operations is established in the Inspection Contract and is followed for
each project.
12.3.4
HUD Inspector’s Duties
A. The inspector is to observe and report on construction activities for compliance with the contract
documents. The inspector must be factual and specific in all statements in reporting and recording
significant construction developments observed.
12.3.4.1
Orientation
A. Upon assignment to a project, the inspector will study the drawings and specifications and become
familiar with the conditions at the site.
12.3.4.2
Facilities
A. The contractor must furnish the inspector with enclosed working space that is acceptable to HUD.
Adequate (but not elaborate) facilities should be required as soon as actual construction begins at the site.
12.3.4.3
Inspections
A. Duties. The major functions during inspection are to:
1. Evaluate the performance of the contractor and construction administration of the supervisory
Architect;
2. Report on the contractor’s conformance with construction schedule;
3. Report on occupancy, delays, disputes, and changes;
4. Conduct inspections of periodic construction progress and of critical phases of the work;
5. Report noncompliance with the contract documents observed by the inspector and/or the
supervisory Architect;
6. Determine that the amounts requested by the contractor and recommended by the Architect for
payment are reasonable;
7. Conduct employee wage interviews using form HUD-11; and,
8. Report on labor and EEO compliance.
9. Review completed units and execute the form HUD-92485 Permission to Occupy as required;
10. Report on compliance with a relocation plan, when applicable (see Appendix 3, Section A.3.5 for
applicability and requirements).
B. Frequency. The inspector shall make one job site visit each month for new construction and
substantial rehabilitation projects, except when HUD determines no inspection is necessary due to the
progress of the work in a particular period. Additional visits may be necessary due to the nature of the
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project. The frequency of inspection should ensure reasonable continuity and be appropriately scheduled
for the size and character of the project, the speed with which construction is progressing and the quality
of work on the project. Visits should be scheduled to observe major construction operations without
neglecting lesser operations. Enough time must be allotted to each visit to make a complete inspection.
Inspection frequency for Section 223(f) transactions is described in Section 12.17.2.
C. Form. Each inspection shall be recorded on a HUD Representative's Trip Report, form HUD-95379.
D. Reporting requirements. The following documents or forms executed during inspection must be
sent promptly to the CA, the Project Architect and the Lender’s Construction Loan Administrator:
1. HUD Representative’s Trip Report, form HUD-95379. Original to the CA, with copies to the
Architect and the Lender’s Construction Loan Administrator.
2. Contractor’s Requisition, form HUD-92448. Original to the Lender’s Construction Loan
Administrator for signature with copies of the signed documents to the CA, the Architect and the HUD
Inspector.
3. Change Order form HUD-92437. Original to the Lender’s Construction Loan Administrator for
signature with copies of the signed document to the HUD CA, the Architect, and the HUD Inspector.
4. Permission(s) to Occupy, form HUD-92485. When all required signatures (mortgagor, Architect,
contractor, Lender, and HUD Inspector) are affixed, the document will be sent to the HUD CA for
approval. Upon signing by the FHA authorized agent, copies are sent to the Lender’s Construction
Loan Administrator, the Architect, and the HUD Inspector.
5. Nonconformity with HUD requirements. If any nonconformity with HUD requirements or site
conditions not considered in the design is found at any point, they are to be reported by memorandum
to the CA and to the Regional Center Director.
12.3.4.4
Start of Construction Date
A. The inspector will report the date of initial construction start and the date of the start of permanent
construction on form HUD-95379.
1. The date of the initial construction start, used for recording and reporting purposes, is the "start of
construction" as used in connection with labor standards and prevailing wage requirements. This is
defined as the beginning of initial site clearance and preparation, provided these activities are
pursued diligently and are followed, without appreciable delay, by other construction activities.
2. The date recorded as the start of permanent construction, used for the purpose of determining the
earning of the inspection fee, will correspond to the first day that permanent on-site building elements
were put into place, such as footings and/or foundations, pilings, utility lines, etc.
3. While excavation is an integral part of foundation work, it does not constitute a start of permanent
construction.
12.3.4.5
Shop Drawings and Other Data
A. During the construction period, the inspector must check whether shop drawings are being submitted
by the contractor for approval by the Architect as required by the AIA General Conditions of the Contract.
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Upon request by the Architect or the inspector, the contractor will keep copies of tests, certifications and
any other data required by the contract documents onsite for review.
12.3.4.6
Work Stoppage
A. The HUD inspector will report to the CA on form HUD-95379 any work stoppage unless such stoppage
is due to inclement weather or similar reasons. If known to the inspector, the reason for the work
stoppage should be stated and when resumption of construction is anticipated.
12.3.4.7
Occupancy
A. The HUD inspector will complete the portion, "FHA Inspection Report," of form HUD-92485,
Permission to Occupy, when submitted, to request permission to rent or occupy specific living units,
commercial or other space. The form is to be submitted when the inspector reports safe ingress and
egress to the units and/or building, as evidenced by a certificate of occupancy from the locality. In the
event that scheduling does not permit the inspector to inspect the completed units on a timely basis, then
the CA may authorize the Architect to issue a phased Permission to Occupy on condition that the HUD
Inspector will inspect the completed units at the next regularly scheduled site visit. Units and spaces
should not be occupied prior to approval by HUD. The Regional Center Director should determine who in
the Regional Center or Satellite Office will approve the permission to occupy.
1. Occupancy prior to the execution of form HUD-92485 will be reported to the Regional Center Director
by written memorandum.
2. The inspector will also include on the form HUD-95379, the number of units occupied prior to
approval, as well as the date occupancy took place.
12.3.4.8
Additional Duties of the Inspector
A. Additional Duties of the Inspector include:
1. Advising the Architect administering the construction contract on HUD requirements;
2. Reviewing the Architect's job log;
3. Reviewing copies of the Architect's decisions;
4. Reporting on project construction progress to the CA on form HUD-95379;
5. Notifying the Architect and the contractor if an identity of interest exists between the owner and the
contractor, or if it is determined that there are any essential variations in the cost of the work installed,
materials stored and the request for construction advances recommended by the Architect; and
6. Conducting interviews with an appropriate sampling of the laborers and mechanics engaged and
records interview information on Record of Employee Interview, form HUD-11, in connection with
wage and labor compliance in the construction of the project.
12.3.4.9
Construction Record
A. From the initial construction start through final inspection, the HUD Inspector shall be responsible for
maintaining a record of construction that includes minutes of the pre-construction conference as well as
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reports of required guarantee inspections. The Inspector shall keep a record binder when the CA first
assigns the project or may elect to expand the project record binder to include inspection reports. All
forms, reports, decisions, and documents relevant to construction or inspection reporting shall be recorded in the binder in chronological order. The forms and documents listed below shall be included in
the Construction Inspection Record Binder, when applicable.
1. Drawings and specifications: Set 1, 2, and 3 referenced in journals though filed elsewhere (record the
storage location of set 1 and use of 2 and 3).
2. Off-site drawings and specifications (referenced in journal).
3. Construction Contract, forms HUD-92442M.
4. Owner-Architect Agreement.
5. Progress schedule (form HUD 5372) and construction schedule (See Chapter 5, Section 5.3.1.D and
Section 5.3.2.2).
6. Contractor's and/or Borrower's Cost Breakdown, form HUD-2328.
7. HUD Representative's Trip Report, form HUD-95379.
8. Contractor's Requisition, form HUD-92448.
9. Change Orders form HUD-92437, AlA G710, and Architect's supplemental instruction or equivalent.
10. Letters, memoranda, notes, and worksheets.
11. Journal of Architectural Actions (if separate binder).
12. Surveyor's Report, form HUD-91073M (final and others, if requested).
13. Permission(s) to Occupy, form HUD-92485.
14. Record of established escrows including amounts escrowed and a complete list of unfinished
construction items, record of call-back inspections and recommendations for monies to be released.
12.3.4.10
Projects Insured Upon Completion
A. The inspector will report the percentage of completion of the project on form HUD-95379 at the end
of each month. This percentage is an approximation for general information and is not used for
disbursement.
12.3.4.11
Off-Site Inspection
A. The inspector checks all off-site construction for conformity with the terms of the contract and reports
work progress by percentages on form HUD-95379. Completion is reported on form HUD-92464.
12.3.5
Construction Progress Meetings (monthly meetings)
A. During construction the contractor, mortgagor, mortgagor’s supervisory Architect and HUD Inspector
must attend monthly job meetings at the job site when monthly requests for advances are prepared. The
Project Architect is responsible for conducting and keeping official written records of the meetings.
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B. The owner's representative must be a member of the Borrower entity, usually a general partner or
managing member with authority to make decisions. Non-profit organizations may be represented by an
executive officer or member of the Board of Directors.
C. The MAP Lender's representative must attend whenever the project is out of compliance, such as when
construction has fallen more than 10% behind schedule according to the Construction Progress Schedule
(form HUD-5372), or other problems arise that jeopardize the completion of the project (see Section
12.3.6.C for examples of construction-related problems).
D. During the meeting, the HUD Inspector must:
1. Comment to the group on the quality of construction and of the Architect's observations and the
contractor's supervision.
2. Comment on all known construction defects and deficiencies (non-compliance) and methods of
correction.
3. Explain that changes in the work from the contract documents (non-compliance) must be resolved by
approved change order requests or the work done in accordance with the contract documents. All
change orders must receive prior approval before work subject to the change order is commenced.
4. Inform parties of HUD policy for holdback of construction advances until non-compliance is corrected.
5. Record on form HUD-95379 the issues raised at the meeting. Significant concerns of any party should
be presented by memorandum through the CA to the Regional Center Director.
6. Resolve equal opportunity and labor disputes. When such disputes are known, the HUD Labor
Standards and Enforcement and Equal Employment officers must be invited to attend.
7. Address any tenant relocation concerns, including any URA compliance-related issues.
12.3.6
Reporting Serious Construction Problems
A. HUD Office. HUD Offices must identify and report, by electronic mail, to the Regional Center Director
and Multifamily Asset and Counterparty Oversight Division (COB) all insured multifamily projects under
construction or in the guarantee period that have serious construction defects or other serious
construction-related problems. This information will be used to reply to inquiries, as an "early warning
system" on troubled projects, and to determine if assistance by the HUD Office is necessary . The
Production Division Director or designee will work with the Lender, owner, contractor and other
related parties to resolve the noncompliance.
B. HUD Inspector. HUD Inspector must identify all construction problems that may delay completion or
lead to foreclosure or assignment of the mortgage to HUD by using form HUD-95379, HUD
Representative’s Trip Report.
C. HUD Construction Analyst (CA). The CA must prepare a referral memorandum to the Regional Center
Director when defects or construction-related problems occur, such as:
1. Work stops for 20 calendar days;
2. There are slow payments or non-payments to the general contractor and/or subcontractors;
3. Contractor abandons the job;
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4. Contractor, owner or Architect changes during construction;
5. Correction of any construction deficiency is not started within 30 days of the first notification to the
contractor; or,
6. Contractor cannot or will not correct any construction defect or latent defect.
D. Referral Memorandum. The referral memorandum must include full details of the constructionrelated problem, including:
1. A copy of form HUD-95379, which identifies the problem.
2. The inspector's opinion of the cause and recommendation for correction.
3. A report of action by the CA and/or other HUD Office staff.
4. A report of actions by the owner, Architect, contractor, mortgagee, and bonding company (when
appropriate).
5. A plan of action to be undertaken by the HUD Office if the mortgage is assigned to HUD during
construction or foreclosure is initiated by the Lender.
D. Only the initial report is required unless the Regional Center Director requests further action or followup by the HUD Office.
E. MAP Lender. It is the Lender’s responsibility to work with the Borrower, General Contractor, and
Architect to get projects back on schedule and in compliance with the contract documents. The Lender
should take the lead in initiating appropriate measures and coordinate efforts by the development team.
The Borrower, Lender, and General Contractor must develop an action plan and submit to HUD to get
projects back in compliance when construction is 60 or more days behind schedule and/or the project is
at risk of not reaching completion. The MAP Lender shall prepare a written plan when the project is at
risk before the project goes into default. This plan should include:
1. A description of the circumstances that led to the project being at risk of default;
2. A listing of the issues needing resolution;
3. An identification of which party has which role in the resolution;
4. Action items needed and the responsible party/parties;
5. A list of resources required and identification of those available for resolution;
6. A timeline of projected deliverables and milestones toward resolution;
F. For complete instructions on handling problems before final closing, see Appendix 12, Section A.12.5.
12.4 Architect’s Duties in Administering Construction
12.4.1
General Requirements
A. The Architect administering construction (Supervisory Architect) shall:
1. Provide services in accordance with the Owner-Architect Agreement.
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2. Have no identity of interest with the owner or contractor. An identity of interest is defined in the HUD
Amendment to the B108, Owner-Architect Agreement.
3. Ensure that construction is carried out in accordance with the contract documents, including:
Restricting materials, products and equipment to those specified.
Restricting all deviations to those substantially consistent with the original design concept
including form, color, and texture.
When arriving at the net amount due on every requisition, comparing the cost of the work and
materials with the cost to complete the project. Current and previous payment must relate to the
total cost for completion.
Restricting substitution of items of a different design or size from those specified to those that are
equivalent in utility (i.e., durability, quality, and ease of maintenance).
Restricting substitution of any material differing in composition or appearance from the one
specified to one which is equivalent in its attributes (i.e., character, quality, durability and ease of
maintenance).
Keeping a log on the site that is readily available to the mortgagor and HUD representatives.
12.4.2
Architect's Supplemental Instructions
A. The Architect administering the construction contract may issue field orders using AIA Document
G710, Architect's Supplemental Instructions, or a similar form.
B. The Architect must send a copy of each supplemental instruction to HUD, although prior approval by
the Lender and HUD is not required.
C. Supplemental instructions must not involve a change in contract sum or contract time. Supplemental
instructions may be used to:
1. Direct the contractor to bring construction into compliance with the contract documents.
2. Interpret or clarify the contract drawings and specifications.
3. Order minor changes in the work, not involving cost.
4. Accept specified equivalents.
5. Record other "field orders" that are not construction changes.
12.4.3
Architect Administering the Construction Contract
A. The Architect administering the construction contract is responsible for reporting in writing the results
of periodic visits to the construction site. The Architect's log should provide information regarding
assessment of the progress of the work and a record of the actions taken to ensure that the work is being
accomplished in the best interests of all the parties.
B. The American Institute of Architects (AIA) Document G711, Architect's Field Report, may be used for
the log. A log of each visit should show, at a minimum, the following:
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1. Date of inspection.
2. HUD project identification and location.
3. Time, weather, and temperature range.
4. Estimated percent of completion.
5. Work in progress and conformance with the contractor's progress schedule.
6. Persons present at work site.
7. Observations and items to verify.
8. Information or action required.
9. Firm name and signature.
12.5 Architect’s Adequacy
A. The Architect's administration of the construction contract is covered by the Owner-Architect
Agreement and by the General Conditions of the Contract for Construction. The HUD inspector is
responsible for determining the adequacy of the Architect's administration.
12.5.1
Deficient Administration
A. The Architect’s administration of the construction contract will be considered deficient when: 1) the
Architect does not report all observed non-compliance with contract documents; 2) does not report
instances of unacceptable performances; and, 3) fails to actively pursue remedies. The Architect will not
be responsible for actual construction, construction means, methods, techniques or other related
responsibilities of the contractor. However, based on on-site observation as the owner's agent the
Architect must keep the Lender, owner and HUD informed of the progress of the work and endeavor to
protect the owner and HUD against defects, deficiencies, and delays in the construction.
12.5.2
Reasons for Termination of Services
A. Inadequate performance, undue delay, misrepresentation or failure to act on the part of the Architect
or the Architect’s associates and employees shall be reason for the termination of the Architect's services
on the project and may adversely affect the firm's acceptability on future projects.
12.5.3
HUD Office Actions
A. The HUD inspector shall bring to the attention of the Architect specific areas in which services are
considered deficient. Sufficient time and appropriate assistance shall be given to obtain necessary
compliance.
B. When the Architect's performance is first observed as deficient, in addition to the HUD
Representative's Trip Report, form HUD-95379, the inspector shall also prepare a written memorandum
to the CA of the deficiency and advise of any planned actions or assistance. The memorandum should
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recommend that future requests for Architectural inspection fees be disallowed until performance
improves to an acceptable level.
C. An immediate follow-up by the CA is always required. Conferences with the inspector and the Architect
should be arranged and a target date established for the Architect to comply. The CA shall inform the
Regional Center Director of current problems and of established target dates for corrections. Deficiencies
related to misrepresentation, undisclosed identity of interest and known illegal kick-backs should be
immediately referred to the local HUD Office of General Counsel with a copy to the Regional Center
Director. The local HUD Office should clearly document all actions.
12.5.4
Request for Contract Termination
A. When compliance with the contract cannot be obtained within 30 days, the Regional Center Director
shall request termination of the Architect's contract in accordance with the provisions of the AIA OwnerArchitect Agreement. Upon termination, the Architect shall be entitled to only the prescribed portion of
the fee determined by the percentage to which construction was completed on the date that the Architect
was removed from the project. The Regional Center Director has full authority to secure acceptable
performance.
12.5.5
Contract Termination
A. The owner will hire an independent Architect who is acceptable to all parties to continue the
administration of the project construction documents. The HUD inspector does not assume the Architect's
responsibility.
12.6 Completion Inspections for New Construction and
Substantial Rehabilitation
12.6.1
Substantial Completion
A. The Architect will date and sign the certification on form HUD-92485 Request for Permission to
Occupy, for that part or for all the work that is sufficiently complete, in accordance with the contract
documents, and may be occupied for the use intended.
B. The contractor must submit a punch-list of items to be completed or corrected to the Architect when
the work is ready for occupancy. (See Article 9.8, AIA Document A201.)
1. The Architect will inspect, check the punch list and modify it if necessary, and determine when the
work is substantially complete. (Dwelling units containing punch list items will not be accepted for
occupancy.
2. However, punch list items in interior common areas and on the exterior do not preclude occupancy.)
C. The Architect and HUD Inspector will verify on form HUD-92485 Request for Permission to Occupy the
date that the work, or a portion of the work, is substantially complete and suitable for occupancy.
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12.6 Completion Inspections for New Construction and Substantial Rehabilitation
D. Where the Owner-Architect Agreement and the General Conditions of the Construction Contract, AIA
Document A201, refer to a Certificate of Substantial Completion, it confirms that the Permission to Occupy
Project Mortgages, form HUD-92485, was executed.
E. The date of substantial completion of a portion(s) of the project is the date that the HUD Inspector signs
the Permission to Occupy for the portion(s) of the work completed. This is contrasted with the final
completion date, which is the date the HUD Inspector signs the final HUD Representative's Trip Report,
form HUD-95379 evidencing that construction is 100% complete.
F. The Contractor’s Warranty Period commences with Substantial Completion of the Project as defined in
Article 3.D of the Construction Contract, form HUD-92442M which takes precedence over AIA Document
A201, Article 9.8.4, and stipulates that warranties commence with the substantial completion of each
portion of the work.
12.6.2
Final 100% Draw Completion Inspection
A. The Architect and HUD inspector will make the final inspection upon written request of the contractor
for 100% draw request requiring no modifications.
1. The Architect must determine that all punch-list items have been completed unless they are beyond
the control of the contractor (i.e.: items of delayed completion).
2. The inspector must prepare the final inspection report on form HUD-95379 which includes:
Reports onsite construction completion, although there may be items of delayed completion.
Lists and describes any items of delayed completion.
Lists any offsite work and reports the percentage of completion for each.
3. The HUD Construction Manager will check the final inspection report to determine:
If unacceptable and, requires re-inspection (i.e.: the report is not considered final).
If acceptable, the report will be endorsed as follows:
1) "Construction acceptably completed." (If there are items of delayed completion, add, "subject
to escrow of funds to assure completion of listed items of delayed completion.")
2) "All offsite sewer, water, electrical and gas facilities are completed, connected and operable,
and safe, adequate, all-weather ingress and egress provided." (If offsite item incomplete, add,
"except as stated at the time of inspection.")
3) Date and sign the report.
CA will prepare a memorandum for signature by the Regional Center Director transmitting the
final inspection report, which:
1) States the date of final completion (i.e.: the date of final inspection);
2) Lists incomplete offsite work; and
3) Lists items of delayed completion and the estimated of cost of completion for each item.
B. The escrow for items of delayed completion must not be less than 150% of the estimate to complete
and must not exceed 2% of the mortgage. Work must be completed within the time specified in form
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HUD-92456M, Escrow Agreement for Incomplete Construction, but not more than 12 months from the
date of the final HUD inspector’s trip report.
12.6.3
Warranty Inspections
A. Inspections to ensure correction of latent defects (defective or nonconforming work not observed
during construction) or to check any item of delayed completion will generally not be required or
expected to be performed by the HUD Inspector. HUD has the option of requiring such inspections on
particular transactions. For those transactions where such inspections are requested by HUD, they should
be performed within 1 year of the date of final completion and the following requirements will apply:
1. The CA will schedule guarantee inspections as follows:
If required, the first inspection must be within 9 months of final completion and should provide
for inspection of the entire project.
Other inspections may be necessary to assure inspection of seasonal items such as heating and
landscaping.
The last inspection must be not later than the 10th day of the 12th month after the final
endorsement date to check previously reported defects and their correction, and to identify any
additional defects.
The ninth- and twelfth-month warranty inspections are to be attended by the Architect, Owner
and General Contractor. Copies of the Architect’s Field Reports for these inspections are to be
forwarded to both HUD and the Lender.
2. The Architect must report each guarantee inspection on form HUD-95379, including:
If work is acceptable, state, "All observable work acceptable at the time of this inspection."
If unacceptable, list latent defects.
1) Describe each item.
2) Recommend method of correction.
3) Estimate current cost of correction.
Check any item of delayed completion and list complete and uncompleted items under a separate
heading.
Note any improper maintenance or casualty damage under a separate heading.
12.7 Application for Insurance of Advances
12.7.1
General
A. Insurance of advances is the process of releasing insured mortgage funds and other funds necessary
for the construction, acquisition and/or refinancing of the project. The following general criteria apply to
the advancing of such funds:
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1. All escrowed funds for on-site improvements (with the possible exception of grant/loan proceeds
furnished by a government agency or instrumentality or tax credit equity proceeds) must be
disbursed before mortgage proceeds. See Chapter 14 for instructions on the pro-rata disbursement
of tax credit equity proceeds. EB-5 Investments must be funded in advance, in the same way as other
equity sources, and are not eligible to be disbursed on a pro-rata basis.
2. The amount of construction funds approved and advanced for insurance must be consistent with
construction progress as approved by the HUD Inspector, except in the case of the initial and final
advance which must be approved by the Regional Office Production Director, See Section 12.7.1.A.6
below.
3. Other mortgageable items must be adequately documented with bills and/or receipts before funds
can be approved and advanced for insurance.
4. The amount advanced for construction items must be adjusted for a 10% holdback until 50%
completion then reduced per Section 12.15.1.A.3 below.
5. The final amount approved for insurance must be supported by certified costs recognized in the cost
certification review. Projects that are exempt from the cost certification process can submit for HUD’s
review a copy of their final Sources and Uses Statement prepared by the allocating State Housing
Finance Agency or in the alternative, a statement of the final sources and uses amounts prepared by
the title insurance company providing services for the project.
6. The Application for Insurance of Advance of Mortgage Proceeds, form HUD-92403, is initiated by the
mortgagor. The initial and final advances must be submitted by the mortgagee to HUD for review and
approval. Interim advances are approved by the mortgagee, based upon the HUD Inspector’s approval
of the construction amount. The approved Lender’s construction loan administrator must sign forms
HUD-92403 and HUD-92448 in the Authorized HUD Official signature block.
For the initial and final advances, the Regional Production Director must sign forms HUD-92403
and HUD-92448, in the following spaces:
1) Under Authorized HUD Official for form HUD-92403, and
2) Under Director, Housing Production for form HUD-92448.
For other interim advances, the Lender (i.e., either the Lender’s Underwriter or construction loan
administrator) must sign forms HUD-92403 and HUD-92448 for HUD, in the same spaces as
described for signatures by the Regional Production Director for initial and final advances in the
immediately preceding sub-paragraph 6.a.
7. Requests for funds must be supported with relevant evidence attached to form HUD-92403 and form
HUD-92448, Contractor’s Requisition, such as bills and receipts.
8. Please see Chapter 19, Closings for additional requirements related to title and survey matters.
12.7.2
Lender’s Role in Processing Application for Insurance of
Advance
A. Lender’s role in processing form HUD-92403, Application for Insurance of Advance includes:
1. Complete the application indicating:
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In Column B, amounts approved by the Lender/HUD;
Lender’s approval date;
Amount to be advanced from mortgage proceeds;
Amount disbursed from mortgagee’s front money escrow, if any; and
Total loan proceeds disbursed including the current request.
2. Submit the initial and final application to HUD for review and approval.
3. Process and approve interim advances.
4. Ensure clear title before advancing the approved disbursement.
5. Notify HUD in writing when clear title does not exist or is impaired by reason of mechanics liens
unresolved for more than 60 days or other impairments appearing since initial endorsement without
Lender and HUD consent.
12.7.3
Stages of Advances
A. In cases involving insurance of advances, HUD and the Lender’s processing of advances is divided into
the following stages:
1. Initial advance. Initial advance refers to the first application and coincides with the initial
endorsement of the HUD-insured Note. The initial advance will be reviewed and executed by the HUD
mortgage credit analyst. The Lender should submit form HUD-92403, Application for Insurance of
Advance of Mortgage Proceeds, with supporting documentation for HUD approval.
2. Interim advances. Interim advances are subsequent applications up to completion of the project and
will be processed and approved by the Lender.
3. Next to Final Advance.
When HUD is in receipt of the contractor’s certification and the consent from both the mortgagor
and surety, if any, the final 2.5% of the construction holdback is released.
This procedure applies only to non-identity of interest contractors or where the contractor's
identity of interest in the project ownership is not greater than 5%.
4. Final Advance. Final advance refers to any remaining balance of mortgage proceeds at final
endorsement and takes into consideration funds necessary to set up the escrows for “Items of Delayed
Completion” and “To Be Paid in Cash Items” and will be processed by HUD. In addition to the form
HUD-92403, the Lender must submit a copy of form HUD-92451 Financial Record of Mortgage Loan
Transaction (or similar format in an Excel worksheet), which reflects payments to the various
participants during the construction period.
12.7.4
Approval of Initial/Interim Advances
A. Instructions for Approval of Initial/Interim Advances can be found in Appendix 12, Section A.12.1.
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12.7.5
Contractor’s Monthly Requisition and Related Matters
A. See Appendix 12, Section A.12.2 for instructions on completing Contractor’s Requisition, form HUD92448, and related matters.
12.7.6
Next to Final Advance
A. The Lender may request the next to final advance when construction is acceptably complete, even if
there are items of delayed completion.
1. It may provide for the release of the contractor’s holdback provided the conditions in Section 12.15.5
have been met. The amount approved for release will be based on the cost certification review and
HUD-approved amount (or where the cost certification is exempt, an operating statement is reviewed
instead). The amount approved for release will also consider items of delayed completion. A special
condition will be included in the Firm Commitment in the event that the cost certification is exempt,
and an operating statement will be reviewed instead.
2. The balance of the off-site escrow may be released upon HUD approval provided:
The off-site sewer, water, electrical and gas facilities are completely installed and connected for a
period not less than 30 days; and safe and adequate all-weather facilities for ingress and egress
are provided.
All other required off-site construction, if any, is completed.
There is no event of default on the mortgage or failure to comply with program obligations.
The mortgagor has provided a latent defects assurance consistent with the requirements of the
form HUD 91073M.
12.7.7
Final Advance
A. The Application for Insurance of the Final Advance will request any remaining balance of mortgage
proceeds and ensures that:
1. The mortgagor’s cost certification has been approved and the maximum insurable mortgage amount
determined using form HUD-92580, Maximum Insurable Mortgage.
2. Form HUD-92403 is accompanied by a completed form HUD-92448, with required Contractor’s
Prevailing Wage Certificate, if the contractor’s holdback has not been previously disbursed. Refer to
Section 12.15.5 for instructions on releasing the contractor’s holdback.
3. The sum to be approved for the advance is the balance of the mortgage proceeds, based on the
maximum insurable mortgage on form HUD-92580. Refer to Chapter 13, Section 13.10 for
instructions on an advanced amortization adjustment, if any.
4. An escrow is established for incomplete or delayed construction items under the provisions of form
HUD-92456M, Escrow Agreement for Incomplete Construction.
5. Form HUD-92023M, Request for Final Endorsement of Credit Instrument, or form FHA-2453,
Commitment to Insure upon Completion, must have been submitted and reviewed.
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6. The escrow for the mortgagor’s unpaid construction costs under the provisions of form HUD-92456M,
Escrow Agreement for Incomplete Construction is established.
12.7.8
Keeping the Mortgage in Balance
A. Soft cost overruns (such as interest, taxes, mortgage insurance premium [MIP], and property or liability
insurance) that result from a construction delay before completion of the project and is the fault of the
General Contractor, (i.e. due to poor performance), are funded according to the liquidated/actual damages
clause in the construction contract. This clause is not intended to penalize the contractor, but to provide
a source of funds for the increased soft cost.
B. The interest allocation is considered over expended when:
1. The percent of the expended interest allocation exceeds by 10% or more the percentage of completion
indicated by the Construction Progress Schedule, form HUD-5372; or,
2. The budgeted interest allocation remining is demonstrably insufficient to carry the loan through Final
Endorsement.
C. The Lender must notify HUD immediately, and HUD will advise the Lender of the following procedures:
1. When the interest allocation is insufficient, have the Architect and the HUD inspector estimate an
expected completion date.
Compute the minimum liquidated damages for the period between the completion date specified
in the construction contract, as adjusted by approved change orders, and the estimated
completion date.
When the interest allocation has been exhausted, the non-profit Developer’s fee, if applicable, or
the working capital escrow should be used to keep interest current.
Transfer the computed liquidated damages amount from column I, Construction, to Column G,
Carrying Charges and Financing, on form HUD-92451 (or similar format in an Excel worksheet)
and:
1) Allocate the full amount to interest, initially.
2) Funds may be used for MIP, taxes, or insurance payments, if requested, after the funds for
these line items and non-profit Developer’s fee, if applicable and working capital escrow are
exhausted. However, funds transferred from the construction account may be used to cover
only the cost of those items attributable to the period between the completion date specified
in the construction contract as adjusted by any approved change orders, and the estimated
completion date.
2. Notify the Borrower, contractor, HUD and the surety, if any, by certified mail of the amount and the
reason for the transfer.
3. Require written acknowledgment from HUD and surety, if any, before transferring funds.
4. The amount of transferred funds must be reflected on subsequent forms HUD-92448 as a decrease to
item 7, Sum of Cost Breakdown Items Plus Inventories of Materials.
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5. After review of the cost certification documents, if the full amount of transferred funds was not needed
to cover the cost of interest, MIP, taxes, and insurance attributable to the period identified, the balance
will be transferred back to the construction account.
6. In processing form HUD-92448, before releasing the General Contractor’s holdback, make adjustment
for the lesser of actual or liquidated damages determined in the cost certification review.
7. This procedure should be used only if, in consultation with the Regional Center Director, it is
determined that the problems causing the delay will be remedied within the near future.
D. In the event the project continues to sustain an imbalance between sources and uses of funds, the
Regional Production Office will inform the Regional office of Asset Management about the issues and the
status of any release of IOD funds.
12.8 Change Orders – HUD Duties
12.8.1
General Requirements
A. Construction contract changes to the scope of contract work, contract price or contract time must be
requested by the mortgagor through the Lender on form HUD-92437, Request for Construction Changes
and must be signed by the mortgagor’s Architect, the mortgagor, the General Contractor and the Lender
before HUD reviews the change order for approval.
1. The HUD CA will review each change order and describe the substance and consequence of the change
to the HUD Underwriter who will consult the respective Technical and/or Underwriting Branch Chief
on any consequential change.
2. Change orders will be approved only when they are necessary or are for betterment or an equivalent.
The following information should appear on the face of the change order:
Classification (necessary, betterment, etc.);
Qualification for payment from the contingency reserve and from the Developer’s fee for nonprofit Borrowers; and
Whether the change order results from error, omission or negligence on the part of the Architect,
contractor or mortgagor.
3. Change orders submitted after the final HUD Representative’s Trip Report will not be approved,
except where:
The change order pertains to “Items of Delayed Completion,” or
Written approval is given by the Regional Production Director.
4. Surety approval must be secured in writing before approving any change order for time extension
(see Section 12.8.7.A.3). Surety consent is not required where the project’s assurance of completion
is by a cash escrow or letter of credit.
5. The working capital escrow requirement for new construction transactions is 4% of the mortgage
amount, half of which (or 2%) is used as new construction contingency to fund HUD approved change
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orders, construction cost overruns and other cost overruns not caused by the General Contractor. For
eligible uses and procedure for release of the working capital escrow see Section 12.15.3.
B. Other change order policies include:
1. Changes must be accurately reported and accounted for pursuant to U.S. Criminal Code, Section 1010,
Title 18, U.S.C.
2. Procedures for changes outlined here are not to be used to alter the intent of the contract documents
or to lower the quality or value of a project.
3. HUD does not initiate any change but may require it as a condition of approval in connection with a
change proposed by the Architect, mortgagor or contractor.
4. All changes must be approved in writing by the Lender and HUD before they are made.
5. Any change that is made without formal approval, even though tentatively agreed to as technically
acceptable, must be recorded by the HUD Inspector as a noncompliance until the form HUD-92437,
Request for Construction Changes - Project Mortgages, is approved. The payment of future insured
advances may be affected until corrected.
6. Change orders that include a physical alteration such as change of materials, change of building plans,
or change of site plans must not have any negative impact on the approved environmental review or
any mitigation conditions. If the change order will have an impact, HUD will either reject the change
order request or require an updated environmental review consistent with Chapter 9 requirements.
12.8.2
Change Order Classification
A. Necessary. Necessary changes (which the CA or designee must document) are those that arise from:
1. Latent conditions that differ from conditions defined by the construction documents;
2. Changes in the applicable state or local codes, ordinances, etc. after:
3. Initial closing for insured advances; or
Firm Commitment for insurance upon completion.
The Architect’s errors or omissions.
Damage to completed construction.
B. Betterment. Betterment changes are those that are economically justified. They must either:
1. Increase net income;
2. Reduce long-term project maintenance and/or operating expenses; or
3. Otherwise enhance the mortgage security.
C. Equivalent. Equivalent changes are those proposed because:
1. A specified item is not readily available, and the substitution provides equivalent or better utility and
performance; or
2. The proposed substitution reduces the contract price but provides equivalent or better utility and
performance.
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12.8.3
Additive change Orders
A. The Lender must not give any explicit or implied assurance to the Borrower or the contractor that an
increase in the insured mortgage amount will be granted when construction changes are approved.
B. Except for “necessary” change orders, the Lender must require the Borrower to escrow funds with the
Lender for any additive change order where HUD first estimates that the aggregated change orders equal
or exceed a $5,000 increase in the construction contract price, and for all subsequent additive change
orders.
1. The Lender may submit to HUD a letter of confirmation from the contractor stating that the Borrower
has fully paid for the approved change order instead of escrowing the funds.
2. Non-profit Borrowers may use the Developer’s fee to fund additive change orders.
3. After 75% completion is achieved and if construction is on schedule and without findings of noncompliance, the CA may allow any HUD approved additive change order to be funded from the 2%
contingency.
Excess mortgage proceeds, if available, may be used to fund the escrow for necessary and
betterment change orders. However, any excess mortgage proceeds used to fund the escrow for
contractor estimated costs in excess of HUD estimated costs, or HUD estimated costs in excess of
contractor estimated costs, may not be disbursed until final closing. [See Cross References at
Chapter 8, Section 8.14.C.11 and Appendix 12, Section A.12.1.4]
The Lender may accept a third-party letter of credit instead of a cash deposit, subject to the Lender
agreeing to provide the cash equivalent, where the letter of credit is not immediately honored.
The Lender may recognize the cost of third party paid change orders at cost certification, where
there are available mortgage savings.
4. For substantial rehabilitation projects the Lender must approve disbursements from the established
contingency reserve in an amount not to exceed the HUD cost estimate for necessary or betterment
change orders.
The Lender must require an escrow for any amount that the contractor’s cost estimate exceeds
the HUD estimate.
The Lender may authorize the use of excess mortgage proceeds, if available, to satisfy the escrow
requirement, subject to the disbursement limitations in Section 12.8.4.A.1 above.
After substantial rehabilitation work is complete and approved by the HUD Inspector and subject
to Lender and HUD approval, the Borrower may elect to apply funds remaining in the contingency
reserve line item to do:
1) Necessary, further improvements, betterments or upgrades to the property,
2) An initial deposit to the reserve for replacement account, or
3) A reduction to the principal mortgage balance.
5. The Lender must approve the following forms for mortgagor’s application for funds for completed
additive change orders:
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a.
Form HUD-92464M, Request for Approval of Advance of Escrow Funds, where an escrow is used,
which must be submitted to HUD for approval.
Form HUD-92403, Application for Insurance of Advance of Mortgage Proceeds, where a
rehabilitation project’s contingency funds or a non-profit’s Developer’s fee or excess mortgage
proceeds are to be used.
12.8.4
Deductive Change Orders
A. Where the HUD estimated decrease in contract price for any aggregation of change orders remains less
than 2-1/2% of the contract price, the Lender must reduce the Contractor’s “Final” Requisition, form HUD92448, by the appropriate amount.
B. Equals or exceeds 2-1/2% of the contract price and for all subsequent deductive change orders
regardless of the amount, the Lender must:
1. Reflect the decrease in the Contractor’s Requisition, form HUD-92448, item 8.
2. Reduce the original mortgage amount at cost certification, where required.
12.8.5
Changes that Adversely Affect Property Income
A. Changes that adversely affect property income are a basis for change order rejection, except where it
is a necessary change order and the situation is unavoidable. HUD staff must adequately document the
analysis and decision showing that the change resulted in less property income. If the estimated reduction
in property income would result in a reduced mortgage amount, the change order must be submitted to
the Regional Production Director for review and approval. (See Section 12.10 and Section 12.11 below.)
12.8.6
Extension of Contract Time
A. Approval. The MAP Lender may approve an extension only where:
1. The delay is beyond the contractor’s control (e.g. strikes, adverse and unknown site conditions, bad
weather exceeding the average for the season, etc.) and the delay is documented or associated with
an approved change order,
2. The extension request is submitted within the limit provided by the contract and the general
conditions for delays beyond the contractor’s control, and submitted concurrently with any requested
changes in the work, and
3. The request is accompanied by a Surety’s written consent. There is no consent requirement where
the project’s assurance of completion is by a cash escrow or letter of credit.
B. Funding. The Lender may require funding for the increased cost for interest, taxes, insurance, MIP
and contractor’s general requirements by use of a cash escrow, excess mortgage proceeds, or non-profit’s
Developer’s fee, if applicable, or from contingency reserve.
C. Enforcement. HUD may enforce liquidated damages in accordance with the terms of the construction
contract (form HUD-92442M).
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D. Required Documentation. Within 21 days of the date a construction delay occurs, the contractor
must document the delay with the Architect in an extension request, which must include the written
consent of the Surety and conform to AIA document A201, Article 8.3. The request must include:
1. Date of occurrence and number of calendar days it covered;
2. Effect on construction progress;
3. Cause of the delay. If the cause is of a continuing nature, submit the extension request when the cause
ceases, but still record the initial date of occurrence and its effects on construction.
12.8.7
Changes to Items of Delayed Completion
A. Changes to items of delayed completion are the only construction contract changes that the HUD CA
may approve after project completion. All others require the Regional Center Director’s consent.
12.8.8
Emergency Changes
A. The only time a change can be made without prior written approval of the Lender and HUD is in
emergencies that:
1. Endanger life or property; or
2. Halt construction.
B. However, even then, the Architect must notify the Lender and HUD and as soon as possible, submit a
form HUD-92437.
12.8.9
Insurance Upon Completion
A. Construction Contract Changes, form HUD-92437, are to be processed in the same way as Insurance of
Advance cases, except as modified below:
1. An escrow is not required for additive change orders. The Borrower:
Must be able to provide the additional funds required, and,
Must not have any outstanding obligation in connection with construction other than the insured
mortgage at the time the mortgage is presented to HUD for insurance upon completion.
2. Surety approval is not required for the approval of additive change orders regardless of the
percentage of contract increase.
12.8.10
Changes to Offsite Construction
A. Changes to offsite construction must be requested by letter or other acceptable format with the
information required by form HUD-92437 used as a general guide, although the actual form must not be
used.
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12.8.11
Other Changes
A. Changes necessitated by error, omission or negligence of the Architect, owner, or contractor must be
recorded by the HUD CA or HUD inspector, on form HUD-92437, including.
1. The reason for the determination; and
2. Confirmation that the cost of the changes must not be included in the mortgage amount.
12.9 Change Orders - Inspection Instructions
12.9.1
General Procedure
A. Any contemplated changes are first discussed among the Architect, contractor, owner, and HUD
inspector.
B. The HUD inspector may assist the General Contractor and owner by reviewing potential change order
packages as desired to make a preliminary determination of technical acceptability before the change is
submitted for approval to the Lender and the HUD Office. (This neither commits HUD to the change, nor
relieves the Architect or the contractor of having to submit form HUD-92437.)
C. All onsite changes to construction documents and requests for time extensions must be submitted for
approval on form HUD-92437, Request for Construction Changes - Project Mortgages.
1. Required attachments for physical changes are:
Appropriate modifications to the contract drawings and specifications;
Architect's statement that the change:
1) Conforms to the original intent of the contract drawings and specifications;
2) Is necessary to overcome an impediment to construction or is an addition desired by the
owner.
Backup documentation from the contractor of the amount requested consisting of itemized
quantities and costs including a breakdown of labor and materials, as well as any requisite general
requirements and eligible allowances for overhead and profit.
2. The form must be signed by the:
Borrower,
Contractor,
Architect; and,
Authorized representative of the Lender.
D. All offsite changes to construction documents and requests for time extensions must be:
1. Requested in a letter or other format acceptable to the CA, but not on form HUD-92437.
2. Documented and processed the same as on-site changes.
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E. HUD will promptly review all requests submitted so delays will not affect construction or contractor
requisitions.
1. Processing should normally take no more than 5 workdays and is directed by the CA.
2. All construction change requests must be reviewed, signed, and dated by the CA.
12.9.2
Voiding Changes
A. If an approved change is not made, it must be nullified by a form HUD-92437 restoring the drawings
and specifications to the status prior to the change request or to a status acceptable to HUD.
12.9.3
Unapproved Changes
A. When there are unapproved changes in the construction, the HUD inspector must modify the amount
of the contractor's requisition to cover:
1. The non-compliance (any change that has not formally been approved on form HUD-92437), and
2. Construction removal that may be required if the unapproved change does not receive approval.
B. For projects involving insurance upon completion, references here to "contract requirements" or
"contract documents" include the conditions and provisions of the commitment if there is no construction
contract.
12.10 Change Orders – HUD Architectural and Cost
Instructions
12.10.1
Architectural
A. The HUD CA will review all requested changes for technical acceptability.
12.10.2
Cost
A. Construction changes:
1. The HUD CA will produce a cost estimate for each construction change request submitted by the
mortgagor by applying current data to accepted or amended change order quantities; include
amounts for general requirements and builder’s overhead and profit using the percentage of each
from Section G of form HUD-92264 that was approved at Firm Commitment.
2. Compare the estimate with the mortgagor’s estimate and, if reasonable, use the mortgagor’s figure.
Otherwise use the HUD estimate.
3. Complete the cost entries on form HUD-92437 and forward the completed form to the HUD
Underwriter.
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B. Approved time extensions:
1. Calculate the additional general requirements cost due to the extension of time.
Divide the cost of general requirements from the contractor’s approved form HUD-2328 by the
number of months estimated for construction from Section G of form HUD-92264 approved at
Firm commitment. Sixty-five percent of this amount is the estimate per month of additional
general requirements.
Use one quarter of the monthly estimate per week.
There is no cost effect for extensions of time for less than one week.
2. Complete the cost entries on form HUD-92437 and forward the completed form to the HUD
Underwriter.
12.11 Change Orders – HUD Underwriter Instructions
12.11.1
Appraisal Reconsideration, When Required
A. The HUD Underwriter must determine if a requested change is likely to reduce project marketability
or income by reducing rents or revenue and/or increasing operating expense. The HUD Underwriter or
the assigned HUD appraiser must identify and explain any estimated increase or decrease in net project
income on the reverse of form HUD-92437.
B. The HUD Underwriter or assigned appraiser must prepare a Trial form HUD-92264 and Trial form
HUD-92264-A reflecting the new data for the HUD Underwriter to re-determine the maximum insurable
mortgage.
12.11.2
HUD Underwriter Tasks
A. Processing:
1. If the Borrower’s or contractor’s estimate for the change order exceeds HUD’s estimate, the difference
must be escrowed with the Lender. Excess mortgage proceeds, if available, may be used to satisfy this
requirement. Conversely, that portion of HUD’s estimate that exceeds the Borrower’s or contractor’s
estimate must be restricted and held until final endorsement to ensure funds to complete the project.
2. Process the cost and appraisal findings and show the cumulative effect on cost of all approved change
items.
3. Use Section 12.8.4 and Section 12.8.5 for additive and deductive change orders.
4. Recalculate the maximum insurable mortgage when any approved construction change or changes
adversely affect net income, e.g., a change that causes an increase in project operating costs or a
reduction in project income.
The HUD Underwriter or assigned appraiser completes a Trial form HUD-92264 with an updated
income and expense analysis.
Re-determine the maximum insurable mortgage.
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If the re-determined mortgage is lower than the original mortgage amount, as a condition of
approval of the change order, indicate in item 3b of form HUD-92437 that subsequent
Contractor’s Requisitions, form HUD-92448, must be reduced by the greater of:
1) The difference in mortgage amounts;
2) The net increase in costs resulting from acceptable construction changes.
5. Extensions of time.
The HUD CA is responsible for determining whether the delay was beyond the contractor’s control
and, if so, the length of the approved time extension.
Calculate the cost increase due to the extension:
1) Compute pro-rata daily rate for interest, taxes and insurance by using estimates in Section G
of form HUD-92264 and multiply these rates by the approved time extension measured in
days.
2) An additional year of MIP will be required if the approved time extension, when added to the
estimated construction term plus the two months included in Section G of form HUD-92264
plus previously approved time extensions, would extend the term past twelve, twenty four or
thirty six months, as applicable.
3) Add the additional general requirements, if any, noted by the HUD CA on the change order
request. Only this item amends the construction contract price on form HUD-92437.
4) Determine the source of funds for any increase due to the extension, e.g. cash, excess mortgage
proceeds or non-profit’s Developer fee, or contingency reserve funds.
Requests for release of excess mortgage proceeds or contingency reserve funds set aside to fund
time extensions are submitted on form HUD-92403.
Releases from a cash deposit are made using form HUD-92464M.
These funds may be released only after the account for the soft cost item(s) being requested has
been exhausted on form HUD-92451, Financial Record of Mortgage Loan Transaction (or similar
format in an Excel worksheet).
B. Requests for disbursement of contingency reserve funds, working capital construction contingency
funds and non-profit’s Developer fee for completed change order items, are made on form HUD-92403.
All requests:
1. Must be accompanied by a certification by the Borrower’s supervisory Architect and the HUD
Inspector that all the work covered by the change order was acceptably completed in accordance with
contract documents.
2. Must include the authorization by the Depository Institution relative to payment to the contractor
contained on form HUD-92464M, Request for Approval of Advance of Escrow Funds.
3. Must include the criminal certification contained in form HUD-92464M for certifications made in
Section 12.11.2.A.1 and Section 12.11.2.A.2 above.
4. Are subject to a holdback of retainage consistent with the construction contract.
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12.12 Labor, Fair Housing and Equal Opportunity (FHEO) and URA Compliance
C. Change orders funded from excess mortgage proceeds. Excess mortgage proceeds may be used to fund
either necessary or betterment change orders.
1. These funds may be used to fund HUD’s estimate of increased costs as well as any portion of the
contractor’s estimate that exceeds the HUD estimate. The portion that exceeds HUD’s estimate must
be restricted until final endorsement.
2. Funds are released in the same manner as contingency reserve funds.
D. Releasing Cash Deposit. The Borrower must submit, through the Lender, form HUD-92464M when
construction covered by a cash deposit is complete and acceptable to HUD.
1. The Borrower’s supervisory Architect and the HUD inspector must certify on form HUD-92464M that
all work and materials covered by the change order are satisfactory and consistent with contract
drawings.
2. If construction costs were paid in full by other than the cash escrow or excess mortgage proceeds
before submitting the disbursement request to HUD for approval, the Borrower must submit a receipt
of payment signed by the General Contractor.
3. If construction costs will be paid after HUD’s approval for the release of the funds deposited for the
construction change, before the next form HUD-92403 is submitted, the Borrower must submit a
receipt of payment signed by the General Contractor.
E. Change Order Summary Sheet showing cumulative cost of all executed change orders should contain,
at least:
1. The date the change order was signed by the Borrower;
2. The date HUD received the change order;
3. The date the HUD Underwriter completed review of the change order;
4. The Borrower’s or contractor’s estimate of cost for the change order;
5. HUD’s estimate of cost for the change order;
6. The amount of change orders to be funded from contingency reserve, working capital construction
contingency, non-profit’s Developer fee, or excess mortgage proceeds;
7. The required cash escrow deposit, if any;
8. The HUD percentage of cost increase or decrease.
12.12 Labor, Fair Housing and Equal Opportunity
(FHEO) and URA Compliance
12.12.1
Wages
A. Payrolls. Contractor payrolls are submitted directly to the HUD Labor Standards and Enforcement
staff a minimum of once a month.
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B. On-Site Interviews. The HUD inspector submits all original copies of the form HUD-11, Record of
Employee Interview, to the HUD CA who forwards these to the HUD Labor Standards and Enforcement
Staff.
12.12.2
Labor Violations
A. The HUD CA must advise the Labor Standards and Enforcement Staff of continuing minor infractions
that cannot be resolved or of any identified or suspected major violations. Labor standards enforcement
staff shall provide written clearance to Housing and OGC in connection with final closing confirming either
that there are no outstanding issues and the project may proceed to closing without condition, or that
outstanding issues remain and the closing may proceed conditioned on the deposit to the U.S. Treasury of
funds sufficient to meet any wage restitution and/or liquidated damages that have been or may be found
due. Final closing may not occur without receipt of this written guidance from labor standards
enforcement staff.
12.12.3
FHEO Noncompliance
A. The HUD CA must advise the local HUD Director of FHEO of continuing minor noncompliance that
cannot be resolved or of any identified or suspected major noncompliance.
12.12.4
Compliance with Any Applicable Relocation Plan
A. See Appendix 3, Section A.3.5. If existing tenants are displaced by rehabilitation or repairs and
alterations, a relocation plan should be in place and the Borrower must be executing the plan. If the
Lender, the HUD inspector or the HUD CA observe relocation of existing tenants where no relocation plan
is in place or observe an unmet need to relocate tenants, the Regional Production Director must be
immediately advised and the Borrower required to cease any construction activity that requires or should
require the Borrower to relocate tenants. If the project is subject to the Uniform Relocation Act or Section
104(d) of the Housing and Community Development Act of 1974, the HUD CA should promptly seek the
assistance of the HUD Regional Relocation Specialist. Otherwise the HUD CA should advise the Lender
and the Borrower that the HUD approved relocation plan must be followed, or if no such plan is approved,
then a relocation plan consistent with Appendix 3, Section A.3.5 must be prepared, approved by HUD and
implemented before any further construction that requires relocation may proceed.
12.13 Surveys
A. Surveys must be by a licensed surveyor and show the exact location of on-site improvements, including
utility lines and easements. Please see the FHA Multifamily Program Closing Guide for additional
requirements related to survey matters.
B. The contractor must give the owner and HUD surveys, as follows:
1. At any time, the owner or HUD requires; and
2. When construction is complete (“as-built” survey).
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C. The inspector, when uncertain of the location of construction or stored materials in relation to property
lines or easements, may ask the Architect to require a survey with the next contractor's requisition.
D. If encroachments are found, the inspector must notify the HUD CA by memorandum explaining the
conditions. (Encroachments may jeopardize the entire property as security for an insured mortgage.)
12.14 Permission to Occupy
A. Permission to Occupy form HUD-92485 must be executed and dated by the Architect before the
Borrower permits occupancy of any phased dwelling unit and signed and dated by the HUD inspector on
the same date as the Architect for the final Permission to Occupy.
12.14.1
Physical Completion
A. The work, or portion thereof for which Permission to Occupy is approved, must be sufficiently
complete in accordance with the contract documents so the mortgagor can occupy or utilize the identified
portion of the work for its intended use.
1. Support facilities (utilities, disability access, vehicular access and parking, fire life-safety equipment,
etc.) must be in place.
2. The acceptability of each unit and facility for which Permission to Occupy is requested must be
confirmed:
Property must be inspected and form HUD-92485 signed by the Borrower, supervisory Architect,
contractor, and HUD Representative.
Minor items that do not preclude occupancy are permitted but must be listed as an attachment to
form HUD-92485.
The contractor is fully responsible for any incomplete or improperly performed contract work
whether or not listed.
12.14.2
Signatures, Approval and Permission
A. The form HUD-92485 must be signed by the Borrower, supervisory Architect, contractor, Lender, and
HUD CA.
B. The HUD CA or a designated HUD Technical Branch Chief signs as Chief, Architecture and Engineering
Section. The Underwriting Branch Chief signs as Chief Underwriter.
C. The Regional Production Director will designate an FHA Authorized Agent in the Regional Center or
Satellite Office to sign the Permission to Occupy.
12.14.3
Submission Documents
A. The Lender must sign form HUD-92485 agreeing with the request and stating that insurance risks have
been covered for the project. The Borrower must include the following documents with the completed
form HUD-92485:
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12.15 Escrowed Funds, Letters of Credit, Deposits, Holdbacks and Related Matters
1. A Certificate of Occupancy or equivalent permit from the governing municipal authority for all units
and facilities listed on the Permission to Occupy; and any other required permits or authorizations;
2. An accord or certificate of property and liability insurance from the Borrower's insurance company.
12.14.4
Partial Occupancy Approval
A. Favorably consider partial occupancy of units as they become available, where vandalism could be
minimized, needed project income is provided, an earlier rent-up date could be achieved, utility costs for
occupied units can be metered separately from contractor’s utilities, etc.
B. Approve a series of Permissions to Occupy as units or facilities become available, e.g. individual
buildings on multi-building projects, or individual floors or wings on larger buildings.
C. Approve a single Permission to Occupy for all units where dictated by management considerations, e.g.
very small projects.
12.15 Escrowed Funds, Letters of Credit, Deposits,
Holdbacks and Related Matters
12.15.1
Application for Disbursement of Escrowed Funds
A. Form HUD-92464M, Request for Approval of Advance of Escrow Funds, must be used where the escrow
is to ensure completion of offsite improvements, demolitions, additive change orders, Non-Critical repairs
and accessibility-related Critical repairs approved for deferred completion (within 12 months of initial
closing) under Section 223(f) program, temporary resident relocation, or Borrower’s unpaid construction
items at final endorsement.
1. The Borrower must initiate the process by completing form HUD-92464M. The Borrower must
determine the amount of funds to request for release from the escrow that align with the completed
work. The Lender must complete the form before submitting a disbursement request to HUD for
approval.
2. The HUD Inspector is required to record the percentage of acceptably completed escrow work on the
HUD Representative’s Trip Report, form HUD-95379, and should also sign page 5 of form HUD92464M in the space for the HUD Inspector if requested work is acceptably completed. The Borrower
will review the Trip Report to determine the amount of funds to request for release of escrow funds
that align with the completed work. After the Borrower has reviewed the Trip Report and entered
information on the form HUD-92464M, the Borrower must forward a copy of both forms to the Lender
for their review and completion before the disbursement request is submitted to HUD.
3. HUD will not authorize interim advances (form HUD-92403) that exceed the documented percentage
of completion less the applicable retainage. An interim advance is the difference between the
percentage of completion times value of work currently complete previous payments that included a
10% retainage, until work is 50% complete. (This does not apply to the Section 223(f) program.)
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4. Where excess mortgage proceeds are used to fund an escrow for completion of offsite improvements,
additive change orders or mortgagor’s unpaid construction items, return the original copy of form
HUD-92464M to the depositor and retain one copy.
12.15.2
Release of Letters of Credit
A. In the event of a claim:
1. Assignment. HUD will not accept an assignment of the letter of credit to HUD from the Lender.
2. Undrawn Balance. HUD will treat any undrawn balance from a letter of credit or escrow agreement
as cash held by the Lender.
3. Cash equivalent. The Lender must provide cash equal to the undrawn balance if demand on a letter
of credit is not met.
12.15.3
Working Capital Deposit
A. Working Capital Deposit (form HUD-92412M) escrow is established at initial closing with the Lender.
It is the responsibility of the Borrower to advise the Lender how it plans to fund the escrow: either by
cash, a letter of credit, excess mortgage proceeds, or excess land equity, if any.
B. Purpose. The deposit is used to:
1. Defray the cost of initial marketing and rent-up including sales and advertising, model furnishing, and
equipment and supplies essential to initial rent-up, etc.
2. Cover project expenses that are not covered by project income or the Initial Operating Deficit Escrow
in the first operating year. The project expenses include real estate taxes, permanent property
insurance premiums, mortgage insurance premium, ground rents and assessments.
3. Cover shortfalls in interest, taxes, property insurance premiums, mortgage insurance premiums,
ground rents and assessments during construction after funds available under the Building Loan
Agreement are exhausted.
4. Fund necessary change orders and construction cost overruns not caused by the contractor from the
2% new construction contingency portion of the working capital escrow.
C. Control and Release of Escrow. The Lender controls disbursements from the escrow and, in
conducting its due diligence during initial occupancy, is required to fully document all expenditures from
the escrow. In reviewing a Borrower’s request to release a partial amount of escrow, the Lender should
consider the following.
1. Borrower's request for the release of such escrow funds must be by letter to the Lender, rather than
on form HUD-92403.
2. None of the escrow can be used to defray any of the hard costs of construction applicable to the Total
for All Improvements, Section G of form HUD-92264, Rental Housing Project Income Analysis and
Appraisal (or other Firm Stage underwriting form applicable to the Section of Act the project is to be
insured under).
3. Avoid premature disbursements and unnecessary expenditures.
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4. As portions of a project are ready for occupancy, a partial disbursement may be permitted for
reasonable opening expenses. However, the Lender must not exhaust the escrow prior to project
completion but should retain a reasonable amount to offset funding needs through the remainder of
the construction period and thereafter.
5. The HUD Office may direct that the deposit be used to cover any shortfall in interest, taxes, property
insurance mortgage insurance premiums, ground rent and assessments.
D. Final Release of Escrow.
1. Subject to HUD approval, the Lender may release any unused balance in the working capital portion
of the escrow to the Borrower if the project is not in default and when the operations of the project
have demonstrated to the Regional Production Director’s satisfaction that the project has achieved 6
consecutive months of sustaining occupancy as defined in Chapter 3, Section 3.1.25.
2. If the mortgage is in default, the Lender must apply any balance of the escrow (either working capital
or construction contingency portions) to cure a default, where a default occurs before its release.
3. At final endorsement, any remaining balance of the new construction contingency portion of the
escrow may be used to fund any latent defects assurance or escrow for delayed construction items or
if these needs are otherwise met, refunded to the Borrower.
12.15.4
Initial Operating Deficit Deposit
A. Initial Operating Deficit Deposit must be established with the Lender at initial closing. The Borrower
must advise the Lender how it plans to fund the escrow, by cash, a letter of credit, excess mortgage
proceeds, or excess land equity, if any.
B. The purpose of the operating deficit escrow is to provide funding for operating expenses, noncapitalized property taxes, insurance and interest and principal payments when income is insufficient
during the initial lease up period. This escrow is not mortgageable and the unused portion must be
returned to the Borrower.
C. Release of the Initial Operating Deficit Escrow. HUD will consider Lender’s request using form HUD92464M, Request for Approval of Advance of Escrow, for all initial operating deficit draws during leaseup. The Lender’s request must be accompanied by:
1. A review and analysis of the monthly accounting reports detailing progress on lease up as compared
to the lease up projections used in underwriting, and
2. An updated calculation of the sufficiency of the escrow. This analysis and calculation are particularly
important if the project is experiencing substantial variations from its lease up projections.
D. Unused amounts will be released upon the Lender’s request when the project has demonstrated to the
Regional Production Director’s satisfaction that the project has achieved six consecutive months of
sustaining occupancy as defined in Chapter 3, Section 3.1.25.
1. The HUD Underwriter will consult with Asset Management (AM) staff prior to approval of a release to
obtain AM’s approval.
2. HUD offices should exercise caution to be certain that monthly results are not erratic or seasonal and
that 1.0 or better debt service coverage will be sustainable after release of the escrow funds.
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3. For garden-style apartment projects consisting of separate buildings, each of which is leased up
separately, HUD will consider partial releases of the operating deficit escrow as individual buildings
achieve 6 consecutive months of sustaining occupancy.
4. It is the Lender’s responsibility to fully document all expenditures from the escrow fund to ensure
that funds are used solely for project operating needs.
12.15.5
Amount of Contractor's Retainage and Release
A. Purpose. Retainage provides an incentive for the General Contractor and mortgagor to promptly
complete the project, submit cost certification and reach final closing.
B. Amount of retainage. The Building Loan Agreement allows for the possibility of a reduced holdback
amount as set forth in a retainage reduction rider when the project reaches 50% completion. The rider is
not a HUD form. The owner and the General Contractor will create a rider, to attach to the Building Loan
Agreement, which describes how the retainage is reduced according to the guidance below. The
construction contract also provides for a 10% holdback from the contractor's monthly payments for
acceptably completed work, acceptably stored materials, and where applicable, components acceptably
stored offsite. The requirements for reduction of the retainage after 50% completion are as follows:
1. The Contractor has no identity-of-interest with the owner that is greater than a 5% equity interest in
the ownership entity,
2. Prior written consent from the Surety must be obtained and attached to the request for reduction, and
3. There can be no questions regarding the contractor’s performance concerning the quality of work,
compliance with the contract and with any change orders or work in progress. The Regional
Production Director or his designee must make the decision to reduce the retainage based on the
recommendation of the HUD CA and/or the HUD inspector.
4. Assuming the above conditions are met, 10% retainage will be required only until 50% completion.
After 50% completion the retainage may be reduced from 10% to 5% until 75% completion, and then
may be reduced further to 2.5% retainage until the loan reaches Final Endorsement.
C. Release of retainage for identity of interest contractors. Except as provided in Section 12.15.5.D.4
and Section 12.15.5.D.5 below, the retainage may not be released, in whole or in part, until Final
Endorsement for a contractor with an identity of interest that is greater than 5% equity interest in the
ownership entity.
D. Release of retainage for non-identity of interest contractor. The contractor's retainage, or the
remaining balance in the retainage, may be released at the next to last advance, when requisitioned on
form HUD-92403, Application for Insurance of Advance of Mortgage Proceeds, subject to compliance with
the following:
1. Contractor's cost certification, where required, has been reviewed and the necessary adjustments
made to form HUD-92451, Financial Record and Mortgage Loan Transaction (or similar format in an
Excel worksheet);
2. Contractor has disclosed its final obligations on form HUD-92023M, Request for Final Endorsement
of the Credit Instrument;
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3. All work under the construction contract has been inspected and approved by the controlling
jurisdictions and/or authorities;
4. Certificates of occupancy or other required approvals for the dwelling units and non-dwelling
facilities, where applicable, have been issued by governmental authorities having jurisdiction.
(Separate buildings for community rooms, rental offices, laundry rooms, etc., commonly require
separate certificates of occupancy.);
5. Permission to Occupy, form HUD-92485 has been issued by HUD for all units;
6. All Davis-Bacon payroll requirements have been satisfied;
7. Surveyor's Certificate, form HUD-91073M, and survey showing the location of all improvements,
utility easements and site utility distribution lines have been submitted to HUD, and
8. Retain, where applicable, an adequate amount to cover the following:
Items of delayed completion in an amount equal to 150% of the HUD CA's cost estimate for
completion,
Any owed or contested amounts indicated by mechanics, subcontractor, supplier, or equipment
lessor liens, etc.
The lesser of the liquidated damages or actual damages computed at cost certification, and
The net effect of all change orders if said effect is negative.
E. Early partial release of retainage.
1. After 90% contract completion, the Regional Production Director may release part of the General
Contractor's retainage and suspend further withholding of retainage from payments due, where:
The contractor has no identity of interest or the contractor's only identity of interest in the project
ownership is less than 5%;
The contractor, mortgagor and mortgagee request the early release of the holdback and attach
the request to form HUD-92403, Application for Insurance of Advance of Mortgage Proceeds; and
Prior written consent from the surety, if any, for the early release of holdback is provided with
the request.
2. 2. The Regional Production Director must determine that:
The contractor's general performance warrants partial release of the holdback without
conditions; or
A partial release of the holdback is appropriate with conditions, e.g., measures to assure
immediate distributions to subcontractors or others, would be in the mutual interest of all
participants; and
The undisbursed holdback amount must equal or exceed 2.5% of the contract amount.
F. Projects in difficulty. Release of part of the contractor's holdback before 90% contract completion
may be granted only to prevent a default of the construction loan and only if it would solve the project's
problems and enable it to reach construction completion.
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12.16 Insurance Upon Completion (IUC)
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1. The contractor's performance meet the following conditions,:
The completed work must be satisfactory;
The percentage of completed contract work must be sufficient to ensure project completion
within the specified contract time; and
The holdback may not be released if there are unresolved questions concerning:
1) Quality of work,
a) Compliance with the contract, including outstanding change orders, or
2) Work that is progressing behind the contractor's construction schedule, as amended by
approved change orders.
2. Written consent for the early release of holdback must be obtained from the surety, if any, the
mortgagor and the mortgagee.
12.15.6
Cash-Out Escrow from Land Equity
A. Cash-Out Escrow from Land Equity (or any balance remaining after funding all mortgage
requirements). See Chapter 8, Section 8.14.C.11.
1. Cash out from the excess value of the land, or the “as is” property value for a substantial rehabilitation
project, that was contributed to meet the Sponsor’s equity requirement at initial endorsement, above
what was required at initial endorsement must be deferred and held by the Lender. If any of the land
equity was used to fund escrows at initial endorsement, the remaining balance is deferred and held
by the Lender. The Lender will have discretion as to the form of escrow used for holding cash-out
from land equity. Refer to Appendix 12, Section A.12.1.4 about eligible uses of cash-out from land
equity.
2. The Lender will hold the cash-out funds until project operations have demonstrated to the HUD field
office’s satisfaction that it has achieved 6 consecutive months of sustaining occupancy or 12 months
of sustaining occupancy for transactions that meet the Large Loan parameters (see Chapter 3, Section
3.1.25 for sustaining occupancy definition.)
3. The HUD Underwriter will consult with Asset Management staff prior to approval of a release. HUD
Offices should exercise caution to be certain that monthly results are not erratic or seasonal and that
1.0 or better debt service coverage will be sustainable after release of the escrow funds. HUD will
approve a request for release of funds on form HUD-92464M from the Lender. The Lender’s file
should contain the HUD approval and documentation supporting the release.
12.16 Insurance Upon Completion (IUC)
A. Basic requirements during construction stage are generally the same as for projects with FHA insured
advances. However, IUC advances are not FHA insured. Therefore, HUD does not monitor the Lender’s
disbursements. Also, because HUD has no risk exposure until final endorsement, HUD does not become
involved in the resolution of construction problems, even if those problems prevent or may prevent the
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Borrower from meeting program obligations. The following are major variations from standard program
requirements for insurance upon completion projects.
B. Firm Commitment to Insure Upon Completion, completed on the HUD Commitment template by HUD
staff, must contain special conditions defining requirements necessary to maintain the commitment until
Final Endorsement of the permanent mortgage.
1. While there is no initial closing there should be a preconstruction meeting to advise the Lender,
Borrower and contractors of requirements that must be met and the construction monitoring
methods that will be followed from the date of the Firm Commitment through Final Endorsement.
The construction stage starts after the issuance of the Firm Commitment.
2. The Firm Commitment must specify the expected date of construction start and the expected date of
construction completion, followed by a date for Final Endorsement. Construction/rehabilitation must
start and be completed within the period provided by the Firm Commitment, subject to HUD’s
decision to amend the Firm Commitment pursuant to a request by the Lender. Unless terminated, the
Firm Commitment will endure until consummated at Final Endorsement. The Lender may request or
advise HUD of its termination of the Firm Commitment for the convenience of the Borrower. HUD
may terminate the Firm Commitment upon Lender or Borrower’s failure to cure material nonperformance of program requirements and/or requirements of the Firm Commitment after notice
and opportunity to cure consistent with existing construction administration procedures defined in
this Chapter 12. In the event of termination, the Lender will not be entitled to any refund of
application or inspection fees paid.
C. Required documents include the following:
1. Construction contract, form HUD-92442M. The following must be made a part of the contract:
a.
General Conditions, AIA Document A201;
b. Supplementary General Conditions, form HUD-92554M;
c.
Davis-Bacon Wage Rates (supplied by HUD Labor Standards and Enforcement);
d. AIA Document B108 with HUD 92408-M, HUD Amendment to AIA Document B108 attached
identifying identities of interest between Owner, Contractor, Subcontractor and Architect; and
e.
Cost certification criteria from form HUD-92442M, Article 13, where an identity of interest exists
or a “cost plus” form of contract is used.
2. A complete master set of drawings and specifications and two duplicate sets.
3. The Agreement and Certification, form HUD-93305M, executed by the Borrower, Lender, and the
General Contractor.
4. A title policy or title evidence showing:
Insured property free of all encumbrances other than the mortgage and acceptable reservations
of title;
Proof that no unpaid obligations exist except as previously approved by HUD; and
Title policy continued to date of credit instrument endorsement.
5. Survey and Surveyor’s Certificate, form HUD-91073-M.
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6. Contractor’s Requisition Project Mortgages, form HUD-92448. The Contractor’s Prevailing Wage
Certificate must be submitted at the time the mortgage is presented to HUD for insurance
7. Assurance of funds to meet operating deficit. Completed forms to assure funds are available to carry
the project to a sustaining occupancy after final closing:
a.
Form HUD-92476M, Agreement of Sponsor to Furnish Additional Funds;
Form HUD-92476a-M, Escrow Agreement for Operating Deficit; and
Form HUD-92477M, Bond Guaranteeing Sponsor’s Performance.
8. Warranty against latent defects is required in accordance with Section 12.16.S.
D. The pre-construction conference must precede the initial start of construction, see Section 12.2.
However, matters concerning insured advances of funds, and deposits to or disbursements from escrows
for additive change orders are not relevant to insurance upon completion transactions.
E. Construction monitoring and reporting must be done in accordance with Section 12.3 but only for the
purpose of Labor and FHEO compliance and adherence to the approved plans and specifications subject
to approved change orders.
F. For Labor and FHEO liaison, see Section 12.12.
G. Contractor’s monthly requisitions are not applicable to projects insured upon completion.
H. Off-site construction:
1. Monitoring is recorded by the HUD inspector on form HUD-95379.
2. Advance of funds monitoring is not applicable to projects insured upon completion.
I. Construction contract changes and Architect’s supplemental instructions (see Sections 12.8 to 12.11
and 12.4.D). Construction changes are processed in the same manner as insurance of advances, except as
modified below:
1. An escrow is not required for additive change orders, because HUD has no risk exposure until final
closing. The mortgagor must be able to provide the additional funds required and must not have any
outstanding obligation in connection with construction other than the insured mortgage at the time
the mortgage is presented for insurance.
2. Surety approval is not required for the approval of additive change orders regardless of the
percentage of contract increase.
J. Permission to Occupy applies as in Section 12.14.
K. Final HUD CA or Inspector’s Trip Report falls under HUD procedures above at Section 12.3.4.
L. Warranty period falls under HUD procedures above at Section 12.6.3.
M. Working capital deposit and operating deficit escrows are usually required for Insurance upon
Completion projects. Therefore, to mitigate any risk, projects that apply for Insurance upon Completion
must fully meet the operating deficit escrow and the working capital requirements contained in Chapter
8, Section 8.13, except for the extra 2% new construction contingency portion of the working capital
escrow which is not required. See Section 12.15.3 and Section 12.15.5 for releasing escrowed funds.
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
N. Property insurance schedule and requirements. When onsite construction is 80% complete (before
Final Endorsement of the mortgage), the Lender must prepare the following:
1. Property Insurance Schedule, form HUD-92329, that:
Correctly shows the insurable value of the completed structures; and
Reflects any changes in cost occurring after issuance of Firm Commitment.
2. Property Insurance Requirements, form HUD-92447.
O. MIP is not charged until final endorsement.
P. For information about cost certification, see Chapter 13.
Q. Closing must occur within the period provided in the commitment.
R. Extension of Firm Commitment instructions are discussed in Chapter 11.
S. The General Contractor must provide a builder’s warranty and enter into a latent defect agreement
with the Owner and Lender for the benefit of HUD and provide one of the following at Final Endorsement
to assure correction of any latent defects:
1. Cash escrow deposit of 2.5% of the total cost of construction, to be retained in an escrow held by the
Lender for a period of 15 months, or
2. An irrevocable, unconditional letter of credit for 2.5% of the cost of construction issued to the Lender
by a banking institution.
12.17 Completion of Repairs and Alterations Pursuant
to Section 223(a)(7) and 223(f)
12.17.1
Repairs and Alterations
A. Repairs and Alterations are documented by the Lender with a list that categorizes each work item as
Critical or Non-Critical. (See Chapter 5, Section 5.1.3 and Appendix 5, Section A.5.7.2.2).
12.17.1.1
Completion of Repairs and Alterations
A. All critical repairs completed before initial closing. A site visit(s) and report(s) by a HUD representative
are required to confirm satisfactory completion of critical repairs before closing. The only exception is
critical accessibility repairs that HUD approved for deferred completion based on the complexity of the
repair (see Chapter 5, Section 5.10.8.E). No other critical repairs may be deferred.
B. Non-critical repairs may be considered for deferred completion after closing at the request of the
mortgagor. HUD will require the following schedules prior to approving the request:
1. Schedule of Values (see Section 12.17.3 below) for payment of completed repairs;
2. A progress schedule ensuring that repairs begin immediately upon closing and, with limited possible
exceptions, are completed within 12 months of loan closing;
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
3. Schedule of Delayed or Interrupted Occupancy or Income, which must list:
All facilities or units for which occupancy or income will be delayed or interrupted by repairs
deferred until after closing;
Estimated period of delayed or interrupted occupancy or income;
Projected completion date; and
An additional deposit must be made to an operating deficit account for delayed repairs that
interrupt occupancy or income for any period. The amount of the additional deposit will be
determined by HUD.
4. Temporary Resident Relocation Schedule, when required.
12.17.1.2
Payment for Repairs
A. For critical repairs completed before closing, mortgage proceeds may be advanced at Initial/Final
Endorsement only upon verification that repairs have been completed.
B. Non-Critical repairs completed after closing are funded by a repair escrow.
1. A repair escrow account must be established for the full amount of the costs of deferred repairs and
alterations plus an additional assurance of completion amount equal to 10% or 20% of the estimated
cost of deferred repairs and alterations (see Chapter 5, Section 5.10.8.F) depending upon program
guidance.
2. The Schedule of Values for deferred repairs and alterations will be provided to the HUD inspector,
who will recommend progress payments based on this Schedule as a part of form HUD-95379, HUD
Representative’s Trip Report following the inspection as described below.
C. Payments for repairs completed after closing when a Project Architect and/or General Contractor are
involved must be handled as follows:
1. The General Contractor or Architect initiates by completing and providing supporting documentation
for form HUD-92464M, Requests for approval of advances of Repair Escrow Funds.
2. Both the Project Architect and the HUD Inspector (when applicable) should have performed the
inspection of the completed repairs and signed the form HUD-92464 which the Architect submits to
the owner who signs the form and forwards the request for advance of funds to the Lender.
3. Funds may be released for completed hard costs, i.e., repairs and alterations. Partial payment for a
certain percentage of completion of a particular repair work item should only be allowed when such
a progression is distinctly inspectable.
4. Generally, deposits or down payments on materials should not be funded from the Escrow. The HUD
CA may allow case-by-case exceptions for affordable properties or Section 202 refinancing projects.
5. For any completed repair work item, HUD will approve the release of funds up to, but not exceeding,
the originally estimated amount for that item or an amended amount based on an approved change
order(s).
6. Soft costs are payable pro-rata, based on the percentage of hard cost approved for disbursement.
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
7. A non-prorata portion of the overall general requirements may be paid consistent with accomplishing
a particular milestone or completing a relevant group of repairs and alterations that made necessary
a particular item of cost classified as general requirements.
8. When the entire work is executed by a General Contractor under the administration of a Project
Architect with contractual relationships established by AIA Contract Documents (i.e., AIA B104 &
A104), the release of Escrow funds may be based on AIA Document G702 and G703 submitted by the
General Contractor at appropriate intervals of progress of the work.
12.17.1.3
Release of Cash-Out/ Equity from Loan Proceeds
A. Projects with a 50% cash-out holdback escrow, set up at Endorsement on form HUD-92476.1M, Escrow
Agreement for Deferred Repairs, may have escrowed funds released at the request of the Lender when all
non-critical repairs and deferred accessibility repairs are successfully completed and evidence of clear title,
lien satisfaction and latent defects coverage have been provided even if this is after 12 months from
endorsement.
12.17.1.4
Funds Remaining in the Escrow
A. Funds remaining in the repair escrow may be released to Borrower when:
1. All repairs have been satisfactorily completed as determined by HUD;
2. Evidence of clear title has been provided to HUD; and,
3. In cases where the cost of repairs and alterations exceeds $400,000, the Borrower (or the General
Contractor in cases where a construction contract was executed) has provided latent defect assurance
with funded escrow. The escrow must be in the form of cash or letter of credit or surety bond (at the
option of the Lender) equal to 2½% (or a greater percentage as warranted) of the cost of repairs and
alterations, to be maintained for fifteen months from completion of repairs. See Agreements 8 and 9
of form HUD-92476.1M for further details.
12.17.2
Inspection
A. Unless HUD waives or delegates the non-critical repair escrow administration to Federal Housing
Administration (FHA)-approved Multifamily Lenders and Servicers, inspections of completed repairs are
performed by the HUD Inspector based upon the level of repairs and alterations set forth in this section.
B. The following are the requirements for inspection:
1. Projects insured under Section 223(a)(7) are limited to repairs which are routine maintenance.
Accordingly, 223(a)(7) transactions and projects insured under 223(f) where work is limited to
Repairs and Level 1 Alterations (as defined in Chapter 5 of the MAP Guide) will not require inspections
and the owners may self-certify for the Lender’s and HUD’s review.
2. Those projects with Level 2 Alterations will require periodic inspections unless explicitly waived by
the HUD CA based on the limited type and complexity of improvements. The waiver of HUD inspection
must be clearly stated in the Firm Commitment.
3. Those projects with a level of work requiring a Project Architect (costs exceeding $15,000 per
dwelling and/or Level 2 and 3 Alterations) will require inspections at repair completion stages of
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
35%, 65% and 100%. The requests for release of funds from the Repair Escrow at these stages must
be signed by the Project Architect and HUD Inspector prior to being reviewed and approved by the
owner, Lender and HUD. (See Section 12.17.1.2.C.2, above.)
4. The owner may request inspections based on a schedule for projects where milestones based on
completion of specific repairs and alterations or on time intervals is more appropriate than the
percentage of completion (e.g., 4 months, 8 months and 12 months rather than 35%, 65% and 100%)
for HUD CA’s approval.
5. The agreed number and occasions for inspection should be reflected in the Escrow Agreement (form
HUD-92476.1-M, as part of Exhibit “A” to the form) in alignment with the estimated amounts to be
released at the established intervals.
6. For projects with no new tax credits, determine the monetary value of repairs and alterations
satisfactorily completed based on full or partial completion of each work item appearing on the CNA
e-Tool lists of repairs and alterations. Partial completion may be recognized only when the extent of
completion is explicitly determinable by measurement or count, e.g. 3 of 8 similar buildings are reroofed, therefore a quantity of 3 times the price per each may be reimbursed from the Repair Escrow.
7. For new LIHTC projects, the inspection must determine the percentage of completion of construction
based on the Project Architect’s plans and specifications and the General Contractor’s approved form
HUD-2328.
C. Inspections may be attended by the owner, Architect, General Contractor, consultants, and any other
parties deemed necessary by HUD. HUD may also determine that construction progress meetings as
described in Section 12.3.5 be held in conjunction with the inspections. The inspection showing that all
repairs covered by the repair escrow are completed shall be considered the 100% final inspection.
Inspection Reports are filed on form HUD-95379, HUD Representative’s Trip Report (Trip Report), for
each monitoring visit. The following are included in the Trip Report:
1. Non-compliance with provisions of the commitment or closing, e.g. work write-up, drawings,
specifications, etc., including changes made to the work without prior approval;
2. Adverse conditions e.g. slow work completion, destruction of work, new municipal requirements,
disputes, etc.;
3. Borrower’s performance of any applicable relocation plan;
4. Availability for use of facilities listed on the schedule of delayed or interrupted occupancy, when
applicable;
5. Municipal authorizations. Permissions to occupy or use permits, etc. Where applicable, these must
be issued before closing, unless related to work deferred until after closing;
6. Items to be completed within twelve months from initial/final endorsement. The HUD inspector must
include the following in the Trip Reports:
A detailed list of the status of all required repair work with photos;
Escrow amount requested on the form HUD-92464M; and
For the final 100% Trip Report, the date of the completion of all the repairs.
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
D. The HUD CA should assemble the following documents, which are required for HUD Construction
Inspection and Monitoring, to monitor repairs and recommend payments during construction:
1. Firm Commitment;
2. Escrow agreement;
3. Survey, surveyor’s report and legal description;
4. List of required repairs (work write-up with clear and accurate scope cost and schedule of the work
items);
5. Drawings and specifications (where required);
6. Schedule of Values;
7. Progress schedule;
8. Construction schedule (where required);
9. Schedule of delayed or interrupted occupancy or income (required only for projects with repairs
delayed after closing);
10. Tenant relocation plan (where required);
11. Construction contracts and Owner-Architect Agreement (where required); and
12. Agreement and Certification.
12.17.3
Schedule of Values for Reimbursement from the Repair
Escrow
A. The schedule of values is the itemized cost estimate for the proposed scope of construction work
funded from the Repair Escrow.
1. For Section 223(f) applications with a scope of work described in the CNA e-Tool (see Chapter 5,
Section 5.3.3.4), schedule of values are the costs reported in Column B of the Lender’s 223(f) Repairs
& Alterations Cost Worksheet (see Chapter 5, Section 5.3.3.5 and Appendix 5, Section A.5.12) with
hard costs itemized on the list(s) of repairs and alterations from the approved CNA.
2. For Section 223(f) applications with new tax credits, the schedule of values is the approved form HUD2328.
12.17.4
Final Report
A. Final HUD Trip Report must be made upon completion of all work prepared by the HUD Inspector. The
final report must show that:
1. All work is acceptably completed in accordance with the firm commitment and/or closing escrow, as
applicable, and approved changes;
2. Offsite work is completed or that the municipality has given written assurance for its completion;
3. Utilities are connected;
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12.17 Completion of Repairs and Alterations Pursuant to Section 223(a)(7) and 223(f)
4. Permanent ingress and egress facilities are provided; and
5. Applicable municipal inspections, approvals, etc., have been issued.
12.17.5
Change Orders
A. Changes in the repairs and alterations work items, including associated cost changes, must be
submitted to Lender and HUD for review and approval.
1. Changes prior to endorsement must be handled as follows:
For non-LIHTC projects, a revised CNA e-Tool must be submitted to HUD for review and approval
to issue an amendment to the Firm.
For new LIHTC projects, revised plans and specifications and form HUD-2328 must be submitted
to HUD for review and approval to issue an amendment to the Firm.
In all cases, the changes must be reflected in a revised Repair Escrow Agreement (form HUD92476.1M).
2. Changes after endorsement must be handled as follows:
Changes that result in increased costs must be funded by the Borrower at the time the change
order is approved and the Repair Escrow Agreement (form HUD-92476.1M) must be revised
reflecting the addition of funds.
The Repair Escrow Agreement amount must not be reduced for change orders that result in cost
reduction.
For non-LIHTC projects, approved changes after endorsement do not need an amended CNA
eTool. The changes in cost and scope may be shown as annotated and initialed changes to the
list(s) of repairs and alterations. A revised Lender’s 223(f) repairs & Alterations Worksheet
should reflect any cost changes.
For new LIHTC projects, approved changes should be reflected in a revised form HUD-2328 and
revised plans and/or specs to the extent required by the nature of the change.
The assurance of completion should not be used as a source of funding for change orders prior to
completion of all repairs and alterations.
When an Architect is engaged and the changes are minor with no changes in cost and time,
Architect's Supplementary Instructions (ASI) may be used without a Change Order Request
submission to HUD. The Architect must forward a copy to the HUD Inspector and Lender after
issuance for confirmation that the changes are not material.
In all cases, Lenders must ensure that any change order(s) or other addition to cost do not result
in a total cost of repairs and alterations exceeding the cost threshold that defines substantial
rehabilitation.
3. Change orders must be formatted as follows:
When a Project Architect is involved, AIA G701 is to be used;
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12.18 Casualty Events During Construction
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When no Architect is involved, a written request in a format similar to form HUD-92437 Request
for Construction Changes on Project Mortgages may be submitted. form HUD-92437 may be used
as a general guide, but the actual form must not be used.
4. Contractor and Project Architect (if employed) must sign all change order requests.
5. Borrower and Lender must review and sign the change order request and provide an updated list of
repairs describing all changes to HUD for review and approval.
6. Change order work may proceed once approved.
12.17.6
Warranty Inspections
A. Where the owner uses a contractor, rather than its own staff, to carry out repairs, warranty inspections
will be scheduled to discover and require correction of latent defects within 1 year of the date of
substantial completion of all repairs. See Sections 12.6.C and 12.16. S.
12.17.7
Projects in Difficulty
A. Physical, financial, or management problems could be an indication that a default is imminent. For
further explanation see Management Agent Handbook 4381.5 REV-2 Chapter 6 Exhibit 6-1, and Item 7 of
the form HUD-92476.1M, Escrow Agreement for Deferred Repairs.
B. If the Borrower has not completed all deferred repairs by the end of the repair period the HUD
Inspector will document all such non-completed repairs on form HUD-95379, HUD Representative’s Trip
Report, and will submit the report to the Lender and HUD Construction Manager.
C. The Lender will complete the repairs using the repair escrow funds. The Lender will submit a work
schedule to HUD for the completion of all remaining repairs and will provide the Borrower with a
breakdown of these repairs and the cost(s) of completion (including administrative expenses).
D. Funds remaining in the repair escrow account after completion of the repair work by Lender will be
returned to the Borrower, less reasonable administrative costs incurred by Lender in completing the
repairs.
12.18 Casualty Events During Construction
A. A casualty claim may occur during construction that will require funding from a stakeholder’s
insurance coverage. If the claim is payable under the Builder's Risk policy the funds shall be applied
toward a change order (form HUD-92437) to correct the damage. For new construction or substantial
rehabilitation projects, the amount to correct the damages must include the Davis-Bacon wage rate.
B. If the casualty claim is payable under the owner’s casualty insurance, the owner may choose another
contractor to correct the damages, provided however, if Davis-Bacon wage rates apply, the other
contractor must execute a contract form providing enforcement provisions as required for General
Contractors in new construction transactions.
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Chapter 13 Cost Certification
13.1 Projects that Must Certify
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Chapter 13 Cost Certification
13.1 Projects that Must Certify
A. Cost certification is required for all insured multifamily projects, except when the mortgage is 80
percent or less of value and at least one of the following two criteria applies: 1) the transaction involves
tax credits, or 2) the project is refinancing under Section 207/223(f).
B. The purpose of certification is to establish the Borrower's actual costs, including contractor's cost, and
establish the "maximum insurable mortgage" for Final Endorsement of the insured mortgage.
C. Certifiable costs are those costs that have been paid in cash or will be paid in cash within 45 days of
final closing, except for:
1. Land Value, which HUD will calculate;
2. General Overhead, which is certifiable whether or not it is paid in cash;
3. Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA), which is cost certifiable whether or not it
is paid in cash, where there is an identity of interest between the Borrower and contractor; and
4. Non-profit Developer's Fee, which is cost certifiable whether or not it is paid in cash, less amounts
certified to and allowed on other line items.
13.2 Projects Exempt from Cost Certification
A. The Housing and Economic Recovery Act (HERA) of 2008 affected the Borrower’s obligation to certify
“actual cost” (as defined in the National Housing Act) under insured mortgage programs. If it is
determined at the time of issuance of the Firm Commitment for insurance that the ratio of loan proceeds
to the actual cost of the project is less than or equal to 80 percent, the Borrower is not required to certify
actual cost to HUD. This exemption affects construction, rehabilitation (including property acquisition),
purchase, or refinance of a multifamily housing project for which equity is provided through tax credits
(e.g., LIHTC, Historic Tax Credits, or New Market Tax Credits.) Since the actual cost is not known at the
time of the issuance of the Firm Commitment, use in lieu of the actual cost the Total Estimated Replacement
Cost of the project (see Section G line 74 on the form HUD-92264, Multifamily Summary Appraisal Report).
An example of this computation is provided below.
13.2.1
Low Income Housing Tax Credits
A. This example illustrates the applicability of the cost certification exemption for a new construction and
substantial rehabilitation project using the lowest controlling mortgage criterion.
Total Estimated Replacement Cost of Project (Section G line 74 form HUD-92264):
Tax Credit Equity for Mortgageable Items (form HUD-92264-A), Supplemental to Project
Analysis, line I.11.b(2):
Maximum Insurable Mortgage Amount (form HUD-92264-A)
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$13,000,000
$5,000,000*
$8,000,000
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13.2 Projects Exempt from Cost Certification
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$8,000,000 / $13,000,000 = 62%
13.2.1.1
Audit Fee Not Applicable
A. In cases that are exempt from cost certification, a Cost Certification Audit Fee (Section G line 66, on
form HUD-92264) is not applicable. The Borrower and the General Contractor may certify to their actual
costs. Should they decide to cost certify per HUD’s methodology, the audit cost is mortgageable.
B. The Borrower and the General Contractor have the option to cost certify according to the guidance in
Section 13.4 through Section 13.17.
13.2.1.2
Establishing Substantial Completion Date
A. The substantial completion date is the date the Architect dates and signs the certification on form HUD92485, Permission to Occupy Project Mortgages (PTO). Upon execution, the Architect certifies that the
construction work is sufficiently complete in accordance with the construction contract documents, such
that the project may be occupied for the intended use except for acceptable items of delayed construction
completion. The HUD Inspector examines the rental units for being occupiable, and, if so, with any
exceptions noted, will complete the “FHA Inspection Report” portion on the Form to verify whether
construction is substantially complete and the project is suitable for occupancy. The Form is subsequently
signed by HUD’s Authorized Agent granting approval of the PTO. Refer to Chapter 12, Section 12.6.1 for
the full guidance on the issuance of a certificate of substantial completion. The Regional Center or Satellite
Office will notify the Borrower, General Contractor, and Lender in writing of the substantial completion
date so that preparation for final closing can begin.
B. To account for multiple buildings constructed under one insured mortgage, the Architect will approve
a series of Permissions to Occupy as buildings are complete and units become available. When all
buildings are complete the Architect will write on the front of form HUD-92485 indicating it is the final
PTO.
C. The date on the final form HUD-95379, HUD Representative’s Trip Report is used in the absence of a
cost certification cut-off date. Production staff will enter “The Date of Visit” from the final form HUD95379 as the cost cut-off date in the HUD data system, e.g., DAP (Development Application Process), and
advise the Borrower of the date by letter. The day after becomes the “Financial Assessment Subsystem
(FASS) date” to mark the beginning of project operations and annual financial statement (AFS) reporting.
D. Production staff will issue a letter to all parties (Owner, Lender, Closing Coordinator, Asset
Management, etc.) that HUD has established the cut-off date as: “02/26/20XX and the Financial
Assessment Subsystem (FASS) date as 02/27/20XX”.
E. For financial reporting purposes, the day after the cut-off date is the commencement of operations and
the projects’ first year of reporting annual audited financial statements. This first year will cover the
period from the day after the cut-off date to the project’s fiscal year end. Once the certificate(s) of
occupancy (form HUD-92485) is issued, this becomes the date Asset Management will begin monitoring
the project’s financial condition (e.g., monthly financial accounting reports).
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13.2.1.3
Treatment of Operating Income Generated During Construction
A. The Borrower must account for all operating income generated during construction and ending three
months before the originally-scheduled date of the first principal payment under the mortgage. In cases
such as new construction with partial occupancy approval (as described in Chapter 12, Section 12.14.4),
or a substantial rehabilitation tax credit project without significant resident displacement, there may be
considerable net operating income (NOI) (or interim income) generated during the construction period.
This interim income may be used to pay for mortgageable and non-mortgageable items.
B. Therefore, the Borrower must prepare an Operating (Income and Expense Statement) Statement
covering the period from first occupancy (see Chapter 12, Section 12.14.4 if occupancy occurred during
construction), or from the date of substantial completion, through the period ending three months before
the date of the first principal payment of the originally-scheduled mortgage. The Borrower may include
in the operating statement all soft costs incurred up to 60 days beyond this date, which will establish the
cut-off date and the date for the operating statement. See Section 13.6 and Section 13.10.2.A.5.j as a cross
reference. The day after the cut-off date is the commencement of operations and the project’s first year
of reporting annual audited financial statements.
C. Borrowers with project based rental assistance must submit a CPA-prepared audited operating
statement to meet FASS reporting and auditing requirements.
D. The Lender must submit the Borrower’s operating statement to HUD at least 30 days before the final
endorsement scheduled date. If the operating statement evidences receipt of NOI during this period, the
Borrower can apply the interim income according to the following:
1. If the replacement cost mortgage (Criterion 3) is not the controlling mortgage, any NOI generated
during construction may be applied to cover shortfalls in mortgageable soft costs, change orders,
initial operating deficit and escrows. At final endorsement, the balance of funds may be distributed
to the Borrower, deposited to the project’s Reserve for Replacement account, or applied toward the
amortization of the mortgage principal, subject to HUD approval.
2. If the replacement cost mortgage (Criterion 3) is controlling, the Mortgage Credit staff will do a
calculation and determine if the interim NOI is equal to or greater than 1% of the original mortgage.
If the interim NOI is greater than 1% of the original mortgage amount, the total amount of interim NOI
is deducted from the certified replacement cost amount. When the NOI does not meet this 1%
threshold, the Borrower will apply the amount toward shortfalls, etc. as instructed in number 1 above.
The Lender must deposit any remaining balance into the project’s Reserve for Replacement account
or apply it toward the amortization of the mortgage principal at final endorsement. There is no
distribution to the Borrower.
3. See Section 13.15.3 on the distribution prohibition for a Borrower’s affiliate or principal.
E. In those cases where interim income is not generated, or the Borrower opts not to set a cost cut-off
date, it is not necessary for a Borrower to submit an operating statement. The Regional Center or Satellite
Office will notify the Lender, Borrower, and General Contractor in writing of the 100% final completion
date from the final form HUD-95379, HUD Representative’s Trip Report. The Production staff will enter
“The Date of Visit” date from the final form HUD-95379 into the HUD data system as the cost cut-off date.
The day after this date will begin project operations and FASS reporting.
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13.2 Projects Exempt from Cost Certification
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13.2.1.4
Copy of Final Sources and Uses Statement
A. The Lender may submit a copy of the final Sources and Uses Statement prepared by the state tax credit
allocating agency to assist in the Lender and HUD review of the final amounts of sources, income and uses.
13.2.1.5
Modification to Form HUD-92580
A. For those projects that are exempt from providing a cost certification, after substantial completion, the
Regional Center or Satellite Office will issue a modified form HUD-92580, Determination of Maximum
Insurable Mortgage, as illustrated below. Strikeouts are illustrated on lines 2 in the example below:
1.
(a) Original Mortgage Amount
$10,000,000
2.
(b thru e) are not applicable – Insert N/A or strike through
Certified Actual Cost – Strike “Certified Actual Cost” and insert “Replacement Cost
from Section G line 74”
$13,000,000
3.
Disallowed Cost (Insert N/A)
$N/A
4.
Recognized Actual Cost of Improvements (Sec. G line 74)
$13,000,000
5.
Land
$
6.
TOTAL LAND AND IMPROVEMENTS
$13,000,000
7.
Statutory Percentage of Total Cost (____ % of item 6)
$N/A
8.
For Substantial Rehabilitation-Property Owned, enter the Lesser of:
existing Mortgage Indebtedness on (Land and Improvements
i. $____
to be Rehabilitated) or
of Land and
ii. An Amount Equal To __ _% of the Fair Market Value $____
Improvements
Before (Repair or Rehabilitation)
$N/A
9.
TOTAL line 7 plus line 8, (if any)
$N/A
10.
Maximum Insurable Mortgage in Multiples of $100, (Item 1(a) or Item 6,
whichever is the Lesser)
$10,000,000
NOTE: The Mortgage Credit staff should indicate on this Form that the project is exempt from cost
certification due to the loan proceeds to actual cost being equal to or less than 80%. For this
example, the actual percentage of the loan to cost is 77% ($10M/$13M).
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B. Completion of the reverse side of this Form would be as follows:
Schedule 1
N/A
Schedule 2 – Disallowed Costs:
N/A
Schedule 3 – Computation of Borrower’s Initial Equity Investment
1. Total Land and Improvements (line 6 above)
2.
Less: Maximum Insurable Mortgage (line 10 above)
3.
Borrower’s Initial Equity Investment
$13,000,000
$10,000,000
$3,000,000
13.3 Types of Cost Certification
A. Standard or "Long Form" Certification is required, except for projects permitted to use the "simplified"
cost certification and for certification of projects insured under Section 207.
B. Simplified Certification is restricted to projects involving 40 units or less of proposed construction or
substantial rehabilitation and is used for projects under Section 207/223(f).
C. Section 223(f) Certification is required for all projects insured under Section 207, except for Section
207/223(f) transactions where the insured mortgage is 80% or less of the value.
D. Section 223(f) Supplemental Certification is required for projects identified in Section 13.3.C above,
when completion of repairs is permitted after closing. The Certification is submitted 15 business days
after repairs are confirmed complete.
13.4 Entities That Must Cost Certify
A. The Borrower must certify under all programs, except where HUD has determined at the time of
issuance of the Firm Commitment that the insured mortgage under:
1. Section 221(d)/220/231 new construction/substantial rehabilitation is 80% or less of replacement
cost and the project is will benefit from LIHTC, Historic Tax Credits or New Market Tax Credits; or
2. Section 207/223(f) refinance is 80% or less of value.
B. When the Borrower is required to cost certify, the Contractor must also cost certify when:
1. The Contractor has an identity of interest with the mortgagor, whether such identity of interest
existed or developed before or after the initial closing (for insured advances projects) or issuance of
the Firm Commitment (for insurance upon completion projects); and/or
2. The Contractor used form HUD-92442M, Construction Contract-Cost Plus, whether or not any identity
of interest with the Borrower existed or developed.
C. When the Borrower is required to cost certify the subcontractors at any tier, equipment lessors,
material suppliers, and manufacturers of industrialized housing must cost certify where:
1. The total of all subcontracts, purchases, and leases are more than 0.5% of the mortgage, and
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2. An identity of interest exists or comes into being between such subcontractor, equipment lessor,
material supplier, or manufacturer of industrialized housing and either:
The Borrower; or
The contractor, where the contractor must cost certify.
13.5 Cost Certification Sequence of Events
A. Notification of Pre-Cost Certification Conference. HUD must notify the Lender, Borrower, and
contractor when the project is 80% complete. HUD should notify new Sponsors and General Contractors
as early as 70% completion.
1. The letter should state that he Borrower, General Contractor, their accountants, and the Lender
should attend the conference.
2. Enclose with the letter:
The contact information for the Fair Housing Information Clearinghouse (1-800-767-7468);
The internet address for Handbook IG 2000.4 Consolidated Audit Guide for HUD Programs:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbo
oks/oigh/2000.4; and
Four copies of each of the applicable forms:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms/h
ud9#group2:
1) Form HUD-92330, Borrower's Certificate of Actual Cost, and/or
2) Form HUD-92330A, Contractor's Certificate of Actual Cost, if applicable.
B. Pre-Cost Certification Conference. Conduct of the Pre-Cost Certification conference is the
responsibility of the assigned HUD staff and should be held before the project is 90% complete. At the
conference, HUD staff will explain:
1. Substantial completion, administrative completion, and cut-off dates.
2. Documentation required for cost certification including the income statement and balance sheet.
3. Responsibility of the Borrower and accountant for computing the liquidated damages/actual damages
and incentive portions, if applicable, of the construction contract using the certified amounts on form
HUD-92330.
4. Necessity for a careful review and completeness of the documentation, including dates and signatures,
and timeliness of the submission, HUD review, and final endorsement.
5. Any problems with prevailing wage certifications or other labor issues.
C. Cut-off date established for computation of the cost certification. Submission and HUD approval
of the cost certification must occur before final closing, except that the Section 223(f) supplemental cost
certification is not required until completion of non-critical repairs deferred until after closing.
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D. Certificate of Actual Cost. The Borrower and General Contractor, if applicable, must submit the
Certificate of Actual Cost to the Lender for review prior to the Lender’s submission to the HUD assigned
Underwriter. The HUD Underwriter will review the cost certification and determine the Maximum
Insurable Mortgage using formHUD-92580.
E. Maximum Insurable Mortgage. Form HUD-92580, Maximum Insurable Mortgage, is a required final
endorsement exhibit. Record in Schedule 1 of the Form any additional conditions that must be met as
part of final endorsement.
13.6 Project Completion and Cut-Off Dates
A. The substantial completion date is the date the Architect dates and signs the certification on formHUD92485, Permission to Occupy Project Mortgages. The Architect is certifying that part of or all the
construction work is substantially complete in accordance with the construction contract documents and
that the project may be occupied for the intended use. The form is subsequently signed by HUD’s
Authorized Agent. Construction must be complete except for acceptable items of delayed completion, and
the Regional Center or Satellite Office will notify the Borrower, General Contractor, and Lender in writing
of the substantial completion date.
B. The date the final HUD Representative’s Trip Report (form HUD-95379) is signed begins the effective
date for cost certification. The Borrower has the option to include in the cost certification all soft costs
incurred up to 60 days beyond this date. The date selected by the Borrower is the "cut-off date" for the
soft costs.
C. The Borrower's balance sheet and operating statement date must agree with the selected cut-off date.
D. Final completion is the date the HUD Inspector signs the final HUD Representative's Trip Report (form
HUD-95379) provided that the Construction Manager subsequently endorses the trip report.
Construction must be 100% complete.
E. Production staff will enter “The Date of Visit” from the final form HUD-95379 as the cost cut-off date in
the HUD data system, i.e. DAP (Development Application Process), and advise the Borrower of the date.
The day after becomes the “Financial Assessment Subsystem (FASS) date” to mark the beginning of project
operations and annual financial statement (AFS) reporting.
F. Production staff will issue a letter to all parties (Owner, Lender, Closing Coordinator, Asset
Management, etc.) that HUD has established the cut-off date as: “02/26/20XX and the Financial
Assessment Subsystem (FASS) date as 02/27/20XX”.
G. For financial reporting purposes, the day after the cut-off date is the commencement of operations and
the projects’ first year of reporting annual audited financial statements. This first year will cover the
period from the day after the cut-off date to the project’s fiscal year end. Once the certificate(s) of
occupancy (form HUD-92485) is issued, this becomes the date Asset Management will begin monitoring
the project’s financial condition (e.g., monthly financial accounting reports).
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13.7 Administrative Completion Date
A. The Regional Center Director may advance the completion date to prevent unnecessary accumulation
of soft costs when projects that are nearly complete face unnecessary delay.
B. The Regional Center Director may set an administrative completion date for any project when the
monthly inspection reports show 95% completion of work and thereafter less than 2% increase in
percentage of completion in any month.
C. The Regional Center Director will notify the Borrower, General Contractor, and Lender in writing of
the administrative completion date and the following:
1. The administrative completion date is the effective date for cost certification except that all soft costs
up to 60 days beyond this date may be included at the option of the Borrower.
2. The date of the balance sheet and operating statement must be the same as the cut-off date selected
by the Borrower.
3. Liquidated/actual damages for cost certification purposes will be computed using the administrative
completion date. However, the General Contractor is responsible for liquidated/actual damages
through the date of substantial completion.
D. Copies of the notification go to the HQ Docket, Office Docket, and Closing Attorney's file.
13.8 Submission Date
A. The submission date for cost certification should be within 30 to 45 days after the cut-off date, and not
less than 30 days before the desired final closing date.
13.9 Required Forms
A. Form HUD-92330, Mortgagor's Certificate of Actual Cost. Line-by-line instructions are contained
in the MAP Forms Book or Handbook 4470.2 Chapter 4:
https://www.hud.gov/sites/dfiles/OCHCO/documents/92330.pdf and
https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh/44702
B. Form HUD-92330A, Contractor's Certificate of Actual Cost. See instructions contained herein at
Section 13.10, Section 13.14, and Section 13.15. The subcontractor, material supplier, industrialized
housing manufacturer, and the equipment lessor are required to use this form to certify cost.
NOTE: When a project includes rehabilitation and new construction, a separate form is required
for each, with a master form summarizing total project costs, including fees.
C. Form HUD-2205-A, Borrower's Certificate of Actual Cost (Section 207 Pursuant to Section
223(f)). Line-by-line instructions are contained in the MAP Forms Book. The form is located at:
https://www.hud.gov/sites/dfiles/OCHCO/documents/2205-a.pdf
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D. Statements of Sources and Uses and Settlement Statements may be used to meet cost certification
requirements under the HERA exemption.
13.10 Required Statements and Certifications
A. For all projects, regardless of whether the project has a cost certification exemption, the statements
and certifications described in this section are required.
B. New construction and substantial rehabilitation projects require both: 1) an unaudited balance sheet
that covers the period from the date of initial endorsement through cut-off, and 2) an unaudited income
statement covering the period from first occupancy (see Chapter 12, Section 12.14.4 if occupancy
occurred during construction), or from the date of substantial completion, through the period ending
three months before the date of the first principal payment of the originally scheduled mortgage.
13.10.1
Simplified Form of Cost Certification
A. Simplified cost certification is permitted for new construction or substantial rehabilitation projects
involving 40 units or less and for refinancing or purchase of existing properties under 207/223(f).
1. Use forms HUD-92330 and HUD-92330A (if a cost-plus construction contract was used or an identity
of interest exists between the Borrower and the General Contractor). An accountant's opinion is not
needed.
2. If there is an identity of interest between a subcontractor, material supplier, equipment lessor, or
manufacturer of industrialized housing and the Borrower and/or General Contractor must cost
certify, and the total of all identity of interest subcontracts, purchases and leases is more than 0.5%
of the mortgage, the identified party uses form HUD-92330A. This requirement, established by the
form HUD-93305M, Agreement and Certification, applies in all cases.
3. An unaudited balance sheet of the Borrower entity, as of the cut-off date, is required in all cases.
Format and content of the balance sheet must follow Section 13.10.2.A.4 below.
4. An unaudited operating statement is required if occupancy occurred during construction. Format and
content of the operating statement must follow Section 13.10.2.A.5 below.
13.10.2
Long Form Cost Certification
A. For cases that do not qualify for simplified cost certification based upon Section 13.10.1.A.1 above, the
following must be submitted:
1. Form HUD-92330, Borrower's Certificate of Actual Cost, supported by an accountant's opinion (refer
to Section 13.10.2.A.6).
2. Form HUD-92330A, Contractor's Certificate of Actual Cost, supported by an accountant's opinion
(refer to Section 13.10.2.A.6), which is required if there is an identity of interest with the Borrower or
if a cost-plus construction contract was used.
3. Subcontractors, suppliers, and equipment lessors with an identity of interest with either the Borrower
or General Contractor must submit form HUD-92330A, supported by an accountant's opinion.
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Material suppliers must attach to form HUD-92330A a sheet showing:
1) Quantities furnished;
2) Sources from which the materials were obtained; and
3) Unit prices paid to the sources, brand names, model numbers, sizes, lumber grades, etc., as
applicable.
NOTE: No amount will be included for general requirements (e.g., job overhead).
Equipment Lessors must attach to Form HUD-92330A a sheet showing:
1) Dates the equipment was acquired;
2) Age of equipment at acquisition date;
3) Brand names and model numbers;
4) Sizes;
5) Dates and length of time used; and
6) Rates charged.
a) The Lessor(s) must certify that:
i.
The rates charged were not more than the local going rate obtainable in the area,
including any maintenance and repair;
ii. The time charged was not more than essential for the project; and
iii. The charges did not exceed the purchase price of the equipment.
b) Lump Sum Basis. Instead of providing an attachment containing the above information,
the lessor(s) may elect to certify to charges at 85% of the local going rates for identical
equipment under arms' length (lump sum) leases. When using this alternative, the lessor
agrees:
i.
The Regional Center is the sole judge of the reasonableness of the time and rates
charged; and
ii. Equipment maintenance and repair expense is the responsibility of the lessor(s) and
is not included as an additional cost.
c) Subcontractor's equipment. Costs for subcontractor(s) equipment, whether owned or
rented, are considered in the markup for overhead and profit. These costs shall be
reflected in the total subcontract and in the prior approval of identity of interest entities.
A separate certification of the equipment is not required.
Manufacturers of Industrialized Housing must attach to form HUD-92330A a breakdown of
Division 13, Special Construction, showing:
1) Manufacturing costs, including:
a) Labor;
b) Materials;
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c) Sales and any other taxes;
d) Factory overhead; and
e) General overhead and profit.
NOTE: The manufacturer's accounting system must follow generally accepted accounting
procedures, which will allow certification of the actual cost of manufacturing by a
Certified Public Accountant or Independent Public Accountant. No amount will be
included for transportation or work at the project site.
2) Transportation costs from the factory to the project site (if provided by the manufacturer),
including:
a) Labor; and
b) Equipment.
3) On-site erection costs (if provided by manufacturer), including:
a) Labor;
b) Equipment;
c) Materials; and
d) General requirements (job overhead).
4) The remainder of the manufacturer's form HUD-92330A is to be completed per the form’s
standard instructions.
NOTE: There can be no duplication of manufacturing costs (e.g., repair of components
damaged in shipment.)
4. An audited balance sheet of the Borrower entity, as of the cut-off date is required.
The balance sheet must contain the following certification:
I HEREBY CERTIFY that the foregoing figures and statements contained herein submitted by me
as agent of the Borrower [owner] for the purpose of obtaining mortgage insurance under the
National Housing Act are true and give a correct showing of (Name of Borrower or owner)
financial position as of (date of financial statement).
Signed this
day of
, 20
printed or typed under signature)
(Signature of authorized agent with name
WARNING: HUD will prosecute false claims and statements. Conviction may result in criminal
and/or civil penalties. (18 U.S.C. 1001, 1010. 1012; 31 U.S.C. 3729, 3802)
Furnish reconciling information if short-term liabilities on the balance sheet do not agree with
Column B of form HUD-92330.
Explain the purpose of all liabilities in the notes to the financial statement and include repayment
requirements of the liabilities. Take special care to note any liabilities included for repayment on
the balance sheet that were not disclosed during the firm processing stage or before initial
endorsement. If such liabilities are found, inform the Borrower that the liabilities cannot be an
obligation of the project; repayment is the responsibility of the Borrower. These liabilities will
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not be considered (allowed nor disallowed) in the review of the cost certification. When nondisclosures are found, it requires a detailed review of cost certification forms HUD-92330 and
HUD-92330A.
If proceeds and obligations from project syndication are passed through the books and records of
the Borrower entity, reflect receivables as an asset of the Borrower entity.
The notes to the balance sheet must identify the original amount of, and summarize the
expenditures from, the working capital deposit.
5. An audited operating statement is also required if occupancy occurs before the cost certification cutoff date.
The statement must contain the certification contained in Section 13.10.2.A.4.
Prepare the operating statement on an accrual basis.
The statement must cover the beginning of marketing and rent-up activities (or date of initial
endorsement in rehabilitation projects where occupancy is continuous) to the cut-off date.
Marketing and rent-up activities will start no later than 6 months before the issuance of the first
form HUD-92485, Permission to Occupy-Project Mortgages.
The statement must show the actual dates covered, rather than language such as "From the Date
of Commencement of Marketing and Rent-up Activities, etc."
The statement must show income from all sources. Do not consider security deposits as income.
The operating statement should not contain any expense items that were paid or should have
been paid from the working capital deposit or otherwise included in cost certification.
Operating expenses may include:
1) Expenses directly related to renting the project, such as:
a) Rental commissions customary for the type of project, if any, and
b) Marketing and advertising expenses.
2) Purchase of furnishings, fixtures, equipment, and supplies not paid from the working capital
deposit and in the eligible replacement costs.
3) Reasonable fees for preparing any Federal, State, or local tax return information required of
the project. For example, if the Borrower entity is a partnership, the cost of preparing both
IRS Form 1065 (U.S. Partnership Return of Income) and related K Schedules may be
considered. Do not recognize the cost of preparing a partner's personal IRS Form 1040
return.
4) Electricity, gas, water, and operating salaries (maintenance, cleaners, gardeners, elevator
operators, etc.) to the extent they are not included in construction cost on form HUD-92330,
Borrower's Certificate of Actual Cost, or form HUD-92330A, Contractor's Certificate of Actual
Cost.
5) Management fee stated in the contract.
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6) Services not covered by the management fee under Chapter 3 of Handbook 4381.5,
Compensations for Management Services in Multifamily Housing Projects with Insured or
HUD-Held Mortgages.
Operating expenses may not include:
1) Depreciation.
2) Interest, taxes, property insurance premiums, and mortgage insurance premiums that are
reflected in form HUD-92330, Borrower's Certificate of Actual Cost.
3) Salaries paid to principals of the Sponsor or Borrower for managing the Borrower entity.
Treatment of net operating income generated during construction:
1) If the replacement cost mortgage (Criterion 3) is not the controlling mortgage, any NOI
generated during construction may be applied to cover shortfalls in mortgageable soft costs,
change orders, initial operating deficit, and escrows. At final endorsement, the balance of
funds may be distributed to the Borrower, deposited to the project’s Reserve for Replacement
account, or applied toward the amortization of the mortgage principal.
2) If the replacement cost mortgage (Criterion 3) is controlling, the Mortgage Credit staff will do
a calculation and determine if the interim NOI is equal to or greater than 1% of the original
mortgage. If it is, the calculated interim NOI is deducted from the certified replacement cost
amount. When the NOI does not meet this 1% threshold, apply the amount toward shortfalls,
etc. as instructed in number 1 above. The Lender must deposit any remaining balance into
the project’s Reserve for Replacement account or apply it toward the amortization of the
mortgage principal at final endorsement. There is no distribution to the Borrower.
3) For a non-profit mortgagor, any NOI generated during construction may be processed as:
a) A recovery of construction costs at cost certification, to the extent that it was used to
reduce liquidated/actual damages.
b) An offset for a mortgage increase.
c) A deposit of the unused portion of net income into the project’s Reserve for Replacement
account at final endorsement.
If operating expenses exceed income:
1) No entry is made on form HUD-92330, Mortgagor's Certification of Actual Cost.
2) Operating deficit may be carried over as a reduction to net income on the supplemental
operating statement.
6. A Certification by an independent Certified Public Accountant or an Independent Public Accountant
must accompany form HUD-92330, Mortgagor's Certificate of Actual Cost, including the audited
balance sheet and operating statement of the Borrower, and form HUD-92330A, Contractor's
Certificate of Actual Cost.
The accountant must meet the auditor qualifications of the Government Auditing Standards (GAO
Yellow Book), including the qualifications relating to independence and continuing professional
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education. The audit organization also must meet the quality control standards of the GAO Yellow
Book.
The Code of Federal Regulations prohibits accountants from contracting for services when their
name is shown on the HUD and General Services Administration (GSA) Government-wide
Consolidated List of Debarred, Suspended and Ineligible Contractors and Grantees (2 CFR Part
2424 Subpart J).
The accountant must also comply with the requirements in Chapters 1, 2, and 6 of HUD Handbook
IG 2000.4, Consolidated Audit Guide for Audits of HUD Programs.
7. The Borrower must submit a supplemental operating income statement if more than 3 months exist
between the cut-off date and the start of amortization. If a deferment of amortization was granted
(see Section 13.25), use the new date for the start of amortization in determining the need for a
supplemental operating statement.
This requirement does not apply to non-profit Borrowers or any project where the mortgage is
$200,000 or less.
The statement covers the period from the cost certification cut-off date to the date which is 3
months before the start of amortization. The Borrower should submit the statement within 30
days after the expiration of this period.
If the required original cost certification was audited, a CPA or IPA must prepare and certify the
supplemental statement.
The Borrower may advance the date of amortization to avoid submitting a supplemental income
statement.
In preparing the statement, if the operating statement submitted at cost certification shows
expenses in excess of income, such expenses may be carried forward as "un-recovered expense–
prior period."
13.10.3
Section 223(f) Projects
A. The Borrower must certify to the total costs incurred in the acquisition or refinancing of the property
using form HUD-2205-A, Mortgagor's Certificate of Actual Cost. The certification must be dated and
signed by an authorized agent of the Borrower. An accountant's opinion is not needed.
1. The certification must be submitted after all critical repairs have been completed, but at least 15 days
before the desired closing date.
2. The General Contractor will be required to cost certify using form HUD-92330A if a cost-plus
construction contract is used.
3. A balance sheet and income statement are not required.
4. For cases involving deferred repairs, the Borrower must submit a supplemental cost certification
(form HUD-2205-A) detailing the actual cost of the deferred repairs.
5. No cost certification is required for a 207/223(f) refinancing transaction where the mortgage is equal
to or less than 80% of value at the time of issuance of the Firm Commitment.
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13.11 Deficiencies in Cost Certification Submission
A. When the cost certification package is received for processing, the Cost and Mortgage Credit reviewers
will:
1. Determine deficiencies associated with the Borrower’s and contractor’s cost certifications.
2. Advise the Regional Center Director and estimate the time needed to resolve the problem(s).
3. Attempt to resolve all problems by telephone before making a formal written request. This usually
allows processing to continue while waiting for a formal reply.
4. Send a letter within 5 workdays to the Borrower with copies to the General Contractor (if applicable),
their accountants, and the Lender stating the deficiencies and requesting information.
B. Upon receipt of all necessary information, combined processing should not exceed 15 workdays.
C. If the Borrower or contractor indicates clarification will be forwarded within 5 workdays, the
conclusions of cost certification can await the additional information.
D. Otherwise, issue form HUD-92580.
13.12 Mortgage Credit Limited Review
A. In cases where the Borrower has not requested a mortgage increase, the HUD staff will:
1. Review form HUD-92330, Borrower’s Certificate of Actual Cost. Adjust for items paid out of working
capital and costs reflected on the income statement.
2. Review the reporting of:
Net income earned before the start of amortization. Report all income earned from the beginning
of marketing and rent-up activities to the cut-off date for new construction projects and
unoccupied substantial rehabilitation projects. For substantial rehabilitation projects where
occupancy is continuous, report all income from the date of initial endorsement or, for insurance
upon completion cases, the start of construction to the cut-off date. Make adjustments for
ineligible reported expenses, such as depreciation.
All grants/loans received for replacement cost items.
3. Complete form HUD-92580 (Maximum Insurable Mortgage) using the figures from Column C (Total)
of form HUD-92330. Complete the forms based on the most current instructions, except for the
following changes:
Line 2 - Reflect the amount indicated in Column C of form HUD-92330.
Line 3 - Explain any adjustments made to the net income or grant/loan amounts reported on form
HUD-92330.
NOTE: If adjustments are made to items other than net income and grants/loans, form HUD92331A, Cost Certification Review Worksheet should be completed.
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4. When the Borrower and the contractor submit their individual certificates of actual costs for review,
they should have already agreed to the amount due the contractor. The amount due the contractor is
reported on the certificates of actual costs and there should be no disagreement because all “to be
paid items” will be listed on form HUD-92580, Determination of Maximum Insurable Mortgage,
schedule 1, item by item. Form HUD-92023, Request for Final Endorsement of Credit Instrument,
must match the Maximum Insurable Mortgage, form HUD-92580 minus whatever was paid in the
interim. As Mortgage Credit performs the cost certification and prepares form HUD-92580, consider
the following when reconciling the certified costs:
After completion of form HUD-92580, the Regional Center or Satellite Office notifies the
Lender/owner/General Contractor of the balance in the line item for the General Contractor. If
there are issues, the Field will not move forward with the cost certification until all pending “to
be paid items” are resolved.
The General Contractor’s cost certification must balance with the items remaining to be paid.
Mortgage Credit must reconcile these numbers at cost certification. If there is a dispute, all
releases freeze until HUD/Lender/General Contractor come to agreement on who is owed what.
5. Report anything suspicious in the submission (e.g., liabilities not disclosed during firm processing or
before initial endorsement) to the Regional Center Director, who has the authority to request that a
full cost certification review be completed. For such cases, complete forms HUD-92331-A, and HUD92580 based on the instructions in the MAP Forms Book and Section 13.14 below. Also, if an
accountant’s work is consistently deficient, warn the accountant that Borrowers using their services
will be advised that HUD will perform a detailed cost certification review.
13.13 Mortgage Credit Detailed Review
A. When a mortgage increase is requested of the Regional Center Director, a more detailed review is
required. The HUD Underwriter will:
1. Carefully review forms HUD-92330 and HUD-92330-A if required for mathematical accuracy and
compliance with prescribed procedures.
2. Ensure that the submission contains required schedules and bills, which have not been submitted
with previous draw requests, to support the certified amounts for interest, taxes, property insurance,
HUD-FHA mortgage loan insurance premium (MIP), title and recording, financing fees, legal,
organizational and audit fees, offsite costs, and other fees.
3. Require clarification or breakdown of all, or any part of, the cost figures presented by the Borrower
or General Contractor, if applicable.
4. Scrutinize any existence of an identity of interest subcontractor, material supplier, or equipment
lessor relationship.
5. Review the notes and schedules attached to the accountant’s opinion. Pay special attention to any
liabilities included for repayment on the balance sheet that were not disclosed during the firm
processing stage or before initial endorsement. These liabilities are not eligible for inclusion in the
cost certification.
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6. Recommend that the Regional Center Director request an audit of the Borrower’s and/or contractor’s
books by the Regional Inspector General for Audit before issuing form HUD-92580, Maximum
Insurable Mortgage, when differences of opinion arise from other than:
Honest differences of opinion clearly identifiable as such.
Other justifiable causes.
7. If considerable time has passed between initial occupancy and the cut-off date, some items properly
allocable to renting and operating the project may be charged against construction cost.
It may not be possible or practical to make precise allocation of such items as gas and electricity,
clean-up costs, etc., between construction and operation periods.
Insist on reasonable allocations and eliminate duplicate claims for the expenses under both
categories.
8. Advise cost staff of any construction costs included in “Miscellaneous” and “Other” categories of form
HUD-92330.
9. Check items and amounts in the Borrower’s cost certification without auditing the Borrower’s books
and records. An audit may be needed later. (Refer to Section 13.27.)
10. Record the results of the review (including NOI) on form HUD-92331A, Cost Certification Review
Worksheet.
13.14 Review of Borrower’s Cost Certification
13.14.1
Construction Contract
A. Lump Sum Contract. A lump sum construction contract is permitted when no identity of interest
exists between the Borrower and General Contractor. The amount allowed in cost certification is the
lesser of:
1. Actual cash paid or to be paid by the Borrower under the construction contract, or
2. Contract price as adjusted by HUD’s estimated cumulative effect of approved change orders paid, or
to be paid, by the Borrower and the liquidated/actual damages provision to the contract, if applicable.
B. Cost-Plus Contract. A cost-plus construction contract is required when an identity of interest exists
between the Borrower and General Contractor.
C. Allowable Costs. The amount allowed in cost certification when a cost-plus contract is used is the
lesser of:
1. Actual cash paid, or to be paid, by the Borrower under the construction contract, or
2. Amount the cost analyst allowed for construction on form HUD-92331, Summary of Cost Certification
Review–Cost Section, or
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3. Contract price as adjusted by HUD’s estimated cumulative effect of approved change orders paid, or
to be paid, by the Borrower and, if applicable, either the incentive provision or the liquidated/actual
damages provision of the contract.
Recognize approved change orders necessitated by errors or omissions by the Architect only to
the extent there are savings in the mortgage. Do not recognize these change orders when
processing a mortgage increase.
Do not recognize approved betterment change orders in calculating the adjusted upset price in
Section 13.14.1.A.2 and Section 13.14.1.A.3, above, unless they are determined by the cost staff to
be necessary changes as defined in Chapter 12, Section 12.8.
Recognize the increase in general requirements, if any, noted on approved time extension change
orders. Do not recognize increases in soft costs associated with the change order. The soft costs
will be recognized under the applicable line items.
When BSPRA is not applicable, for profit motivated projects involving an identity of interest
between the Borrower and General Contractor, the amount of builder’s profit as shown on form
HUD-93305M is eligible whether or not it was paid in cash.
For non-profit Borrowers, the allowable builder’s profit is the lesser of the amount actually paid
or to be paid in cash to the General Contractor or the amount of builder’s profit shown in Section
G of form HUD-92264, plus or minus any amount applicable due to HUD-approved change orders.
D. Identity of Interest. An identity of interest is construed to exist when:
1. There is any financial interest of the Borrower in the General Contractor or any financial interest of
the General Contractor in the Borrower.
2. Any officer, director, stockholder, or partner of the Borrower is also an officer, director, stockholder,
or partner of the General Contractor.
3. Any officer, director, stockholder, or partner of the Borrower has any financial interest in the General
Contractor; or any officer, director, stockholder, or partner of the General Contractor has any financial
interest in the Borrower.
4. The General Contractor advances any funds to the Borrower.
5. The General Contractor supplies and pays, on behalf of the Borrower, the cost of any architectural
services or engineering services other than those of a surveyor, general superintendent, or engineer
employed by a General Contractor in connection with its obligations under the construction contract.
6. The General Contractor takes stock or any interest in the Borrower corporation as consideration of
payment.
7. There are any side deals, agreements, contracts, or undertakings entered into or contemplated,
thereby altering, amending, or canceling any of the required closing documents, except as approved
by the Secretary.
8. Any relationship existing (e.g., family) which would give the Borrower or General Contractor control
or influence over the price of the contract or the price paid to the subcontractor, material supplier, or
lessor of equipment.
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E. Incentive Fee Payments to Contractors. The owner may request that the construction contract be
modified before Initial Endorsement to provide for a General Contractor incentive fee for completed
construction work and delivering a completed project before the date specified in the construction
contract (or as amended by HUD-approved time extension(s)). Incentive fees must be specified in an
Addendum to the construction contract that has been approved by HUD before initial endorsement or at
the execution of a construction contract that has been approved by HUD for Insurance Upon Completion
and Insurance of Advance projects. An Incentive Payment Addendum may not be added to the contract
after Initial Endorsement.
1. Where there is an identity of interest between the Borrower and General Contractor:
General Contractor may benefit from savings in construction interest, taxes, property insurance,
and mortgage insurance premiums to the extent there are construction cost overruns.
Incentive payment is included in the adjusted upset price of the construction contract. If there is an
identity of interest between the Borrower and the General Contractor, an incentive fee may only
be paid if there are certified cost overruns that were not included in a HUD-approved change
order, and the amount of the incentive fee may not exceed the amount of certified cost overruns
that were incurred.
2. Where there is not an identity of interest between the Borrower and General Contractor:
Use Construction Contract Incentive Payment, form HUD-92443.
Include the incentive payment under “Other” on form HUD-92331A. Incentive fees must be
calculated in accordance with form HUD-92443. The incentive fee computed for Lump Sum
construction contracts may not exceed 50% of the amount by which the estimated interest, taxes,
property insurance and mortgage insurance premium, exceeds the certified costs for these same
items through the actual date of completion. The incentive fee computed for Cost Plus
construction contracts may be paid in an amount calculated in accordance with the Incentive
Payment Computation on page two of form HUD-92443. Additionally, when the cost-plus contract
is used the contractor may not receive total payments that exceed: (1) the actual costs of
construction, (2) the cash fee provided in the construction contract, or (3) the incentive fee as
determined by the computation. (The contractor shall not be paid an incentive fee that is greater
than the amount of cost overruns; the contractor must only receive the amount of the incentive
fee. Any excess of this amount must be refunded to the Borrower.)
F. Damages Clause. Apply the damages clause of the construction contract when the General Contractor
does not complete the project on time. The clause holds the General Contractor financially responsible
for the added soft costs resulting from the contractor’s delay.
1. Calculate the amount of actual damages and liquidated damages, using the lesser to determine the
adjusted upset price.
2. To determine actual damages, compute the actual cost of interest, taxes, insurance, and MIP for the
period from the scheduled completion date (as amended by HUD-approved change orders) through
the substantial completion date.
3. To determine liquidated damages, multiply the daily liquidated damages rate from the construction
contract by the number of days between the scheduled completion date specified in the construction
contract, as amended by the HUD-approved time extensions, through the substantial completion date.
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4. Reduce the damages by the portion of the net operating income earned during the liquidated/actual
damage period.
5. For those cases where an administrative completion date has been established, use this date for
computing damages for cost certification purposes. However, the General Contractor is responsible
for damages through the date of substantial completion.
G. General Contractor. A Borrower must be a single asset mortgagor entity and thus cannot act as its
own General Contractor, though there may be an identity of interest between the two parties.
H. Incomplete Minor Items. The Borrower’s certification of the amount due under the terms of the
construction contract may include the cost of minor items of on-site work that remain incomplete under
the construction contract.
13.14.2
Architect’s Fee(s)
A. Architect’s fee(s) are limited to the amounts paid in cash. Recognize the cost of additional services set
forth in Article 10 of the Standard Form of Agreement between Owner and Architect for Housing Services,
American Institute of Architects (AIA) Document B108 (see https://www.aiacontracts.org/contractdocuments/19711-owner-Architect-agreement-for-a-federally-funded-or-federally-insured-project).
Ask Architectural and Cost staff to check the reasonableness of these charges.
B. Disallow:
1. Any portion of the Architect’s fee paid in stock.
2. Any costs associated with a clerk of the works.
C. If any identity of interest comes into being between the Architect and either the Borrower or General
Contractor during project construction:
1. See maximum design Architect’s fee for cost certification purposes set forth in form HUD-93305M,
Agreement and Certification.
2. Do not allow a fee for supervisory services to an identity of interest Architect.
D. Treat any unused balance of the total Architect’s fee as a direct mortgage reduction to the original
mortgage amount on form HUD-92580.
13.14.3
Interest Accrued
A. Interest is allowable in the amount accrued on the first mortgage between initial endorsement (start
of construction for insurance upon completion projects) and the cut-off date defined in Section 13.6.
1. Recognize interest costs associated with an approved early start, provided:
The Borrower entered into an agreement with the contractor which:
1) Was approved by the Regional Center Director.
2) Agrees to reimburse the contractor for interest on money borrowed for construction prior to
initial endorsement.
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3) States that reimbursement will be made only to the extent the Borrower has funds available
in the amount estimated for interest during construction.
The certified amount, when added to the interest cost incurred directly by the Borrower, does not
exceed the total amount of interest estimated in Section G of form HUD-92264.
Form HUD-92415, Request for Permission to Commence Construction Prior to Initial
Endorsement for Mortgage Insurance, was executed and approved.
Interest costs reflect the contractor’s actual cost of money borrowed to cover the cost of
construction between the early start date and the initial endorsement, as adjusted by Section
13.14.5. below.
The rate of interest does not exceed the rate established for the insured loan.
2. The interest rate paid on the construction loan cannot exceed:
For insurance of advances: the rate stated in the Firm Commitment.
For insurance upon completion: the rate acknowledged by the Regional Center Director before
issuing the Firm Commitment.
3. Deduct accrued interest forgiven by the Lender or otherwise not paid in cash.
4. Treat Lender/Bond Underwriter’s refund of any portion of the construction loan interest to the
Borrower or Sponsor as a direct mortgage reduction to the original mortgage amount on form HUD92580.
5. If the construction interest rate changes before initial endorsement and it was not feasible to
reprocess the project, or if tax exempt bonds were sold to finance the construction loan and the true
interest rate was not known until cost certification:
Interest savings may be created from the difference between the processed interest rate and the
actual final interest rate.
Treat these savings as a direct mortgage reduction if the following condition was included in the
Firm Commitment:
1) “Any interest savings resulting purely from a differential between the HUD processed interest
rate and the actual construction interest rate may not be construed as excess funds that may
be used to offset costs in other categories at the time of cost certification. Any such saving
must be applied as a mortgage reduction.”
6. Neither the interest on subordinated liens nor other obligations of the Borrower are allowed as
certifiable costs.
13.14.4
Taxes Accrued
A. Taxes are allowable in the amount accrued on the first mortgage between initial endorsement (start of
construction for insurance upon completion projects) and the cut-off date defined in Section 13.6. Do not
recognize costs accrued during the early start period.
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13.14.5
Property Insurance Accrued
A. Property insurance is allowed in the amount accrued on the first mortgage between initial
endorsement (start of construction for insurance upon completion projects) and the cut-off date defined
in Section 13.6. Do not recognize costs accrued during the early start period.
13.14.6
Mortgage Insurance Premium
A. The FHA Comptroller’s office cannot compute the exact amount of MIP due during the construction
period until the project has been completed and the Washington Docket forwarded to Headquarters.
1. For a project involving insurance of advances, allow the higher MIP rate applicable to the specific FHA
insurance program being used, per annum on the mortgage amount on the basis of accrual for the
number of days in the period used in Section 13.14.3 above, when applicable.
2. For a project involving insurance upon completion, no MIP is paid during construction.
13.14.7
HUD Application, Commitment, and Inspection Fees
A. HUD application, commitment, and inspection fees are allowable in the amounts paid. Fees paid to
reopen an expired or terminated commitment are not allowable costs.
13.14.8
Financing Expenses
A. Financing expense includes the initial service charge, discounts fees, Ginnie Mae commitment authority
fees, permanent Lender commitment fees, and other customary fees. Not eligible are financing expenses
that are unusual or result from timing or delays, such as extension fees incurred for the Lender’s delivery
of a mortgage-backed security.
1. Allow the lesser of:
Amounts paid, or to be paid, in cash.
Amounts shown on form HUD-92434M, Lender’s Certificate, or Certificate of Lender portion of
form HUD-92455M approved by the Regional Center Director before Initial Endorsement
(Insurance of Advances) or issuance of Firm Commitment (Insurance Upon Completion).
2. Construction Lender’s initial service charges are usually not more than 2%. Construction and
permanent Lenders’ fees in the aggregate cannot exceed 3.5% (5.5% for bond financed projects) for
Section 223(f) refinancing transactions and new construction or substantial rehabilitation
transactions. The maximum fee for Section 223(a)(7) loans is 2% for loans greater than $2 million,
and up to $40,000 for loan amounts less than $2 million. The aggregate amount of origination,
financing, and permanent placement fees must include the amount for Lender’s legal fee and is
expected to cover the following:
Processing fees.
All expenses of the Lender’s counsel paid directly from the initial service charge. (Reconcile
separate invoices or bills with the cost of the itemized figures.)
All other charges by the construction Lender.
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Exclude:
1) Construction loan discounts.
2) Construction loan extension fees.
Any charges made by the Lender for payment of counsel services or charge paid directly to the
Lender’s counsel, to the extent they cause the initial service charge to exceed 2 percent, are not
certifiable. However, if charges are related to “Title and Recording” expenses, certify these under
the same category (see Section 13.14.9 below.)
Lender’s permanent placement fee is usually not more than 1.5%. It is expected to cover all
permanent placement expenses, including Lender’s legal costs, but not discounts or some of the
fees associated with a bond financed transaction.
If Ginnie Mae Mortgaged Backed Securities are involved, the Lender may not assess an additional
charge for the MBS application fee or for the custodial or delivery fee.
3. Recognize for cost certification:
Reasonable discounts based on current interest rates at the time of issuance of the Firm
Commitment for projects involving insurance of advances and insurance upon completion
charged by the construction and permanent Lenders. Construction loan extension fees are not
earned until the time such extensions are granted. Recognize extension fees charged by the
construction Lender if funded at initial endorsement and shown on the form HUD-92434M,
Lender’s Certificate.
Permanent loan fees and permanent loan extension fees, to the extent a separate permanent loan
is anticipated, are earned at final closing.
For Insurance Upon Completion cases, construction, and permanent loan extension fees, in
particular, to the extent a separate permanent loan is anticipated, which are earned at final
closing. The fee is shown in Statement C 2(h) and 2(i) of form HUD-92455M.
Financing fees (including extension fees and discounts) paid on behalf of a Borrower by a third
party under Statements D 3(i) and 3(j) of the Lender’s Certificate or Statements C 2(h) and 2(i) of
form HUD-92455M, and shown as a current liability on the Borrower’s balance sheet to the extent
there are savings in the mortgage. At final endorsement, require a promissory note be used for
any unpaid balance of the obligation recognized in cost certification.
For bond financed projects, cost of issuance, discounts, and financing fees in excess of 5.5%,
provided the cost certification evidences that the Sponsor/Borrower cannot benefit monetarily
from excess investment income from the proceeds of the invested obligations. Refer to Chapter
8, Section 8.15.
The Regional Center Director will inform the MAP Lender in writing of the aggregate amount that
will be allowed at cost certification for discounts, financing fees, and issuance costs. The allowed
amount shall be reflected as a percentage of the mortgage loan. The amount of the fee is listed in
the financing section of form HUD-92264 (or in an attachment thereto), which is a part of the Firm
Commitment. The Lender will be required to acknowledge the additional costs, if any, that HUD
will allow at cost certification by signing a copy of a letter from HUD to Lender detailing such costs.
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Such acknowledgement must be filed with form HUD-92434M in order to properly review the
cost certification.
4. Do not recognize for cost certification:
Any “side deals” (except for approved discounts) by which the Borrower agrees to pay additional
sums.
Discounts required to buy down the construction and/or permanent rate to a below market rate.
5. Treat the following as a direct mortgage reduction at final endorsement:
Premiums paid by Lender to the Borrower or Sponsor for acquiring the construction or
permanent loan.
Partial refunds of the Commitment fee allowed in processing, which are returned to the Borrower
or Sponsor.
Discounts or other fees paid for by a contribution of a portion of the initial service charge by the
Lender/Bond Underwriter.
Rebates paid to a Borrower or Sponsor by the Lender/Bond Underwriter for bond-financed
mortgages.
13.14.9
Title and Recording Expenses
A. Title and recording expense are limited to cash paid for:
1. Title search and policy at the time of initial endorsement;
2. Recording fees at initial endorsement;
3. Mortgage and stamp taxes;
4. Survey recording fees;
5. Updating title policy during construction;
6. Final title policy and recording charges; and
7. Legal fees incurred with any of the above.
13.14.10 Legal, Organization, and Audit Expenses
A. Legal, organization, and audit expenses are limited to expenses incurred in organizing the Borrower
entity, developing the proposal to submit to HUD and other necessary governmental agencies, and
required services during closing and construction.
1. For organizational allowances:
Include only the amount in Section G of form HUD-92264 for the organizational fee unless the
Borrower, who justifies the need for and reasonableness of the additional expenditure, submits
fully supporting documentation.
Any costs incurred in excess of this allowance are not eligible for recognition in processing a
mortgage increase or the equity computation on form HUD-92580.
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Do not allow:
1) Expenses that are not directly identifiable with the proposed HUD insured transaction, i.e.,
predevelopment reports that were not prepared for the HUD insured loan.
2) Expenses related to developing a larger development that includes the HUD insured parcel.
2. Limit the Borrower’s legal expenses to those incurred for: initial through final closings; tax advice
during organization of Borrower entity only; and preparation of documents and representation for
and during organization of the Borrower entity.
Allow customary expenditures expected to be incurred before and during initial closing,
construction period, and final closing.
Do not allow:
1) Expenses connected with land acquisition already included in, or contributing to:
a) Title and recording expense.
b) Estimated market price of site.
c) Obtaining changes in zoning.
2) Costs of legal services to create tax shelters, trusts, etc.
3. Recognize the cost of a “package deal” for organization and legal services, provided:
The supplier is qualified to furnish the needed services.
Duplicate credit is not allowed for the same services.
4. Audit fee covers the cost of the accountant’s audit and opinion of the Borrower’s certificate of costs.
5. Amounts included in form HUD-92264 for legal and audit expenses are not blanket allowances, but
ordinarily set an upper limit on allowable amounts.
Non-typical fees must be borne by the Borrower, unless a higher fee is proven by the Borrower,
in an exceptionally complex case, to be necessary and reasonable. Detailed invoices and/or other
documentation are required as to the reasonableness, purpose, necessity, and proper
classification of all items in the category.
This limitation is not flexible where a “package deal” for legal and organizational services is
involved, or where a substantial amount of the legal and organizational services is performed by
the same firm.
13.14.11 Offsite Costs
A. Where the Borrower enters into a supplemental contract for constructing offsite improvements, allow
the lesser of:
1. Contract price as adjusted by HUD’s estimated cumulative effect of approved offsite change orders.
2. Actual cash paid or to be paid for offsite work.
3. Amount allowed by cost analyst for offsite construction on the form HUD-92331, Summary of Cost
Certification Review - Cost Section.
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NOTE:
1) The Valuation Branch must adjust the as-is land value of the property, if the allowed amount
for offsite and demolition differs from HUD’s estimate on form HUD-92264 issued at Firm
Commitment.
2) Offsite costs are not allowable for leasehold estates when the ground rent is based on a land
value that reflects all required offsite improvements, since the Borrower has not paid for
those improvements.
3) If the Borrower certifies to off-site costs, the land value entered on form HUD-92580,
“Maximum Insurable Mortgage” will be reduced by the amount of off-site costs.
13.14.12 Other Costs
A. Other costs include all costs and/or recovery of costs which are not provided for elsewhere, and which
are clearly attributable to the actual cost of the project. Examples include:
1. Cost of acquiring the leasehold interest, provided the acquisition cost plus ground rent and offsite
costs paid by the Borrower (if any) do not exceed the HUD Fair Market Value of the Land Fully
Improved. Any excess is to be reflected as a disallowed cost of acquiring the leasehold.
2. Ground rent paid during the period of the first mortgage between initial endorsement (start of
construction for insurance upon completion projects) and the cut-off date as defined in Section 13.6.
3. Incentive payment due a nonidentity of interest contractor for completing construction before the
scheduled completion date as amended by HUD-approved change orders.
4. Compensation from an insurance claim, including any income earned by investing the proceeds of the
claim. Treat as recovery of cost after computing BSPRA.
5. Contractor’s bond premium if paid by the Borrower. If the construction contract contained an amount
for the bond premium, subtract it from the contract amount when developing the adjusted upset price
on line 1c of form HUD-92331A.
6. Other fees, including engineering and topographical survey. Cost staff must determine if such costs
are reasonable and not duplicated in the General Contractor’s costs.
7. Contingency reserve included in the replacement cost of substantial rehabilitation projects.
The contingency reserve may be used for unforeseen costs of necessary items, betterment change
orders approved by HUD, and unanticipated soft costs for time extensions approved by HUD.
Expenditures for change orders and shortfalls in soft costs should be certified to and allowed
under those specific line items.
There will not normally be an amount certified to under contingency reserve, since all
expenditures will be certified to on other line items.
An itemization of all expenditures covered by contingency reserve funds must be attached to the
cost certification submission.
8. Grants, governmental loans, or tax credit equity used to pay for allowed cost items.
Should be treated as a recovery of cost after BSPRA.
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Do not deduct grant, loan, or tax credit equity funds from the total recognized costs when the
funds were used to pay for non-replacement cost items (i.e., used toward but not limited to:
paying the acquisition cost of the land in excess of the HUD allowance, the operating deficit,
working capital, and items on form HUD-2880, Applicant/Recipient Disclosure.
9. Residential relocation fund established on form HUD-92264. Allow only those expenses approved by
HUD up to the amount established on form HUD-92264. Apply unused allowance as a direct mortgage
reduction.
10. Third Party costs for appraisals, market analysis, PCNA etc. These are no longer recorded in Other
Fees and should be included with Organizational Cost line items (refer to Chapter 3).
13.14.13 Builder’s and Sponsor’s Profit and Risk Allowance
A. HUD does not control the division of Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA.)
B. Compute BSPRA without regard to amounts on form HUD-92264, based on a percentage of allowed
costs.
1. Use the same percentage (not to exceed 10%) in the Firm Commitment review.
2. Exclude from the computation the cost of off-site work, land, payments for acquisition of leasehold,
ground-rent, relocation expenses, supplemental management funds, and Major Moveable Equipment,
if applicable.
C. Apply the 50/75% rule.
1. Whether or not there is an identity of interest, no General Contractor’s fee (general overhead and
profit) will be allowed when:
More than 50% of the contract sum in the form HUD-92442M, Construction Contract–Cost Plus,
is subcontracted to one subcontractor, material supplier, or equipment lessor; or
75% or more of the contract sum in form HUD-92442M is subcontracted with three or less
subcontractors, material suppliers, and equipment lessors.
NOTE: If two or more subcontractors have any common ownership, they are considered as one
subcontractor.
2. The 50/75% rule is not applicable to:
Manufacturers of Industrialized Housing.
Trade items performed by persons on the General Contractor’s payroll.
The Supplemental Loan program.
Rehabilitation programs other than substantial rehabilitation.
3. The Cost Analyst determines the applicability of the 50/75% rule.
4. Where the 50/75% rule is violated, the General Contractor forfeits its profit and only Sponsor’s Profit
Risk Allowance (SPRA) is allowed.
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D. Where there is no identity of interest between the Borrower and builder, or when the 50/75% rule
has been violated, compute an SPRA which is 10% of the allowable:
1. Architectural fees,
2. Carrying charges and financing, and
3. Legal, organization, and audit expenses.
E. If an identity of interest between the Borrower and General Contractor is established after initial
endorsement and exists at the time of substantial completion, BSPRA is allowed in lieu of a builder’s profit
and SPRA.
F. If an identity of interest no longer exists between the Borrower and builder prior to the substantial
completion date, substitute SPRA for BSPRA.
1. The construction contract may be amended to permit a typical builder’s profit.
2. Treat the difference between BSPRA and the combination of SPRA and builder’s profit as a direct
mortgage reduction on form HUD-92580.
13.14.14 Non-Profit Developer Fee
A. The allowable amount is included in the Firm Commitment, less amounts certified and allowed on
other line items.
13.15 Review of Contractor’s Cost Certification
13.15.1
Actual Costs
A. Actual costs are all costs paid by the General Contractor under the Construction Contract for
completion of the project, and to which the General Contractor certifies using form HUD-92330A.
1. Include actual costs paid in cash, or to be paid in cash (such as items of delayed completion), within
45 days after the date of the substantial completion, for labor, materials, equipment, subcontract
work, general requirements (job overhead), fees, and general overhead. Also include amounts
estimated for any items requiring an escrow.
General Requirements may include salaries of clerical staff for time actually spent at the project
site.
1) Prorating of annual salaries on a percent basis is not permitted.
2) Salaries of executives may not be included in General Requirements. Such salaries are
included in General Overhead.
General Overhead includes only the amount of the accepted Schedule of Values in form HUD-2328.
1) Form HUD-2328 may be adjusted by the effect of approved change orders.
2) Itemization is not required.
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2. Kickbacks, rebates, adjustments, discounts, or any other devices which the contractor may have
received, or is entitled to, must be deducted from actual costs.
13.15.2
Mortgage Increase or Detailed Review Not Requested
A. For cases where the Borrower is not seeking a mortgage increase or a detailed review is not requested
by the Regional Center Director:
1. The Cost Analyst will not review form HUD-92330A, Contractor’s Certificate of Actual Cost, in assisting
the Mortgage Credit Examiner in the analysis of the Borrower’s cost certification.
2. The Cost Analyst will advise the Mortgage Credit Examiner of the approved change orders.
13.15.3
Cost Review
A. Conduct a detailed cost review when the Borrower applies for a mortgage increase or the Regional
Center Director orders a detailed review.
B. Review certifications where required from the contractor, or any subcontractor, equipment lessor,
material supplier, or manufacturer of industrialized housing.
C. The forms necessary to make reviews include:
1. Form HUD-92330, Borrower’s Certificate of Actual Cost.
2. Form HUD-92330-A, Contractor’s Certificate of Actual Cost.
3. Form HUD-93305M, Agreement and Certification.
4. Form HUD-92437, Request for Construction Changes–Project Mortgages.
5. Form HUD-92326, Project Cost Estimate (HUD Estimate).
6. Form HUD-2328, Contractor’s and/or Borrower’s Cost Breakdown.
7. Form HUD-92331-B, Cost Certification Review Worksheet.
8. Form HUD-92331, Summary of Cost Certification Review.
9. Form HUD-95379, Trip Report.
D. Follow these steps to conduct the review:
1. 50/75% rule check: Use information from the “total” and “name of subcontractor or payee” columns
of the General Contractor’s cost certification. If the rule applies, disallow the General Contractor’s
general overhead and profit. If the project uses BSPRA, disallow only the general overhead and inform
the Mortgage Credit Examiner.
2. Identity of interest subcontract review (for Borrower, General Contractor, subcontractors, equipment
lessor, material suppliers, and industrialized housing manufacturers):
Examine form HUD-93305M and form HUD-92330-A to establish all declared identities of
interest.
Review each identity of interest subcontractor’s cost certification.
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1) If a cost certification is not received, disallow the subcontractor’s overhead, profit, and all
questionable costs.
2) If there is no prior approval as an identity of interest subcontractor, disallow the subcontract
overhead and profit.
3) In cases with prior approval:
a) Allow prior-approved subcontract overhead and profit, plus or minus the effect of
approved change orders. Disallow excess.
NOTE: Do not reduce the prior-approved subcontract overhead and profit in the event
that the certified cost for the work is less than the prior-approved maximum subcontract
price.
b) Allow up to the prior approved maximum subcontract amount for work, plus or minus
the effect of approved change orders. Disallow excess.
E. Review the trade line items:
1. On form HUD-92331-B:
Enter all trade line costs from HUD estimate (form HUD-92326) or Contractor’s schedule of values
(form HUD-2328) after adjusting for approved change orders.
Enter all trade line costs from General Contractor’s cost certification (form HUD-92330-A). Take
the Architect’s fees from the Borrower’s cost certification (form HUD-92330).
Using dollar and percentage variance columns, compare each trade’s actual cost with the estimate.
Determine allowable amounts.
2. Allowable amounts are not limited by the estimates. Analyze differences.
Allow actual costs paid to complete the work in accordance with the construction contract.
Allow actual costs due to unusual circumstances, such as subcontractor bankruptcy, code changes,
required replacement of completed work, replacements due to natural occurrences (storms,
floods, earthquakes, etc.)
3. Question only amounts substantially in excess.
Contact the General Contractor and/or Borrower requesting explanation or more documentation.
Make disallowances if explanation/documentation is not received in a reasonable amount of time.
Only the accountant may make reallocation of monies from one trade item to another.
As a result of discussion, have the accountant amend form HUD-92330-A and resubmit.
4. Disallow any amount not justified or supported as being part of the construction contract work.
5. Disallow costs for duplication of work due to contractor’s error or negligence, such as improper
placement, failure to protect, noncompliance with contract, etc.
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13.16 Non-Profit Borrower’s Initial Equity Investment
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13.15.4
Lump Sum Construction Contract Cost Certification
A. Review the Borrower’s certification (form HUD-92330) if requested to do so by Regional Center
Director.
B. Review the cost certification of any subcontractor that has identity of interest with the Borrower.
13.15.5
Summary of Cost Certification Review (on Form HUD92331)
A. On form HUD-92331:
1. Enter all recommended disallowances.
2. Enter summary of construction contract costs.
3. Enter contractor’s profit from Borrower’s form HUD-92330. Add profit from all HUD approved
change orders.
4. Enter offsite costs from Borrower’s form HUD-92330, if applicable.
Review itemized offsite breakdown.
Disallow any cost duplication on General Contractor’s form HUD-92330-A.
5. Complete new Property Insurance Schedule form HUD-92329 using allowed construction costs.
13.16 Non-Profit Borrower’s Initial Equity Investment
A. A non-profit Borrower will be permitted a 6% return on its initial equity as computed on form HUD92580, Maximum Insurable Mortgage.
1. The base equity is determined as follows:
For New Construction: Line 6 on form HUD-92580, minus finally-endorsed mortgage
determined in line 10 of the form.
For Rehabilitation – Property Owned: Reduce the sum of line 4 on form HUD-92580, plus HUD’s
estimate of the “as is value” of the existing land and improvements before rehabilitation, by the
finally-endorsed mortgage determined in line 10 of the form.
For Rehabilitation – Property Acquired: Reduce the sum of line 4 on form HUD-92580, plus the
lesser of HUD’s estimate of the “as-is value” of the existing land and improvements before
rehabilitation or the acquisition cost of the property, by the finally-endorsed mortgage
determined in line 10 of the form.
For Rehabilitation under Section 220 and 221(d)(4): Use the New Construction formula in
Section 13.16.A.1.a above.
2. The base equity computed in Section 13.16.A.1 above may be increased by:
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13.17 Determine the Borrower’s Initial Investment
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The cost of furnishing, fixtures, equipment, or other necessary items and betterments essential to
the operation of the project.
The non-profit Developer’s fee used to reduce the estimate closing costs of the project.
Grants from national, regional, and local community service organizations (non-government
source).
Sponsor’s cash contribution for the cost of land over and above what HUD has allowed.
3. Modify the Regulatory Agreement to require the return on equity be:
Used for continued affordable housing initiatives; or
Pledged to the repayment of surplus cash or residual receipts notes held as secondary financing.
4. Asset Management will monitor the non-profit Borrower to be certain that the return on equity is
used only for permissible purposes.
5. The return on equity is paid from surplus cash/residual receipts. Any shortfall in the permitted return
in one year may be made up from surplus project funds in a future year.
13.17 Determine the Borrower’s Initial Investment
A. For new construction and substantial rehabilitation projects under Sections 220 and 221(d)(4), use
line 6 on form HUD-92580, minus the maximum insurable mortgage determined in line 10 of the form.
B. The amount determined by Section 13.17.A above may be increased by:
1. Expended working capital funds not recognized in the cost certification review.
2. Residential relocation expenses approved by HUD in excess of the amount established on Form HUD92264 Section G and Section O (Remarks and Conclusions).
C. Perform HUD-92466M, Regulatory Agreement, Mortgagor or any Affiliate or Principal shall not make,
receive, or retain any distribution of assets or any income of any kind from the project, except from
Surplus Cash. This limitation does not apply to interim income generated during construction, but project
income as it relates to the surplus cash calculation.
13.18 Section 223(f) Modified Form of Cost Certification
A. HUD shall complete and submit a modified form of cost certification for review 15 days before the
initial/final endorsement of the loan for insurance for all projects processed pursuant to Section 223(f),
except those 207/223(f) refinancing transactions where 80% or less of value is the controlling criterion
(in such cases, cost certification is not required.) Unlike other cost certification procedures, savings from
one line item cannot offset cost overruns on another line item. HUD completes the cost certification, and
if there is a cost savings, HUD must recalculate the maximum insurable mortgage. Refer to the instructions
for form HUD-2205-A.
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13.19 Special Instructions for Substantial Rehabilitation
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1. The Borrower must certify to the total actual costs incurred in the acquisition or refinancing of the
property. The certification must be submitted on form HUD-2205-A, and it must be dated and signed
by an authorized agent of the Borrower.
2. The Lender must submit the certification to HUD for computation of the maximum insurable mortgage
and completion of Section II of form HUD-2205-A.
3. If in a purchase transaction, the amount of the acquisition cost determined allowable at cost
certification exceeds the estimate of value (which was determined during processing), the rent
formula shall be recomputed. This re-computation may be accomplished using the allowable
acquisition cost as determined by cost certification and the dollar amount of secondary financing
represented by the approved promissory notes (form HUD-92223).
B. For an escrow that was established at initial/final endorsement to complete non-critical repairs, the
Borrower must submit a supplemental cost certification for deferred repairs within 15 days after repairs
are complete. In cases where the actual costs are less than estimated, the Lender must recalculate the
maximum insurable mortgage. If the maximum insurable mortgage is reduced based upon this
recalculation of the lower actual costs, the Borrower must either:
1. Have the required prepayment deducted from the repair escrow, or
2. Deposit proceeds into the project’s replacement reserve account, or
3. Provide the required prepayment to the Lender.
13.19 Special Instructions for Substantial Rehabilitation
A. Cost certification instructions (which are set by statute) dictate that, in substantial rehabilitation cases,
the lesser of the “as is” value of the land and improvements (before repair or rehabilitation), or the
purchase price of the land and improvements, is used in the cost build up for Criterion 3 of form HUD92264-A. Consequently, when mortgage proceeds will be used to fund the acquisition of the property, the
“as is” value estimation will be used as a test of the reasonableness of the acquisition price.
B. When the acquisition price is less than the “as is” value of the land and improvements (as accepted by
HUD), and mortgage proceeds will be used to fund the acquisition of the property, the acquisition price
will be used in the cost build up for Criterion 3, forming the cost basis for the Firm Commitment.
C. When the acquisition price exceeds the “as is” value of the land and improvements (as accepted by
HUD), and mortgage proceeds will be used to fund the acquisition of the property, then the “as is” value
will comprise the basis of the cost build up for the Firm Commitment.
D. When mortgage proceeds will not be used to fund the acquisition of the property, the “as is” market
value of the property will be used in the cost build up for Criterion 3, forming the cost basis for the Firm
Commitment. This is particularly significant when below market rent restrictions are in place (such as in
the case of LIHTC limited rents or Section 8 rent subsidy) and the use of market rents in valuing the
property will result in a premium over these rent restrictions. (See Chapter 7, Section 7.13.3 on defining
how rents are derived as the basis for the “as is” value).
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13.20 Mortgage Reduction after Cost Certification
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13.20 Mortgage Reduction after Cost Certification
A. The National Housing Act requires that the mortgage will not exceed the applicable percentage of actual
costs. If certified actual costs are lower than original projected cost as reflected in form HUD-92264, a
reduction in mortgage may be applicable. Form HUD-93305M, Agreement and Certification, also
addresses this issue and provides that where HUD accepts, for cost certification, estimates of cost for any
item, the later substitution of certified actual costs may require a reduction of the mortgage. For
affordable projects that are exempt from providing a Cost Certification but are determined to be oversourced based on a CPA-prepared cost certification (for LIHTC purposes), a mortgage reduction is
allowed. As evidence of the mortgage reduction, HUD will accept the Lender-prepared form HUD-92580,
Maximum Insured Mortgage, along with the final sources and uses, as well as form HUD-92264 and form
HUD-92264-A that were modified showing the reduction. The mortgage reduction must be evaluated and
requested by the MAP Lender, Borrower, Borrower’s CPA, and tax credit investor.
B. Reductions of cost may arise from scrutinized, checked, evaluated, and/or examined:
1. Refunds, rebates, or discounts.
2. Excess of escrows over the actual costs of incomplete construction items.
3. Refunds of deposits made by the Borrower to prevent losses to the Lender in connection with sale of
the mortgage.
4. Settlement of claims against bonding companies or others after project completion.
C. At final endorsement, the Borrower must set up a cash escrow to pay all "to be paid in cash items"
identified on form HUD-92330, Borrower's Certificate of Actual Cost, and debts to third parties who made
the original disbursement for an item listed as paid on form HUD-92330.
1. Reconcile the difference between:
Obligations listed on form HUD-92023M, Request for Final Endorsement of Credit Instrument or
form HUD-92455M (for Insurance Upon Completion Projects only), and
The "to be paid" column on form HUD-92330, plus debts to third parties.
2. Paid receipts to third parties must support differences and a statement from the Borrower identifying,
by name and cost, those items paid in cash. The receipts and statement are affixed to forms HUD92023M or HUD-92455M.
3. Do not accept personal or business checks issued by the Borrower at final endorsement as evidence
of payment. Payments to third parties must be in the form of a certified or cashier check.
4. Prepare a new form HUD-92331A to disallow obligations listed as "paid" or "to be paid" on form HUD92330, which are represented at final endorsement as paid by HUD-approved notes. Prepare a new
form HUD-92580 from the total of HUD-approved cost of revised form HUD-92331A.
5. Undisbursed mortgage proceeds may supplement or satisfy the cash escrow for all "to be paid in cash
items".
6. Use form HUD-92476.1M, Escrow Agreement for Non-Critical, Deferred Repairs, to:
Set up the cash escrow for all "to be paid in cash items".
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13.20 Mortgage Reduction after Cost Certification
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Attach a detailed listing of the unpaid costs.
7. Use form HUD-92464M, Request for Approval of Advances of Escrow Funds to disburse escrow.
8. Escrow should be disbursed within 45 days after final endorsement. If all the funds are not disbursed,
follow the procedures for sixty days after final endorsement in Section 13.20.D below.
9. At final endorsement, if all obligations have been paid in cash, this completes the process.
D. At sixty days after final endorsement:
1. Prepare a new form HUD-92331A. Enter under the column headings:
"92264" - the amount of each item of cost recognized from the earlier form HUD-92331A
"Allowed" column.
"92330/92330A" - the amount listed in Column C of the form HUD-92330, Borrower's Certificate
of Actual Cost, for each item of cost.
"Allowed" - the amounts paid in cash based on the reconciliation performed in Section 13.20.B
above and disbursements from the cash escrow account.
"Disallowed" - the lower of the amounts previously allowed or paid in cash.
2. Compute a new Maximum Insurable Mortgage, form HUD-92580, based on the total of the "Disallowed
Column" (form HUD-92331-A). If this computation produces an amount less than the mortgage finally
endorsed:
Notify the Directors of Housing Production and Asset Management (OAMPO) by memorandum
that prepayment to the mortgage is required.
Prepayment is mandatory, and:
1) Is applied in amounts equal to the scheduled monthly principal payments, to the extent
possible.
2) Any remainder goes to the Reserve for Replacements Account.
If HUD is notified that payment has been delayed because of a dispute or litigation, retain funds
to pay the amount, pending resolution of the dispute.
Notify the Lender or escrow agent by letter (from the Director of Housing Production) of the
required prepayment.
Control the remaining balance in a special account, as a reserve for unpaid construction costs from
which disbursements may be made only after written consent of the Regional Center or Satellite
Office.
3. The Lender will continue to use the existing amortization schedule for servicing the mortgage.
The prepayment is in addition to the regular monthly payments to principal.
There is no adjustment in the amount of the annual MIP due because of these mandatory
prepayments.
4. The escrow requirement does not apply to funds the General Contractor owes. However, the General
Contractor must submit a reconciliation of its "to be paid" items, such as form HUD-92330A.
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13.21 Increase in Mortgage Amount
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13.21 Increase in Mortgage Amount
A. Requests for a mortgage increase will not be considered until the project is complete, cost certification
has been submitted, the Final Endorsement will likely be achieved immediately following processing of
the mortgage increase, and the conditions in Section 13.21.B below are met.
B. Following are the bases for considering a mortgage increase:
1. Necessary changes that arise from differing site conditions (as defined in the construction contract).
2. Compliance with local codes.
3. Unforeseen conditions that might affect the safety and health of occupants.
4. Betterment changes that are economically justified as determined by HUD (e.g., those that can be
documented to produce significant cost savings to project operation, increase income expectancy, or
enhance the security of the mortgage.)
5. Costs caused by extensions in construction time, when such extensions are approved by HUD,
justifiable under AIA General Conditions, and caused by problems beyond the contractor’s control.
6. Other costs not known at Firm Commitment resulting from requirements of local authorities and
beyond the Borrower’s control.
7. Construction hard cost increases caused by a natural disaster declared by Federal or State
government, to the extent not covered by casualty insurance.
8. Increased costs resulting from concealed subsurface site conditions, provided it is determined those
exploratory tests during project design were sufficient and thorough and neither the Architect nor
engineer was at fault.
9. Costs of substituting a General Contractor when the original General Contractor is terminated for
cause and the surety has failed to perform.
10. Costs to correct a substantial HUD error in the original processing that would otherwise result in
serious inequities.
C. Any mortgage increase for an insured project must be in an amount greater than 2.5% of the original
mortgage or $400,000.
D. Increases to the HUD insured mortgage at Final Endorsement for affordable projects may be
considered on a case-by-case basis, as long as the increase is necessary, justified, and HUD’s risk is not
materially increased. As evidence of the mortgage increase, HUD will accept the Lender-prepared form
HUD-92580, Maximum Insured Mortgage, along with the final sources and uses, and Forms HUD 92264
and 92264-A. The mortgage increase must be requested by the Lender and reviewed and approved by
the Lender, Borrower, Borrower’s CPA, tax credit investor, and GNMA investor.
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13.22 Restrictions on Mortgage Increases
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13.22 Restrictions on Mortgage Increases
A. A mortgage increase may not be granted for cost overruns associated with completion of the work in
accordance with the original contract documents by the original contractor, changes made primarily for
the convenience of the Borrower or contractor, or for the aggrandizement of the Borrower or contractor.
B. Cost overruns are not a basis for granting a Borrower’s request for mortgage increase, nor are changes
made primarily for the convenience or aggrandizement of the Borrower or contractor.
C. Any mortgage increase for an insured project must be in an amount greater than 2.5% of the original
mortgage or $400,000.
D. The increase must be supported by the underwritten net operating income under Criterion 5 of form
HUD-92264-A finally approved at Firm Commitment or Initial Endorsement.
E. A mortgage increase may not be granted for replacing a contractor where the Borrower sets up a “straw
contractor” for purposes of BSPRA.
13.23 Processing a Mortgage Increase
A. Technical processing consists of Step One through Step Four below. There are four steps to processing
a mortgage increase, depending on the bases for the increase being considered.
1. Step One: Use the alternative applicable to the basis for the increase being considered.
Alternative One, applicable to necessary items and betterment change order cost increases:
1) HUD Construction Analyst and Valuation staff review the change orders to determine
eligibility for processing a mortgage increase. Architecture further reviews for the added cost.
2) HUD Underwriter computes the allowable costs on form HUD-92331-A, Cost Certification
Review Worksheet–Mortgage Credit Staff, line 1.d. Reduce this amount by the cost
attributable to any change order(s) not qualifying for a mortgage increase.
3) The adjusted hard cost forms the basis of the mortgage increase computation.
Alternative Two, applicable to contract time extension soft cost increases:
1) HUD Underwriter computes the allowable costs on form HUD-92331-A, Cost Certification
Review Worksheet, Mortgage Credit Staff lines 3 through 6.
2) The adjusted soft cost forms the basis of the mortgage increase computation.
Alternative Three, applicable to construction contract cost increases due to a change in the
contractor:
1) HUD Construction Analyst computes a new form HUD-2328 and form HUD-92264, Section G
through line 50.
2) HUD Underwriter computes the allowable costs of form HUD-92331-A, Cost Certification
Review Worksheet–Mortgage Credit Staff, line 1.c. for hard cost increases between the
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13.23 Processing a Mortgage Increase
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original contractor and the contractor completing the work, and lines 3 through 6 for soft cost
increases associated with the change in contractor.
3) The adjusted hard and soft costs form the basis of the mortgage increase computation.
Alternative Four, applicable to substantial errors in HUD cost processing:
1) The HUD Construction Analyst completes a new form HUD-2328 and form HUD-92264,
Section G through line 50.
2) Underwriter computes the allowable costs on form HUD-92231-A, Cost Certification Review
Worksheet–Mortgage Credit Staff, line 1.c, using the criteria in Section 13.23.A.3. below.
3) The allowable construction costs for processing the increase will be based upon the lesser of:
a) The amount of the construction cost certified by the Borrower, or
b) The upset price of the construction contract as adjusted by approved change orders
eligible for a mortgage increase, plus the increases resulting from correcting or errors in
the original processing.
4) The adjusted hard cost forms the basis of the mortgage increase computation. Where there
is a substantial error in HUD cost processing, the mortgage credit Underwriter must not use
the adjusted upset price of the construction contract as a limiting criterion.
2. Step Two: The HUD Underwriter must compute (for use by Valuation to complete form HUD-92264)
the eligible costs and fees for the following: Architect’s fees, bond premium if paid by the Borrower,
other fees not included in the construction contract and paid by the Borrower, interest, taxes, the
mortgage insurance premium, Developer’s fee (if applicable), legal, organizational and audit fees,
marketing (if applicable), offsite costs, as-is land value, and “as-is” value of property (if applicable).
The HUD Underwriter must comply with the following to compute the costs and fees:
Do not increase BSPRA or restore Contingency Reserve or non-profit’s Developer’s Fee.
Do not include non-mortgageable items (construction or permanent loan extension fees, discount
rate, maintenance fees, etc.)
Offset non-mortgageable items by net interim income (net non-proprietary income, if applicable)
to offset amount of mortgage increase.
For increases caused by natural disaster:
1) Consider in the revised cost any increases from any interim closing for carrying charges,
financing fees, and legal fees. Do not include any cost due to construction delays before the
disaster.
2) Cut the new estimated replacement cost by the amount of any actual recovery through
insurance proceeds.
3) Require prepayments to be made for any late recovery of insurance proceeds.
3. Step Three: Valuation must use the costs and fees developed by HUD Underwriter in Step Two in
revising form HUD-92264. Valuation must consider each of the following:
Examination fee, initial service fee, Ginnie Mae fee, inspection fee, MIP, and title and recording
based on the approvable increased mortgage amount.
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13.24 Authorization to Reopen Mortgage Transaction
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Net operating income derived from the final underwritten market rent in Criterion 5 of the form
HUD-92264-A, approved at Firm Commitment or initial endorsement. This test will determine
whether the current NOI is no lower than the underwritten market rent. If the NOI is lower the
project will not qualify for a mortgage increase. If the NOI has increased the test is based on the
rent and expense and occupancy approved at Firm Commitment or initial endorsement.
4. Step Four: The HUD Underwriter must prepare a revised form HUD-92264-A, using the revised form
HUD-92264 and Trial form HUD-92264-A prepared by Valuation in Step Three.
B. Prepare a modified form HUD-92580 for a Mortgage Increase.
1. Add on line 1(d) Other: “ADD Mortgage Increase” and enter the amount of the approved increase as
an amount rounded to an even $100.
2. Include a condition in Schedule 1 requiring the modification of the mortgage at final endorsement.
13.24 Authorization to Reopen Mortgage Transaction
A. HUD must advise the Lender of its approval or denial of the request for a mortgage increase upon
completion of technical processing. Where a determination is made to increase the mortgage, use
Specimen Letter–Agreement Authorizing Reopening of Mortgage Transaction (Appendix 13, Section
A.13.1) to notify the mortgagee.
1. Approval of a mortgage increase is subject to the payment of the following fees based on the amount
of the increase.
Application Fee of $3.00 per thousand of the increase.
Inspection Fee of $5.00 per thousand of the increase is applicable only when the increase involves
construction hard costs.
13.25 Deferment of Principal Payments
A. Borrowers are expected to manage the construction period and fulfill the payment terms of the
mortgage note without modification. However, certain uncommon circumstances that result in delays in
construction or achieving sustaining occupancy may justify a deferment of principal payments (e.g., delay
in the commencement of amortization.)
B. Sufficient justification to support a deferment may exist after a casualty loss or catastrophic event (e.g.,
hurricane, flooding, etc.), or other significant non-Borrower related delays. However, general delays from
normal inclement weather, labor/material shortages, or other typical construction-related exigencies
would likely be insufficient justification for HUD to approve the deferment request.
C. Should a MAP Lender request a deferral in principal payment, the following conditions must be met.
1. Securitized Loan Requirements: If the loan is collateral for a Ginnie Mae mortgage-backed security,
then Ginnie Mae’s written acknowledgement that it is acceptable to delay principal payments via a
loan modification is required. The MAP Lender must contact Ginnie Mae, Office of Issuer and Portfolio
Management, Multifamily Division for review and approval.
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13.26 Document Distribution
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2. FHA Request Requirements:
Justification that conforming to the existing amortization schedule is an unreasonable hardship
and would increase risks to HUD;
Written assurance by the owner confirming that sufficient funds exist outside the mortgage
proceeds to pay any interest overrun;
The Borrower can evidence reasonable effort to complete construction and attain sustaining
occupancy on a timely basis; and
The period of deferment is limited only to the additional time necessary for the Borrower to
stabilize project operations.
3. Deferment Letter: Use Appendix 13, Section A.13.2, Specimen Letter – Agreement Authorizing
Deferment of Principal Payments for Level Annuity Monthly Payment and distribute copies in
accordance with Section 13.26 below.
4. Deferment Instruments: The Regional Center Director is authorized to approve modifications of the
principal and interest payment as may be necessary to affect the deferment of principal payments.
13.26 Document Distribution
A. For form HUD-92580, Maximum Insurable Mortgage:
1. The Lender receives the original and one executed copy.
2. Each of the following receives one executed copy: Closing Attorney, Mortgage Credit Control File,
Washington Docket, Regional Center or Satellite Office Docket, Regional Center or Satellite Office.
B. For Cost Certification documents: the original documents are filed in the Washington Docket and one
copy is filed in the Regional Center or Satellite Office Docket.
13.27 Office of Inspector General
A. The Regional Center Director should refer Borrowers to the Office of Inspector General to evaluate the
Borrower’s and/or contractor’s books where discrepancies appear to arise from other than inadvertent
error, or from creditable misinterpretation of applicable criteria. Do not issue form HUD-92580,
Maximum Insurable Mortgage, before completion of an OIG audit or investigation initiated before its
issuance. A referral must also be requested for any indicated fraud or material misrepresentation
detected after issuance of form HUD-92580.
13.28 Cost Certification Incontestability
A. After HUD approves the certifications and issues form HUD-92580, Maximum Insurable Mortgage, they
are final and incontestable unless there is fraud or material misrepresentation by the Borrower, General
Contractor, or subcontractors.
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13.29 Post-Closing Escrows
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13.29 Post-Closing Escrows
A. Post-Closing Escrows must be set up at final closing to pay all “to be paid in cash” items identified on
form HUD-92330, Borrower’s Certificate of Actual Cost, and debts to third parties who made the original
disbursement for an item listed as paid on form HUD-92330. These amounts may be adjusted for
payments made between the cut-off date and the date of final closing.
13.30 Final Closing – Insurance of Advances
13.30.1
Amortization and Mandatory Prepayments
13.30.1.1
Advance Amortization Requirements
A. “Advance amortization” is the requirement that, to the extent that the project generates net operating
income during the Accountability Period (defined in Section 13.30.1.2.A below), HUD may require the
Borrower, prior to final endorsement, to make, or to agree to make, a prepayment to principal in the
amount of such net operating income, all as discussed more fully in Section 13.30.1.3 below. In order for
the Regional Center Director to determine whether or not advance amortization is required, the Borrower
must account for all operating income for the period ending three months prior to the originally scheduled
date of the first principal payment under the mortgage loan (e.g., through June 30 if the first principal
payment is scheduled for October 1).
13.30.1.2
Income and Expense Statement Requirement
A. In connection with cost certification, the Borrower will already have reported the results of occupancy
during the cost certification period. Therefore, when more than three months intervene between the cost
certification period and the first principal payment as originally scheduled, the Regional Center Director
will require an income and expense statement covering the period beginning at the end of the cost
certification period and ending three months prior to the date of the first principal payment under the
mortgage loan as originally scheduled (the Accountability Period).
13.30.1.2.1
Agreement of Borrower
A. When final closing is scheduled to occur before the expiration of the Accountability Period, the
Borrower must agree in writing, as an inducement to HUD to approve the final disbursement of mortgage
loan proceeds prior to the expiration of the Accountability Period, to:
1. Furnish an income and expense statement for the required period within 30 days after its expiration,
and
2. Immediately apply, as a mandatory prepayment to the mortgage loan, such portion of the net
operating income as HUD may require.
B. When final closing is scheduled to occur after the close of the Accountability Period, the income and
expense statement shall be submitted prior to final closing.
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13.30.1.2.2
Treatment of Items in Statement
A. In the preparation of the income and expense statement, the Borrower must include as income all rents
received, exclusive of security deposits. All expenses for operation, including taxes, insurance, HUD-FHA
mortgage loan insurance premium (MIP), interest and reasonable management fees (but not officers'
salaries or depreciation), may be deducted in determining net income for this purpose. If the cost
certification reveals an excess of expense over income, such excess (to the extent recognized by HUD) may
be carried forward to the statement required by this paragraph as “unrecovered expense prior period.”
13.30.1.3
Amount of Required Prepayment
A. The amount and handling of the required prepayment is subject to the following:
1. In no case shall the required prepayment exceed the amount which would have been due in
cumulative principal payments if the first scheduled payment had been on the first of the month in
which the Accountability Period started.
2. Prepayment will be required only to the extent that the amount of the net income permits payment of
one or more full monthly principal payments as scheduled.
3. If the circumstances are such that the operating statement is submitted before final endorsement, the
Lender and Borrower may elect to have the mortgage loan endorsed for less than the face amount by
a sum equal to that which would have been required as mandatory prepayment, provided such action
is acceptable to Ginnie Mae.
13.30.1.4
Excess (Unused) Mortgage Loan Proceeds
A. In circumstances where the cash paid out for completion of the project is less than the mortgage loan
proceeds, the Regional Center Director shall require that any part of the mortgage loan proceeds that have
not been expended to pay necessary costs of completing the project shall be deposited in the reserve for
replacement account of the Borrower, from which disbursements may be made only with the prior
written consent of the Regional Center Director. This requirement is stated in form HUD-93305M,
Agreement and Certification, at paragraph 3. Where the Commissioner requires the Borrower to make a
deposit of cash, such deposit shall be with Lender or a repository acceptable to the Lender. The deposit
shall be held by the Lender in a special account, or by the depository under an appropriate agreement
approved by the Commissioner.
1. The establishment of the fund can be avoided by an immediate reduction of the mortgage loan at
closing, before establishment of the amortization schedule.
2. The Regional Center Director will approve or disapprove the use of the funds for purposes other than
reduction of the mortgage loan.
3. If the mortgage loan proceeds exceed the cash paid out for completion solely because there is a
difference between the purchase price of land for a period of years and its “fair market value” in fee
simple and “as is”, as determined by HUD, the Regional Center Director may waive this requirement.
The request for waiver shall be accompanied by full information as to the date of purchase and the
purchase price of the land.
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13.30.2
Confirmation of Final Loan Amount
13.30.2.1
Preparing Form HUD-92580, Maximum Insurable Mortgage
A. Prior to final endorsement, the Regional Center Director shall execute form HUD-92580, Maximum
Insurable Mortgage, for the purpose of indicating to the Lender and Borrower whether or not a reduction
in the original amount of the Loan is necessary, based either upon the cost certification or upon a request
by the Lender for a principal increase. The Regional Center Director will receive, review, and accept
certificates of actual cost and form HUD-95379, Final HUD Representative’s Trip Report, prior to
completing form HUD-92580.
B. If there is any change in the loan amount, form HUD-92580 also will recite the revised amount of the
Level Annuity Monthly Payment (LAMP).
C. Upon execution of form HUD-92580, the original shall be forwarded to the Lender and an executed
copy shall be forwarded to the Borrower. One copy shall be placed in the Washington Docket with copies
of the cost certification exhibits and one copy, unless stored electronically, will be placed in the field office
docket
D. Copies of both form HUD-92580 and form HUD-95379 also shall be forwarded to the HUD Closing
Attorney for use in preparing for final endorsement.
13.30.2.2
Decrease in Loan Amount
A. If HUD’s review of the cost certification results in a decrease in the Loan amount, which decrease would
be set forth in form HUD-92580, the Lender must, subject to local practice, prepare and submit the
following items to HUD, prior to final endorsement, to modify the Security Instrument amount and the
LAMP amount accordingly.
1. A proposed Modification Agreement, in a form acceptable to HUD (see requirements in Part 2 of the
Closing Guide) and,
2. As applicable, a proposed Allonge, in a form acceptable to HUD (see requirements in Part 2 of the
Closing Guide).
B. The final endorsement for insurance shall be in the lesser loan amount.
C. If a small loan decrease is involved, and the Borrower does not request a change of amortization, a
notation may be made on the Note indicating that the mortgage loan amount is reduced without a change
in amortization. In this case, the finally endorsed amount will reflect the reduced principal balance.
D. Any reduction in the original principal amount of the loan that may be required by HUD as a result of
cost certification shall not be construed as a prepayment of the mortgage loan.
13.30.2.3
Increase in Loan Amount
A. If the Regional Center Director approves an increase in the mortgage loan amount, as reflected in form
HUD-92580, the Lender must include the following items in the package of draft closing documents
submitted to HUD for final endorsement to evidence the obligation to repay the amount of the increase
and to consolidate the initial and supplemental documents:
1. Supplemental Note.
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2. Supplemental Security Instrument.
3. Modification and Consolidation Agreement.
4. Supplemental Borrower’s Attorney’s Opinion (as to the foregoing three documents).
5. Updated title policy insurance amount.
B. The requirements for these documents are discussed in Chapter 2, Section 2.10 of the Closing Guide.
13.30.2.4
Statement of Status of Escrows
A. Form HUD-92580 shall also:
1. Show the status of all escrow accounts that were established by the Borrower at initial closing; and
2. Indicate whether, based on the final form HUD-95379, HUD Representative’s Trip Report, an escrow
for unpaid construction costs appears necessary. See discussion concerning incomplete facilities, in
the Closing chapter at Chapter 19, Section 19.3.1.
13.30.2.5
Borrower’s Investment
A. The amount of the Borrower's initial equity investment is to be determined by the Program Staff in
accordance with the MAP Guide. Once this determination has been made, the Regional Center Director
will immediately notify the Borrower in writing as to the amount of the initial equity investment. A copy
of such determination shall be attached to each copy of form HUD-92580. For new construction and
substantial rehabilitation projects, equity is determined by subtracting the finally endorsed mortgage loan
amount from the amount on line 6, form HUD-92580.
B. To the base amount of the final mortgage loan, as determined above, there may be added certain cash
outlays for furnishings, equipment, or other betterments essential to the operation of the project. The
nature and extent of such outlays shall be substantiated by a supporting schedule in a manner satisfactory
to the Regional Center Director. The schedule shall set forth the vendor's name, a description of the item
or items purchased, the total price, and the cash paid on account of the price. The schedule shall be signed
by an authorized representative of the Borrower.
13.30.3
Final Closing – Insurance Upon Completion
A. See Chapter 19 for closing details for new construction or substantial rehabilitation, Section 223(a)(7)
and Section 223(f).
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Chapter 14 LIHTC and Other Tax Credit Programs
14.1 Introduction
Chapter 14 LIHTC and Other Tax Credit Programs
14.1 Introduction
A. The Low-Income Housing Tax Credit (LIHTC) program was enacted as part of the Tax Reform Act of
1986. It is administered by the Treasury Department and State Housing Finance Agencies (HFAs). In July
2008, the Housing and Economic Recovery Act (HERA) provided statutory rulings for FHA multifamily
program changes, to facilitate the use of insured mortgages with LIHTC developments.
B. This chapter outlines policies and procedures for underwriting and reviewing FHA multifamily
mortgage insurance applications for projects using LIHTC. Standard processing of such applications
applies except as modified below, and all LIHTC projects are underwritten using the “single underwriter
model”. Underwriters assigned LIHTC projects must have specialized training in underwriting these
deals. Guidance provided here addresses all LIHTC projects underwritten for FHA insurance.
14.2 LIHTC Underwriting Guidance
A. Guidance for processing and underwriting insured loans for LIHTC projects under the various
mortgage insurance programs can be found in other chapters and appendices of this Guide, noted in the
chart below:
MAP Guide Section Number
Chapter 2, Section 2.6.5
Chapter 2, Section 2.6.7
Chapter 3, Section 3.1.33
Chapter 3, Section 3.3
Chapter 3, Section 3.4, Section
3.5, and Section 3.7.
Chapter 3, Section 3.2 and
Chapter 4, Section 4.2.2.
Chapter 5, Section 5.6
Chapter 7, Section 7.4.A
Chapter 7, Section 7.5.13
Chapter 7, Section 7.7.9
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Content
Identities of Interest (IOI) are permitted between Lenders and equity
syndicators, investors, or bridge loan Lenders, in limited circumstances.
IOI Tax Credit Equity Syndicator or Investor Representation and
Warranty certification requirements.
Underwritten occupancy requirements for LIHTC transactions.
Loan sizing ratios under 221(d)(4) are provided, and these apply to Tax
Credit projects underwritten for that program unless adjusted for the
New Pilot in separate guidance.
Loan sizing ratios under 220, 223 and 231 are provided, and these apply
to Tax Credit projects underwritten for each program unless adjusted for
the New Pilot in separate guidance.
One-stage application processing is permitted for all Tax Credit projects
under all Sections of the Act. If Lender chooses two-stage processing, no
pre-application fees are charged.
Streamlined processing (including delayed submission of final plans) is
permitted for Tax Credit projects, assuming certain conditions are met.
No market study, other than that which would be provided in the
appraisal, is required for projects with 90% or more project-based rental
assistance.
Demand Estimate and analysis of demand for LIHTC properties.
Underwriting NOI for projects with Section 8 and LIHTC and projects with
above-market Section 8 rents for a long term.
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Chapter 14 LIHTC and Other Tax Credit Programs
14.3 Historic and New Markets Tax Credits
MAP Guide Section Number
Chapter 7, Section 7.13 and
Chapter 8, Section 8.14.C.6
Chapter 7, Section 7.14
Chapter 7, Section 7.16
Chapter 7, Section 7.17
Chapter 14, Section 14.10.1.
Chapter 8, Section 8.3
Chapter 8, Section 8.5
Chapter 8, Section 8.7
Chapter 8, Section 8.8
Chapter 8, Section 8.12
Chapter 8, Section 8.14
Chapter 8, Section 8.15
Chapter 11, Section 11.5
Chapter 11, Section 11.8
Chapter 12, Section 12.7 and
Chapter 13, Section 13.1,
Section 13.4
Chapter 16
Appendix 3, Section A.3.2
Appendix 3, Section A.3.8
Appendix 4
Appendix 8, Section A.8.8
Appendix 12, Section A.12.1
Content
Calculating operating deficits (for all Tax Credit projects).
Valuation instructions for affordable projects with a lease.
Underwriting tax abatements and waivers of certain underwriting
requirements for Tax Credit projects.
Valuation of Tax Credit and other affordable properties.
Special Limited Partners (SLP) and pre-approval of SLP.
Identifying and underwriting the principals in an LLC, LP, or non-profit
for purposes of mortgage credit review and limited review of tax credit
equity syndicators and passive investors and Previous Participation
Review Requirements.
Financial requirements and LIHTC Letters of Commitment.
Secondary Financing requirements for public and secondary financing.
Requirements for secondary financing from governmental Lenders and
for bridge loans used to fund equity during the construction period; use
of HUD’s form of Subordination Agreement instead of Note Rider.
Evaluating mortgage credit for non-profit Sponsors.
Firm Commitment Processing with Grants and Loans.
Cash requirements for Closing.
Requirements for tax-exempt bond financing.
Loan fees for tax-exempt bond financing.
Prepayment provisions for affordable or subsidized properties.
No cost certification required for Tax Credit projects if LTC/ LTV less than
or equal to 80%.
Master Leases.
Developer Fees by Program.
Broadly Affordable and Affordable MIP rate categories.
Application exhibits.
Identification and Certification of Limited Liability Investor Entities.
Disbursement of grant and LIHTC proceeds.
14.3 Historic and New Markets Tax Credits
A. Federal Historic Preservation Tax Credit Program. The Federal Historic Preservation Tax Credit
(HTC) program encourages private sector investment in the rehabilitation and re-use of historic buildings.
The National Park Service and the Internal Revenue Service administer the program in partnership with
State Historic Preservation Offices. Some states also offer tax credits for historic buildings and encourage
applicants to apply to both federal and state programs together. The HTC can be coupled with other local,
state and federal incentives as well, including LIHTC.
B. New Markets Tax Credits. New Markets Tax Credits (NMTC) are administered by the Community
Development Financial Institutions Fund, or CDFI Fund, (a program within the U.S. Department of the
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Chapter 14 LIHTC and Other Tax Credit Programs
14.4 Subsidy Layering Review
Treasury) and the Internal Revenue Service. NMTC can be used to finance a number of property types
including mixed-use with multifamily so long as the property is within a low-income community as
defined by the U.S. Department of the Treasury. NMTC investors typically invest in intermediary entities,
Community Development Entities (CDEs), which then provide funding to the project-level ownership
entity, usually in the form of non-traditional debt. No more than 80% of a NMTC property can be
residential on a square footage and income basis; 20% or more must originate from a commercial use.
NMTCs can be combined with HTC but are not typically combined with LIHTC.
C. HTC and NMTC programs. The HTC and NMTC programs are only occasionally used in FHA-insured
projects, so policies for each program are not provided in this chapter; however, to the extent it is legally
permissible and consistent with FHA’s mortgage credit and underwriting standards, HTC and NMTC may
be used in a manner similar to that described below for LIHTC projects61. For example, Equity Bridge
Loans (EBL) may be used by Borrowers and/or tax credit investors as a substitute for the pay-in of HTC
equity during a project’s development and stabilization phases (see Section 14.16). The Lender should
approach HUD at concept to discuss the proposed structure of the HTC and NMTC transaction, particularly
any areas of deviation from the standard LIHTC structure to confirm acceptability. The Lender and HUD
Underwriter are responsible for verifying that the amounts and timing of the HTC or NMTC contributions
are reasonable and can be expected to meet the development costs of the project. The Lender is also
responsible for documenting the financing terms associated with HTC and NMTC in the Lender’s Narrative
and the form HUD-92013-C LIHTC Summary Report (LIHTC transactions only).
14.4 Subsidy Layering Review
A. Subsidy Layering Review (SLR) requirements have been eliminated for LIHTC projects using FHAinsured loans but no other sources of Federal subsidy. Thus, most of HUD’s mortgage insurance
transactions are exempt from the formal SLR. The Lender and HUD Underwriter must always review the
Sources and Uses Statements for both mortgageable and non-mortgageable funds, however, to ensure that
costs are not being funded twice and that all costs funded from mortgage proceeds are appropriate and
necessary to complete the transaction62. Documentation must be included in the Firm Application. To
ensure accuracy, all costs must be identified and should not be categorized as “other” on the Sources and
Uses statement.
B. In addition to the analysis of the Sources and Uses Statement in the FHA loan underwriting, other public
funds combined with the FHA mortgage in a Tax Credit project may require a formal SLR. These public
funds might include Home Investment Partnerships Program (HOME) funds and other Federal loans or
grants, secondary financing provided from state or local sources, or capitalized debt supported by abovemarket, budget-based Section 8 rents. If those funds require a SLR, either a state agency, another public
source, or HUD will perform the review based on the FHA MAP Lender’s analysis.
C. Criterion 11 on the Supplement to Project Analysis (form HUD-92264-A) is not required. It may be used
as an optional worksheet.
61 The tax credit
equity pay-in schedule found in Chapter 14.13 does not apply to HTC or NMTC transactions.
LIHTC, the State Housing Finance Agency will require the Borrower to certify to actual costs.
62 For projects with
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Chapter 14 LIHTC and Other Tax Credit Programs
14.5 Evidence of Tax Credit Allocations
14.5 Evidence of Tax Credit Allocations
A. The Firm Application for any LIHTC project should include evidence of 1) a LIHTC award in the form
of a 9% State Agency Allocation or if 4% Tax Credits, an allocation of private activity bond cap, or 2) in the
case of Historic Credits or New Market Credits, an equivalent form of verification from the appropriate
agency.
B. LIHTC allocation timing varies by state, and in some cases FHA applications must be submitted before
final allocations of tax credits can be secured. Accordingly, other evidence is allowable. For example, in
the case of 4% LIHTC allocations, state agency bond cap allocators’ assurances and written procedures
stating that bond cap remains available for the period in question, that an application has been submitted
for the project in question, and that allocations are obtainable in the time available.
C. Regional offices have discretion to accept applications proposing 4% LIHTC allocations based on
evidence of approval that is customary for the allocating agency in question.
14.6 HAP Contract Renewals for Section 8 Projects
A. Where a Section 8 HAP contract is involved, the Borrower and Lender are responsible for ensuring that
the renewal terms under the Section 8 Renewal Policy have been or will be satisfied prior to loan
application submission or Initial Endorsement. Consistent with the definition of “Affordable Housing” in
this MAP Guide, if an existing Housing Assistance Payment (HAP) contract has a remaining term of 15
years or greater from final endorsement, then no renewals are necessary for purposes of qualifying for
FHA insurance (other programs, such as RAD may have additional requirements). See Chapter 7, Section
7.8.5. for underwriting requirements for projects with short and long-term HAP contracts. Criterion 3
remains value-based using market rents, unless the project is a first-time refinance of a 202 or a RAD
transaction. For Project Based Voucher (PBV) contracts, a 15-year contract is both typical and acceptable.
B. In the case of a HAP Contract Renewal Request, the Rent Comparability Study (RCS) must be reviewed
by the Lender as part of the underwriting process and when reviewing the MAP appraisal. If the Borrower
commissions the RCS, the same firm can not do the appraisal. However, if the Lender commissions the
RCS, the same firm may do the appraisal. The Lender is expected to analyze the loan using the rents from
the RCS to develop income estimates (and/or the Section 8 budget prepared by the Borrower in the case
of budget-based rents) and to address any inconsistencies in the Lender’s narrative. The HUD
Underwriter will review the Section 8 HAP Contract Renewal Request, RCS and Lender’s underwriting
narrative to verify that the rents requested by the Borrower in the Renewal Request are supported by the
RCS and that the Lender’s underwriting accounts for the RCS and the Renewal Request. At the HUD
Underwriter’s discretion, the HUD appraiser may be asked to review an RCS to determine its
reasonableness. If the Performance Based Contract Administrator’s 63 (PBCA) appraiser has not
undertaken a detailed review of the RCS, the HUD appraiser must also review the RCS to determine
reasonableness using Guidelines in Chapter 9 of the “Section 8 Renewal Policy”.
C. Coordination among the assigned HUD Underwriter, the field office’s Asset Management and Portfolio
Oversight (OAMPO) representative assigned to the project, and if necessary, HUD HQ’s OAMPO staff is
63 The PBCA
is an agency hired to assist HUD/OAMPO in the administration of Section 8 contracts.
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Chapter 14 LIHTC and Other Tax Credit Programs
14.7 Application/Submission Requirements
essential to ensure that a) the Section 8 HAP Contract Renewal Request and rent increase, if applicable,
are approved in a timely fashion, b) a prepayment approval is obtained if needed, and c) any other waivers
are processed and approved in a timely fashion.
D. Section 8 HAP Renewal Requests and Rent Adjustment Requests must be delivered to the Performance
Based Contract Administrator (PBCA) at least 60 days prior to the submission of the Firm Commitment
application, and 120 days in advance is preferable. However, the RCS rents and the appraiser’s rents must
be determined within 180 days of the issuance of the Firm Commitment, or those rents must be updated
in accordance with Chapter 7, Section 7.6.1. Thus, the owner and Lender must carefully manage the
timing.
E. Similarly, Lenders’ requests for prepayment of an FHA-insured loan should be submitted to
headquarters well before submission of the Firm Application package to the HUD field office (see
Mortgagee Letter 2018-07). The PBCA, under the direction of OAMPO, prepares and signs the new
contract and attached cover letter for delivery to the owner.
F. Borrowers and their Lenders should refer to the Section 8 Renewal Policy for detailed guidance on
Section 8 contract renewals.
G. If the Borrower is submitting a budget-based rent request, the Lender must coordinate with the
Borrower to determine a preliminary debt service figure for the new loan that the Borrower will include
in the proposed budget to submit to HUD and the PBCA. The final debt service figure is subject to change
during the final underwriting process, so this may have to be amended on the HAP contract request later.
The income, expenses and debt service amounts listed on the Borrower’s request must match the amounts
in the Lender’s underwriting.
14.7 Application/Submission Requirements
A. Documentation to be provided in the Firm Application for Section 8 Assisted properties requesting a
HAP Contract Renewal include the following:
1. HAP Contract Renewal Request and Rent Comparability Study. A MAP-compliant appraisal and HUD
forms HUD-92264, HUD-92264-T, HUD-92273, and HUD-92274 should also be submitted with the
application. However, the appraiser may opt to use the form HUD-92273 used in the Rent
Comparability Study or another format and may use form HUD-92274 or an alternative format
acceptable to the Lender and the HUD Underwriter.
2. The following describes application requirements for LIHTC projects that differ from those described
in other sections of the MAP Guide for projects without LIHTC. Other standard documents will be
those used for a given project’s Section of the Act (SOA) program.
The form HUD-92013-C, LIHTC Summary Report, which provides specialized information on
sources and uses of funds, net equity pay-in requirements, flow of funds and other matters
essential to analysis of LIHTC projects must be submitted for all Tax Credit projects. The LIHTC
Summary Report is located at:
https://www.hud.gov/sites/dfiles/Housing/documents/LIHTCSummaryReport20AllDealTypes
0920.xlsx
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Chapter 14 LIHTC and Other Tax Credit Programs
14.8 Architecture and Engineering
Existing Land Use Restriction Agreement (LURA) or other Regulatory Agreement (if any).
Letter of Intent (LOI) from Investor or Syndicator.
B. HUD has issued separate guidance for Rental Assistance Demonstration projects for underwriting RAD
transactions with FHA-insured loans and LIHTC. The guidance is available at:
https://www.hud.gov/RAD/library/notices
C. Application documents specific to the New Pilot are listed in the New Pilot Application Exhibits
Checklist.
14.8 Architecture and Engineering
A. The ALTA Survey submission may be waived for Tax Credit transactions involving the refinance of a
project with an existing FHA-insured mortgage, if the Borrower submits a statement reviewed and
approved by the MAP Lender and certifies that there have been no material changes or additions to the
structure or property boundaries since the closing of the original loan. HUD may accept an existing survey
for such projects rather than requiring a new survey document.
14.9 Identities of Interest in Tax Credit Transactions
A. In cases of identities of Interest (IOI) transfers for non-profits, non-profit owners of currently insured
or HUD-held properties may syndicate LIHTC properties and form new partnerships, subject to HUD’s
Transfer of Physical Asset (TPA) policies. (See Housing Notice 2011-31.)
B. See Chapter 2 and Chapter 8 for additional guidance on acceptable IOI relationships.
14.10 Mortgage Amounts, Contingency and Escrow
A. Transfer of Ownership. Section 223(f) applications for Tax Credit projects that involve transfers of
ownership to IOI purchasers may be treated either as acquisitions or refinancing transactions for
purposes of sizing the mortgage. Lenders may use either Criterion 7 or 10 on form HUD-92264-A.
B. Substantial Rehab Contingency. Generally, unspent contingency funds in an FHA-Insured loan
project may be deposited into a Reserve for Replacement Account (R4R) or applied to pay down the
mortgage, or do further improvements, betterments or upgrades to the property. One exception to this
rule applies to Low Income Housing Tax Credit properties with affordability restrictions that meet HUD’s
definition of “Affordable Housing” and obtain FHA mortgages not sized using the cost criterion. In such
cases, HUD allows contingency funds included in the FHA mortgageable cost, but not needed for repairs,
appropriate betterments, or deposits to R4R, to be used to pay the Developer Fee (deferred or otherwise)
or any other HUD-approved project-related expense (e.g., relocation costs) or reimbursement item.
Unused contingency funds may be used after issuance of the Final Trip Report, form HUD-95379.
C. Relocation Escrow. Unused Relocation funds, if escrowed from FHA loan proceeds, may also be
released in accordance with guidance above including payment of Developer Fee (deferred or otherwise.)
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Chapter 14 LIHTC and Other Tax Credit Programs
14.11 Structuring of Secondary Debt
D. Initial Operating Deficit Escrow. Initial Operating Deficit escrow requirements are outlined in
Chapter 3, Section 3.10, Chapter 7, Section 7.14, and Chapter 8, Section 8.14. For LIHTC projects only (New
Construction, Gut Rehab or Adaptive Re-Use), HUD will allow the HUD required Borrower’s Initial
Operating Deficit to be contributed after Initial Endorsement but no later than the point in time when HUD
signs the Permission to Occupy form, HUD-92485.
E. Working Capital Escrow. The 2% Working Capital Escrow requirement for substantial rehabilitation
projects with Section 8 rental assistance and LIHTC restrictions covering more than 90% of the units is
not required when the Lender can demonstrate there will be sufficient income generated by the property
during the rehab period to cover items typically funded by the Working Capital Escrow and when Interim
Income is not being used as a source of financing. A Waiver of the Working Capital Escrow is only available
for LIHTC properties with 90% greater rental assistance (LIHTC only is not sufficient) and can be
approved by the Regional Production Division Director.
14.11 Structuring of Secondary Debt
A. LTV Ratio and Private Secondary Debt. For transactions that do not have LIHTC, Section 223(f)
limits the combination of FHA insured and secondary financing to a loan to value limit of 92.5% (except
when the debt source is a public sector or quasi-public sector entity64).
B. Conditions for Secondary Debt. For LIHTC projects (new construction, substantial rehabilitation,
and refinance transactions), debt limits can restrict property basis and tax credit amounts unnecessarily.
Accordingly, for LIHTC projects only, HUD does not impose a loan to value limit on secondary financing,
regardless of the source (public debt or private debt). This means that in some cases debt may exceed
value. However, all such secondary debt remains subject to the following conditions:
1. Payments on all secondary debt are restricted to 75% or less of the annual surplus cash, and/or the
proceeds of a sale or refinancing of the property. (See 24 CFR 200.85(b)). This limit applies
cumulatively to all secondary debt, private and public, to ensure that at least 25% of the surplus cash
remains as an incentive to the owner. Owners may make additional payments on the debt out of their
remaining 25% of cash flow, or from other sources.
2. The FHA insured loan and the total combined public and or private secondary debt may not exceed
100% of total mortgageable and nonmortgageable project costs as confirmed by the HUD
Underwriter’s analysis of a comprehensive Source and Uses of Funds Statement.
3. The maturity date of the secondary debt must be coterminous with, or later than that of the first
mortgage. The HUD Underwriter may consider exceptions on a case-by-case basis for public debt
when other HUD programs (e.g., the HOME program) require shorter amortizations and the risk is
mitigated. Examples of mitigants include significant additional public funds, low loan-to-value or
loan-to-cost ratios, below market rents or higher than minimum debt service coverage.
4. The secondary debt can reasonably be expected to be paid off over its term with 75% of the project’s
surplus cash.
64 A quasi-public entity or corporation is defined as a company in the private sector
supported by the government
with a public mandate to provide a given service, such as the Federal Home Loan Bank or utility companies.
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Chapter 14 LIHTC and Other Tax Credit Programs
14.12 Developer Fees
5. The debt is documented in HUD’s form of Surplus Cash Note (form HUD-92223M) or subsequent
version with simple interest. HUD will permit compounding of interest if the Lender provides a
thorough analysis demonstrating that project cash flow will be sufficient to avoid accruals of interest
that would undermine the long term financial and physical integrity of the project, and all other risks
have been adequately mitigated; and
6.
Private debt of up to 100% of Total Project Costs may be secured with the project under all Sections
of the Act but it must be subject to automatic re-subordination in any refinancing of the first mortgage.
C. Bridge Loans. Temporary bridge loans are treated differently from other secondary financing and are
described in detail below in Part 14.16.
D. Publicly Funded Loans or Public Debt. Loans funded with HOME Funds or other federal, state or
local public sources, as well as those funded by quasi-public agency programs such as the Federal Home
Loan Bank’s Affordable Housing Program (AHP), may be granted or lent directly to HUD’s Borrower, or to
the GP or Sponsor of the Borrower, who will then loan it to HUD’s Borrower. All such sources will be
treated as public secondary financing sources, and as such need not be included in the calculation of the
100% of total project cost limit applied to private secondary debt. However, none of these sources may
be substituted for Tax Credit Equity required by the pay-in schedule provided below and all remain
subject to the 75% cap on payments from surplus cash.
14.12
Developer Fees
14.12.1
Treatment of Developer Fee
A. Developer fees may, though are not required to be, treated as mortgageable costs so long as they are:
1. In amounts approved by the project’s LIHTC allocation agency and
2. Scheduled for payment in amounts and at times agreed upon with the syndicator or investor.
B. Developer Fees for different project types and loan programs are addressed in greater detail in
Appendix 3, Section A.3.2.1. and Appendix 2.
C. Neither BSPRA nor SPRA may be claimed when a Developer’s Fee is included in the project budget,
regardless of whether the Developer Fee is treated as a mortgageable cost.
D. An IOI between the GC and the owner is allowed and does not require a waiver, but it must be disclosed
in the application and may affect the fee and profit structure (may use Lump Sum or Cost-Plus form of
Construction Contract and neither the General Contractor nor the Borrower need to cost certify if the
project is exempt from providing a Cost Certification per Chapter 13 as determined at the time of Firm
Commitment). No blanket restriction has been imposed on the amount of General Contractor profit,
except it must be reasonable based on the market and the scope of work. HUD generally relies on the
policies of the State tax credit allocation agencies, which often scale fees down when a single party or two
related parties are receiving both the Developer Fee and the GC Profit.
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Chapter 14 LIHTC and Other Tax Credit Programs
14.13 Tax Credit Equity Pay-In Schedule
Deferred Developer Fee (DDF)
A. If repayment of the DDF is an obligation of the Borrower, repayment terms must be identified in the
Borrower’s Limited Partnership Agreement or Operating Agreement, and/or in a Note. The DDF loan does
not need to be documented in HUD’s form of Surplus Cash Note. Whether the DDF loan is documented in
the Borrower’s organizational documents or in a Note, language must be included specifying that
repayment is restricted to Surplus Cash or non-project funds (as that term is defined in the Regulatory
Agreement between the Borrower and HUD). A DDF loan may not be secured by the project, and its term
may be shorter than the term of the FHA mortgage. The DDF loan is not subject to the limits on the amount
of secondary debt, and it need not be combined with other private secondary debt to determine if the
combined amount exceeds the limit of 100% of total project costs. In the event of any conflict between
the provisions of this section and other provisions of the MAP Guide, the provisions of this section control.
B. Regardless of whether the Deferred Developer Fee was structured as debt of the ownership entity as
evidenced in a Note or if the Deferred Developer Fee was treated as equity (e.g. an obligation of one or
more of the upper tier members and not the Borrower, as evidenced in the Limited Partnership
Agreement or Operating Agreement), the Deferred Fee may be recognized as eligible debt and paid off in
the same manner as other debt per Chapter 8, Section 8.11.1.C, Determining Existing Indebtedness, in a
Refinancing Transaction subject to the following conditions:
1. The amount of the outstanding Deferred Developer Fee is verified by documentation (e.g. Audited
Financial Statements) from the Borrower/Limited Partner/Investor Member.
2. The Borrower/Limited Partner/Investor Member affirmatively consents to the use of loan proceeds
and to the refinancing in general (if the Investor/Member currently maintains interest in the
ownership structure or will remain as part of the proposed ownership structure post refinancing),
and,
3. The Lender’s underwriting must support the inclusion the Deferred Developer Fee as a cost to
refinance, in addition to the first mortgage and/or any other eligible debt.
4. In no event will Deferred Developer Fee be considered eligible debt in a Section 223(a)(7) transaction.
14.13 Tax Credit Equity Pay-In Schedule
A. FHA requires minimum Tax Credit equity contributions according to the following pay-in schedule for
all LIHTC transactions65. This schedule, with actual total equity and net-equity amounts entered, is to be
added as a special condition to the Firm Commitment for all LIHTC Projects. Waivers of the requirements
set forth below will generally not be considered.
65 This schedule does not apply
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Chapter 14 LIHTC and Other Tax Credit Programs
14.14 Definition of “Net Equity”
Benchmarks for Equity Installments
On or Before Initial/Final Closing for Section 223(f)68 deals and by
Initial Closing for Section 221(d)(4) deals:
At 65% Completion of Repairs for Section 223(f) deals and at 65%
Construction Completion for Section 221(d)(4) deals:
At 100% Completion of Repairs for Section 223(f) deals and at Final
Endorsement for Section 221(d)(4) deals:
Minimum Equity Installment 66,67
20% of Total Equity (of this amount,
10% may be funded with an Equity
Bridge Loan)
37.5% of Net Equity remaining after
initial installment
62.5% of Net Equity remaining after
initial installment (cumulative)
B. Equity investors may fund all or part of the required equity pay-ins defined above, except for half of
the first 20% payment (10% of Total Equity), with Equity Bridge Loan proceeds that meet the
requirements described in Section 14.15 below. Investors may not substitute any grant or loan funds,
other than funds in the form of Equity Bridge Loans as described in Section 14.15 below, for the equity
payments. The equity installments noted above may be used for mortgageable or non-mortgageable costs.
14.14 Definition of “Net Equity”
A. The term “Net Equity” is equal to Total Equity less the initial 20% installment less “Delayed” Developer
Fees for amounts due after the completion of repairs or construction and predetermined reserve amounts
to be held by the investor for project uses after the time of the final pay-in noted in the schedule above.
Reserves allowed for this calculation may include only amounts that are required in the project’s
Partnership Agreement or LLC Operating Agreement but excludes those specifically required by HUD.
Allowable items include Lease Up Fees and Escrows, Operating and Debt Service Reserves, Section 8 HAP
Contract Transition Reserves, Replacement Reserves, and State Agency Administrative Fees or Escrows,
not otherwise required by HUD. The total deductions used to determine Net Equity may not exceed 25%
of Total Equity. When calculating the pay-in amounts due at the benchmarks listed on the chart above,
owners must first reduce the total amount of equity committed to the project by the initial installment
and the allowable deductions, and apply the payment percentages above (37.5% and 62.5% respectively)
to the remaining or “Net” Equity. This calculation, specifying each applicable use, must be provided to
HUD on the form HUD-92013-C, LIHTC Summary Report included in the FHA insurance application.
B. An example of the calculation of the Net Equity amount, and the resultant pay-in schedule, is provided
below:
Net Equity = (Total Equity) – (Equity Pay In #1) – (Allowed Deductions)
Total Equity or Gross Proceeds:
$7,500,000
• Less Payment #1a:
• Less Payment #1b:
$1,500,000 (20% of Total Equity)
$1,500,000 (any combination of at least 10% Total Equity & 10% or
less Equity Bridge Loan)
66 Additional equity is acceptable at each
benchmark date shown, as well as at other interim dates at the investors’
discretion.
67 With the exception of the first equity payment, which is calculated as a percentage of Total Equity, all
percentages used in this column represent percentages of Net Equity.
68 The repair escrow is not required to be funded at 100% at the time of closing if tax credit equity is being used to
fund repair costs. The gradual pay-in of tax credit equity is allowed per the benchmarks in the chart above. The
Assurance of Completion, however, must be funded at 100% at the time of Closing.
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14.15 Equity Bridge Loans in Tax Credit Projects
• Less Allowed Deductions Not to
(25% x $7,500,000) = $1,875,000
Exceed 25% of Total Equity:
Minimum Net Equity =
$7,500,000 - $1,500,000 - $1,875,000 = $4,125,000
Sample Owner’s Proposed Reductions:
Delayed Developer Fee
$800,000
Lease Up Fees and Escrows
$175,000
Operating Reserves
$145,000
Debt Service Reserves
$200,000
Section 8 HAP Contract Transition Reserves
$235,000
Replacement Reserves
$300,000
State Agency Administrative Fees or Escrows
$45,000
Total
$1,900,000
This total would be disallowed, as the $1.9 million exceeds the 25% of total equity ($1.875 million) allowed. Accordingly, it
is reduced by $25,000 in the following calculations.
C. Net Equity is the Balance, after Total Equity is reduced by Payment #1, and the Allowed Deductions of
$1,875,000, or $4,125,000. This number would be adjusted if the owner were to claim less than the
maximum Allowed Deductions.
Payment
Description
Formula
Amount
Equity Pay In #1a
Equity Pay In #2
Equity Pay In #3
20% of Total Equity
37.5% of Net Equity ($4,125,000)
62.5% of Net Equity ($4,125,000)
20% x $7,500,000
37.5% x $4,125,000
62.5% x $4,125,000
$1,500,000
$1,546,875
$2,578,125
D. There is no change in the computation to determine the cash requirements and/or front money escrow
on form HUD 92264-A. The remaining cash requirements not being satisfied with LIHTC equity will be
satisfied in accordance with outstanding instructions. The Borrower must pay out-of-pocket when there
is no available cash from mortgage proceeds or other committed sources.
14.15 Equity Bridge Loans in Tax Credit Projects
A. Equity Bridge Loans (EBL) may be used by Borrowers and/or tax credit investors as a substitute for
the pay-in of equity during a project’s development and stabilization phases, thereby deferring the pay-in
of equity and increasing the return on equity. The EBL may be the obligation of one or more of the
investors or other upper-tier partners to the ownership entity (i.e. the limited or general partners), or an
obligation of the project ownership entity/single-asset mortgagor itself.
B. In addition, the following conditions must be met:
1. EBLs must be made expressly subordinate to the HUD insured first mortgage through use of the Equity
Bridge Loan Rider, see Chapter 19, Section 19.16. EBLs may not be secured by a lien on the real estate
or on any other “Mortgaged Property” as defined in the Security Instrument, and do not require a
subordination agreement. They may be secured by a pledge of tax credits, tax credit equity, and/or
an upper tier (i.e., the limited or general partner or managing member) or investor members’ interests
in the project’s ownership entity. Any security for the EBL may be held by the Borrower in a separate,
segregated account, specifically labeled as non-project funds, and which are not part of the Mortgaged
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14.15 Equity Bridge Loans in Tax Credit Projects
Property in Section 1(w) of the Security Instrument. As with any transfer of the controlling partner of
an ownership entity, any entity that intends to acquire the general partner’s position in the ownership
entity whether under certain triggering default conditions set forth in the Borrower’s partnership or
operating agreement or otherwise, is subject to HUD approval under the modified Transfer of Physical
Assets process and Previous Participation Certification (form HUD-2530) clearance, including
financial statement review.
2. EBLs must be non-recourse to the Borrower (except for Surplus Cash or residual Receipts, as
applicable, of the Borrower), and the bridge Lender shall have no claim even in an event of default
against the Project, FHA mortgage loan proceeds, the Mortgaged Property, or any reserve or deposit
made with the FHA Lender.
3. In the event HUD acquires title to the Project by foreclosure or deed in lieu of foreclosure, the equity
bridge loan documents shall be discharged with respect to the FHA Borrower, and the FHA Borrower
shall be released of all of its obligation with respect to the EBL. Notwithstanding the required
discharge of the FHA Borrower imposed by this paragraph, the equity bridge loan documents may
provide that such discharge neither:
Excuses or relieves any co-signer, guarantor or any other party from the obligation to repay the
indebtedness evidenced by the bridge loan note and bridge loan documents; nor,
Affects, limits, or impairs the bridge Lender’s ability to seek a monetary judgment and pursue
other remedies against any co-signer, guarantor or other party.
4. The obligation must be evidenced by a promissory note with appropriate subordination provisions and
limitations on recourse against the Borrower.
5. The term of the note may last through the construction or rehabilitation period but must be paid in
full no later than the following dates:
In the case of EBLs provided by private, for-profit Lenders, the earlier of the filing of the form
HUD-8609 or (a) one year after (a) Final Endorsement for Section 221(d)(4)/220 loans, or (b)
one year after the end of the repair period for 223(f) loans; and
In the case of EBLs provided by not-for-profit, public sector or quasi-public sector entities, no
later than ten years following (a) the end of the repair period for 223(f) loans, or (b) Final
Endorsement for 221(d)(4) loans.
6. The FHA Borrower must provide evidence to the Lender’s and HUD’s satisfaction that the bridge loan
will be paid in full by the timeframes noted above. At application, HUD will accept the Lender’s review
of the LPA pay-in schedule/EBL term sheet and sources, uses and draw schedule in the form HUD92013-C, LIHTC Summary Report. Following endorsement, HUD will accept the Bridge Loan
documents and a loan satisfaction. When applicable, the Borrower’s audited financial statement
(AFS) must reflect that the EBL was paid on time. This must be reflected in the AFS due in the
reporting period after the due dates for full EBL repayment noted above.
7. At Firm Application, or as soon as the need for an EBL is known, the Lender must submit for HUD’s
approval a term sheet describing the key terms of the bridge loan, as well as a certification that the
loan will be secured only by a pledge of tax credits, tax credit equity, and/or an upper tier (i.e., the
limited partner or general partner of managing member) or investor members’ interests in the
project’s ownership entity and that the bridge Lender will have no claim against the Project, the
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Chapter 14 LIHTC and Other Tax Credit Programs
14.16 Syndicator and Investor Fees from Operations
Mortgaged Property, mortgage proceeds, or any reserves or deposits with respect to the Project, for
repayment of the bridge loan.
8. The EBL Documents may not be amended, assigned, transferred, sold, or otherwise held without the
prior written consent of HUD.
9. For identity of interest Bridge Lenders, indemnification provisions in the EBL Documents shall not be
construed to require the HUD Borrower to make indemnification payments beyond those permitted
by the HUD required provisions to be added to the Borrower’s Organizational Documents.
C. Bridge loans for other purposes, (i.e. that are not used to advance equity in tax credit projects) are
described in Chapter 8.
14.16 Syndicator and Investor Fees from Operations
A. Tax Credit projects often involve annual asset management-related fees paid to the syndicator or an
investor representative. HUD’s Office of Asset Management and Portfolio Oversight allows usual and
customary fees and expenses for operating a Tax Credit project, including payment of a syndicator’s
and/or investor’s asset management fee, state allocation agency compliance and asset monitoring fees,
and mandatory interest payments of up to one percent on subordinate debt provided by a government
Lender to be paid from the operating revenues. If the expenses described above are included in the
operating budget, however, the loan must be sized accordingly by the Lender, and the chosen treatment
of the expenses must be documented in the closing documents. Fees paid with surplus cash should not be
included in the operating budget. HUD generally requires that at least 25% of surplus cash remains
available as an owner incentive, though the remaining 75% may be obligated to payment of secondary
debt.
14.17 Mark to Market (M2M) Transactions
A. Owners may receive an Incentive Performance Fee (IPF), and this is paid before the 25%/75% split is
calculated. Thus, the IPF is paid first and may be realized in addition to the owner’s 25% of surplus cash.
M2M also obligates the owner to use the full 75% of surplus cash to pay down the program’s secondary
M2M loans. Accordingly, in M2M transactions the payment of syndicators’ and investors’ fees must be
limited to the 25% that is not committed for loan repayment.
14.18 Firm Commitment Additional Conditions
A. The following additional conditions must be added to the Firm Commitment as applicable to
applications for mortgage insurance for projects that will have equity funded from Tax Credit proceeds:
1. This Commitment is conditioned on the availability of the tax credit equity contribution described
above and in the Equity Contribution Schedule provided with the firm commitment application and
approved by HUD, attached as Exhibit G. Changes to equity contribution amounts or the Equity
Contribution Schedule require the submission and approval of an updated form HUD-92013-C, LIHTC
Summary Report and an amendment to the Firm Commitment.
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14.18 Firm Commitment Additional Conditions
2. The initial equity investment amount is $_______. The initial equity investment must equal to no less
than 20% of total LIHTC equity, of which 10% may be funded with Equity Bridge Loan proceeds.
3. The Lender must submit satisfactory evidence of an agreement that binds the tax credit investors to
timely and periodically pay to the Borrower entity the tax credit equity to contribute to Project
completion costs, in the aggregate amounts set forth in form HUD-2880, HUD-92013, and the HUD92013-C, LIHTC Summary Report . A Disbursement Agreement that reflects the terms of the Limited
Partnership Agreement or Operating Agreement for the remaining outlay of tax credit equity
contributions must be provided prior to Initial Closing.
4. All Tax Credit Equity documents to which either the Borrower or Controlling Participants are a party,
and any related land use restrictions( if available), must be approved by HUD prior to the date of
Initial Endorsement, and must comply with HUD’s legal and administrative tax credit equity
requirements, and all related HUD closing forms.
5. In addition to the standard provisions that must be included in the organizational documents for the
Borrower entity, a provision must be added that prohibits any changes to the organizational
documents that affect the obligations of the tax credit investor without written consent of the Lender
and HUD.
6. Special Limited Partner. [NAME] has been preapproved to serve as the Special Limited Partner to
replace the General Partner for a limited period of time. A “Rider to the Security Instrument for LIHTC
Properties” must be submitted with the closing documents.
7. Cost Certification Exemption. The Project is exempt from providing Cost Certification pursuant to
Program Obligations (see LIHTC Projects, MAP Guide Chapter 13, Section 13.4). In cases such as new
construction with partial occupancy approval as described in Chapter 12, Section 12.14.4 or a
substantial rehabilitation tax credit project without significant resident displacement, there may be
considerable net operating income (NOI) (or interim income) generated during the construction
period. This interim income may be used to pay for mortgageable and non-mortgageable items.
Therefore, prior to Final Endorsement, the Borrower must prepare and submit an Operating (or
Income and Expense) Statement, accounting for Interim Income from the period from first occupancy
through the time that HUD issues the Permission to Occupy form, HUD-95485 and after all Change
Orders have been funded.
8. Deferred Drawings and Specifications – LIHTC Projects and Certain Eligible Borrowers. As an
accommodation to the Borrower, this Commitment has been issued based upon preliminary
drawings, instead of the final drawings, specifications and cost estimates (see MAP Guide, Chapter 5,
Section 5.6.5). At least 30 days prior to the scheduled date for Initial Endorsement, HUD must receive
the final drawings, specifications and the Lender’s architectural/cost review report for review and
approval to ensure consistency of design and cost. The plans and a complete specifications manual
must be submitted to [Name of Construction Analyst] at [HUD office location] for review and
approval. [Name of Construction Analyst] can be reached at [phone number]. They will provide
information on where the three approved sets of Plans and Specifications with signature blocks will
need to be mailed for the preconstruction conference and Initial Endorsement. In addition, it is the
Lender’s and General Contractor’s responsibility to incorporate the most current Davis-Bacon Wage
Rates into the appropriate documents. If there is a net cumulative construction cost change of more
than 5%, or a change in design concept, this Commitment shall be subject to and conditioned upon
the further approval of HUD, to be evidenced in writing. Based on such change and review, this
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14.19 Other Matters
Commitment may be terminated and voided by HUD, or, additional conditions may be imposed at
HUD’s option. Add if applicable: this Commitment is conditioned on the following corrections that
must be made to the Plans and Specifications before Initial Endorsement.
9. Bridge Loan (only as applicable). {insert: amount, interest rate, repayment terms, maturity date,
financing instrument(s), name of maker on the loan.}
This Commitment is conditioned on the availability of the Bridge Loan described above. All Bridge
Loan documents to which either the Borrower or Controlling Participants are a party must be
approved by HUD prior to the date of Initial Endorsement and must comply with HUD’s legal and
administrative bridge loan requirements, and all related HUD closing forms. If there is a conflict
between the HUD loan documents/Program Obligations (HUD Requirements), the HUD Requirements
control.
10. Bonds (only as applicable). This Commitment is conditioned on the availability of the Bonds
described above. All Bond documents to which either the Borrower or Controlling Participants are a
party must be approved by HUD prior to the date of Initial Endorsement and must comply with HUD’s
legal and administrative bond requirements, and all related HUD closing forms. If there is a conflict
between the HUD loan documents/Program Obligations (HUD Requirements), the HUD Requirements
control.
11. Deferred Developer Fee. Whether the DDF loan is documented in the Borrower’s organizational
documents or in a Note, language must be included specifying that repayment is restricted to Surplus
Cash or other non-project funds (as that term is defined in the Regulatory Agreement between the
Borrower and HUD).
12. {The following additional Tax Credit Equity condition applies to transactions with master lease
structures to facilitate Historic or New Market Tax Credits.}
A master lease structure has been approved for this Loan transaction to facilitate [Historic Tax
Credits] [New Market Tax Credits]. The Borrower and master tenant [insert name of master
tenant], along with the following (residential and/or commercial) master sub-lessees [insert names
of master sub-lessee 1, master sub-lessee 2, etc.] must execute separate Regulatory Agreements
with the appropriate HUD Rider attached. The Riders can be found at the following link:
https://portal.hud.gov/hudportal/HUD?src=/program_offices/general_counsel/mffaqs.
{HUD staff must also insert here the required additional conditions for master lease transactions from
MAP Guide Chapter 16, Section 16.4.A.}
14.19 Other Matters
A. The market study, appraisal and underwriting for all Tax Credit projects must address the relationship
between the Tax Credit ceiling rents, the attainable rents, any subsidy contract rents and terms, and true
market rents. Any disparities among these rents and the related risks must also be addressed.
B. HERA’s Exception to the Tax Credit Program’s 10-Year Holding Period. HERA provides for an exception
to the LIHTC’s ten-year holding period requirement for certain federally assisted buildings, specifically
those that are 221(d) or 236-insured. Because the HERA language refers to the two specific programs
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14.19 Other Matters
noted above as well as to “…any other program administered by the Department of Housing and Urban
Development…” the waiver should apply to all FHA-insured tax credit projects. HUD does not render tax
advice, however, so owners should seek tax counsel with respect to this interpretation.
14.19.1
Bond-Financed Projects in New York City
A. Section 42 of the IRS Code provides that for projects located in New York City, the “40-60” test
(restricting 40% of the units for the use of tenants earning no more than 60% of median income) for
determining whether a project qualifies as a low-income project, is replaced by a “25-60” test. Thus, the
affordability requirement is reduced from 40% to 25% of the units to be set aside at 60% of area median
income. HUD will consider this exception to the set-aside on a case-by-case basis, when the Lender’s
application demonstrates that the NYC market rents for the additional 15% unrestricted units that would
otherwise have been restricted, will still provide for significant affordability in the local market.
14.19.2
Lien Priority
A. The FHA mortgage lien is required by statute to be in first position ahead of all other financing.
Restrictive covenants with no monetary obligations are not considered liens and, in some instances, may
facilitate a transaction if affordability use restrictions other than the Tax Credit LURA survives foreclosure
and is recorded prior to the FHA mortgage. On a case-by-case basis HUD may approve non-monetary use
restrictions that run with the land and therefore may be superior in priority to HUD’s first mortgage
position. When waivers are requested, the Lender must demonstrate, and the HUD Underwriter must
verify, sufficient financial strength and strong mitigants to offset the risk of a negative impact on the
marketability of the project in the event of a foreclosure or loan sale. Mitigants might include a low FHA
loan-to-value or loan-to-cost ratio, significant amounts of public funds, high levels of funding by the source
in question, Section 8 assistance for all the units, and higher than minimum debt service coverage.
14.19.3
Tax Credit Regulatory Agreements
A. In Tax Credit projects, certain IRS Section 42 obligations must be allowed to continue post-default.
Generally, however, for the Tax Credit LURA, and/or when public secondary financing with regulatory
agreements or restrictive covenants are required, HUD requires the use of its standardized rider to these
restrictive covenants, which indicates that in case of conflicts between a LURA or another restrictive
covenant and FHA “program obligations,” FHA requirements take precedence. Neither this provision nor
the use of the rider itself should be waived. Instead, staff must identify the point of conflict and consult
with OGC. Alterations of the rider that are once approved can then be used as the template for that
jurisdiction, as applicable. Typical conflicts include differing numbers of units set aside for specific income
levels, different use agreement termination dates, etc. It is the Lender’s responsibility to draw attention
to potential conflicts between FHA requirements and the LURAs or other restrictive covenants as early as
possible (i.e., during Concept Meetings) and no later than with Firm Commitment application submission.
If they are not addressed in the Firm Commitment, the Lender should assume the closing will be delayed.
14.19.4
Tax Exempt Bonds - FHA Insured Permanent Debt
A. Tax Credit projects are often financed with the "4%" Tax Credits allocated in conjunction with private
activity bond volume cap, rather than the "9%" Tax Credits competitively allocated by State Agencies.
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Chapter 14 LIHTC and Other Tax Credit Programs
14.20 FHA Tax Credit Pilot Program Expansion
Taxable Ginnie Mae securities’ yields and the resulting rates on FHA multifamily loans at times can be
lower than long-term tax-exempt bonds and municipal bond-backed multifamily loan rates.
Consequently, investment banks have developed an approach that combines taxable Ginnie Mae securities
with short-term, tax-exempt bonds and 4% LIHTC. This structure establishes several different account
funds, along with a series of cash flow events between the various accounts upon a draw request. The taxexempt bonds are secured by cash collateral initially provided by the FHA Lender's warehouse funds (or
other funding source, but not FHA-insured loan proceeds), which in turn are reimbursed with proceeds
from the sale of Ginnie Mae-guaranteed securities. The tax-exempt bonds are retired with the proceeds
of the bond collateral account when the project is placed into service.
B. This structure allows the Borrower to avoid higher loan rates that exist when the loan funding source
consists exclusively of tax-exempt bonds, and still take advantage of the 4% LIHTC equity. This bond
financing structure is generally acceptable to HUD, but each transaction must be reviewed by Housing
field staff and OGC field counsel for programmatic and legal sufficiency, including the review of specific
transaction documents. Accordingly, Underwriters must involve their OGC counterparts early in the
process to ensure these issues are addressed early and do not constrain the transaction's processing.
C. Note that FHA-insured loan proceeds may not be used to serve as collateral for the bonds, and they
may not be paid to the bond trustee or sent to other accounts to facilitate issuance of the bonds. This is a
statutory prohibition that may not be waived, as FHA-insured loan proceeds are only permitted to directly
finance the relevant activity authorized under the applicable section of the National Housing Act. To
ensure statutory compliance regarding the use of FHA-insured loan proceeds, HUD OGC requires Lenders
to complete Section F of the Lender’s Certificate (form HUD-92434M) or the Request for Endorsement
(form HUD-92455M) as applicable for financings structured in this manner.
14.19.5
Refinancing of M2M Properties
A. HUD’s Office of Recapitalization, along with the field offices’ Asset Management staff, are responsible
for reviewing any transactions that have been through an M2M restructuring. Those transactions require
a waiver of the “due on sale…” clause and extension of the maturity dates of all subordinate notes
originated in the restructuring. Current guidance is in Notice H 2012-10, and it explains when the field
offices can process the waivers and when HQs must do it. In complex Tax Credit transactions requiring
subordination of M2M debt, the owner or Lender must request the waiver as early as possible to avoid
delays. FHA Production staff may also be involved to ensure that the Recapitalization Office’s conclusions
are consistent with the underwriting of the project.
14.19.6
Income Averaging
A. HUD defers to the State HFA rules and requirements regarding Income Averaging and Section 42
eligibility.
14.20 FHA Tax Credit Pilot Program Expansion
A. See Housing Notice: H 2019-03 for guidance on the Section 221(d)(4) and Section 220 New
Construction and Substantial Rehabilitation Multifamily Project with LIHTC Pilot Program.
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Chapter 15 Oversight of MAP Program Requirements
15.1 Oversight of MAP Lenders
Chapter 15 Oversight of MAP Program Requirements
15.1 Oversight of MAP Lenders
A. This chapter of the MAP Guide implements 24 CFR Part 200, Subpart Y which provides the authority
for enforcing MAP program requirements and imposing MAP sanctions.
B. By permitting a MAP Lender to prepare much of the documentation for an application submission for
mortgage insurance, HUD places confidence in and relies on the Lender’s integrity and competence. HUD
and its MAP Lenders have a mutual interest in ensuring the expertise of any Lenders which are authorized
to represent the MAP program, and their compliance with the MAP Guide and other relevant guidance and
handbooks. If, in the process of performing its work, a MAP Lender places HUD at undue risk, HUD will
issue a Letter of Caution, a Warning Letter or will sanction the Lender.
C. Every HUD multifamily staff member plays an important role in the MAP Quality Assurance (QA) effort.
This chapter provides QA and enforcement guidance to HUD production offices and the Office of
Multifamily Production (OMP). Such QA and enforcement tools are: 1) Letters of Caution; 2) Warning
Letters, which may include the imposition of Targeted Enforcement Measures; 3) Probation; 4)
Suspension; 5) Termination; 6) suspension, debarment or Limited Denial of Participation (“LDP”) of
individuals or firms participating in the MAP program; and 7) referral to the MAP Lender Review Board,
the Mortgagee Review Board, the Departmental Enforcement Center (DEC) or the Office of Inspector
General. An LDP is a sanction applied to persons and participants in loan transactions, other than to MAP
Lenders themselves, under procedures set forth in 2 CFR Part 2424 Subpart J. The purpose and authority
of the MAP Lender Review Board is set forth in this chapter. The purpose and authority of the Mortgagee
Review Board is set forth in 24 CFR Part 25.
D. If a MAP Lender, or an authorized employee or Agent of the Lender acting under the control and
supervision of the Lender, violates any program requirement including, but not limited to, committing
fraud, misrepresentation or any violation described at 24 C.F.R. §§ 25.6 or 30.35(a), HUD reserves its
rights to initiate all actions available to it under the law including, without limitation, action against the
Lender under the contract of mortgage insurance and the Mortgagee Review Board authorities.
15.2 Multifamily Asset and Counterparty Oversight
Division
15.2.1
Functions
A. The Multifamily Asset and Counterparty Oversight Division (COB), within the Office of Asset
Management and Portfolio Oversight (OAMPO) and the Office of Multifamily Housing Programs (OMP), is
the MAP Program’s lead representative to and Quality Assurance counterparty monitor of the MAP
Lenders and their key MAP personnel. The COB division also performs asset management oversight of
the FHA insured multifamily portfolio, which is not addressed in this Guide. OAMPO works closely with
the multifamily Loan Servicers to obtain data on, monitor, and asset manage loans in the insured portfolio,
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Chapter 15 Oversight of MAP Program Requirements
15.2 Multifamily Asset and Counterparty Oversight Division
including coordination on loan delinquency and default servicing, and on special servicing of troubled
projects. COB monitors Servicers through OAMPO’s activities and through the Government National
Mortgage Association (GNMA), which conducts regular monitoring as part of its counterparty compliance
reviews.
B. COB performs the following counterparty oversight functions on behalf of the MAP program:
1. Lender Administration:
Review new Lender applications and applications for reinstatement of suspended or terminated
Lenders.
Review Lender change of control, sale, merger or license transfer requests.
Review changes in a Lender’s key MAP personnel; approve new MAP Underwriters and MAP Chief
Underwriters.
Review Identity of Interest determinations and waiver requests.
2. Oversight and Monitoring:
Review new, and changes to existing, Quality Control plans.
Audit Lender compliance with their Quality Control plans.
Audit Lender compliance with MAP Quality Assurance and program requirements.
Review loan transaction files.
Conduct Borrower concentration risk reviews and review 2530 flags.
3. Enforcement:
Issue, or recommend issuance of, sanctions including Letters of Caution, Warning Letters,
Probation, Suspension or Termination.
Make referrals to the MAP Lender Review Board, the Mortgagee Review Board, the Departmental
Enforcement Center or the Office of the Inspector General, as appropriate.
Recommend suspension, debarment or Limited Denial of Participation actions on a nationwide or
a geographically restricted basis.
15.2.2
Data and Reports
A. To perform its Quality Assurance functions, COB will coordinate the sharing of data, reports and
financial analyses on MAP Lenders which are available from other divisions within HUD, including:
1. Office of Lender Activities and Compliance, Lender Approval and Recertification Division, for the
Lender’s annual audited financial and net worth and liquidity reviews.
2. Office of Asset Management and Portfolio Oversight, for the Lender’s loan portfolio and loan
performance data.
3. Office of Multifamily Production, for the Lender’s loan production data and post-closing transaction
reviews.
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Chapter 15 Oversight of MAP Program Requirements
15.3 Authority to Issue MAP Sanctions
4. Office of Risk Management, for analysis of the performance of the multifamily insured portfolio and
risk issues.
5. GNMA for reviews and analyses of MAP Lenders, which are also Issuers, and FHA multifamily Loan
Servicers.
15.2.3
Timing of MAP Lender Reviews
A. COB will conduct a full MAP Lender review and QC plan audit once every three years for all active MAP
Lenders with three or more years of MAP experience, or more frequently for any MAP Lender which COB
determines requires enhanced monitoring. Summary or limited reviews and updates may be performed
on Lenders during intervening years. For any MAP Lender with less than three years of MAP experience,
COB will conduct full Lender reviews every year, although COB will not review a new MAP Lender until
after its first Firm Commitment has been issued. Further details on the scope and content of a full or
limited Lender review will be included in the COB Handbook.
B. COB may conduct periodic on-site reviews at the Lender’s office. It may also require the Lender to
retain, at the Lender’s expense, a third-party firm to investigate and analyze any loans that have defaulted,
are seriously troubled or that raise other serious concerns. COB reserves the right to review any loan
transaction without limitation at any time, for any purpose and for any reason.
C. At the start of each Fiscal Year, COB should notify each MAP Lender that will be subject to a full or
limited review during that year. The schedule will be based on the timing for reviews described in this
section and on a determination by the Deputy Assistant Secretary (DAS) for Multifamily Housing of COB’s
priorities, staffing and capacity for that Fiscal Year.
15.3 Authority to Issue MAP Sanctions
15.3.1
General
A. At any time a Production Director, a Regional Director, the Director of OMP, the Director of COB or the
DAS for Multifamily Housing may initiate discussions with a MAP Lender, or may take certain actions as
detailed below, regarding any concerns they have with respect to any of the Lender’s actions, submissions,
personnel or changes the Lender should make in using its MAP authority.
B. HUD multifamily staff members must refer any possible instances of fraud, material misrepresentation
or other criminal violations which they may observe to COB and the Office of the Inspector General.
C. A Production Director may recommend to the Regional Director that s/he recommend to the Director
of OMP:
1. The issuance of a Letter of Caution, Warning Letter, Probation, Suspension or Termination of a MAP
Lender; or,
2. That a referral be made to the DEC for a possible suspension, debarment or an LDP of an individual or
a firm on a geographically restricted or nationwide basis, pursuant to Section 15.17.4, below.
D. A Regional Director may recommend to the Director of OMP:
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15.4 Administrative Record
1. The issuance of a Letter of Caution, Warning Letter, Probation, Suspension or Termination of a MAP
Lender; or
2. That a referral be made to the DEC for a possible suspension, debarment or an LDP of an individual or
a firm on a geographically restricted or nationwide basis, pursuant to Section 15.17.4, below.
E. Only the Director of OMP may recommend to the Director of COB or to the DAS for Multifamily Housing:
1. The issuance of a Letter of Caution, Warning Letter, Probation, Suspension or Termination of a MAP
Lender; or
2. That a referral be made to the DEC for a possible suspension, debarment or an LDP of an individual or
a firm on a geographically restricted or nationwide basis, pursuant to Section 15.17.4, below.
F. Only the Director of COB may issue a Letter of Caution or a Warning Letter. The Director of COB or the
DAS for Multifamily Housing may: 1) refer a MAP Lender to the MAP Lender Review Board for Probation,
Suspension or Termination; 2) refer a MAP Lender to the Office of Fair Housing and Equal Opportunity
(FHEO) for investigation of noncompliance with 24 CFR 200.30 regarding nondiscrimination and equal
opportunity or, 3) refer a MAP Lender to the Mortgagee Review Board or the Office of Inspector General.
Only the DAS for Multifamily Housing may refer an individual or a firm to the DEC for possible suspension,
debarment or issuance of an LDP on a geographically restricted or nationwide basis, pursuant to Section
15.17.4, below.
G. A MAP Lender may be referred to the MAP Lender Review Board or to the Mortgagee Review Board
without COB first issuing a Warning Letter. A MAP Lender may be referred to the Mortgagee Review
Board without first referring the Lender to the MAP Lender Review Board.
H. All sanction recommendations authorized in this section shall be in writing and shall state the reasons
for the recommendations and the supporting facts, together with copies of all supporting documents.
15.4 Administrative Record
A. When any enforcement action is taken with respect to a MAP Lender, an administrative record must
be prepared that includes all materials that may have influenced the decision and not merely those relied
upon in the final enforcement decision. Although not intended to be an exhaustive listing, the following
are examples of material that should be included in the administrative record:
1. Correspondence between the Lender and HUD or the Lender and any third-party contractors.
2. E-mails or facsimiles if considered or relied on in the decision-making process.
3. Application and underwriting submissions.
4. Copies of appropriate sections of notices, guides including FAQ’s posted on the MAP web site,
handbooks, regulations, and statutes.
5. Notes from meetings and telephone conversations; and
6. Work product and recommendations from HUD staff, together with copies of all supporting
documents.
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Chapter 15 Oversight of MAP Program Requirements
15.5 Settlement Agreements
B. The term “enforcement action” includes the issuance of a Letter of Caution or a Warning Letter but
does not include any referral, recommendation for action or presentation to the Directors of OMP or COB
that does not result in an enforcement action. In matters before the Directors of OMP or COB, the
administrative record ordinarily will consist of the referral and the materials accompanying the referral,
any written materials submitted by the MAP Lender and any written materials submitted by the Directors
of OMP or COB in response to those materials, the transcript of the informal meeting when that transcript
is a part of the record, and the final decision of the Director of COB.
C. Intra-agency memoranda and other such internal records should be included unless they are privileged
or would not otherwise be subject to release under a FOIA request. The administrative record in its final
form as described in this section relates to and supports HUD’s final action and is not to be released to any
person outside of HUD until it has been reviewed by the Office of General Counsel. All evidentiary material
supporting any recommendation to the MAP Lender Review Board or the Mortgagee Review Board must
be delivered to the MAP Lender as provided in Section 15.13.1.A and must be included in the
administrative record.
15.5 Settlement Agreements
A. The Director of COB may negotiate settlement agreements with MAP Lenders to resolve enforcement
actions. Settlement negotiations may occur before or after the issuance of a Warning Letter or any other
sanction. Before COB has recommended a MAP Lender to the MAP Lender Review Board for possible
probation, suspension or termination, the DAS for Multifamily Housing or his/her designee may approve
a settlement agreement. After COB has recommended a MAP Lender to the MAP Lender Review Board for
possible probation, suspension or termination, only the Review Board may approve a settlement
agreement.
B. Settlement agreements may be appropriate for the following situations:
1. Cessation of any violation.
2. Correction or mitigation of the effects of any violation.
3. Removal of Lender staff from positions involving MAP loan origination, underwriting and/or
construction loan administration.
4. Actions to collect monies wrongfully paid by the MAP Lender to a third party.
5. Implementation or revision of a Quality Control Plan or other corrective measure acceptable to COB
or the DAS for Multifamily Housing; and/or,
6. Modification of the duration or provisions of any administrative sanctions COB or the DAS for
Multifamily Housing deems appropriate.
C. A MAP Lender’s compliance with a settlement agreement will be evidenced by the Lender certifying its
compliance with the conditions of the agreement and by COB determining that the Lender is in compliance
with the conditions. A false statement that the Lender is in compliance constitutes a false certification and
may constitute a violation of 18 U.S.C. § 1001.
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Chapter 15 Oversight of MAP Program Requirements
15.6 Letters of Caution, Warning Letters or Sanctions
D. Failure by a MAP Lender to comply with a settlement agreement may result in referral to the MAP
Lender Review Board or the Mortgagee Review Board for probation, suspension or termination.
15.6 Letters of Caution, Warning Letters or Sanctions
A. A MAP Lender’s improper, inaccurate, inadequate or negligent underwriting and/or construction loan
administration may lead to the issuance of a Letter of Caution or a Warning Letter or other sanction. The
issuance of a Letter of Caution or a Warning Letter is not a prerequisite to the Probation, Suspension or
Termination of a Lender’s MAP privileges. See Appendix 15 for an explanation of the MAP Lender
Deficiency Taxonomy and a list of Lender deficiencies or noncompliance that may be the basis for the
issuance or either letter.
B. A Letter of Caution may be issued for relatively minor violations which are of low severity that do not
rise to the level of a Warning Letter and do not require the imposition of Lender sanctions or Targeted
Enforcement Measures. Violations that may result in issuance of a Letter of Caution are usually due to the
Lender’s failure to comply with its administrative or reporting obligations to HUD or with MAP loan
application processing requirements, which the letter will direct the Lender to address. Only the Director
of COB may issue a Letter of Caution but, since the letter will only address corrective actions to be taken
and since Lender sanctions will not be imposed, there is no appeal.
15.7 Warning Letters and Targeted Enforcement
Measures
A. Only the Director of COB may issue a Warning Letter to or impose targeted enforcement measures
(discussed below) on a MAP Lender. A Warning Letter issued by COB may be appealed to the DAS for
Multifamily Housing, whose determination will be final. A Warning Letter will be referred by COB, with
the concurrence of the DAS for Multifamily Housing, to the Mortgagee Review Board for issuance of a
Notice of Violation if the Lender does not respond and resolve the Warning Letter to COB’s satisfaction
within 30 calendar days of its issuance.
15.7.1
Warning letter
A. The Warning Letter:
1. Shall specify the violation(s) for which it has been issued.
2. May direct the MAP Lender to take corrective actions.
3. May impose targeted enforcement measures.
4. Must state that it is a Warning Letter issued pursuant to this Chapter and be mailed and emailed to
the MAP Lender’s contact person as listed on the MAP website and be distributed to all HUD
production offices.
5. May require a meeting in the HUD official’s office with the principal owners and/or officers of the MAP
Lender to discuss the basis for the Warning Letter and possible corrective actions.
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15.7 Warning Letters and Targeted Enforcement Measures
6. Must state that the Lender may appeal a Warning Letter to the DAS for Multifamily Housing.
B. If the Warning Letter explains or interprets a section of the MAP Guide, the text of the letter (after
deleting any information that may identify the MAP Lender concerned) shall be posted on the MAP web
site as a FAQ after the appeal time has lapsed or an appeal determination has been made.
C. A Warning Letter does not suspend a Lender’s MAP privileges but may impose a higher level of review
of the Lender’s application submissions and underwriting by the HUD production office and/or
Headquarters, or it may impose targeted enforcement measures that affect the Lender’s processing of
MAP applications.
15.7.2
Targeted Enforcement Measures
A. Along with issuance of a Warning Letter, the Director of COB may determine that the MAP Lender’s
actions, failures or omissions that were the basis for issuing the Warning Letter have or may increase the
risk to the FHA insurance fund. If that determination is made, in addition to issuing a Warning Letter, COB
may impose targeted enforcement measures until such time as it determines that the MAP Lender has
adopted corrective actions and the targeted measures are no longer required. Although the Lender may
continue to participate in all MAP programs, the targeted enforcement measures imposed will suspend or
limit certain of the flexibilities and delegated authorities that have otherwise been granted MAP Lenders
under the Guide. Many of the measures described below are the same as are imposed on new MAP Lenders
during their initial application review period, as described in MAP Guide Chapter 2. The targeted
enforcement measure(s) imposed will be in response to the specific MAP program violation that was the
basis for the Warning Letter.
B. Targeted enforcement measures that may be imposed by COB in conjunction with issuance of a
Warning Letter include the following:
1. For the MAP program in general:
Require a Concept Meeting for all new applications.
Require HUD HQ review and approval of the Lender’s loan applications before a Firm
Commitment may be issued.
Limit the Lender’s ability to process MAP loans over a certain dollar amount or for properties over
a certain number of units.
Require a post-closing review of the Lender’s most recent applications and/or Firm Commitments
before any new applications can be submitted.
Require that HUD technical staff review and approve the appraisal and any market study for all
new applications.
2. For the 223(f) and 223 (a)(7) refinancing programs:
Suspend the Lender’s authority to manage critical and non-critical repair escrow releases without
a site inspection and approval of escrow disbursements by HUD staff.
Suspend the Lender’s authority to process 223(f) loans that require greater than Level I repair.
Require that HUD staff inspect a property if a CNA is found to be deficient.
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15.8 MAP Probation
Require quarterly reporting on the Lender’s administration of a non-critical repair escrow.
3. For the 221d(4) and 220 new construction programs:
Require two-step processing and prohibit direct-to-Firm applications.
Submission of full schematics and working drawings may be required during the pre-application
process.
4. For the Low-Income Housing Tax Credit pilot:
Suspend the Lender from Fast Track processing of tax credit loan applications and require
standard application processing.
Require submission of enhanced documentation to justify the reduced MIP for affordable and
broadly affordable housing properties or for green energy improvements.
Suspend the authority to act as both equity investor/syndicator and MAP Lender on tax credit
transactions.
15.8 MAP Probation
A. Only the MAP Lender Review Board may place a Lender on probation. Probation may be imposed for
all MAP programs or only for specific programs, depending on the Lender’s offense that was the basis for
the probation sanction. Probation is intended to be remedial and not punitive, and to be in effect only
until the required corrective action(s) has been implemented by the Lender. Release from probation will
usually be conditioned on the Lender taking an action to address or remedy the problems or deficiencies
that led to the sanction or on meeting specific requirements, such as replacing a staff member or closing
a branch office, to HUD’s satisfaction and in its sole discretion.
B. During the probation period, a MAP Lender may not submit, and a HUD production office may not
accept, materials after the close of business on the date of the probation letter, for a new pre-application
or Firm Commitment application for all MAP programs or for just the programs that were the subject of
the probation action. If either a new pre-application or Firm Commitment application is received after
the date of the probation Notice of Action, it must be returned to the MAP Lender.
C. During the probation period, a Lender may continue to process any pre-application or Firm
Commitment application that was submitted to a HUD production office before the date of the probation
Notice of Action, unless one or more active applications are specifically suspended as noted in the Notice
of Action.
D. Probation continues until all corrective actions required by COB or the MAP Lender Review Board have
been taken by the MAP Lender and the Lender has notified COB of the actions’ implementation. Once COB
is satisfied that the corrective action(s) have occurred and are effective, the probation period shall end. A
false statement that corrective action has been taken constitutes a false certification and may constitute a
violation of 18 U.S.C. § 1001. A Lender’s failure to continue or maintain the corrective action(s) after
Probation has ended may be the basis for Suspension or Termination.
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15.9 MAP Suspension
E. Probation will be in effect nationwide and the Lender’s name shall be removed from the MAP-Approved
Lender list for all MAP programs or for just the programs that were the subject of the probation Notice of
Action. When probation has ended, the Lender’s name shall be re-posted to the list.
F. In accordance with the sanction and notice procedures of this chapter, the Notice of Action placing a
Lender on probation will be:
1. Sent electronically and by overnight delivery.
2. Addressed to the MAP Lender’s contact person as listed on the MAP website; and
3. Signed for by an employee of the MAP Lender upon receipt.
15.9 MAP Suspension
A. Only the MAP Lender Review Board may suspend a Lender’s MAP eligibility, which suspension will not
exceed 12 months except when special conditions are imposed. If both a time limit and special conditions
are imposed, suspension will terminate only when the later of the time limit, or the resolution of the
special conditions, has occurred. The MAP Lender must submit a certification of compliance with the
conditions to the Board and the Board must notify the Lender that it is satisfied that the corrective actions
have occurred. A MAP Lender may be suspended from all MAP programs or only from specific programs,
depending on the offense that was the basis for the suspension sanction, in HUD’s sole discretion.
B. During the suspension period, a MAP Lender may not submit, and a HUD production office may not
accept, materials after the close of business on the date of the suspension letter, for a new pre-application
or Firm Commitment application for all MAP programs or for just the programs that were the subject of
the suspension action. If either a new pre-application or Firm Commitment application is received after
the date of the suspension letter, it must be returned to the MAP Lender.
C. During the suspension period, a Lender may continue to process any pre-application or Firm
Commitment application that was submitted to a HUD production office before the date of the suspension
letter, unless one or more active applications are specifically suspended as noted in the Notice of Action.
D. Suspension will be in effect nationwide and the Lender’s name shall be removed from the MAPApproved Lender list for all MAP programs or for just the programs that were the subject of the
suspension action. When suspension has ended, the Lender’s name shall be re-posted to the list.
E. In accordance with the sanction and notice procedures of this chapter, the Notice of Action placing a
Lender on suspension will be:
1. Sent electronically and by overnight delivery.
2. Addressed to the MAP Lender’s contact person as listed on the MAP website.
3. Signed for by an employee of the MAP Lender upon receipt.
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15.10 MAP Termination
15.10 MAP Termination
A. MAP Lenders which fail to maintain a minimum level of MAP activity, defined as failing to submit either
a pre-application package or a Firm Commitment application at least once every 12 months, may be
terminated from the MAP program, in accordance with 24 CFR 200.1520(b). Otherwise, only the MAP
Lender Review Board may terminate a Lender’s eligibility for MAP. Termination applies to all MAP
programs.
B. A terminated MAP Lender may not submit, and a HUD production office may not accept, materials after
the close of business on the date of the termination letter, for a new pre-application or Firm Commitment
application.
C. A MAP pre-application or Firm Commitment application already in process may no longer be processed
by the terminated Lender. The Lender must immediately transfer the transaction to a new MAP Lender
which must completely reprocess all stages of the application. Alternatively, the terminated Lender may
cancel the application and return to the Borrower its information, application submissions and any
deposits. At no time may the new or a subsequent MAP Lender assign the pre-application, the Firm
Commitment application, the mortgage insurance commitment or the insured construction loan to the
terminated Lender.
D. HUD will endorse a MAP loan processed by a terminated Lender only if the Firm Commitment was
issued before the date of the termination letter and only if it is first transferred to a new MAP Lender. At
no time may the new or a subsequent MAP Lender assign the pre-application, the Firm Commitment
application, the mortgage insurance commitment or the insured construction loan to the terminated
Lender. For construction loans that have been initially endorsed at the date of termination, the terminated
MAP Lender may not continue to administer the construction loan and HUD will assume all construction
loan administration duties.
E. The terminated MAP Lender may not service a loan it has transferred after Final Endorsement.
F. Termination will be in effect nationwide and the Lender’s name shall be removed from the MAPApproved Lender list.
G. In accordance with the sanction and notice procedures of this chapter, the Notice of Action terminating
a Lender will be:
1. Sent electronically and by overnight delivery.
2. Addressed to the MAP Lender’s contact person as listed on the MAP website.
3. Signed for by an employee of the MAP Lender upon receipt.
H. An application for reinstatement of MAP lending authority may not be submitted to COB until 12
months after the date of termination. The requirements for reinstatement will be the same as for initial
qualification as a new MAP Lender under MAP Guide Chapter 2 and the applicant must satisfy COB that
the issues or problems that led to its termination have been resolved.
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Chapter 15 Oversight of MAP Program Requirements
15.11 MAP Lender Review Board
15.11 MAP Lender Review Board
A. The MAP Lender Review Board is appointed by the DAS for Multifamily Housing. The Board is
authorized to impose probation, suspension or termination sanctions or to take other actions in response
to any MAP Lender that violates, or is not in compliance with, the requirements of the MAP program.
B. The Review Board will consist of three Office of Multifamily Housing officials designated by the DAS
for Multifamily Housing.
1. Members of the Board:
Will be selected from among HUD production office Directors or Multifamily Housing senior staff.
May serve on a continuing basis or may be chosen for a specific review, as the DAS for Multifamily
Housing determines.
Shall have no prior business affiliation or other conflicts of interest with the Lender under review.
Shall select one of their members to act as Chairperson of the Review Board.
Must have knowledge of MAP origination, underwriting and construction loan administration
procedures.
2. The following persons are prohibited from serving on the Board:
The HUD production office Director who made the Lender sanction recommendation.
Staff from the HUD production office that is making the recommendation.
The Directors of OMP or of COB.
Staff from OMP or COB.
C. A designee from the Office of General Counsel will be a non-voting advisor to the Board.
D. The Directors of OMP or of COB, or his/her designee(s), will present cases to the Review Board.
E. Functions, Duties, and Powers of the Board will include:
1. The MAP Lender Review Board is authorized to impose appropriate sanctions on a MAP Lender after:
Conducting an impartial review of all information and documentation submitted to the Board.
Making factual determinations that there has been a violation of MAP requirements.
2. In determining what action is appropriate, the Board will consider among other factors:
The seriousness and extent of the violation(s).
Any history of prior offenses.
Deterrence of future violations.
Any inappropriate benefits received by the MAP Lender.
Potential inappropriate benefit to other persons.
Any mitigating or aggravating factors.
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15.12 MAP Lender Review Board: Staff Responsibilities
Any policy issues that may be raised for the MAP program by the Board’s decision.
3. The Board may refer:
A MAP Lender to:
1) The Mortgagee Review Board.
2) The Departmental Enforcement Center.
3) The Office of Inspector General.
An individual or firm involved in a “covered transaction,” as defined in 2 CFR 2424.220, to the DAS
for Multifamily Housing for imposition of a suspension, debarment or LDP which may be imposed
on a nationwide or on a more geographically restricted basis.
15.12 MAP Lender Review Board: Staff Responsibilities
A. The Chairperson of the MAP Lender Review Board will provide support staff who will:
1. Coordinate the Board’s activities with other HUD offices and government agencies, as appropriate.
2. Develop the agenda and identify the policy issues for Board meetings.
3. Notify a MAP Lender when the Board is to consider sanctions.
4. Notify a MAP Lender of any sanction imposed by the Board.
5. Maintain and prepare the Board’s administrative record, including the official minutes and the case
files for all Board actions.
6. Draft all notices, orders, letters and directives on behalf of the Board.
7. Perform other duties as assigned by the Chairperson or as directed by the Board.
B. The Directors of OMP or of COB, or his/her designee(s), will:
1. Present sanction cases to the Board.
2. Collect, analyze, prepare, and submit to the Board the charges and supporting documentation against
the MAP Lender, together with possible sanction options or recommendations.
C. The Departmental Enforcement Center or the Office of Inspector General will:
1. Refer MAP Lenders to the Board for consideration of sanctions as a result of its audits or
investigations.
2. Upon receiving a request from the Board, and subject to agreement, perform audits or investigations
of MAP Lenders.
D. The Office of General Counsel will:
1. Advise the Board as to the legal sufficiency of actions it proposes to take.
2. Assist the Board in the drafting of its decisions and orders.
3. Assist the Director of COB in settlement negotiations undertaken pursuant to Section 15.5, above.
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Chapter 15 Oversight of MAP Program Requirements
15.13 MAP Lender Review Board: Procedures
4. Provide other legal advice as may be requested by the Board.
15.13 MAP Lender Review Board: Procedures
A. Referral. The Director of COB or the DAS for Multifamily Housing may refer a MAP Lender to the MAP
Lender Review Board for consideration of probation, suspension or termination sanctions.
1. The referral must be in a written report that includes:
A full description of the violations and their factual basis.
Specific citations of the Department’s requirements that have been violated.
All available supporting documentation that bears upon the violations.
2. The Lender will be notified of the referral once the Review Board has been constituted by issuance of
a Notice of Violation pursuant to Section 15.14, below.
B. Board Appointment. When the Director of COB determines that he/she intends to make a referral to
the Review Board, the Director will request that the DAS for Multifamily Housing appoint a Board, in
accordance with Section 15.11, above.
C. Internal Conference. When the MAP Lender Review Board receives a referral, its members may
confer by email, conference call or in person. Confidential communications between and among Board
members at this stage are privileged from disclosure and will not be part of the administrative record.
D. Informal Conference. Before the MAP Lender Review Board begins formal proceedings on the
referral, the Lender may request an informal conference with the Board, which the Board will schedule.
1. After notifying the Lender of the referral and the proposed sanction by issuance of a Notice of
Violation, and permitting the Lender an opportunity to respond, the Board will meet informally with
the Lender or its designees and with the Director of OMP and COB to review the referral and
documentary evidence and the presentations by both sides.
2. A transcript of the informal conference will not be kept, unless the Lender elects to have a transcript
made by a certified court reporter at its own expense. If the Lender elects to have a transcript made,
it must provide 3 copies of the transcript to HUD within 5 business days of the conference. The
transcript will not become a part of the record unless it is submitted within the 5-day limit. The Board
may consider voluntary admissions by the Lender or its representatives on any element of the
violation charged. Any additional documents, evidence or written arguments which the Lender
wishes the Board to consider must be presented within 5 business days after the informal conference.
E. Action by the MAP Lender Review Board. Upon consideration of evidence submitted by the Director
of OMP, COB and the MAP Lender, the MAP Lender Review Board will formally confer and make a final
decision.
1. Any final decision by the Review Board placing a Lender on probation, suspension or terminating a
Lender shall be in writing and shall state the reasons for the decision and the facts supporting its
decision (see Notice of Action in Section 15.15, below).
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15.14 Notice of Violation
2. The Review Board is not bound by the recommendations from other HUD officials, except that the
Board may not impose any sanction or take any action against a Lender that is more severe than the
action recommended by the Director of OMP or COB. In any case where the action taken by the Board
differs from the sanction recommendation it received the difference shall be explained in writing.
F. Effective Date of Action. Unless the Review Board determines that a later date should apply, any
sanction shall become effective on the date of the Notice of Action to the Lender, issued pursuant to
Section 15.15, below.
G. Appeal. The Lender may appeal the Board’s decision and Notice of Action to the Appeal Official, as
described in Section 15.16, below.
15.14 Notice of Violation
A. Before the MAP Lender Review Board considers imposing a sanction on a MAP Lender, the Board’s
Chairperson will issue a written Notice of Violation and of the proposed sanction to the Lender’s contact
person as listed on the MAP web site. The Notice will be sent electronically and by overnight delivery and
must be signed for by an employee of the MAP Lender upon receipt. The Notice of Violation will:
1. Inform the Lender that the Board is considering a specific violation and sanction.
2. State the alleged factual violations with a citation to the Department’s requirements that have been
violated.
3. Include as attachments copies of all documents evidencing the violation that the Board will consider
in reaching a decision.
4. Provide the Lender with the opportunity, within 15 business days from the date of the issuance of the
Notice, to:
Meet informally with the Board in person or by video conference; and/or
Present written evidence and any other relevant information.
5. Offer the MAP Lender the opportunity to reply in writing to the Board within 15 business days from
the date of the issuance of the Notice. Failure to reply within the 15-business day period may result
in a determination by the Board without consideration of any comments that were submitted after
the deadline.
15.15 Notice of Action
A. The Review Board’s final decision will be communicated in a Notice of Action within 10 business days
of the receipt of the Lender’s information and/or the informal conference. The Notice of Action will be
sent electronically and by overnight delivery to the MAP Lender’s contact person as listed on the MAP web
site.
B. The Notice of Action will:
1. State the nature and duration of the sanction.
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Chapter 15 Oversight of MAP Program Requirements
15.16 Appeal Conference and Procedures
2. State the violations and any factual findings.
3. Inform the MAP Lender of its right to an appeal conference; and
4. May add to or modify the reasons for the decision that were stated in the Notice of Violation.
C. A copy of the administrative record will be sent to the Lender by overnight delivery within one business
day after the issuance of the Review Board’s Notice of Action.
D. The Review Board may issue a Notice of Action to immediately place a Lender on probation or
suspension, or to terminate a Lender, without first issuing a Notice of Violation when there is an imminent
need to protect the financial interests of HUD and the U.S. Government. No such action shall be taken
except upon the written recommendation of the Director of COB with the approval of the DAS for
Multifamily Housing, and upon a determination by the Review Board that immediate action is necessary.
In such a case, the Lender shall be promptly notified of the Board's decision and the reasons for it in
accordance with Section 15.15.A and Section 15.15.B, above, and shall have the right to submit materials
to the Board and appear before the Board to seek a prompt reconsideration of the Board's action.
15.16 Appeal Conference and Procedures
A. Whenever the MAP Lender Review Board imposes a sanction of probation, suspension or termination
against a MAP Lender, the Lender may, within 10 business days of receiving the Notice of Action, request
in writing an appeal conference before an Appeal Official designated by the Review Board. Requesting an
appeal conference does not suspend the sanctions imposed by the Notice of Action, unless the MAP Lender
Review Board has determined that a latter effective date will apply. The Appeal Official must be an
individual who has not previously been involved with the Lender’s case, proceedings or settlement
discussions. Failure of the Lender to request an appeal conference within 10 business days of receiving
the Board’s Notice of Action will be considered a waiver of their right to appeal. While the appeal
conference is pending, the Notice of Action and the Lender sanction will remain in effect.
B. The appeal conference will be held within 10 business days of the MAP Lender Review Board receiving
the MAP Lender’s appeal request, unless the Lender requests that the conference be held more than 10
but fewer than 30 business days after the date of their appeal request.
C. COB or the Director of OMP will provide the MAP Lender Review Board’s administrative record to the
Appeal Official and will describe the basis on which the Board’s decision was made. The Lender may
provide oral arguments in support of its position and on the evidence previously submitted. No new
evidence may be submitted to the Appeal Official that was not included in the Review Board’s
administrative record.
D. An appeal conference is an informal meeting and a transcript will not be kept, unless the Lender elects
to have a transcript made by a certified court reporter at its own expense. If the Lender elects to have a
transcript made, it must provide 3 copies of the transcript to HUD within 5 business days of the appeal
conference. The transcript will not become a part of the record if it is not received within the 5-business
day limit.
E. Oral statements made by any participant at the appeal conference will not be considered as evidence
on any matter under consideration, except that the Appeal Official may consider voluntary admissions by
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15.17 Suspension, Debarment or LDP
the Lender on any element of the violation charged. Any additional written arguments that the Lender
wishes to present to the Appeal Official must be presented within 5 business days after the date of the
appeal conference.
F. Within 10 business days after the date of the appeal conference, or the expiration of the period allowed
for the submission of written arguments, whichever is later, the Appeal Official will make a written
determination and may confirm, modify or overturn the Review Board’s decision, and will state the
reasons for its determination.
G. If the Appeal Official overturns the MAP Lender Review Board’s decision, the Lender shall immediately
return to active status as a MAP Lender, which will be posted on the MAP website.
15.17 Suspension, Debarment or LDP
A. The standards and procedures that apply to suspensions, debarments, and Limited Denial of
Participation (LDP) can be found in 2 CFR Part 180, 2 CFR Part 2424 and 24 CFR Part 24. The regulatory
authority for imposing exclusionary sanctions are described in 2 CFR 180.700 for suspensions, 2 CFR
180.800 for debarments, and 2 CRF Part 2424, Subpart J for LDPs. When conflicts exist between this
section and the foregoing authorities, those authorities control. The procedures described in this section
for issuance of LDPs may change as a result of updated delegations of authority by the Secretary of HUD.
15.17.1
Parties subject to a suspension, debarment or LDP
A. A suspension, debarment or LDP may be imposed on any participant or contractor and their affiliates
in a MAP transaction, except that HUD-FHA-approved mortgagees are not subject to LDPs. 2 CFR 180.630
and 2 CFR 2424.1145 authorize HUD to impute conduct of one person to another individual or
organization, or from one organization to another, in a suspension, debarment or LDP proceeding.
B. Examples of participants who may be sanctioned include (but are not limited to):
1. MAP Lenders (for suspension or debarment only).
2. MAP Underwriters, Chief Underwriters or loan analysts.
3. Borrowers and Sponsors.
4. Independent fee appraisers.
5. Third party cost analysts.
6. Physical needs assessors.
7. Environmental analysts and engineers.
8. General Contractors.
9. Architects.
C. Once issued, a suspension, debarment or LDP may extend from an individual to an organization or to
the individual’s or organization’s affiliates. For example, a specific appraiser or an entire appraisal firm
may be issued a suspension, debarment or LDP, which may also apply to all its affiliates.
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Chapter 15 Oversight of MAP Program Requirements
15.17 Suspension, Debarment or LDP
Limited Denial of Participation
A. Only the Departmental Enforcement Center (DEC) may issue an LDP. An LDP may be issued for reasons
that include (but are not limited to):
1. Causing unacceptable risk to HUD.
2. Irregularities in the performance of professional duties.
3. Material failure to maintain prerequisites, such as required licenses and professional certifications.
4. Material failure to honor contracts or contract violations.
5. False certifications or false statements made to HUD.
6. Construction, or construction administration and oversight, deficiencies.
7. Unlawful activities, pending criminal charges or indictment.
B. The specific bases for which an LDP may be issued can be found at 2 CFR 2424.1110. An LDP will be
effective on a geographically restricted or a nationwide basis and will remain in effect for a period of up
to 12 months. The scope and duration of an LDP are described at 2 CFR 2424.1140. An LDP may be
appealed within 30 days of receiving notice of its issuance under the procedures in 2 CFR 2424.1130.
15.17.3
Suspension and debarment
A. The Director of the DEC is HUD’s Debarring/Suspending official and its Compliance Division processes
referrals of suspensions and debarments from the DAS for Multifamily Housing. The standards for issuing
a suspension or debarment can be found in the above-cited regulations, along with the procedures for due
process appeals and reviews of suspension or debarment actions.
B. Suspensions will remain in effect for periods described in 2 CFR 180.760, but usually will not exceed
12 months or until the conclusion of a legal or debarment proceeding that triggered the suspension, but
no longer than 18 months without initiating such proceedings. Debarments will be imposed for periods
described in 2 CFR 180.865, depending on the seriousness of the underlying cause for debarment, and
generally will not exceed three years but may be longer if circumstances warrant it.
15.17.4
Procedures to refer a suspension, debarment or LDP
A. A Production Director, a Regional Director or the Director of OMP may recommend a suspension,
debarment or a geographically restricted or nationwide LDP, in accordance with the procedures in Section
15.3, above, and must forward all pertinent information, along with the formal recommendation, to COB
for review on behalf of the DAS for Multifamily Housing.
B. The recommendation to COB must include:
1. All related application processing documentation that is the basis for the recommended action.
2. A narrative summary detailing the description and nature of the alleged offense(s) committed.
3. A summary of the participant’s history and performance in dealings with the Department.
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15.18 Referral to Mortgagee Review Board or OIG
4. A recommended course of action including why the sanction should be applied on a geographically
restricted or nationwide basis.
C. After COB’s review and recommendation, the DAS for Multifamily Housing will determine whether to
make a referral to the Director of the DEC for issuance of a suspension, debarment or a geographically
restricted or nationwide LDP.
15.18 Referral to Mortgagee Review Board or OIG
A. If the Director of COB or the DAS for Multifamily Housing determines there is adequate evidence of
serious violations of HUD requirements by a MAP Lender, then the Director of COB or the DAS for
Multifamily Housing may refer the Lender to the Mortgagee Review Board for possible sanctions,
including possible termination of the Lender’s authority as an FHA-approved mortgagee, without first
issuing a Warning Letter or other sanction, or first referring the MAP Lender to the MAP Lender Review
Board. If a HUD production Director determines there is adequate evidence of serious violations of HUD
requirements by a MAP Lender, the Director may refer the Lender to COB or to the DAS for Multifamily
Housing, who will determine if the matter should be referred to the Mortgagee Review Board. See Section
2-4, Requests for Mortgagee Review Board Action, HUD Handbook 4060.2 REV 2, Mortgagee Review
Board, and HUD Regulations at 24 CFR 25.
B. If the Lender issue involves possible fraud, material misrepresentation or other criminal violations,
then the matter should be referred to the Office of Inspector General (OIG). See Section 3-1,
Responsibilities of Departmental Management and Employees, OIG Handbook 2000.3 REV-4, Office of
Inspector General Activities.
15.19 Other Enforcement Actions
A. Notwithstanding any provisions contained in this Chapter or elsewhere in the MAP Guide, HUD
reserves the right to pursue remedies for any false claims or false statements, as authorized by the False
Claims Act, 31 U.S.C. §§ 3729-3731, the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812, and/or
Civil Money Penalties under 12 U.S.C. § 1735f-14.
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Chapter 16 Master Leases with Market Tax Credits
16.1 Introduction
Chapter 16 Master Leases with Market Tax Credits
16.1 Introduction
A. This chapter addresses the use of Master Leases when Historic and/or New Markets Tax Credits are
used in conjunction with an FHA-insured loan. These transactions may or may not have Low Income
Housing Tax Credits (LIHTCs) as well. HUD’s goal is to accommodate this type of structuring without
compromising appropriate regulatory oversight and controls.
B. This chapter does not address ground leases or leasehold interests in an entire project for purposes
other than Historic or New Market Tax Credits, commercial leases or sublease agreements (of either
commercial space or residential units).
16.2 Background
A. Master Leases maximize the benefits of combining Federal or State Historic Tax Credits and New
Markets Tax Credits. The projects may or may not use Low Income Housing Tax Credits as well. Investors
and Developers participating in these programs benefit from increased leverage for project financing and
premium pricing for equity while reducing the need for additional debt.
B. Typically, these leases are structured to permit a combination of investments by one or more investors
under one or more tax credit programs in a single development project. A sample organization chart for
a master lease ownership structure is included in Appendix 16. Generally, the Master Lease structure
involves the following parties, which often have total or partial identities of interest and common
ownership:
1. FHA Borrower – the Single Asset Entity (the Lessor for the Master Lease);
2. Master Tenant – the lessee; and
3. Master Lease Sub-lessees for Residential units, and for Commercial space.
C. The Master Tenant must pay the Borrower/Lessor rent that equals or exceeds the amount necessary
to satisfy all financial obligations required under the insured mortgage and to operate the property in
accordance with all HUD directives, regulations and contracts. The Master Tenant and all Master Sublessees (but not the individual residential and commercial tenants) will execute HUD Regulatory
Agreements and submit financial reports to HUD.
D. The HUD Multifamily Regional Center or Satellite Office will be responsible for approving Master Lease
ownership structures in accordance with this chapter’s requirements. The Regional Center Director
retains waiver authority, but waivers of any provisions of this chapter should be discussed with and
reviewed by Headquarters (HQ) Office of Multifamily Production prior to approval.
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Chapter 16 Master Leases with Market Tax Credits
16.3 General Programmatic Requirements
16.3 General Programmatic Requirements
A. In addition to other program requirements, the following are conditions for projects that use a Master
Lease structure:
1. The insured mortgage must be in first lien position with respect to all project collateral. The fee simple
ownership in the land and improvements provides the security for the mortgage.
2. All documents should include conflict language giving the HUD documents supremacy over other
documents, except as otherwise permitted by HUD, and may not include indemnification provisions.
In some cases, HUD may allow non-monetary matters such as affordability use restrictions to be
recorded ahead of HUD’s mortgage, but such variances are allowed only on a case by case basis.
3. The Master Tenant and Master Sub-lessees must be single asset entities. Tenant-in-Common
structures, Delaware Statutory Trusts, Maryland Business Trusts, Natural Persons, foreign entities are
not eligible, though such entities may hold an “upper tier” interest in the single asset entities. The
Master Tenant and Master Sub-lessees may not engage in any other businesses or activity, including
the operation of any other rental project, or incur any liability or obligation except as permitted by
HUD in connection with the project.
4. The Master Tenant and Master Sub-lessees must execute the standard HUD Regulatory Agreement
and Rider, to address various ownership and operational responsibilities with respect to the
mortgaged property.
5. The Master Tenant and Master Sub-lessees (as well as the Management Agent) must file management
certifications and management entity profiles (forms HUD-9839-A, HUD-9839-B, and HUD-9832).
HUD may require a management agreement to be terminated, in accordance with the terms and
conditions contained in the management certification.
6. Net rentable commercial area as a percentage of gross floor area and income will be determined in
accordance with the applicable FHA program limitations.
7. The Master Lease and all Sub-leases (sometimes collectively referred to as “Leases”) shall be
subordinate to the insured mortgage and subject to approval by HUD prior to execution. The Leases
may not be modified or amended thereafter without the prior written consent of HUD and may be
terminated by HUD in the event that the insured mortgage is assigned. Any proposed modifications
or amendments to the Leases must be approved by HUD’s Regional Counsel. The Leases must
incorporate by reference the Regulatory Agreement, HUD rules, regulations and directives, and
contain an agreement to comply with their requirements. The Leases must include an obligation to
pay all rent due to the Lender, in the event of a default under the loan documents. The loan documents
may be amended to provide notice of default to the Master Tenant contemporaneously with the giving
of notice to the Borrower/Lessor, and the acceptance of a cure of such default, during such notice
period, from the Master Tenant on behalf of the Borrower/Lessor. Any such cure must occur prior to
the assignment to HUD and will be limited to one opportunity to cure during each 12-month time
period.
8. Surplus cash determinations will be made in accordance with the Regulatory Agreements and will be
made as if the entire project is owned and operated by one single purpose entity.
9. All financial operations and reporting are governed by 24 CFR, Part 5, Subpart H.
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Chapter 16 Master Leases with Market Tax Credits
16.4 Processing Requirements
10. The rent paid by the Master Tenant must equal or exceed the monthly principal and interest payments
due on the insured mortgage and all required escrows and reserves.
11. All business agreements must be disclosed and are subject to HUD approval during loan underwriting
(including, for example, inter- or intra-company loans, investor or outsider loans other than the
insured mortgage, investor controls over operations, actions and deliverables that affect regulatory
or contractual compliance or performance, etc.). The Firm Commitment will incorporate any
conditions imposed by HUD with respect to such agreements.
12. Any proposed payments (equity contributions, fees, income, etc.) to the Borrower, Master Tenant,
Master Sub-lessees by a syndicator or investor must be disclosed to HUD and approved during loan
underwriting, and thereafter be reflected on the annual financial statement filings and on any
required monthly reporting. If such payments are made while any party is in non-compliance with
the Regulatory Agreement, enforcement action will be taken against all principals in the organization,
subject to the notice and cure provisions in above number 5.
13. Master Leases and Sub-leases must prohibit assignments or subleases (except to the end-users of the
commercial spaces and apartment residents), unless previously approved by HUD in writing.
16.4 Processing Requirements
A. Firm Commitment Special Conditions:
1. The policies and procedures involving master lease structuring to facilitate the use of tax credits are
incorporated herein and made a part of this Commitment for insurance of advances, specifically
including, without limitation, the terms and conditions contained in Chapter 16 of the MAP Guide. All
information submitted to HUD with the Application for Multifamily Housing Project, form HUD92013, to evidence the satisfaction of such terms and conditions shall be true and correct as of the
date submitted and must continue to be true and correct at the time of Initial Endorsement.
2. This commitment is subject to, and has been issued upon the reliance of, the successful (a) allocation
to the project of LIHTC, Historic Tax Credits or New Markets Tax Credits and (b) syndication of such
credits, with an appropriate agreement for the timely investment of equity, as shown on forms HUD2880 and HUD-92013, to assure completion of the project and pay other associated and incidental
costs. In addition to the standard provisions that must be included in the organizational documents
for the Borrower entity, a provision must be added that prohibits any changes to the organizational
documents that affect the obligations of the tax credit investor without the written consent of the
Lender and HUD.
3. Notwithstanding the issuance of this commitment, this commitment remains subject to, and HUD’s
obligations hereunder are conditioned upon the satisfactory resolution, as determined by HUD, of the
adverse items determined by HUD during the Previous Participation Review process.
4. As an accommodation, this commitment has been issued and based upon schematic drawings, instead
of the final Drawings and Specifications, if allowed by the State Historic Preservation Office (SHPO)
and/or Memorandum of Understanding (MOU) for historic tax credits. At least 30 days prior to the
scheduled date for initial endorsement, HUD must receive the final Drawings and Specifications for
review and approval to ensure consistency of design and cost. In the event that there is a net
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Chapter 16 Master Leases with Market Tax Credits
16.5 Cost Certification and Final Endorsement
cumulative construction cost increase or change in the design concept, if allowed by the State Historic
Preservation Office (SHPO) and/or MOU for historic tax credits, or a net cumulative construction cost
decrease in the amount of more than 5%, this commitment shall be subject to and conditioned upon
the further approval of HUD, to be evidenced in writing, and may be terminated and voided by HUD,
or additional conditions may be imposed, at HUD’s option.
5. (See Chapter 5, Section 5.6, Streamlined Processing, for further policy guidance on the deferral of final
plans and specifications at Firm Commitment when tax credits are involved.)
B. The following forms should be revised to reflect the lease structure and HUD requirements:
1. Form HUD-92434M, Lender’s Certificate - To include language that clearly states that the Master
Tenant and Sub-lessees must report lease payments during the construction period as rental income.
2. Form HUD-93305M, Agreement and Certification - To include language that clarifies that the
Borrower must report all receipts and disbursements from the date of first occupancy and during the
rehabilitation period for substantial rehabilitation cases.
C. Each Master Lease or Master Sub-Lease must be recorded in the appropriate real estate records, along
with the Regulatory Agreement executed by each Master Tenant or Master Sub-Lessee. These documents
must also be included in Schedule B, Part II of the title insurance policy. In jurisdictions where recording
these leases would result in a substantial tax, a Memorandum of Lease may be used. In lieu of recording
the lease(s), a lease memorandum approved by the HUD Multifamily Regional Center Director, after
consultation with field counsel, may be filed.
16.5 Cost Certification and Final Endorsement
A. The Borrower/Lessor, the Master Tenant and all Master Sub-lessees will be required to cost certify the
actual costs of the project unless the property contains Low Income Housing Tax Credits and HUD
determines at the time of Firm Commitment issuance that it has a loan to cost ratio of less than 80 percent.
The cost certification must contain a certification signed by an authorized agent of each entity, audited by
a CPA or IPA, and contain a Schedule of Tax Credit/Syndication Proceeds that includes the following:
1. The amount of syndication proceeds received from the investing partner to date;
2. The purposes for which syndication proceeds received as of the cut-off date were used; and,
3. The dates, terms, and conditions under which future investor contributions are to be made.
B. Total income of the Borrower/Lessor, including lease payments, is recognized during the
construction/rehabilitation period.
1. If the replacement cost mortgage (Criterion 3) is not the controlling mortgage and there is excess NOI
(net operating income) generated during construction, it may be applied to cover shortfalls in
mortgageable soft costs, change orders, initial operating deficit and escrows. At Final Endorsement,
funds not needed to cover shortfalls in costs or operating deficits may be distributed to the borrower
or deposited into the project’s Reserve for Replacement account or applied toward the amortization
of the mortgage principal.
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16.5 Cost Certification and Final Endorsement
2. If Criterion 3 is the controlling mortgage amount, HUD will determine if the balance of the NOI is equal
to or greater than 1% of the original mortgage amount and, if it is, will deduct this amount from the
certified replacement cost. When the NOI does not meet this 1% threshold, it can be used toward
shortfalls as noted above. Any remaining balance must be deposited into the project’s Reserve for
Replacement account at Final Endorsement and there is no distribution to the borrower. The
Borrower/Lessor, Master Tenant and Master Sub-lessees are required to submit a certified operating
statement which reflects the income collected and expenses incurred in accordance with the lease
agreements and all documents required by HUD. Refer to Chapter 13 of the MAP Guide for further
details on cost certification and the exemption from cost certification for LIHTC applications.
C. A final Sources and Uses Statement must be included in the cost certification report as supplemental
information and will be reviewed to determine actual sources and uses.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.1 Introduction and Background
Chapter 17 Section 207: Refinancing Cooperative
Housing Projects
17.1 Introduction and Background
A. The following provides processing instructions for refinancing Cooperative Housing Projects under
Section 207 pursuant to Section 223(f). This applies solely to refinancing a project and does not apply to
projects that include an acquisition. Please note that proposed conversions or projects undergoing
conversion to Cooperatives are not eligible for refinancing under this chapter. Projects that were
organized as a Cooperative must use the guidance in this chapter in order to refinance. If a project is to
be refinanced pursuant to Chapter 3, Section 3.7, Section 207/223(f) Refinance or Acquisition, then the
Cooperative must first be dissolved.
B. Cooperative ownership is popular in certain parts of the country, especially for low-to-moderateincome occupants. HUD already insures traditionally processed mortgage loans to facilitate the
construction and substantial rehabilitation of Cooperative Housing projects under Section 213.
Facilitating the refinancing of a Cooperative under Section 223(f) will further the Department’s mission
by assisting eligible Cooperative projects to obtain refinancing to make necessary repairs and/or
consolidate more expensive outstanding debt, thereby serving to preserve the affordable housing stock.
Refinancing the existing underlying mortgage is considered to be a better alternative than expending a
Cooperative’s reserve fund, which would have a negative impact on its financial stability and would help
to avoid the need for a special assessment, which could harm low-to-moderate income occupants,
especially those on a fixed income.
17.2 Program Eligibility
A. Eligible Borrowers. Eligible borrowers include non-profit Cooperative Ownership Housing
corporations or non-profit Cooperative Ownership Housing trusts regulated under state law and
regulatory agreements that require membership eligibility and transfer of membership in a manner
approved by HUD. Limited profit ownership entities such as those established under the Mitchell-Lama
program in New York City may be acceptable pending review by local HUD Counsel.
B. Eligible Projects. The property must contain at least 5 residential units with complete kitchens and
baths. Proposed conversions or projects undergoing conversions are not eligible. Projects with a recent
or unresolved vacancy history, or a history of shareholders not paying dues, carrying charges and other
co-op obligations, will not be considered for mortgage insurance. The project must be fully subscribed
prior to endorsement with no units owned by the original developer, and must meet these additional
criteria:
1. Project Design. The project must be designed for primary residence only. Guest suites are permitted
as an amenity to the extent their use is consistent with the National Housing Act’s prohibition against
use of FHA-insured multifamily projects for transient or hotel purposes. However, timeshares,
resorts, Cooperative hotels or rental pools are not permitted. Section 513 of the National Housing Act
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.2 Program Eligibility
prohibits the use of the insurance programs for transient or hotel purposes. The borrower and
individual shareholders cannot execute Occupancy Agreements for less than 30 days nor provide
occupants with hotel services such as maid service, furnishing and laundering of linens, room service
and bellboys. Units may not be sub-leased without the consent of the Cooperative Corporation. See
Chapter 3, Section 3.1.15 and Housing Notice 2018-10 Guest Suites in Multifamily Housing under the
National Housing Act for the detailed requirements.
2. General Market Conditions. The Property must be located in an area evidencing strong market
understanding and acceptance of Cooperative housing. Financing for the purchase of individual
shares must be readily available from mortgage bankers/brokers, banks or saving and loan
institutions. The Underwriting Summary must cite recent sales within the building and indicate the
type of financing utilized.
3. Repair Threshold. A project cannot be processed under Section 223(f) if it meets the current
requirements for substantial rehabilitation in Chapter 5, Section 5.10. Projects that are not eligible
for mortgage insurance under Section 207 pursuant to Section 223(f) should consider the Section
213(i) program.
4. Fair Housing Act / Equal Opportunity Requirements. All other applicable program requirements
for the Section 207 pursuant to Section 223(f) program must be met, including compliance with
applicable Civil Rights Laws, including the nondiscrimination and affirmatively furthering fair
housing provisions of the Fair Housing Act, and applicable accessibility requirements for persons with
disabilities.
Affirmative Fair Housing Marketing. The Affirmative Fair Housing Marketing Requirements
(24 CFR Part 200, Subpart M) apply to all insured projects of five or more units but projects
insured under Section 207 pursuant to Section 223(f) are exempt from the submission of a written
plan. However, a Section 223(f) applicant is required to maintain records of its affirmative
marketing efforts. The borrower must certify that it will not discriminate against any protected
class, which includes race, color, national origin, religion, sex, familial status, or disability.
Accessibility for Persons with Disabilities. This is required for properties built after March 13,
1991, containing Fair Housing Act noncompliance. If a project built after March 13, 1991, is
submitted for Section 223(f) refinancing and the Capital Needs Assessment (CNA) inspection
reveals that it contains noncompliance with the Fair Housing Act design and construction
requirements, the Department must require that the owner correct the noncompliance as a
condition of insurance. The extent of the noncompliance and the cost of correction will determine
whether the project is feasible as a Section 223(f) or whether to resubmit it as a substantial
rehabilitation. In no case may the Department insure projects with outstanding Fair Housing Act
noncompliance.
5. Elderly Developments. In refinancing of the underlying mortgage for an existing Cooperative project
designed for the elderly, the Department defines the term “elderly family ” in the National Housing
Act (NHA) as a household composed of one or more persons with the Head of Household (HOH) who
is 62 years of age or more at the time of initial occupancy. Waiver of this definition is not permitted
under any circumstances.
The Cooperative shall not provide mandatory meals and services such as those associated with
retirement service centers. No non-shelter services can be a mandatory condition of occupancy and
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.2 Program Eligibility
must be reviewed by the lender and approved by the Regional Center or Satellite Office for
reasonableness. Non-shelter spaces already constructed for projects with current HUD-insured
mortgages may include formal dining areas with meal services to be provided on an optional basis.
All Cooperatives may provide modest kitchen equipment in a non-shelter space for the use of
occupants or for catering services. The kitchen should be sufficient in size to comply with sanitary
requirements. Additional requirements related to the provision of meals are as follows:
Any meal service must be provided on an optional basis.
The cost of meals may not be included in the residents' maintenance charges.
The costs associated with the operation of the meals service are the responsibility of the entity
that operates the optional meal service.
The borrower may receive payment from the operator of the meals service. In such cases, this
revenue may not be included in the underwriting of the project, as this service is optional for each
resident, thereby potentially producing a revenue stream that is both unpredictable and
unreliable.
A determination should be made by the lender that the contract or agreement entered into with
a third-party meal provider will not increase the project risk.
Any meal service must be operated by a meal provider licensed under State or local law and in
compliance with current health and safety requirements for food service providers.
Local HUD Counsel must determine that the granting or revocation of any licensing required to
operate a proposed meal service will not jeopardize the ability of the project to operate as
Cooperative Housing in accordance with the requirements of the Regulatory Agreement.
Costs associated with the construction of an ancillary building to include meal services may be
considered in a mortgage proposed to be insured under Section 223(f) subject to outstanding
requirements limiting non-shelter space and commercial areas set forth in Chapter 5 of the MAP
guide.
6. Owner Occupancy. At least 75% of the total number of residential units must be owned and occupied
by Cooperative members at the time of endorsement, and no more than 25% of the units may be
owned by investors.
7. Vacancy Rate. The project should not have a vacancy rate greater than 5% since a higher vacancy
rate may indicate a weak or problematic project or market. If an application is presented with a higher
vacancy rate, the underwriter must provide convincing market evidence to support the transaction in
the Underwriting Summary. The vacancy/occupancy rate used in underwriting the loan should be
based on the actual historic performance of the project, which can be 100%. This applies only to
Criterion 5 based on actual operation as a Cooperative project.
8. Turnover Rate. The sales history of the complex should display a healthy turnover rate to
demonstrate that the project is viable and that there is demand for the units. If the turnover rate is
less than 5% of the total number of owner-occupied units per year, the underwriter must determine
the reasons for the low turnover rate and why it does not pose an unacceptable risk, which must be
documented in the Underwriting Summary. However, it should be noted that a project and/or market
area may have a historically low turnover rate due to its popularity as a source of affordable housing.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.3 Program Requirements
9. Adequacy of the Proposed Carrying Charges. The carrying charge must be sufficient to adequately
maintain the project at a level that would make it suitable as security for a long-term mortgage. The
Underwriting Summary must contain an analysis of the Appraiser’s findings regarding the adequacy
of the proposed carrying charge that will be in place after refinancing has occurred and a discussion
of the Cooperative project’s policy and history regarding increasing the carrying charge. The
Cooperative’s Bylaws or other appropriate organizational documents must contain a provision that
requires an assessment and increase of carrying charges annually as may be required based upon
operating history or at the direction of HUD, in order to address increases in operating expenses.
10. Carrying Charge Increase. In general, the debt service resulting from the proposed mortgage should
not require a carrying charge increase of more than 5%, which may be exceeded, so long as all of the
following requirements are met:
The carrying charge is below market for properly maintained similar projects and is not sufficient
to adequately maintain the project.
The Board of Directors must approve the carrying charge increase in accordance with its By-laws
the FHA Model Form of By-laws, FHA Form No. 3245.
An analysis of the demographic data in the appraisal report must indicate that the new carrying
charge would be affordable for the typical resident.
Market analysis of the proposed maintenance carrying charge indicates that it is within market
limits for similar projects in the subject’s market area.
11. Commercial Space Limitations. The current Section 223(f) parameters must be followed.
12. Ownership of Commercial Space/Parking. Commercial and parking space at a Cooperative
Housing project may or may not be owned by the Cooperative. Only those spaces that are owned by
the Cooperative may be included as part of the collateral.
13. Ground Leases. Ground Leases must conform to the FHA Lease Addendum Form HUD-92070M. The
term of the lease addendum may be varied to conform with applicable State and local law, except that
the local HUD Closing Attorney must approve:
The legal need for any proposed lease term changes, and
That any term changes are consistent with the following requirements:
1) Term is 99 years and is renewable, or
2) Term is at least 50 years from the date the mortgage is executed (where a lease is on
trust/other land on a reservation the HUD Closing Attorney must ensure that the lease
provisions are coordinated with Bureau of Indian Affairs’ requirements).
17.3 Program Requirements
A. The Underwriting Summary must demonstrate compliance with all program requirements.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.3 Program Requirements
Loan Parameters
A. An equity take out from a refinancing loan is not permitted for Cooperative housing projects.
B. In accordance with Chapter 3, Section 3.7.18, HUD will insure a mortgage for a maximum term of 35
years or 75% of the remaining economic life of the property, whichever is less. The maximum insurable
mortgage amount shall be the lesser of the following parameters as they relate to the criteria in Form
HUD-92264-A, “Supplement to Project Analysis”:
1. Criterion 1: Mortgage or Loan Amount Requested in Application.
2. Criterion 3: Amount Based on Value or Replacement Cost. The market value of the cooperative
valued as a market rate rental project multiplied by a loan ratio of 65%.
3. Criterion 4: Amount Based on Limitations per Family Unit. Use Section 207 statutory per unit
limits, adjusted by the local PC High Cost Percentage for the locality. Follow the outstanding
instructions for Criterion 4.
4. Criterion 5: Amount Based on Debt Service Ratio. A mortgage amount supported by 1.0 debt
coverage based on the projected net operating income (NOI) as an existing Cooperative project based
on its historic occupancy rate (up to 100%), which is NOI noted on line “5.e”.
5. Criterion 7. Criterion 7 is not to be completed since acquisitions are ineligible.
6. Criterion 10: Amount Based on Existing Indebtedness, Repairs and Loan Closing Charges.
Follow outstanding instructions. The cost to refinance includes funding, if applicable, the Initial
Funding of the Replacement Reserve and the Initial Deposit to the General Operating Reserve (see
Section 17.3.3 below). Equity out is not permitted under Section 223(f) when refinancing
Cooperatives, accordingly, the calculation for this criterion stops at line 10.g.
7. Criterion 11: Amount Based on Deduction of Grants and Gifts and Loans. Line 11.a shall be the
cost to refinance plus FHA Mortgageable items taken from Line 10.g. Line 11.b shall be total of grants,
gifts and loan intended to offset the cost of mortgageable items. Line 11.c shall be Line 11.a minus
Line 11.b.
17.3.2
General Operating Reserve (GOR)
A. Cooperatives are required by the Regulatory Agreement, HUD-92466M with Rider incorporating
cooperative requirements, to establish and maintain a GOR which is a percentage of the monthly carrying
charges. The carrying charge is the sum of all project expenses, replacement reserve, taxes and debt
service.
1. Requirements for the GOR are as follows:
The GOR is maintained by a monthly payment of 3% of the monthly carrying charges.
When the GOR account reaches 15% of the annual carrying charges, the monthly rate may be
reduced to 2%.
When the GOR account reaches 25% of annual carrying charges, monthly accruals may be
discontinued until the account is reduced below 25%.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.4 Application Processing
Anytime the GOR falls below the 25% level, monthly payments to the account shall be resumed at
a 2% to 3% rate, as noted above, until the 25% level is restored.
2. In addition to any Initial Deposit to replacement reserve, the Cooperative borrower may be required
to make an Initial Deposit to the GOR in an amount equal to 15% but not to exceed 25% of the annual
carrying fee. The Initial Funding of the GOR using this provision may be included in the cost of
refinancing in an amount not to exceed the percentage amount of the annual carrying fee as
determined by the Cooperative borrower and included in the project underwriting.
17.3.3
Model Forms and Closing Documents
A. Refer to Handbook 4550.3, Existing Construction – Cooperative Housing, Appendix III (modified for
Section 223(f)).
B. Cooperative Organizational forms and documents must be reviewed and approved for legal and
programmatic compliance before the issuance of a Firm Commitment.
C. Use FHA Required Closing Instruments, FHA Form No. 3257-B, also set forth in Handbook 4550.3,
Appendix 3-10. The Regional Center or Satellite Office will provide the documents set forth in Handbook
4550.3.
17.4 Application Processing
A. Applications. Applications for Cooperatives are processed in accordance with the current Section
223(f) instructions except as modified here.
B. Exhibits. All exhibits normally required for a Section 223(f) application must be submitted with the
following modifications and additions.
1. Rent Roll. The Rent Roll should be modified to indicate each shareholder’s name, unit location,
mailing address, whether or not the unit is owner occupied, whether or not the unit is subsidized, date
of occupancy, ownership percentage, amount of monthly maintenance charge, any special
assessments and past due balances of 30 days or more. For any units subject to local rent control, the
actual rent must be substituted for the carrying charge amount. The Rent Roll should be submitted
as an Excel spreadsheet.
2. Cooperative Membership Exhibit. Subsequent to issuance of the commitment and prior to closing,
the lender must submit a statement of the cost to the borrower and the Cooperative Membership
Exhibit, Form HUD-93203. The number of members must equal the percentage (or number) of the
total number of units as specified in the commitment.
3. Original Project Prospectus (if available). The prospectus is prepared at the time of the original
public filing and contains a great deal of useful information for technical discipline processing by HUD
as well as the underwriter and preparers of third-party reports.
4. Financial Statements for the Past Three Years. Follow the current instructions contained in
Chapter 7, Section 7.8.2 and Chapter 8, Section 8.4. The lender should review and evaluate any
qualifications contained in the reviews to ensure the financial statements reliably represent the
property’s operating history and the assumptions relied on in the underwriting and should pay
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.5 Technical Processing
particular attention to the history of total past due balances of carrying charges and special
assessments. The total amount of the unpaid balance (30 days or more) for maintenance charges and
special assessments as shown in the rent roll must not exceed 5% of the gross annual income.
5. Environmental Exhibits.
Environmental Report. Lenders must submit an environmental report to HUD using the HUD
Environmental Review Online System (HEROS), as described in Chapter 9. The environmental
report must include and appropriately cite supporting documentation.
Contamination Analyses. The environmental report must include a Phase I Environmental Site
Assessment (ESA), if necessary a Phase II ESA, and, if further necessary, a remediation plan with
approval by the appropriate regulatory authority. See Chapter 9.
6. Additional Third-Party Reports. HUD may require additional specialized reports to ascertain the
safety and soundness of the property and its amenities as to their suitability as collateral for longterm financing.
7. Organizational Documents and Minutes. The Regional/Satellite office will identify the required
documents set forth in Handbook 4550.3. The following additional exhibits are required:
Certificate of Incorporation FHA Form No. 3234-B.
Resolution of Board of Directors to Mortgage Cooperative.
Shareholders authorization to Mortgage Cooperative.
Resolution of Board of Directors adopting FHA Form No. 3245, "Model Form of By-laws."
Shareholders authorizing adoption of FHA Form No. 3245, "Model Form of By-laws."
Minutes of the last six Board of Directors meetings.
Resolution of Board of Directors adopting FHA Form No. 3237, "Model Form of Occupancy
Agreement."
Resolution of Board of Directors adopting FHA Form No. 3237-A, "Model Form of Sublease." The
Member cannot assign the Occupancy Agreement nor sublet the Dwelling Unit to any person
without the prior written consent of the Cooperative on a form approved by HUD. Organizational
documents must conform to HUD as well as any State or local required provisions.
17.5 Technical Processing
17.5.1
Architectural and Cost Processing
A. Follow the current instructions for Section 223(f).
B. A summary of these procedures is outlined below.
1. Architectural Analysis. Lenders will submit and HUD will review deliverables as specified under the
present guidance for Section 223(f) to the Regional Center or Satellite Office.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.5 Technical Processing
2. Cost Processing. The HUD Cost Analyst will review lender exhibits as required in Chapter 5 and will
recommend either acceptance or rejection of the Cost portion of the Firm submission.
3. CNA. The CNA E-Tool is required to be completed for all cooperatives insured under Section 223(f).
The primary purpose of the CNA for a Cooperative project is to assess the Capital Needs of the project
with the exception of any elements owned by the individual shareholders. So, it is very important to
ascertain exactly what items are the sole responsibilities of the Cooperative. In some cases,
appliances, kitchen cabinets, etc. may be owned by the Cooperative. The interior of individual units
is still inspected in the same manner as with apartments. Any hazards or defects that would affect
safety and marketability of the Cooperative should be noted even if it is an individual shareholder’s
responsibility. These items must be corrected at the shareholder’s expense prior to endorsement.
Mortgage proceeds must be used only for repairs of property owned by the Cooperative.
17.5.2
Valuation Processing: Appraisal Scope-of-Work
A. There can be great variation in how a Cooperative is structured. According to the Uniform Standards
of Professional Appraisal Practice (USPAP), the determination of Scope-of-Work is an ongoing process in
an assignment. Information or conditions discovered during the course of an assignment may cause the
appraiser to reconsider the scope-of-work. Therefore, the guidance set forth below may be modified on
a case-by-case basis to assure compliance with USPAP and that the results of the appraisal assignment
will be reliable for making underwriting decisions.
B. There are three major elements for the appraisal assignment: General Requirements, Valuation as a
Market Rate Rental Project, and Market Analysis for Continued Use as a Cooperative.
1. General Requirements.
Selection of the Appraiser. The lender must select a qualified Appraiser in accordance with
Chapter 7. It should be noted that the appraisal of a Cooperative is very specialized. Lenders
should base their selection of an Appraiser on their experience for this type of assignment and
upon their familiarity with the subject’s market area.
Value Definition. Appraisers must use the following definition published by Federal Regulatory
agencies:
“Market value means the most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the passing of title from seller
to buyer under conditions whereby:
1) buyer and seller are typically motivated;
2) both parties are well informed or well advised and acting in what they consider their own
best interests;
3) a reasonable time is allowed for exposure in the open market;
4) payment is made in cash or by financial arrangements comparable thereto; and
5) the price represents the normal consideration for the property sold unaffected by special or
creative financing or sales concessions granted by anyone associated with the sale.”
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17.5 Technical Processing
The value shall be estimated assuming that all repairs have been completed as of the date of the
appraisal.
Inspection of the Subject and Comparables. The primary appraiser designated by the lender
and accepted by HUD must physically inspect the subject (both exterior and interior) and all of
the comparables used as part of the analysis and must sign the Certification within the appraisal
report and the supporting HUD forms.
1) The primary appraiser must inspect at least one of each bedroom/unit type. The total number
of units inspected must equal or exceed 5% of the total number of units for projects of up to
200 units, or 4% of the total number of units/beds for projects greater than 200 units. If the
characteristics and/or condition of the subject indicate that a higher level of inspection is
necessary, it is the appraiser's responsibility to expand the scope of the work as is
necessitated by the observations made by the primary appraiser during the inspection of the
subject. This is especially important where the improvements are high-rise structures
whereby individual units within demonstrate varying degrees of light and view qualities. If
there are hazardous conditions or other factors that preclude a thorough inspection of the
interior, the appraiser must clearly indicate these circumstances in the appraisal report.
2) Large Projects. For projects exceeding 500 units, the appraiser must consult with the
processing office to agree on a reasonable number of units to be inspected. In addition, the
appraiser may employ assistants to inspect individual units. The purpose of allowing
assistants is to encourage a thorough inspection. The names and qualifications of these
assistants must be disclosed in the appraisal report, but they are not required to sign the
report.
3) The primary appraiser must inspect all the comparables used in deriving an estimate of value,
including land comparables (if applicable), improved comparables sales, expense
comparables and rental comparables. The appraiser must verify the condition of the
comparables at the time of transfer/rental with management or other personnel familiar with
the property. Contact information must be documented in the appraisal report.
Required Appraisal Report Exhibits. In accordance with the requirements of Chapter 7 and the
programmatic requirements of Section 223(f).
Review of the CNA and Environmental Report (including the Phase 1 ESA). The appraiser must
review the CNA and environmental report prior to completing the assignment, comment on any
remarkable findings and their impact (if any) on value.
Required Approaches. In accordance with the requirements of Chapter 7 and the programmatic
requirements of Section 223(f).
Estimation of Remaining Economic Life (REL). In accordance with the requirements of Chapter
7 and the programmatic requirements of Section 223(f).
HUD Forms. All of the usual forms for Section 223(f) should be employed, (HUD-92264, 92264A, 92273 and 92274) following the outstanding instructions for Section 223(f). The HUD-92264
shall be completed based on usage as rental apartments.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.5 Technical Processing
Additional Appraisal Work Required by the lender or other Intended Users. The appraiser
is bound by USPAP to complete the appraisal assignment in compliance with the requirements of
the person or entity who ordered the report and to satisfy the needs of identified intended users.
Reconciliation and Conclusion. The appraiser must briefly reconcile the information presented;
clearly indicating what data is the most relevant and supports the report’s conclusions. The
appraiser’s conclusions must indicate whether or not the subject can expect to enjoy long-term
use as a Cooperative; and whether or not the proposed carrying charge is within market limits
and is affordable for the typical shareholder.
Report Content and Format. In accordance with the requirements of Chapter 7.
2. Valuation as a Market Rate Rental Project. Follow all current procedures in Chapter 7 for Section
223(f) Appraisal and Appraisal Review, including these additional instructions:
Use of the Subject. The appraiser shall assume a hypothetical use of the subject as a market rate
rental project, except that income from any units subject to rent control will assume the current
controlled rental amount.
Estimate of Effective Gross Income. The estimate of Effective Gross Income shall be made using
market rental housing comparables that are equivalent to the subject in location, size and style.
Actual rents should be used for any rented units in the Cooperative that are subject to rent control.
Market rents must be used for any subsidized units. Vacancy and collection losses should also be
market derived, but in no event will a residential occupancy rate greater than 93% and a
commercial occupancy rate at the lesser of the actual occupancy rate or 90% be used.
Expense Analysis. The Expense analysis should accurately reflect usage as a market rate rental
project. Appropriate weight should be given to the most recent three-year history for items such
as repairs, maintenance and common utilities. Other items such as taxes and management
expense should be based on rental apartment market data.
3. Market Analysis for Continued Use as a Cooperative. The appraisal report must also contain a
Level A, Level B or Level C Market Analysis of the local market, depending on market complexity, with
an emphasis on Cooperatives. The purpose of the analysis is to determine the ability of the subject to
continue usage as a Cooperative Housing project. The detailed requirements for performing a Level
A, B or C analysis can be found in “Market Analysis for Real Estate”, published by the Appraisal
Institute.
Assumptions. The study should assume that management has budgeting and operations under
control, which can be demonstrated by an illustration of past year’s maintenance charge history.
Financial Statement Review. Special Assessments should be explained, and a review of the last
three years financial statements is required. The footnotes to the Cooperative’s yearly financial
statement are a typical source of details regarding past, current and upcoming issues. There
should be a discussion of any material or atypical items as to their impact on value. In addition,
the appraiser will complete a HUD-92274 using comparable Cooperative projects and also
analyze the past three years of records and any unaudited records from the most current period,
if deemed reliable, to ascertain if the proposed maintenance charge is adequate to continue
operations.
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.5 Technical Processing
Cost of Occupancy/Cost of Ownership Analysis. The typical monthly maintenance charge by
unit type should be compared to the competing project’s monthly maintenance charges by unit
type and will serve as a variable for Cost-of-Occupancy/Cost-of-Ownership calculations to
ascertain and support market-oriented unit pricing. The appraiser will complete a HUD-92273
for each major Cooperative unit type using other units from other Cooperative projects as
comparables to compare monthly carrying charges and to determine if the proposed monthly fee
is realistic and affordable for the subject’s market area.
4. Appraisal Review. HUD Multifamily Staff Appraisers will review the appraisal in accordance with
USPAP Standard 3. The appraisal review must include a comparison of the subject’s proposed
monthly carrying charges based on the new financing to what the various units would rent for if the
subject were operated as a rental project. A Cooperative Housing project’s feasibility for continued
use as a Cooperative is questionable if monthly carrying charges significantly exceed what units could
actually rent for. A downward trend in rents versus no change or an upward trend in carrying charges
is an indication of an unhealthy Cooperative Housing project/market.
17.5.3
Environmental Processing
A. The HUD Review Appraiser will follow all applicable instructions in Chapter 9.
17.5.4
Mortgage Credit Processing
A. Follow the current procedures in Chapter 8 for Section 223(f) modified as follows:
1. Determination of the Acceptability of the Cooperative Corporation.
Board of Directors (BOD) Performance History. In processing an application, the lender will
take into account the BOD’s ability and willingness to manage the Cooperative within the
requirements of Section 223(f). The lender will also consider all applicable requirements
contained in Chapter 10, Management Analysis.
Ability to Close. It must be determined that the Cooperative organization has the ability to close
the transaction in a satisfactory manner and that the sum of the monthly charges to members will
be adequate to meet debt service and other ownership expense.
Creditworthiness. It must also be determined that participants have not been debarred or
subject to a Limited Denial of Participation and are otherwise capable of meeting their ownership
and management obligations. For the Single Asset Borrower Entity, its Officers and BOD
Members, and the Management Agent, the review should include the HUD-2530 / Active Partners
Performance System (APPS) Clearance (or successor form).
Other Business Concerns. List of other business concerns are required for the Officers of the
BOD.
Adequacy of Monthly/Annual Charges. The underwriter must ensure that the sum of monthly
charges, as listed on the Cooperative Membership Exhibit, converted to an annual basis, is
sufficient to meet the HUD estimate of debt service, Cooperative operating expenses, taxes, special
assessments and ground rents, if any, plus a general operating reserve of 3% of these items. In
making these determinations of allowances for accessory income (if any), the allowance shall not
exceed the Cooperative's estimate or the appraiser’s estimate of accessory income, whichever is
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.5 Technical Processing
the lesser. However, rental payables under duly executed acceptable leases for commercial space
on the premises shall be used in lieu of estimates. These payables should be totaled to be sure all
members have assurance that the total membership has their required minimum equity
requirements. The HUD estimate of annual charges will include the following:
1) Debt service payments.
2) Cooperative Operating Expenses, Reserve for Replacements, Taxes, Special Assessments and
Ground Rent, if any.
3) (Memorandum attached to HUD-92264). General Operating Reserve of 3% of Sum of Above.
Review of the Cooperative’s Procedure for Approving New Members. The procedures
employed by the Cooperative in approving new members (cooperators) should be reviewed to
ascertain if there is compliance with any income requirements and credit scores as contained in
the Cooperative’s bylaws or other related agreements. The subscription agreement and other
individual underwriting documentation for anyone becoming a member in the three-month
period immediately prior to the date the application for Firm Commitment was submitted must
also be reviewed by the HUD processing office.
Carrying Charges. The Regional Center or Satellite Office must review the procedures employed
by the Cooperative in reviewing its budget, determining the adequacy of the carrying charge and
to its history of carrying charge increases. The Cooperative’s Bylaws or other appropriate
organizational documents must contain a provision that requires an annual increase in the
carrying charge based on inflation, in order to address increases in operating expenses. The total
amount of the unpaid balance (30 days or more) for carrying charges and special assessments as
shown in the rent roll must not exceed 5% of the gross annual income.
2. Determination of Total Debt Service, Cooperative Operating Expense and GOR. Total Debt
Service will be calculated by multiplying the amount of the mortgage by the sum of initial curtail rate,
interest rate and Mortgage Insurance Premium (MIP). Cooperative Operating Expense includes those
operating expenses, reserve for replacements, taxes, special assessments and ground rents, if any,
which are the responsibility of the Cooperative membership as a whole rather than of the individual
members and will include the cost of occupancy of the units assigned to employee use. The GOR is
calculated in accordance with the instructions in Section 17.3.3 and is accumulated as a special
reserve in order to meet possible contingencies.
3. Outstanding Debt. Past due accounts payable and outstanding project liabilities must be cleared and
released, or otherwise fully satisfied, prior to or at loan closing. Examples of such items include
deferred management fees, overdue utility bills or real estate taxes, or trade payables. These items
are not to be included in the eligible debt basis.
4. Completion of the HUD-92264-A and Determining the Maximum Insurable Mortgage. Pages 12 of the HUD-92264-A shall be completed according to existing instructions, modified as noted in
Section 17.3.1.
17.5.5
Asset Management Processing
A. Asset management processing requirements for cooperatives are identical to those used in processing
Section 223(f) applications for mortgage insurance. Therefore, current Section 223(f) processing
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Chapter 17 Section 207: Refinancing Cooperative Housing Projects
17.6 Loan Closing Procedures
procedures for Cooperatives submitted under this Section of the MAP guide should be used in loan
processing.
17.6 Loan Closing Procedures
A. Follow Section 223(f) closing procedures in the Multifamily Closing Guide and contact the Regional
Center or Satellite Office for the FHA Required Closing Instruments, FHA Form No. 3257-B, set forth in
Handbook 4550.3, Appendix 3-10.
NOTE: The MAP Forms contained in this Appendix that are used by lenders and by HUD processing
staff will be updated, revised and reissued in a Housing Notice after the Department has completed
work that is currently underway to streamline application processing and program requirements.
The Forms are otherwise unchanged.
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Chapter 18 Section 223(a)(7)
18.1 Introduction
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Chapter 18 Section 223(a)(7)
18.1 Introduction
A. This Chapter provides guidance on processing Section 223(a)(7) refinancing transactions for all
currently insured multifamily properties. Programs administered by the Office of Healthcare Programs
are not covered by this Chapter.
18.2 Purpose of Section 223(a)(7)
A. Section 223(a)(7) of the National Housing Act (NHA) permits refinancing of HUD-insured multifamily
projects. Refinancing through Section 223(a)(7) results in prepayment of the existing mortgage,
endorsement of a new mortgage and assignment of a new project number. Refinancing through Section
223(a)(7) typically reduces project debt service and increases operating cash flow by lowering the
interest rate of the mortgage and/or by extending the amortization period. The increased project cash
flow benefits properties and owners and reduces risk to the FHA Insurance Fund.
B. Section 223(a)(7) is applicable only to certain mortgages currently insured by FHA, as described below,
and to HUD-held loans on projects subject to the Multifamily Assisted Housing Reform and Affordability
Act of 1997 (MAHRA). A mortgage refinanced pursuant to Section 223(a)(7) is insured under the same
section of the NHA as was the mortgage originally insured under that Section of the Act. For example, a
223(a)(7) refinancing of a mortgage insured under Section 221(d)(4) or Section 207 pursuant to Section
223(f) would continue to be insured under the respective original Section.
C. Section 223(a)(7) refinancing is limited to existing properties in residential use. Section 223(a)(7)
refinancing cannot include funds for new construction or expansion of the height or footprint of an
existing building, or any repairs that involve ground disturbance. Section 223(a)(7) mortgage proceeds
may be used to fund (a) the payoff of existing FHA-recognized indebtedness, (b) the cost of refinancing,
(c) the cost of critical and non-critical repairs (as described in the required Capital Needs Assessment,
subject to the cost limits, and (d) deposits to reserve for replacement accounts, as described in Chapter 5,
Section 5.10. Equity take-outs (often called “cash-out refinancing”) are not permitted under Section
223(a)(7).
18.3 Basic Program Requirements
18.3.1
Standard Processing Time
A. In general, Section 223(a)(7) transactions should be processed expeditiously to reach a Firm
Commitment decision within 30 calendar days of receipt of a complete application.
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18.3 Basic Program Requirements
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18.3.2
Inapplicable Mortgages
A. These instructions apply to the refinancing of multifamily properties with full insurance mortgages
and previously coinsured mortgages converted to full insurance. Mortgages excluded from these
instructions are:
1. risk share mortgages,
2. co-insured mortgages, and
3. Section 202 loans and other HUD-held mortgages (other than those subject to a debt restructuring
under the Multifamily Assisted Housing Reform and Affordability Act (MAHRA)).
18.3.3
Maximum Mortgage
A. The mortgage may not exceed the lowest of the following Criteria described in Form HUD-92264-A:
1. Criterion 1. Amount that is lower than the lowest of the amounts derived in paragraphs 2, 3, and 4
of this Section 18.3.3.A below.
2. Criterion 2. Modified to read the “Original principal amount of the existing insured mortgage” that is
to be refinanced (or the sum of the original principal amount of all mortgages to be refinanced if two
or more mortgages on one single property are being refinanced).
NOTE: Both loans must be on one property with the same Single Asset Mortgagor Entity with identical
legal descriptions (e.g., insured first mortgage coupled with a Section 241(a) loan). By statute, Section
223(a)(7) refinancing cannot be used to consolidate multiple loans on different projects secured by
collateral with different legal descriptions that will remain separate, even if the sites are adjacent. See
also Chapter 3, Section 3.1.30, Scattered Sites, and Section 18.3.13, Refinancing Partial Payment of
Claim (PPC) Properties, for additional restrictions.
3. Criterion 10. Amount based on the cost to refinance the existing insured mortgage and other
permitted debt, including any accrued but unpaid interest, permitted repairs, capital improvements,
and loan closing charges. Specifically, the Criterion 10 Amount includes the unpaid principal balance
of the existing insured mortgage (or mortgages if more than a single mortgage are being refinanced),
plus a, b, and c below:
Loan closing charges, including the application fee, upfront Mortgage Insurance Premium (MIP),
financing fee, total costs of prepayment penalties associated with the mortgage note, title and
recording fees, and legal fees associated with the refinancing, and required deposits to the reserve
for replacements.
1) The cost of defeasance of any existing bond issue and bond discounts exceeding 10% of the
proposed mortgage amount may not be included.
2) The cost of any discounts may not be included in estimating the maximum mortgage amount.
Outstanding debt incurred in connection with capital improvements made to the property that
are deemed acceptable to the Production Division Director of the Regional Office or other
designated authority.
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18.3 Basic Program Requirements
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Not eligible for inclusion in calculating the maximum mortgage amount available for refinancing
under Section 223(a)(7) is indebtedness incurred in connection with funding operating deficits,
deferred management fees, deferred development fees or other non-capital costs (other than
Section 223(d) loans) nor are past-due payables. See Chapter 8, Section 8.5.1.2.G for a discussion
of clearing or resolving past-due payables at the time of closing.
HUD-approved Critical and Non-critical repairs costs (as approved by the Production Division
Director of the Regional Office or other designated authority).
For a discussion of permitted repairs, please see Chapter 5, Section 5.1.3.A.1., Eligible
Construction Activities by Program, Class of Work, and Chapter 5, Section 5.10.2, Processing for
Refinance or Acquisition, Section 223(f) and 223(a)(7) and 241(a) for Repairs and Alterations.
1) Generally, Critical repairs must be completed prior to endorsement.
2) Non-critical repairs may be deferred but should be completed within twelve months of
endorsement. Generally, a 110% escrow will be established, which may be funded with a
letter of credit. For further discussion. HUD may determine that a larger escrow is
appropriate for projects with more extensive repairs or may waive the escrow for very minor
replacement cost items.
4. Criterion 5. Amount based on debt service ratio. The amount that can be amortized by the applicable
percentage described below of the project's estimated net operating income. The mortgage may
exceed this amount by capitalizing the savings from any tax abatement that runs with the land.
Physical occupancy assumptions used in calculating the project’s estimated net operating income
should be based on historical occupancy levels.
Rent Structure
Projects with >90% of units assisted by ProjectBased Section 8, and Cooperative Housing
insured under Section 213
All other projects
18.3.4
Minimum Debt Service
Coverage Ratio (DSCR)
1.05
HUD-92264-A
Criterion 5 loan ratio
95.0%
1.11
90.0%
Mortgage Term
A. The term of a new mortgage insured pursuant to Section 223(a)(7) may be extended up to 12 years
beyond the maturity date of the existing, originally insured mortgage (extension limited by statute). The
term cannot be extended beyond the lesser of (a) 75% of the remaining useful life of the project or (b) the
maximum term permitted in the Section of the Act under which the existing mortgage is insured. If the
existing mortgage is the result of a previous refinancing through Section 223(a)(7), or the combined
balance of two loans, the longest allowable maturity date of the new mortgage is 12 years beyond the
maturity date of the mortgage originally insured under the FHA insurance program, but notwithstanding
this allowance, the term may not exceed 75% of remaining useful life of the project.
B. Example of Allowable Term/Maturity Date Extensions for a Section 223(a)(7) Refinancing of a
Mortgage Currently Insured Under Section 223(f).
Loan Requirements
Current loan program
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Section 223(f)
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18.3 Basic Program Requirements
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Loan Requirements
Maximum permitted term under the applicable program
Assumed current loan amortization start date
Examples
Example 1
Example 2
Maturity date
(original term)
January 1, 2035
(35 years)
January 1, 2030
(30 years)
Loan Data
35 years
January 1, 2000
New maximum maturity date if
refinanced under 223(a)(7) on
January 1, 2010
January
1,
2045
(any later maturity would violate
the maximum 35-year term limit
under the applicable SOA, in this
case 223(f))
January
1,
2040
(any later maturity would exceed
the 30-year term of the original
mortgage)
New maximum maturity date if
refinanced for a second time under
223(a)(7) on January 1, 2013
January
1,
2047
(any later maturity would violate the
maximum 12-year extension of the
original mortgage’s term)
January
1,
2042
(any later maturity would violate the
maximum 12-year extension of the
original mortgage’s term)
C. Example of Allowable Term/Maturity Date Extensions for a Section 223(a)(7) Refinancing of a
Mortgage Previously Insured Under Section 221(d)(4)
Loan Requirements
Original loan program
Maximum permitted term under the 221(d)(4)
program
Assumed amortization start date of the Original
221(d)(4) loan
Current loan program (see Example 3 and Example 4
below)
Examples of permitted
term/maturity
extensions for loans
with
different
refinancing histories
Example 3
A (d)(4) loan is refi’d
with a 223(f), and that is
refi’d with an (a)(7)
Example 4
The same (d)(4) loan
above is not refi’d with a
223(f) loan, but is refi’d
with an (a)(7)
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Maturity date (original
term) as a Section
221(d)(4) project
January
1,
2040
(40 years)
January
(40 years)
1,
2040
Loan Data
Section 221(d)(4)
40 years
January 1, 2000
Section 221(d)(4) or Section 223(f)
New
maximum
maturity
date
if
refinanced
under
223(f) on January 1,
2010
January
1,
2045
(the maximum 35-year
term limit under the
applicable SOA, in this
case 223(f))
Not Applicable for this
example
(No 223(f) refinancing
on this date)
Chapter 18
Page 18-4
New
maximum
maturity
date
if
refinanced
under
223(a)(7) on January 1,
2013
January
1,
2048
(any later maturity
would
violate
the
maximum 35-year term
limit
under
the
applicable SOA, in this
case 223(f))
January
1,
2052
(any later maturity
would
violate
the
maximum
12-year
extension of the original
mortgage’s term)
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Chapter 18 Section 223(a)(7)
18.3 Basic Program Requirements
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D. If two or more existing FHA-insured multifamily loans (for a single property) are to be refinanced into
a single Section 223(a)(7) loan, the term of the new Section 223(a)(7) mortgage may not exceed 12 years
beyond the maturity date of the earliest-to-mature originally insured mortgage.
E. Any extension of the new mortgage term beyond the remaining term of the existing mortgage (or an
additional mortgage per the paragraph immediately above) may not result in a mortgage term that
exceeds 75% of the remaining useful life of the property.
18.3.5
Mortgage Insurance Premium
A. At endorsement, the borrower must pay an upfront MIP of 50 basis points for market rate housing; 25
basis points for Broadly Affordable housing; 35 basis points for Affordable housing; and 25 basis points
for Green/Energy Efficient housing, or as subsequently revised in a Federal Register Notice. The
mortgagee of record must submit Form HUD-9807, Request for Termination of Multifamily Mortgage
Insurance, to obtain a refund for the borrower of a portion of the MIP paid pursuant to the original
mortgage.
18.3.6
Environmental Review Requirements
A. HUD has determined programmatically that Section 223(a)(7) projects are categorically excluded, not
subject to the laws and authorities (CENST) at 50.4 as per 24 CFR 50.19(b)(21) other than the flood
insurance requirements. Transactions that require repairs in excess of routine maintenance are not
appropriate for processing under Section 223(a)(7). (See Chapter 9, Section 9.1.3.A.)
B. The Lender must submit a HEROS report at the CENST level of review and HUD must review and sign
off in HEROS.
C. Flood insurance. The lender must determine if the property is located in a special flood hazard area
(based upon the most recent Flood Hazard Map) per Chapter 9, Section 9.6.5. If the site is determined to
be in such an area, the borrower must obtain and maintain Flood Insurance coverage for the duration of
the mortgage in the amount specified in Chapter 3.
D. Compliance with MAP radon requirements is encouraged but not required.
18.3.7
Fees
A. Application fee. The non-refundable application fee paid to HUD is 15 basis points.
B. Maximum fees. Lenders may charge financing fees that may not exceed the amounts below. Fees may
be increased for bond transactions to cover fees associated with costs of issuance. Lender legal fees are
not included in Lender Fees for purposes of the calculations below.
New Loan Amount
Portion of loan amount above $2,000,000
Loan amount up to $2,000,000
Maximum Lender Fees
(not bond transactions)
2.00%
3.50%
Maximum Lender Fees
(bond transactions)
4.00%
5.50%
C. Inspection fee. There is no inspection fee even if there are deferred non-critical repairs.
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18.3.8
Project Numbering
A. Projects will be assigned the next FHA number under the same Section of the Act under which the
project was originally insured.
18.3.9
Regulatory Agreement
A. A new Regulatory Agreement must be executed at closing under the same Section of the Act as the
original loan (including modifying the principal(s) in provision 50). Amending and restating the existing
Regulatory Agreement is not permitted.
18.3.10
Cost Certification
A. Cost certification is not required. As a condition of the Firm Commitment, HUD may require the
borrower to produce information related to the cost and completion of Critical and Non-critical repairs
and to provide appropriate documentation to HUD, including, at a minimum, invoices, receipts and photos,
as repair funds are drawn from escrows. The need for site visits in connection with the completion of
repairs or escrow draws will be determined by the Technical Branch Chief of the HUD office with
jurisdiction over the property. Projects with minor repairs typically would require few, if any, site visits
by HUD staff.
18.3.11
Commencement of Amortization
A. Amortization will begin on the first day of the second month following the date of the initial/final
endorsement of the mortgage note.
18.3.12
Source of Funds for Prepayment Penalty Costs
A. Prepayment penalty costs are, as discussed in Section 18.3.3.A.3.a eligible mortgageable costs. The
amount of the cost that is not supported by the refinancing must be paid from other sources.
B. The one exception to the general prohibition that lenders may not pay or otherwise provide funds for
borrower costs is that in 223(a)(7) transactions lenders may pay that portion of prepayment penalty costs
not covered by the controlling loan criterion.
C. The lender’s application must include an estimated Sources and Uses statement specifying the amount
of any lender fees or profit used to pay prepayment penalty costs and if the total prepayment penalty costs
associated with the mortgage note(s) to be repaid exceed such amount, the amount of prepayment penalty
costs to be paid from other sources, specifying such source(s).
D. The amounts of lender fees or profit and borrower or other funds used to pay prepayment penalties
should be shown as sources in the project’s Sources and Uses statement referenced in Section 18.3.12.C.
above.
E. The lender may not pay, either directly or indirectly, for repairs or costs other than the Prepayment
Penalty as noted above. The source of funds for repairs and transactions costs must be accounted for
separately in the project’s Sources and Uses statement referenced in Section 18.3.12.C. above.
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18.3.13
Refinancing Partial Payment of Claim (PPC) Properties
A. A recast first mortgage loan and an associated Partial Payment of Claim (PPC) second mortgage may
both be refinanced in a Section 223(a)(7) transaction so long as the new loan amount does not exceed the
original principal amount of the recast first mortgage loan (i.e., the modified Mark to Market or PPC
restructuring loan mount), and not the original principal amount prior to the PPC or the Mark to Market
transaction, and it is clear the market or project conditions have improved to the point there is little risk
the new loan will default.
B. HUD requires that the HUD-held second mortgage be (1) paid off in full or partially paid off; and (2)
subordinated and remain secured. If the HUD-held second mortgage is partially paid off or remains
unpaid, HUD will maintain the surplus cash split of 25% to owner and 75% to pay down the HUD-held
second (statutory under MAHRA). Pursuant to the owner paying down (or paying off) the HUD-held
second mortgage with available loan proceeds, mortgage proceeds must first be allocated to fund the
reserve for replacement account (in the amount required by the CNA) and make needed repairs to assure
the ongoing value and viability of the project.
C. Upon refinance, debt service payments may not exceed what is currently in place. Since these
properties have previously undergone a PPC, HUD would not want them encumbered with additional debt
that could negatively affect future financial stability. Consequently, the interest rate on the new mortgage
must be competitive enough such that substantial savings in debt service payments will result.
D. The debt service coverage rate of 1.2x will be required to account for the additional risk inherent with
a former PPC.
E. Processing of such a transaction would follow the same procedure as that of other multiple mortgages
permitted to be wrapped into a single 223(a)(7) refinance transaction. HUD Regional Office Production
staff should solicit particular input from Asset Management staff on these transactions.
18.3.14
Commitment, Regulatory Agreement and Closing
A. Commitment. The commitment should be in letter form listing the: a) insured mortgage amount, b)
the Section of the Act with any appropriate further reference, e.g., Section 221(d)(4) pursuant to Section
223(a)(7) or Section 207/223(f) pursuant to Section 223(a)(7), c) loan terms and requirements, d) any
required repairs, e) the requirement for executing a new Regulatory Agreement, f) the requirement that
the owner notify the Office of Asset Management & Portfolio Oversight (OAMPO) when any repairs
deferred until after endorsement are underway and/or completed, and g) any Special Conditions.
B. The commitment is valid for a period of 90 days. It is not anticipated that extensions will be necessary
in a Section 223(a)(7) refinancing. However, the Regional Director may extend Section 223(a)(7)
commitments for a maximum of three additional 30-day periods, provided that processing and
underwriting conclusions are updated as necessary, so they are current at the time of any extension.
C. The commitment must require that the existing Reserve for Replacements be transferred in total to the
new mortgage and specify the dollar amount of funds to be transferred and the amount of additional
replacement deposits. To the extent that the CNA requires an initial deposit to the reserve for replacement
account that is less than the current balance of the existing reserve account, then any immediate repairs
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required by the CNA may be paid from funds in the existing reserve account. (See Chapter 8 for additional
guidance).
D. Closing. Loans shall be closed in accordance with Chapter 19, Closing Guide.
18.4 Processing
A. Eligible Section 223(a)(7) applications submitted by lenders approved to submit MAP applications
must be processed under MAP. See Chapter 1, Section 1.1 for additional guidance.
18.4.1
Project Analysis
A. Lenders must provide an analysis with their applications which provides details about the sizing of the
Section 223(a)(7) mortgage consistent with this guidance and a Sources and Uses statement consistent
with such mortgage sizing calculations. The following may serve as an example of the content and
presentation of a submitted Project Analysis. Click the below link to the MAP Guide on HUD Clips, to
review the example project analysis Excel spreadsheet called: “Example of 223(a)(7) Project Analysis
required per Chapter 18.4 – Release 1.0 (5/4/2016)”:
https://www.hud.gov/program_offices/administration/hudclips/guidebooks/hsg-GB4430
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B. The following is an example of a sample transaction – the data shown is for illustration purposes only.
Section 223(a)(7) - Project Analysis - Mortgage Sizing and Sources and Uses Worksheet
To complete the worksheet, fill in only the blue cells.
Project Name
Project City, ST
Lender
I.
Oak Tree Manor Apartments
Springfield, MO
FHA Capital Mortgage, Inc.
Lowest Mortgage Amount of criteria
Project #
Name of Mortgagor
$ 4,800,000
Page 1
123-45678
Oak Tree Manor LP
Requested Amount = Lower Mtg by Choice
This is a manual input usually equal to the lowest of the three amounts below:
1. Mortgage or Loan Amount Requested in Application
$ 4,800,000
Difference vs. request
2. Original Principal Amount of Mortgage(s) to be refinanced
$200,000
$ 5,000,000
M iddle
5. Criterion 5. Amount Based on Debt Service Ratio (see calculation 5. details below)
$1,255,700
$ 6,055,700
Highest
$1,500
$ 4,801,500
Lowest
10. Criterion 10. Amount Based on the cost of refinancing (see calculation 10. details below)
II. Total Requirements for Settlement
Uses - Mortgageable Amounts
Current Unpaid Principal Balance of Existing Debt
Total Prepayment Penalty Costs
HUD approved debt to refinance via the A7
Critical repairs
Non critical repairs
Initial deposit to Reserve for Replacements
Fees
Financing fees (excluding Title&Rec., Leg&Org.)*
Title & Recording
Legal & organizational
Other permitted costs
$
$
$
$
$
$
$
$
$
$
$
4,570,638
137,119
25,000
10,000
12,000
112,800
19,000
4,000
-
(a). Total Mortgageable Uses of Cash
$
4,890,557
Sources
FHA Mortgage Amount
$
Discount
$
Lender paid prepayment penalty costs
$
Grants & other sources to pay costs + de min lndr R4R dep.$
Purchased and Transferred Reserves
$
(b). Total Sources of Cash
$
4,800,000
48,000
41,000
4,889,000
Cash Requirement Calculation
(c)=(a)-(b). Mortgageable Uses of cash less Sources
$
(d). Non-mortgageable: Assurance of Completion Escrow $
(e)=(c)+(d). Total Cash required
$
1,557
2,000
3,557
III. Payback* calculations & change in interest rate and maturity date
P&I/mo.
Refi'd Debt***
$26,443
New Mortgage
$21,979
P&I savings (monthly)
$4,464
Annual P&I savings
$53,565
Note: net proceeds to pay borrower costs:
$
Transaction costs**
Divided by Annual P&I savings
Equals Payback Period (in years)
New 223(a)(7) interest rate:
Old interest rate:
Interest Rate reduction:
Maturity extension (yrs.):
4,848,000
$272,919
$53,565
5.1
4.250%
5.375%
1.125%
7.3
Fin. Fees, pre-pmt
penalties, T&R,
and legal fees.
* Payback period for is information only; it is not a program requirement. ** Includes incremental costs to third parties not incurred or incurrable under existing operation.
Chapter 18 - Section 223(a)(7) Project Analysis example
MAP Guide, December 2020
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Example derived from:
Chapter 18
Page 18-9
Section 223a7 Mortgage Sizing and Sources and Uses worksheet 9-24-15.xlsx
Bookmarked Version
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Chapter 18 Section 223(a)(7)
18.4 Processing
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C. The following is an example of a sample transaction – the data shown is for illustration purposes only
Project Name
Project City, ST
Lender
Section 223(a)(7) - Project Analysis - Mortgage Sizing and Sources and Uses Worksheet
Oak Tree Manor Apartments
Project #
123-45678
Springfield, MO
Name of Mortgagor
Oak Tree Manor LP
Page 2
FHA Capital Mortgage, Inc.
5. Amount Based on Debt Service Ratio
a. Mortgage Interest Rate
b. Mortgage Insurance Premium Rate
c. Initial Curtail Rate
@ term assumed (mos.)
420
d. Sum of Above Rates
e. Net Income
$ 400,000 X
f. Annual Ground Rent
+ Annual Spec. Assmt.
g. Line e minus line f
h. Line g divided by line d
i. Annual Tax Abatement
divided by
j. Line h plus line I
4.250000%
0.450000%
1.244728%
5.944728%
$360,000
90.0%
$360,000
$6,055,700
$6,055,700
Note: roundi ng down a mount:
$86
10. Amount Based on Existing Indebtedness, Repairs, and Loan Closing Charges*
Refi'd Debt***
$5,000,000 FHA #
Interest Rate Amort. Start date
To Calc max mortgage based on cost, follow the steps below:
Amount included for
(calc'd %) Mortgage sizing
First, list known costs:
Current Unpaid Principal Balance of Existing Debt
$ 4,570,638 100.0% $
4,570,638
Total Prepayment Penalty Costs
$
137,119 3.0%
Prepmt pnlty pd by lender
$
48,000 Prepmt pd from loan proceeds (calc't'd):
$89,119
De min. R4R dep by lender
$
Ttl. borrower costs pd by lender$
123-45678
Maturity date
5.375%
6/1/2008
6/1/2043
Maturity-yrs.
Princ. Bal date
Rmng.Term-mos.
35.0
9/1/2015
Calc'd amort.
Calc'd bal.
333
-$429,362
8.6% Month of refi
$4,570,638
91.4%
Year of refi (truncated)
87
7
48,000
HUD approved debt to refinance via the A7
$
Amount required to pay off existing debt
Critical repairs
Non critical repairs
Initial deposit to Reserve for Replacements
Fees
Title & Recording
Legal & organizational
Other permitted costs
(a). Total known/fixed costs before other costs
List known non FHA-loan sources that offset costs:
Grants & other sources to pay costs
$
Purchased and Transferred Reserves
$
(b). Sum of known amounts to offset costs
(c)=(a)-(b). Total known costs less known offset sources
$4,707,757
$
$
$
$
$
$
$
$
$0 <-Mnthly P&I= $
$4,659,757
Note: Repairs Escrow calculations
25,000
$10,000
a. Non-critical repairs
10,000
20.0%
b. % escrow
12,000
$2,000
c. $ escrow
19,000
4,000
Note: Total knowns excluding payoff
$
70,000
4,729,757
41,000
$41,000
$4,688,757
Second, list unknowns, i.e., costs as %s of the final mortgage amount:
FHA MIP
0.45%
FHA exam
0.15%
Financing Fee
0.50%
Perm Placement fee
1.25%
Allowance extra
0.00%
Discount
0.00%
Total of unknowns %s
2.35%
(d). 1 minus % sum above is the gross up factor
97.65%
*** If a refi of a refi, describe original mortgage here:
Original Princ. Balance
Maturity date
Term Amort. start date
0
FHA #
Third, apply gross up factor based on unknowns
(c)/(d). Calculated cost mortgage
Calculated cost mortgage rounded down
Int.Rate
$
$
97.65%
4,801,594
4,801,500
Should be equal
The figure s be low re c a te gorize the figure s a bove to show a tra ditiona l c ost mortga ge bre a kdown:
a. Total Existing Indebtedness
b. Required Repairs
c. Other Fees
d. Loan Closing Charges ** (see details below)
e. Sum of line a through line d
f. Enter the Sum of any Grant/Loan and Reserves for Replacement and
Major Movable Equipment on Deposit
g. Line e minus line f (rounded down)
$
$
$
$
Note: roundi ng down a mount:
Chapter 18 - Section 223(a)(7) Project Analysis example
MAP Guide, December 2020
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Example derived from:
Chapter 18
Page 18-10
4,659,757
35,000
147,835
$4,842,592
$41,000
$4,801,500
$92
consistency chk vs. M 108 (should be $0)
$4,801,500
$0
Section 223a7 Mortgage Sizing and Sources and Uses worksheet 9-24-15.xlsx
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D. The following is an example of a sample transaction – the data shown is for illustration purposes only.
Project Name
Project City, ST
Lender
Section 223(a)(7) - Project Analysis - Mortgage Sizing and Sources and Uses Worksheet
Oak Tree Manor Apartments
Project #
123-45678
Springfield, MO
Name of Mortgagor
Oak Tree Manor LP
Page 3
FHA Capital Mortgage, Inc.
V. Condensed summary of Sources and Uses
Sources (summary)
New Section 223(a)(7) mortgage
Lender payment of all or a portion of
prepayment penalty
LOC - Borrower funding of non-mortgageable
Assurance of Completion escrow
$
4,800,000
$
48,000
$
2,000
Uses (summary)
Unpaid Principal Balance of existing
mortgage
Initial deposit to Reserve for
Replacements
Non-critical repairs
Prepayment Penalty (entire amount due)
Assurance of completion escrow (nonmortgageable)
Subtotal of selected Sources
All other Sources (i ncl udes tra ns ferred res erves ,
$
$ 4,570,638
$
$
12,000
10,000
$
137,119
$
2,000
4,850,000
Subtotal of selected Sources
All other Uses (i ncl udes fi n. fees & cos ts ,
$ 4,731,757
other refi 'd debt, repa i rs , di s cnts . & mi s c.)
$
contri buted ca s h & LOCs , + other tra de. prem.
$
40,557
Total Sources
$
4,890,557
Total Uses
158,800
$ 4,890,557
V. Financing Charge details for Cost Based Criterion 10. mortgage and the Actual mortgage
Note that the actual mortgage may be equal to the Cost Based Criterion Mortgage if this is the maximum permitted mortgage):
Fees for the Criterion 10 mortgage of
**
$ 4,801,500
Fina nc ing Cha rge s ba se d on fe e s shown a s % s of the
Fees based on the actual mortgage amount of
*
$ 4,800,000
Fina nc ing Cha rge s ba se d on % a bove a nd c e rta in "knowns"
mortga ge a mount liste d in S e c tion II, a nd c e rta in "knowns"
pe r c ost- ba se d mortga ge c a lc 't'd. pe r Crite rion 10 . a bove .
FHA MIP
FHA exam
Financing Fee
Perm Placement fee
Allowance extra
Discount
Title Recording HUD
Legal & org
Initial dep to reserve
Tota l
$
$
$
$
$
$
$
$
$
$
21,607
7,202
24,008
60,019
19,000
4,000
12,000
147,835
pe r a c tua l mortga ge
FHA MIP
FHA exam
Financing fees
Subtotal:
$
112,835
Financing Fee
Perm Placement fee
Allowance extra
Discount
Title Recording HUD
Legal & org
Initial dep to reserve
Tota l
$
$
$
$
$
$
$
$
$
$
21,600
7,200
24,000
60,000
19,000
4,000
12,000
147,800
Financing fees
Subtotal:
$
112,800
VI. Details of prepayment penalty and sources of payment
$
% of new actual mtg. amt.
Total Prepayment Costs to be paid
$137,119
2.857%
Total prepayment pnlty to be paid from mortgage proceeds $89,119
1.857%
Total prepayment pnlty to be paid by lender
$48,000
1.000%
Any de minimus lender deposit into the Res. For Repl.
$0
0.000%
Chapter 18 - Section 223(a)(7) Project Analysis example
18.4.2
Example derived from:
Section 223a7 Mortgage Sizing and Sources and Uses worksheet 9-24-15.xlsx
Verification of Existing Borrower Debt
A. The lender must verify the amount and terms, including prepayment penalties and repayment terms,
of existing insured mortgage debt and any other secured or unsecured debt of the borrower related to the
project.
1. The application should include a copy of the mortgage note, and all documents evidencing other
indebtedness.
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2. The lender should compare the mortgage debt information submitted to the lender with information
in the project’s financial statements and the title search report. Any discrepancies should be explained
in writing by the owner. Since the owner is prohibited from encumbering the project without HUD’s
written approval, if the owner is in violation of this provision, the violation should be brought to the
attention of the Director of Asset Management in the HUD Regional Office with jurisdiction.
3. If the borrower has made a loan to fund repairs or betterments (whether or not evidenced on a HUDapproved promissory note), a determination must be made as to whether the debt is acceptable to
HUD. If the debt is to be repaid as part of the 223(a)(7), it is not necessary for the debt to be on a
HUD-approved form prior to closing. However, if the debt is to remain in place after closing to reduce
cash requirements, the owner must evidence the debt on HUD-approved forms.
4. When additional indebtedness is associated with betterments made to the project and previously
financed, the borrower must provide a list of betterments financed by that indebtedness.
18.4.3
CNA Requirement
A. A Capital Needs Assessment (CNA) is required for all Section 223(a)(7) applications. See Chapter 5,
Section 5.10.4. For purposes of Section 223(a)(7) refinancing, an existing CNA may be accepted if it
conforms with current guidance for acceptability per Chapter 5, Section 5.10.4 under Processing for
Refinance or Acquisition, Section 223(f) and 223(a)(7) and 241(a) for Repairs and Alterations.
18.4.4
Site Visits
A. Site visits (by either the lender or HUD) may not be required, although in case of large loans or
distressed loans regardless of size, a site visit by the lender (and/or HUD staff) may be appropriate and
necessary.
18.4.5
Section 202 Mortgage Refinancing
A. Section 202 projects that are refinanced with an FHA-insured loan are exempt from Section 514(g) of
MAHRA under Section 514(h)(2) of that Act, for as long as the first FHA refinance loan is outstanding. If
that FHA loan is subsequently again refinanced (using Section 223(a)(7) for example), that Section
514(h)(2) exemption is no longer applicable. Thus, if the Section 8 rents were above market, a reduction
of rents to market at the expiration of the Contract term is required, and the underwriting of the new loan
must reflect rent levels which change from currently allowed rents to market rate rents in accordance
with the expiration of the Contract. Such projects must be sent to the Office of Recapitalization for
processing the rent reduction under the Mark-to-Market program.
B. Example of Underwriting a Section 202 Project Exempt Under MAHRA’s Mark-to-Market Provisions
Loan Requirements
Original loan program
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Section 202
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202 Loan Examples of
rent-setting
requirements
for
loans with different
refinancing histories
Loan 1
18.4.6
Refinanced into an
insured FHA loan in
accordance
with
MAHRA
Yes
Exempt from
Section 514(g)
rent
adjustment?
Yes - Under
Section
514(h)(2)
Subsequently
refinanced
Yes
Exempt
from
Section
514(g)
rent adjustment
for
underwriting/loan
sizing under MAP?
No
Section
514(h)(2) no longer
applies;
adjustments would
apply at the HAP
contract’s
expiration
Ownership and Property Management Changes
A. The lender must verify that any changes in ownership since the endorsement of the existing loan have
been properly documented and approved through Previous Participation Review (e.g., submission of
Form HUD-2530). Section 223(a)(7) applications should not be submitted until any required Previous
Participation Reviews have been processed.
B. Any changes of ownership are subject to Transfer of Physical Assets (“TPA”) procedures. However, the
TPA application may be processed concurrently with the 223(a)(7) transaction.
18.5 Application Requirements Checklist
A. See Appendix 4, Section A.4.3 for the Section 223(a)(7) Application Requirements Checklist, at the
following HUD Clips link: https://www.hud.gov/sites/documents/4430GAPPHSGG-BM.PDF.
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Chapter 19 Closing Guide
19.1 General Loan Closing Procedures
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Chapter 19 Closing Guide
Part I: Introduction and Procedures
19.1 General Loan Closing Procedures
19.1.1
Applicability
A. This Chapter of the MAP Guide (“Guide”) applies to all FHA-insured Multifamily loan closings
authorized under the National Housing Act (12 USC 1701 et. seq., the “Act” or “NHA”), whether processed
through MAP or through Traditional Application Processing (TAP). This Chapter supersedes and replaces
the FHA Multifamily Program Closing Guide (last revised February 2015).
19.1.1.1
Objective
A. This Chapter is intended to:
1. Provide procedures and protocols for Lender, counsel for Lender (Lender’s Counsel), Borrower,
counsel to the Borrower, the assigned closing attorney (HUD Closing Attorney) from the Office of
General Counsel (OGC), the HUD Multifamily Regional Center Director (RC Director), and other
Multifamily Housing Production (MHP) staff, to prepare, submit, and review closing packages and
otherwise prepare for the closing of Multifamily loans; and
2. Promote uniformity in the requirements and procedures for HUD-closings held nationwide.
19.1.1.2
Defined Terms
A. Capitalized terms used in this Chapter have the meanings provided in the Project Loan documents,
including the Note (Multistate) (form HUD-94001M), Multifamily [Leasehold] (Mortgage, Deed of Trust,
Deed to Secure Debt, or Other Designation as Appropriate in jurisdiction) Assignment of Leases and Rents
and Security Instrument (form HUD-94000M) (the Security Instrument), and Regulatory Agreement for
Multifamily Projects (form HUD-92466M) (the Regulatory Agreement), unless specifically defined in this
Chapter.
B. As used in this Chapter, the term “Program Obligations” has the meaning set forth in the Regulatory
Agreement.
C. For purposes of this Chapter, RC Director includes the RC Director’s designees, as appropriate and
pursuant to the Office of Housing’s delegations of authority. The RC Director is the organizational position
with delegated authority to make administrative policy determinations with respect to insuring an FHA
loan for Multifamily projects, in accordance with Program Obligations.
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19.1.2
Closing Document Review and Procedures
19.1.2.1
General
A. This Section 19.1.2 outlines HUD’s requirements and general procedures for review of draft closing
documents, including Lender’s submission of the draft documents and resolution of issues identified
during application processing and closing review. The RC Director may request OGC legal assistance
throughout the processing period, including when the RC Director identifies complex legal issues and
determines that the resolution of a legal issue may be uncertain, problematic, or time-consuming, or may
delay closing.
19.1.2.2
Firm Application
A. Upon Lender’s submission of an application for Firm Commitment, the RC Director may request OGC
legal assistance and consultation where complex legal issues have been identified, the resolution of which
may be uncertain, problematic, or time-consuming, and such review would reduce impediments to or
delays in closing after the Firm Commitment is issued.
B. Lenders and Lender’s Counsel may contact the RC Director to request early legal review consistent
with this subsection. The RC Director will evaluate the validity of each outside request and will consult
with OGC when necessary.
19.1.2.3
After Firm Commitment Issuance and Prior to Package Submission
A. Initial Communication. Once the RC Director has issued a Firm Commitment, the RC Director will
send an introductory or “Hello” communication to Lender within two (2) business days after the issuance
of the Firm Commitment. The communication will provide:
1. The name and contact information for the assigned Closing Coordinator;
2. The name and contact information for an initial point of contact in OGC and information about when
the actual HUD Closing Attorney will be assigned (as set forth below in Section 19.1.2.3.B);
3. A request that Lender identify its preferred closing date;
4. A request that Lender provide a specific timeline for closing by its preferred target date based on
HUD’s established review times, set forth in this Chapter; and
5. A request that Lender identify any external deadlines relevant to closing (e.g., bond/tax credit
deadlines).
B. Lender’s Introductory Response and Interim Communication:
1. Lender must respond to the assigned Closing Coordinator in writing to provide the information
requested in the introductory letter. The Closing Coordinator will distribute the Lender’s response to
the relevant staff within MHP and OGC.
2. If Lender requests a preferred closing date that is within 60 calendar days, OGC and the RC Director
will review the information provided and mutually agree upon a Tentative Closing Date.
3. The Tentative Closing Date is preliminary, established only to manage expectations, and may be
changed by HUD if Lender or Lender’s Counsel fails to adhere to the review times prescribed in this
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Chapter, including timely submission of a complete draft closing package and response to HUD
comments. Additionally, any Tentative Closing Date remains subject to rescheduling by HUD due to
exigent circumstances.
4. HUD will not transition from a Tentative Closing Date to a confirmed closing date until the RC Director
and HUD Closing Attorney approve a substantially complete draft closing package, as set forth below.
5. If a Tentative Closing Date is set, OGC will assign a HUD Closing Attorney that is available for the
Tentative Closing Date.
6. If a Tentative Closing Date is not set, OGC will maintain a Point of Contact for the convenience of all
parties, and assign a HUD Closing Attorney when Lender submits the draft closing package to the
Closing Coordinator.
7. OGC will endeavor to provide continuity by assigning the same HUD Closing Attorney for closing
review that was assigned for any early legal review. The assignment of the HUD Closing Attorney
remains within the discretion of OGC and may be adjusted, for example, where the workload of an
individual attorney or an OGC office precludes assignment of the same attorney or office. Where a
change in the attorney assignment occurs, OGC will advise all relevant parties as soon as possible.
8. The Closing Coordinator will promptly notify Lender and Lender’s Counsel of any set Tentative
Closing Date and provide contact information for the OGC Point of Contact, or HUD Closing Attorney,
as applicable.
C. Preparation and Delivery of Draft Closing Package. Lender’s Counsel is responsible for competently
compiling the draft closing package for submission to HUD, which includes reviewing all documentation
to correct errors and omissions prior to submission and complying with the document submission
standards set forth in Section 19.4.1. To facilitate the HUD Closing Attorney’s review, Lender’s Counsel
may provide a written narrative outlining legal issues that will require negotiation or special attention of
the HUD Closing Attorney. If any revision is made to a required document after submitting the draft
closing package, Lender’s Counsel must promptly email the HUD Closing Attorney to identify the
revision(s) made and provide an explanation as to why the revision(s) are necessary or appropriate.
D. Submission Deadlines for Tentative Closing Dates. To maintain a Tentative Closing Date, Lender
or Lender’s Counsel must submit a draft closing package to the Closing Coordinator at least thirty (30)
business days prior to any Tentative Closing Date. The Lender’s failure to submit a draft closing package
by this deadline may result in a change to a Tentative Closing Date, at the discretion of the RC Director.
The Lender should take into consideration holidays, GNMA delivery schedule, bond closing and tax credit
funding deadlines, and other known events that may affect review times.
19.1.2.4
HUD Review of Closing Packages
A. Preliminary Review by Closing Coordinator. The Closing Coordinator will conduct a cursory review
at the time of submission to determine whether the submission appears generally ready for substantive
closing review. If the Closing Coordinator determines the submission is adequate to begin closing review,
the Closing Coordinator will initiate the closing package review process outlined in this subsection.
B. The Closing Coordinator will notify the Lender when a package is determined to be inadequate to begin
closing review, together with a list of deficiencies. Lender must resolve threshold deficiencies identified
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by the Closing Coordinator, and update the draft closing package accordingly, before the Closing
Coordinator will route the closing package for OGC and MHP closing review.
C. Tentative Closing Dates are subject to change at the RC Director’s discretion for any Project where the
draft package submission is determined by the Closing Coordinator to be inadequate to start closing
review.
D. Notice of Closing Review and Communication. The Closing Coordinator will communicate with all
relevant parties after the Closing Coordinator initiates the closing package review. If not yet assigned,
OGC will promptly make a HUD Closing Attorney assignment once the Closing Coordinator initiates the
closing package review.
E. The HUD Closing Attorney will contact Lender’s Counsel within 2 business days following the Closing
Coordinator’s approval to start review. The HUD Closing Attorney will be available to participate in calls
at the request of the RC Director, including when specific legal issues have been identified that require
input from the HUD Closing Attorney (e.g., title issues that may require negotiation).
F. Substantive Closing Review. Assigned MHP staff and the HUD Closing Attorney will substantively
evaluate each package routed for closing review by the Closing Coordinator and will endeavor to meet
previously set Tentative Closing Dates subject to the limitations set forth in this section. The RC Director
and HUD Closing Attorney will work collaboratively to review draft closing packages and maintain set
Tentative Closing Dates.
G. The RC Director is primarily responsible for reviewing the substantive business terms of each
document submitted, including without limitation, the review and consideration of requested closing
document changes that relate to business and policy concerns, business implications of litigation,
satisfaction of Firm Commitment conditions, insurance coverage, UCC filings, site plans, survey matters,
title encumbrances, agreements related to construction, architectural work, and disbursement of funds.
The RC Director may only accept changes to the HUD forms or deviations from the requirements of this
Chapter that have been made in accordance with the procedures set forth in Section 19.4.1.
H. The HUD Closing Attorney is primarily responsible for determining that the draft submission is legally
sufficient, meaning:
1. The documents submitted do not reflect discernable violations of statute or regulation;
2. All standard form documents are accurate and complete (including duly approved changes);
3. Riders and boilerplate provisions required by Program Obligations are accurate and complete;
4. Evidence to satisfy Firm Commitment special conditions has been reviewed and approved by the RC
Director, and is included in the submission; and
5. Documents are consistent with deal-specific requirements of the Firm Commitment, the applicable
closing checklists, and determinations of the RC Director.
I. HUD Comments and Lender Response/Resubmission. After completing the initial substantive
review, assigned MHP staff and the HUD Closing Attorney will provide the Closing Coordinator with
comments identifying deficiencies in the package. The Closing Coordinator and/or the HUD Closing
Attorney will electronically distribute HUD’s comments to Lender and/or Lender’s Counsel via email for
consideration and response.
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1. To maintain a Tentative Closing Date, Lender and Lender’s Counsel must respond to HUD comments
within 5 business days after the date comments were distributed.
2. Lender’s response to HUD’s comments must resolve identified deficiencies in a manner consistent
with this Chapter and Program Obligations. Lender’s Counsel must substantively address all HUD
Closing Attorney comments and include corrected documents. Changes to previously submitted
documentation must be presented in redline form whenever possible. Lender’s Counsel may include
a written narrative or imbed written responses in the HUD Closing Attorney’s comment document to
assist the HUD Closing Attorney in their review.
J. Substantial Completeness. Closing dates, including previously set Tentative Closing Dates, will not be
confirmed until the Closing Coordinator and HUD Closing Attorney determine that the package is
substantially complete, and any outstanding issues elevated to HUD HQ pursuant to this Chapter have
been resolved. A substantially complete closing package means:
1. In accordance with Program Obligations, and except for the items addressed immediately below (in
Section 19.1.2.4.J.2.): all documents required by the applicable Closing Checklist and the Firm
Commitment are included; blanks, bracketed language, and other deal specific information in form
documents are accurately completed; non-form documentation is accurately prepared in
substantially final form for closing the transaction in accordance with this Chapter; and HUD’s review
comments are resolved in a manner consistent with this Chapter. This includes, but is not limited to,
surveys (where applicable), documentation evidencing compliance with Firm Commitment
conditions, a pro forma title policy and legible copies of all exception documents, rate-lock terms for
the Note, and secondary financing loan documents. See Section 19.4.1 for further guidance on the
compilation and completion of closing documents.
2. A substantially complete closing package need not include completion of items specifically identified
in this Chapter as appropriate for submission at or near the confirmed closing date, including timesensitive form information (i.e., dates and recording information), Certificates of Good Standing,
Foreign Status Certificates, UCC searches, fully issued building permits, cost-certification, closing
statements, and LIHTC equity pay-in schedule. See Part II of this Chapter for document specific
guidance.
K. The Closing Coordinator will confer with assigned MHP staff to determine when the package is
substantially complete as to programmatic requirements. The HUD Closing Attorney will provide prompt
written notice to the Closing Coordinator when the HUD Closing Attorney determines that the closing
package is substantially complete as to legal requirements.
L. Confirmation of Closing Date. Once HUD determines the closing package is substantially complete,
the Closing Coordinator will consult with assigned MHP staff, the HUD Closing Attorney, Lender, and
Lender’s Counsel to determine a closing date, which the Closing Coordinator will then confirm in writing.
Until Lender receives the Closing Coordinator’s confirmation of a closing date, any previously requested
closing date, including a set Tentative Closing Date, remains tentative.
M. Conditions for Maintaining a Confirmed Closing Date. In addition to the threshold review criteria
outlined above, a confirmed closing date is subject to the following conditions:
1. Completion of Closing Package. Pursuant to Section 19.1.2.4.J.2. above, Lender’s Counsel must
submit all remaining documents not yet reviewed or approved by HUD, at least four (4) business days
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prior to the confirmed closing date for closings-by-mail and three (3) business days for in-person
closings (unless later delivery is expressly permitted by this Chapter or elsewhere in this Guide). Any
additional changes may result in a change to the confirmed closing date, at the RC Director’s discretion
and in consultation with the HUD Closing Attorney.
2. Final Approval. Lender and Lender’s Counsel must resolve any additional deficiencies identified by
HUD at least 1 business day prior to Lender’s submission of the Closing Docket (defined in Section
19.1.3.5). Any resulting changes to closing documents must be submitted to and approved by the HUD
Closing Attorney and RC Director prior to Lender’s submission of the Closing Docket to HUD, except
as permitted by the HUD Closing Attorney.
19.1.2.5
Changes to Tentative or Confirmed Closing Dates
A. Lenders Counsel may request to change to a set closing date (tentative or confirmed, depending on
review stage). The request should be made in writing to the HUD Closing Attorney and include alternative
dates for closing. The HUD Closing Attorney will consult with the RC Director to reset the closing date.
Once reset, the HUD Closing Attorney will notify the applicable Regional Counsel that the closing date has
been changed at the request of Lender’s Counsel.
B. The HUD Closing Attorney and Closing Coordinator will seek the concurrence of the RC Director and
the applicable Regional Counsel if they determine that the conditions of this Section 19.1.2 are not met, or
other exigent circumstances exist that necessitate a change to a set closing date (tentative or confirmed,
depending on the stage of review). Upon concurrence, the Closing Coordinator will notify the Lender of
the need to reschedule the set closing date. Lender’s Counsel may then request a new preferred closing
date. The HUD Closing Attorney will consult with the RC Director to reset the closing date and notify the
Regional Counsel accordingly.
19.1.3
Closing Arrangements
19.1.3.1
Administrative Clearance to Close
A. On or before the confirmed closing date, the RC Director will provide the HUD Closing Attorney with
administrative clearance to close the Loan, either by written memorandum or email. The RC Director’s
administrative clearance will include the following confirmations:
1. All special conditions of the Firm Commitment have been met;
2. The Loan is ready to be closed;
3. The documents submitted to the RC Director for the closing were fully examined and approved; and
4. The Firm Commitment is current.
19.1.3.2
HUD Signature Page
A. All documents that require HUD signature must be prepared and submitted by Lender’s Counsel
sufficiently in advance of the confirmed closing date. For each document signed in counterpart, HUD’s
signature page should be formatted to include the Project name, FHA project number, and the document
title. Recordable documents must include notary blocks. These form completion changes are not
considered substantive changes under Section 19.4.1.6, and do not require explicit HUD approval.
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19.1.3.3
Note Endorsement
A. When feasible, the RC Director will sign the Note for endorsement on the date of closing. If not feasible,
the RC Director may sign the Note for endorsement prior to closing and OGC will hold the Note until the
conclusion of the closing.
19.1.3.4
Circulation and Submission of Recordable Documents
A. The RC Director will only sign original recordable closing documents (e.g., the Regulatory Agreement)
when HUD deems the closing package to be substantially complete. See Section 19.1.2.
B. HUD will sign original recordable closing documents in counterpart when allowed under state and
local law. If a recordable document is not signed in counterpart, Lender’s Counsel must obtain the nonHUD signatures first, and then submit the original to the RC Director for HUD signature. HUD may permit
the designated escrow officer (e.g., title agent) to hold HUD signed documents in escrow.
C. The designated escrow officer engaged to close the Loan must review all documents submitted for
recording to ensure compliance with local recording requirements.
D. Closing documents requiring recordation must be recorded prior to or on the day of closing, and prior
to HUD’s delivery of the endorsed Note. The Regional Counsel and RC Director are authorized to deviate
from this standard in jurisdictions where pre-recording or contemporaneous recording on the date of
closing is not possible, or in other exigent circumstances. HUD generally permits pre-recording of
documents (recorded prior to the HUD-approved closing date); Borrower and Lender assume all risk
related thereto.
E. HUD requires two hard copies of each recorded document, except when instructed otherwise by the
HUD Closing Attorney. The documents may be originals bearing evidence of recording from the recorder’s
office, or copies certified by the title company to be true and correct copies of the document that was
recorded. Title certified copies should specify the date of recording, recording information (document
number, book, and page, etc.), and recording location (i.e., the county recorder’s office). Where documents
are recorded post-Closing, Lender and Lender’s Counsel are responsible for ensuring the documents have
been recorded in the proper order and that the title policy is updated with all recording information,
either by endorsement or other customary practice.
19.1.3.5
Form of Closing Docket Submission
A. For closing, Lender’s Counsel must provide the HUD Closing Attorney with two (2) sets of all closing
documents (the Closing Docket) in hard copy, except when instructed otherwise by the HUD Closing
Attorney. Lender’s Counsel is responsible for the administrative tasks necessary to compile the complete
Closing Docket, except for internal HUD documents identified as such in the applicable Closing Checklist.
B. The first set of documents must include all originals required by the applicable closing checklist for
submission to the Washington Docket. Lender’s Counsel must identify which set is being submitted for
the Washington Docket and which as the attorney docket.
C. Lender’s Counsel is responsible for providing the RC Director and HUD Closing Attorney with an
electronic copy of the Closing Docket within 14 calendar days after closing (preferably in searchable PDF
format). The electronic copy must include separate files for each document, with file names that reflect
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the title of the document and the order of the applicable closing checklist. Lender’s Counsel is responsible
for ensuring that the electronic copy is an accurate copy of the Closing Docket, as submitted and approved
by the HUD Closing Attorney.
19.1.3.6
Restriction on Post-Closing Revision to Closing Docket
A. After closing, the Closing Docket may not be revised or amended without the prior written approval of
the RC Director and HUD Closing Attorney.
19.1.3.7
Closing Type: Mail or In-Person
A. Mail Closings. A closing by mail will be scheduled at Lender’s request, except as provided below. In
requesting a closing by mail, Lender and Lender’s Counsel agree to adhere to the mail closing procedures
of this subsection.
1. Standards for Denying a Request to Close by Mail. The RC Director and the appropriate Regional
Counsel have the authority to deny a Lender request to close by mail if they determine that the
complexity of the transaction necessitates an in-person closing.
2. Mail Closing Procedure. When closing by mail, Lender’s Counsel must follow these standards:
Package Format. Except as otherwise provided in this Chapter or when instructed otherwise by
the HUD Closing Attorney, two (2) complete hard copy sets of the Closing Docket must be
delivered to the HUD Closing Attorney at least two (2) business days in advance of the confirmed
closing date (morning delivery unless the HUD Closing Attorney specifies otherwise). Lender’s
Counsel is responsible for compiling the closing packages before delivering to HUD (including
documents generally within the control of other parties), except that the Title Policy, recorded
documents, and final building permits may be delivered on closing day (first overnight delivery
or morning delivery by courier).
Availability by Telephone. All parties to the transaction, including the RC Director, must be
available by phone and email on closing day in case questions or issues arise.
Failure to Close by Mail on HUD-Approved Closing Day. If there are problems with the Closing
Docket as delivered (e.g., delayed delivery, errors, or missing documents), the HUD Closing
Attorney, in consultation with the RC Director and applicable Regional Counsel, will determine
appropriate next-steps, which may include rejecting the entire closing package (Lender may
request return of the package at Lender’s expense), and/or rescheduling closing for another day.
Lender’s Counsel is solely responsible for ensuring that any package deficiencies are resolved.
Endorsement and Delivery of Note. HUD will not deliver the endorsed Note until all documents
are presented to, and approved by, the RC Director and HUD Closing Attorney. In addition, a preaddressed, pre-paid envelope and an appropriate cover letter must be provided for return
delivery of the endorsed Note, or Lender’s Counsel may make alternate arrangements, as
approved by the HUD Closing Attorney, for in-person pick-up of the endorsed Note (e.g., courier
service).
B. In-Person Closing Procedures. An in-person closing will be scheduled at Lender’s request, or when
the RC Director and Regional Counsel deny Lender’s request for a mail closing. The RC Director, in
consultation with the HUD Closing Attorney, determines the location of in-person closings. In-person
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closings are generally held at the HUD office where the HUD Closing Attorney is located. HUD will not
deliver an endorsed Note unless all documents are presented to, and approved by, the RC Director and
HUD Closing Attorney. Lender’s Counsel is solely responsible for ensuring that any deficiencies in the
Closing Docket are resolved. If there are problems with the Closing Docket as submitted, the HUD Closing
Attorney, in consultation with the RC Director and applicable Regional Counsel, will determine
appropriate next steps, which may include rescheduling closing for another day.
19.1.4
Post-Closing Handling of Closing Dockets
A. Retention of Closing Dockets. After closing, the attorney docket is retained by OGC. The documents
submitted for the Washington Docket are retained by HUD Headquarters.
B. Multifamily Insurance System. In connection with the Multifamily Insurance System (MFIS), the RC
Director must complete the following items: Official Receipt (form HUD-27038), Schedule of Project
Collections (form HUD-3416), and Closing Memorandum (form HUD-290).
C. Transmittal. When the RC Director determines that the entire Washington Docket is complete, the RC
Director will mail the completed forms identified above, together with the Washington Docket, to HUD
Headquarters at the following address:
U.S. Department of Housing and Urban Development
Housing Records Management Office
451 7th St., SW
Ste. B-264
Washington, D.C. 20410
19.2 Initial Loan Closing Procedures for New
Construction and Substantial Rehabilitation
19.2.1
Initial Endorsement Activities
A. Definition. For purposes of this Chapter, “Initial Closing” means the closing at which HUD initially
endorses the Note for insurance of advances for new construction and substantial rehabilitation.
B. Pre-Construction Conference. The pre-construction conference must be held prior to or concurrently
with the Initial Closing and must be held before the start of construction. See Chapter 12, Section 12.2 for
instructions for conducting the pre-construction conference, and Appendix 5, Section A.5.5 for
administrative requirements related to plans and specifications. The RC Director is responsible for
ensuring that the preconstruction conference includes all necessary parties, and for scheduling and
reserving space for the meeting.
C. Initial Draw of Loan Proceeds. Initial draw of Loan proceeds may be made on the day of Initial
Closing, provided that no draw may occur until HUD releases the endorsed Note to Lender.
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19.2 Initial Loan Closing Procedures for New Construction and Substantial Rehabilitation
19.2.2
Prevailing Wage Rates & Davis-Bacon Labor Standards
19.2.2.1
Davis Bacon Labor Standards (DBLS) Clearance Required
A. For all Projects subject to Davis-Bacon labor standards, the RC Director will not provide administrative
clearance to close or endorse the Note until:
1. The RC Director has received clearance for closing from DBLS;
2. If applicable, any conditions of the DBLS clearance have been fully satisfied; and,
3. If applicable, the parties have submitted evidence that any conditions of Department of Labor (DOL)
withholding letters, consent orders, or other DOL determinations and findings have been fully
satisfied. The RC Director will include a copy of the DBLS closing approval in the RC Director’s
administrative clearance.
19.2.2.2
Procedures for Firm Application, Issuance, and Initial Closing
A. Prior to issuing a Firm Commitment, the RC Director will provide DBLS with a copy of each application
for Firm Commitment (e.g., the first four pages of Application for Multifamily Housing Project (form HUD92013)). Upon request from assigned DBLS staff, the RC Director will make other Project documentation
in its possession available for DBLS review, in accordance with the information collection requirements
of the Paperwork Reduction Act.
1. The RC Director will obtain written confirmation of the DBLS wage decision, including copies of
selected general wage determination(s).
2. The RC Director and/or HQ MHP will review the DBLS wage decision and will consult with OGC if
there are any legal questions.
B. After legal questions are resolved, the RC Director will forward the DBLS wage decision to the Lender
and include any additional clarifying information provided by DBLS.
C. After Firm Commitment, and after HUD receives the draft closing package, the RC Director will notify
assigned DBLS staff of any Tentative Closing Date (see Section 19.1.2) and provide a copy of the draft
Construction Contract (form HUD-92442M), including exhibits.
1. DBLS will review the draft Construction Contract and provide written confirmation to the RC Director
indicating whether the applicable wage rates and the Supplementary Conditions to the Construction
Contract (form HUD-92554M) are included in the draft submission. If DBLS informs the RC Director
that the wage rates included in the draft Construction Contract are inaccurate, the RC Director will
provide corrective instructions to the Lender, with a copy to the HUD Closing Attorney.
D. The RC Director will notify assigned DBLS staff of a Project’s confirmed closing date 3 to 5 business
days in advance. See Section 19.1.2. The RC Director will obtain written clearance from DBLS for the Initial
Closing at least 1 business day in advance of the confirmed closing date (via email or memo). The RC
Director will provide a copy of the DBLS clearance to the HUD Closing Attorney as soon as possible.
E. On the morning of Initial Closing, the RC Director will contact DBLS to confirm the effective modification
number for the general wage determination(s) selected for the Project. See 24 CFR 200.33 and 29 CFR
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1.6(c)(3)(ii). The RC Director will immediately notify Lender, Lender’s Counsel, and the HUD Closing
Attorney if there are any updates to the wage decision.
F. The RC Director will coordinate with DBLS to schedule the pre-construction conference and provide
DBLS with contact information for the General Contractor. See Chapter 12, Section 12.2.
19.2.2.3
Early Start of Construction
When the RC Director approves an early start of construction for a Project that is subject to Davis-Bacon
labor standards, the requirements of Section 19.2.2.2, immediately above, will be modified to
accommodate the early start. The RC Director will work collaboratively with DBLS staff to ensure there
is sufficient time to review Project documentation and select the applicable wage rates prior to the start
of construction. See Section 19.2.3 and Chapter 5, Section 5.8.6; see also 29 CFR 1.6(c)(2)(i)(C).
19.2.2.4
Procedures for Final Closings
A. The RC Director will notify DBLS of a pending Final Closing as soon as practicable, and no later than 1
business day after the date the RC Director finalizes the Maximum Insurable Mortgage (form HUD-92580).
B. The RC Director will obtain a written determination from DBLS confirming either that:
1. All labor relations issues are resolved; or,
2. Appropriate mitigants are established to resolve outstanding issues.
C. The RC Director will obtain clearance for Final Closing from DBLS at least 5 business days in advance
of a confirmed final closing date. The RC Director will immediately provide a copy of said clearance to the
HUD Closing Attorney.
D. The DBLS clearance for Final Closing may be qualified:
1. If the DBLS clearance is conditional, the RC Director will ensure that the closing clearance includes
notification of what, if any, documentation must be provided, or actions taken, to clear the conditions
for Final Closing.
2. If issues remain that cannot be resolved in advance of Final Closing, the RC Director will ensure that
the closing clearance includes either:
A deposit to the U.S. Treasury of an amount sufficient to meet any wage restitution and/or
liquidated damages that have been or may be found due; or
A completed deposit agreement (Labor Standards Deposit Agreement (form HUD-4732)), a
schedule for the deposit, and wire transfer instructions for the depositor’s financial institution.
3. If the DBLS clearance for Final Closing is qualified, either by conditions or a deposit requirement, the
RC Director will include a description of the applicable limitations in the RC Director’s administrative
clearance to close the Loan.
19.2.3
Early Start of Construction
A. General Requirements. Construction may not start before Initial Endorsement and recordation of
the Security Instrument, except with the prior written approval of the RC Director. (Note that the
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19.2 Initial Loan Closing Procedures for New Construction and Substantial Rehabilitation
authority to give this approval may not be delegable.) In general, any construction work performed on
the land after HUD’s receipt of the application for Firm Commitment but before Initial Endorsement
constitutes an early start of construction. Unless the RC Director indicates otherwise, demolition,
environmental remediation, and off-site work does not constitute an early start to the construction of the
Project; however, the RC Director must approve these activities in advance to address compliance with
environmental review and Davis-Bacon wage requirements. Further, any work undertaken prior to Initial
Endorsement must not impair the first lien priority of the Security Instrument.
B. Early Start Date. For Projects where HUD approves an early start to construction, the HUD-approved
start date (the Early Start Date) will be used instead of the Initial Closing date for determining: the
completion date in the Construction Contract; the date of the first amortized payment under the Note; and
the completion date in the Building Loan Agreement. If HUD approves an early start, the Construction
Contract and Payment and Performance Bonds (or other completion assurance) and any other closing
documents required to be signed by the General Contractor must be dated no later than the Early Start
Date.
C. Document Submission and OGC Review. The documents listed on the Early Start Checklist must be
submitted, reviewed, and approved by HUD prior to the commencement of construction, as defined in the
Request for Permission to Commence Construction Prior to Initial Endorsement (form HUD-92415). See
Section 19.4.1.4 for the online location of all HUD closing checklists.
19.2.4
Lender’s Loan Assignment between Initial and Final
Endorsement
19.2.4.1
HUD Prior Written Approval Needed
A. When a Lender wants to assign the FHA-insured Loan to another FHA-approved Lender during
construction (after Initial Closing and prior to Final Closing) the Lender must request prior approval from
HUD. Handbook 4435.1 Project Construction and Servicing Before Final Closing, par. 1-33, lists HUD’s
requirements for assignment of an insured mortgage loan prior to Final Endorsement, including that
circumstances must warrant the assignment, and that the assignee must be an approved Lender.
19.2.4.2
Prior Document Review by HUD Counsel.
A. Lender or Lender’s Counsel must submit complete draft documents to the RC Director for preliminary
HUD review. The RC Director and OGC will review the documents submitted with a Lender’s request for
assignment, including the following:
1. Checklist and written narrative, drafted by Lender or Lender’s Counsel, including the reason(s) for
the assignment, and all documents being submitted to HUD for preliminary approval;
2. Note endorsement to assignee;
3. Assignment and Assumption of the Security Instrument to and by assignee, which must include the
following provisions:
Assumption of Lender’s obligations under the Contract of Mortgage Insurance;
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Assumption of the terms and conditions pertaining to all Project Loan documents, funds and
escrow deposits required in connection therewith;
Assignee’s agreement to be bound by the provisions of the Lender’s Certificate (form HUD92434M, at par. 3) that relate to the servicing of the Loan; and
Assignee’s agreement to be bound by the provisions of the Agreement and Certification (form
HUD-93305M) or Assignee’s execution and delivery of such form to HUD;
4. UCC-3, Amendment of UCC-1 Financing Statement, to evidence the change in secured party
thereunder;
5. Assignment of Building Loan Agreement (form HUD-92441M) with Borrower’s written consent;
6. Assignment of the following types of assurance of completion, if applicable, with the written consent
of Borrower and Contractor, as well as indemnitor or surety, including assignment of cash or letter of
credit, and/or escrow agreements, if applicable:
Assurance of completion of construction; and
Assurance of installation of offsite facilities;
7. Assignment of all escrow agreements and related transfers of funds held by the Lender for the benefit
of the Project and/or Borrower;
8. Opinion of assignee’s counsel as to the validity of the assignment transaction and of the documents
executed and delivered in connection therewith;
9. Executed Mortgage Record Change (form HUD-92080);
10. Endorsement to ALTA Loan Policy reflecting the Lender’s assignment of the mortgage Loan and of any
other recorded documents; and
11. All other documents required (a) by state or local law; (b) by the HUD Closing Attorney (e.g.,
disbursement agreement, special condition documents, as applicable); and (c) the RC Director.
19.2.4.3
Implementation
A. The RC Director will determine whether to approve a Lender’s request for assignment, in consultation
with the HUD Closing Attorney. HUD will issue approvals in writing. If HUD provides approval for
assignment of the FHA-insured Loan, the Lender has 30 days to complete the assignment, and 7 days from
the consummation of the assignment to submit a final set of assignment documents to HUD, including
copies of filed and recorded documents, e.g.:
1. Assignment of the Security Instrument (must be recorded before the endorsement to the lender’s title
policy can be issued); and
2. Amendment of UCC-1 Financing Statements (state and county).
B. The RC Director may extend the 7-day deadline submission of final documents in jurisdictions where
early or contemporaneous recording is not available, and in other exigent circumstances as determined
by the RC Director.
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19.3 Final Loan Closing Procedures for New Construction and Substantial Rehabilitation
19.3 Final Loan Closing Procedures for New
Construction and Substantial Rehabilitation
19.3.1
Final Loan Closings
19.3.1.1
Definitions
A. Final Closing. For purposes of this Chapter, “Final Closing” means the closing at which HUD finally
endorses the Note for the full amount of the Loan, including the final advance of insured Loan proceeds.
B. Project Completion. For the purpose of Final Closing, “Completion" means that:
1. The Project has been completed in accordance with the drawings and specifications as indicated by
the final HUD Representative’s Trip Report (form HUD-95379), except for RC Director-approved
items of delayed completion covered by the Escrow Agreement for Incomplete Construction (form
HUD-92456M); and
2. The entire Project has been accepted for occupancy by the local authorities having jurisdiction (as
evidenced by a final Certificate of Occupancy or other evidence customarily provide in the
jurisdiction), and by Lender and HUD (as evidenced by the Permission to Occupy Project Mortgages
(form HUD-92485)).
19.3.1.2
Assurance of Completion
A. See Section 19.5.6 for HUD’s requirements for project completion assurance.
19.3.1.3
Commencement of Preparation for Final Closing
A. Lender and Lender’s Counsel should begin to prepare for Final Closing upon the earlier of HUD’s
determination that an advance of mortgage loan funds will be the last advance prior to disbursement of
the contract retainage, or that the Project has achieved substantial completion.
19.3.1.4
Prerequisites for Final Closing
A. Prior to final endorsement of the Note, the RC Director will confirm the following:
1. Construction has been completed (except as otherwise provided in this Chapter);
2. The RC Director has approved the Cost Certification, if applicable;
3. The RC Director issued the Maximum Insurable Mortgage (form HUD-92580) to the Lender; and
4. The HUD Closing Attorney has reviewed and approved the Final Closing package, including evidence
of updated title insurance and an as-built survey.
19.3.1.5
Final Closing Procedures
A. The submission and review standards in Section 19.1.2, and the closing procedures of Section 19.1.3
apply to Final Closings.
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19.3.1.6
Chapter 19 Closing Guide
19.3 Final Loan Closing Procedures for New Construction and Substantial Rehabilitation
Internal Closing Forms
A. The RC Director will prepare the following documents, and provide copies to the HUD Closing Attorney:
1. HUD Representative’s Trip Report (form HUD-95379). The most recent inspection report must
indicate if there are items of delayed completion and, if so, the amount of funds that must be escrowed
for their completion.
2. Maximum Insurable Mortgage (form HUD-92580). This document should specify if an escrow must
be established, or funds must be disbursed from an existing escrow.
3. Labor standards clearance from DBLS. See Section 19.2.2.
4. Any Request for Waiver of Housing Directive, form HUD-2, issued or approved by the RC Director
since Initial Endorsement.
5. Housing’s administrative clearance to close. See Section 19.1.3.1.
19.3.2
Final Endorsement
19.3.2.1
Request for Final Endorsement
A. Lender must prepare the Request for Final Endorsement of Credit Instrument (form HUD-92023M):
1. The RC Director will compare the Request for Final Endorsement to each Application for Insurance of
Advance of Mortgage Proceeds (form HUD-92403), and determine whether the amount of each
advance is correctly stated in the Request for Final Endorsement, and to confirm that the total sum of
advances on the Request for Final Endorsement equals the sum of all advances from each form HUD92403. The RC Director will also review the title evidence already submitted with the statement of
outstanding indebtedness in the Request for Final Endorsement, to confirm consistency between the
two. If the RC Director identifies any error or issue with the Request for Final Endorsement, the RC
Director will return it to Lender, together with a written explanation of deficiencies.
2. The Request for Final Endorsement should not include any advance of escrowed funds required for
completion of the Project (e.g., Escrow Agreement for Incomplete Construction (form HUD-92456M)).
3. The Request for Final Endorsement requires full disclosure and certification by Borrower and General
Contractor concerning payments, project completion, and unpaid obligations.
The Request for Final Endorsement Certificate of Borrower requires Borrower’s disclosure of all
unpaid obligations, including, as applicable, land acquisition, property acquisition, construction,
and soft costs. The unpaid obligations listed by Borrower in the Request for Final Endorsement
should not exceed the amount of the final advance. If the amount of unpaid obligations exceeds
the final advance, Borrower must cover the difference between the unpaid obligations and the
final advance either by (a) depositing sufficient funds in escrow, or (b) providing cash or other
assurance of payment acceptable to the RC Director, in consultation with the HUD Closing
Attorney. In either case, the RC Director will approve the amount and form of payment assurance
before the RC Director approves the Request for Final Endorsement.
The Request for Final Endorsement Certificate of General Contractor requires General
Contractor’s disclosure of all unpaid obligations of the General Contractor under the Construction
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Contract (form HUD-92442M), including amounts due to any sub-contractors. If the amount of
unpaid obligations listed in the Request for Final Endorsement Certificate of General Contractor
exceeds the amount certified by Borrower as owed to the General Contractor, the RC Director will
urge the Lender to promptly resolve the dispute prior to Final Endorsement, and to obtain
agreement between Borrower and General Contractor as to the amount owed to the General
Contractor. If prompt resolution is unattainable, see Section 19.3.2.A.3, and Section 19.3.4. (for
Final Closing procedures when Borrower and General Contractor are in dispute). Additionally,
for Projects with an identity of interest between Borrower and General Contractor, the RC
Director will not approve a Request for Final Endorsement and HUD will not proceed to Final
Closing, until and unless Lender provides HUD with documentary evidence demonstrating that
cash is available to cover the difference between the stated obligations.
4. The RC Director must obtain receipt of payments for unpaid obligations. The Request for Final
Endorsement Certificates of Borrower and of General Contractor require payment of all listed unpaid
obligations within prescribed time limits, and Lender must provide documentary evidence of such
payment to the RC Director. Future compliance is certified by Borrower and General Contractor,
subject to civil or criminal penalty for false claims or statements.
If Lender does not provide the required receipt and supporting evidence of Borrower’s payment
of listed unpaid obligations by the deadline prescribed in the Request for Final Endorsement, the
RC Director will immediately make a written inquiry to the Lender to determine the status of
payment(s).
If the RC Director does not receive the receipt for the payment of reported unpaid obligation(s)
within fourteen (14) days from the date of the RC Director’s inquiry, the RC Director will
determine appropriate next steps.
19.3.2.2
Final Endorsement of the Note
A. When the RC Director determines the Request for Final Endorsement is satisfactorily completed, HUD
will proceed to Final Closing. The RC Director will not date their Final Endorsement of the Note prior to
the date of Final Closing. The final amount of the Note must equal the amount of all insured advances to
Borrower, as approved by the RC Director and shown in the Request for Final Endorsement, even if Final
Endorsement occurs after the commencement of amortization.
19.3.2.3
Release of Final Advance
A. Lender must not release the final advance until the HUD Closing Attorney confirms that Final Closing
is complete and releases the finally endorsed Note. See Section 19.3.3 and Chapter 12, Section 12.8.6.
19.3.2.4
Release of Working Capital Deposit
A. The balance of the working capital deposit attributable to the Construction Contingency Amount (as
that term is defined in the Escrow Agreement for Working Capital (form HUD-92412M), if any, may be
released to the Borrower upon Final Endorsement upon Borrower's request. Terms for the release of that
portion of the working capital deposit attributable to the Working Capital Amount are set forth in
paragraph 4 of the Escrow Agreement for Working Capital.
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19.3 Final Loan Closing Procedures for New Construction and Substantial Rehabilitation
19.3.3
Final Advance
19.3.3.1
Requirements for Final Advance
A. Prior to approving the final advance of mortgage Loan proceeds, the RC Director will make the
determinations required by Application for Insurance of Advance of Mortgage Proceeds (form HUD92403), and Chapter 12, Section 12.8.6, and notify the Lender of any deficiencies.
19.3.3.2
Application for Insurance of Advance of Mortgage Proceeds
A. When the final advance is in order, Lender and Borrower will execute the completed Application for
Insurance of Advance of Mortgage Proceeds.
1. If all items of on-site construction are complete, the word “None” will appear in the Certificate of
Mortgage Insurance (form HUD-92403), in the space provided for the amount of the escrow deposit.
2. If there are incomplete items of on-site construction, an escrow deposit will be required unless
otherwise determined by the RC Director, in accordance with the Escrow Agreement for Incomplete
Construction (form HUD-92456M). In addition, an itemized list of incomplete construction items
must be attached to the Escrow Agreement for Incomplete Construction and the Application for
Insurance of Advance of Mortgage Proceeds. The amount of the escrow deposit required for
completion of incomplete items must be typed into the Certificate of Mortgage Insurance portion of
form HUD-92403 in the space provided.
3. On or before Final Closing, the RC Director will deliver one executed original of the Application for
Insurance of Advance of Mortgage Proceeds to the HUD Closing Attorney for inclusion in the
Washington Docket, one copy for the attorney docket, and any remaining duplicate or original copies
to the Lender, each including any attachment listing incomplete items. The RC Director will retain at
least one copy of the Application for Insurance of Advance of Mortgage Proceeds for its records.
19.3.4
Final Closings when Disputes Arise
19.3.4.1
Disputes
A. Occasionally, Borrower and General Contractor dispute change orders, the quality or cost of completed
construction work, or other matters related to project completion or payment. These disputes can delay
Final Closing if the Contractor is unwilling to complete all of the required forms and provide required
documentation of project costs and completion. If Borrower and Contractor enter into mediation,
litigation, or both, the delay may be extensive. HUD’s expectation is that the Lender and Borrower will
engage in a good faith effort to resolve disputes with the Contractor prior to requesting Final
Endorsement.
B. However, if a dispute remains unresolved and results in extension fees or other hardship (e.g., Lenders
need to convert the underlying financing of the mortgage Loan to permanent status), the Lender may
request that HUD proceed to Final Closing while the dispute is pending. HUD will consider such requests
on a case-by-case basis as outlined in this Section 19.3.4. HUD’s priority in evaluating these requests is to
ensure that Final Endorsement is statutorily and regulatorily compliant, that the construction of the
Project is satisfactory, and that sufficient funds are made available to cover potential liabilities of the
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Borrower thereby mitigating significant risk to (a) the Project (e.g., mechanic’s liens) and (b) the viability
of the FHA-insured Loan.
19.3.4.2
Relevant Issues for HUD’s Consideration
A. The RC Director, in consultation with the HUD Closing Attorney, will consider the following factors
related to a Lender’s request to proceed to Final Endorsement without full participation of the Contractor,
in addition to any other matters deemed necessary by the HUD Closing Attorney or the RC Director:
1. Has cost certification been completed? When cost certification is required, HUD will not proceed to
Final Endorsement without Borrower’s completion of the Mortgagor’s Certificate of Actual Cost (form
HUD-92330). See Chapter 13 for HUD’s requirements for cost certification.
Cost certification in cases of unresolved dispute(s) also facilitates HUD’s review of requests to
proceed to Final Endorsement by:
1) Providing the factual basis for HUD to determine that the maximum insurable mortgage
calculation does not exceed the statutory limit; and
2) Illustrating what outstanding obligations are disputed, which helps establish that sufficient
funds are escrowed (or otherwise available) to cover Borrower’s potential liability and
mitigate the risk of future construction-related liens against the Project.
2. Can the dispute result in a mechanic’s lien that primes the HUD mortgage?
Have any liens been filed?
If no liens have been filed, has the statutory period for filing liens expired, or is it possible that
liens could be filed in the future?
If future liens are possible, are the relevant program participants willing to sign lien waivers? Are
such waivers enforceable under applicable state law?
If a lien waiver is conditional, is Borrower willing to provide assurances of payment in the event
the dispute is resolved in the Contractor’s favor?
If liens have been filed, is the final draw sufficient to pay such liens?
1) If sufficient, will Borrower and Lender agree to escrow the mortgage Loan proceeds with the
title company pending resolution of the dispute?
2) If not sufficient, will Borrower furnish additional funds (or other assurances acceptable to the
RC Director) to cover any liens and other pending obligations until the dispute is finally
resolved?
3. What title coverage is available to bring the effective date of the policy forward to Final Endorsement?
Is clean title available, with no liens shown as exceptions? Alternatively, if any mechanic’s liens exist,
is the title insurance policy providing affirmative coverage against those liens?
4. Is it possible for Borrower to bond over the liens, if any, or the litigation, if any, in order to free the
project from the effects thereof and clear title to the project? (See, e.g., Colorado Revised Statutes §
38-22-131; other states may have similar procedures.)
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5. Are there state laws that affect the dispute resolution process? For example, some states have statutes
under which a claimant can force the disburser of funds either to pay the claimed amount or hold all
undisbursed mortgage Loan proceeds in escrow pending the outcome of the dispute. (See, e.g.,
Colorado Revised Statutes § 38-22-126.) If so, does state law provide or permit a process consistent
with HUD’s requirements?
6. What is the status of Labor Clearance for the Project? See Section 19.2.2.
19.3.4.3
Closing Without Full Participation of the Contractor.
A. If the RC Director, in consultation with the HUD Closing Attorney, determines that HUD is willing and
authorized to approve a Lender’s request to proceed to Final Closing with disputes pending, and without
full participation of the General Contractor, the following matters must be addressed to the RC Director
and HUD Closing Attorney’s satisfaction:
1. Certain administrative requirements of Chapter 12, Section 12.7.7, Final Advance, will not be met. The
RC Director may waive non-statutory and non-regulatory requirements. HUD’s expectation is that
the requirements for Final Endorsement will be met to the greatest extent possible. For necessary
deviations from this Chapter or elsewhere in this Guide, Lenders must adhere to the requirements of
Section 19.4.1.
2. All documents listed on the HUD Final Closing checklist must be submitted. Lenders must request
form changes (e.g., a change to the Contractor’s certification on the Request for Final Endorsement)
following the procedures in Section 19.4.1.
3. Lender must provide a written narrative to explain what good faith efforts were made by Lender and
Borrower to resolve the outstanding dispute(s) prior to making the request to proceed to Final
Endorsement with the dispute(s) pending.
4. Lender must provide evidence that all relevant parties (e.g., Contractor, Surety) were notified of the
Lender’s request to proceed to Final Closing while the dispute(s) between Borrower and Contractor
are pending.
5. Potential liens and claims related to the dispute, and the authority of Borrower to proceed to Final
Endorsement under the terms of the Construction Contract, including the A-201, must be addressed
through a supplemental Opinion of Borrower’s Counsel (form HUD-91725M). See e.g., the standard
form Opinion of Borrower’s Counsel opinion 7, and confirmations (c) and (e).
6. Cost certification must be satisfactorily completed by all required parties. See 24 CFR 200.96, Chapter
12, Section 12.7.7.A.1, and Chapter 13.
7. The title company must bring the policy forward to the date of Final Endorsement (typically through
a date-down endorsement) or issue a new policy as of the date of Final Endorsement and provide
affirmative coverage over all existing mechanic’s liens.
8. Chapter 12, Section 12.7.7.A.2. requires the Contractor to execute Contractor’s Requisition and
Contractor’s Prevailing Wage Certificate (form HUD-92448), and HUD must receive the customary
letter or memorandum from HUD’s Office of Davis Bacon Labor Standards stating that the Project may
be closed (the letter may be conditional, may be issued by DBLS or DOL, and may require specific
mitigation to address unpaid obligations).
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19.3 Final Loan Closing Procedures for New Construction and Substantial Rehabilitation
9. 24 CFR 200.101 requires Borrower to certify, among other matters, as to “all unpaid obligations in
connection with the mortgage transaction, the purchase of the mortgaged property, the construction
or rehabilitation of the project or the purchase of the equipment financed with mortgage loan
proceeds.” See Request for Final Endorsement (form HUD-92023M), which may require modification
to accurately reflect the parameters of the dispute while still providing the information required
under 24 CFR 200.101.
10. Chapter 12, Section 12.7.7.A.5, requires the Contractor to execute the Request for Final Endorsement,
discussed more fully in Section 19.3.2.A.2. This includes the Contractor’s certification as to its
outstanding obligations, which may require modification to accurately reflect the parameters of the
dispute.
11. Chapter 12, Section 12.7.7.A.4, requires an escrow for items of delayed completion (see Section
19.3.1). If the dispute includes allegations of incomplete construction, this escrow must be
established as part of the Final Closing.
12. The remaining mortgage Loan proceeds (as well as additional sums, if required) must be placed in
escrow or otherwise made available (e.g., bonded, or letter of credit) pending the outcome of the
dispute. See Section 19.3.4.3.A.13, immediately below, and Chapter 12, Section 12.15.5.
13. The terms for resolving the dispute, including release or advancement of funds to the prevailing
participant, must be evidenced by an agreement (e.g., escrow agreement), and such terms must be
satisfactory to the RC Director and HUD Closing Attorney. The agreement should, at a minimum, meet
the following requirements:
Provide a mechanism for the payment of all undisputed outstanding obligations, such as amounts
owed subcontractors, upon receipt of proper lien waivers;
Provide for funds disbursement to the prevailing parties upon resolution of the dispute, or upon
a designated future date, etc.;
Include supplemental cost certification, if needed, for items of delayed completion, etc., to ensure
that the Loan amount needs no further adjustment;
Address unique requirements (and compliance therewith) of state or local law regarding
disbursement and payment;
Stipulate Borrower’s present or future right to any awards, payments, settlements or other
compensation resulting from litigation involving the Project are deemed Mortgaged Property
under the Regulatory Agreement; and
Ensure the agreement is entered into by the Lender and Borrower, and, if applicable, the title
company, court, Contractor, and/or surety.
19.3.5
Workout Restructuring and Interim Closing
19.3.5.1
Introduction
A. When problems occur during construction necessitating a workout or restructuring of a Project, an
interim closing may be necessary.
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1. Handbook 4435.1 along with Chapter 12, Construction Period, and its appendices, provide HUD’s
administrative guidance for a Project’s construction period. When serious problems arise during
construction (see Appendix 12, Section A.12.5), the RC Director and HUD Closing Attorney will work
with the Lender to resolve the serious construction problems in a manner that is consistent with HUD
policy.
2. Handbook 4435.1, Chapter 12, Section 12.3.5, and Appendix 12, Section A.12.5 prescribe HUD’s
policies for managing serious construction problems and initiating workouts during the construction
period.
19.3.5.2
Workouts
A. The RC Director has broad discretion under this Guide (e.g., Chapter 12 and its appendices), and
Handbook 4435.1, to approve the terms of an interim workout during the construction period to resolve
serious construction problems that pose a risk of foreclosure and other hardship regardless of the cause.
If negotiations are successful, there may be workout, disbursement, or settlement agreements to evidence
the agreed upon resolution of the serious construction problem(s) (e.g., contractor default and
abandonment). The RC Director and HUD Closing Attorney will review takeover agreements, settlement
agreements, etc., that affect the documents from Initial Closing, including the Construction Contract. The
RC Director, in consultation with the HUD Closing Attorney, will approve the terms of the workout, the
takeover agreement, if applicable, and any changes to existing agreements from Initial Closing.
1. Checklist. The Interim Closing/Workout Checklist (see Section 19.4.1.4) functions as a guide for the
RC Director and HUD Closing Attorney as to what documents may be required for a workout. The
documents listed on the checklist are not mandatory by default, and each workout is case specific. The
RC Director and HUD Closing Attorney determine what documents, if any, are necessary for HUD to
approve a structured workout during construction. Some documents in the checklist may be
appropriate for collection as part of the workout, even if they do not require amendment.
2. Other Administrative Guidance. Applicable Guidance elsewhere in this Chapter, in the remainder
of this Guide, and in Handbook 4435.1, provide guidance in HUD’s review of the terms of construction
period workouts and interim closings, when appropriate.
3. Mortgage Increase. If the RC Director approves a mortgage increase in connection with the workout,
HUD’s requirements for Final Closing loan modification apply. See Section 19.5.9.4. Lender’s Counsel
must provide a written certification from all relevant program participants, including the Surety when
the bond(s) have been called, acknowledging the applicability of these Final Closing requirements,
and compliance therewith as a condition of HUD’s approval of the structured workout and/or interim
closing. (a certification is acceptable).
4. Contractor Default and Project Abandonment. In cases of General Contractor default and
abandonment, Lender’s Counsel must coordinate with Lender, Borrower, HUD, and Surety to initiate
the Surety’s takeover of the Construction Contract under the performance bond. The workout may
also require a call on the payment bond. HUD, Lender, Borrower, and Surety, as applicable, will
negotiate the terms for completion of the project. This often results in extensive negotiation between
the HUD Closing Attorney and Surety’s counsel over the terms of the surety’s takeover agreement, and
a disbursement agreement between Lender, Borrower, and Surety. There may be additional costs and
significant alterations to the Project, especially if the Project is less than 75% complete. Compliance
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with this Chapter must be stipulated in the body of any takeover agreement. See also Section 19.4.12,
Final Closing when Contractor and Borrower are in Dispute.
5. Litigation. If litigation related to construction of the Project has been filed or is threatened, Lender
and Borrower must disclose the litigation to the RC Director and the HUD Closing Attorney.
The HUD Closing Attorney will confer with their Regional Counsel and Associate Regional Counsel
for Litigation to determine whether a litigation hold is necessary prior to HUD granting approval
for any workout or interim closing.
The RC Director and the HUD Closing Attorney will also evaluate disclosed litigation and
determine whether any risk mitigants related to the litigation should be included as terms of the
workout. See Section 19.3.4, Final Closings in Dispute, for further guidance on considerations and
risk mitigants related to construction litigation.
Part II: Closing Documents and Program-Specific
Requirements
19.4 Document and Diligence Requirements
19.4.1
General Requirements for Closing Documents
19.4.1.1
Required Use of HUD Forms and Closing Protocols
A. The Firm Commitment conditions HUD’s endorsement of the Note on the Lender’s submission of all
required documents. Lenders must use HUD forms when such forms exist, and, when no form exists, each
document must be approved by HUD. Required documents are listed on the applicable closing checklists
and in the Firm Commitment. HUD’s endorsement is also conditioned on compliance with the procedures
and requirements of this Chapter.
19.4.1.2
Completion of HUD’s OMB-approved Forms
A. HUD’s OMB-approved form documents include blank spaces for insertion and bracketed alternatives
to accommodate project specific information. Lender’s Counsel is responsible for completing HUD’s OMBapproved forms through insertions in blanks, the selection of bracketed language, formatting documents
for signature and recordation (including separating and marking counterpart signature pages), and
insertion of signature and notary blocks. Inapplicable provisions (e.g., inapplicable construction
provisions in refinance transactions) should be shown as strikethroughs. These strikethroughs alert HUD
and the Lender to modifications during the loan servicing period and mitigate shifting document numbers
and paragraphs. For HUD closing documents that provide bracketed alternatives, the preparer may
remove or strikethrough the alternatives that do not apply. For example, sections of Note (form HUD94001M) provide bracketed alternatives for interest rate definitions, payment provisions, prepayment
provisions, and endorsement panels. The form completion changes outlined in this Section 19.4.1.2 are
not considered substantive changes under Section 19.4.1.6, and do not require explicit HUD approval.
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19.4.1.3
Date of Documents
A. All closing documents must be dated with the same date, to the extent possible, which may be prior to
the date the Note is endorsed by HUD for insurance. However, the following documents must be dated
the date of endorsement (whether Initial, Initial/Final, or Final Endorsement, as applicable, as such terms
are defined in the HUD Firm Commitment):
1. Title insurance policy;
2. Borrower’s Incumbency Certificate for Borrower’s Organizational Documents;
3. Opinion of Borrower’s Counsel (form HUD-91725M);
4. Lender’s Certificate (form HUD-92434M); and
5. Request for Endorsement of Credit Instrument and Certificate of Borrower, Lender and General
Contractor (form HUD-92455M).
19.4.1.4
Closing Checklists
A. HUD’s closing checklists will be updated from time to time for technical corrections and for any changes
to Program Obligations. The most current version of the applicable checklist published to HUD’s website
must be used for each closing. Closing checklists can be found at:
https://www.hud.gov/OGC_Multifamily_Closing_Documents_Checklist.
B. Changes to the required checklist items are not permitted, except as required by local law or the Firm
Commitment. Any such changes must be added to the end of the checklist in the section specifically
identified for “Additional documents required by local law or the Firm Commitment.” Lender’s Counsel
must also notify the HUD Closing Attorney of any such changes they have made to the checklist consistent
with this paragraph.
19.4.1.5
Submission of Closing Documents
A. Draft Submissions. Lender’s Counsel must submit two (2) complete sets of the draft closing package,
one to the Closing Coordinator and the other to the HUD Closing Attorney.
1. Lender’s draft submission must include all documents required by the Firm Commitment and
applicable closing checklist, including documents previously submitted as part of an early legal
review, and excepting those time-sensitive items for which later submission is expressly permitted
(e.g., current status certificates).
2. Lender’s submission must include clean versions of the HUD form closing documents and redlines of
those drafts compared against the OMB-approved forms, together with the non-form documents
required by the applicable checklist. See Section 19.1.2 and Section 19.1.3, supra, for HUD’s closing
review standards and procedures.
B. Closing Docket Submission. Lender’s Counsel must ensure that the Closing Docket submitted to the
HUD Closing Attorney at closing is consistent with the draft submission(s) previously reviewed and
approved by the HUD Closing Attorney and the RC Director, and that no modifications to the closing
documents (form and non-form) have been made without the HUD Closing Attorney’s actual knowledge
and prior approval.
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C. Exhibit of Document Changes. The Request for Endorsement of Credit Instrument (form HUD92455M), and Lender’s Certificate (form HUD-92434M), require Lender to certify that the final closing
documents submitted to HUD (with the exception of the Opinion of Borrower’s Counsel) conform to the
OMB-approved forms , and that those documents have not been “changed or modified in any manner
except as specifically identified and approved by HUD as evidenced by the attached Exhibit.” The exhibit
must include an itemized list of changes to the OMB-form documents, excluding filled-in information,
deletion of inapplicable bracketed language, changes for state addenda and riders already approved by
HUD, and selection of alternatives.
19.4.1.6
Changes to Form Documents and Deviations from Closing Guide
A. HUD strongly discourages substantive changes to HUD forms and deviations from this Chapter.
Substantive change requests will likely result in a longer closing package review time and may impact
Tentative Closing Dates. Further, HUD’s approval of any request should not be presumed.
1. Substantive Changes Requiring Project Specific Approval by HUD. For purposes of this Chapter,
a substantive revision to a HUD form means any modification to the provisions of an OMB-approved
form that is not a matter of form completion (see Section 19.4.1.2, supra). Substantive form revisions
and any deviations from procedures of this Chapter require HUD’s written approval on a case-by-case
basis, except for substantive form revisions expressly provided for in this Chapter or elsewhere in this
Guide (e.g., modifications to the Security Instrument to accommodate a 241(a) supplemental loan
closing; HUD-approved templates required by state or local law for the Subordination Agreement –
Public). For brevity, this Chapter refers to these substantive form revisions and deviations from this
Chapter for which Project-specific HUD approval is required as “substantive changes.” Lender and
Lender’s Counsel must request HUD’s approval for any substantive change through the procedures
set forth herein.
2. Narrative Submission to HUD Closing Attorney. For all substantive change requests, Lender must
submit a written justification supporting the request to the RC Director, and the HUD Closing Attorney,
if a HUD Closing Attorney has been assigned for the Project. The Lender’s justification must include
either (a) an explanation of how the substantive change(s) are necessary to comply with state or local
law, or (b) a transaction-specific justification for the request, whichever is applicable. The Lender’s
request should be submitted with the Firm Application whenever possible. Lender and Lender’s
Counsel should not directly contact HQ OGC or MHP regarding any submitted request except in
coordination with the RC Director and the HUD Closing Attorney. Lender and Lender’s Counsel are
also responsible for providing any additional information and supporting documentation requested
by HUD. Lender is responsible for identifying any related conflicts with other program directives and
ensuring that a directives waiver request is properly submitted to the appropriate HUD program
office.
3. Substantive Changes Related to Separate Housing Directive Waivers. Often, a substantive change
is necessary to effectuate a Lender’s requested waiver of a program directive (e.g., a programmatic
requirement found in other chapters of this MAP Guide). In such cases, Lender’s request to waive the
program directive must include written identification of the substantive change(s) necessary to
effectuate the requested program directive waiver. Lender’s Counsel is responsible for submitting
the Lender’s written request to the HUD Closing Attorney or OGC Point of Contact, as applicable. The
RC Director will not approve a Lender’s request to waive a housing directive until and unless the
related substantive change(s) is approved by HUD in accordance with this Section 19.4.1.
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4. Approval Authority. The RC Director, in consultation with Regional Counsel, may approve requests
for substantive changes that are necessary to comply with state and local law, provided that there is
no statutory or regulatory conflict. Any change to an OMB-approved form associated with a state or
local law request must be narrowly tailored to address the state or local law provision at issue.
Lender’s Counsel is responsible for providing the HUD Closing Attorney with legal citations and
documentation to support any such request. All other substantive changes require a multi-tiered HUD
review, detailed below at Section 19.4.1.7.
19.4.1.7
Multi-Tiered Review of Requests for Substantive Changes
A. This tiered review is intended to facilitate uniformity, efficiency, and consistency among HUD offices,
and HUD’s fair and equal treatment of program participants. HUD will only approve such requests when
HUD determines that the request is supported by a compelling deal-specific justification. All requests for
substantive changes must be consistent with federal, state, and local law.
1. Regional Review for Cause. When Lender’s Counsel submits a substantive change request, the HUD
Closing Attorney will discuss the requested change with the RC Director. The RC Director is
responsible for determining whether, as a matter of program policy, the request is warranted. If the
RC Director determines that the change is not warranted, the RC Director will notify the Lender,
Lender’s Counsel and HUD Closing Attorney.
2. Legal Conflicts Review. If the RC Director determines that the substantive change is warranted as a
matter of program policy, the RC Director will verify whether there is any need to waive related
program directives and refer the request to OGC for legal conflict clearance. If not previously cleared
for statutory and regulatory conflicts, the HUD Closing Attorney will complete the legal conflicts
review in coordination with the appropriate Regional Counsel.
No Conflicts. If there are no statutory or regulatory conflicts related to the request, the HUD
Closing Attorney will forward the request to HQ for final consideration.
Regulatory Conflict. If there is a regulatory conflict, the HUD Closing Attorney will discuss the
regulatory conflict with the RC Director and HQ OGC. If the RC Director determines that it is in
HUD’s best interest to approve the requested change notwithstanding the regulatory conflict, the
RC Director will prepare a draft regulatory waiver for referral to HQMHP.
Statutory Conflict. If there is a statutory conflict, the request will be rejected.
3. Addressing Other Legal Concerns. Once the request is evaluated for conflicts, the HUD Closing
Attorney will determine if there are any other legal concerns (including impacts on other closing
documents). If the HUD Closing Attorney identifies other legal concerns, they will document the
concerns in writing and include the written explanation with their referral of the request to HQ.
4. Referral to HQ. The HUD Closing Attorney will refer the request via email to the Assistant General
Counsel for the Multifamily Mortgage Division (MMD). The MMD is responsible for coordinating its
review and the review of the HQ Office of Multifamily Housing Production (HQ MHP). The HUD
Closing Attorney must ensure the following information is included in the referral to HQ:
A description of the substantive change(s) requested, including a reference to the relevant
document(s) and/or policy. When applicable, a redline excerpt of the relevant document
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provision identifying the requested change(s) may be included in the submitted narrative (redline
comparisons of entire documents will not be reviewed);
Confirmation that the RC Director supports the request;
Confirmation that there are no identified statutory conflicts;
Explanation of regulatory barriers, if any;
An explanation of why the change is supportable, i.e., the justification approved by the RC Director,
including compelling deal-specific and unique circumstances underlying the requested change.
The justification should include enough detail, context, and rationale to allow HQ MMD and MHP
to make an informed determination, as well as to establish that HUD is not acting in an arbitrary
and capricious manner in its decision-making;
An explanation of whether the requested substantive change relates to a separate request for
waiver of a housing directive (form HUD-2), and if so, confirmation that the RC Director is willing
and able to approve the related form HUD-2 waiver;
When available, –a copy of any related requests to waive a program directive;
An explanation of the extent to which such change impacts other documents;
A discussion of additional legal considerations and concerns, if any, including any reservations of
the HUD Closing Attorney; and
A statement of any time constraints.
5. HQ Review. The MMD will respond to the HUD Closing Attorney in writing. HQ staff will make every
attempt to respond within ten (10) business days, provided the submitted justification meets the
requirements of this Chapter. Program participants should submit substantive change requests as
early as possible, and well before their desired closing date. When the substantive change request
involves matters of program policy, the MMD will solicit the review and decision of HQ MHP, which
will make the final determination on behalf of HUD. The MMD will review and decide requests that
are strictly legal in nature.
6. Approved Substantive Change Requests. The MMD will provide a copy of approved substantive
change requests to the assigned HUD Closing Attorney and appropriate Regional Counsel. The HUD
Closing Attorney will notify the RC Director. Approved substantive change requests will be noted by
the RC Director in their administrative clearance to close.
19.4.2
Security Instrument
19.4.2.1
General Requirements
A. Multifamily (Mortgage, Deed of Trust, Deed to Secure Debt, or Other Designation as Appropriate in
Jurisdiction), Assignment of Leases and Rents and Security Agreement (form HUD-94000M) (the Security
Instrument) must be used to secure the FHA-insured Loan and grant the FHA Lender, and its successors
and assigns, a first lien on the Mortgaged Property (except for 241(a) supplemental loans – see Section
19.6.3). The caption or title of the document must be revised as appropriate to reflect the appropriate
designation in the Project jurisdiction.
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19.4.2.2
Permitted Modifications for State Requirements and Practices
A. Lender’s Counsel must modify the Security Instrument to comply with local requirements relating to
recording practices and enforceability. Preparers should attach a HUD-approved state addendum or
rider, if applicable, and a recording cover sheet, if necessary. State-specific riders and modifications can
be found on HUDClips at:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms/hud9/rid
ers-addendums
B. In certain jurisdictions (e.g., Florida and New York), Borrowers refinancing under Sections 223(a)(7)
and 223(f) frequently request to modify the Security Instrument and Note to facilitate a reduction in
mortgage recording taxes. The HUD Closing Attorney may accept this modification without HQ OGC
review when the practice is permitted under applicable state law, and the RC Director determines that the
change is consistent with HUD Program Obligations.
19.4.2.3
Supplemental, Consolidated, Amended or Restated Loan
A. Lender’s Counsel may revise the Security Instrument to accommodate supplemental, consolidated,
amended, or restated mortgage loans. All revisions are subject to final approval by the HUD Closing
Attorney, and the requirements of this Chapter. See also Section 19.4.1, Section 19.4.4.2, Section 19.5.9
and Section 19.6.3.
19.4.2.4
Ground Lease
A. When all or part of the Mortgaged Property consists of a leasehold estate, the ground lease must include
the provisions set forth in Lease Addendum (form HUD-92070M). The Lease Addendum provisions must
be attached to the ground lease and incorporated into the ground lease by reference prior to the execution
of the ground lease. If incorporation of the Lease Addendum prior to execution of the ground lease is not
possible, the Lease Addendum must be separately executed by the Landlord and Tenant prior to HUD’s
endorsement of the Note, with an appropriate amendment to the ground lease. A rider to the Security
Instrument relating to the ground lease is not required.
B. For 223(a)(7) refinancing transactions, a new Lease Addendum will not be required unless the ground
lease has been materially modified from the version approved at the previous HUD-insured loan closing
and without HUD approval, or the ground lease term does not comply with the National Housing Act .
19.4.2.5
Fee-Joinders
A. In limited circumstances, HUD will allow use of a fee-joinder to establish Borrower’s interest in the
requisite fee or leasehold. OGC’s Multifamily Mortgage Division maintains a template fee-joinder for use
in these transactions; Lender’s Counsel should contact the HUD Closing Attorney to obtain the most
current version before drafting the Security Instrument.
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19.4.3
UCC-1 Financing Statements
19.4.3.1
General Requirements
A. As set forth in the Security Instrument, Borrower must grant Lender a first lien security interest in the
Mortgaged Property, including the personality associated with the project (except for 241(a)
supplemental loans – see Section 19.6.3). FHA Lender must take any and all measures available under the
Uniform Commercial Code (UCC) of the Project’s and Borrower’s jurisdictions and locations, including the
filing of UCC financing statements, to ensure that it has and maintains an enforceable first-lien security
interest in the Mortgaged Property for the entire duration of the FHA-insured mortgage Loan. See 24 CFR
207.258(b)(4). FHA Lender must also certify that these requirements have been met in Lender’s
Certificate (form HUD-92434M) for new construction/substantial rehabilitation, or Request for
Endorsement of Credit Instrument & Certificate of Lender, Borrower & General Contractor (form HUD92455M) for refinances.
B. Additional UCC-1 Financing Statements and a separate legal opinion may be required if the
construction advances include offsite storage of building components. See Section 19.5.7.
C. Real property and any non-realty equipment, furnishings, and all other collateral covered by the
Security Instrument, must be free and clear of all liens other than the FHA-insured Loan, liens for taxes
and assessments that are not yet due and payable, and any other inferior liens that the RC Director
approves in writing.
D. The legal description of the real property must be identical to the legal description in the Regulatory
Agreement and in all other closing documents, including the Building Loan Agreement (form HUD92441M) (the Building Loan Agreement), Security Instrument, title insurance policy, and survey. Minor
differences, such as abbreviations or other non-substantive stylistic differences, are allowed.
E. The Secretary of Housing and Urban Development must be listed as an additional secured party, using
the notice address for the Office of Housing in the Regulatory Agreement.
F. The name of the Project and FHA project number should be listed on the UCC-1 Financing statements
for reference.
19.4.3.2
Description of Collateral
A. Lender must attach to the UCC-1 Financing Statement a description of the non-realty Mortgaged
Property, as defined in the Security Instrument. Descriptions of non-realty collateral for the UCC-1
Financing Statement may differ from the language used in the definition of Mortgaged Property in the
Security Instrument, if required to comport with state law.
B. Lender is responsible for ensuring that the UCC-1 description of collateral is sufficient to create an
enforceable first-priority lien, as certified to in the Lender's Certificate or Request for Endorsement, as
applicable.
C. Appropriate after-acquired property and proceeds clauses must be included in the collateral
description.
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19.4.4
Promissory Note
19.4.4.1
General Requirements
A. Note (Multistate) (form HUD-94001M) (the Note), must be used. Any changes to the form must be
approved by the procedure set forth in Section 19.4.1. Preparers should attach a HUD-approved state
addendum or rider, if applicable. State-specific riders and modifications can be found on HUDClips at:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms/hud9/rid
ers-addendums
B. The terms of the Note (e.g., maturity, payments of principal and interest, interest rate) must be
consistent with the Firm Commitment.
C. A Loan may be evidenced by multiple Notes (i.e. tranches) when approved by the RC Director and
memorialized in the Firm Commitment. In such cases, the Firm Commitment will provide the HUDapproved terms applicable to each Note.
19.4.4.2
Prepayment Provisions
A. The Note includes instructions for alternative prepayment and lockout provisions. To the extent a
rider is necessary to set forth the prepayment terms, as called for in Alternative B to Section 9 of the Note,
the rider must include only the prepayment restriction(s) and prepayment premium charge(s) (see
Chapter 11, Section 11.8.2), and the statement, “This Rider 1 is subject to the restrictions and
requirements for prepayment set forth in Paragraph 9 of the Note.” No other provisions to the
prepayment Rider 1 are permitted.
19.4.4.3
Endorsement Panel
A. The Note form contains a separate endorsement panel for each section of the Act under which the
mortgage Loan may be insured, and the various closing types covered by this Chapter. Lender’s Counsel
must prepare the Note to include only the endorsement panel applicable to the loan being closed.
19.4.4.4
Late Charge Provision
A. When preparing the Note, Lender’s Counsel may include a denominated late charge amount. The late
charge amount must comply 24 CFR 200.88 with the limitations in Chapter 11, Section 11.8.4.
19.4.4.5
Changes to Loan Interest Rates
A. Any change to the interest rate prior to Initial Endorsement requires an amendment to the Firm
Commitment.
1. Amendment for Rate Reduction. If the construction interest rate is reduced before Initial
Endorsement and it is not feasible to reprocess the loan application, the Firm Commitment must be
amended to state the proper interest rate and contain the following condition (see Chapter 8, Section
8.15.2.C.1):
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Any interest savings resulting purely from a differential between the HUD-processed interest rate
and the actual, final interest rate may not be construed as excess funds that may be used to offset
costs in other categories at the time of cost certification. Any such saving must be applied as a
mortgage reduction.
2. Reprocessing for Rate Increase. If the construction and/or permanent interest rate increases
before Initial Endorsement, the Firm Commitment must be amended, and the loan application
reprocessed to reflect the higher rate.
19.4.4.6
Change(s) to Permanent Financing After Initial Closing
A. Re-processing of loans for changes to the permanent financing from the terms in the Firm Commitment
after Initial Closing is generally prohibited by Chapter 3, Section 3.1.4. Changes are only allowed in the
limited situation of a bond deal, as the permanent interest rate may not be known at Initial Closing (see
Chapter 8, Section 8.15.2). If the evidence submitted in preparation for Final Endorsement indicates that
permanent financing is not available at the interest rate, term length, or mortgage loan amount identified
in the Firm Commitment, then the Firm Commitment must be reprocessed accordingly.
19.4.4.7
Supplemental, Consolidated, Amended or Restated Loan
A. Lender’s Counsel may revise the Note to accommodate supplemental, consolidated, amended, or
restated mortgage loans. All revisions are subject to final approval by the HUD Closing Attorney, and the
requirements of this Chapter. See also Section 19.4.1, Section 19.5.9, and Section 19.6.3.
19.4.5
Regulatory Agreement
19.4.5.1
Form
A. The Regulatory Agreement for Multifamily Projects (form HUD-92466M), is used to establish
regulatory restrictions on the Project, Borrower's financial and project management obligations, and
HUD's rights if the Regulatory Agreement is violated. Section 9 of the Security Instrument incorporates
the Regulatory Agreement by reference.
19.4.5.2
Notice Address for HUD
A. In Section 46.b., the address for HUD will be the Multifamily Housing Regional Center or Satellite Office
responsible for Asset Management of the Project (as identified in the Firm Commitment).
19.4.5.3
Section 50
A. Section 50 and the Section 50 Addendum of the Regulatory Agreement relate to the non-recourse
nature of the indebtedness and indicate certain matters for which the parties may be held personally
liable; the Firm Commitment will identify the party(ies) to be inserted in the Section 50 Addendum. Any
party to Section 50 must execute the Addendum as indicated by the HUD form, separate from the
Regulatory Agreement signature page and also with all formalities required for recording a deed to real
estate according to the law of the Project jurisdiction.
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19.4.5.4
Section 30 - Additional Occupancy Restrictions and Policies
A. Lender and Borrower must work closely with HUD during the application and closing process to ensure
that any proposed occupancy restrictions are lawful and comply with Program Obligations.
1. Any occupancy restrictions required in connection with the FHA-insured Loan that are not already
included in the Regulatory Agreement must be listed in Section 30.a.
2. Any other occupancy restriction imposed on the Project (separate from FHA requirements) may be
listed in Section 30.b. If listed, the form language of Section 30.b. must be modified to state, “these
non-FHA occupancy restrictions are listed for informational purposes only and are not required under
the Loan.”
19.4.5.5
Residual Receipts Rider
A. In some cases, other HUD programs (such as Section 8 and Section 202 Supportive Housing for the
Elderly) impose Residual Receipts requirements on non-profit owners. In such cases, a Project will be
subject to Residual Receipts requirements even though the FHA mortgage insurance program does not
impose these requirements.
1. The Regulatory Agreement requires projects subject to Residual Receipts requirements to attach a
Rider to Regulatory Agreement for Residual Receipts Requirements (see Section 19.9) and indicate
whether the Project is subject to such a rider on page 1 of the Regulatory Agreement. If the rider is
attached and the “yes” blank is checked, the Surplus Cash provisions of the Regulatory Agreement are
thereby modified, and the provisions of the attached rider indicate that Residual Receipts account
requirements are imposed by another program. The rider must clearly define the source and duration
of the Residual Receipts requirements, and indicate that upon expiration of these requirements, the
terms in the Regulatory Agreement regarding Surplus Cash will control.
2. In the case of FHA-insured projects that receive rental assistance from a project-based Section 8
housing assistance payments (HAP) contract, the mortgage insurance documents, including the
Regulatory Agreement, are separate and apart from the Section 8 HAP contract. Thus, the maturity
or prepayment of the FHA-insured Loan and the resulting release of the Regulatory Agreement have
no effect on the Section 8 HAP Contract, which continues in full force and effect until the date on which
it expires, unless terminated for cause.
19.4.5.6
Additional Riders
A. Additional riders to the Regulatory Agreement may be required for certain transactions pursuant to
the Firm Commitment and/or Program Obligations, including:
1. Rider to Regulatory Agreement for Affordable Projects, required when the Project benefits from
reduced MIP as an Affordable project.
2. Rider to Regulatory Agreement, Borrower’s Obligation to Maintain Project’s Energy Performance as
Consideration for MIP Reduction (form HUD-92466-R-5), required when the Project benefits from
reduced MIP as a Green project.
3. Riders to Regulatory Agreement – Multifamily Housing Projects: for the Borrower, Master Tenant,
Master Sub-lessee (Commercial Tenant), and the Master Sub-lessee (Residential Tenant) for master
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lease structures used to accommodate multifamily tax credit sources pursuant to Chapter 16 (forms
form HUD-92466-R1 to form HUD-92466-R4).
4. Section 213 Cooperative Program Rider to Regulatory Agreement for Multifamily Projects, which may
be adapted for Section 207/223(f) cooperative refinances. See Section 19.17.
5. Mark-to-Market HAP Contract Riders (FHA-First Mortgage and MRN CRN), for Projects with Section
8 Housing Assistance Payment Contracts participating in the Mark-to-Market Program. When
applicable, the HUD Closing Attorney will contact the MMD for the most recent versions of these
forms.
19.4.6
Borrower Entity’s Organizational Documents
19.4.6.1
General
A. Organizational documents for the Borrower entity are required to be submitted for the following types
of closings:
1. Initial Endorsement;
2. Final Endorsement, if any organizational documents have been modified since Initial Endorsement or
additional authorization is necessary (see Section 19.4.6.5); and
3. Initial/Final Endorsements;
19.4.6.2
Borrower’s Counsel Legal Review and Opinion
A. Opinion of Borrower’s Counsel (form HUD-91275M) requires Borrower’s Counsel to state that
Borrower has the organizational authority needed to execute and deliver the Loan Documents, complete
the transaction(s) called for thereunder, and perform its obligations accordingly. Depending on the
Borrower’s organizational structure, Borrower’s Counsel must review organizational documents for
controlling entities, and, in some cases, review and retain authorization(s) from controlling and/or uppertier entities in order to provide and support Opinion 4 of Opinion of Borrower’s Counsel. See also Chapter
8, Section 8.3.
19.4.6.3
Required Organizational Documents for Borrower
A. The following organizational documents must be provided:
1. Borrower’s Incumbency Certificate. A certificate dated the date of closing, and signed by the
secretary or other authorized Borrower representative (which may be the individual executing the
Loan documents), stating:
The organizational documents attached to the certificate are true and correct copies, and have not
been amended, modified, rescinded, or revoked, and remain in full force and effect; and
The name(s) and title(s) of Borrower’s officers and key principals, with specimen signature(s) of
the individual(s) authorized to execute the Loan documents.
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2. Formation Documents. Copies of Borrower’s filed formation documents, including all amendments
and subsequent filings, certified by the relevant jurisdiction’s Secretary of State, or legal equivalent,
within 60 days prior to closing, or such longer period approved by the HUD Closing Attorney.
3. Governing Document. Copy of Borrower’s fully executed governing document, including any and all
amendments, and including the HUD-Required Provisions in effect as of the date of Firm Commitment.
See Section 19.7.
4. Authorization. Evidence that the transaction is authorized, and that Borrower has authority to
execute the Loan documents. If such authorization is not explicitly provided in the entity’s governing
document, this may take the form of a resolution, written consent, or other legal equivalent, consistent
with local law, custom, and the entity’s organizational documents.
5. Status Certificate. A status certificate from the Secretary of State, or legal equivalent, of the
jurisdiction where Borrower is organized evidencing Borrower’s authority to do business (e.g., a
Certificate of Good Standing). This status certificate must be dated within 30 days prior to closing, or
a longer period if approved by the RC Director. If Borrower is not organized in the state where the
Project is located, a certificate from the Secretary of State, or legal equivalent, in the Project state
evidencing Borrower’s authority to conduct business in the Project jurisdiction (e.g., a Foreign Status
Certificate).
19.4.6.4
Tax Credit Transactions
A. In tax credit transactions, Borrower’s governing document (or the governing document of Borrower’s
single-member, if Borrower is a single-member LLC and the equity will be paid-in to the single-member)
must incorporate the tax-credit investor’s equity pay-in schedule, as approved by the RC Director. The
HUD Closing Attorney will confirm with the RC Director that the equity pay-in schedule is acceptable.
19.4.6.5
Final Closings
A. At Final Closing, a certification signed by the Secretary or other authorized representative, either:
1. Confirms no changes were made to the Borrower's organizational documents delivered to HUD at
Initial Closing and that the authorizing resolution given at Initial Closing covers the Final Closing and
is still in effect; or
2. Identifies any changes made to the organizational documents delivered to HUD at Initial Closing and
attaches copies of the amendments or other documents effecting such changes.
B. An authorizing resolution may be required if the Borrower’s governing organizational documents and
previously delivered resolutions did not fully authorize the Final Closing or final Loan amount.
19.4.7
Title, Escrow, and Survey Requirements
19.4.7.1
Logistics
A. Closing Review. After the Firm Commitment has been issued, the RC Director and HUD Closing
Attorney review a pro forma title insurance policy, a survey of the Land, and the Survey Instructions and
Surveyor’s Report (form HUD-91073M), as submitted by Lender’s Counsel in the draft closing package.
HUD reviews to confirm that Borrower’s interest in the real estate is not impaired by title or survey
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matters that impermissibly impact the insurability, operation, financial viability, or marketability of the
Project, and that title and survey are consistent with HUD Program Obligations.
B. Closing. At or before closing, Lender must provide the HUD Closing Attorney with an authenticated
and enforceable title policy (see Section 19.4.7.2, below for currently approved form). The policy must be
effective as of the date of HUD’s endorsement of the Note, in the form approved by the HUD Closing
Attorney, and including all endorsements prescribed by this Section 19.4.7.
19.4.7.2
Title and Survey Review Standards
A. HUD’s currently approved form of title insurance policy is the American Land Title Association (ALTA)
2006 Loan Policy of Title Insurance – Lender’s Policy, or state approved equivalent (Title Policy).
B. HUD may approve revised versions of the ALTA 2006 title policy or related forms as ALTA releases
new versions. When approved, HUD will post the approval to HUD’s external website.
19.4.7.3
Pro Forma Title Policy Submission
A. As part of the draft closing package, Lender’s Counsel must submit a pro forma of the Title Policy, along
with legible copies, or if illegible, certified transcripts, of all exception documents listed in Schedule B. If
the title company cannot produce a legible copy or certified transcript of an exception document, the
exception must be extinguished and removed from the Title Policy, or affirmatively covered, except where
the RC Director, in consultation with the HUD Closing Attorney, determines that elimination is impossible
or impracticable, and does not pose an unacceptable risk to HUD.
B. Lender’s Counsel must thoroughly review the pro forma Title Policy prior to submission with the
closing package and, when possible, obtain corrections to the pro forma to comply with the standards of
this section prior to submitting the pro forma to HUD.
1. HUD Closing Review. The RC Director and HUD Closing Attorney have concurrent responsibility to
review the pro forma Title Policy, for completeness, acceptability, and accuracy, as detailed below.
Lender’s Counsel is responsible for resolving deficiencies, whenever possible, and submitting a final
Title Policy, that is consistent with the form and substance approved by the HUD Closing Attorney and
RC Director.
RC Director Responsibilities. The RC Director will:
1) Review all subordinate liens and encumbrances for programmatic acceptability and
compliance.
2) Review all title exceptions and survey matters for consistency with the proposed financing of
the Project. Confirm that listed exceptions do not adversely affect the Project value or
marketability, unless previously approved by HUD during Project underwriting. If the RC
Director cannot determine acceptability, the RC Director will refer the issue to HQ MHP. See
24 CFR 200.61, 200.72, and 200.73.
3) If the Project’s zoning compliance is established by title endorsement (see checklist), confirm
that the Project’s approved use under the applicable section of the NHA is consistent with the
zoning endorsement. See 24 CFR 200.72.
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4) Provide the HUD Closing Attorney and Lender with written comment identifying all title and
survey matters deemed by the RC Director to be programmatically unacceptable. The RC
Director will consult with the HUD Closing Attorney to resolve identified deficiencies.
5) Ensure all identified deficiencies have been resolved to the RC Director’s satisfaction prior to
issuing the administrative clearance to close and assist Lender in resolving deficiencies as
appropriate.
HUD Closing Attorney Responsibilities. The HUD Closing Attorney will:
1) Confirm that the Title Policy reflects that the FHA-insured Security Instrument will be a valid
and enforceable first lien against the insured Land (except for loans insured under sections
241 and 223(d)).
2) Ensure the elimination of unacceptable title and survey matters, including covenants,
restrictions, or exceptions that violate federal law, except where the RC Director, in
consultation with the HUD Closing Attorney, determines that elimination is impossible or
impracticable, or that the encumbrances can be insured over or otherwise adequately
addressed.
3) Identify all Schedule B items with rent, affordability, and/or use restrictions, including those
imposed by state or local government(s) or instrumentalities. If the item reflects a restriction
that is not approved in the Firm Commitment (e.g., secondary financing, see Section 19.4.9),
disclose the matter to the RC Director in writing.
Note: The HUD Rider to Restrictive Covenants (see Section 19.15) is required when the RC
Director, in consultation with the HUD Closing Attorney, determines that the Rider is
necessary to comply with the Project’s underwriting or Program Obligations.
4) Identify Schedule B and Survey matters that the RC Director should review for programmatic
acceptability, including:
a) Indemnification provisions;
b) Private charges or assessments;
c) Options to purchase;
d) Rights of first refusal, or the prior approval of a future purchaser or occupant;
e) Tenant in possession under a recorded or unrecorded lease;
f)
Air rights, whether they are part of the insured real property or reserved to a party other
than Borrower;
g) Condominium rights;
h) Mineral rights, mineral reservations, and mineral leases;
i)
Patent reservations;
j)
Riparian rights;
k) Reversionary interest (conditional or unconditional);
l)
Telecommunication leases and rooftop leases;
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m) Commercial leases; and
n) Development agreements.
19.4.7.4
Title Policy Requirements
A. Schedule A. Schedule A details the coverage provided by the Title Policy.
1. Effective Date. The Title Policy effective date must be the same as the date of HUD’s endorsement of
the Note. If a time of day is included, the time must be end of the business day.
2. Policy Amount. The amount of the title insurance coverage, shown in Schedule A, must be the full
amount of the FHA-insured Loan.
Note: For new construction and substantial rehabilitation loans, HUD requires that the Title Policy
insure the full amount of the FHA-insured Loan (e.g., the amount of the Note); pending disbursement
endorsements are permitted if the endorsements are consistent with the requirements of this Section.
HUD insures all 223(f) transactions in full at the time of endorsement, thus pending disbursement
endorsements are not permitted for 223(f) Title Policies.
3. Named Insureds. Schedule A, number 1 lists the insureds for the Title Policy. Lender “and/or the
Secretary of Housing and Urban Development, and their successors and/or assigns, as their interests
may appear” must be the named insureds on the Title Policy. No other parties, e.g., subordinate
Lenders, may be named insureds.
4. Estate or Interest in the Land. Schedule A, number 2 identifies the type of estate encumbered by
the Security Instrument. The identified estate must be consistent with the Firm Commitment. By
statute, Borrower’s estate or interest in the Land must be fee simple or an eligible leasehold. In
addition, the Borrower’s statutorily required interest, Schedule A, number 2 must also reference any
appurtenant right, including beneficial easements. In such instances, Borrower’s appurtenant right
must be distinguished from Borrower’s statutorily required interest (e.g., “fee simple as to
[Borrower’s fee simple or leasehold estate] and easement as to [beneficial easement]”).
5. Vested Title Holder. Schedule A, number 3 identifies the entity that holds title to the Land. Generally,
Borrower must be identified as the only vested title holder in Schedule A, number 3. If the Firm
Commitment evidences HUD’s approval of an alternative (e.g., air rights, bifurcated ownership, or
public entity held fee subject or joined to the Security Instrument), the vested title holder in Schedule
A, number 3, must be consistent with the Firm Commitment.
6. Insured Mortgage. Schedule A, number 4 describes the instrument(s) that create the mortgage
insured in the Title Policy. Both the Security Instrument and the Regulatory Agreement, because it is
incorporated into the Security Instrument, must be shown in Schedule A, number 4. The reference to
the Regulatory Agreement must state that the Regulatory Agreement is incorporated by reference in
the Security Instrument (other legally equivalent phrasing may be used, subject to HUD Closing
Attorney approval).
7. Legal Description. The legal description of the Land used in the Title Policy must exactly match the
legal description in the Firm Commitment, on the Survey, and in other closing documents except for
minor stylistic differences or immaterial reference language. Appurtenant interests shown in
Schedule A, number 2 may be listed as separate tracts, parts, or other legal equivalent.
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B. Schedule B. Schedule B provides coverage of Exceptions.
1. Standard Exceptions. The Title Policy must not include standard exceptions on Schedule B, unless a
standard exception cannot be deleted under applicable state law. Lender and Lender’s Counsel are
responsible for requesting deletion of standard exceptions from the Title Policy. Affirmative coverage
over these matters is not permitted unless such coverage is the only available mitigation under
applicable state law. Standard exceptions, sometimes called general exceptions, include, but are not
limited to:
Rights or claims of parties in possession not shown by the Public Records;
Easements, or claims of easements, not shown by the Public Records;
Encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by
an accurate survey or inspection of the Land;
General exception for matters shown on survey, or that would be shown on survey;
Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished,
imposed by law and not shown by the Public Records (aka mechanic’s liens); and
Taxes or special assessments which are not shown as existing liens in the Public Records.
2. Senior Record Exceptions. Schedule B must list items identified by title in the land records. In most
jurisdictions, title matters senior to the FHA-insured mortgage are shown on a Schedule B-I. Senior
record exceptions must either be approved by the HUD Closing Attorney (in consultation with RC
Director pursuant to the criteria in Section 19.4.7.2 above), or extinguished and removed,
affirmatively insured over, or otherwise mitigated to the satisfaction of the HUD Closing Attorney and
RC Director, as appropriate. No monetary liens may supersede the FHA-insured mortgage, except
supplemental loans insured under Section 241, which will be subordinate, and real estate taxes and
assessments for current year that are not yet due and payable.
3. Project Survey Exception. While the general title exception for survey matters is prohibited (see
Section 19.4.7.2.A, above), minor survey matters expressly noted by the surveyor (e.g. a specific fence
encroachment not affecting Borrower’s use of or liability for the Land) may be listed as exceptions
from coverage in Schedule B, subject to RC Director approval, which may require affirmative coverage
if available under state law.
4. Subordinate Record Exceptions. In most jurisdictions, matters subordinate to the Security
Instrument are shown on a Schedule B-II.
The UCC-1 Financing Statement recorded as a fixture filing in the real estate records of the
Property jurisdiction must be shown in Schedule B as subordinate to the Security Instrument.
Note: HUD does not require that the UCC-1 Financing Statement filed with the Secretary of State,
or legal equivalent, in the Borrower’s organizational jurisdiction be shown on Schedule B.
If the Firm Commitment authorizes secondary financing, either from a governmental or private
source, secured by a subordinate lien on the Project, such lien(s) must be shown in Schedule B as
subordinate to the Security Instrument.
5. Record Exceptions that Appear to Violate Federal Law or the Regulatory Agreement.
Exceptions that appear to violate Federal law or the Regulatory Agreement, in whole or in part, must
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be extinguished as a matter of record and removed from the Title Policy, except where determined by
the RC Director to be impossible or impracticable. If removal is impossible or impracticable, the HUD
Closing Attorney will request that the Title Policy or the title company state that the conflicting
provisions are unenforceable.
C. Affirmative Coverage (Endorsements) and Deletions to the Title Policy. The Title Policy must
include the affirmative coverage (coverage added to the standard policy) and deletions listed below, and
any other coverage required by the RC Director and the HUD Closing Attorney, except where prohibited
by applicable state law.
1. Affirmative Coverage, Endorsements. Affirmative coverage extends the insurance provided
through the Title Policy by covering additional risks of loss or damage. Affirmative coverage is added
to the Title Policy by annotation (e.g., notation of additional coverage directly on a schedule), or
through the title company’s issuance of standard form endorsements. The affirmative coverage listed
below is generally required. When a specific ALTA endorsement number is listed but not available in
the Project jurisdiction, the HUD Closing Attorney may accept a state approved endorsement bearing
a different form number, or alternative affirmative coverage, provided that the coverage is
substantially similar. The RC Director, HUD Closing Attorney, and Lender are each permitted to
require additional affirmative coverage not required by this section based on the specific
characteristics of the transaction.
Comprehensive Coverage over Restrictions, Encroachments, and Minerals.
ALTA
Endorsements 9, 9-06, 9.7-06, 9.10-06 (also known as the Series 9, Comprehensive Endorsement,
or Comp 9), as applicable, to provide affirmative coverage related to mortgage divestment, and
violations of restrictions, encroachments, and minerals. In many jurisdictions, the comprehensive
ALTA 9-06 is intended for use with improved residential property but may also be issued for
unimproved property (e.g., new construction on vacant land). Other jurisdictions have authorized
issuance of a series 9 endorsement specifically for unimproved property.
Note: Most of the ALTA series 9 endorsements specifically exclude certain Schedule B matters.
For that reason, other affirmative coverage (notation or other endorsement) will be required to
extend coverage over such items in Schedule B, as determined necessary by the RC Director and
HUD Closing Attorney.
Private Rights. ALTA Endorsement 9.6.-06 – Loan Policy, to provide affirmative coverage against
loss or damage resulting from options to purchase, rights of first refusal, rights of prior approval,
and other private charges or assessments.
Deletion of Arbitration. The Title Policy must provide affirmative coverage that deletes
Condition 13 of the ALTA jacket policy (arbitration). There is no published ALTA form number
for this endorsement.
Zoning. ALTA Endorsements 3.1-06 (completed structure/improved land), or 3.2-06
(construction/unimproved land), as applicable, when Lender elects to use a zoning endorsement
as the requisite evidence of zoning compliance. See Instructions to Opinion of Borrower's
Counsel (form HUD-91725M-INST). When the ALTA 3.2-06 is used, the plans and specifications
reference must be consistent with the Firm Commitment and the Building Loan Agreement (i.e.,
the referenced plans and specs must be consistent with the HUD-approved version).
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Environmental Protection Lien. ALTA Endorsement 8.1-06, to provide coverage related to lien
priority of the Security Instrument vis-à-vis environmental protection liens as defined in the
endorsement. “None” should be inserted after the colon (:) in the endorsement paragraph (b). If
any environmental protection liens are listed by title in paragraph (b), the HUD Closing Attorney
must consult with the assigned HUD Environmental Officer.
Note: ALTA Endorsement 8.2-06 is not an acceptable alternative as it applies to commercial
property.
Leasehold. ALTA Endorsement 13.1-06 to provide additional coverage when the Project is
secured by a HUD-approved ground lease.
Access and Entry. ALTA Endorsements 17-06 (direct access), 17.1-06 (easement access), as
applicable, to provide affirmative coverage related to property access and entry. The access
endorsement must be consistent with the point(s) of access depicted on the Survey.
Tax Parcels. ALTA Endorsement 18-06 (for Land consisting of a single parcel) or 18.1-06 (for
Land consisting of multiple tax parcels or Land that includes insured easements), as applicable,
to provide affirmative coverage related to tax parceling risk.
Contiguity. ALTA Endorsements 19-06 and 19.1-06, as applicable, to provide additional coverage
for Projects with contiguity risks (e.g., multiple or adjacent parcels, or beneficial easements).
Same as Survey. ALTA Endorsement 25-06 or 25.1-06, as applicable, to provide coverage related
to non-objectionable inconsistencies between the record legal description (Land in Schedule A)
and the boundaries identified on the Project’s survey. The survey reference in the endorsement
must be consistent with the date and number revision of the HUD-approved Survey.
Policy Authentication, Electronic Signature. ALTA Endorsement 39-06, as applicable, to
ensure coverage when the Title Policy will be issued electronically or without wet-ink signatures.
Pending Disbursements. ALTA Endorsements 32-06 and 33-06, to provide alternative coverage
when the title company will only insure a new construction or substantial rehabilitation loan by
deleting Covered Risk 11(a) (mechanic’s lien coverage) during the construction of the Project.
HUD only permits deletion of Covered Risk 11(a) and pending disbursements title coverage for
loans closed as new construction/substantial rehabilitation Insurance of Advances. Pending
disbursements coverage is prohibited when HUD insures the total Loan amount at endorsement
(e.g., 223(f) projects with Expanded Work, see Section 19.6.1.9) or where mechanic’s liens relate
back to the start of construction pursuant to state law.
Easements and Encroachments. ALTA 28 Series Endorsements, as applicable, when easements
or encroachments are shown on survey and listed as senior to the Security Instrument in Schedule
B.
Minerals and Other Sub-Surface Substances. ALTA Endorsement 35.1-06 (improved land), or
ALTA Endorsement 35.3-06 (land under development), as applicable, to provide affirmative
coverage over Schedule B exceptions for mineral or other sub-surface substance rights.
Note: The 35 series endorsements provide additional coverage that is not afforded by the Series
9 comprehensive endorsement(s).
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Other Resource Extraction. Endorsement, such as CLTA Endorsement 103.5-06, to provide
affirmative coverage when title or survey show rights of third parties to subsurface resource
extraction or surface use of the Land (e.g., mineral or water extraction, water irrigation, other
resource reservations).
Utility Access. When required by the Firm Commitment or applicable closing checklist, ALTA
Endorsement 17.2-06 to provide affirmative coverage related to a Project’s access to standard
utilities.
2. Non-Standard Exception Deletions from Policy. The matters listed below must be resolved prior
to closing and deleted from the Title Policy. Affirmative coverage is not permitted.
Taxes. Specific tax liabilities that are not yet due and payable may be listed on Schedule B.
However, all taxes that are liens and payable as of closing, must be paid prior to closing.
Specified Mechanic’s Liens. Previously recorded mechanic’s liens shown in Schedule B must be
resolved, and the liens removed from the Title Policy prior to closing.
19.4.7.5
Title Policy Issuance and Escrow Services
A. Title Agent Letter of Authority. Where the Title Policy is issued by a title agent (i.e., not directly by
the issuing title company), HUD requires a letter of authority (aka agency verification letter). The agency
verification letter must: be on the letterhead of the Title Company issuing the Title Policy, be addressed
to HUD and the Lender; include Borrower’s name, Project name and number, policy amount, and title
agent’s name, and state that the title agent is in good standing with the title company issuing the Title
Policy. Additionally, the agency verification letter must state that the title agent has the authority to issue
the Title Policy on behalf of the title company for the project identified in the letter and must be valid as
of the date of closing. Lender’s Counsel is responsible for obtaining any necessary updates to the agency
verification letter to ensure compliance with these requirements.
B. Escrow Services and Closing Protection. HUD generally permits a local title company branch, title
agent, or approved attorney to provide additional escrow services along with issuance of the Title Policy.
The local branch, title agent, or authorized attorney will close the transaction by ensuring that the
documents are recorded, disbursing the funds to the proper parties, and issuing the Title Policy.
1. HUD requires a closing protection letter (e.g., ALTA Closing Protection Letter (ALTA CPL – Single
Transactions R-12-01-2015), or an equivalent form letter authorized by the state regulatory body in
the Project jurisdiction) for all closings where a title agent, approved attorney, or other individual not
directly employed by the issuing title company will perform escrow services and/or manage original
documents required for closing.
2. The title company issuing the Title Policy must issue the CPL to Lender and HUD, as their interest may
appear. Any liability limitation stated in the CPL must be equal to or greater than the amount of the
FHA-insured Loan.
3. The CPL ensures that the title agent, approved attorney, or other third party escrow agent is
authorized to perform the escrow services on behalf of the title company, and to indemnify the Lender
for actual losses caused by certain misconduct of the closing agent (subject to specific exceptions and
exclusions therein). The CPL must state that the protection afforded by the CPL is valid as of the date
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of closing. Lender’s Counsel is responsible for obtaining any necessary updates to the CPL to ensure
compliance with these requirements.
4. HUD will only accept third-party escrow services and related CPLs when such services and coverage
are permitted by state law of the Project jurisdiction.
19.4.7.6
Survey, Survey Map/Plat and Surveyor’s Report.
A. Survey Map Plat. The plat should contain the following:
1. Form. When a survey is required for closing (see applicable closing checklists and instructions
elsewhere in this Guide), an ALTA/NSPS Land Title Survey map or plat (the Survey) and a surveyor’s
report supplementing the Survey must be submitted, and must conform to the instructions and form
set forth in the Survey Instructions and Surveyor’s Report (form HUD-91073M) (the Surveyor’s
Report), including the listed ALTA/NSPS Table A items and the required certification.
2. Date. The current Survey and Surveyor’s Report must be signed and sealed by the surveyor not more
than 180 days prior to closing. The date of the last site inspection/field work must be no more than
180 days prior to closing. The RC Director, in consultation with the HUD Closing Attorney, may extend
the 180 timeframes at its reasonable discretion. If the RC Director allows for most recent fieldwork
to be completed more than 180 days prior to closing, Lender must submit a Survey Affidavit of No
Change from Borrower, in a format similar to the sample included at Section 19.10. All references to
180 days in this paragraph are reduced to 120 days for as-built surveys submitted for final closing of
a construction Loan. See Section 19.5.9.
3. All Identifiable Interests Must Appear. The Survey must show all identifiable easements, apparent
interests (including railroads), and encroachments on the Land, and from the Land onto contiguous
parcels. All identified interests must be acceptable to the RC Director, in consultation with the HUD
Closing Attorney. All plottable easements, restrictions and exceptions shown on the Title Policy,
including existing maintenance, joint-use, easement, and other agreements, must be depicted on the
Survey. Blanket easements that cannot be plotted must be listed with recording information, and
notation “not plottable” or equivalent must appear next to the title exception.
4. Access. All access roads must be labeled as public or private, as applicable.
5. Common Elements. When a Project includes common facilities not exclusive to the Project, Borrower
must provide for recordation of an agreement for the shared common use of applicable land and
facilities (e.g., common drives, common lobbies, elevators, walkways, utility roads, parking structures,
recreation facilities, storm water management facilities (retention ponds, detention ponds, swales,
and culverts), or other common facilities). The agreement must grant shared rights to Borrower, with
rights of use for tenants, and must run with the land. All common elements, including common
elements located on adjacent parcels, must be depicted and labeled on the Survey, unless the RC
Director determines that such depiction is not necessary.
6. Declarations. When the Project is subject to condominium, property/homeowner association, or
other HUD-approved covenant or declaration, (e.g., documents providing for maintenance, access, or
cost sharing) and the document(s) affect Borrower’s interest in the Land (e.g., air rights), they must
be shown or referenced on the Survey.
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7. New Agreements Required After Survey Review. After survey review, the RC Director, in
consultation with the HUD Closing Attorney, may determine that a recordable maintenance, joint use,
easement, or other agreement is necessary to mitigate risk of identifiable rights or third-party use,
etc. If so, the RC Director will notify the Lender of the need for a new agreement. Once created, any
new agreement must be depicted (or referenced, if not plottable) on Survey, and recorded sufficiently
in advance to allow for such depiction; the RC Director, in consultation with the HUD Closing Attorney,
may deviate from this Survey requirement in exigent circumstances.
B. Surveyor’s Report. The Survey must be supplemented with the Surveyor’s Report. The Surveyor’s
Report must be signed and dated on or after the date of the last revision to the Survey, and must be
completed by a licensed surveyor, not merely an engineer, and bear the surveyor's original signature (or
other legally effective authentication), and professional seal.
19.4.8
Opinion of Borrower’s Counsel
19.4.8.1
General
A. The Opinion of Borrower’s Counsel (form HUD-91725M) provides HUD with a comprehensive
transaction opinion letter from Borrower’s Counsel. The Instructions to Opinion of Borrower’s Counsel
(form HUD-91725M-INST), explains the requirements for completion of the Opinion, including Exhibit A
to Opinion of Borrower’s Counsel, Certification of Borrower (form HUD-91725M-CERT) and additional
required exhibits, and use of alternate provisions, as applicable. Inapplicable provisions in the form
Opinion must be retained, and either stricken or replaced with the notation “Intentionally Omitted” in
order to retain the numbering/lettering sequence in the Opinion.
19.4.8.2
Supplemental Opinions
A. Transactions may require a supplemental Opinion of Borrower’s Counsel. Circumstances that may
necessitate a supplemental opinion are discussed elsewhere in this Chapter. See e.g., Section 19.3.4.3.A.5
and Section 19.5.9.5.
19.4.8.3
Litigation Disclosure
A. Litigation docket searches for the Borrower and Borrower’s general partner, managing member, or
similar controlling person(s) or entity(ies), must be conducted in the state, federal district, and
bankruptcy courts of the Project jurisdiction and in the jurisdiction of their principal places of business.
B. All litigation identified by a required docket search and any other claim threatened in writing and
known to Borrower or Borrower’s Counsel (including litigation arising after the date of the litigation
docket search but prior to closing), must be disclosed to the HUD Closing Attorney in writing. This
disclosure must be accompanied by an explanation from the Borrower and/or an assessment of risk by
Borrower's Counsel to the reasonable satisfaction of the Lender and HUD. The explanation/assessment
must describe the nature of the litigation or claim, the status of the proceeding, and whether insurance
is/will cover potential liability. Lender’s Counsel is responsible for obtaining any information requested
by the HUD Closing Attorney or the RC Director.
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19.4.9
Secondary Financing
19.4.9.1
General
A. Secondary financing must comply with the requirements in Section 8.9 (Secondary Financing), the NHA
first-lien requirement, and 24 CFR Part 200, particularly 200.71 and 200.85). Approval of secondary
financing is a Housing business decision, including whether it may be secured with a subordinate lien
against the Project. Sections 8.9 and 14.12 discuss when the RC Director may approve secured, secondary
financing.
B. The RC Director must ensure any approved secondary financing is consistent with Program Obligations
and memorialized in the Firm Commitment, including: the name of source, whether it is private or public,
amount*, interest rate, whether it will be secured or unsecured, repayment terms, maturity date, financing
instrument(s), and the name of maker on the Note.
C. To the extent the RC Director approves secondary financing for a transaction, Lender’s Counsel must
ensure, and HUD Closing Attorney will confirm, that the appropriate forms discussed below are used.
D. Any liens created by secondary financing must be shown on the Title Policy in Schedule B, Part II or
otherwise shown as subordinate to the lien of the FHA-insured Security Instrument in conformance with
state-specific practice and approved by the HUD Closing Attorney.
E. The Request for Endorsement of Credit Instrument (form HUD-92455M) and the Request for Final
Endorsement of Credit Instrument (form HUD-92023M) require copies of all HUD-approved promissory
notes be attached. The RC Director is responsible for confirming that only the promissory notes approved
by HUD are attached.
F. Subordinate secondary financing may be secured by a collateral assignment of the Project’s HAP
contract, provided the proper documentation is used and approved by the RC Director and HUD Closing
Attorney. See applicable Consent to Assignment of HAP Contract as Security for Financing, (e.g., form
HUD-9649 and form HUD-9649a). If the HAP Contract, by its terms, already includes HUD’s consent for
collateral assignment of the contract as security for financing, HUD will not require additional
documentation.
G. Additional secondary financing-related guidance may apply to the transaction, depending on the
circumstances. See, e.g.:
1. Chapter 2, Section 2.6.4.1. Identity of interest requirements for various secondary financing and tax
credit scenarios
2. Chapter 3, Section 3.1.16. Bridge or Gap Financing
3. Chapter 3, Section 3.1.19. Tax Increment Financing
4. Chapter 7, Section 7.16. Tax Abatement and Deferrals
5. Chapter 8, Section 8.12. Firm Commitment Processing with Grants/Loans
6. Chapter 8, Section 8.14. Determining the Estimated Cash Requirements for Completing the Project
7. Chapter 8, Section 8.15. Bond Financed Projects and Tax-Exempt Agency Loans
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8. Chapter 14. LIHTC and Other Tax Credit Programs, particularly:
Section 14.11. Structuring of Secondary Debt in Tax Credit Transactions
Section 14.12. Developer Fees
Section 14.13. Tax Credit Equity Pay-In Schedule
Section 14.15. Equity Bridge Loans (EBLs) in Tax Credit Projects
9. Appendix 12, Section A.12.1. Approval of Advances
19.4.9.2
Unsecured Secondary Financing
A. Promissory notes may be used to evidence subordinate Borrower debt approved by HUD. One of the
two following forms must be used:
1. Surplus Cash Note (form HUD-92223M); or
2. Residual Receipts Note (form HUD-92908M), when Borrower’s distributions are restricted through a
Residual Receipts Rider to the Regulatory Agreement.
B. The foregoing forms may be used to evidence the following types of debt:
1. Discounts, financing fees, and/or extension fees paid by a third party on behalf of Borrower;
2. Secondary loans from a governmental or non-governmental source;
3. Deferral of the Developer’s fee in return for Borrower’s agreement to pay upon completion of the
Project (deferred Developer fee), if: (1) disclosed by the parties before Initial Endorsement, and (2)
the Firm Commitment does not provide for a Builder’s and Sponsor’s profit and risk allowance
(BSPRA); and
4. Land acquisition costs that exceed HUD’s warranted price of land fully improved.
C. Promissory notes are prohibited under the following circumstances:
1. For costs disallowed in the cost certification review;
2. To determine the distribution of surplus cash; and
3. To establish an equity interest, other than Equity Bridge Loans for tax credit projects, as discussed in
Section 19.4.9.6, below.
19.4.9.3
Secured Secondary Financing – Public Sources
A. General. Secondary financing from a public entity that will be secured with a lien against the
Mortgaged Property, as memorialized in the Firm Commitment, must be subordinated through HUD’s
Subordination Agreement – Public (form HUD-92420M).
Note: The Subordination Agreement – Public should not be used to subordinate HUD-held debt.
Existing Mark-to-Market (M2M) debt should be subordinated using the form of subordination
agreement from the HUD Office of Recapitalization attached to post-M2M approval memos. The
HUD Closing Attorney will contact the MMD to advise on documentation required to subordinate
other HUD-held debt, including Partial Claim and Flexible Subsidy loans.
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B. The Subordination Agreement – Public. This Agreement contains HUD-required language that must
be inserted or incorporated by reference into the subordinate note (see Subordination Agreement – Public
(form HUD-92420M), Section 3(c), Borrower’s and Subordinate Lender’s Representations and
Warranties).
The HUD Closing Attorney will review the subordinate note to confirm
inclusion/incorporation of this required language. The form also contains bracketed alternative options
for subordinate public debt that is forgivable.
C. Negotiated Templates. HUD will consider requested changes to the Subordination Agreement –
Public if the change is necessary to comply with state or local law, in accordance with the procedures set
forth below. HUD’s written acceptance of any changes will result in a template for a given jurisdiction and
program. Pursuant to the Paperwork Reduction Act, HUD’s approval of any template expires upon
implementation of the next OMB-approved version of the form, at which time public Lenders must again
request HUD approval to modify the new OMB-approved version.
1. Requested changes are subject to the review of the HUD Closing Attorney, the RC Director, and the
Regional Counsel.
2. Counsel to the governmental agency must separately identify each specific provision(s) of the
Subordination Agreement – Public that needs to be modified in order to comply with specific
provisions of state or local law. The request must include a narrative outline of the request in which
each requested form change must be numbered, with a depiction of the change shown as redlined text
compared to the HUD form, accompanied by a detailed description explaining why the change is
necessary to comply with state or local law. Note that HUD will not consider non-substantive, stylistic
changes. HUD will only approve requested changes that are accurate, sufficiently explained, and
narrowly tailored to address the state or local law compliance issue(s). The requested changes and
supporting justification must be submitted to the HUD Closing Attorney. The HUD Closing Attorney
will independently analyze and confirm whether the justification and rationale are accurate and
narrowly tailored to address compliance with the identified state or local law and confirm there are
no statutory or regulatory barriers.
3. If the HUD Closing Attorney determines the requested changes are legally acceptable, the HUD Closing
Attorney will submit the requested changes and justification to the RC Director and Regional Counsel.
The RC Director and Regional Counsel will review the submission and render a final decision on
programmatic and legal acceptability.
Note: The HUD Closing Attorney will be the sole point of contact for Lender’s Counsel and the
government agency during HUD’s review of a template change of the Subordination Agreement –
Public, unless the HUD Closing Attorney requests that outside parties communicate directly with other
HUD staff.
4. The RC Director will provide a written statement to the requesting party evidencing its final decision.
5. If HUD approves the template, that version will be used for all transactions involving the same
governmental program in that state or locality until the expiration of the current OMB-approved
Subordination Agreement – Public.
6. The RC Director and applicable Regional Counsel will maintain copies of all approved negotiated
templates.
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D. Deal-Specific Changes. To further facilitate the use of other public funds, the RC Director is authorized
to approve, on a case-by-case basis, the following changes to the Subordination Agreement – Public that
may be necessary to accommodate affordable housing, and where there is minimal to no legal and
business risk to HUD. Such business-driven changes may be made if the RC Director ensures that the
changes are consistent with Program Obligations, are supported from a business and HUD mission
perspective, and that resulting risks are appropriately underwritten.
1. Modification of Section 3(b) to allow the subordinate loan to mature prior to the FHA-insured Loan;
and
2. Allowance of compounding of interest, which is otherwise prohibited by Section 3(c)(4).
Note: All other deal-specific deviations from the OMB-approved Subordination Agreement – Public,
including business-driven changes in state and local templates approved for expired iterations of the
form, constitute substantive changes subject to the review procedures in Section 19.4.1.6 of this
Chapter.
E. Instructions for submission to the HUD Closing Attorney.
1. Draft Submissions. The draft Subordination Agreement – Public submitted to the HUD Closing
Attorney for review must include a clean version as well as a redline comparison to show any and all
changes to the established state/local program-specific template (or standard form if there is no
template), including any changes required by the HUD Firm Commitment.
2. Closing Submissions. A redlined version of the HUD approved Subordination Agreement – Public
must be submitted at the closing table together with the clean version. All changes from the
state/local program-specific template must be shown in the redline, including any inapplicable
provisions, approved deal-specific changes, and changes required in the HUD Firm Commitment.
19.4.9.4
Secured Secondary Financing – Private
A. When the RC Director approves secured secondary financing from a private entity, that is secured with
a lien against the Mortgaged Property consistent with Program Obligations and reflected in the Firm
Commitment, the parties must use Subordination Agreement – Private (form HUD-92907M). Note that
the Secondary Financing Rider is no longer in effect.
B. The conditions for secured secondary financing from a private entity differ depending on the section
of the National Housing Act through which the mortgage is being insured, including whether it may be
secured with a lien on the Project (see, e.g., Sections 8.7 and 14.14).
C. Section 3(c) of the Subordination Agreement – Private contains HUD-required language that must be
inserted into the subordinate note. The HUD Closing Attorney should confirm inclusion of the required
language.
19.4.9.5
Restrictive Covenants and Use Agreements for Secondary Financing
A. The sources of the secondary financing or of the Project’s other approved financing structures (e.g.,
LIHTCs, tax-exempt bonds, etc.) may contain affordability restrictions on rents and occupancy based on
tenant incomes. When imposed in connection with the HUD-approved financing, such affordability
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restrictions (and the accompanying encumbrances on title, such as use agreements and other restrictive
covenants) must be documented in the Firm Commitment and be consistent with Program Obligations.
B. The HUD Closing Attorney will ensure that the HUD Rider/Amendment to Restrictive Covenants (the
Restrictive Covenants Rider, found in Section 19.15), is used. The Restrictive Covenants Rider ensures, in
part, that nothing in the restrictive covenants prevents HUD from enforcing its Loan documents and
Program Obligations, and further ensures that the agency’s enforcement of the restrictive covenants will
not conflict with the National Housing Act and related regulations. The document also provides that the
use restrictions terminate upon foreclosure.
C. The affordability restrictions may be permitted to remain in place following a foreclosure of the FHAinsured Loan in one of the three following scenarios, keeping in mind that only pure restrictive covenants
without lien rights may be recorded prior to the HUD Security Instrument under the NHA.
1. Individual Transaction. As long as any risks are appropriately mitigated from a business
perspective, the RC Director may, on a case-by-case basis, permit affordability restrictions to remain
in place after foreclosure. Such an exception to the termination requirement must be expressly
provided for in the Firm Commitment, otherwise there is no guarantee that HUD will be able to
accommodate last minute requests to permit the use restrictions ahead of the HUD-insured financing.
Any approval under this section for an individual transaction is specific to that transaction only and
does not obligate HUD to approve the same exception for affordability restrictions on a subsequent
transaction.
2. HOME Program Use Restrictions. See 24 CFR 92.252.
3. HOME-like Use Restrictions. State and local affordable housing use restrictions that are substantially
similar to the HOME Program may be recorded prior to the HUD Security Instrument, provided that:
The affordability levels are similar to the HOME program, and
The state or local program risks recapture of funds (i.e., statutory or regulatory required payback
to HUD or other original funding source, such as a state treasury) in the event the use restrictions
are terminated prior to the mandated use period.
4. Counsel for state or local programs seeking HOME-like use restriction treatment should send written
requests to the RC Director and HQ MHP for a determination. Such requests must be accompanied by
a detailed explanation of the state or local program and precisely how it is similar to the HOME
program in terms of affordability restrictions and threat of recapture, including a discussion of the
governing statutes and/or regulations. HUD will only consider requests for HOME-like designation of
a program if the request is submitted with the Project loan application or earlier. If it is established
that a state or local affordable financing program satisfies these conditions, as determined and
approved by HUD in writing, HUD will permit the associated use restrictions to be recorded ahead of
the HUD Security Instrument for that specific program.
5. Notwithstanding the foregoing, prior to determining that affordable use restrictions may be recorded
in first position, the MAP Lenders and RC Directors must properly underwrite all secondary financing
and related use restrictions for their impact on the Project viability and marketability.
6. When use restrictions or other restrictive covenants are permitted ahead of the HUD Security
Instrument, the Restrictive Covenants Rider must still be used with appropriate modification
(approved by the HUD Closing Attorney) of the form to remove the requirement that the restrictions
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terminate upon foreclosure. No exceptions are permitted, as the HUD Rider serves other important
objectives beside termination of use restrictions upon foreclosure. See Section 19.4.1.6.
7. All other requested changes to the HUD Rider must be processed in Headquarters as requests for
substantive changes under Section 19.4.1.6.
8. If there are affordability use restrictions imposed on the Project that are not in connection with new
secondary financing but remain from previous financing sources, the Restrictive Covenants Rider must
be used when required by the Firm Commitment or when the RC Director and HUD Closing Attorney
determine that the Rider is necessary to comply with the Project’s underwriting or Program
Obligations. Any request to allow the use restrictions to have recording priority ahead of the HUD
Security Instrument must be addressed following the procedures found above.
19.4.9.6
Equity Bridge Loans (EBL) for Tax Credit Projects
A. HUD will address requirements for EBL terms in the Firm Commitment. The EBL documents must
meet the requirements of Chapter 14, Section 14.15, which must be memorialized in a rider attached to
the EBL documents and reviewed and approved by the HUD Closing Attorney. See Section 19.16, Equity
Bridge Loan Rider – LIHTC Projects.
19.4.9.7
Deferred Developer Fees (DDF) for Low Income Housing Tax Credit
(LIHTC) Projects
A. A DDF loan in connection with a LIHTC transaction may be documented as a promissory note using the
Surplus Cash Note (form HUD-92223M) or as a defined obligation in the Borrower’s organization
documents. In either instance, language must be included specifying that repayment is restricted to
Surplus Cash, as that term is defined in the Regulatory Agreement.
B. A DDF loan must not be secured by the Project, and its term may be shorter than the term of the FHA
mortgage.
C. See Chapter 14, Section 14.12.2 and Appendix 3, Section A.3.2.1 and Section A.3.2.2 for additional
guidance for DDFs.
19.4.9.8
Secondary Financing That Is Unavailable at Initial Closing
A. Secondary Financing from Federal, State or Local Government Agencies. If grant or loan funds
from government sources are being contributed as Project Completion Funds (as defined in Section 4(c)
of the Building Loan Agreement) and are unavailable at Initial Endorsement, the FHA-insured mortgage
proceeds must be disbursed in accordance with procedures set forth in Section 8.12 and memorialized in
the disbursement agreement attached to the Building Loan Agreement (see 24 CFR 200.54).
B. Grants or Loans from Private (Non-governmental) Sources. If grant or loan funds from private,
non-government sources are being contributed as Project Completion Funds but are not available at initial
endorsement, HUD will require Borrower to escrow an equivalent amount with Lender before or at initial
endorsement, and will require that such escrowed funds be disbursed in full prior to disbursement of any
insured Loan proceeds. Unless approved in advance by the RC Director and FHA Lender, a mortgage or
deed of trust for a private loan that is approved to be secured with a lien against the Project may not be
recorded until the loan is disbursed.
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C. Tax Credit Exception. Notwithstanding the foregoing subsections 1 and 2, HUD will not require an
escrow of tax credit equity (e.g., proceeds from LIHTC, New Market Tax Credit Program, or historic
rehabilitation tax credits), as dictated by the Housing and Economic Recovery Act of 2008 (HERA) and 24
CFR 200.54. See also Section 19.4.9.6 and Chapter 14, Section 14.15 for guidance regarding Equity Bridge
Loans in tax credit projects.
19.4.10
Bond-Financed Projects
19.4.10.1
General
A. All private activity volume cap financing associated with an FHA-insured Project, whether new or
previously issued, must be disclosed at the time of firm application and memorialized in the Firm
Commitment. This financing may be structured as traditional private placement bonds, or as a tax-exempt
loan, provided that the obligation arises from the allocation of a state’s private activity volume cap.
Note: Section 19.4.10 regularly uses traditional bond terminology for convenience but applies to
all private activity volume cap financing associated with an FHA-insured Project.
19.4.10.2
Firm Commitment
A. The Firm Commitment will indicate if the bonds are taxable or tax-exempt, and if they are cashcollateralized. As a condition of the Firm Commitment, all bond documents must comply with HUD’s legal
and programmatic requirements for bond transactions. HUD will regularly review and collect the bond
documents that appear on the applicable Closing Checklist and will conduct a limited review consistent
with this Section 19.4.10. Upon review, the RC Director and/or HUD Closing Attorney may request
additional documents and information, when they determine that additional information is necessary to
complete HUD’s review.
19.4.10.3
Lender’s Certificate
A. The use of bonds and, if paid with loan proceeds, the cost of issuance of the bonds, must be reflected in
either the Lender’s Certificate (form HUD-92434M) or the Request for Endorsement of Credit Instrument
(Certificate of Lender) (form HUD-92455M). To use short-term, tax-exempt, cash collateralized bonds in
connection with 4% Low Income Housing Tax Credits, the Lender must certify that the transaction
complies with the National Housing Act. This certification appears as a subsection of both the Lender’s
Certificate and Request for Endorsement of Credit Instrument (Certificate of Lender). When bonds are
structured as a tax-exempt loan, Lender’s Counsel, subject to review and approval by the HUD Closing
Attorney, is authorized to modify the bond terminology used in the applicable HUD certificate to be
consistent with the terminology used in the tax-exempt loan documents.
19.4.10.4
Tax-Exempt Bond/IRS Code 142(d) Projects
A. Projects financed with the proceeds from tax-exempt bonds pursuant to the Internal Revenue Code,
Section 142(d), must meet minimum low-income occupancy restrictions. Project owners will typically
record restrictive covenants against the project to ensure compliance with occupancy and use
requirements. Such restrictive covenants must be subordinated to the FHA Security Instrument,
Regulatory Agreement and Program Obligations, as discussed below.
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19.4.10.5
Restrictive Covenants/Tax Regulatory Agreement
A. The HUD Rider must be included in any bond document containing a restrictive covenant, either by
attaching and incorporating the form by reference, or by incorporating the form provisions into the bond
document itself. In bond financing, such restrictive covenants are often contained in the tax regulatory
agreement. Inclusion of the HUD Rider is HUD’s uniform method for ensuring, consistent with Program
Obligations, appropriate subordination, supremacy of HUD requirements, invalidity of any cross-default
provisions, and that a default under the bond regulatory agreement will not result in a claim against the
Project, mortgage Loan proceeds, Project rents, any reserve or deposit required by HUD in connection
with the mortgage loan transaction, or other restricted income of the Project. See Section 19.4.9.5 for
further discussion.
19.4.10.6
Borrower’s Counsel Opinion
A. For all bond transactions, the Opinion of Borrower's Counsel must include opinion 10. Borrower’s
counsel may rely on the bond counsel’s opinion to provide opinion 10, if bond counsel is able to provide
opinion 10 according to the requirements listed in the following section, Section 19.4.10.7. If the bond
counsel opinion does not provide opinion 10 consistent with these requirements, Borrower’s counsel may
not rely on the bond counsel opinion and must undertake its own due diligence and provide opinion 10
without reference to a supplemental bond counsel’s opinion.
19.4.10.7
Bond Counsel’s Opinion
A. In bond financed transactions, HUD requires submission of a bond counsel’s opinion attesting to
enforceability of the bonds, and the tax-exempt status of the bond financing (if applicable). The HUD
Closing Attorney will review the bond counsel opinion on a limited basis to confirm the inclusion of these
required confirmations. Additionally, when Borrower’s counsel relies on the bond counsel’s opinion in
providing Opinion of Borrower’s Counsel opinion 10, bond counsel must use the Opinion of Borrower’s
Counsel definitions of Primary Loan Documents and Source Documents in providing opinion 10. HUD
does not require the bond counsel’s opinion to be addressed to HUD or name HUD as a party relying on
the opinion.
19.4.10.8
HUD Note – Prepayment Prohibitions
A. For tax-exempt bond financings, the FHA Note may be drafted using the optional provisions that
prohibit prepayment.
19.4.10.9
HUD-Required Language for Trust Indenture/Funding Loan
Agreement
A. The trust indenture/funding loan agreement must include the language required by 24 CFR 207.261.
This required language obligates the bond trustee/fiscal agent to return certain excess funds held in bond
accounts to the FHA Lender in the event of an FHA mortgage insurance claim. The HUD Closing Attorney
will collect the trust indenture/funding loan agreement and conduct a limited review to confirm the
inclusion of the required regulatory language and the primacy of HUD’s requirements in the event of a
conflict. See Section 19.4.10.12, below.
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19.4.10.10 Bond Disbursement Agreement and Bond Loan Agreement
A. If the bond financing includes a separate disbursement agreement or loan agreement, the HUD Closing
Attorney will collect the agreement(s), and conduct a limited review to confirm the supremacy of HUD’s
requirements, and that HUD’s Loan documents control in the event of a conflict. See Section 19.4.10.12,
below.
19.4.10.11 Bond Note
A. If the bond financing includes a separate promissory note, the HUD Closing Attorney will review the
bond note for compliance with HUD requirements. As with all subordinate financing, HUD’s surplus
cash/residual receipt requirements and forms apply, except for bond financing that is cash-collateralized
and therefore exempt from HUD’s surplus cash/residual receipts requirements.
19.4.10.12 Supremacy of HUD Requirements and Conflicts
A. HUD requires that HUD program obligations control over any conflicts in the bond financing
documents. In addition to opinion 10 of the Opinion of Borrower’s Counsel, the HUD Closing Attorney will
complete a limited review of the bond financing documentation to verify that there are contractual
provisions providing for the supremacy of HUD’s requirements in the event of a conflict. Practically, this
review may be achieved through review and confirmation of a conflicts provision in the trust
indenture/funding loan agreement, alone, if all other bond financing documentation is incorporated
therein (e.g., by reference). Alternatively, if some bond financing agreements stand alone, or involve
different parties, the HUD Closing Attorney may require conflicts provisions in those agreements also. To
assist the HUD Closing Attorney, Lender’s Counsel and bond counsel may provide the HUD Closing
Attorney with a written explanation as to what contractual provisions provide for the supremacy of HUD’s
Loan documents, and that the provisions in HUD’s Loan documents control in the event of a conflict with
the bond financing documents.
B. A sample Conflicts provision is provided below.
FHA Federal Laws and Requirements Control. Notwithstanding anything in this [title of agreement] to the
contrary, the [Parties] to this [title of agreement] acknowledge that this [title of agreement] and any
obligations of the [title of the Borrower under the bond financing documents] hereunder, are subject and
subordinate to the [title used for the FHA-insured Loan documents]. In the event of a conflict between [title
of agreement] and [title used for the FHA-insured Loan documents], the conflicting provisions in the [title
used for the FHA-insured Loan documents] are controlling.
19.4.11
Low-Income Housing Tax Credit (LIHTC) Financed
Projects
19.4.11.1
Firm Commitment Condition
A. The use of LIHTC in FHA-insured Multifamily loan transactions must be disclosed with the Project loan
application. Additional Conditions to the Firm Commitment will include the tax-credit equity pay-in
schedule and a requirement that all LIHTC documents be acceptable to HUD. See Chapter 14, Section 14.5
and Section 14.9. HUD will review and collect all LIHTC-related documents that appear on the Closing
Checklists. Additional documentation will rarely be required, however, the RC Director and HUD Closing
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Attorney may request additional documents and information, if, based on a review of the firm application
or draft closing package, they determine that additional information is required to complete their review.
19.4.11.2
Subordination of Restrictive Covenants
A. As a condition of receiving an allocation of LIHTCs pursuant to Section 42 of the Internal Revenue Code,
Borrower will execute and record a Land Use Restriction Agreement (LURA) or similarly named
restrictive covenant imposing affordability restrictions on the Project. The LURA must incorporate the
Rider to Restrictive Covenants (see Section 19.15), which subordinates the LURA among other objectives.
See Section 19.4.9.5 for further discussion. The LURA should be recorded no later than Final Endorsement
or Initial/Final endorsement, as applicable. If the LURA cannot be recorded by Final (or Initial/Final), a
draft LURA with the HUD Rider must be submitted with the closing package for HUD review and approval
prior to Endorsement. Additionally, Borrower must certify to HUD that the approved draft will be
recorded as soon as practicable. In such cases, Lender must include the certification and the approved
draft LURA in the Closing Docket. If, between the time of HUD’s approval and the recordation of the HUD
Rider, the state financing agency allocating the tax credits requires further modifications to the previously
reviewed draft, such changes must be resubmitted to the HUD Closing Attorney in blackline format for
further review and consideration. Copies of the recorded LURA, consistent with the finally approved draft,
must be submitted to the RC Director and HUD Closing Attorney as soon as possible after recording.
19.4.11.3
Borrower's Attorney's Opinion (Tax Credits)
A. All LIHTC transactions require opinion 11 of the Opinion of Borrower's Counsel. Borrower’s counsel
may rely on a tax credit counsel opinion that provides opinion 11 if, and only if, the tax credit counsel
opinion uses the Opinion of Borrower’s Counsel’s definitions of Primary Loan Documents and Source
Documents, and a copy of the tax credit counsel opinion is provided to HUD. If the tax credit counsel
opinion does not provide opinion 11 in the form described above, Borrower’s counsel must undertake its
own due diligence and independently provide form opinion 11.
19.4.11.4
LIHTC Equity Pay-In
A. Pursuant to Chapter 14, Section 14.13, the LIHTC investor must contribute at least 20% of the total tax
credit equity to the project at the time of Initial Endorsement (with the remaining 80% to be subsequently
available). Note that Chapter 14, Section 14.13 allows 10% of the required total equity pay-in to be funded
with an equity bridge loan at Initial Endorsement. The required minimum equity installment evidences
the tax credit investor’s commitment to the Project. Tax credit equity installments must be made in
accordance with either the disbursement agreement attached to the Building Loan Agreement (form HUD92441M) (for new construction and substantial rehabilitation), or the tax credit equity pay-in schedule
attached to the Escrow Agreement for Deferred Repairs (form HUD-92476.1) (for loans closed pursuant
to 223(f).
1. Lender must submit satisfactory evidence of an agreement that obligates the tax credit investors to
make timely and periodic payments to the Borrower of the tax credit equity (typically the limited
partnership agreement), which Borrower will use for Project completion costs.
2. See Section 19.4.9.6 and Chapter 14, Section 14.15 for additional guidance on equity bridge loans.
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3. Note: Pursuant to Housing and Economic Development Recovery Act of 2008 (HERA), and 24 CFR
200.54, HUD cannot require 100% of the tax credit equity be escrowed at closing.
19.4.11.5
Equity Investor Certification
A. LIHTC syndicators and equity investors (collectively, the Equity Investor) are not required to submit a
Previous Participation Certification (form HUD-2530). In lieu of a Previous Participation Certification,
Equity Investors may submit the Identification and Certification of Eligible Limited Liability Investor
Entities (LLCI Certification), included in Housing Notice 2016-15, Processing Guide for Previous
Participation Reviews of Prospective Multifamily Housing and Healthcare Programs Participants. Any
Equity Investor submitting the LLCI Certification also must provide HUD with an organizational chart.
Only the Equity Investor, and not its members or partners, is required to submit the LLCI Certification.
19.4.11.6
LIHTC Rider
A. The Rider to Security Instrument - LIHTC Projects (LIHTC Rider), found in Section 19.8, may be used
in any LIHTC transaction. The LIHTC Rider may be used regardless of whether the parties to the
transaction request pre-approval of a special limited partner. Special Limited Partner (SLP) as used
herein refers to any affiliated special limited partner, special investor member, or other entity seeking
pre-approval. If pre-approval is not requested, the provisions relating to pre-approval of such entity must
be stricken from the LIHTC Rider.
19.4.11.7
Pre-Approval of Special Limited Partners
A. A LIHTC investor may request HUD pre-approval for the SLP to take control of Borrower as the interim
general partner or managing member (GP/MM) of Borrower under certain triggering default conditions
set forth in Borrower’s limited partnership agreement or operating agreement. Transfers of control of
Borrower require HUD consent prior to transfer, however HUD approval may be given in advance subject
to the requirements below.
Note: This process is exclusively for SLPs seeking pre-approval. Unless Borrower requests preapproval, HUD will treat the SLP as a passive investor. Once granted, pre-approval applies only to
the SLP and the particular project for which pre-approval was requested and granted. HUD’s preapproval of the SLP as an Interim Replacement GP/MM (defined further below) is evidenced by
the RC Director’s and the Closing Attorney’s approval of the Security Instrument with the LIHTC
Rider attached, including pre-approval provisions.
B. If HUD pre-approves a transfer of control to the SLP, no further HUD approval for the SLP’s takeover
at the time of removal of the existing GP/MM is required, subject to the limitations of the LIHTC Rider. As
stated in the LIHTC Rider, HUD’s pre-approval of the SLP to act as an interim GP/MM is for a limited
duration. If the SLP seeks to act as a long-term replacement GP/MM, Borrower and Lender must apply
for HUD approval through the transfer of physical asset (TPA) review process.
1. Requirements to Pre-Approve SLP.
General. Attaching the LIHTC Rider with pre-approval provisions included provides evidence of
and gives effect to HUD’s pre-approval. The pre-approval provisions may be included in an
executed LIHTC Rider and attached to the Security Instrument if the items below are received and
approved by the RC Director and the HUD Closing Attorney. The RC Director may waive receipt
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of specified documents if HUD previously received the documents during pre-approval review of
a different Project.
Synopsis of the Transaction. Equity Investor must provide a written request for HUD to preapprove the SLP as a temporary replacement GP/MM. This request must include an overview of
the transaction and contain an organizational chart depicting the relationship between the
proposed interim GP/MM and the parent organization requesting pre-approval. This request may
be sent via email.
Previous Participation Review. The SLP must submit all documents required for the Previous
Participation Review (aka the 2530 review). See 200 CFR Part 200, Subpart H; and Notice H
2016-15, Processing Guide for Previous Participation Reviews of Prospective Multifamily Housing
and Healthcare Programs Participants.
Organizational Documents.
1) Organizational Documents of Borrower. The SLP pre-approval request must include a
reference list of the SLP takeover provisions in Borrower’s organizational documents. The
HUD Closing Attorney will review the takeover provisions, including triggering events, that
permit the removal of Borrower’s GP/MM and replacement of the GP/MM with the SLP. The
HUD Closing Attorney will discuss the takeover provisions with the RC Director and confirm
the RC Director’s approval. The organizational documents must state that upon removal of
the existing GP/MM the SLP will act as the Interim Replacement GP/MM in accordance with
and subject to the terms of HUD’s pre-approval of the SLP and the LIHTC Rider.
2) Organizational Documents of SLP. The SLP pre-approval request must include the SLP’s
organizational documents. The Closing Attorney will review the SLP organizational
documents to confirm the SLP’s formation and good standing, that there is no identity of
interest with Borrower’s GP/MM, and there are no restrictions in the SLP organizational
documents that would prohibit the SLP from acting as Borrower’s interim GP/MM (e.g.,
neither the stated purpose of the entity nor any other provision restricts the SLP from taking
control of Borrower as the interim GP/MM or restricts the SLP to passive real estate
investment).
3) Legal Opinion. Borrower/SLP must submit a legal opinion of Borrower’s counsel giving the
opinion that removal of the existing GP/MM and substituting in the SLP as the new GP/MM
does not cause the dissolution of Borrower under applicable state law or the Borrower’s
organizational documents. The attorney giving the opinion must be licensed by the state bar
in the state where the Borrower is organized and may not have an identity of interest with
the Borrower.
Evidence of Determinative Criteria. SLP must submit evidence of the determinative criteria,
discussed below.
19.4.11.8
Determinative Criteria for SLP Pre-Approval
A. The RC Director will approve the SLP as a temporary replacement GP/MM unless the RC Director, with
the advice of the HUD Closing Attorney, reasonably determines that the SLP would not be an appropriate
temporary replacement general GP/MM, or that such pre-approval is otherwise not in HUD’s interest. In
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making such determination, the RC Director and the HUD Closing Attorney may consider the following
factors:
1. The number of projects the SLP and/or affiliated entities have under asset management;
2. The number of times SLP and/or affiliated entities have replaced general partners/managing
members and the results of such replacement. Specific examples should be provided and considered;
3. The SLP’s process for monitoring projects and determining whether replacement of the general
partner/managing member is appropriate; and
4. How the asset management unit of the SLP and/or affiliated entities is staffed in relation to the
number of projects it oversees.
19.4.11.9
Post-Closing Requirements for HUD Pre-Approval of SLP
A. If the closing timeline does not allow for this process to be completed prior to closing, pre-approval
can be granted, and documents submitted after closing. Because the modified language set forth below
makes approval conditional, the language may be used even if some or all of the required information has
not been submitted to HUD prior to closing.
1. Requirements and Determinative Criteria. The same requirements for HUD pre-approval apply
both before and after closing.
2. Revise LIHTC Rider. Revise paragraph 2(c) of the LIHTC Rider to the following:
Borrower has requested that HUD and Lender pre-approve the temporary replacement of the
Borrower’s general partner/managing member (GP/MM) with [SPECIAL LIMITED PARTNER
ENTITY] (Interim Replacement GP/MM) to act as an interim general partner/managing member
in the event Equity Investor removes Borrower’s GP/MM for cause in accordance with Borrower’s
organizational documents. If HUD grants Borrower’s request, HUD will send a letter to Interim
Replacement GP/MM giving effect to, and providing evidence of, such pre-approval. Approval of
such Interim Replacement GP/MM is expressly limited to a period not to exceed 90 days, which
commences on the date of such removal, provided that HUD, in its sole discretion, may extend
such 90-day period by an additional 30 days.
3. Notice of Decision. If HUD grants Borrower’s request and pre-approves the SLP, HUD will send the
Investor and SLP a letter indicating such pre-approval. Sample language for an approval letter follows
below. It is the Equity Investor’s responsibility to safeguard such evidence of pre-approval. If HUD
denies Borrower’s request for SLP pre-approval, HUD will send written notice to the Equity Investor
and SLP that the SLP has not been pre-approved and that paragraph 2 of the LIHTC Rider is inoperable
as the preconditions of the paragraph have not been met. This notice does not preclude the SLP from
curing any deficiencies and re-submitting a revised request for pre-approval.
4. Sample language for post-closing letters. The following sample language should be used, if
necessary:
Sample language for letter granting SLP pre-approval post-closing:
This letter authorizes [Special Limited Partner Entity] to serve as the interim general
partner/managing member of [Name of Borrower] (the Borrower) in accordance with the terms
set forth in, and expressly limited by, the Rider to Security Instrument LIHTC Properties (LIHTC
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Rider) attached to that certain [Name of Security Instrument] dated as of [date]. HUD’s review of
the request for pre-approval has been conducted in accordance with the SPL review process.
Should [Special Limited Partner Entity] wish to serve as general partner/managing member for
more than the interim period specified in the LIHTC Rider, it must: (1) submit a request for
approval to serve as replacement general partner/managing member, (2) certify that none of the
documents submitted pursuant to this preapproval request have changed (i.e., organizational
documents have not been further amended, etc.,), and (3) complete an updated Previous
Participation Clearance through HUD’s APPS system or form HUD-2530.
Sample language for letter denying SLP pre-approval post-closing:
This letter denies pre-approval of [Special Limited Partner Entity] to serve as the interim general
partner/managing member of [Name of Borrower] (the Borrower). [Special Limited Partner
Entity] had requested such pre-approval in accordance with the terms set forth in the Rider to
Security Instrument LIHTC Properties (LIHTC Rider) attached to that certain [Name of Security
Instrument] dated as of [date]. [Special Limited Partner Entity] has not met the requirements
necessary for such pre-approval. Accordingly, paragraph 2 of the LIHTC Rider to Security
Instrument has no force or effect.
19.4.12
Escrow Agreements
19.4.12.1
General Requirements
A. As set forth in this Guide, certain escrow agreements may be required. See Section 19.5.6.3 for
guidance when letters of credit are used in lieu of cash to satisfy escrow agreement deposit requirements.
19.4.12.2
Escrow Agreement for Deferred Repairs (Form HUD-92476.1M)
A. For projects with non-critical or deferred repairs, Borrower must make a deposit with Lender into an
escrow account for deferred repair costs to be established at Initial/Final Endorsement in an amount
specified in the Firm Commitment. Lender must hold these escrowed funds as stated in the agreement
until all required repairs are complete, which must be within 12 months (or other term approved by HUD)
of the Initial/Final Endorsement. The Borrower may request release of these funds after completion of
the repairs and with written approval of HUD. See Chapter 12, Section 12.17.
B. In refinance transactions, the Escrow Agreement for Deferred Repairs may be modified, as described
in the form, to serve as an Escrow Agreement for Latent Defects if there are no deferred repairs to be
completed post-closing but the Firm Commitment requires a latent defects deposit. The Escrow
Agreement for Deferred Repairs may also be modified as described in the agreement to accommodate
LIHTC pay-in equity schedules consistent with programmatic requirements.
Note: The New York Building Loan Agreement is used in place of the Escrow Agreement for
Deferred Repairs (form HUD-92476.1M) for refinance transactions in New York, available at:
https://www.hud.gov/program_offices/administration/hudclips/forms/hud9/ridersaddendums.
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19.4.12.3
Escrow Agreement for Operating Deficits (Form HUD-92476a-M)
A. If an operating deficit is anticipated, the Firm Commitment will require that Borrower make a deposit
with Lender to establish an escrow for Operating Deficits. This form also includes a provision for a debt
service reserve, which may be required for certain refinance transactions. See Chapter 7, Section 7.14;
Chapter 8, Section 8.14.C.6; and Chapter 12, Section 12.15.4.
19.4.12.4
Escrow Agreement for Working Capital (Form HUD-92412M)
A. If required by the Firm Commitment, Borrower must make a deposit with Lender to establish an
escrow for working capital. See Chapter 8, Section 8.14.C.5 and Chapter 12, Section 12.15.3.
19.4.12.5
Escrow Agreement for Incomplete Construction (Form HUD92456M)
A. At or before Final Endorsement, Borrower must deposit (or cause to be deposited with Lender) an
amount not less than 150% of the estimated costs to complete all Incomplete Work (Items of Delayed
Completion). This amount must not exceed two percent (2%) of the mortgage amount. The Lender must
submit, and the RC Director will review and approve (or reject) the items to be completed as identified in
the attachment to the Application for Insurance of Advanced of Mortgage Proceeds (form HUD-92403).
See Chapter 12, Section 12.7.
19.4.12.6
Escrow Agreement for Latent Defects (Form HUD-92414M)
A. For New Construction or Sub-Rehabilitation Projects, at or before Final Endorsement, General
Contractor must ensure the correction of any Latent Defects through the establishment of an escrow to
cover the cost of repair or remediation of Latent Defects discovered within twelve months of the Date of
Final Completion. See Chapter 12, Section 12.16.S. HUD does not require the establishment of this escrow
if the General Contractor has provided assurance for completion of latent defects using a performance
bond (using form HUD-92452M). See Chapter 12, Section 12.16.S.1.
19.4.12.7
Escrow Agreement of Sponsor to Furnish Additional Funds (Form
HUD-92476M)
A. For Insurance Upon Completion Projects, HUD may require the assurance of funds to meet an Operating
Deficit in the form of a Sponsor Escrow (in the form of cash or irrevocable letter of credit) or a Sponsor
Bond (in the form of a surety bond). The Sponsor must complete Agreement of Sponsor to Furnish
Additional Funds (form HUD-92476M), and the Sponsor and Surety must complete Bond Guaranteeing
Sponsor’s Performance (form HUD-92477M). See Chapter 12, Section 12.16.C.7.
19.4.13
Additional Closing Requirements
19.4.13.1
Permits and Governmental Approvals
A. Lender’s Counsel must submit evidence satisfactory to the RC Director demonstrating that Borrower
has obtained all building permits, other local permits, governmental approvals, and architectural plans
required by the applicable building official(s) to construct or to rehabilitate the Project and/or
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improvements. The permits, plans, and approvals must be final (issued by the date of closing) and
unconditional, unless otherwise approved by the RC Director in consultation with the HUD Closing
Attorney.
19.4.13.2
Zoning and Building Code Compliance
A. Zoning Compliance. Borrower must provide evidence that the applicable zoning laws and regulations
permit the operation of multifamily housing of the type covered under the applicable section of the NHA.
This evidence may take the form of a zoning endorsement to the title policy (e.g., ALTA Series 3
Endorsement, as appropriate) or a supplemental letter from appropriate local authorities stating that the
Project is zoned for the applicable type of multifamily housing at the time of occupancy and that there are
no known zoning violations associated with the Project. See also opinion 6 of the Opinion of Borrower’s
Counsel (form HUD-91725M).
B. Building Code Compliance. If required by the Firm Commitment or applicable closing checklist,
Borrower must provide evidence of compliance with local building code requirements. HUD will accept
a supplemental letter, deemed acceptable by the RC Director in consultation with the HUD Closing
Attorney, from the building code enforcement office that there are no known building code violations
and/or a certification from the Borrower or Project Architect that no changes have occurred since the
issuance of certificates of occupancy.
C. Samples. Sample building code and zoning code assurance letters are included at Section 19.12 and
19.13, respectively. See also 24 CFR 200.72 and Part II of form HUD-91070M, Consolidated Certifications
- Borrower.
D. Certificate of Occupancy. Borrower must provide a certificate of occupancy when required by the
Firm Commitment, applicable closing checklist, or if a certificate of occupancy is issued for the Project and
is not currently included in HUD’s Washington Docket.
19.4.13.3
Evidence of Utility Access and Service
A. When required by the Firm Commitment or applicable closing checklist, Borrower must submit recent
letters or agreements confirming utility services for the Project and a utility access endorsement to the
Title Policy, where available. See Section 19.4.7.4. See also Instructions to Opinion of Borrower’s Counsel
(form HUD-91725M-INST), and Request for Endorsement of Credit Instrument – Certificate of Borrower
(form HUD-92455M).
19.4.13.4
Property Insurance
A. The RC Director will provide Lender with the Property Insurance Requirements (form HUD-92447)
and Property Insurance Schedule (form HUD-92329) at issuance of the Firm Commitment.
1. Lender is solely responsible for determining whether the property insurance requirements set forth
in Property Insurance Requirements, including public liability, vehicle liability, flood and casualty
insurance requirements, have been satisfied. See Chapter 3, Section 3.9. Lender must certify to
compliance with the applicable insurance requirements in the Lender’s Certificate and Request for
Endorsement of Credit Instrument.
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2. After issuance of the Firm Commitment and prior to Final Endorsement, the RC Director may
determine that revisions to the Property Insurance Schedule are necessary due to changes in the plans,
specifications or cost of construction. The RC Director will notify the Lender of the changes. Lender
must then ensure that the proper property insurance is obtained, and that Property Insurance
Schedule is properly updated and resubmitted to HUD.
3. If required by the Firm Commitment, Lender must provide evidence of payment of the flood insurance
premium at least three (3) business days prior to closing.
4. At closing, the HUD Closing Attorney will not collect certificates of insurance, unless requested to do
so by the RC Director.
19.4.13.5
UCC Searches
A. UCC searches must be completed no more than 60 days before closing, and the resulting search reports
must be submitted to the HUD Closing Attorney for review at least three (3) business days prior to closing.
If a Lender requires other searches, the HUD Closing Attorney and/or RC Director may also request to
review such searches. The RC Director may authorize the HUD Closing Attorney to rely on searches
completed more than 60 days prior to closing when an unanticipated delay in closing results in stale
searches. HUD requires but does not collect UCC searches for single-purpose Borrower entities formed
within the 60-day period prior to closing.
B. UCC filing searches for the Borrower as debtor must be conducted in the official records of the county
in which the Property is located (or other applicable jurisdiction for land records) and in the Office of the
Secretary of State where Borrower is organized.
C. All UCC filings identified in the UCC search results will be evaluated by the RC Director and HUD Closing
Attorney to determine whether the UCC filing(s) adversely impact the Loan (e.g., evidence conflicts with
HUD’s Program Obligations). Unless approved by HUD in writing, UCCs that are unrelated to the Loan
must be terminated and must not be shown as exceptions to the Title Policy ( e.g., the UCC filing from the
loan(s) being refinanced with a 223(f) or (a)(7)). The FHA Lender’s financing statement for the Loan may
be filed in advance of closing, and if so, may be identified in the UCC search results.
19.4.13.6
Certifications
A. The Closing Checklists include a variety of certifications that must be collected prior to HUD’s
endorsement of the Note, including:
1. Agreement and Certification (form HUD-93305M);
2. Borrower’s Oath (form HUD-92478M);
3. Consolidated Certifications – Borrower (form HUD-91070M) (collected at closing if not collected by
the RC Director at the time of Firm Application);
4. Lender’s Byrd Certificate (using standard language for federally insured loans and loan guarantees).
B. Any agreement, undertaking, statement or certification required by this Chapter must specifically state
that it is made, presented, and delivered for the purpose of influencing an official action of the FHA, and
of the Commissioner, and may be relied upon by the Commissioner as a true statement of the facts
contained therein. See 24 CFR 200.62.
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C. If signed in counterpart, the signature page(s) of all required documents must include the following
HUD warning language:
WARNING: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to: 18 USC 1001, 1010, 1012; 13 USC 3729, 3802;
24 CFR Parts 25, 28 and 30; and 2 CFR Parts 180 and 2424.
19.4.13.7
Certified Closing Statement
A. Lender must submit a final detailed statement of all sources and uses identifying total development
costs and disbursements (the Certified Closing Statement). This statement must be consistent with the
Firm Commitment and be certified to and signed by Lender and Borrower. The statement must list the
amounts to be paid to satisfy Borrower’s obligations for existing or other indebtedness, acquisition,
repairs, discounts, permits and approvals, financing fees, legal expenses, organizational expenses, title
and recording costs, and like items, and any Lender-required escrows for taxes, insurance or other items.
If funds are processed through a title company or other escrow officer, the escrow officer must sign the
Lender’s Certified Closing Statement or provide an additional Certified Closing Statement that is
consistent with the Lender’s Certified Closing Statement. The RC Director will review and approve the
Certified Closing Statement prior to endorsing the Note and provide written notice to the HUD Closing
Attorney of said approval. Lender’s Counsel must provide the HUD Closing Attorney with two hard copies
of the HUD approved Certified Closing Statement, except when instructed otherwise by the HUD Closing
Attorney.
B. Borrower must disclose any additional agreements affecting the Project or the Loan. This requirement
includes, but is not limited to, disclosure of:
1. Easements and joint use agreements;
2. Construction agreements between the Borrower and the General Contractor and other agreements
that are required to be disclosed pursuant to the Identity of Interest Amendment to the Construction
Contract and Section 19.5.5.8;
3. Indemnifications, guarantees, and hold-harmless agreements executed by Borrower;
4. Rights of first refusal, options to purchase, reversionary interests, etc.; and
5. Any document or information that would otherwise require reprocessing of the HUD Firm
Commitment, increase Borrower’s cash requirements, or increase the General Contractor’s bond
requirement; and
6. Tax abatement and deferral agreements. See Chapter 7, Section 7.16.
C. Lender’s Counsel must provide copies of these agreements to HUD for approval prior to execution and
executed copies must be submitted at closing. These agreements cannot alter or amend HUD form
documents or alter the obligations of the parties thereto without the written approval of the RC Director.
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19.5 Additional Requirements for Insurance of
Advances
19.5.1
Building Loan Agreement
19.5.1.1
General
A. The Building Loan Agreement (form HUD-92441M), sets out the agreement and terms under which
Lender will loan funds to Borrower for insured advances for new construction and substantial
rehabilitation (e.g., Section 221(d)(4)).
B. The RC Director determines whether the disbursement agreement and any Retainage Reduction Rider
are consistent with Program Obligations, including 24 CFR 200.54 (discussed below), the Firm
Commitment, and construction draw and progress schedules.
C. The Building Loan Agreement in Section 4(a) permits use of a Retainage Reduction Rider. The
Retainage Reduction Rider may be used in certain situations approved by the RC Director. See Chapter
12, Section 12.15.5. The Retainage Reduction Rider is not a HUD form, but it must be reviewed by the RC
Director and HUD Closing Attorney for programmatic and legal sufficiency, respectively.
D. For Section 241 transactions not subject to prevailing wage requirements, the provisions of the
Building Loan Agreement regarding prevailing wages may be stricken.
19.5.2
Project Completion Funds
A. Section 4(c) of the Building Loan Agreement implements the requirement of 24 CFR 200.54 concerning
Project completion funding. Project Completion Funds are defined in Section 4(c) as the amount deemed
by HUD to be sufficient, when added to Loan proceeds to assure completion of the Project and to pay the
initial service charge, carrying charges, and legal and organizational expenses incident to the construction
of the Project. The precise amount of Project Completion Funds must be shown in Section 4(c). Project
Completion Funds must be escrowed with the Lender at closing and shown on the Lender’s Certificate
(form HUD-92434M) with the following two exceptions:
1. Under 24 CFR 200.54(d), HUD will not require the escrow of Project Completion Funds derived from
(a) LIHTC equity or (b) New Markets Tax Credits or historic rehabilitation tax credit equity.
2. Under 24 CFR 200.54(a), the RC Director may accept a lesser amount (or an alternative to a cash
deposit) for Project Completion Funds supplied by grants or loans from a Federal, State, or local
government agency or instrumentality. Chapter 8, Section 8.12.3 states that this alternative may take
the form of an agreement entered among the governmental agency or instrumentality, the Lender,
and the Borrower. This agreement must be reflected in the disbursement agreement referenced in
Section 4(c) of the Building Loan Agreement (discussed in Section 19.5.3 below) and comply with
Chapter 8, Section 8.12.3, including the requirement that the Lender has the following rights:
The right to approve construction advances after considering any reported noncompliance by the
agency or instrumentality if the project is proceeding in compliance with approved plans and
specifications.
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A joint review and agreement between the Lender and the governmental agency or
instrumentality on the construction progress schedules and allocation of draws.
Sole authority to resolve differences in the inspection process and the process of disbursing
grant/loan proceeds.
19.5.3
Disbursement Agreement
A. The Exhibit C disbursement agreement is generally required under 24 CFR 200.54(b), and must
provide that Project Completion Funds are disbursed before Loan proceeds, except for funds from a grant
or loan from a Federal, State or local government agency or instrumentality, or certain tax credit proceeds,
including tax-credit related Equity Bridge Loans. See 24 CFR 200.54(b) and (c). These exceptions must
be approved by the RC Director (consistent with the Firm Commitment) and must be reflected in the
disbursement agreement.
B. The disbursement agreement is required in all new construction and substantial rehabilitation
closings, except in certain limited situations, e.g., when all Project Completion Funds are already disbursed
prior to Loan proceeds, as part of the initial draw. The disbursement agreement must list all charges
referenced in Section 5 of the Building Loan Agreement.
C. If the RC Director determines that a disbursement agreement is not required, Building Loan Agreement
Sections 4(c) and 5 still require an Exhibit C listing charges and items funded through Project Completion
Funds and Loan proceeds. In those limited circumstances, Lender’s Counsel is authorized to revise the
Building Loan Agreement reference to Exhibit C to accurately describe the contents (such as disbursement
charges rider or list of mortgageable costs).
D. All parties directly providing construction financing for the Project must be parties to the disbursement
agreement. HUD, as an insurer, is not a party to the disbursement agreement.
E. The disbursement agreement must include a provision stating that in the event of a conflict between
the disbursement agreement and Program Obligations, as defined in the Building Loan Agreement, HUD’s
Program Obligations are controlling in all respects.
19.5.4
Owner-Architect Agreement – New
Construction/Substantial Rehabilitation
19.5.4.1
General Requirements
A. The AIA Document B108, Standard Form of Agreement Between Owner and Architect (OwnerArchitect Agreement) must be used in new construction/substantial rehabilitation closings. The RC
Director is responsible for reviewing the substantive terms of the Owner-Architect Agreement, including
the review of any changes to the substantive terms negotiated by the parties. The arbitration provision
and related references to such provision in the Owner-Architect Agreement must be deleted, unless such
deletion is prohibited by state law. Any modifications that delete or reduce the basic design and
construction administration services of the Project Architect are prohibited. Further, there must be no
changes that reduce, delegate, or leave a gap in the basic responsibilities of the parties involved. In
uncommon circumstances where it becomes necessary to address special negotiated arrangements, any
requested modifications must be approved by the RC Director, and noted in the B108 by striking out any
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inapplicable language, inserting additional provisions in Article 12, and must be shown in the form
Additions and Deletions report. The proposed modifications must be supported by a detailed Projectspecific written justification and submitted to the RC Director for review and consideration. The HUD
Closing Attorney will be available to consult with the RC Director concerning any proposed modifications.
See Chapter 5, Section 5.2 and Section 5.5 for HUD’s requirements regarding the Owner-Architect
Agreement.
19.5.4.2
HUD Amendment to AIA Document B108 (Form HUD-92408M)
(HUD Amendment)
A. The HUD Amendment must be incorporated into the B108 Owner-Architect Agreement in Article 13.2.
If the Design Architect and the Supervisory Architect are different, a separate B108 Owner-Architect
Agreement and HUD Amendment must be executed for each Architect, with appropriate modifications to
reflect the responsibilities of each Architect. If there is an identity of interest between the Owner and
Design Architect, there must be an unaffiliated Supervisory Architect. See Chapter 5, Section 5.2.
19.5.4.3
Professional Liability Insurance
A. The Firm Commitment and Chapter 5, Section 5.2.3 require that the Design Architect and the Architect
administering the Construction Contract each be covered by an errors and omissions liability insurance
in an amount consistent with insurance industry practice and approved by the RC Director. An insurance
agent’s certificate of insurance, substantially in the form prescribed in Appendix 5, Section A.5.8.3, must
be provided at or prior to Initial Closing.
19.5.5
Construction Contract – New Construction/Substantial
Rehabilitation
19.5.5.1
Construction Contract
A. The Construction Contract (form HUD-92442M) must be used for new construction/substantial
rehabilitation closings. The Construction Contract must be used in conjunction with the most recent
edition of the AIA A201, General Conditions of the Contract for Construction (the AIA A201), approved for
use in the HUD Multifamily programs. The RC Director will review the substantive terms of the
construction contract documents. The AIA A201 may not be altered, except the standard binding
arbitration provisions in the AIA A201 must be stricken, unless prohibited by applicable state law.
B. The Construction Contract provides alternative options for either Lump Sum or Cost Plus
compensation.
1. Lump Sum may be used only when no identity of interest exists between Borrower and General
Contractor.
2. Cost Plus may be used in any case and must be used when an identity of interest exists between
Borrower and General Contractor.
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19.5.5.2
Prevailing Wage Rates
A. The Supplementary Conditions to the Construction Contract (form HUD-92554M) is incorporated by
reference in the Construction Contract. At Initial Closing, the HUD Closing Attorney will review the Closing
Docket Construction Contract to confirm the DBLS selected wage rates, where applicable and applied in
conformity with the National Housing Act, are attached and accurately referenced. See Section 19.2.2,
infra, for further guidance concerning wage decisions and MHP coordination with DBLS.
19.5.5.3
Identity of Interest Disclosure
A. The Construction Contract requires the attachment of an exhibit identifying any identity of interest
relationship between the owner, contractor, subcontractor, or Architect. If there is no identity of interest,
indicate “none” in the exhibit (see Appendix 8 of Handbook 4430.1 and the MAP Guide Appendices).
19.5.5.4
Cost Breakdown
A. The Contractor’s and/or Mortgagor’s Cost Breakdown (form HUD-2328) contains a schedule of values
of classes of work, equipment, and materials, and must be incorporated into the Construction Contract as
Exhibit B to the Building Loan Agreement (form HUD-92441M). The cost breakdown will be attached to
the Firm Commitment.
19.5.5.5
Completion of Forms
A. The Construction Contract may be dated the same date as the other closing documents or any date
prior to the endorsement date of the Note when adequate title coverage is provided. Where Contractor’s
assurance of completion is provided in the form of performance and payment bonds, the Construction
Contract must be dated on or before the date of the surety bonds.
B. The reference to drawings and specifications in Article 2.A of the Construction Contract must be
identical to the reference in Section 2 of the Building Loan Agreement and will be taken from the Firm
Commitment. However, if the drawings and specifications are modified subsequent to the issuance of the
Firm Commitment and before Initial Closing, a reference to the most recent version that will govern
construction and that is approved in writing by all necessary parties (including HUD) should be used in
the Construction Contract and Building Loan Agreement. See Chapter 5, Section 5.8.3.A.4 regarding the
initialing and signing of drawing and specifications.
C. The completion date in Article 3 is the date determined using the number of months for construction
stated in the Multifamily Summary Appraisal Report (form HUD-92264).
D. For Section 241 Loan transactions, the provisions of the Construction Contract regarding wage
decisions may be deleted if Davis-Bacon Labor Standards do not apply. See Section 19.6.3.3.B.
19.5.5.6
Liquidated Damages
A. Article 3.E of the Construction Contract calls for the insertion of a liquidated damages amount, as
determined by the RC Director. The following calculations are set forth for informational purposes:
Liquidated damages shall equal 1 cent for each ¼ per cent of construction interest rate for each $1000 of
mortgage amount divided by the number of units. Written arithmetically and expressed in dollars (not
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cents), the formula should read: ($.01) (construction rate/.0025) (mortgage amount/1000)/(number of
units) = Liquidated Damages $/Unit/Day. This may be simplified and restated as: $4 x construction rate x
mortgage amount/1000/number of units = Liquidated Damages $/Unit/Day.
Note: The parties may negotiate and agree to a higher amount of liquidated damages.
19.5.5.7
Cost Certification
A. If a cost certification is not required, the provisions set forth in Article 13 of the Construction Contract
may be stricken. See Chapter 13.
19.5.5.8
Side Agreements
A. Article 1 of the Construction Contract requires all side agreements, including documents defining
business agreements between identity of interest parties on transactions involving Builder’s and
Sponsor’s Profit and Risk Allowance (BSPRA), between the Borrower and General Contractor be disclosed
to HUD and provided to the HUD Closing Attorney with the Construction Contract. Such side agreements
must include language that in the event of a conflict between the side agreement and the Construction
Contract, the Construction Contract will prevail. The HUD Closing Attorney will ensure the required
conflicts language is included but will not otherwise review the side agreement.
Note: HUD policy is that the A201 may not be altered or amended, except with regard to the
arbitration provisions in the form. See Section 19.5.5.1. As such, side agreements may only
address matters outside of the material terms of the Construction Contract, and may not negate
the rights, obligations, or any other material terms of the Construction Contract, including the
form A201.
19.5.6
Assurance of Completion and Related Requirements
19.5.6.1
General Requirements
A. Assurance of project completion by the General Contractor must be provided for the protection of HUD
and Lender in an amount and means as specified in the Firm Commitment and to meet state and local
requirements protecting material suppliers, mechanics, and subcontractors. Applicable assurances must
be listed in the Lender’s Certificate (form HUD-92434M). Lender or Borrower may impose additional or
more stringent requirements than HUD.
1. Performance Bond-Dual Obligee (form HUD-92452M). Performance Bond–Dual Obligee protects
against financial loss caused by the failure of the General Contractor to build the Project in accordance
with the terms and conditions of the Construction Contract. The Performance Bond must name
Lender and HUD as obligees. The RC Director, in consultation with the HUD Closing Attorney, may
approve the addition of a subordinate Lender as an additional obligee on the Performance Bond. In
such cases, an agreement setting forth the rights of, priorities of, and/restrictions on each Lender to
call on the Performance Bond may be necessary. In all cases, the Lender and HUD must have the first
priority right to call on the Performance Bond. When GNMA securities are issued in connection with
the Project Loan, GNMA may be allowed as an additional obligee. No equity investor in the Borrower
entity may be named as an obligee.
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2. Payment Bond (form HUD-92452A-M). Payment Bond guarantees that certain labor and material
bills associated with the project will be paid. The Payment Bond must name Lender, HUD, and
Borrower as obligees. GNMA may be added as an additional obligee on the Payment Bond; however,
subordinate Lenders and equity investors may not be included as additional obligees.
3. Completion Assurance Agreement (form HUD-92450M). A s an alternative to performance and
payment bonds, a Completion Assurance Agreement (form HUD-92450M) may be provided. It must
be executed by the Borrower, Lender, and General Contractor. The General Contractor must fund its
obligations with a cash deposit or letter of credit. The RC Director, in consultation with the HUD
Closing Attorney, will review the substantive terms of any Completion Assurance Agreements.
19.5.6.2
Surety Requirements
A. Sureties must be on the accredited U.S. Treasury list, Circular 570, available online at
www.fms.treas.gov/c570/c570.html, and published annually in the Federal Register on or about July 1.
Bonds must not exceed limits listed in Circular 570. An original power-of-attorney from the surety
company to its agent must be attached to each Performance and Payment Bond. A facsimile transmission
(or PDF file sent via email) addressed to the HUD Closing Attorney must be received on the day of closing
from the surety company (not local agent’s office) confirming the agent's power-of-attorney to bind the
surety company as of the date the bonds are executed and delivered to Lender and HUD. The facsimile or
PDF transmission must identify the agent, date of bonds, amount of each bond, obligee(s), principal, FHA
project name and number, and name and title of sender. The bonds cannot be dated prior to the date of
the Construction Contract to which they refer, but they may be dated the same date as that contract or a
later date.
19.5.6.3
Letters of Credit
A. Letters of credit may be used instead of cash for all assurances of completion and escrows required at
Initial and Final Endorsement, or during construction, except for up-front cash escrows and the estimated
costs of deferred Section 223(f) repairs that are required to be withheld in cash from mortgage Loan
proceeds and placed in escrow. Acceptance of a letter of credit is at the Lender's option, but when used,
copies of the letters of credit must be attached to the escrows and assurance agreements they collateralize.
Lenders are responsible for ensuring that letters of credit are current. Enforceability and acceptability of
letters of credit are the responsibility of the Lender, and HUD will neither review the letter of credit nor
render an opinion on its sufficiency. See 24 CFR 200.63. Additional requirements for letters of credit are
detailed in Chapter 8, Section 8.4.4.
19.5.6.4
Assurance of Completion for Off-Site Improvements
A. When the Firm Commitment requires Borrower to fund construction of elements outside the Project’s
property boundaries, HUD may require submittal of one or more of the following items, each at the
discretion of the RC Director and in such form and substance as may be acceptable to the RC Director:
1. Plans and specifications for the off-site improvements;
2. Contracts or other agreements governing the construction of the off-site improvements;
3. Off-Site Bond (form HUD-92479M);
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4. Escrow Agreement for Off-Site Facilities (form HUD-91071M);
5. A letter of credit;
6. Evidence of the locality’s plans for off-site improvements (if the municipality or other governmental
locality will be responsible for completion of those improvements); and
7. Other evidence as deemed appropriate by the RC Director.
19.5.7
Building Components Stored Off-Site
19.5.7.1
Introduction
A. Generally, off-site construction is non-mortgageable and not included in the Construction Contract.
See Chapter 5, Section 5.11 and Appendix 5, Section A.5.5. However, when building components are
initially stored off-site but will be integrated on-site into the construction of the HUD-insured Project
during the construction period, those components may be mortgageable, provided the program
participants meet the requirements of this section and Appendix 12, Section A.12.2 and Section A.12.3.
19.5.7.2
HUD-Insured Advance Requirements for Building Components
Stored Off-Site
A. The HUD Closing Attorney’s role includes, at the RC Director’s request, review of legal documents
submitted in connection with requests for approval of insured advances to pay for building components
stored off-site.
B. The UCC Financing Statement(s) filed at Initial Endorsement must perfect a first-lien security interest
in all existing building components stored offsite until the components are moved onsite and integrated
into the building(s) construction. Borrower and Lender are responsible for determining if, and when,
additional filings are necessary to maintain a first-lien security interest on components stored offsite,
including components acquired after initial endorsement, and for ensuring that such filings are properly
filed/and recorded.
C. The Construction Contract (form HUD-92442M) must include the rider entitled “Amendment to the
Construction Contract for Components Stored Off-site,” and be entered into at Initial Closing. See
Appendix 12, Section A.12.4.
D. The Construction Contract, including the offsites amendment, must be 100% secured by performance
and payment bonds.
E. A bill of sale evidencing Borrower’s title to the off-site components and an itemized invoice must be
submitted with each request for payment for those components on the Contractor’s Requisition Project
Mortgages (form HUD-92448).
F. Lender must provide an unconditional written certification to HUD certifying that the Security
Instrument and filed UCC Financing Statement(s) create a first lien on all building components stored offsite. This Lender’s certification must be supported by an opinion from the Lender’s Counsel stating that
they have reviewed the Security Instrument, UCC-1 Financing Statements and any associated documents,
as necessary, relating to the off-site building components, that such documents create a valid security
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interest in the collateral, and that when the financing statements are duly filed, the secured and additional
secured party will have the first lien on the building components.
G. Other HUD requirements for insured advances to pay for building components stored off-site are found
in the Appendix 12, Section A.12.2.
19.5.8
Lender’s Certificate for New Construction or Substantial
Rehabilitation
A. For new construction/substantial rehabilitation projects, the Lender must make certain certifications
and acknowledgements to HUD, as set forth in the Lender’s Certificate (form HUD-92434M), dated as of
the day of closing. As required by the Lender’s Certificate, the Lender must:
1. Make all required certifications and acknowledgements to HUD;
2. Properly disclose all required escrows, deposits, fees, charges, and financial obligations; and
3. Attach, or provide separately, all appropriate exhibits, addenda and related items, including but not
limited to exhibits described in the Lender’s Certificate.
B. The RC Director is responsible for reviewing the Lender’s Certificate and determining that the financial
amounts disclosed are appropriate and correct.
19.5.9
Final Closing Documents – General Requirements
19.5.9.1
General Requirements
A. The closing procedures of this Section apply to Final Closings (and supplement Section 19.1.2 and
Section 19.4.1).
19.5.9.2
Maximum Insurable Mortgage Form
A. Maximum Insurable Mortgage (form HUD-92580), sets forth HUD’s determination of the maximum
insurable mortgage and may also contain, without limitation, the following:
1. A listing of items from the Mortgagor’s Certificate of Actual Cost (form HUD-92330) that remain to be
paid, and a description of the arrangements to hold such amounts in escrow pending resolution of any
open matters (see Schedule 1(A) of form HUD-92580);
2. Any additional mortgage insurance premium, if there is a mortgage increase;
3. Any reduction to the Loan amount, if there is a mortgage decrease; and
4. A description and status of funds placed in escrow at Initial Closing.
19.5.9.3
Modifications to Original Loan Terms
A. Modifications to the original Loan terms, such as an increase or decrease to the original Loan amount,
require new documents, and must be submitted with the final closing package.
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1. RC Director’s Authority. The RC Director is authorized to approve modifications of the Security
Instrument for Projects in development (i.e., at or prior to Final Closing) where necessary to reduce
the interest rate, reduce the mortgage Loan amount, correct the legal description, and for other
purposes.
2. HUD Closing Attorney’s Role. The HUD Closing Attorney will review proposed modifications to Loan
documents and provide a written statement, which may be via e-mail, to determine whether the
documents are legally sufficient.
19.5.9.4
Modification Documents
A. Modification/Consolidation Agreement. Lender’s Counsel must prepare a modification agreement
(non-form), by and between Borrower and Lender, formatted for recordation, which includes the
following:
1. A HUD acknowledgment signature block, which evidences HUD’s acknowledgment and consent to the
modification;
2. If the original Loan amount is increased, consolidation language to: (1) evidence that the original Note
and the supplemental note (discussed below) represent and are deemed one indebtedness; (2)
evidence that the initial Security Instrument and the supplemental security instrument (discussed
below) represent and are deemed one security instrument; and (3) modify the original Security
Instrument to provide for cross-default with the supplemental security instrument; and (4) evidence
that the original Security Instrument retains first lien priority; and the following provisions (in all
cases):
Nothing in this Modification Agreement waives, compromises, impairs or prejudices any right
HUD may have to seek recourse for any breach of that certain Regulatory Agreement executed by
the parties hereto, recorded on even date with the Security Instrument, which breach may have
occurred prior to or may occur subsequent to the date of this Agreement. If HUD initiates an
action for breach of said Regulatory Agreement and recovers funds, either on HUD's own behalf
or on behalf of the Project or Borrower, HUD, in its sole discretion, may authorize those funds to
be applied to the payment of amounts due and payable under the Note, or the Security Instrument,
or as a partial prepayment of the Note.
Nothing in this Agreement in any way impairs the Note or the Security Instrument or any other
security now held for the indebtedness evidenced by the Note, as amended, and secured by the
Security Instrument, or alters, waives, annuls, varies, or affects any provision, conditions or
covenants therein, nor affects or impairs any rights, powers or remedies under the Note, Security
Instrument, or Regulatory Agreement, nor changes the priority of the lien created by the Security
Instrument or the encumbrance of the Regulatory Agreement, except as specifically provided
herein, it being the intent of the parties that the terms and provisions of the Note, Security
Instrument, and the Regulatory Agreement continue in full force and effect except as modified
hereby.
B. Allonge (Mortgage Decrease). If the amount of the original FHA-insured Loan is decreasing, state
law may require an allonge to the Note. If so required, Lender’s Counsel will prepare an allonge (nonform) and Lender is responsible for ensuring that the allonge is attached to the original Note. If state law
does not require an allonge, the modification agreement can be used to modify the terms of the Note.
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C. Supplemental Note and Security Instrument (Mortgage Increase). The following applies when the
amount of the original FHA-insured loan is increasing:
1. Supplemental Note. If the amount of the FHA-insured Loan increases, Lender’s Counsel must
prepare a supplemental note using the form Note (form HUD-94001M) and captioned or titled
“Supplemental Note.” The supplemental note must contain a cross-default provision to the original
Note. The principal amount of the supplemental note must be the increase to the FHA-insured Loan
amount (not for the new total insured Loan amount). The amount of the monthly payments to
principal in the supplemental note must be sufficient to amortize the increased amount over the
Security Instrument term. The other terms and provisions of the supplemental note must be the same
as those in the original Note.
2. Supplemental Security Instrument. If the amount of the FHA-insured Loan increases, FHA Lender
must prepare a supplemental security instrument using the form Security Instrument (form HUD94000M) and titled “Supplemental Security Instrument.” The supplemental security instrument must
contain a cross-default provision to the original Security Instrument. The supplemental security
instrument secures repayment of the supplemental note and must encumber the entire Mortgaged
Property. The reference to the Regulatory Agreement in the supplemental security instrument must
be to the original Regulatory Agreement executed and recorded at Initial Closing. The other terms
and provisions of the supplemental security agreement must be the same as those in the original
Security Instrument.
19.5.9.5
Borrower’s Attorney’s Opinion
A. If there have been any modifications to the FHA Loan documents or other matters that require an
attorney’s opinion, particularly in the case of a mortgage increase, Borrower’s attorney must give an
opinion that specifically supplements the opinion given at Initial Closing and addresses any modifications
to the Loan documents that the HUD Closing Attorney has found to warrant an updated opinion, including
without limitation, the following:
1. The enforceability of the documents evidencing any modification to the insured Loan’s terms,
including a modification agreement, consolidation agreement, supplemental note, supplemental
security instrument, supplemental UCC-1 Financing Statement, or any and all of the foregoing, and the
continued first-priority position of the insured Loan’s lien;
2. Any land use restrictive agreements or extended use agreements, or any other restrictive covenants,
that have been placed on the property since Initial Closing, including those connected with LIHTC, if
not covered in the initial opinion; and
3. Disclosure of any material modifications to the documents covered by the opinion given at Initial
Closing, including any amendments or changes to the legal description.
19.5.9.6
Title Evidence at Final Endorsement
A. Prior to Final Endorsement, FHA Lender must present to HUD a new title insurance policy or a datedown title endorsement (such endorsement or policy must be submitted as a pro forma for HUD’s review
prior to Final Closing). Any endorsement package must extend title insurance coverage to the date of the
Final Endorsement of the Note and assure continuing first-lien priority of the Security Instrument. The
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required title evidence must be delivered to Lender, with a duplicate original and one copy delivered to
the HUD Closing Attorney. The required title evidence must do the following:
1. Show what, if any, matters have been recorded against title to the insured property since Initial
Closing; copies of such items must be submitted to HUD for review prior to Final Closing. The RC
Director and HUD Closing Attorney will review any exception to title not shown in the Title Policy
accepted at Initial Closing to determine whether it affects the value, marketability, or insurability of
the Loan. Any new title exception that is deemed unacceptable by the RC Director must be
extinguished as a matter of record and removed from the title insurance policy, or its effect insured
over through affirmative title coverage (notation, endorsement, etc.) acceptable to the RC Director;
2. Bring the effective date of the title policy forward to the day of Final Endorsement;
3. List any modification agreement or supplementary Loan documents on Schedule A of the title policy
and insure the full amount of the FHA-insured Loan, inclusive of amounts secured by the Security
Instrument and any supplements and/or modifications, in first lien position. Should the title
insurance company be unable to provide such endorsement, or should the endorsement show any
lien intervening between the original FHA-insured Security Instrument and the Supplemental Security
Instrument, HUD will not endorse the Note for insurance at the increased amount;
4. Delete or amend any other matters covered by the initial title insurance policy, as appropriate, such
as updating the exception for unpaid property taxes and deleting the pending disbursements clause;
and
5. Adjust the amount of title policy coverage, if the mortgage Loan amount has changed.
19.5.9.7
Final As-Built Survey & Surveyor’s Report
A. The as-built Survey and the Surveyor’s Report must show that the most recent field work was made,
or last updated, no more than 120 days prior to final closing. The survey must be prepared, signed, and
sealed by a licensed surveyor and include the certification required by the HUD Survey Instructions and
Surveyor’s Report (form HUD-91073M).
19.5.9.8
Updated Organizational Documents of Borrower
A. Borrower must provide the following documents:
1. A certification signed by the Borrower as to incumbency, which does one of the following:
Confirms that no changes have been made to the Borrower's organizational documents, including
incumbency, delivered to HUD at Initial Closing; or
Identifies any changes made to the Borrower’s organizational documents that were delivered to
HUD at Initial Closing and attaches copies of the amendments or other documents effecting such
changes.
2. Current authorizing resolution, if required, or certification by an appropriate officer of Borrower that
the authorizing resolution given at Initial Closing covers the Final Closing and is still in effect
(including any increase in the Loan amount).
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19.5.9.9
Lender’s Current Payment Letter and Certification
A. Lender must submit a letter dated the day of Final Endorsement confirming the following:
1. The loan is current;
2. No event has occurred that, with the giving of notice or passing of time, will constitute an Event of
Default under the HUD Loan Documents; and
3. Any required confirmations from the Lender’s Certificate (form HUD-92434M) that Lender could not
make at Initial Closing.
19.5.9.10
Guarantee Following Completion
A. Construction Contract (form HUD-92442M) contains guarantees against any defects due to faulty
materials or workmanship that appear within one year following substantial completion. See Sec. 19.2.16
for discussion of requirements at Initial Closing.
B. The Contractor must provide assurance of performance under such guarantee, as follows:
1. Bond. If the Performance Bond-Dual Obligee (form HUD-92452M) was used, no action is required, as
it remains in effect for two (2) years from the date on which final payment under the construction
contract becomes due. As a part of this assurance, the surety will be required to perform when the
General Contractor fails to refund any overpayment to Borrower, a requirement of the Construction
Contract (form HUD-92442M) at Article 4.C (Option 1 for Cost Plus Contract).
2. Cash/Letter of Credit Assurance. If the Completion Assurance Agreement (form HUD-92450M,
CAA), was used at Initial Closing, the remaining escrow funds may be released in accordance with its
terms, except that any amounts held to protect against latent defects must remain in escrow during
the latent defects period, also pursuant to the terms of the CAA.
C. The guarantee funds are to be kept separate from any escrow that may have been provided to assure
completion of any incomplete construction items.
19.5.10
When On-Site Facilities Are Incomplete
19.5.10.1
Conditions for Approval of Final Advance of Mortgage Loan
Proceeds
A. It is desirable that all on-site construction be 100% complete before approval of a final advance of
mortgage Loan proceeds. There may, however, be circumstances in which it is desirable that approval of
a final advance occurs before 100% completion of on-site construction, as discussed below.
19.5.10.2
Exceptions to General Rule
A. When the completion and installation of on-site facilities is adequately assured at the discretion of the
RC Director, and the RC Director believes the Borrower will diligently pursue the completion of the onsite facilities, the RC Director may approve the final advance of mortgage Loan proceeds, if all of the
following are true:
1. All on-site sewer, water, electrical, and gas facilities are completely installed and connected.
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2. Other on-site facilities such as streets, walks, curbs, and gutters are useable and safe, if incomplete,
and all buildings have all weather vehicular and pedestrian access.
3. Adequate facilities for ingress and egress are provided.
4. Applicable escrow agreements are in force to assure the completion of the facilities.
19.5.10.3
Application for Insurance of Advance of Mortgage Proceeds
A. Application for Insurance of Advance of Mortgage Proceeds (form HUD-92403) is used both during
construction and at the conclusion of construction for the final advance. When construction is not yet
complete, any form of Application for Insurance of Advance of Mortgage Proceeds submitted for
processing will not be treated as approval of a final advance, nor will the submission of the Request for
Final Endorsement of Credit Instrument (form HUD-92023M) be in order. Instead, Application for
Insurance of Advance of Mortgage Proceeds may be treated as an ordinary application for advance of
mortgage Loan proceeds and approved in an amount which, when added to previous advances of
mortgage Loan proceeds, will not exceed 90% of the total advances to which the Borrower will be entitled
at 100% completion (or such greater percentage as may be permitted pursuant to any Retainage
Reduction Rider attached to the Building Loan Agreement).
19.5.10.4
Approval of a Final Advance
A. If minor items of on-site construction are incomplete, approval of a final advance will be given only
under the following circumstances:
1. All on-site items in the entire Project are completed, based on the final HUD Representative’s Trip
Report (form HUD-95379), except those which qualify as items of delayed completion because:
They are minor; and
The RC Director determines that immediate completion is inadvisable or impossible, due to
weather or other conditions beyond control of the contractor.
2. Funds are placed in escrow to assure completion of such minor items as provided in the certificate of
mortgage Loan insurance on Application for Insurance of Advance of Mortgage Proceeds and in the
footnote on form Request for Final Endorsement of Credit Instrument (form HUD-92023M); and
3. All off-site utilities such as sewer, water, electrical, and gas facilities are installed and connected, the
buildings are served by safe and adequate all-weather facilities (either permanent or temporary) for
the ingress and egress of pedestrians and vehicular traffic, including fire apparatus, and all other
construction requirements have been acceptably accomplished or acceptably assured; and
4. The aggregate estimated cost of completing the above items does not exceed 2% of the principal
amount of the mortgage Loan.
19.5.10.5
Escrow for Completion
A. With respect to all incomplete items, the amount held in escrow for completion must be at least one
and one-half (1 ½) times the estimated cost of completion. The amount of any escrow must be sufficient
to assure an incentive to complete the work, taking into consideration a possible rise in cost. The escrow
will be held by Lender in accordance with the terms of Escrow Agreement for Incomplete Construction
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(form HUD-92456M) (see Section 19.4.12.5) and the RC Director will ascertain that the items to be
completed are properly identified by the attachment to the Escrow Agreement for Incomplete
Construction.
19.5.11
When Off-Site Facilities Are Incomplete
19.5.11.1
General Rule
A. Unless all off-site utilities and facilities are completely installed and connected, as applicable, and the
required ingress and egress is provided, HUD will not process a request for the final advance of mortgage
Loan proceeds. In such cases, the RC Director will invoke the provisions of the Building Loan Agreement
(form HUD-92441M) and Construction Contract (form HUD-92442M) which states that the required
holdback will be retained until 100% completion of facilities, including off-site facilities, will be
endeavored to obtain completion at the earliest possible time.
19.5.11.2
Exception to General Rule
A. If the RC Director determines, in their sole discretion, that the completion and installation of off-site
facilities is adequately assured (see Section 19.5.6.4), the RC Director may approve the final advance of
mortgage Loan proceeds, if the Borrower, through its contractor, diligently pursues the completion of offsite facilities and if the following conditions are met:
1. All off-site sewer, water, electrical, and gas facilities are completely installed and connected;
2. Other off-site facilities such as streets, walks, curbs, and gutters are useable and safe, even if
incomplete, and all buildings have all weather vehicular and pedestrian access;
3. Adequate facilities for ingress and egress are provided; and
Applicable escrow agreements are in force to assure the completion of the facilities
B. Borrower, through its contractor, must provide the RC Director with written confirmation of off-site
completion under terms consistent with applicable escrow agreements.
19.6 Requirements for Acquisition/Refinance and
Other FHA Insurance Programs
19.6.1
223(f) Loans
19.6.1.1
General
A. Section 223(f) of the National Housing Act authorizes insurance of mortgages for acquisition of an
existing project or refinance of existing indebtedness and may involve limited repairs or alterations to the
Project. See Chapter 14 and Chapter 17, Chapter 5, Section 5.1.3 and Section 19.4.13.
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19.6.1.2
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19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs
Promissory Note (Form HUD-94001M)
A. Endorsement of Note. In a Section 223(f) closing, there is one Initial/Final closing at which HUD
endorses the Note for the total sum of the Loan to be disbursed.
B. Endorsement Panel. Note that for a 223(f) project, the total sum of the Loan will be listed on the
endorsement panel. Additionally, the correct designation of a Section 223(f) loan is “Insured under
Section 207 pursuant to Section 223(f) of the National Housing Act, as amended”.
C. Prepayment Provisions. Loans insured under 223(f) must include Section 9(h), which prohibits
prepayment of the Note within five years of endorsement unless approved by HUD, as required by statute.
Chapter 3, Section 3.7.10, Prepayment Provisions and Prohibition, also includes conditions under which
Housing may override any prepayment prohibitions. Lenders may include their own prepayment
provisions, schedules, and limitations in Rider 1 that are consistent with Program Obligations, and must
include the following language at its outset: “This Rider 1 is subject to the restrictions and requirements
for prepayment set forth in Paragraph 9 of the Note.” See also Chapter 11, Section 11.8.2 and Section
11.8.3.
D. Loan Term. The Loan term is set forth in the Firm Commitment. See also Chapter 3, Section 3.1.6 and
Chapter 8, Section 8.9.
19.6.1.3
Evidence of Zoning and Building Code Compliance
A. If required by the Firm Commitment or applicable closing checklist, the evidence of zoning and building
code compliance must comport with the requirements of Section 19.4.13, supra.
19.6.1.4
Utilities
A. Assurance of utility access is not required for Section 223(f) loan closings, unless required by the Firm
Commitment or applicable closing checklist. See Section 19.4.13. for guidance on evidencing utilities when
required.
19.6.1.5
Request for Endorsement of Credit Instrument (Form HUD-92455M)
A. This form is used for Section 223(f), 223(a)(7) and Insurance Upon Completion projects. It includes
the Certificate of Lender, a Certificate of Borrower, and a Certificate of General Contractor, and should be
modified to strike the Certificate of General Contractor and references to construction for Section 223(f)
transactions.
19.6.1.6
Short-Form Cost Certification
A. Borrowers with a Loan value exceeding 80% LTV must submit a modified form of cost certification
(Borrower’s Certificate of Actual Cost (form HUD-2205-A)) prior to endorsement. See Chapter 13, Section
13.4 (projects with LIHTC financing are Exempt from Cost Certification Requirements) and Section 13.12
(no cost certification is required for Section 223(f) transactions where the mortgage is 80% of value or
less).
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19.6.1.7
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19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs
Repairs and Alterations
A. See Chapter 5 for definitions:
1. Life Safety Repairs. Life Safety repairs address hazards to life and health and must be completed
prior to endorsement. See Chapter 5, Section 5.10.8.G. Lender and Lender’s Counsel must submit
evidence documenting that all Life Safety repairs identified in the Firm Commitment have been
completed, and the RC Director must determine sufficiency of the documentation prior to closing.
2. Accessibility Repairs. Accessibility repairs correct accessibility deficiencies. If accessibility repairs
are identified in the Firm Commitment, they must be completed as soon as possible. See Chapter 5,
Section 5.10.8.G for additional guidance. When HUD permits the completion of Accessibility repairs
after endorsement, the repairs must be covered by the Escrow Agreement for Deferred Repairs (form
HUD-92476.1M) (use New York Building Loan Agreement in New York state).
3. Non-Critical Repairs. If Non-critical repairs are identified in the Firm Commitment, Borrower must
complete them prior to closing or establish an escrow with Lender and execute the Escrow Agreement
for Deferred Repairs (use New York Building Loan Agreement in New York state).
4. Architects and General Contractors. HUD requires the hiring of Architects and General Contractors
for Projects as required in Chapter 5, Section 5.3.3. Additional documentation may also be required
by the Firm Commitment. See Section 19.6.1.9, below, for form documentation requirements related
to these services.
5. Substantial Rehabilitation. Construction work that constitutes Substantial Rehabilitation as
defined in Chapter 5, Section 5.1.4 must be processed in accordance with Chapter 3, Section 3.2.
6. Architectural Issues. See Chapter 5, Section 5.2, Section 5.3, and Section 5.10.
7. Cost. See Chapter 5, Section 5.12 for cost estimation guidance for 223(f) transactions.
19.6.1.8
Latent Defects Guarantee
A. The Firm Commitment will include a condition requiring a guarantee against latent defects when the
total cost of repair, inclusive of Critical, Non-Critical and Deferred Repairs, exceeds Housing’s minimum
threshold to require assurances. See Chapter 5, Section 5.10.8.H (the minimum repair threshold at the
time of publication was $400,000.) The RC Director should inform the HUD Closing Attorney when the
cost of repairs exceeds the current Latent Defect Guarantee threshold.
B. When a Latent Defect Guarantee is required, the Lender must withhold an amount equal to 2½ percent
(or greater percentage if required by the Firm Commitment) of the total repair cost from the Deferred
Repair Escrow in accordance with the terms of Escrow Agreement for Deferred Repairs (form HUD92476.1M). If the Firm Commitment does not require a Deferred Repair Escrow, the Latent Defect
Assurance must be funded by cash or letter of credit, or a surety bond, in an amount equal to 2½ percent
of the total repair cost (or greater percentage if required by the Firm Commitment) of the total repair cost.
C. If Borrower provides for the Latent Defects Guarantee with a surety bond, they must use Surety Bond
Against Defects Due to Defective Materials and/or Faulty Workmanship (form HUD-3259), and a surety
that is on the U.S. Treasury Listing of Approved Sureties with adequate bonding capacity (Department
Circular 570). The surety bond must run for a period of at least two years from the date of completion of
repairs.
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19.6.1.9
Chapter 19 Closing Guide
19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs
Projects with Expanded Work
A. Section 223(f) transactions involving Level 2 or Level 3 Alterations or per-unit repair and alteration
costs of $15,000 or more (223(f) with Expanded Work), often involving LIHTC, are closed as standard
223(f) transactions, with the following possible additional requirements as set out in the Firm
Commitment. Projects meeting this expanded work criteria must be closed using the Expanded Work
Closing Checklist.
1. Construction Contract. If a General Contractor is required by Chapter 5, Section 5.3.3, Lender’s
Counsel must submit the AIA Document A107-2017 Owner-Contractor Agreement, with the additions
and deletions report attached. The HUD Closing Attorney will review for completeness (dates, parties,
signatures, description of work) and for material additions and deletions to the contract that should
be reviewed by the RC Director for programmatic acceptability. Deletions that absolve one party from
primary responsibility are not permitted.
2. Owner/Architect Agreement. If a Project Architect is required by Chapter 5, Section 5.3, Lender’s
Counsel must submit AIA Document B104-2017 Owner-Architect Agreement, with the
additions/deletions report attached. The HUD Closing Attorney will review for completeness (dates,
parties, signatures, description of work), and for material additions and deletions to the contract that
should be reviewed by the RC Director. The AIA B104 form may not be altered in general, except for the
deletion of binding arbitration and mediation provisions. Deletions that absolve one party from primary
responsibility are not permitted. If there is an identity of interest between the owner and design
Architect, there must be an unaffiliated Supervisory Architect with a separate AIA Document B1042017 agreement between the Borrower/Owner and the non-IOI Supervisory Architect. See Chapter
5, Section 5.2.
3. Dimension Drawings. The Lender will collect and distribute the drawings and specifications in the
same fashion as the instructions stated in Chapter 5, Section 5.8.5.
4. Building Permits. Lender’s Counsel must submit evidence satisfactory to the RC Director
demonstrating that Borrower has obtained all building permits, other local permits, governmental
approvals, and architectural plans required by the applicable building official(s) to complete the
Expanded Work. The HUD Closing Attorney will review for completeness (finality, dates, parties,
signatures, description of work). The permits, plans, and approvals must be final (issued by the date
of closing) and unconditional, unless otherwise approved by the RC Director in consultation with the
HUD Closing Attorney.
5. Other Closing Requirements. The following guidance addresses common questions regarding
HUD’s policy and form completion for 223(f) transactions with Expanded Work. See also Section
223(f) with Expanded Work Closing Checklist.
Regulatory Agreement. Selections in paragraphs 2, 5, 7, and 8 are to be selected as for a
Refinance.
Request for Endorsement of Credit Instrument (form HUD-92455M). Any references to
construction and the Certificate of General Contractor are to be stricken.
Agreement and Certification (form HUD-93305M). The General Contractor should not be a
party to the Agreement and Certification.
Borrower’s Oath (form HUD-92478M). Paragraph 4 shall be stricken.
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Davis- Bacon Wage Rate Determination. Davis-Bacon prevailing wages are not required under
the National Housing Act.
Escrow Agreement for Deferred Repairs (form HUD-92476.1M). This agreement is used to
assure completion of repairs and alterations and may be revised as appropriate to incorporate a
disbursement agreement or LIHTC equity pay-in schedule where the escrow is not being fullyfunded at the closing.
Surety. Payment and Performance Bonds are generally not required unless otherwise indicated
by the Firm Commitment.
B. Additional requirements may be applicable depending on the transaction. See e.g., Chapter 3, Section
3.7.
19.6.2
223(a)(7) Loans
19.6.2.1
General
A. Section 223(a)(7) of the National Housing Act authorizes refinancing of an existing FHA-insured Loan.
The 223(a)(7) Loan can be used to reduce the interest rate, provide funds for repairs, or extend the term
of the Loan. The rationale for the latter two objectives must be documented by HUD.
B. Loans financed pursuant to Section 223(a)(7) are insured under the same section of the National
Housing Act as the original loan, i.e. Section 221(d)(4), pursuant to Section 223(a)(7). Therefore, the
original principal amount of the 223(a)(7) Loan cannot exceed the original unpaid principal balance of
the FHA-insured loan being refinanced. If there has been a partial payment of claim on the FHA-insured
loan, the 223(a)(7) cannot exceed the amount of the modified FHA-insured loan. Further instructions for
223(a)(7) loan applications are included in Chapter 18.
19.6.2.2
Five-Year Lockout
A. Projects with loans insured under Section 223(f) are eligible for refinancing under Section 223(a)(7).
However, if the Project’s statutory 5-year prepayment lockout period has not expired at the time of
refinance from 223(f) to 223(a)(7), Borrower must enter into HUD’s form Use Agreement (Section 207
Use Agreement pursuant to Section 223(f), Rental Housing Prepayment, subject to Section 223(f)(3) (form
HUD-93150)) in order for HUD to permit the prepayment and refinancing of the existing 223(f) loan.
19.6.2.3
Refinances of Second Mortgages.
A. Section 223(a)(7) may be used to refinance an FHA-insured subordinate mortgage (e.g., 241(a)). For
projects with FHA-insured first, and one or more subordinate mortgages, HUD will permit the refinancing
of multiple loans into a single Section 223(a)(7) loan.
19.6.2.4
Differences from Section 223(f) Procedures
A. Generally, underwriting and closing of the Section 223(a)(7) loan is similar to the procedures used for
Section 223(f). Closing procedures for Section 223(a)(7) loans that differ from Section 223(f) include the
following:
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1. Previous Participation Clearance using the Previous Participation Certification (form HUD-2530), is
not required for existing principals and affiliates who have already obtained clearance. New
Controlling Participants must obtain form HUD-2530 clearance.
2. A new project number is assigned to the Section 223(a)(7) project.
3. Standards for the maximum mortgage and the mortgage term are set forth in Section 18.3(B). Note
that if expenses exceed those allowed for Section 223(a)(7) underwriting, the application must be
converted to a Section 223(f) loan or, for substantial rehabilitation, a Section 221 loan. Use form HUD92476.1M when establishing an escrow for deferred repairs and require a 110% deposit (i.e., the
required Additional Deposit Amount is to be 10% of the estimated cost of the Repair Work; in contrast,
for 223(f) loans, the required Additional Deposit Amount is to be 20% of the estimated cost of the
Repair Work).
4. A new Regulatory Agreement must be executed at closing, referencing the same Section of the Act as
the original loan, with the addition of “pursuant to Section 223(a)(7).”
5. The Section 223(a)(7) program is based upon the premise that the original insurance obligation is
transferred to the new Section 223(a)(7) Loan. Please see the note in form HUD-94001M, in which
the endorsement panel for Section 223(a)(7) loans contains provisions specific to Section 223(a)(7),
including the transfer of the Contract of Insurance from the prior FHA project number to the new Loan
and the following:
207/223(f) becomes “§ 207/§ 223(f) pursuant to § 223(a)(7)”; and
221(d)(4) becomes “§ 221(d)(4) pursuant to § 223(a)(7)”.
6. Survey Affidavit of No Change. Notwithstanding the other provisions of this Chapter relating to survey
requirements, a new survey and Surveyor’s Report is not required if:
The title company will issue the policy with no new survey exceptions;
A copy of the HUD-approved as-built survey is available in the original HUD loan file (or provided
by Borrower); and
Either (a) no changes have been made to the land or buildings since the original survey was filed,
or (b) minor changes are proposed to the land and/or buildings, and the RC Director determines
that such changes are acceptable without a new survey.
7. If the RC Director does not require a new survey, Lender’s Counsel must submit a Survey Affidavit of
No Change certifying to no material change, in a format similar to the sample included at Section 19.10,
to document the lack of changes, together with a copy of the survey from the original loan file.
19.6.3
Section 241(a) Supplemental Loans
19.6.3.1
Introduction
A. Section 241(a) of the NHA, 12 U.S.C. § 1715z-6(a), authorizes FHA-insurance of supplemental loans to
finance project improvements, additions, and equipment. A Section 241(a) loan provides subordinate
financing without altering the first-lien priority of the existing FHA-insured loan. See Chapter 3, Section
3.6 for additional details.
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B. Except as discussed in this Section, closing procedures are generally the same for loans insured
pursuant to Section 241(a) as they are for Section 221(d)(4) closings. Some loan documents may not be
applicable, depending upon the facts of the transaction. The RC Director will determine inapplicability of
documents, if any, in consultation with the HUD Closing Attorney.
19.6.3.2
Effect on Existing Financing
A. First Lender’s Consent to Secondary Encumbrance. The lender in any existing FHA-insured loan
(First Lender) must provide written consent for the Borrower to obtain the supplemental loan, even when
the First Lender is also the Lender of the supplemental loan. The consent must grant Borrower permission
to further encumber the First Lender’s security with the subordinate loan (including the supplemental
loan Security Instrument, UCC-1 Financing Statements, and HUD Regulatory Agreement) and any other
new secondary financing (i.e., HOME funds, etc.).
B. Consent of Existing Subordinate Lenders. If any existing subordinate financing on the Project
requires written consent from the subordinate Lender before Borrower may further encumber the
Project, Lender’s Counsel must submit copies of such written consent evidencing the subordinate Lender’s
authorization for the Borrower to obtain the 241(a) supplemental loan..
C. Modification of Legal Description in Underlying First Loan Documents. If the supplemental loan
will finance construction on or acquisition of a separate parcel of land, the additional parcel(s) must be
made part of the legal description for the land on the first loan. This addition of land requires modification
of the first loan documents to expand the legal description wherever it appears, i.e., in the Security
Instrument, Regulatory Agreement, UCC-1 Financing Statements (both county-recorded and state-filed),
and Lender’s title policy (which itself must be modified both to reflect the modification of the existing loan
and to revise the legal description). The same expanded legal description will be used for the
supplemental loan.
Note: No change in the legal description is necessary if no new land is being added, e.g., adding
floors to an existing building, expanding the existing building into an area already included under
the first mortgage, or rehabilitation of existing units
19.6.3.3
Additional Requirements for 241(a) Supplemental FHA Loans
A. GNMA Requirements. If the first loan was securitized through GNMA, Lender’s Counsel must provide
written assurance from the First Lender that it has complied with all GNMA requirements for the addition
of the supplemental loan.
B. Davis-Bacon Requirements. Under NHA Section 241(b)(5), supplemental loans are subject to DavisBacon labor standards if: (a) the existing loan is FHA-insured and subject to Davis-Bacon labor standards
(e.g., the first lien mortgage is currently insured as a 221(d)(4)), or (b) the existing loan is a HUD-held
mortgage originally insured under a program that was subject to Davis-Bacon labor standards.
Conversely, supplemental loans are not subject to Davis-Bacon labor standards if the existing loan is
currently FHA-insured under a section of the act that is not subject to Davis-Bacon wage rates under
Section 212 of the NHA (e.g., loans currently insured as 223(f)s or (a)(7)s).
C. Cross-Default Clause in Supplemental Loan Documents. The Firm Commitment will require a
cross-default clause in the supplemental loan Note and Security Instrument providing that a default under
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the first lien mortgage is a default under the supplemental mortgage. See NHA 241(b)(6) and 24 CFR
241.555(a). Conversely, the supplemental loan is not cross-defaulted to the first lien mortgage.
19.6.3.4
HUD Form Documents for 241(a) Supplemental Loans
A. Lender’s Counsel is responsible for preparing the Section 241(a) closing documents to address the
supplemental nature of the 241(a) Loan, including that the 241(a) Security Instrument will be subordinate
to the lien of the existing FHA-insured loan. Modifications are necessary to remove certain references
(i.e., the absence of other liens) to clarify that the supplemental loan does not violate the terms of HUD’s
form documents and to highlight that various rights of a subordinate Lender may be subject to the prior
rights of a senior Lender (even when the two Lenders are the same), etc.
Note: The OGC Multifamily Mortgage Division will maintain a set of template documents for use in
241(a) transactions while HUD prepares the documents for OMB approval through the PRA
process. Lender’s Counsel may contact the MMD to obtain the current templates. Templates
include the supplemental security instrument, Lender’s certificate, note, building loan agreement,
agreement and certification, and regulatory agreement. Once published with an OMB approval
number, preparers should use the OMB-approved forms.
19.6.4
Section 213 Cooperative Housing Loans
A. Mortgage insurance for cooperative housing projects insured under Section 213 of the National
Housing Act is underwritten and closed through Traditional Application Processing (TAP). The provisions
of this Chapter apply to the closing of a Section 213 loan.
B. Lender’s Counsel should prepare the draft closing submission based on the Section 213 checklist
posted to HUD’s website: https://www.hud.gov/OGC_Multifamily_Closing_Documents_Checklist.
C. When a share sale waiver is requested prior to Firm Commitment, the RC Director will request and
OGC will assign a HUD Closing Attorney to complete a legal review of the required documentation.
Note: The authorizing statute for Section 213 insurance is codified at 12 USC 1715e. Regulations
governing the Section 213 program are located at 24 CFR Part 213. Basic administrative
requirements for cooperative housing insurance and more specific requirements for specialized
types of cooperative housing are published in HUD Handbooks 4550.1 through 4550.6.
19.6.5
Insurance Upon Completion Loans for New
Construction and Substantial Rehabilitation
19.6.5.1
General
A. Insurance Upon Completion (IUC) involves new construction or substantial rehabilitation where FHA
insurance is not provided until the project’s construction is completed – there are no insured advances
during the construction period. Consequently, many requirements are different than a typical 221(d)(4)
Initial Closing with insurance of advances. FHA may insure a loan under Sections 220, 221(d)(4) and 231
of the NHA as an Insurance Upon Completion (IUC) loan once Certificates of Occupancy have been issued
for all units in the Project.
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19.6.5.2
Chapter 19 Closing Guide
19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs
Firm Commitment
A. HUD must issue a Firm Commitment with IUC-specific conditions prior to the start of construction.
The Firm Commitment will remain valid and outstanding until Final Endorsement of the permanent
mortgage loan. There is no Initial Closing. Required documents for IUC closings are listed in Chapter 12,
Section 12.16.C.
19.6.5.3
Construction Requirements
A. Prior to commencement and during construction, Borrower is responsible for ensuring that the project
complies with both HUD new construction/substantial rehabilitation Program Obligations, and applicable
state and local laws, including zoning. See 24 CFR 200.72 and Part II of Consolidated Certifications Borrower (form HUD-91070M). The Borrower and Borrower’s counsel must be able to confirm
compliance at Final Endorsement. See Opinion 6 of Opinion of Borrower’s Counsel (form HUD-91725M),
and Section (4) of Borrower’s Oath (form HUD-92478M).
B. At least 21 days prior to the start of construction, Lender’s counsel must submit drafts of the following
documents for HUD review and approval:
1. Construction Contract (form HUD-92442M), including the attachments to the Construction Contract
(the AIA-201 and Supplementary Conditions to the Construction Contract (form HUD-92554M));
2. Evidence of site control, and the right to legally access the site for purposes of construction;
3. HUD-approved set of contract drawings and specifications (see Appendix 5, Section A.5.5); and
4. Agreement and Certification (form HUD-93305M).
C. The HUD Closing Attorney and the RC Director will review and approve the required pre-construction
documentation.
D. The HUD pre-construction conference must be completed prior to the start of construction, wherein
HUD staff will review the applicable Davis-Bacon wage rates and labor documentation requirements and
procedures. See Chapter 12, Section 12.2 and Section 19.2.3.
E. Assurance of Completion is not required for IUC closings. See Chapter 8, Section 8.13.A.4. At final
endorsement, the General Contractor must address latent defects with Escrow Agreement for Latent
Defects (HUD 92414M).
F. Contractor Guarantee Required. Between Project Substantial Completion and endorsement of the Note,
Contractor’s work must be covered by a guarantee against defects due to faulty materials and/or poor
workmanship. Article 3.B. of the Construction Contract (form HUD-92442M) defines Project Substantial
Completion and Article 3.D. stipulates warranties commence with completion of each portion of the work.
G. Building Loan Agreement (form HUD-92441M) is not required for IUC closings.
19.6.5.4
Closing
A. Preparation for Insurance Upon Completion Closings. HUD’s administrative requirements for IUC
closings are detailed in Chapter 8, Section 8.13 and Chapter 12, Section 12.16. Final Endorsement occurs
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19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs
after completion of construction, cost certification, and issuance of Certificates of Occupancy for all units.
See Chapter 13 for HUD’s Cost Certification requirements.
B. Form Document Requirements Specific to IUC Closings. This section supplements Chapter 8,
Section 8.12 and Chapter 12, Section 12.16 of this MAP Guide.
1. Checklist. The complete list of documents required for IUC closings is provided in the Insurance Upon
Completion Checklist, available on HUD’s website at:
https://www.hud.gov/OGC_Multifamily_Closing_Documents_Checklist.
2. Security Instrument. The term of the Security Instrument commences on the date of HUD’s
endorsement. The Security Instrument is not recorded prior to completion of construction.
Note. The Note must be dated the same date as the Security Instrument. The amount of the Note
cannot exceed the principal balance of the mortgage loan that would have been outstanding if all
payments to principal due before the date of Final Endorsement (including required advance
amortization payments, if any) had been paid.
3. Endorsement of Note. At the Initial/Final Endorsement of an IUC loan, FHA will endorse the Note
form HUD-94001M) for the total sum of the insured Loan. HUD is not insuring advances on a
construction loan, so there is no Initial Endorsement of the Note. The Note contains a separate
endorsement panel for IUC closings. The RC Director will not endorse the Note until the Lender
provides written evidence that all principal payments due and payable on the existing loan have
actually been paid and the existing mortgage loan is otherwise current.
4. Title Policy. The title insurance policy must be dated the same day as the endorsement of the Note.
5. Regulatory Agreement. The Regulatory Agreement must be recorded immediately following
recordation of the Security Instrument.
6. Builder’s Warranty. In addition to the Construction Contract, the General Contractor must enter into
Escrow Agreement for Latent Defects (form HUD-92414M) with Lender and Borrower for the benefit
of HUD and provide one of the following at endorsement to assure correction of any latent defects:
Cash Escrow. A cash escrow deposit equal to 2.5% of the principal amount of the Security
Instrument, to be retained in escrow by Lender for a period of 15 months; or
Letter of Credit. An irrevocable, unconditional letter of credit issued to Lender by a banking
institution; or
Surety Bond. Surety Bond Against Defects Due to Defective Materials and/or Faulty
Workmanship (form HUD-3259), by a surety on the U.S. Department of Treasury’s Listing of
Approved Sureties (Department Circular 570), in the amount of 10% of the Construction Contract,
and effective for two years after Project Substantial Completion.
RC Director Discretion. In cases when the latent defect escrow amount is small because total
repair cost is minimal (e.g., $200,000 or less), the RC Director has the discretion to waive the
assurance for latent defects.
7. Request for Endorsement. Request for Endorsement of Credit Instrument, Certificate of Lender,
Borrower and General Contractor (form HUD-92455M) is required. The form Certification of General
Contractor must be given.
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19.7 HUD-Required Provisions for Borrower’s Organizational Documents
8. Operating Deficit Escrow. If an operating deficit is projected on Multifamily Summary Appraisal
Report (form HUD-92264), the Sponsors, at closing, must provide funds to meet the deficit in the
manner set forth in Chapter 8, Section 8.14. Escrow Agreement for Operating Deficits (form HUD92476a-M) must be used and requires a specified sum to be held for a limited number of months after
closing, in accordance with Program Obligations.
9. Contractor’s Prevailing Wage Certificate. The Contractor must submit Contractor’s Requisition
Project Mortgages (form HUD-92448) to Lender, with the section entitled “Contractor’s Prevailing
Wage Certificate” completed.
10. Cost Certification. The Borrower’s cost certification is reviewed by the RC Director, who will prepare
Maximum Insurable Mortgage (form HUD-92580) to determine the final amount of the Note. See
Chapter 13 for further guidance.
11. Ancillary Agreements. Other ancillary agreements are required as set forth in remainder of this
MAP Guide and in IUC Checklist.
12. Excess (Unused) Mortgage Proceeds. Provisions for excess or unused proceeds are included in
Agreement and Certification (form HUD-93305M).
13. Labor Relations. The RC Director must confer with the Office of Davis-Bacon and Labor Standards
(DBLS) and provide OGC the RC Director with written confirmation of DBLS’s approval to proceed to
closing. See Section 19.2.2 for further guidance.
14. Subordination of Restrictive Covenants. HUD has specific requirements concerning restrictive
covenants resulting from bond financing and low-income housing tax credit financing (See Section
19.4.10 and Section 19.4.11, respectively). Regardless of the timing of recordation of such covenants
and related documents, HUD requires that they meet FHA requirements before Final Endorsement of
the Note for insurance, even if compliance requires amendment of already existing agreements.
Consequently, Borrower and Lender should ensure that these documents, if applicable, meet FHA
requirements before commencement of construction.
Part III: Sample Language, Certifications, and Riders
19.7 HUD-Required Provisions for Borrower’s
Organizational Documents
The Borrower’s organizational governing document (partnership agreement, operating agreement, or bylaws, as applicable) must provide that the Borrower will be in existence at least as long as the term of the
Loan and must include the following provisions (that may automatically terminate when the Loan is no
longer is insured or held by HUD):
Notwithstanding any clause or provision in the [identify both the formation document(s) and the
governing document(s)] to the contrary, and so long as the United States Department of Housing and Urban
Development (“HUD”), or its successors or assigns, insures or holds any loan to [Borrower] (“the HUDinsured Loan”), including the loan secured by a [insert type of security instrument used in Project state,
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19.7 HUD-Required Provisions for Borrower’s Organizational Documents
e.g., mortgage] lien on [insert project’s name and FHA project number] in [insert city, county and state]
(the Project) the following provisions apply:
The terms listed below shall have the following definitions:
“Borrower” means [insert name of FHA Borrower].
“Lender” means the entity identified as “Lender” in the first paragraph of the Security Instrument, or any
subsequent holder of the HUD-insured Note.
"HUD Regulatory Agreement" means the Regulatory Agreement between Borrower and HUD with respect
to the Project, as the same may be supplemented, amended or modified from time to time.
“Security Instrument” means the mortgage or deed of trust from Borrower in favor of Lender, as the same
may be supplemented, amended, or modified.
“HUD-insured Note” means the Note executed by Borrower, and described in the Security Instrument,
including all schedules riders, allonges and agenda, as such Note may be amended from time to time.
Requirements.
1. If any of the provisions of Borrower’s organizational documents conflict with the terms of the HUDinsured Note, Security Instrument, or HUD Regulatory Agreement ("HUD Loan Documents"), the
provisions of the HUD Loan Documents shall control.
2.
No provision required by HUD to be inserted into the organizational documents may be amended
without HUD’s prior written approval. Additionally, if there is a conflict between any HUD-required
provisions inserted into this Agreement and any other provision of this Agreement, the terms of the
HUD-required provisions will govern; and if there is a conflict between any of the provisions in the
[insert appropriate document, i.e., Articles of Organization] and any HUD-required provisions of this
Agreement, the HUD-required provisions will govern.
3.
Unless otherwise approved in writing by HUD, Borrower’s business and purpose shall consist solely of
the acquisition, ownership, operation and maintenance of the Project and activities incidental thereto.
Borrower shall not engage in any other business or activity. The Project shall be the sole asset of the
Borrower entity, which shall not own any other real estate other than the aforesaid Project.
4.
None of the following will have any force or effect without the prior written consent of HUD:
a.
Any amendment that modifies the term of Borrower’s existence;
b.
Any amendment that triggers application of the HUD previous participation certification
requirements (as set forth in Form HUD2530, Previous Participation Certification, or 24 CFR
§ 200.210, et seq.);
c.
Any amendment that in any way affects the HUD Loan Documents;
d.
Except as permitted under section 10 below, any amendment that would authorize any member,
manager, partner, owner, officer or director, other than the one previously authorized by HUD, to
bind the Borrower entity for any matters concerning the Project which require HUD's consent or
approval;
e.
A change that is subject to the HUD TPA requirements contained in Chapter 13 of HUD Handbook
4350.1 REV-1;
f.
Any change in a guarantor of any obligation to HUD (including those obligations arising from
violations of the HUD Regulatory Agreement); and
g.
Any grant of a security interest in any of Borrower’s assets or mortgaged property.
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19.7 HUD-Required Provisions for Borrower’s Organizational Documents
5.
Borrower is authorized to execute a Note and Security Instrument in order to secure a loan to be
insured by HUD and to execute the HUD Regulatory Agreement and other documents required by the
Secretary in connection with the HUD-insured loan.
6.
Any incoming member/partner/owner of Borrower must, as a condition of receiving an interest in the
Borrower entity, agree in writing to be subject to the HUD Loan Documents and all other documents
required in connection with the HUD-insured loan, to the same extent and on the same terms as the
other members/partners/owners.
7.
Upon any dissolution, no title or right to possession and control of the Project, and no right to collect
the rents from the Project, shall pass to any person or entity that is not bound by the HUD Regulatory
Agreement in a manner satisfactory to HUD.
8.
The key principals of Borrower identified in the HUD Regulatory Agreement are liable in their
individual capacities to HUD to the extent set forth in the HUD Regulatory Agreement.
9.
Borrower shall not voluntarily be dissolved or converted to another form of entity without the prior
written approval of HUD.
10. Borrower has designated _________________________ [insert name, individual must be 2530 Previous
Participation Certified] as its official representative for all matters concerning the Project that require
HUD consent or approval. The signature of this representative will bind Borrower entity in all such
matters. Borrower may, from time to time, appoint a new representative to perform this function,
provided that the individual so appointed is 2530 Previous Participation Certified, and within
three business days of doing so, will provide HUD with written notification of the name, address, and
telephone number of its new representative. When a person other than the person identified above
has full or partial authority with respect to management of the Project, Borrower will promptly
provide HUD with the name of that person and the nature of that person’s management authority.
11. Any obligation of the [Corporation / Partnership / Limited Liability Company] to provide
indemnification under this [Operating Agreement / Partnership Agreement / Bylaws] shall be limited
to (i) amounts mandated by state law, if any, (ii) coverage afforded under any liability insurance
carried by the [Company / Partnership] and (iii) available surplus cash of the Borrower as defined in
the HUD Regulatory Agreement. Until funds from a permitted source for payment of indemnification
costs are available for payment, the [Corporation / Partnership / Limited Liability Company] shall not
(a) pay funds to any members, partners, officers and directors, or (b) pay the deductible on an
indemnification policy for any members, partners, officers and directors.
12. [To be included in Projects with LIHTC financing, only] No amendment or change to the obligations or
rights of the tax credit investor(s), as approved by HUD, [insert title of the entity or individuals, or
defined term used in the governing doc.], may be made without the prior written consent of HUD and
Lender.
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19.8 Rider to Security Instrument – LIHTC Projects
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19.8 Rider to Security Instrument – LIHTC Projects
This Rider (“Rider”) is attached to and amends the Security Instrument entered into between [Borrower]
and [Lender], dated as of [Date] (“Security Instrument”).
To the extent any provisions of this Rider conflict with any provisions in the body of the Security
Instrument, the provisions of this Rider shall prevail. Any terms in the body of the Security Instrument
not in conflict with the provisions of this Rider remain in full force and effect.
Notwithstanding anything else in the Security Instrument to which this Rider is attached, Lender and
Borrower agree as follows:
1. Definitions. The following terms shall be added to Section 1 (Definitions) of the Security Instrument:
Any capitalized terms not defined in this Rider shall have the meaning given in the body of the
Security Instrument.
“Equity Investor” means _________________.
“Borrower’s GP/MM” means __________________.
Removal of Borrower’s GP/MM
2. [Include this section 2 only if pre-approval of a special limited partner entity as an interim
replacement general partner/managing member has been requested and approved. Use in
accordance with separately provided guidance on the pre-approval process.]
3. Equity Investor may remove the Borrower’s GP/MM in accordance with the terms of the Borrower’s
organizational documents, subject to the following conditions:
Lender and HUD shall receive prior written notice of any such removal and replacement.
HUD and Lender have approved such organizational documents, including any and all
amendments thereto, but only to the extent HUD approval of the Borrower’s organizational
documents is required by Program Obligations.
HUD and Lender have approved the replacement of the Borrower’s GP/MM in accordance with
Program Obligations. At Borrower’s request, HUD and Lender have approved [SPECIAL LIMITED
PARTNER ENTITY] (“Interim Replacement GP/MM”) to act as a temporary replacement general
partner/managing member of Borrower, in the event Equity Investor removes Borrower’s
GP/MM for cause in accordance with Borrower’s organizational documents. Approval of such
Interim Replacement GP/MM is expressly limited to a period of 90 days that commences on the
date of such removal, provided that HUD in its sole discretion may extend such 90-day period by
an additional 30 days.
HUD and/or Lender may at any time by written notice to Equity Investor revoke the approvals
given in this Section 2 if HUD or Lender becomes aware of any conditions or circumstances that
would disqualify or compromise the ability of Interim Replacement GP/MM from acting as an
interim general partner/managing member pursuant to Program Obligations.
After such interim period, any proposed permanent replacement for the Borrower’s GP/MM is
subject to HUD’s consent pursuant to Program Obligations, including any applicable procedure
for the transfer of physical assets or transfer of ownership interests.
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19.8 Rider to Security Instrument – LIHTC Projects
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4. Transfer of Equity Investor. Equity Investor may transfer all or part of its interests in Borrower upon
the following conditions:
HUD approves any transferee in accordance with Program Obligations, provided that if such
transferee is a limited liability investor, as such term is defined in Program Obligations, HUD shall
receive the same certifications and organizational charts required by Program Obligations for the
admission of a limited liability investor at a transaction’s closing.
HUD and Lender receive prior written notice of such transfer.
HUD and Lender receive executed copies of (and, to the extent, if at all, required by Program
Obligations, have previously approved drafts of), any and all documents necessary to affect such
transfer, including any and all amendments to Borrower’s organizational documents.
5. Notice.
Lender agrees that, as long as Equity Investor is a member or partner of Borrower, Lender shall
endeavor as a courtesy to Equity Investor to deliver to Equity Investor a copy of any notice of
default that is delivered to Borrower. Equity Investor’s address for such notice purposes is:
__________________________________
__________________________________
__________________________________
Equity Investor may change the address to which notices intended for it are to be directed by
means of written notice given to Lender.
Any cure of any default by Borrower offered by Equity Investor shall be treated the same as if
offered by Borrower.
6. Communication. Borrower agrees that Lender and/or HUD may communicate directly with Equity
Investor, when, in Lender and/or HUD’s sole discretion, Lender and/or HUD determine that such
communication is in the best interest of the Project.
BORROWER
LENDER
By:
By:
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19.9 Rider to Regulatory Agreement for Residual Receipts Requirements
19.9 Rider to Regulatory Agreement for Residual
Receipts Requirements
This sample Rider is drafted for projects subject to residual receipts requirements established through a
Section 8 HAP contract. In the event residual receipts requirements are established through another
program or document, such as the Section 202 program, revise this Rider as necessary to reflect deal
specifics. This Rider is intended to amend the Regulatory Agreement related to the insured mortgage
loan, not to alter specific program residual receipts requirements.
This Rider to Regulatory Agreement for Residual Receipts Requirements (“Rider”) is attached to and
amends the Regulatory Agreement for Multifamily Projects entered into between (“Borrower”) and the
United States Department of Housing and Urban Development, acting by and through the Secretary, his
or her successors, assigns or designates (“HUD”), dated as of [Date] (“Regulatory Agreement”).
To the extent any provisions of this Rider conflict with any provisions in the Regulatory Agreement, the
provisions of this Rider shall prevail. Any terms in the body of the Regulatory Agreement not in conflict
with the provisions of this Rider remain in full force and effect.
Notwithstanding anything else in the Regulatory Agreement to which this Rider is attached, Borrower and
HUD agree as follows:
1. Any capitalized term used herein and not defined has the meaning given to it in the Regulatory
Agreement.
2. Borrower has entered into a [Housing Assistance Payment Contract (“HAP Contract”) identified by
HAP Contract No. [HAP Contract No.], as amended, renewed and/or assigned from time to time].
3. While the Regulatory Agreement would otherwise allow Borrower to make Distributions of Surplus
Cash in accordance with the provisions of the Regulatory Agreement, the HAP Contract further limits
such Distributions and requires Borrower to maintain a Residual Receipts account, as Residual
Receipts is defined in the HAP Contract.
4. Borrower shall establish and/or maintain a Residual Receipts account, and make required deposits
into said Residual Receipts account, in accordance with the HAP Contract.
5. Notwithstanding any provision of the HAP Contract, the Residual Receipts account shall be subject to
the control of Lender and shall be maintained in accordance with any applicable requirements of
Ginnie Mae, and withdrawals may be made only with the prior written approval of HUD. These funds
shall be held in an interest-bearing account, whether in the form of a cash deposit or invested in
obligations of, or fully guaranteed as to principal by, the United States of America, or in such other
investment as may be allowed by HUD, which shall be insured or guaranteed by a federal agency and
in accordance with Program Obligations.
6. Funds deposited in the Residual Receipts account shall be held in trust for the Project and shall
continue to be held in trust for the benefit of the Project upon any sale or transfer of the Project,
pursuant to the HAP Contract. Upon termination of the requirement to maintain a Residual Receipts
account, any funds held in the Residual Receipts account shall be subject to HUD’s direction.
7. In the event that the HAP Contract is terminated or is otherwise no longer of any force or effect with
respect to the Project, this Rider shall terminate and be of no further force or effect.
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19.9 Rider to Regulatory Agreement for Residual Receipts Requirements
The statements and representations contained in this rider and all supporting documentation thereto are
true, accurate, and complete. This certification has been made, presented, and delivered for the purpose
of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon by HUD as
a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
BORROWER
(insert signature block)
UNITED STATES DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT,
acting by or through the Secretary
(insert signature block)
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19.10 Survey Affidavit of No Change
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19.10 Survey Affidavit of No Change
State of
County of
The undersigned ("Affiant") being first duly sworn on oath does hereby depose, represent and say to the
U.S. Department of Housing and Urban Development ("HUD"): as follows:
Affiant is the [insert title] ___________ of _____________ (“Borrower”) and is fully and well acquainted and
knowledgeable concerning the physical characteristics and condition of the real estate legally described
on Exhibit A attached hereto and made a part hereof and the buildings, structures and improvements
(collectively the "Improvements" ) located thereon;
Said real estate and Improvements are part of the HUD Project named ___________ and designated HUD
Project Number __________;
On _________________, _____________________ ("Surveyor") surveyed said real estate and Improvements and
produced a written survey dated ________________ and identified as job, survey or order number ______________
of the surveying firm of _______________________________________________________ whose address is
______________________________________________________________________ ("Survey"). On ____________ an original of said
Survey was delivered to HUD;
On _____________, the Affiant reviewed said Survey and physically inspected said real estate and
Improvements including, without limitation, the perimeter boundaries of said real estate;
The Survey accurately and fully depicts the observable physical conditions of said real estate and the
location and condition of all Improvements and any above ground physical indicia of any easements,
licenses, roadways, paths or other physical usage located on said real estate as of _____ [the date of Affiant's
said inspection] including, without limitation, all encroachments thereof on or into easements and set
back lines and by Improvements primarily located on adjoining real estate onto the real estate described
on Exhibit A hereto; EXCEPT [if none, state “NONE”] _____________.
Affiant hereby certifies that the statements and representations contained in this instrument and all
supporting documentation thereto are true, accurate, and complete. This instrument has been made,
presented, and delivered for the purpose of influencing an official action of HUD in insuring a multifamily
loan, and may be relied upon by HUD as a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
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19.10 Survey Affidavit of No Change
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AFFIANT:
By:
Name:
Title:
Date:
I, the undersigned, a Notary Public in and for the county and State aforesaid, do hereby certify that
____________________, personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and severally acknowledged that (s)he
signed and delivered the said instrument as his/her free and voluntary act and purposes therein set forth.
GIVEN under my hand and official seal this ______ day of _______________, 20__.
(SEAL)
Notary Public
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19.11 Certification of Architectural/Engineering Fees
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19.11 Certification of Architectural/Engineering Fees
[Address to Regional Center Director]
Dear
______________________________________:
The undersigned hereby certifies that all architectural, engineering, drafting, land surveyor, testing,
laboratory and related services fees and fee balances for the analysis of the property, preparation of
reports, and for the project design and preparation of plans and specifications have been fully paid, except
as listed below. The undersigned further certifies that there are no other disputed or undisputed claims
for such services.
Firm:
Service:
Fee:
Balance:
Firm:
Service:
Fee:
Balance:
Firm:
Service:
Fee:
Balance:
By:
Name:
Title:
Date:
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19.11 Certification of Architectural/Engineering Fees
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The statements and representations contained in this certification and all supporting documentation
thereto are true, accurate, and complete. This certification has been made, presented, and delivered for
the purpose of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon
by HUD as a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
BORROWER
(insert signature block)
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19.12 Building Code Verification
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19.12 Building Code Verification
This will confirm that an apartment project known as ___________________________, located at
_____________________________________________, built in _______, and consisting of _________ units, which are housed
in _________ buildings and situated on _______ acres (
square feet), was built in accordance with the
applicable codes at the time of construction and has no code violations on record, except for: [Specify
violation, remedy, and status (open/closed). If none, write “None.”]
{----------Insert name of GOVERNING AUTHORITY}:
By:
Name:
Title:
Date:
Phone:
(
)
This letter must signed by an individual with binding authority to provide the confirmations set forth
therein, such as the Chief Planner, etc.
An inspection of the project is not required.
The intent of this certification is to notify HUD that the project, as it stands today, is not under the scrutiny
of the governing authority and does not have any violations recorded against it which jeopardize the
project's existence. If any violations have existed or do exist, the governing authority should specify the
violation and the remedial action taken or required.
Your assistance in this matter is greatly appreciated.
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19.13 Zoning Letter
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19.13 Zoning Letter
*This letter may be provided in lieu of a zoning endorsement in accordance with Section 19.8 above.
This will confirm that an apartment project known as ____________________________, located at
________________________, built in _________, and consisting of _________ units, which are housed in ______ buildings
and situated on
acres (
square feet), was adequately zoned as a multifamily project at
the time of occupancy and that there are no known zoning violations, except for: [Specify violation,
remedy, and status (open/closed). If none, write “None.”]
{----------Insert name of GOVERNING AUTHORITY}:
By:
Name:
Title:
Date:
Phone:
(
)
This letter must be signed by an individual with binding authority to provide the confirmations set forth
therein, such as the Chief Planner, etc.
An inspection of the project is not required.
The intent of this certification is to notify HUD that the project, as it stands today, is not under the scrutiny
of the governing authority and does not have any violations recorded against it which jeopardize the
project's existence. If any violations have or do exist, the governing authority should specify the violation
and the remedial action taken or required.
Your assistance in this matter is greatly appreciated.
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19.14 Third Party Obligee Certification
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19.14 Third Party Obligee Certification
Use when Lender, bond issuer or bond Underwriter exercises the option to defer collection of discounts,
financing fees, etc., as approved in writing by HUD. Such deferred collection of these items must be an
obligation of a third party and may not be an obligation of the Borrower. See [cross-reference to MAP
Guide once finalized.]
[Address to Regional Center Director]
Dear ___________________________:
The undersigned hereby certifies that, under an agreement dated _________________ between the
undersigned and _______________________________________, a discount or other financing charge of $
________________________ in addition to the initial service charge will be paid by
_________________________________________. The undersigned does not now have and will not later assert any
claim against the Borrower, Mortgaged Property, mortgage loan proceeds, any reserve or deposit made
with the undersigned or another required by HUD in connection with the mortgage transaction, or against
the rents or other income from the Mortgaged Property for payment of any part of such discount.
The statements and representations contained in this certification and all supporting documentation
thereto are true, accurate, and complete. This certification has been made, presented, and delivered for
the purpose of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon
by HUD as a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 424.
LENDER:
By:
Name:
Title:
Date:
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The undersigned does not now have and will not later assert any claim against the Borrower, Mortgaged
Property, mortgage loan proceeds, any reserve or deposit made with the undersigned or another required
by HUD in connection with the mortgage transaction, or against the rents or other income from the
Mortgaged Property for payment of any part of such discount.
LENDER:
By:
Name:
Title:
Date:
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19.15 HUD [Rider / Amendment] To Restrictive Covenants
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19.15 HUD [Rider / Amendment] To Restrictive
Covenants
Use as a Rider when the Restrictive Covenants are executed in connection with a new insured loan closing;
use as an Amendment for existing Restrictive Covenants.
Note: This document has been submitted to OMB for PRA approval. Once published, preparers
should use the OMB-approved form and discontinue use of this sample document.
This [RIDER] [AMENDMENT] TO RESTRICTIVE COVENANTS is made as of [______________, 20__], by
_____________ (“Borrower”) and ____________________ (“Agency”).
WHEREAS, Borrower has obtained financing from _____________________ (“Lender”) for the benefit of the
project known as ________________ (“Project”), which loan is secured by a [name of security instrument]
(“Security Instrument”) dated as of _____________, and recorded in the [Recorder’s Office or other land
records office] of ___________ County, __________ (“Records”) on _____________ as Document Number
______________, and is insured by the United States Department of Housing and Urban Development (“HUD”);
WHEREAS, Borrower has received [a loan] [an allocation of Low Income Housing Tax Credits] [HOME
funds] [tax-exempt bond financing] [other- describe] from the Agency, which Agency [is requiring] [has
required] certain restrictions be recorded against the Project; and
[Use if the Restrictive Covenants have already been entered into: WHEREAS, Borrower entered into that
certain [_________Insert name of restrictive covenants document] (“Restrictive Covenants”) with respect to
the Project, as more particularly described in Exhibit A attached hereto, dated as of [____________] and
recorded in the Records;]
WHEREAS, HUD requires as a condition of its insuring Lender’s financing to the Project, that the lien and
covenants of the Restrictive Covenants be subordinated to the lien, covenants, and enforcement of the
Security Instrument; and
WHEREAS, the Agency has agreed to subordinate the Restrictive Covenants to the lien of the Mortgage
Loan in accordance with the terms of this [Rider] [Amendment].
NOW, THEREFORE, in consideration of the foregoing and for other consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
(a) In the event of any conflict between any provision contained elsewhere in the Restrictive Covenants
and any provision contained in this [Rider] [Amendment], the provision contained in this [Rider]
[Amendment] shall govern and be controlling in all respects as set forth more fully herein.
(b) The following terms shall have the following definitions:
"Code" means the Internal Revenue Code of 1986, as amended.
"HUD" means the United States Department of Housing and Urban Development.
"HUD Regulatory Agreement" means the Regulatory Agreement between Borrower and HUD with
respect to the Project, as the same may be supplemented, amended or modified from time to time.
“Lender” means ______________________, its successors and assigns.
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19.15 HUD [Rider / Amendment] To Restrictive Covenants
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“Mortgage Loan” means the mortgage loan made by Lender to the Borrower pursuant to the Mortgage
Loan Documents with respect to the Project.
“Mortgage Loan Documents” means the Security Instrument, the HUD Regulatory Agreement and all
other documents required by HUD or Lender in connection with the Mortgage Loan.
“National Housing Act” means the National Housing Act, 12 USC § 1701 et seq., as amended.
“Program Obligations” has the meaning set forth in the Security Instrument.
“Residual Receipts” has the meaning specified in the HUD Regulatory Agreement.
“Security Instrument” means the mortgage or deed of trust from Borrower in favor of Lender, as the
same may be supplemented, amended or modified.
“Surplus Cash” has the meaning specified in the HUD Regulatory Agreement.
(c) Notwithstanding anything in the Restrictive Covenants to the contrary, [use for tax credit transactions
only: except the requirements in 26 U.S.C. 42(h)(6)(E)(ii), to the extent applicable,] the provisions
hereof are expressly subordinate to (i) the Mortgage Loan Documents, including without limitation,
the Security Instrument, and (ii) Program Obligations (the Mortgage Loan Documents and Program
Obligations are collectively referred to herein as the “HUD Requirements”). Borrower covenants that
it will not take or permit any action that would result in a violation of the Code, HUD Requirements or
Restrictive Covenants. In the event of any conflict between the provisions of the Restrictive Covenants
and the provisions of the HUD Requirements, HUD shall be and remains entitled to enforce the HUD
Requirements. Notwithstanding the foregoing, nothing herein limits the Agency’s ability to enforce
the terms of the Restrictive Covenants, provided such terms do not conflict with statutory provisions
of the National Housing Act or the regulations related thereto. The Borrower represents and warrants
that to the best of Borrower’s knowledge the Restrictive Covenants impose no terms or requirements
that conflict with the National Housing Act and related regulations.
(d) [Use for tax credit transactions only: In accordance with 26 U.S.C. 42(h)(6)(E)(i)(1), in] In the event of
foreclosure (or deed in lieu of foreclosure), the Restrictive Covenants (including without limitation,
any and all land use covenants and/or restrictions contained herein) shall automatically terminate,
[use for tax credit transactions only: with the exception of the requirements of 26 U.S.C. 42(h)(6)(E)(ii)
above, to the extent applicable, or as otherwise approved by HUD.]
(e) Borrower and the Agency acknowledge that Borrower’s failure to comply with the covenants
provided in the Restrictive Covenants will does not and will not serve as a basis for default under the
HUD Requirements, unless a separate default also arises under the HUD Requirements.
(f) [Except for the Agency’s reporting requirement,] in enforcing the Restrictive Covenants the Agency
will not file any claim against the Project, the Mortgage Loan proceeds, any reserve or deposit
required by HUD in connection with the Security Instrument or HUD Regulatory Agreement, or the
rents or other income from the property other than a claim against:
i.
Available surplus cash, if the Borrower is a for-profit entity;
ii. Available distributions of surplus cash and residual receipts authorized for release by HUD, if the
Borrower is a limited distribution entity; or
iii. Available residual receipts authorized for release by HUD, if the Borrower is a non-profit entity[.];
or
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19.15 HUD [Rider / Amendment] To Restrictive Covenants
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iv. A HUD-approved collateral assignment of any HAP contract.]
(g) For so long as the Mortgage Loan is outstanding, Borrower and Agency shall not further amend the
Restrictive Covenants, with the exception of clerical errors or administrative correction of nonsubstantive matters, without HUD’s prior written consent.
(h) Subject to the HUD Regulatory Agreement, the Agency may require the Borrower to indemnify and
hold the Agency harmless from all loss, cost, damage and expense arising from any claim or
proceeding instituted against Agency relating to the subordination and covenants set forth in the
Restrictive Covenants, provided, however, that Borrower’s obligation to indemnify and hold the
Agency harmless shall be limited to available surplus cash and/or residual receipts of the Borrower.
(i) [Use only with Low-Income Housing Tax Credits: Notwithstanding anything to the contrary
contained herein, it is not the intent of any of the parties hereto to cause a recapture of the Low Income
Housing Tax Credits or any portion thereof related to any potential conflicts between the HUD
Requirements and the Restrictive Covenants. Borrower represents and warrants that to the best of
Borrower’s knowledge the HUD Requirements impose no requirements which may be inconsistent
with full compliance with the Restrictive Covenants. The acknowledged purpose of the HUD
Requirements is to articulate requirements imposed by HUD, consistent with its governing statutes,
and the acknowledged purpose of the Restrictive Covenants is to articulate requirements imposed by
Section 42 of the Code. In the event an apparent conflict between the HUD Requirements and the
Restrictive Covenant arises, the parties and HUD will work in good faith to determine which federally
imposed requirement is controlling. It is the primary responsibility of the Borrower, with advice of
counsel, to determine that it will be able to comply with the HUD Requirements and its obligations
under the Restrictive Covenants. [Use only with tax-exempt bonds]: No action shall be taken in
accordance with the rights granted herein to preserve the tax exemption of the interest on the notes
or bonds, or prohibiting the owner from taking any action that might jeopardize the tax-exemption,
except in strict accord with Program Obligations.]
The statements and representations contained in this rider and all supporting documentation thereto are
true, accurate, and complete. This certification has been made, presented, and delivered for the purpose
of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon by HUD as
a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
BORROWER:
AGENCY:
By:
By:
Name:
Name:
Title:
Title:
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19.15 HUD [Rider / Amendment] To Restrictive Covenants
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STATE OF
________________
COUNTY OF ________________
I, the undersigned, a Notary Public in and for the county and State aforesaid, do hereby certify that on this
____________________, _________________________________, personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged
that (s)he signed and delivered the said instrument as his/her free and voluntary act and the free and
voluntary act of _____________________________________ for the purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first
above written.
[seal]
Notary Public
STATE OF
________________
COUNTY OF ________________
I, the undersigned, a Notary Public in and for the county and State aforesaid, do hereby certify that on this
____________________, _________________________________, personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged
that (s)he signed and delivered the said instrument as his/her free and voluntary act and the free and
voluntary act of _____________________________________ for the purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first
above written.
[seal]
Notary Public
[Attach Exhibit A – Legal Description]
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19.16 Equity Bridge Loan Rider – LIHTC Projects
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19.16 Equity Bridge Loan Rider – LIHTC Projects
Use to meet the requirements of Chapter 14, Section 14.15 and Section 19.4.9.6 for equity bridge loans
used as a substitute for deferred tax credit equity pay-in as approved by HUD in the Firm Commitment.
This Rider (“Rider”) is attached to and made part of [insert name of equity bridge loan note] (“EBL Note”),
made as of _________, 20__ by [insert name of equity bridge loan Borrower] (“EBL Borrower”) to ____________
(“Bridge Lender”).
WHEREAS, [insert name of HUD Borrower on the HUD Loan] (“HUD Borrower”) has obtained financing
from [insert name of FHA Lender] (“FHA Lender”) for the benefit of the project known as [insert project
name], FHA No: [insert project number] (“Project”), which loan is secured by a [name of security
instrument] (“Security Instrument”) dated as of _____________, and recorded in the [Recorder’s Office or
other land records office] of ___________ County, __________ on _____________ as document number ______________,
and is insured by the United States Department of Housing and Urban Development (“HUD”);
WHEREAS, EBL Borrower has obtained equity bridge loan financing from the Bridge Lender to defer HUD
Borrower’s required equity pay-in for the Project;
WHEREAS, as a condition of approving the EBL Note and insuring FHA Lender’s financing for the Project,
HUD requires that the terms of the EBL Note and related documents executed by the EBL Borrower
(collectively, the “EBL Documents”) be made subject to HUD Requirements, as that term is further defined
below.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
(a) In addition to the terms defined above, the following terms have meanings set forth below:
i.
“HUD Loan Documents” means the HUD-insured Note, Security Instrument, HUD Regulatory
Agreement, and all other documents executed in connection with the HUD Loan.
ii. "HUD Regulatory Agreement" means the Regulatory Agreement for Multifamily Projects (form
HUD-92466M) entered into by and between HUD Borrower and HUD with respect to the Project,
as the same may be supplemented, amended or modified from time to time.
iii. “HUD Requirements” means, collectively, the HUD Loan Documents, this Rider, and Program
Obligations.
iv. “HUD Loan” has the same meaning as “Loan” as such term is defined in the Security Instrument.
v. “Mortgaged Property” has the meaning specified in the Security Instrument.
vi. “Program Obligations” means (1) all applicable statutes and any regulations issued by the
Secretary pursuant thereto that apply to the Project, including all amendments to such statutes
and regulations, as they become effective, except that changes subject to notice and comment
rulemaking shall become effective only upon completion of the rulemaking process, and (2) all
current requirements in HUD handbooks and guides, notices, and mortgagee letters that apply to
the Project, and all future updates, changes and amendments thereto, as they become effective,
except that changes subject to notice and comment rulemaking shall become effective only upon
completion of the rulemaking process, and provided that such future updates, changes and
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amendments shall be applicable to the Project only to the extent that they interpret, clarify and
implement terms in this Security Instrument rather than add or delete provisions from such
document. Handbooks, guides, notices, and mortgagee letters are available on “HUDCLIPS,” at
www.hud.gov.
vii. “Residual Receipts” has the meaning specified in the HUD Regulatory Agreement.
viii. “Surplus Cash” has the meaning specified in the HUD Regulatory Agreement.
(b) In the event of any conflict between (i) the EBL Documents and (ii) the HUD Requirements, the HUD
Requirements are controlling in all respects.
(c) The EBL Documents and all amounts now or hereafter advanced thereunder or secured thereby are
specifically subordinate to the HUD Loan Documents and all amounts now or hereafter advanced
thereunder or secured thereby.
(d) The loan evidenced by the EBL Note is nonrecourse to the HUD Borrower and is not secured by a lien
or security interest in the Mortgaged Property.
(e) Any payments due under the EBL Documents shall only be payable from [insert if applicable: capital
contributions from [partners] [members] of the HUD Borrower, or] non-Project assets. The
restriction on payment imposed by this paragraph does not excuse any default caused by failure of
the EBL Borrower to pay the indebtedness evidenced by the EBL Note.
(f) [For non-IOI: “Bridge Lender may not”] or [For IOI Bridge Lender: “Neither [Bridge Lender] nor [HUD
Borrower’s] [limited partners] [members] may”] assert any claims, even in an event of default, against
the following items without the prior written permission of HUD:
i.
the Project;
ii. the proceeds of the HUD Loan;
iii. the Mortgaged Property;
iv. any reserve or deposit with respect to the Project required by Program Obligations; or
v. any Developer fee.
(g) If HUD acquires title to the Project by foreclosure or deed in lieu of foreclosure, the Bridge Lender
hereby consents to the discharge of all obligations of the HUD Borrower, if any, under the EBL
Documents, and to the termination of the EBL Documents as to the HUD Borrower. The discharge of
the HUD Borrower’s obligations under this paragraph neither: (1) excuses or relieves any co-signer,
guarantor or any other party from the obligation to repay the indebtedness evidenced by the EBL
Note; nor, (2) affects, limits, or impairs the Bridge Lender’s ability to seek a monetary judgment and
pursue other remedies against any co-signer, guarantor or other party.
(h) The loan evidenced by the EBL Note may last through the construction or rehabilitation period
provided for in the HUD Loan Documents, but will be paid in full no later than: [select the appropriate
option and strikethrough remaining inapplicable options]
[EBL provided by private, for-profit Lender on a 221(d)(4)/220 loan] no later than one year after
HUD’s final endorsement of the HUD Loan;
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[EBL provided by private, for-profit Lender on a 223(f) loan] no later than one year after 100%
completion of repairs;
[EBL provided by not-for-profit, public sector, or quasi-public sector entities on a 221(d)(4)/220
loan] no later than ten years after HUD’s final endorsement of the HUD Loan;
[EBL provided by not-for-profit, public sector, or quasi-public sector entities on a 223(f) loan] no
later than ten years after HUD Borrower’s 100% completion of repairs required by the HUD Loan
Documents.
(i) The EBL Documents may not be amended, assigned, transferred, sold, or otherwise held without the
prior written consent of HUD.
(j) Neither the Bridge Lender nor any of its participants (if any) will have any lien upon or right of set-off
against any assets of the HUD Borrower that serve as collateral for the HUD Loan.
The statements and representations contained in this rider and all supporting documentation thereto are
true, accurate, and complete. This certification has been made, presented, and delivered for the purpose
of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon by HUD as
a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
EBL BORROWER:
BRIDGE LENDER:
By:
By:
Name:
Name:
Title:
Title:
[Jurats to be added]
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Chapter 19 Closing Guide
19.17 Section 213 Cooperative Program Rider to Regulatory Agreement for Multifamily
Projects
19.17 Section 213 Cooperative Program Rider to
Regulatory Agreement for Multifamily Projects
Section 213 Cooperative Program Rider to
Regulatory Agreement for Multifamily Projects
A. The following definition is hereby inserted as subsection mm of Article 1, Section 1 of the foregoing
Regulatory Agreement for Multifamily Housing Projects:
1. “mm: ‘General Operating Reserve Account’ shall mean the account where the funds identified in
Section 51 of Rider 1 to this Agreement are held.”
B. The following provisions are hereby inserted as Section 51, 52, and 53, respectively, of the foregoing
Regulatory Agreement for Multifamily Housing Projects. To the extent the provisions of the foregoing
Regulatory Agreement and this Rider 1 shall conflict, the provision of this Rider 1 shall prevail:
1. “51. Commencing with occupancy, the Borrower shall establish and maintain a General Operating
Reserve Account by allocation and payment thereto monthly of a sum equivalent to not less than 3
percent of the monthly amount otherwise chargeable to the members pursuant to their Occupancy
Agreements. Upon accrual in the General Operating Reserve Account of an amount equal to 15
percent of the current annual amount otherwise chargeable to the members pursuant to their
Occupancy Agreements, the rate of such monthly allocations may, by appropriate action of the
Borrower, be reduced from 3 percent to 2 percent; provided, however, that in the event withdrawals
from such Account reduce it below said 15 percent accrual, the rate of such monthly deposits shall
immediately be restored to 3 percent. At any time thereafter upon accrual in said General Operating
Reserve Account of an amount equal to 25 percent of the current annual amount otherwise chargeable
to the members pursuant to their Occupancy Agreements, such monthly deposits may, by appropriate
action of the Borrower, be discontinued and no further deposits need be made into the General
Operating Reserve Account so long as said 25 percent level is maintained and provided, further, that
upon any reduction of such reserve below said 25 percent level, monthly deposits shall be made at
the 3 percent rate until the 25 percent level is restored. The General Operating Reserve Account shall
remain in a special account and may be in the form of a cash deposit or invested in obligations of, or
fully guaranteed as to principal by, the United States of America, and shall at all times be under the
control of the Borrower. The General Operating Reserve Account is intended to provide a measure of
financial stability during periods of special stress and may be used to meet deficiencies from time to
time as a result of delinquent payments by individual members, to provide funds for the re-purchase
of membership interests of withdrawing members, and other contingencies. Disbursements totaling
in excess of 20 percent of the total balance in the reserve as of the close of the preceding annual period
may not be made during any annual period without the consent of HUD.
2. The Borrower shall establish and collect monthly carrying charges pursuant to the conditions set forth
hereinafter. Monthly carrying charges charged to members shall be made by the Borrower in
accordance with a schedule of charges filed with and approved in writing by HUD prior to
endorsement of the Note. Such charges shall be in an amount sufficient to meet HUD’s estimate of
cooperative management expense, operating expense and maintenance expense, debt service, taxes,
special assessments and ground rents, if any, reserves, and all other expenses of the Borrower.
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19.17 Section 213 Cooperative Program Rider to Regulatory Agreement for Multifamily
Projects
Thereafter, charges made by the Borrower for its accommodations shall be in accordance with a
schedule of charges filed with and approved in writing by HUD and shall be in amounts sufficient to
meet the Borrower’s estimate of expenses set forth in an operating budget which shall be prepared
and submitted to the HUD 60 days prior to the beginning of each fiscal year. The operating budget
shall set forth the anticipated income of the project and a sufficiently detailed estimate of expenses
which will include separate estimates for administration expense, operating expense, maintenance
expense, utilities, hazard insurance, taxes and assessments, ground rent, interest and amortization,
mortgage insurance premium, replacement reserve and operating reserve.”
3. Borrower shall not, without the written consent of HUD:
Permit the occupancy of any of the residential units except at the charges established in Section
51, and pursuant to an Occupancy Agreement in a form approved by HUD.
Permit the occupancy of any of the residential units except by members of the Borrower, or
sublessees approved by the Borrower, and pursuant to a sublease in a form approved by HUD.
Consolidate or merge the Borrower into any other corporation; liquidate or dissolve the
Borrower, enter into any reorganization of the Borrower, change the capital structure of the
Borrower, or alter or amend the Bylaws of the Borrower.
[For new construction] Contract for the sale of any membership interest or shares of the Borrower
except in accordance with a subscription agreement in a form approved by HUD.
4. [Insert as applicable: 54. Cooperative projects regulated under State or local law must comply with
Program Obligations as well as any and all State or local regulatory requirements.]
The statements and representations contained in this rider and all supporting documentation thereto are
true, accurate, and complete. This certification has been made, presented, and delivered for the purpose
of influencing an official action of HUD in insuring a multifamily loan, and may be relied upon by HUD as
a true statement of the facts contained therein.
Warning: Federal law provides that anyone who knowingly or willfully submits (or causes to
submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424.
BORROWER
(insert signature block)
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Chapter 20 Glossary
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Chapter 21 Index
A
Abatement ........................................................... xii
xvi, 5-37, 5-54, 7-38, 7-55, 7-57, 7-58, 7-59, 7-60,
8-39, 8-40, 9-12, 9-27, 9-28, 9-29, 9-31, 9-32, 946, 9-58, 18-3, 19-43, A4-5, A4-7, A4-11, A4-14,
A7-10
Ability to Close
Ability to Close ........................................... 17-11
Absorption
Absorption Period……..iii, 3-12, 3-35, 7-13, 7-29,
7-48, A7-10
Absorption Rate ................ 7-10, 7-13, 7-39, 7-48
Acceptable Development Cost
Acceptable Development Cost .......... A3-5, A3-6
Accessibility
Accessibility for Persons with Disabilities .. xxviii,
3-24, 5-18, 17-2, A5-5, A5-6, A5-55, A5-57
Accessibility Repairs…..3-22, 3-23, 5-13, 5-18, 541, 5-55, 12-41, 12-43, 19-76, A5-47
Accessibility Requirements………..iv, xxviii, 3-4, 324, 5-8, 5-21, 5-22, 5-24, 17-2, A5-6, A5-7, A512, A5-13, A5-14, A5-16, A5-32, A5-33, A5-42,
A5-44
Accessibility Standard .... 5-13, 5-28, A5-7, A5-39
Accessibility Violation ......................... 5-13, 5-37
ADAxxviii, 5-6, 5-7, 5-25, A2-16, A2-19, A5-6, A57, A5-8, A5-13, A5-14, A5-15, A5-16, A5-34,
A5-36
Americans with Disabilities Act…….xxviii, 3-5, 324, 5-21, 5-24, 5-28, A5-6, A5-15, A5-55, A557
Critical Repairs………………3-20, 5-17, 5-18, 5-40,
5-41, 5-42, 6-8, 8-42, 12-33, 12-41, 12-42, 1314, 18-3, 19-76, A2-19, A2-22, A5-7, A5-8, A517, A5-41, A5-47, A5-49, A5-53, A5-62, A5-68,
A5-73
Fair Housing Act…………………….xxviii, 3-4, 3-17,
3-24, 3-35, 3-36, 3-37, 3-38, 3-39, 5-6, 5-7, 520, 5-21, 5-24, 5-25, 5-28, 5-36, 7-2, 7-20, 7-
MAP Guide, December 2020
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36, 10-8, 17-2, A2-16, A2-19, A3-7, A3-9, A5-6,
A5-7, A5-8, A5-9, A5-10, A5-11, A5-12, A5-14,
A5-15, A5-16, A5-17, A5-24, A5-34, A5-36, A544, A5-55, A5-56
Reasonable Accommodation…………A5-8, A5-11,
A5-13
Section 504………………..xxviii, 3-4, 3-24, 5-3, 521, 5-24, 16, A5-6, A5-7, A5-8, A5-12, A5-13,
A5-14, A5-15, A5-16, A5-17, A5-35, A5-37, A543, A5-55, A5-57
UFAS……………………….5-24, 5-25, 5-28, A2-16,
A2-19, A5-6, A5-7, A5-13, A5-14, A5-15, A516, A5-17, A5-24, A5-34, A5-35, A5-36, A5-37
Uniform Federal Accessibility Standards …….5-6,
5-7, 5-37, A5-13, A5-14, A5-35, A5-37
Accessible
Accessible Route ....... A5-9, A5-10, A5-16, A5-17
Accessible Unit ........ A5-17, A5-24, A5-35, A5-37
Acquisition
Acquisition Cost……………….viii, 5-55, 7-38, 8-41,
8-43, 13-26, 13-27, 13-31, 13-33, 19-44, A3-3,
A12-6, A12-7
Acquisition of Existing Properties....... 6-3, A5-41
ADA
ADA Title II ........................................ A5-6, A5-16
ADA Title III .................................................. A5-6
Americans with Disabilities Act……………….. xxviii,
3-5, 3-24, 5-21, 5-24, 5-28, A5-6, A5-15, A555, A5-57
Title II………………………………..5-21, 5-24, 5-28, A21, A2-16, A5-6, A5-15, A5-34, A5-36, A5-55,
A5-57
Title III………………………………….5-21, 5-28, A5-6,
A5-15, A5-34, A5-36, A5-55, A5-57
Affirmative Fair Housing Marketing
Affirmative Fair Housing Marketing Plan . …..1-3,
3-4, 3-13, 3-14, 3-38, 4-6, 10-2, 10-8, 17-2, A410, A4-14
Affordable Housing……………………………ii, xxvii, 3-4,
3-9, 3-15, 3-16, 3-25, 3-26, 3-27, 3-35, 3-36, 548, 6-1, 7-9, 7-20, 7-38, 7-54, 7-57, 8-24, 10-4,
13-32, 14-4, 14-6, 14-8, 17-1, 17-3, 19-46, 19-47,
A2-26, A3-1, A3-3, A3-16, A3-17, A5-12
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Affordable Housing for FHA Multifamily
Mortgage Insurance Programs .................. 3-4
Affordable Unit ..............................7-9, 7-38, A3-17
Age Restriction…………………………..iv, v, 3-9, 3-17, 324, 3-37, 3-38, 7-5, 7-11, A3-7, A3-9
Aggregate Cost
Aggregate Cost……………………………….5-1, 5-2, 54, 5-10, 5-13, 5-14, 5-15, 5-21, 5-27, 6-8, A3-4
Aggregate Cost Limit ........................ 5-1, 5-2, 5-4
Allocation of Cash Available to the Borrower ... xxx,
A12-6
ALTA
ALTA………………………………………..xxviii, 14-6, 1913, 19-34, 19-38, 19-39, 19-40, 19-41, 19-58,
A4-5, A4-7, A4-10, A4-14, A5-4, A5-5, A5-26
ALTA/ACSM Land Title Survey………………… . A4-5,
A4-7, A4-10, A4-14, A5-26
ALTA/NSPS Land Title Survey……………19-41, A54, A5-5
Ancillary Improvements ............................ 3-24, 9-4
Anticipatory Demolition................... 9-7, 9-36, 9-39
Appeal
Appeal…………………………………xxiii, 2-2, 2-17, 4-4,
7-2, 10-8, 15-6, 15-7, 15-14, 15-15, 15-16, A89, A8-11
Basis for the Appeal ....................................... 4-4
Second Level Appeal ...................................... 4-4
Application
Application Checklist………………………….4-5, 8-29,
11-12, A4-1, A4-2
Application Fee…………………………..ii, 1-1, 2-12, 32, 3-4, 3-10, 3-28, 3-30, 4-3, 4-5, 4-6, 5-23, 112, 13-23, 13-39, 14-1, 18-2, 18-5, A4-2, A4-4,
A4-3, A4-6, A4-9, A4-13, A4-18
Application for Firm Commitment .. ……………3-2,
5-12, 5-19, 5-21, 5-38, 5-39, 6-3, 6-4, 6-10, 95, 9-13, 9-15, 9-17, 9-39, 9-42, 9-44, 17-12, 192, 19-10, 19-12, A3-2, A4-17, A5-26, A8-20
Application for Mortgage Insurance…………. .. xiv,
1-2, 2-16, 3-1, 3-12, 3-22, 5-57, 7-48, 8-44, 96, 9-41, 10-5, A4-17, A4-18, A5-49, A12-6
Application Processing…………………………i, v, xxiii,
xxvii, xxxi, 1-3, 1-5, 2-1, 2-2, 4-1, 4-6, 8-22, 9-
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50, 10-1, 14-1, 15-6, 15-8, 15-17, 17-6, 17-13,
19-2, 26, A15-1, A15-2, A15-3, A15-4
Application Submission .. ………………………….xxvii,
1-2, 2-13, 2-14, 2-16, 2-20, 3-21, 3-22, 3-27, 42, 4-5, 4-7, 7-5, 8-14, 8-16, 8-24, 8-29, 9-7, 99, 9-35, 9-36, 9-48, 9-49, 10-8, 11-3, 11-6, 144, 14-16, 15-1, 15-7, 15-10, A2-10, A2-11, A310, A4-1, A4-18, A5-32, A5-59, A7-8
Applications Involving New Construction ....5-43
Firm Commitment Application………………….vii,
xvi, 3-12, 4-2, 5-26, 5-36, 5-37, 5-41, 6-11, 75, 9-7, 11-3, 14-13, A4-19, A5-33, A5-35
New Construction and Substantial Rehabilitation
Applications ........... 2-2, 3-14, 5-49, 5-52, 5-56
Standard Processing……………………………..vii, xxiv,
1-5, 5-35, 5-38, 14-1, 18-1
Streamlined Processing………………..vi, 5-19, 5-20,
5-24, 5-26, 5-28, 5-31, 5-36, 5-51, 14-1, 16-4,
A5-41
Substantial Rehabilitation Application ………3-45,
5-21, 6-13, A5-25
Application Fee
Application Fee……………………………………….ii, 1-1,
2-12, 3-2, 3-4, 3-10, 3-28, 3-30, 4-3, 4-5, 4-6,
5-23, 11-2, 13-23, 13-39, 14-1, 18-2, 18-5, A32, A3-4, A4-3, A4-6, A4-9, A4-13, A4-18
Pay.gov……………………………………...xxvii, 4-5, A41, A4-3, A4-6, A4-9, A4-13, A4-19, A4-22, A423
Application for Insurance of Advance of Mortgage
Proceeds
Stages of Advances ............................ xviii, 12-18
Applications for New Construction…………3-7, 5-35,
5-37, 5-50, 8-38, A5-41
Appraisal
Appraisal Exhibit ............................................. 7-2
Appraisal Report…………………….x, 7-4, 7-14, 7-15,
7-20, 7-21, 7-24, 7-25, 7-26, 7-36, 7-40, 7-42,
13-1, 17-4, 17-9, 17-10, 19-64, 19-84, A2-13,
A2-14, A4-4, A4-9, A4-13, A7-4, A7-5
Appraisal Report Exhibit .................. x, 7-21, 17-9
Appraisal Requirement...................... x, 7-2, 7-14
Cost Approach…………………5-45, 7-16, 7-41, 742, A7-9, A7-11
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Income Approach…………………….7-16, 7-17, 7-44,
7-54, 7-60, A7-9, A7-11
Operating Expense Analysis Worksheet…… 7-29,
7-32, 7-40, 7-43
Sales Comparison Approach…………….7-16, 7-17,
7-18, 7-44, 7-54, A2-14, A2-15, A7-9, A7-11
Warranted Price of Land7-40, 7-65, 19-44, A214, A2-15
Appraiser
Appraiser Certification ................................... 7-3
Appraiser Qualifications .................. ix, 7-3, A7-1
Confidentiality Requirement ....................... 7-32
Confidentiality Rule ..................................x, 7-20
Ethics................................................... 7-34, A7-2
Record Keeping Rule ..................... xii, 7-63, A7-2
Selection and Approval of Appraisers............ 7-2
Selection of Appraisers .............................. ix, 7-2
Architect
Certification from Project Architect............. 5-26
Green MIP Responsibilities ...................... ix, 6-13
Project Architect Duties and Responsibilities 5-9
Project Architect Qualifications ..................... 5-9
Architectural
Architectural Fee .............................. 5-17, A5-60
Architectural Review Report ............ xxviii, A5-32
Architectural Standard................................. 5-39
Drawing…………………………………..5-32, 9-6, 19-64,
A5-25, A5-28, A12-3
Asbestos………………………..xv, 5-35, 5-37, 5-54, 9-8,
9-10, 9-11, 9-12, 9-29, 9-30, 9-31, 9-32, 9-58, 122, A5-22, A5-24, A5-38, A7-12, A7-13
ASHRAE…………………………3-14, 5-27, 5-29, 6-1, 6-6,
6-7, 6-11, 6-15, 9-34, A5-38, A5-43, A5-54, A6-1,
A6-2
Assurance of Completion…………………...iii, xxv, 312, 3-26, 5-1, 5-2, 5-21, 5-34, 5-42, 5-43, 5-49, 612, 8-42, 8-47, 8-50, 12-21, 12-24, 12-42, 12-46,
14-10, 19-13, 19-14, 19-64, 19-65, 19-66, 19-82,
A4-12, A4-16, A5-74, A12-16, A12-18
B
Bank Rating Requirements .............................. 8-19
Baseline Data
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Baseline Data ........................................ 6-9, 6-10
Recording Baseline Data............ ix, 6-8, 6-9, 6-13
Baseline Pipeline Impact Radius Table
Baseline Pipeline Impact Radius Table…xxx, A9-1
Blast Overpressure ............. xxx, 9-54, A9-6, A9-7
Gases .................................. xxx, 9-29, A9-3, A9-6
Liquids ................................ xxx, 9-53, 9-54, A9-1
Thermal Radiation……………xxx, 9-54, A9-1, A9-2,
A9-3, A9-4, A9-5
Benchmark
Benchmark………………………………5-45, 6-10, 6-11,
6-15, 7-32, 7-33, 7-34, 14-10, A5-19, A5-66
Benchmarking………………..5-12, 6-2, 6-4, 6-6, 6-8,
6-9, 6-10, 6-11
Energy Due Diligence.......................... 6-10, 6-11
Bond
Bond Document ......... 3-38, 14-15, 19-49, 19-50
Bond Financed Project…………….x, xiv, 7-23, 8-51,
8-53, 13-22, 13-23, 19-43, A12-4
Bond Financing……………………v, 3-25, 3-28, 3-29,
3-30, 8-44, 14-17, 19-50, 19-51, 19-84
Bond Premium…………………….5-49, 13-26, 13-38,
A2-20, A2-22, A5-60
Bond Transaction…………………….3-4, 18-5, 19-49,
19-50, A3-2, A3-5
Bond Underwriter .......................... 13-21, 13-24
Fidelity Bond…………………..10-1, 10-5, 10-7, 10-8,
A4-4, A4-10, A4-14
Surety Bond…………………5-42, 8-47, 8-50, 12-43,
19-57, 19-64, 19-76, 19-83, A12-13, A12-17
Tax Exempt Bond…………………….xxii, 7-60, 13-21,
14-16, A4-21, A4-22
Taxable Bond ...................................... 8-42, 8-49
Bond Financed Projects
Bond Financed Project…………….x, xiv, 7-23, 8-51,
8-53, 13-22, 13-23, 19-43, A12-4
Loan Rates .................................. xiv, 8-51, 14-17
Tax-Exempt Bond……………………..3-28, 7-7, 8-51,
8-53, 11-10, 11-11, 11-15, 14-2, 14-17, 19-46,
19-49, 19-50, 19-99, 19-101, A12-20
Borrower
Litigation Disclosure ...................................19-42
Organizational Documents of Borrower ...19-54,
19-71
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Single Asset Mortgagor Entity…………ii, 2-9, 3-1,
8-25, 13-20, 18-2, A3-6
Bridge Loans
Advance Equity in Tax Credit Projects ....... 14-13
Bridge Financing ............................................ 3-5
Broadly Affordable………………..xxvii, 3-3, 3-4, 3-11,
14-2, 15-8, 18-5, A3-16, A3-17, A3-19, A4-18, A421, A4-23
Building Code
Building Code……………..xxvi, 5-2, 5-6, 5-7, 5-20,
5-24, 5-28, 5-29, 5-36, 19-58, 19-95, A2-16,
A2-17, A5-1, A5-2, A5-4, A5-10, A5-11, A5-18,
A5-19, A5-38, A5-41
Building Code Compliance ......................... 19-58
Evidence of Zoning and Building Code
Compliance ............................................ 19-75
Building Energy Modeling
BEM.................................................... A6-1, A6-2
BEM Software .................................... A6-1, A6-2
Building Energy Modeling ........... 6-7, A6-1, A6-2
Building Standards ... vi, 5-6, 5-7, 5-18, A3-18, A5-1
By-Laws
Model Form of By-Laws ...................... 17-4, 17-7
C
Calculation of the Net Equity Amount ........... 14-10
Capitalization Rate
Capitalization Rate………………..iv, 3-7, 3-26, 7-17,
7-18, 7-26, 7-60, A7-9, A7-11
Carrying Charge………………..2-5, 3-14, 7-44, 8-34,
12-20, 13-38, 17-1, 17-4, 17-5, 17-6, 17-7, 17-10,
17-11, 17-12, 19-61, 19-106, A5-69, A12-1, A122, A12-3, A12-7, A12-14, A12-17, A12-18
Cash Out
Escrow from Land Equity ............ xix, 8-50, 12-38
Casualty Claim
Casualty Claim............................................ 12-47
Change Order
Additive Change Order…………………12-23, 12-25,
12-33, 12-34, 12-40
Betterment Change Order……………..5-21, 12-23,
12-30, 13-18, 13-26, 13-37
Change Order Classification ............... xviii, 12-22
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Change Order Policies ................................12-22
Construction Contract Changes……12-21, 12-25,
12-40
Cost Overruns and Change Orders ...............3-13
Deductive Change Order ........ xviii, 12-24, 12-28
HUD Underwriter Instructions ............ xix, 12-28
HUD Underwriter Tasks ....................... xix, 12-28
Time Extension Change Order ....................13-18
Checklist
Application Exhibit Checklist…………….xxvii, 8-29,
1, 3, 6, 7, 9, 13
Checklist……………………….xxiv, 8-29, 14-6, 18-13,
19-12, 19-19, 19-21, 19-23, 19-34, 19-81, 1983, 19-84, A4-2, A4-3, A4-6, A4-9, A4-12, A415
Concept Meeting Checklist................. xxvii, A4-2
Pre-Application Exhibit Checklist................. A4-9
Refinance Checklist ............................ xxvii, A4-6
Refinance/Acquisition Checklist ......... xxvii, A4-2
Sections 221(d)(4), 220, 231, and 241(a)
Checklists........................................ xxvii, A4-8
Claim Intentions .......................................... A12-20
Classification of Work (class of work)
Level 1 Alteration……………………..5-3, 5-4, 5-15,
5-16, 5-56, 12-2, 12-43, A5-47
Level 2 Alteration ............... 5-3, 5-4, 5-15, 12-43
Level 3 Alteration…………………………5-3, 5-4, 5-5,
5-10, 5-15, 5-39, 5-56, 19-77, A5-20, A5-73
Work on Non-Damaged Components ............ 5-3
Closing
Closing Checklist……………………..19-4, 19-5, 19-7,
19-8, 19-12, 19-22, 19-23, 19-40, 19-41, 1949, 19-51, 19-58, 19-59, 19-75, 19-77
Closing Schedule.........................................11-10
Initial Closing……………………5-9, 5-17, 5-20, 5-34,
8-17, 8-18, 8-35, 8-50, 8-51, 9-49, 11-10, 1111, 12-4, 12-33, 12-34, 12-35, 12-39, 12-41,
13-5, 13-25, 13-44, 14-10, 14-14, 19-9, 19-10,
19-12, 19-21, 19-30, 19-33, 19-63, 19-64, 1967, 19-68, 19-70, 19-71, 19-72, 19-81, 19-82,
A5-5, A8-4, A12-2, A12-3, A12-4, A12-6, A127, A12-9, A12-10
Lien Waiver..................................... 19-18, 19-20
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Title, Escrow, and Survey Requirements….xxv,
19-33
CNA
Capital Needs Assessment…………………..vii, xxviii,
3-4, 5-5, 5-18, 5-29, 5-39, 6-4, 6-10, 6-11, 718, 7-34, 10-9, 17-2, 18-1, 18-12, A2-18, A3-2,
A4-4, A4-7, A4-10, A4-13, A5-38, A5-40, A548, A5-53, A5-62
CNA Estimate ................................................. 5-8
CNA for Existing Improvements in Refinance and
Acquisition Transactions ............................ 5-6
CNAs are Required for All Applications…..iii, 5-51
Other CNAs Required by Asset Management.A542
When CNAs are Required ................ xxviii, A5-41
CNA e-Tool
Assessed Remaining Useful Life ................. A5-45
Assessed RUL ................................. A5-45, 5A-46
CNA e-Tool Repairs list................................. 5-17
CNA Prepared for New Construction ......... A5-41
CNA Summary and Scope Information ...... A5-42
Construction Types .................................... A5-44
Estimated Replacement Cost………xii, 3-15, 5-40,
5-51, 5-52, 7-38, 7-41, 7-43, 7-45, 7-46, 7-47,
7-53, 8-49, 9-5, 9-28, 13-1, 13-38, A2-15, A544, A5-45, A5-68, A5-72, A12-5
EUL ...................................... A5-45, A5-46, A5-47
Lender Validation and Submission ............ A5-49
Minimum Sample....................................... A5-43
Repair Replace Recommendation……….A5-46,
A5-47, A5-48
Simple Construction Schedule ................... A5-54
Standard Estimated Useful Life………5-55, A5-24,
A5-45
Utility Conservation Metrics ...................... A5-49
Warning Flags .............................................. 5-55
COB
Approval by COB as a MAP Lender ................ 2-1
Approval of the IOI from COB ........................ 2-9
Counterparty Oversight Branch .....2-1, 7-2, A2-1
Disapprove a Lender Application ................... 2-2
Monitoring by COB ...................................... 2-16
Quality Assurance and Enforcement Actions..2-1
Role, Authority and Procedures of COB....... 2-17
MAP Guide, December 2020
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Time to Complete .... A4-18, A5-39, A5-47, A5-54
Code Enforcement..........3-16, 19-58, A5-22, A5-23
Commercial Income Limit.....7-27, 7-28, A3-2, A3-4
Commercial Space
Commercial Occupancy Rate............ 7-28, 17-10
Commercial Rent ......................... 7-1, 7-13, 7-49
Commercial Space and Income Limitations..7-28
Commercial Space Valuation................... xi, 7-29
Nonresidential Use ........... 7-27, 9-23, 9-24, A5-1
Waivers to Exceed the Commercial Space Limits
.................................................................. 7-28
Commitment
Commitment, Regulatory Agreement and
Closing ..............................................xxiv, 18-7
Completion Inspections
Certificate of Substantial Completion….12-15,
13-2
Final Completion………….9-32, 9-34, 9-36, 12-15,
12-16, 13-3, 19-57
Punch List ....................................... 12-14, 12-15
Completion Monitoring
Completion Monitoring ........................... A12-12
Concept Meeting
Concept Meeting Exhibits .............................. 4-1
Section 223(f) Concept Meeting ................. A4-2
Written Response to the Concept Meeting ... 4-1
Condominium
Condominium……………..3-9, 3-25, 7-10, 8-4, 8-8,
19-35, 19-41, A5-5
Waiver for a Condominium ..........................3-10
Consolidated Certifications………………19-58, 19-59,
19-82, A3-19
Construction
Construction Problem………………xviii, 2-6, 12-10,
12-38, 19-21
Construction Progress Meeting…………xviii, 12-9,
12-44
Construction Schedule……5-13, 5-14, 5-17, 5-18,
5-38, 5-41, 6-13, 12-5, 12-6, 12-9, 12-38, A39, A3-10, A3-11, A3-12, A5-8, A5-25, A5-54
Construction Analyst
Construction Analyst Responsibilities ............ 5-7
Construction Contract
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Construction Contract………….vi, xviii, xx, xxi, xxv,
xxxi, 3-12, 5-7, 5-8, 5-10, 5-18, 5-19, 5-30, 531, 5-33, 5-34, 5-42, 5-46, 5-50, 5-54, 8-20, 847, 12-3, 12-5, 12-8, 12-9, 12-12, 12-13, 12-15,
12-20, 12-21, 12-23, 12-24, 12-25, 12-27, 1229, 12-36, 12-37, 12-39, 12-40, 12-43, 12-45,
13-2, 13-5, 13-6, 13-7, 13-9, 13-14, 13-17, 1318, 13-19, 13-20, 13-26, 13-27, 13-28, 13-30,
13-31, 13-36, 13-37, 13-38, 14-8, 19-10, 1912, 19-16, 19-19, 19-21, 19-60, 19-63, 19-64,
19-65, 19-66, 19-67, 19-72, 19-74, 19-77, 1982, 19-83, A2-16, A5-21, A5-22, A5-31, A5-34,
A5-36, A5-37, A5-53, A12-10, A12-12, A12-13,
A12-17, A12-18, A13-2
Construction Contract for Insured Advances.519
construction Draw
Construction Draw………………….3-20, 5-12, 5-21,
5-42, 19-61, A3-11, A5-41
Construction Loan
Construction Loan Administration……….1-1, 1-2,
2-15, 2-16, 2-17, 4-6, 11-2, 15-5, 15-6, 15-10,
15-11, A2-1, A2-2, A2-5, A2-6, A2-7, A2-23,
A15-4
Construction Loan Administration
Construction Loan Administration………1-1, 1-2,
2-15, 2-16, 2-17, 4-6, 11-2, 15-5, 15-6, 15-10,
15-11, A2-1, A2-2, A2-5, A2-6, A2-7, A2-23,
A15-4
Contingency Funds
Contingency Funds............................ 12-24, 14-6
Substantial Rehab Contingency ................... 14-6
Contract Administration
Contract Administration ................ xvii, 5-8, 12-3
Shell Company ............................................. 12-4
Contractor's Profit
BSPRA………iii, iv, viii, 3-3, 3-8, 3-14, 3-17, 3-18,
3-19, 5-50, 7-44, 7-53, 8-31, 8-34, 8-35, 8-50,
13-1, 13-18, 13-26, 13-27, 13-28, 13-29, 1337, 13-38, 14-8, 19-44, 19-65, A2-20, A2-21,
A2-24, A3-2, A3-6
Controlling Mortgage Criteria
Controlling Mortgage Criteria…………….iv, v, 317, 3-18, 3-19, 3-29
MAP Guide, December 2020
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Criterion 1…………iii, 3-15, 3-23, 3-25, 3-26, 3-34,
3-45, 8-43, 14-3, 17-5, 18-2,
Criterion 10……………3-23, 3-26, 3-34, 3-45, 8-43,
17-5, 18-2, A3-3
Criterion 3……………..iii, xii, 3-15, 3-16, 3-18, 3-19,
3-25, 3-45, 5-50, 7-16, 7-17, 7-18, 7-38, 7-39,
7-44, 7-45, 7-52, 7-54, 7-55, 7-57, 7-58, 7-60,
7-62, 13-3, 13-13, 13-33, 14-4, 16-4, 16-5, 175, A3-1, A3-3
Criterion 4……………iii, 3-5, 3-16, 3-19, 3-25, 3-27,
5-47, 7-46, 17-5, A3-1, A3-3
Criterion 5……………….iii, 3-16, 3-19, 3-20, 3-22,
3-26, 7-35, 7-57, 7-58, 7-60, 7-62, 13-37, 1339, 17-3, 17-5, 18-3, A2-8, A2-9, A3-1, A3-3
Criterion 7.......3-26, 3-45, 8-43, 14-6, 17-5, A3-3
Criterion 9.....................................................3-45
Cooperative
Approving New Members ..........................17-12
Carrying Charge…………….2-5, 3-14, 7-44, 8-34,
12-20, 13-38, 17-1, 17-4, 17-5, 17-6, 17-7, 1710, 17-11, 17-12, 19-61, 19-106, A5-69, A121, A12-2, A12-3, A12-7, A12-14, A12-17, A1218
Cooperative Housing………………..xxiii, 17-1, 17-3,
17-4, 17-6, 17-10, 17-11, 18-3, 19-81, A3-3
Cooperative Membership ..... 17-6, 17-11, 17-12
Cooperative Ownership................................17-1
New Member .............................................17-12
Cost Basis
Furniture, Fixture, and Equipment in Cost Basis.
............................................................. iii, 3-13
Cost Certification
Cost Certification Requirements………5-54, 12-4,
13-9, 19-75
Extension of Contract Time ............... xviii, 12-24
Short-Form Cost Certification ....................19-75
Cost Not Attributable
Calculating Cost Not Attributable for Substantial
Rehabilitation ................................ xxix, A5-69
Commercial Cost Not Attributable ............ A5-64
Commercial Costs Not Attributable ... …….A5-64,
A5-65
Commercial Costs Not Attributable .. xxix, A5-67
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Cost Not Attributable to Dwelling Space………. iv,
3-27
Costs Not Attributable for Existing Properties
....................................................... xxix, A5-67
Costs Not Attributable for New Construction
....................................................... xxix, A5-63
Cost Portions
Cost Portions of Form HUD-92264…………… 5-38,
5-53, 5-55, A2-20, A2-22
Cost Report
Cost Report .................................................. 5-27
Detailed Cost Estimate Package .................. 5-27
Counterparty Oversight Branch
COB…………………………1-3, 2-1, 2-2, 2-3, 2-6, 2-7,
2-8, 2-9, 2-10, 2-12, 2-13, 2-14, 2-15, 2-16, 217, 2-18, 2-19, 2-20, 2-21, 2-22, 2-23, 2-24, 72, 7-4, 12-10, 15-1, 15-2, 15-3, 15-4, 15-5, 156, 15-7, 15-8, 15-10, 15-11, 15-12, 15-13, 1514, 15-15, 15-17, 15-18, A2-1, A2-2, A2-3, A24, A2-5, A2-6, A2-7, A2-10, A2-24, A2-25, A87, A15-1, A15-2, A15-3, A15-5
Counterparty Oversight Branch .....2-1, 7-2, A2-1
Credit Report
Credit Reports and Credit Investigation…….xiii,
8-12
Criterion 3…………………iii, xii, 3-15, 3-16, 3-18, 3-19,
3-25, 3-45, 5-50, 7-16, 7-17, 7-18, 7-38, 7-39, 744, 7-45, 7-52, 7-54, 7-55, 7-57, 7-58, 7-60, 7-62,
13-3, 13-13, 13-33, 14-4, 16-4, 16-5, 17-5, A3-1,
A3-3
Criterion 5……………..iii, 3-16, 3-19, 3-20, 3-22, 3-26,
7-35, 7-57, 7-58, 7-60, 7-62, 13-37, 13-39, 17-3,
17-5, 18-3, A2-8, A2-9, A3-1, A3-3
Critical Repairs
Accessibility Critical Repairs......................... A5-7
Code Violation……..19-58, 19-95, A5-22, A5-23,
A5-38
Ingress and Egress………3-43, 12-8, 12-15, 12-19,
12-46, 19-73, 19-74
Physical Security of the Property ............... A5-41
D
Davis-Bacon Wage Rate……………………5-22, 5-30,
5-45, 8-46, 9-2, 12-2, 12-39, 12-47, 14-14, 1980, 19-82, A2-17, A5-30
Labor Standards……………..iii, iv, xxiv, 3-12, 3-24,
5-34, 12-2, 12-3, 12-7, 12-10, 12-30, 12-31,
12-39, 19-10, 19-11, 19-19, 19-64, 19-80, 1984, A12-9
Daycare
Daycare.............................................. xxviii, A5-1
Debt Service Coverage
Debt Service Coverage Ratio………………3-7, 3-20,
8-38, 8-39, 8-40, 18-3, A5-51, A8-3
Debt Service Limit
Maximum Loan and Debt Service ........... iv, 3-25
Delinquent Federal Debt ........................... xiii, 8-13
Departmental Enforcement Center
DEC……………………1-4, 3-24, 4-7, 8-15, 10-1, 11-6,
11-10, 15-1, 15-3, 15-4, 15-17, 15-18
Departmental Enforcement Center…………..1-4,
2-16, 3-24, 4-7, 8-15, 10-1, 11-6, 15-1, 15-2,
15-12, 15-17, A15-1, A15-2
Design Architect
Design Architect and the Supervisory Architect
are Different ...........................................19-63
Design Professional Certifications
Certificate of Professional Liability Insurance
....................................... xxix, 5-9, 5-10, A5-58
Certification for New Construction and
Substantial Rehabilitation ............. xxix, A5-54
Design Professional Certifications ..... xxix, A5-54
Developer Fee
Deferred Developer Fee…………….xxii, 3-18, 14-9,
14-15, 19-48
Developer Fee……………………iii, xiv, xxi, xxii, xxvi,
3-8, 3-18, 8-34, 12-29, 12-30, 13-28, 14-2, 146, 14-8, 14-9, 14-10, 14-11, 19-44, 19-104, A32, A3-5, A3-6
Treatment of Developer Fee ................ xxii, 14-8
Disability
Disability…………………….3-4, 3-13, 3-14, 7-2, 7-20,
7-36, 10-8, 12-32, 17-2, A3-7, A3-10, A5-16,
A5-17
Davis-Bacon
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Disabled…………………………..3-17, 3-18, 3-35, 3-36,
3-39, 3-44, 5-41, A3-2, A3-11, A5-1, A5-17, A535, A5-37
Disbursements
Approved Disbursements .......................... A12-8
Disparate Impact
Disparate Impact.......................................... 3-14
Displacement………………………3-42, 3-43, 3-44, 7-1,
8-49, 10-2, 13-3, 14-14, A3-10, A3-11, A5-8
DOE's Simulation Engines
EnergyPlus ................................................... A6-2
OpenStudio .................................................. A6-2
Spawn-of-EnergyPlus ................................... A6-2
Draft Closing Package………………..19-3, 19-4, 19-10,
19-23, 19-33, 19-34, 19-52
Drawings and Specifications
Distribution of Drawings and Specifications ... vii,
5-32
Drilling Site ....................................................... 9-55
Due Diligence
Consultant Due Diligence...........................vi, 5-5
Duplicate Water and Sewerage System…….xxviii,
A5-3
E
Early Start of Construction……………….vii, xxiv, 5-33,
5-34, 12-2, 19-11, 19-12
Easement
Easement………………….9-54, 11-12, 19-36, 19-39,
19-41, 19-42, A4-5, A4-7, A4-10, A4-14, A5-5
Estate or Interest in the Land .................... 19-36
Proposed Easement ............................ 5-22, 5-58
Elderly
Elderly Families ............................................ 3-35
Elderly Family .............................3-37, 17-2, A3-9
Elderly Occupancy...................... 3-17, 3-24, 3-39
Elderly Person…………………3-17, 3-18, 3-35, 3-37,
3-39, A3-2, A3-7, A3-9
Elderly Persons……………..3-17, 3-35, 3-37, 3-39,
A3-7, A3-9
Electronic Submission…………….1-1, 2-23, 4-5, 8-29,
A4-1, A4-21
Eligible Area
MAP Guide, December 2020
Go to beginning of Chapter 21
Eligible Area ............................................. iii, 3-16
Eligible Construction Activities
Eligible Construction Activities ......... vi, 5-1, 18-3
Eligible Construction By Program .............. vi, 5-4
Eligible/ility
Eligible Foreign Nationals ............................... 3-1
Risk Share ......................... 3-18, 3-29, 18-2, A4-1
Short-Term Lease .....................ii, 3-8, 3-22, 7-26
Tenants-in-Common....................................... 3-1
Encroachment……………………9-13, 9-14, 9-16, 9-18,
9-20, 9-21, 19-37
Energy Modeling
Energy Modeling Software ............ 6-6, 6-7, A6-2
Energy Professionals
Certifications Required for Energy Professionals
.................................................................... 6-6
Energy Professionals Qualifications ........ viii, 6-6
Expected Tasks for Energy Professionals ....... 6-6
ENERGY STAR®
ENERGY STAR® Existing Building Certification. ix,
6-2, 6-8
ENERGY STAR® New Construction Multifamily.62
ENERGY STAR® New Construction Single Family
.................................................................... 6-2
ENERGY STAR® Score……………..6-1, 6-3, 6-4, 6-8,
6-10, 6-12, 6-13, 6-14, A5-56, A5-58
Portfolio Manager………………..5-27, 6-4, 6-5, 6-6,
6-11, 6-12, 6-13
Enforcement
DEC………………1-4, 3-24, 4-7, 8-15, 10-1, 11-6,
11-10, 15-1, 15-3, 15-4, 15-17, 15-18
Departmental Enforcement Center……1-4, 2-16,
3-24, 4-7, 8-15, 10-1, 11-6, 15-1, 15-2, 15-12,
15-17, 1, 2
Enforcement Action…………….xxiii, 1-3, 2-1, 2-7,
2-17, 3-5, 3-30, 5-2, 15-4, 15-5, 15-18, 16-3,
10, A15-1, A15-3
Enforcement Tool .........................................15-1
Departmental Enforcement Center…….xxiii, 3-5,
4-7, 15-1, 15-2, 15-16, 15-17, 17-11, A15-3
Targeted Enforcement Measures……….xxii, 15-1,
15-6, 15-7
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Environmental
Environmental Clearance............... 1-3, 4-6, 9-56
Environmental Requirements…………….1-4, 3-10,
9-1, 9-10, 9-22
Environmental Review…………iii, iv, xiv, xv, xxiv,
1-5, 2-6, 3-10, 3-21, 4-6, 5-5, 5-25, 5-29, 5-33,
5-35, 5-37, 5-38, 7-4, 7-40, 7-64, 7-65, 9-1, 92, 9-3, 9-4, 9-5, 9-6, 9-7, 9-8, 9-9, 9-10, 9-11,
9-13, 9-24, 9-25, 9-48, 9-50, 9-53, 9-57, 12-22,
18-5, 19-12, A2-13, A4-17, A4-18
Environmental Site Assessment…..5-23, 9-1, 9-2,
9-12, 9-13, 9-15
HEROS……..xv, 1-3, 1-5, 3-10, 3-21, 4-6, 5-6, 5-23,
5-33, 7-40, 7-42, 7-64, 7-65, 9-1, 9-3, 9-4, 9-5,
9-6, 9-7, 9-8, 9-9, 9-10, 9-11, 9-13, 9-18, 9-25,
9-29, 9-31, 9-34, 9-37, 9-38, 9-48, 9-50, 9-51,
9-55, 9-57, 17-7, 18-5, A2-13, A4-4, A4-9, A413
Phase I Environmental Site Assessment…xv, 1-5,
5-6, 7-64, 9-1, 9-2, 9-13, 17-7, A2-13, A4-4, A410, A4-13
Phase II Environmental Site Assessment..xv, 5-6,
9-6, 9-8, 9-12, 9-15
Environmental Report………xv, 3-10, 3-24, 4-6, 5-6,
5-23, 7-64, 9-6, 9-7, 9-10, 9-11, 9-29, 9-31, 9-33,
9-38, 9-51, 17-7, 17-9, A7-8
Equipment
Ineligible Equipment .......................... xxviii, A5-2
Lessor of Equipment .................................. 13-18
Equity
Base Equity ................................................ 13-31
Initial Equity Investment…………..xxi, 13-5, 13-31,
13-44, 14-14
Required Equity……………..3-14, 8-21, 8-24, 8-29,
14-10, 19-103
Tax Credit Equity…………………..xiii, xxii, 2-9, 2-10,
2-12, 2-14, 8-24, 8-29, 8-42, 8-49, 12-17, 13-1,
13-26, 13-27, 14-1, 14-2, 14-3, 14-8, 14-9, 1410, 14-11, 14-12, 14-13, 14-14, 14-15, 19-44,
19-49, 19-52, 19-53, 19-61, 19-103, A2-25, A226, A4-5, A4-11, A4-15, A12-1, A12-2
Escrow
MAP Guide, December 2020
Go to beginning of Chapter 21
Cash Escrow…………………………..8-42, 8-47, 12-21,
12-24, 12-30, 13-34, 13-35, 19-66, 19-83, A121, A12-16, A12-18
Debt Service Escrow ....................................... 3-7
Escrow Agreement for Deferred Repairs……..vii,
5-41, 5-42, 8-42, 12-43, 12-47, 19-52, 19-56,
19-76, 19-78
Escrow Agreement for Latent Defects……19-56,
19-57, 19-82, 19-83
Escrow Agreement of Sponsor to Furnish
Additional Funds ....................................19-57
Escrow Release .......................... 2-16, 3-26, 5-43
Incomplete Construction………………12-16, 12-19,
12-20, 13-34, 19-14, 19-15, 19-17, 19-20, 1957, 19-72, 19-73
Initial Operating Deficit……….xix, 3-7, 7-49, 10-8,
11-7, 12-34, 12-35, 13-3, 13-13, 14-7, 16-4,
A7-9, A12-7, A12-15
Non-Critical Repair Escrow………2-2, 12-43, 15-7,
15-8
Project Completion Funds………………..xxv, 19-48,
19-61, 19-62
Relocation Escrow………xxvii, 14-6, A3-10, A3-11,
A3-12
Working Capital Escrow……………….iii, 3-13, 8-48,
8-50, 11-7, 12-20, 12-21, 12-34, 12-40, 14-7,
A12-6, A12-18
Estimate
Estimate of Replacement Cost………….5-27, 7-46,
A5-21, A5-23
Estimated Replacement Cost
Criterion 3……………………..iii, xii, 3-15, 3-16, 3-18,
3-19, 3-25, 3-45, 5-50, 7-16, 7-17, 7-18, 7-38,
7-39, 7-44, 7-45, 7-52, 7-54, 7-55, 7-57, 7-58,
7-60, 7-62, 13-3, 13-13, 13-33, 14-4, 16-4, 165, 17-5, A3-1, A3-3
Estimation
Estimation Method................................ viii, 5-44
Excess Proceeds
Excess Mortgage Proceeds…………….8-50, 12-23,
12-24, 12-28, 12-29, 12-30, 12-34, 12-35, A126, A12-7, A12-12
Excess Proceeds.................................. 5-42, 5-43
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Expense
Expense Data Sources .................................. 7-32
Interval 1 ...................................................... 7-48
Interval 2 ...................................................... 7-48
Interval 3 ............................................. 7-48, 7-49
Extension of Contract Time.................... xviii, 12-24
Exterior Site Improvement
Exterior Site Improvement ........................ A5-63
F
Fair Housing Act
Fair Housing Act…………….xxviii, 3-4, 3-17, 3-24,
3-35, 3-36, 3-37, 3-38, 3-39, 5-6, 5-7, 5-20, 521, 5-24, 5-25, 5-28, 5-36, 7-2, 7-20, 7-36, 108, 17-2, A2-16, A2-19, A3-7, A3-9, A5-6, A5-7,
A5-8, A5-9, A5-10, A5-11, A5-12, A5-14, A515, A5-16, A5-17, A5-24, A5-34, A5-36, A5-44,
A5-55, A5-56
Fair Housing Act Design and Construction..A5-6,
A5-9, A5-34, A5-36
Fair Housing Act Requirements………xxviii, A5-6,
A5-9
HUD Recognized Safe Harbors ................... A5-10
Resources for Fair Housing Act .................. A5-11
Federal Debt
Delinquent Federal Debt........................ xiii, 8-13
Federal Debt ....................................... 8-13, 8-14
Federal Labor Standards
Copeland Act................................................ 3-12
Fee Developer .................................................. 8-31
Fee-Joinders
Fee-Joinders .................................xii, 7-55, 19-27
Fees
Application Fee……………………….ii, 1-1, 2-12, 3-2,
3-4, 3-10, 3-28, 3-30, 4-3, 4-5, 4-6, 5-23, 11-2,
13-23, 13-39, 14-1, 18-2, 18-5, A3-2, A3-4, A43, A4-6, A4-9, A4-13, A4-18
Certification of Architectural/Engineering Fees
....................................................... xxvi, 19-93
Deferred Fee Collection ...................... xvii, 11-11
Deferred Management Fee8-17, 8-36, 8-42, 1712, 18-3
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Developer Feeiii, xiv, xxi, xxii, xxvi, 3-8, 3-18, 834, 12-29, 12-30, 13-28, 14-2, 14-6, 14-8, 149, 14-10, 14-11, 19-44, 19-104, A3-2, A3-5, A36
General Contractor Fee ...... 5-1, 5-14, 5-15, 5-48
Inspection Feexii, xx, 3-3, 7-46, 8-41, 12-7, 1214, 12-39, 13-22, 13-38, 13-39, 18-5, A3-2, A34, A4-22, A4-23, A12-1
Late Charge Provisions ....................... xvii, 11-14
Loan Feexvii, 3-4, 11-10, 11-11, 13-23, 14-2, A317, A3-18
Maximum Fees for Section 223(a)(7) Loans ... 1110
Syndicator and Investor Fees ............. xxii, 14-13
FHA Approved
FHA Approved ........................ 1-1, 1-2, 1-4, 2-16
FHEO Noncompliance
FHEO Noncompliance.......................... xix, 12-31
Filled Ground ....................................................9-56
Final Advance
Final Advancexviii, xxv, 1-3, 4-8, 8-45, 12-17, 1218, 12-19, 19-14, 19-15, 19-16, 19-17, 19-19,
19-72, 19-73, 19-74
Release of Final Advance ............................19-16
Requirements for Final Advance ................19-17
Final Closing Procedures
Problems Leading to Default ........... xxxi, A12-14
Projects Experiencing Difficulties Before Final
Closing ......................................... xxxi, A12-14
Final Endorsement
Construction Contingency3-13, 5-1, 5-55, 8-47,
8-48, 8-50, 11-7, 12-21, 12-29, 12-30, 12-34,
12-35, 12-40, 19-16, A12-7
Final Endorsement of the Note19-16, 19-70, 1984
Title Evidence at Final Endorsement ..........19-70
Final Loan Closing ................................... xxv, 19-14
Final Loan Closing ............................... xxv, 19-14
Financial Factors5-51, A5-21, A5-23, A5-39, A5-41,
A5-49, A5-50
Financial Statements
Existing Project Financial Statements ..........8-16
Financial Statement Analysis................. xiii, 8-15
Financial Statements–New Construction .....8-15
Chapter 21
Page 21-10
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Review of Financial Statements ................... 8-17
Fire protection
Fire Protection Provisions for New Construction
............................................................... A5-20
Fire Protection
Fire Doors.............................. 5-28, A5-20, A5-28
Fire Protection . xxviii, 5-18, A5-18, A5-19, A5-20
Firewalls .............................................. 2-10, 5-28
Smoke Detectors..................... 5-3, A5-19, A5-20
Sprinklers ..................................................... 5-28
Firm Application
Section 223(a)(7) Firm Application .............. A4-6
Section 223(f) Firm Application ................... A4-3
Firm Commitment
Amendment to the Firm Commitment………3-1,
5-57, 8-12, 11-4, 11-8, 14-13, 19-29
Architectural Documents for Firm Commitment
..................................................... xxviii, A5-20
Attachments to Firm Commitment..... 5-22, 5-41
Firm Commitment Condition ..................... 19-51
Firm Commitment Cost Package ........... viii, 5-51
Firm Commitment Drawings And Specifications
............................................ xxviii, 5-18, A5-25
Firm Commitment Review………………….1-1, 8-17,
10-8, 11-7, 13-27
Firm Commitment, All Bond Documents ... 19-49
Maximum Loan Term ..................................... 3-2
Modifications to the Firm Commitment……..vii,
5-23
Reopening……………….xxxi, 4-2, 4-3, 11-8, 11-10,
13-39, A4-22, A4-23, A13-1
Reprocessing for Rate Increase ................. 19-30
Required Exhibits for New Construction ... xxviii,
A5-20
Required Exhibits for Substantial
Rehabilitation…………………………….xxviii, A5-22
Requirements for Issuing a Firm
Commitment…………………………………….vii, 5-23
Firm Commitment Application
Firm Commitment Acceptance and Rate
Lock…………………………………………………………4-2
Rejection of the Firm Commitment
Application………………………………………….A4-18
Firm Commitment Application (MAP)
MAP Guide, December 2020
Go to beginning of Chapter 21
Invitation for Firm Application ....................... 4-4
Processing through Firm Commitment .. vii, 5-24
Firm Commitment Drawings and
Specifications…………………………xviii, 5-18, A5-25
Firm Commitment Exhibits
Required Exhibits for New Construction .... xxviii,
A5-20
Required Exhibits for Refinance or
Acquisition…………………………………xxviii, A5-23
Required Exhibits for Substantial
Rehabilitation…………………………….xxviii, A5-22
Fiscal Procedures
Fiscal Procedures ............................... ii, 3-5, 11-8
Flood Insurancexv, 3-31, 3-32, 9-3, 9-4, 9-12, 9-40,
9-41, 9-42, 9-43, 9-44, 9-45, 18-5, 19-59, A7-13
Foreclosure…………………………xxxi, 2-15, 7-17, 7-18,
7-30, 7-55, 8-25, 8-26, 8-27, 8-54, 9-39, 12-10,
12-11, 14-12, 14-16, 19-21, 19-47, 19-48, 19100, 19-104, A2-23, A8-19, A8-22, A8-23, A1211, A12-14, A12-15, A12-16, A12-19
Fracking ............................................................9-56
G
Gap Financing ...................................... ii, 3-5, 19-43
General Contractor
General Contractor Dispute .......................19-17
Level 1 and Some Level 2 Alterations Typically do
Not Require a General Contractor ...........5-13
Payment Bond3-12, 8-20, 8-50, 19-21, 19-64, 1966, 19-67, A12-10
Payment/Performance Bond........................5-49
When General Contractors are Required .....5-15
Ginnie Mae
Ginnie Mae Security .....................................8-51
Government Auditing Standards ....................13-13
Grants and Loans
Grants and Loans from a Government Agency or
Instrumentality .................................. xiv, 8-44
Grants and Loans from a Non-Governmental
Source................................................ xiv, 8-46
Green and Energy Efficient Housing . …………….xxvii,
3-3, 3-21, A3-16, A3-18, A3-19
Chapter 21
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Green Building
Certifications Not Recognized by HUD .... viii, 6-2
Green Building Certifications are Accepted ... 6-2
Green MIP
Application for a Green MIP Rate ................ 5-10
Green MIP Application................................. 6-15
Green MIP Rate.................xxvii, 5-23, 6-7, A3-16
Lender Fee Limitation .................... A3-17, A3-18
Ground Lease
Ground Lease…………………….xii, 7-44, 7-49, 7-50,
7-51, 7-52, 7-54, 11-9, 11-12, 16-1, 17-4, 1927, 19-39, A2-11, A7-10, A7-11
Ground Rent
Ground Rent Computation .......................... 7-53
Ground Rent During Construction ...... 7-49, 7-53
Guest Suite
Guest Suite................................. 3-40, 3-41, 17-1
Guest Unit ........................................... 3-40, 3-41
Guide Provisions
Non-Statutory Provisions of the Guide .......... 1-4
Statutory Provisions ................................. 19-100
H
HAP
HAP Contract Renewal .........xxi, 7-35, 14-4, 14-5
HAP Contract Renewal Request and Rent
Comparability Study ................................ 14-5
HAP Contract Renewals ......................... xxi, 14-4
HAP Contract Transition Reserves .. 14-10, 14-11
Rent Adjustment Requests .......................... 14-5
HAP Contract………………………xxi, 7-35, 14-4, 14-5,
14-10, 14-11, 19-31, 19-32, 19-43, 19-89, A3-18,
A4-5, A4-7, A4-11, A4-14, A4-20
HEROS
Environmental Report……………….xv, 3-10, 3-24,
4-6, 5-6, 5-23, 7-64, 9-6, 9-7, 9-10, 9-11, 9-29,
9-31, 9-33, 9-38, 9-51, 17-7, 17-9, A7-8
HUD Environmental Review Online System…1-3,
3-10, 4-6, 9-1, 17-7, A2-13, A4-4, A4-9, A4-13
High Cost Factor .......................... 5-15, A3-3, A5-74
High Cost Percentage……………………3-16, 3-25, 5-2,
8-38, 8-40, 17-5, A3-1
High-Risk Transactions ....................................... 7-1
MAP Guide, December 2020
Go to beginning of Chapter 21
Historic
Historic District .......... 5-38, 9-2, 9-36, 9-38, 9-39
Historic Preservation…………………..xv, 5-20, 5-38,
7-64, 9-2, 9-4, 9-7, 9-10, 9-11, 9-28, 9-36, 937, 9-38, 9-39, 9-40, 14-2, 16-3, A7-13
Historic Properties…………………….9-8, 9-36, 9-37,
9-38, 9-39, 9-40
Historic Property ....... 5-38, 9-7, 9-36, 9-38, 9-39
Historic Tax Credits……………………8-8, 9-40, 13-1,
13-5, 14-15, 16-1, 16-3, A12-1, A12-2
Hold-Harmless Agreement .............................19-60
HOME Program..................................... 8-25, 19-47
Hotel Service.................................ii, 3-7, 3-40, 17-2
HUD Construction Responsibilities
Construction Inspection……………………….xvii, 2-6,
5-49, 12-4, 12-9, 12-45
HUD Construction Analyst……………………xvii, 4-6,
5-56, 12-1, 12-5, 12-10, 13-37, 13-38
HUD Construction Manager……………….12-15,
12-47, A12-8, A12-15
Pre-Construction Conference………xvii, 4-4, 12-2,
12-8, 12-40, 19-9, 19-11, 19-82
trip Report………………………….1-3, 4-8, 5-33, 12-1,
12-5, 12-7, 12-9, 12-10, 12-13, 12-15, 12-16,
12-21, 12-33, 12-40, 12-42, 12-44, 12-45, 1247, 13-2, 13-3, 13-7, 13-29, 13-43, 13-44, 146, 19-14, 19-15, 19-73, A3-12, A12-9, A12-12
HUD Cost Review
Cost Review Report for Pre-Application….xxix,
A5-59
HUD Cost Review…………………xxix, A5-59, A5-60,
A5-61, A5-62
HUD Custom Statement of Energy Design Intent
(SEDI)
HUD Custom Statement of Energy Design
Intent……………………………………………5-27, 6-13
SEDI .................. 5-27, 5-29, 6-9, 6-10, 6-12, 6-14
HUD Handbook 4000.1, Single Family Housing
Policy ........................................................... A2-1
HUD Inspection Fee ................3-3, 8-41, A3-2, A3-4
HUD Inspector
Offsite Fabricated Construction ...................12-5
HUD Processing
Chapter 21
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Environmental Review………………..iii, iv, xiv, xv,
xxiv, 1-5, 2-6, 3-10, 3-21, 3-30, 4-6, 5-5, 5-25,
5-29, 5-33, 5-35, 5-37, 5-38, 7-4, 7-40, 7-64, 765, 9-1, 9-2, 9-3, 9-4, 9-5, 9-6, 9-7, 9-8, 9-9, 910, 9-11, 9-13, 9-24, 9-25, 9-48, 9-50, 9-53, 957, 12-22, 18-5, 19-12, A4-13, A4-17, A4-18
HEROS…………………..xv, 1-3, 1-5, 3-10, 3-21, 4-6,
5-6, 5-23, 5-33, 7-40, 7-42, 7-64, 7-65, 9-1, 93, 9-4, 9-5, 9-6, 9-7, 9-8, 9-9, 9-10, 9-11, 9-13,
9-18, 9-25, 9-29, 9-31, 9-34, 9-37, 9-38, 9-48,
9-50, 9-51, 9-55, 9-57, 17-7, 18-5, A2-13, A44, A4-9, A4-13
HUD Construction Administration Period..... 4-4,
12-1
HUD Must Approve the Initial and Final
Construction Draws ................................... 4-8
Risk-Based Processing .................................... 4-6
Servicing……………………….i, vi, 1-2, 1-3, 2-3, 2-8,
2-11, 3-8, 3-30, 4-1, 4-6, 4-8, 5-6, 5-33, 8-49,
11-2, 11-8, 11-10, 13-35, 15-2, 19-12, 19-13,
19-22, A2-1, A2-2, A2-3, A2-4, A2-5, A2-7, A28, A2-9, A2-24, A4-20, A5-26, A5-42
Site Visits by the Appropriate HUD Staff ....... 4-1
Standard Processing……………..vii, xxiv, 1-5, 5-35,
5-38, 14-1, 18-1
HUD Review Appraiser………………..xxix, 7-1, 17-11,
A7-1, A7-2, A7-3, A7-4, A7-5, A7-6
HUD Standard………………….2-1, 5-8, 5-28, 9-1, 9-46,
9-50, A2-17, A5-32
HUD Underwriter
Assigning a MAP Approved Underwriter for the
Pre-Application ........................................ 11-1
Underwriting Recommendation .... xvii, 2-5, 11-7
Upon Issuance of a Firm Commitment, the HUD
Underwriter Must .................................... 11-8
I
Identity of Interest
Bridge Loans and Balance Sheet Loans…….2-10,
A2-24
Charitable Donations ...............2-12, 2-13, A2-25
Gifts......................... 2-8, 2-12, 2-13, 17-5, A2-25
MAP Guide, December 2020
Go to beginning of Chapter 21
Inducements…………………….2-4, 2-7, 2-12, 2-14,
3-29, A2-10, A2-24, A15-2
MAP Lender’s and Borrower’s Team…xxvi, A2-24
Prohibited IOI…………………..2-6, 2-10, 2-12, 2-13,
A2-10, A2-24, A2-25
Secondary Financing Relationships .... 2-9, A2-24
Incentive Fee ..................................................13-19
Income
Ancillary income ........................ 7-25, 7-26, 7-27
Cell Tower Income ........................................7-25
Commercial Income……………xi, 3-17, 3-27, 7-25,
7-27, 7-28, 7-29, A3-2, A3-4, A8-3, A8-19
Community Rooms and Parking ...................7-27
Corporate Leases ..........................................7-26
Ineligible Income ..........................................7-26
Internet and Media Services ........................7-25
Non-Income Unit ..........................................3-40
Parking Income ................................... 7-27, 7-28
Pool and Pet Fees .........................................7-26
Rent Concessions……………..x, 3-22, 7-10, 7-24,
A2-14, A2-15
Rental Income and Expense Estimates.........7-39
Resale/Submetering of Utilities ...................7-25
Short-Term Lease .....................ii, 3-8, 3-22, 7-26
Indemnification .............. 14-13, 16-2, 19-35, 19-86
Industrialized Housing
Industrialized Housing………………vii, 5-27, 5-29,
5-30, 5-53, 12-4, 13-5, 13-6, 13-8, 13-9, 13-10,
13-27, 13-29
Ineligible Properties
Group Home ................................ 3-8, 3-11, 3-23
Ineligible Properties ................................ iv, 3-23
Manufactured Home .......................... 3-23, 9-44
Initial Closing
Initial Endorsement Activities ..............xxiv, 19-9
Initial Endorsement
After Initial Endorsement………3-3, 13-28, 19-67,
A12-6
At Initial Endorsement………….1-2, 3-1, 3-3, 4-4,
5-31, 5-50, 6-4, 8-34, 8-46, 8-50, 9-22, 12-1,
12-2, 12-38, 13-23, 13-24, 19-48, 19-52, 1967, A12-3, A12-5, A12-6
Chapter 21
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Prior to Initial Endorsement…….5-19, 5-20, 5-31,
5-34, 5-51, 8-32, 9-10, 9-43, 13-20, 13-21, 1912, A5-41
Initial Operating Deficit
Initial Operating Deficit……….xix, 3-7, 7-49, 10-8,
11-7, 12-34, 12-35, 13-3, 13-13, 14-7, 16-4,
A7-9, A12-7, A12-15
Inspection
Construction Inspection……..xvii, 2-6, 5-49, 12-4,
12-9, 12-45
Final Inspection……6-3, 12-8, 12-15, 12-44, A4-5,
A5-22, A5-23, A5-38
Frequency of Inspection .............................. 12-7
Inspection Fee………..xii, xx, 3-3, 7-46, 8-41, 12-7,
12-14, 12-39, 13-22, 13-38, 13-39, 18-5, A3-2,
A3-4, A4-22, A4-23, A12-1
Warranty Inspection…….xviii, xx, 5-8, 5-9, 12-16,
12-47, A5-58
Insurable Value………….3-32, 3-33, 5-27, 5-45, 5-51,
12-41, A2-21, A2-23, A5-21, A5-23, A5-34, A5-36,
A5-45, A5-54
Insurance of Advances
Advance Amortization Requirements........ 13-41
Disbursement Agreement……..xxv, 14-14, 19-13,
19-21, 19-48, 19-51, 19-52, 19-61, 19-62, 1978, A12-2, A12-20
Owner-Architect Agreement…….xxv, 5-10, 5-11,
5-12, 5-26, 5-48, 12-5, 12-9, 12-11, 12-12, 1213, 12-14, 12-15, 12-45, 19-62, 19-63, 19-77,
A2-16, A4-12, A4-16, A5-4, A5-24
Stages of Advances ............................ xviii, 12-18
Insurance Requirements
Casualty Insurance…….3-32, 5-45, 12-47, 13-36,
19-58
Co-Insurance Requirement .......................... 3-32
Flood Insurance…….xv, 3-31, 3-32, 9-3, 9-4, 9-12,
9-40, 9-41, 9-42, 9-43, 9-44, 9-45, 18-5, 19-59,
A7-13
Property Insurance Requirements…………v, 3-30,
5-48, 5-51, 12-41, 19-58
Public Liability Insurance .........3-30, 3-31, A12-3
Vehicle Liability Insurance .................. 3-30, 3-31
Insurance Upon Completion
MAP Guide, December 2020
Go to beginning of Chapter 21
Insurance Upon Completion…………………xiv, xviii,
xix, xxi, xxvi, 3-11, 5-19, 8-32, 8-37, 8-47, 12-5,
12-22, 12-25, 12-27, 12-38, 12-39, 12-40, 135, 13-15, 13-19, 13-20, 13-21, 13-22, 13-23,
13-26, 13-34, 13-44, 19-57, 19-75, 19-81, 1982, 19-83, A4-19
Interest Rate Lock ................................... xvii, 11-10
Interim Closing
Interim Closing .. xxv, 13-38, 19-20, 19-21, 19-22
Interim Closing/Workout Checklist ............19-21
Interim Draws
Interim Draws ...................... xxxi, 1-3, 4-8, A12-8
Interim Income………………3-13, 13-3, 13-32, 13-38,
14-7, 14-14
Interim Insurance of Advances ............... xxx, A12-3
International Energy Conservation Code . …….3-14,
5-6, 5-7, 5-27, 5-29, 6-1, 6-6, A5-54
Investor Representation ...................................14-1
J
Joint Inspection…………..5-21, 5-35, 5-36, A2-18,
A2-21, A5-22, A5-32, A5-36
Joint Use
Joint Use, Access, and Maintenance Agreements
Where Common Use Easements are
Anticipated ............................................ A5-21
L
Labor Violations
Labor Violations................................... xix, 12-31
Large Loan Request
Large Loan Request ........................................ 4-1
Large Loan Risk Mitigation ........................... v, 3-33
Late Charge
Late Charge................... xvii, 11-14, 11-15, 19-29
Late Charge Provisions ....................... xvii, 11-14
Latent Defect
Latent Defect………….5-42, 8-47, 12-11, 12-16,
12-19, 12-35, 12-40, 12-41, 12-43, 12-47, 1956, 19-57, 19-72, 19-76, 19-82, 19-83, A12-15,
A12-18
Chapter 21
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Lead-Based Paint
Lead-Based Paint Inspection……5-35, 9-28, 9-29,
A5-44
Leasehold
Estoppel ....................................................... 7-52
Leasehold……………xii, 3-27, 7-1, 7-44, 7-49, 7-50,
7-51, 7-52, 7-53, 7-54, 7-55, 7-56, 7-57, 8-39,
11-12, 13-26, 13-27, 16-1, 19-1, 19-27, 19-36,
19-39, A8-21, A8-22
Leasehold Estates ........... 7-50, 7-51, 7-56, 13-26
Value of the Leasehold ....................... 7-52, 7-54
LEED
LEED Home Midrise ....................................... 6-2
LEED-Home .................................................... 6-2
Lender
Departmental Enforcement Center (DEC)
Referrals................................................... 8-15
Lead Lender ...............A8-7, A8-10, A8-11, A8-12
Lender Fee……………ii, v, xxx, 3-3, 3-4, 3-29, 18-5,
18-6, A3-2, A3-5, A3-17, A3-18, A8-10, A12-3
lender Monitoring Review ............. A15-3, A15-5
Lender Processing ............................ vi, 3-21, 4-4
Lender Standards ............................. i, 2-3, A15-1
Servicing Lender........... 3-30, A2-3, A2-24, A5-42
Letter of Caution……………..15-1, 15-3, 15-4, 15-5,
15-6, A15-1, A15-3, A15-4
Letter of Credit
Bank Issued Letters of Credit ....................... 8-19
Third-Party Letter of Credit........................ 12-23
Level Annuity Monthly Payment
LAMP ................................................... 3-2, 13-43
Level Annuity Monthly Payment………….xxxi, 3-2,
13-40, 13-43, A13-2
Liability Insurance
Certificate of Professional Liability
Insurance……………………………….xxix, 5-9, 5-10,
A5-58
Liability Insurance……………………3-30, 3-31, 5-9,
5-10, 7-29, 12-20, 12-33, 19-63, 19-86
Professional Liability Insurance………….5-9, 5-11,
19-63, A5-58
LIHTC
4% LIHTC .................... 14-4, 14-17, A4-21, A4-22
4% Tax Credits.............................................. 14-4
MAP Guide, December 2020
Go to beginning of Chapter 21
9% State Agency Allocation ..........................14-4
Calculating the Maximum LIHTC rents .........7-61
Deferred Developer Fee…xxii, 14-9, 14-15, 19-48
Demand for LIHTC Projects ..........................7-12
Equity Bridge Loan………xxii, xxvi, 14-3, 14-10,
14-11, 14-12, 14-14, 19-44, 19-48, 19-49, 1952, 19-62, 19-103, A2-26, A12-2
Equity Pay-in Equity Pay-In……..8-21, 14-5, 19-5,
19-33, 19-51, 19-52, 19-78,
LIHTC Letters of Commitment ......................14-2
LIHTC Projects (new construction, substantial
rehabilitation, and refinance
transactions)………………………………………….14-7
LIHTC Projects without Section 8 .................7-61
LIHTC Rider ............... 19-53, 19-54, 19-55, 19-56
Operating Expenses under LIHTC .................7-62
Project Completion Funds Derived from (a)
LIHTC Equity ...........................................19-61
Rider to Security Instrument LIHTC
Properties…………………………………19-55, 19-56
Secondary Financing for LIHTC Transactions..3-5
Subordination of Restrictive Covenants ....19-52,
19-84
Tax Credit Projects that Involve Transfers of
Ownership ................................................14-6
Usual and Customary Fees and Expenses….14-13
Limitation on Combined Debt ..........................8-25
Limitations Per Family Unit
Criterion 4…………..iii, 3-5, 3-16, 3-19, 3-25, 3-27,
5-47, 7-46, 17-5, A3-1, A3-3
Limited Denial of Participation……….xxiii, 3-5, 4-7,
15-1, 15-2, 15-16, 15-17, 17-11, A2-3
Limited Partner
Special Limited Partner……………..2-10, 8-3, 8-6,
14-2, 14-14, 19-53, 19-54, 19-55, 19-56, 1987, A8-15
Liquidated Damages……………..12-20, 12-21, 12-24,
12-31, 12-37, 13-6, 13-19, 19-11, 19-64, 19-65,
A12-17
Loan Amount
Loan Amount Requested ........... 3-15, 3-25, 17-5
Maximum Loan Amount..................... 3-20, A2-9
Chapter 21
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Loan Approval
Loan Approval…………..2-5, 4-2, 4-5, 4-6, 4-7, 7-1,
7-34, 7-63, 11-2, 11-6, 11-7
Loan Committee
Loan Committee………………xii, xxx, 1-5, 4-2, 4-3,
4-4, 4-5, 7-63, 11-2, 11-7, A8-10
Low-Risk Transactions........................... 7-1, A7-5
Loan Fee…………………xvii, 3-4, 11-10, 11-11, 13-23,
A3-17, A3-18
Loan Servicer
Loan Servicer............. 1-2, 15-1, 15-3, A2-2, A2-8
Loan Sizing Ratios
Loan Sizing Ratios Under 221(d)(4).............. 14-1
Loan Term
For 223(a)(7) Projects, the Term of the
Mortgage ............................................... 11-13
Section 207 Pursuant to Section 223(f)), the
Term....................................................... 11-13
Low Income Housing Tax Credit Projects
Secondary Financing Guidance for Low Income
Housing Tax Credit Projects ..................... 8-24
M
Management Agent
Affirmative Fair Housing Marketing Plan…..1-3,
3-13, 3-14, 3-38, 4-6, 10-2, 10-8, A4-10, A4-14
Approval of Proposed Management Agent ... xvi,
10-7
Bonding Requirements for Agents......... xvi, 10-5
Identity of Interest Between the Owner and the
Management Agent ................................. 8-31
Management Agent’s Certification..... 10-1, 10-6
Management Agents and Escrow
Administration ................................... xvi, 10-8
Management Agreement……………………xvi, 3-37,
10-1, 10-2, 10-6, 10-7, 10-8, 16-2, 4, 10, 14,
A16-1, A16-2
Management Entity Profile………………10-1, 10-2,
10-4, 10-8, 16-2, A4-4, A4-10, A4-14
Management Fee……………..xvi, 7-34, 10-6, 10-7,
13-12, 13-13, 13-42, 14-13
Management Qualifications ........................ 10-3
Marketing and Leasing Plan ........... iii, 3-13, 10-2
MAP Guide, December 2020
Go to beginning of Chapter 21
Previous Participation Review……….2-6, 3-5, 8-2,
8-5, 8-8, 10-1, 10-5, 14-2, 16-3, 18-13, 19-53,
19-54
Relocation Process .......................................10-2
Management Agreement
Management Agreement…………xvi, 3-37, 10-1,
10-2, 10-6, 10-7, 10-8, 16-2, A4-4, A4-10, A414, A16-1, A16-2
Required Clause............................................10-6
Management Analysis
Asset Management Firm Commitment
Reviews…………………………………………………10-5
Lender Review of Management Documents…xvi,
10-2
Previous Participation Review……….2-6, 3-5, 8-2,
8-5, 8-8, 10-1, 10-5, 14-2, 16-3, 18-13, 19-53,
19-54
Management Exhibit ..........................iv, 3-21, A4-7
MAP Invitation Letter .................. xxvii, A4-1, A4-17
MAP Lender Review Board
Appeal Conference ................. xxiii, 15-15, 15-16
Notice of Action…………..xxiii, 15-8, 15-9, 15-10,
15-13, 15-14, 15-15
Notice of Violation………………….xxiii, 15-6, 15-13,
15-14, 15-15
MAP Probation
MAP Probation ..................................... xxii, 15-8
Notice of Action……………………….xxiii, 15-8, 15-9,
15-10, 15-13, 15-14, 15-15
MAP Sanctions
Imposing a Sanction on a MAP Lender.......15-14
Imposing Exclusionary Sanctions................15-16
MAP Suspension
MAP Suspension ................................... xxii, 15-9
Market Analyst
Market Analyst Qualifications ................... ix, 7-3
Selection of Appraisers and Market Analysts.. ix,
7-2
Market Study
Comparable Project………………….5-45, 7-9, 7-24,
7-30, 8-47, 8-53
Content and Format of the Market Study..ix, 7-4
Demand for LIHTC Projects ..........................7-12
Chapter 21
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Demographic……………x, 3-14, 7-5, 7-6, 7-8, 7-9,
7-13, 7-47, 10-8, 17-4, A7-10
Economic Context ...................................... ix, 7-8
Effective Date of Completion of the Market
Study .......................................................... 7-5
Forecast Period .. ix, 7-5, 7-6, 7-8, 7-9, 7-10, 7-11
Market Conditions……………….x, 3-28, 5-48, 7-3,
7-4, 7-6, 7-9, 7-10, 7-11, 7-12, 7-13, 7-15, 716, 7-17, 7-21, 7-23, 7-26, 7-62, 8-36, 8-47, 113, 17-2, A2-15, A3-4, A4-3, A4-8, A7-4
Market Rents……………3-15, 3-16, 3-25, 3-26, 7-7,
7-12, 7-17, 7-35, 7-38, 7-39, 7-40, 7-43, 7-45,
7-48, 7-60, 8-25, 8-39, 8-40, 13-33, 14-4, 14-7,
14-15, 14-16, A3-3, A3-16, A3-17
Section 8 HAP Rents..................................... 7-35
Units Under Construction and the Proposed
Supply ...................................................... 7-13
Marketing
Affirmative Fair Housing Marketing Plan…….1-3,
3-13, 3-14, 3-38, 4-6, 10-2, 10-8, A4-10, A4-14
Marketing and Leasing Plan ........... iii, 3-13, 10-2
Master Lease
Approving Master Lease Ownership
Structures………………………………………………16-1
Cost Certification and Final Endorsement ... xxiii,
16-4
Default to the Master Tenant ...................... 16-2
Equity Contributions, Fees, Income, etc. ..... 16-3
Historic Tax Credit……………………...8-8, 8-21, 844, 9-40, 13-1, 13-5, 14-9, 14-15, 16-1, 16-3,
A12-1, A12-2, A16-1, A16-2
Master Lease Ownership Structure…....xxxi, 161, A16-1
Master Tenant and Master Sub-Lessees (as well
as the Management Agent) ..................... 16-2
Material Supplier……………………5-27, 5-53, 8-50,
13-5, 13-6, 13-8, 13-9, 13-16, 13-18, 13-27,
13-29, 19-65, A2-17, A2-21
Meal Service .............................. 3-23, 3-40, 17-3
Medium-Risk Transactions.................... 7-1, A7-2
New Markets Tax Credit………xxi, 8-8, 8-44, 14-2,
16-1, 16-3, 19-61, A12-2, A16-1, A16-2
Proposed Modifications or Amendments to the
Leases ...................................................... 16-2
MAP Guide, December 2020
Go to beginning of Chapter 21
Rent Paid by the Master Tenant...................16-3
Transactions May or May Not Have Low Income
Housing Tax Credits (LIHTCs) ....................16-1
Mezzanine
Mezzanine Debt ................................. 8-25, 8-43
Mezzanine Lender ........................................8-43
Mezzanine Loan Interest Rate ......................8-25
Mezzanine Financing ....................... 2-9, 8-25, 8-26
Military
Military Impacted Area............................... ii, 3-6
Minimum Property Standards
Minimum Property Standards………………….xxviii,
5-8, A2-16, A3-11, A5-1, A5-30, A5-31, A5-54,
A5-56
Mixed Use……………………..1-3, 3-6, 3-16, 3-35, 5-20,
7-27, 7-29, 9-43, 14-3
Mortgage
Loan Terms and Requirements ....................18-7
Maximum Insurable Mortgage…………..2-6, 5-47,
7-26, 8-1, 8-43, 8-49, 12-19, 12-28, 13-1, 13-4,
13-5, 13-7, 13-15, 13-16, 13-17, 13-26, 13-31,
13-32, 13-33, 13-35, 13-40, 13-43, 17-5, 1712, 19-11, 19-14, 19-15, 19-18, 19-68, 19-84,
A12-5, A13-1
Mortgage Credit Review……………8-2, 8-12, 8-24,
8-30, 8-33, 11-4, 14-2, A8-6
Mortgage Debt Analysis ............................ A8-13
Mortgage Debt Schedule........... 8-21, 8-22, A8-8
Mortgage Increase………………..xxi, 13-13, 13-15,
13-16, 13-18, 13-24, 13-29, 13-36, 13-37, 1338, 13-39, 19-21, 19-68, 19-70, 5, 16, 18
Schedule of Mortgage Debt……………..8-15, 8-22,
A4-6, A4-12, A4-16, A8-1, A8-3
Mortgage Insurance
Application for Mortgage Insurance………xiv, 1-2,
1-5, 2-16, 3-1, 3-12, 3-22, 3-24, 5-57, 7-48, 844, 9-6, 9-41, 10-5, 14-13, 17-12, A4-17, A418, A5-49, A12-6
Certificate of Mortgage Insurance…….xxi, 19-17,
A12-7, A12-8
MIP Rate…………………3-3, 5-8, 5-9, 6-1, 6-2, 6-3,
6-5, 6-7, 6-9, 6-13, 13-22, 14-2, A3-16, A3-17,
A3-18, A3-19
Chapter 21
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Mortgage Insurance Premium…….ii, xx, xxiv, 3-3,
5-7, 6-1, 7-47, 8-49, 12-20, 12-34, 12-35, 1313, 13-19, 13-22, 13-38, 17-12, 18-2, 18-5, 1968, 19-107, A3-16, A4-23, A5-49, A12-3
Section 231 Mortgage Insurance .............iv, 3-17
Section 241(a) Mortgage Insurance.... 3-20, 3-21
Mortgage Proceeds………………..2-5, 2-6, 2-11, 3-6,
5-11, 5-41, 5-42, 5-52, 6-1, 7-39, 7-45, 7-57, 758, 7-59, 8-18, 8-39, 8-40, 8-42, 8-45, 8-46, 8-47,
8-48, 9-26, 12-17, 12-18, 12-19, 12-23, 12-24,
12-30, 12-36, 12-37, 12-42, 13-33, 13-34, 13-40,
14-3, 14-11, 14-13, 18-1, 18-7, 19-15, 19-17, 1948, 19-57, 19-73, 19-84, A3-13, A8-6, A12-1,
A12-6, A12-7, A12-12, A12-17, A12-18, A12-20
Mortgage-Backed Security
Mortgage-Backed Security……………….3-28, 8-51,
11-10, 11-14, 13-22, 13-39
Mortgagee Certificate .................................... A2-11
Mortgagee Review Board……………….xxiii, 2-7, 15-1,
15-2, 15-4, 15-5, 15-6, 15-12, 15-18, A15-1, A152, A15-4
N
National Housing Act
QC Review for Each Section of the National
Housing Act .............................................. A2-8
Natural Disaster .................................. 13-36, 13-38
Needs Assessor
Needs Assessor Qualifications ....................... 5-6
Needs Assessor Responsibilities .................... 5-6
Net Equity
Minimum Equity Installment .......... 14-10, 19-52
New Construction
Construction documents, Certifications, and
Studies ..................................................... 5-38
Cost Estimate for New Construction ........... 5-51
Early Start of Construction……………vii, xxiv, 5-33,
5-34, 12-2, 19-11, 19-12
Estimate of Replacement Cost………….5-27, 7-46,
A5-21, A5-23, A5-34, A5-36
Pre-Application are the Same as those for New
Construction ............................................ 5-35
Section 221(d)(4)–New Construction ......iii, 3-15
MAP Guide, December 2020
Go to beginning of Chapter 21
Section 231 Insures Mortgages for
Construction………………………………………….3-17
Wage Rates Must be Used for New
Construction .............................................5-45
New Market Tax Credit……………….8-21, 8-29, 13-1,
13-5, 14-15, 16-1, 19-49, A12-1
Non-Critical Repairs
CNAs, Plans and Cost Estimates .............. iv, 3-20
Nonprofit Sponsors and Borrowers
Consultant Fee ............................. xiv, 3-45, 8-34
Evaluating Nonprofit Sponsors and
Borrowers……………………………………….xiv, 8-32
Non-Statutory Provisions
Non-Statutory Provisions ............................... 1-4
O
Occupancy
Actual Occupancy……………………3-15, 7-23, 7-28,
7-42, 7-43, 17-10, A3-4
Certificate of Occupancy……………3-22, 6-9, 7-48,
7-49, 8-16, 8-49, 12-8, 12-33, 19-14, 19-58,
A4-5, A4-19, A5-22, A5-23, A5-38
Cost of Occupancy .......................... 17-11, 17-12
Initial Occupancy……………………3-22, 3-40, 7-10,
9-18, 9-21, 9-22, 9-28, 12-34, 13-17, 17-2
Occupancy Level…………………….7-10, 7-11, 7-13,
7-22, 7-34, 7-39, 7-42, 7-47, 18-3, A12-15
Occupancy Rate…………………….7-13, 7-16, 7-23,
7-24, 7-27, 7-28, 7-34, 17-3, 17-5, 17-10
Occupancy Restriction……………………..3-35, 7-16,
19-31, 19-49, A3-2
Physical Occupancy ................... 7-34, A3-2, A3-4
Restrict Occupancy ........... 3-13, 3-35, 3-36, 3-37
Restricted Occupancy ...................................7-10
Stable Occupancy .........................................3-22
Offsite Construction……………..xix, xxxi, 5-28, 12-25,
13-25, A2-17, A5-21, A5-22, A12-6, A12-12
Operating Deficit
Initial Operating Deficit………………..xix, 3-7, 7-49,
10-8, 11-7, 12-34, 12-35, 13-3, 13-13, 14-7,
16-4, A7-9, A12-7, A12-15
Chapter 21
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Operating Deficit Escrow…………3-7, 5-42, 7-47,
7-49, 8-47, 8-49, 12-35, 12-36, 12-40, 19-84,
A12-5
Operating Deficit Reserve ..... iv, 3-21, 3-34, 8-49
Operating Expense
Estimating Operating Expense………….7-30, 7-62,
A5-51
Expense Adjustment ................................ xi, 7-33
Expense Comparables………………….xi, 7-17, 7-21,
7-29, 7-32, 7-33, 7-34, 17-9, A2-14, A2-15
Fixed Expense .............................................. 7-31
Operating Deficit…………………ii, iv, xii, 3-7, 3-21,
3-34, 3-35, 5-42, 7-27, 7-41, 7-43, 7-47, 7-48,
7-49, 8-43, 8-47, 8-49, 8-50, 11-4, 12-35, 1236, 12-40, 12-42, 13-13, 13-27, 14-2, 14-7, 164, 18-3, 19-57, 19-84, A2-11, A2-14, A2-15,
A4-9, A4-13, A12-5, A12-6
operating Expenses under LIHTC ................. 7-62
Project Operating Expenses, NOI ............. xi, 7-29
Sources of Expense Data.......................... xi, 7-30
Variable Expenses are Operating Expenses..7-31
Operating Statement…………………..7-30, 7-31, 8-16,
8-17, 12-19, 13-3, 13-7, 13-8, 13-9, 13-12, 13-13,
13-14, 13-42, 16-5, A5-43
Operations and Maintenance (O&M) Plan
O&M Plan..... 5-38, 9-20, 9-31, 9-58, A7-8, A7-13
Operations and Maintenance Plan .............. A5-3
Opportunity Zone
Opportunity Zone…………………..iii, xxvii, 3-2, 3-4,
3-10, 3-16, 8-9, A3-2, A3-4, A3-16, A4-18, A421, A4-23
Opportunity Zone Project Fees .................... A3-4
P
Parking…………………………xi, 5-25, 5-28, 5-45, 5-46,
7-25, 7-27, 7-28, 7-29, 7-37, 9-2, 9-38, 9-41, 954, 11-12, 12-32, 17-4, 19-41, A4-17, A5-2, A5-5,
A5-21, A5-23, A5-25, A5-26, A5-63, A5-64, A565, A5-66, A5-67, A5-68, A5-69, A5-70, A5-72,
A5-73
Per Family Unit Limits ............................. 8-40, A3-1
Performance-Based Method
MAP Guide, December 2020
Go to beginning of Chapter 21
Performance-Based Method for
Compliance……………………………………………6-12
Permanent Financing
Change(s) to Permanent Financing ............19-30
Permanent Placement
Permanent Placement Fee………3-4, 3-28, 13-22,
13-23, A3-2, A3-5
Permission to Occupy
Permission to Occup…………………yxix, 12-6, 12-8,
12-14, 12-15, 12-32, 12-33, 12-37, 12-40, 132, 13-7, 13-12, 14-7, 14-14, 19-14
Permits
Permits and Governmental Approvals .......19-57
Phase I Environmental Site Assessment
Phase I Environmental Site Assessment…xv, 1-5,
5-6, 7-64, 9-1, 9-2, 9-13, 17-7, 13, A4-4, A4-10,
A4-13
Physical Inspections
Physical Inspections........................................ 5-6
Plans and Specifications
Plans and Specifications………………..vii, 3-20, 5-5,
5-15, 5-17, 5-19, 5-20, 5-21, 5-23, 5-26, 5-27,
5-28, 5-29, 5-30, 5-31, 5-32, 5-41, 5-45, 5-51,
6-4, 6-7, 6-13, 8-45, 9-10, 11-9, 12-40, 12-44,
12-46, 14-14, 16-4, 19-9, 19-38, 19-61, 19-66,
19-93, A4-4, A4-12, A4-16, A5-24, A5-25, A556, A5-58
Plans and Specs……………..5-13, 5-14, 5-16, 5-18,
5-23, 5-37, 5-38, 5-40, 5-44, 19-38, A5-7, A522, A5-25, A5-34, A5-36
Portfolio Manager……………5-27, 6-4, 6-5, 6-6, 6-11,
6-12, 6-13
Post-Closing Review .........................................15-7
Pre-Application
Pre-Application Exhibit…xxviii, 5-25, A4-9, A5-32
Pre-Application Invitation ............................7-42
Review the Feasibility of a Proposed Project..4-3
Pre-Approval of Principals
Pre-Approval of Principals with Large
Concentrations of FHA Insured Debt ......... 4-5
Pre-Construction Conference………….xvii, 4-4, 12-2,
12-8, 12-40, 19-9, 19-11, 19-82
Preference
Elderly Preference ........................................3-35
Chapter 21
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Occupancy Preference .............................iii, 3-13
Residency Preference .................................. 3-14
Prepayment
Prepayment Lockout…xvii, 11-13, 11-14, 11-15,
19-78
Prepayment Penalties……………3-29, 8-42, 11-11,
18-2, 18-6, 18-11, A3-17, A3-18
Prepayment Penalty ........ xxiv, 8-42, 11-14, 18-6
Prepayment Prohibitions ................ 19-50, 19-75
Prepayment Provisions…………………iv, xvii, 3-25,
11-13, 14-2, 19-22, 19-29, 19-75
Prepayment Restriction………………….ii, 3-2, 3-25,
8-53, 11-14, 19-29
Prevailing Wage………………….xxiv, 3-12, 3-24, 5-38,
12-3, 12-4, 12-7, 12-19, 12-40, 13-6, 19-10, 1919, 19-61, 19-64, 19-78, 19-84, A12-8
Previous Participation
Previous Participation Certification .. …………..xiii,
8-2, 8-5, 8-6, 8-7, 8-9, 8-10, 10-7, 11-7, 14-12,
19-53, 19-79, 19-85, A4-5, A4-6, A4-11, A4-12,
A4-15, A8-8
Previous Participation Review……………..2-6, 3-5,
8-2, 8-5, 8-8, 10-1, 10-5, 14-2, 16-3, 18-13, 1953, 19-54
Principal
Active Principal………………xiii, 8-2, 8-3, 8-5, 8-6,
8-10, 8-11, 8-12, 8-14, 8-15, 8-16, 8-17, 8-18,
8-19, 8-21, 8-22, 8-23, 8-30, A8-6, A8-8, A812, A8-13, A8-14, A8-15
Application Rejection ................................... 8-30
Credit Reference ........................... xiii, 8-14, 8-34
Credit Rejection ........................................... 8-14
Domestic Principal ......... 8-10, 8-11, 8-12, A8-17
Foreign National Principal................... 8-10, 8-11
Passive Principal…………….8-2, 8-3, 8-4, 8-5, 8-6,
8-7, 8-10, 8-23, A8-13, A8-15, A8-17
Principal Types ................................ xiii, 8-4, 8-23
Principal Types Not Subject to Credit
Review…………………………………………………….8-4
Prior Approval Decision………….xxix, xxx, 8-23, 8-30,
A8-7, A8-9, A8-10, A8-11
Processing Restrictions ...................................... 2-1
Profit and Risk Allowance
Sponsor Profit and Risk Allowance…iii, 3-14, 3-17
MAP Guide, December 2020
Go to beginning of Chapter 21
Profit-Motivated Borrower Entity
Profit-Motivated Borrower Entity ......... xiv, 8-35
Project Architect
Project Architect Duties and Responsibilities.5-9
Project Architect Qualifications...................... 5-9
When Project Architects are Required .........5-14
Project Based Rental Assistance .. 7-57, 13-3, A8-19
Projects in Volatile Markets ............................... 4-1
Promissory Note
Promissory Note……………….xxv, 3-2, 8-24, 8-25,
8-26, 8-27, 8-28, 8-29, 8-53, 13-23, 13-33, 1412, 18-12, 19-29, 19-43, 19-44, 19-48, 19-51,
19-75
Property Insurance Schedule………………….5-8, 5-40,
5-51, 5-53, 12-41, 13-31, 19-58, 19-59, A2-20,
A2-23, A5-54, A5-62
Protected Class
Protected Class .......... 3-4, 3-14, 7-20, 7-36, 17-2
Q
Quality Assurance Enforcement Actions
Targeted Enforcement Actions ...... A15-2, A15-4
Quality Control Plan
Quality Control Review..................... A2-7, A15-2
R
Radon……………….xv, 5-37, 9-3, 9-4, 9-8, 9-10, 9-11,
9-12, 9-32, 9-33, 9-34, 9-35, 9-36, 9-58, 18-5, A544, A7-12, A7-13
Rate Lock .............................................. 11-4, 11-13
Ratio
Debt Service Coverage Ratio…………….3-7, 3-20,
8-38, 8-39, 8-40, 18-3, A5-51, A8-3
Loan-to-Value Ratio............................ 8-40, 8-41
Real Estate Owned (REO) Schedule ..................8-21
Refinancing
CNA for Existing Improvements in Refinance. 5-6
Section 223(a)(7) Refinancing………….v, 3-29, 183, 18-4
Regulatory Agreement
Additional Occupancy Restrictions and
Policies…………………………………………………19-31
Chapter 21
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Regulatory Agreement Compliance ............. 3-24
Reissued Commitment
Reissued Commitment................................. 11-8
Relocation
Permanent Displacement .......... 3-41, 3-42, 3-44
Relocation Budget............................. xxvii, A3-11
Relocation Compensation............................ 3-42
Relocation Consultant…….xxvii, 3-41, 3-42, 3-45,
A3-9, A3-10, A3-11, A3-12
Relocation Cost….v, 3-42, 3-44, 3-45, 14-6, A3-13
Relocation Escrow………xxvii, 14-6, A3-10, A3-11,
A3-12
Relocation Expense…………3-42, 3-45, 7-47, 8-49,
13-27, 13-32, A3-11, A12-5
Relocation Plan…………xix, xxvii, 3-41, 3-42, 3-44,
5-13, 10-2, 12-5, 12-6, 12-31, 12-44, 12-45,
A3-9, A3-10, A3-11, A3-12, A3-13, A4-4, A410, A4-13
Relocation Schedule ............. 3-44, A3-10, A3-12
Temporary Resident Relocation……..3-44, 12-33,
12-42
Remaining Economic Life
Effective Age ....................................... 7-19, 7-20
Functional Obsolescence ............................. 7-19
Physical Life................................ 7-18, 7-19, 7-20
Remaining Economic Life………………x, 3-2, 3-19,
3-27, 3-29, 7-18, 7-19, 7-20, 7-41, 7-43, 8-37,
11-13, 17-5, 17-9, A4-2, A7-9, A7-11
Rent Comparability Study
HAP Contract Renewal Request and Rent
Comparability Study ................................ 14-5
Rent Comparability Study………..7-22, 14-4, 14-5,
A3-17
Rent Comparables ....................................... 7-22
Rent Control ................................. 7-17, 17-6, 17-10
Rent Roll…………….3-22, 7-7, 7-23, 7-34, 7-42, 7-43,
8-16, 8-30, 11-2, 12-3, 17-6, 17-7, 17-12, A12-15,
A4-5, A4-7, A5-43
Rental Assistance
Federal Rental Assistance .............. A3-16, A3-17
Section 8 Project Based Rental Assistance..A3-16
Rents
RCS Rents ..................................................... 14-5
MAP Guide, December 2020
Go to beginning of Chapter 21
REO
Real Estate Owned .... 8-3, 8-14, 8-21, 8-30, A8-1
REO………….xxx, 1-4, 8-3, 8-15, 8-21, 8-22, 8-23,
8-24, 8-32, 9-8, 9-9, 9-10, 9-22, 9-25, A4-6, A412, A4-16, A8-3, A8-8, A8-13, A8-14, A8-15,
A8-25, A15-3
Repair Threshold
Per Unit Threshold ............................. 3-12, 5-56
Repairs and Alterations
Accessibility Repair……………….3-22, 3-23, 5-13,
5-18, 5-41, 5-55, 12-41, 12-43, 19-76, A5-47
Critical Repair……………….3-20, 5-17, 5-18, 5-40,
5-41, 5-42, 6-8, 8-42, 12-33, 12-41, 12-42, 1314, 18-3, 19-76, A2-19, A2-22, A5-7, A5-8, A517, A5-19, A5-41, A5-47, A5-49, A5-53, A5-62,
A5-68, A5-73
Critical-Life Safety Repair .............................3-22
Deferred Repair……………..3-23, 3-26, 5-41, 5-42,
8-42, 12-42, 12-47, 13-14, 13-33, 13-34, 1956, 19-76, 19-79
Level 1 Alteration……………….5-3, 5-4, 5-15, 5-16,
5-56, 12-2, 12-43, A5-47
Level 2 Alteration ............... 5-3, 5-4, 5-15, 12-43
Level 3 Alteration………………5-3, 5-4, 5-5, 5-10,
5-15, 5-39, 5-56, 19-77, A5-20, A5-73
Non-Critical Repair……………2-2, 3-20, 3-22, 3-23,
5-4, 5-13, 5-14, 5-16, 5-18, 5-21, 6-8, 8-41, 842, 9-6, 11-7, 12-41, 12-43, 13-6, 13-33, 15-7,
15-8, 18-1, 18-3, 18-5, 18-6, 19-76, A2-19, A222, A2-23, A5-8, A5-42, A5-47, A5-62, A5-68
Payment for Repairs ...................................12-42
Repair Threshold ..................... 17-2, 19-76, A3-4
Schedule of Values…………xix, 12-5, 12-41, 12-42,
12-45, 13-28, 13-30, 19-64, A12-9
Replacement Cost……………..3-14, 3-15, 3-31, 3-32,
3-45, 5-8, 5-38, 5-44, 5-45, 5-50, 5-51, 5-53, 555, 7-16, 7-40, 7-41, 7-44, 7-45, 7-46, 7-53, 7-55,
8-24, 8-26, 8-34, 8-38, 8-39, 8-49, 8-52, 13-3, 134, 13-5, 13-12, 13-13, 13-15, 13-26, 13-27, 16-4,
16-5, 17-5, 18-3, A2-14, A5-44, A5-45, A5-54,
A12-4, A12-6
Requesting an FHA Project Number ..... xxvii, A4-19
Chapter 21
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Reserve for Replacement Account
Initial Deposit to the Reserve for Replacement
Account ......................................... 12-23, 18-7
Repair Escrow……………….xix, 1-2, 1-3, 3-26, 4-8,
5-2, 5-42, 5-43, 6-12, 6-14, 6-15, 8-42, 12-1,
12-42, 12-43, 12-44, 12-45, 12-46, 12-47, 1333, 14-10, 19-76, A5-25, A5-50, A5-74
Resident Service Package................................. 3-39
Residual Receipts
Residual Receipts……………………..xxvi, 8-25, 8-27,
8-28, 11-15, 13-32, 19-31, 19-44, 19-51, 1989, 19-100, 19-101, 19-104
Residual Receipts Note………….8-25, 8-28, 13-32,
19-44
Residual Receipts Rider.......... 8-28, 19-31, 19-44
Restricted Excess Mortgage Proceeds .... xxx, A12-7
Restrictive Covenant
Restrictive Covenant………xxvi, 8-25, 9-46, 11-14,
14-16, 19-35, 19-46, 19-47, 19-48, 19-49, 1950, 19-52, 19-70, 19-84, 19-99, 19-100, 19101
Rider/Restrictive Covenant Agreement ....... 8-25
Rights of First Refusal .............. 19-35, 19-38, 19-60
Risk Indicator ................................................... A2-9
Risk Management……………….1-2, 2-18, 2-20, 15-3,
A2-2, A8-7, A15-1
Risk Mitigation ...................................... 7-48, A5-40
Risk of Loss Insurance Policy .......... A12-11, A12-12
S
Scattered Site ......... iii, 3-8, 3-9, 18-2, A4-20, A5-43
Secondary Financing
Bridge Loan……………………..2-10, 3-5, 8-29, 14-1,
14-2, 14-8, 14-10, 14-12, 14-15, 19-103, A224, A4-6, A4-11, A4-15, A8-3, A12-6
Condition for Repayment of Secondary
Financing ............................................ xiii, 8-26
Restrictive Covenants and Use Agreements for
Secondary Financing .............................. 19-46
Secondary Financing for LIHTC Transactions…3-5
Secondary Financing from Federal, State or Local
Government Agencies ........................... 19-48
MAP Guide, December 2020
Go to beginning of Chapter 21
Secondary Financing that is Unavailable at Initial
Closing ....................................................19-48
Unsecured Private Secondary Financing……xiii,
8-28
Section 106
Consultation with Indian Tribes………9-37, 9-38,
9-39
Indian Tribe ..................................................9-39
Section 106……………..xxx, 9-7, 9-36, 9-37, 9-38,
9-39, 9-40, A7-12, A9-8
Section 106 Delegation Memo ............. xxx, A9-8
Section 213 Cooperative Housing
Section 213 Cooperative Housing……….xxvi, 9-5,
19-81
Section 213 Cooperative Program Rider….xxvi,
19-32, 19-106
Section 220
Amount of Loan Rehabilitation Under Section
220............................................................8-39
Mixed Use Housing Project ..........................3-16
Section 221(d)
Firm Commitment for 220, 221(d) .......... xi, 7-41
Section 223(a)(7)
Five-Year Lockout .......................................19-78
HUD-Held Mortgage .............. 13-13, 18-2, 19-80
Refinancing of Multiple Loans into a Single
Section 223(a)(7) Loan ...........................19-78
Section 223(a)(7) Firm Application .............. A4-6
Section 223(a)(7) Refinancing…………….2-1, 2-22,
3-29, 3-30, 18-1, 18-2, 18-7, 18-12
Section 223(f)
Cost Estimation Guidance for 223(f)
Transactions ...........................................19-76
Firm Commitment for 223(f) ................... xi, 7-42
Repairs and Alterations Cost Worksheet.…xxix,
A5-39, A5-73
Section 223(f) Concept Meeting ................. A4-2
Section 223(f) Firm Applications ................. A4-3
Section 231
Controlling Mortgage Criteria for Section
231………………………………………………………..3-18
Housing Restricted to Persons Age 62+ .......3-37
Rehabilitation Under Section 231 ................8-39
Valuation for Section 231 ........................ xi, 7-45
Chapter 21
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Section 241(a)
Architectural Review of Section 241(a)
Loans……………………………………………………..3-20
Cross-Default Provision.......... 3-19, 19-50, 19-70
Default Under the Section 241(a) Loan .. ….3-19,
3-21
Section 50
Definition of Principal for Regulatory
Agreement ......................................... xiii, 8-11
Section 50…………………….xiii, xxviii, 3-4, 3-24, 5-3,
5-21, 5-24, 8-2, 8-3, 8-5, 8-11, 8-12, 8-35, 1930, A2-16, A4-7
Section 504 Requirements
Section 504 Requirements....xxviii, A5-12, A5-13
Section 504 Requirements for Assisted
Housing…………………………..xxviii, A5-12, A5-13
Section 8 Project-Based Assistance with
LIHTC………………………………………………………...7-61
Seismic
Benchmark Building ................................... A5-19
Exempt Building ......................................... A5-19
Seismic Report ............................... A5-18, A5-19
Seismic Resistance .................. xxviii, 5-18, A5-18
Seismic Resistance Standards .......... xxviii, A5-18
Threshold Report ................ A5-20, A5-22, A5-23
Seller Financed Secondary Debt ...................... 8-26
Senior Housing ......................................... xxvi, A3-7
Settlement Agreement
Settlement Agreement ..... xxii, 15-5, 15-6, 19-21
Settlement Agreements
Settlement Negotiation .................... 15-5, 15-12
Sewerage System
Septic System ............................................... A5-3
Significant Cash Out
Significant Cash Out .............................. 3-27, 4-1
Simplified Form of Cost Certification
Simplified Cost Certification ........................ 13-9
Single Asset Mortgagor Entity
Single Asset Mortgagor……..……ii, 2-9, 3-1, 8-25,
13-20, 18-2, A3-6
Single Room Occupancy Property
SRO............................................................... 3-11
Site Improvements……………3-12, 3-14, 3-32, 5-22,
5-33, 5-45, 5-46, 6-6, 6-7, 6-14, 7-38, 7-39, 9-2,
MAP Guide, December 2020
Go to beginning of Chapter 21
12-5, 12-17, 12-31, 19-66, 19-67, A5-38, A5-45,
A5-55, A5-56, A5-57, A12-1, A12-13
Site Ingress and Egress .....................................5-26
Slush Pit ............................................................9-55
Special Limited Partner Entity
Special Limited Partner Entity………….8-3, 19-55,
19-56, 19-87
Specifications
Drawings and Specifications……….3-20, 5-7, 5-8,
5-13, 5-14, 5-15, 5-16, 5-19, 5-20, 5-26, 5-29,
5-30, 5-31, 5-32, 5-34, 5-37, 5-49, 5-51, 6-3, 69, 6-10, 9-9, 11-7, 12-5, 12-6, 12-9, 12-12, 1226, 12-27, 12-39, 14-14, 16-3, 19-14, 19-64,
19-77, 19-82, A5-21, A5-22, A5-31, A5-32, A541, A5-54, A5-56, A5-57
Plans and Specifications……………….vii, 3-20, 5-5,
5-15, 5-17, 5-19, 5-20, 5-21, 5-23, 5-26, 5-27,
5-28, 5-29, 5-30, 5-31, 5-32, 5-41, 5-45, 5-51,
6-4, 6-7, 6-13, 8-45, 9-10, 11-9, 12-40, 12-44,
12-46, 14-14, 16-4, 19-9, 19-38, 19-61, 19-66,
19-93, A4-4, A4-12, A4-16, A4-24, A5-25, A556, A5-58
Standard Certification……5-52, 5-53, A2-18, A2-19,
A2-21, A2-23, A3-18
Statement of Energy Performance
SEP ..........6-3, 6-4, 6-5, 6-8, 6-9, 6-10, 6-11, 6-14
Statutory Loan limit
Loan Limit ............................ ii, iv, 3-5, 3-26, 8-39
Statutory Loan Limit
Demolition……………..3-6, 3-12, 3-42, 5-33, 5-46,
5-54, 5-55, 7-11, 7-39, 7-55, 8-48, 9-7, 9-27, 929, 9-30, 9-38, 13-26, 19-12, A2-17, A2-20,
A12-6
Student Housing ............................................. ii, 3-7
Subordinate Loan
Subordinate Mortgage ............ 8-27, 8-45, 19-78
Subordination Agreement……….8-24, 8-25, 8-26,
8-27, 8-45, 14-2, 14-11, 19-24, 19-44, 19-45,
19-46
Subordinated Lien…3-5, 8-27, 13-21, 19-34, 19-37,
19-43
Subordination Agreement…..8-24, 8-25, 8-26, 8-27,
8-45, 14-2, 14-11, 19-24, 19-44, 19-45, 19-46
Chapter 21
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Subordination, Non-Disturbance and Attornment
Agreements (SNDA) ................................... A8-18
Substantial Error ............................................ 13-38
Substantial Ground Disturbance
Substantial Ground Disturbance .................. 9-38
Substantial Rehabilitation
HUD Construction Administration Period..... 4-4,
12-1
Streamlined
Processing
for
Substantial
Rehabilitation .......................................... 5-36
Substantial Rehabilitation Loan Limits......... 8-39
Substantial Rehabilitation Transactions….iii, 3-2,
3-11, 3-12, 3-18, 4-2, 7-45, 8-48, 11-10, 13-22
Title Policy Requirements .......................... 19-36
Substantive Change
Housing Directive Waiver .......................... 19-24
Narrative Submission ................................. 19-24
Substantive Change…………..1-4, 2-17, 4-2, 19-6,
19-22, 19-24, 19-25, 19-26, 19-46, 19-48
Subsurface Exploration ................. xxviii, 5-49, A5-4
Supervisory Architect……….2-5, 5-48, 12-11, 19-63,
19-77, A3-12, A4-16
Supplemental Loan
Supplemental Loan……………iv, vii, xxvi, 1-3, 3-5,
3-18, 3-19, 3-20, 5-43, 5-44, 6-14, 13-27, 1924, 19-26, 19-28, 19-37, 19-79, 19-80, 19-81,
A3-1, A3-19, A5-41
Supplemental Loan Proceeds .................... A3-19
Supplemental Operating Statement
Supplemental Income Statement .............. 13-14
Surety Bond…………..5-42, 8-47, 8-50, 12-43, 19-57,
19-64, 19-76, 19-83, A12-13, A12-17
Surety Requirements ..................................... 19-66
Surplus Cash…………….5-43, 8-17, 8-24, 8-25, 8-26,
8-27, 8-28, 8-35, 8-53, 10-7, 13-32, 14-7, 14-8,
14-9, 14-12, 14-13, 14-15, 16-2, 18-7, 19-31, 1944, 19-48, 19-51, 19-86, 19-89, 19-100, 19-101,
19-104
Survey
Apparent Interests ............................ 19-41, A5-5
Encroachments12-32, 19-37, 19-38, 19-39, 1941, 19-91, A5-5
Survey…………..xxvi, xxviii, 5-18, 5-22, 5-24, 5-31,
5-41, 5-58, 7-8, 7-21, 9-30, 9-31, 11-12, 12-17,
MAP Guide, December 2020
Go to beginning of Chapter 21
12-31, 12-32, 12-37, 12-39, 12-45, 13-24, 1326, 14-6, 19-4, 19-14, 19-28, 19-33, 19-34, 1935, 19-36, 19-37, 19-39, 19-40, 19-41, 19-42,
19-71, 19-79, 19-91, A4-5, A5-7, A5-10, A5-14,
A5-1, A5-4, A5-5, A5-18, A5-26, A12-5, A12-9,
A12-10
Survey Affidavit of No Change…………….xxvi, 19-41,
19-79, 19-91
Suspension and Debarment ....... xxiii, 15-16, 15-17
Sustaining Occupancy………ii, 3-7, 3-35, 8-16, 8-19,
8-20, 12-35, 12-36, 12-38, 12-40, 13-39, 13-40,
A5-41
Syndication……..8-21, 8-28, 8-44, 13-12, 16-3, 16-4,
A2-26, A8-4, A12-1, A12-2, A12-16
T
TAP
Traditional Application Processing…1-1, 3-2, 9-5,
11-9, 19-1, 19-81, A4-1
Tax Abatement
Deferral of Real Estate Taxes ................. xii, 7-60
Full Term Tax Abatement ....................... xii, 7-57
Partial Term Abatement ...............................7-58
Period of the Tax Abatement .......................7-57
Tax Abatement and Deferral Agreements .19-60
Variable Tax Abatement ......................... xii, 7-58
Tax Credit Equity Bridge Loans
Tax Credit Equity Bridge Loans .............. xiii, 8-29
Tax Exempt Bond…xxii, 7-60, 13-21, 14-16, A4-21,
A4-22
Tax Increment Financing
Tax Increment Financing ........ii, 3-6, 7-35, 19-43
TIF ......................................................... 3-6, 7-35
Technical Specialist
Technical Specialist…………vi, 4-6, 4-7, 5-12, 11-6,
11-7, 12-5
Tentative Closing Date………..19-2, 19-3, 19-4, 19-5,
19-10, 19-24
Third-Party Professionals
Third Party Contractor…………2-1, 2-4, 2-5, A154, A15-5
Third-Party Professionals ............ 2-8, 5-44, 11-2
Chapter 21
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Title Policy
Encroachment………9-13, 9-14, 9-16, 9-18, 9-20,
9-21, 19-37
Title Policy………..5-34, 12-39, 13-24, 13-44, 19-5,
19-7, 19-8, 19-13, 19-34, 19-35, 19-36, 19-37,
19-38, 19-39, 19-40, 19-41, 19-43, 19-58, 1959, 19-71, 19-80, 19-83, A5-5
Trade Line Item
Trade Line Item………5-27, 5-46, 5-51, 5-52, 5-54,
13-30
Traditional Application Processing......1-1, 3-2, 9-5,
11-9, 19-1, 19-81, A4-1
Transfer of Physical Assets
Tax Credit Equity Bridge Loans…..8-3, 8-5, 8-17,
8-23, 8-25, 8-26, 8-27, 14-12, 18-13, 19-87
Transient Housing
Hotel ................. ii, 3-7, 3-40, 17-1, A3-10, A5-15
Turnover Rate
Turnover Rate .............................................. 17-3
U
UCC
UCC…………xxv, 19-4, 19-5, 19-13, 19-28, 19-37,
19-59, 19-67, 19-70, 19-80, A12-10
UCC Search................................................. 19-59
UCC-1 Financing Statement…..xxv, 19-13, 19-28,
19-37, 19-67, 19-70, 19-80
UFAS
Alternative to UFAS ................................... A5-14
UFAS Resources ......................................... A5-14
Underwriter
Credit Approval………….xiii, xxix, 8-22, 8-23, 8-30,
8-36, 11-1, A8-6, A8-7, A8-8, A8-11
Oversight and Performance…4-5, 4-7, 11-2, 11-6
Underwriter Narrative……..4-4, 8-10, 8-32, 11-3,
17, A16-1
Underwriting
Application-Level Mortgage Credit
Underwriting…………………………………………8-23
Commercial Tenant………7-27, 7-28, 16-1, 19-31,
A5-2, A8-19, A8-20, A16-1, A16-2
Underwriting Commercial Rents ............... A8-19
Underwriting Deficiencies….A15-3, A15-4, A15-5
MAP Guide, December 2020
Go to beginning of Chapter 21
Underwriting for Waiver Procedures ............. 1-4
Underwriting Standards ..... 1-1, 3-33, 7-53, 14-3
Uniform Federal Accessibility Standards….5-6, 5-7,
5-37, A5-13, A5-14, A5-35, A5-37
Urban Redevelopment
Urban Redevelopment .................................3-16
Use Restriction
Elderly and/or Age Use Restrictions ............ A3-7
USPAP
Competency Rule Described in USPAP ........... 7-3
Ethics Rule .......................................... 7-34, A7-2
Guidance for Income-Restricted Projects..x, 7-14
Jurisdictional Exception Rule……x, xii, 7-16, 7-63,
A7-2, A7-4
Record Keeping Rule ..................... xii, 7-63, A7-2
Scope of Work Rule ................... 7-14, A7-2, A7-3
Standards Rule .......................... 7-14, 7-15, A7-2
USPAP Advisory Opinion ........... 7-14, 7-15, 7-36
USPAP Certification .......................... 7-20, A2-14
Utility Conservation
Utility Conservation ........5-5, 6-14, A5-44, A5-49
Utility Consumption
Utility Consumption…..3-15, 5-5, 5-7, 5-12, 5-27,
6-1, 6-5, 6-6, 6-8, 6-10, 6-13, 6-14, 6-15
Utility Cost
Reduced Utility Costs ...................................6-14
V
Vacancy
Collection Loss………..iii, x, 3-6, 3-10, 7-16, 7-23,
7-27, 17-10, A3-1, A3-4
Vacancy Rate…………7-10, 7-11, 7-13, 7-21, 7-23,
7-29, 10-3, 11-3, 17-3, A2-24, A8-13
Valuation
Contingency Reserve…………xii, 5-1, 5-55, 7-45,
12-21, 12-23, 12-24, 12-29, 12-30, 13-26, 1338, A5-69, A12-6
Highest and Best Use....................................7-54
Land Value…………….7-19, 7-38, 7-42, 7-58, 7-60,
8-50, 13-1, 13-26, 13-38, A4-18, A7-11, A12-4,
A12-6
Chapter 21
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Market Analysis…………..ix, x, 3-28, 4-7, 7-1, 7-5,
7-20, 7-21, 7-42, 13-27, 17-4, 17-8, 17-10, A710, A15-3
Site Inspection……………….2-2, 6-3, 6-6, 7-5, 12-9,
15-7, 19-41, A5-41, A5-43, A5-56, A5-58, A78, A15-2
Valuation for RAD Transactions .............. xii, 7-45
Value of Land……………7-37, 7-38, 7-39, A5-67,
A5-69, A5-72, A12-6
Value of the Land……………7-1, 7-38, 7-39, 7-41,
7-44, 7-45, 8-39, 12-38, 13-26, 13-33
W
Waiver Authority ................... 3-1, 3-10, 16-1, A7-5
Waiver Request
Waiver Request…………….3-1, 3-10, 11-9, 15-2,
19-24, A4-3, A4-9
Warning Letter…………..xxii, 7-2, 15-1, 15-2, 15-3,
15-4, 15-5, 15-6, 15-7, 15-18, A15-1, A15-2, A154
Warranted Price of Land……………..7-40, 7-41, 7-43,
7-65, 8-38, 19-44, A2-14, A2-15
Warranty
Warranty Certification ................................. 14-1
Warranty Inspection……………xviii, xx, 5-8, 5-9,
12-16, 12-47, A5-58
Warranty Period .................... 12-1, 12-15, 12-40
Wells
Abandoned Well .......................................... 9-55
Extraction Well............................................. 9-56
Flushing Well..................................xv, 9-21, 9-22
Fracking Well ............................................... 9-56
Gas Well ....................................................... 9-55
Horizontal Well ............................................ 9-56
Monitoring Well .......... xv, 9-18, 9-20, 9-21, 9-22
Non-Operating Well ..................................... 9-22
Operating Well ............................................. 9-55
Testing Well ...................................xv, 9-21, 9-22
Working Capital
Working Capital………………..iii, iv, xix, 3-13, 3-21,
5-23, 5-52, 7-47, 8-15, 8-18, 8-20, 8-30, 8-35,
8-47, 8-48, 8-50, 11-7, 12-20, 12-21, 12-29,
12-30, 12-34, 12-35, 12-40, 13-12, 13-15, 13MAP Guide, December 2020
Go to beginning of Chapter 21
27, 13-32, 14-7, 19-16, 19-57, A8-5, A8-13,
A12-5, A12-6, A12-7, A12-16, A12-18
Working Capital Escrow…………….iii, 3-13, 8-48,
8-50, 11-7, 12-20, 12-21, 12-34, 12-40, 14-7,
A12-6, A12-18
Workload
Workload…………i, xii, 1-1, 1-5, 1-6, 4-1, 4-7, 5-57,
7-63, 11-6, 19-3, A7-4, A7-5
Workload Distribution ................... 4-1, 4-7, 11-6
Workload Management .............................. i, 1-5
Workout
Construction Litigation ...............................19-22
Contractor Default .....................................19-21
Z
Zoning
Zoning……………xxvi, 3-38, 5-24, 7-21, 7-29, 7-36,
7-38, 8-48, 9-57, 11-3, 13-25, 19-34, 19-38,
19-58, 19-82, 19-96, A2-11, A3-17, A4-5, A410, A4-14, A5-2, A5-21, A5-22, A5-23, A5-38,
A5-54, A5-56, A12-4, A12-6
Zoning Endorsement………….19-34, 19-38, 19-58,
19-96
Zoning Letter ......................................xxvi, 19-96
Chapter 21
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Appendix 2 Quality Control Plans and Identity of Interest
A.2.1 Lender Quality Control Plans and Identity of Interest Examples
Appendix 2 Quality Control Plans and Identity of
Interest
A.2.1 Lender Quality Control Plans and Identity of
Interest Examples
A.2.1.1
Lender Quality Control Plan Guidelines
A.2.1.1.1
Background
A. As a condition of receiving or continuing to receive both Title II lending and MAP lending privileges,
MAP Lenders must adopt and maintain a Quality Control Plan (QC Plan) for the origination, underwriting,
closing, construction loan administration and loan servicing, if applicable, of FHA insured mortgages
processed under the MAP program and procedures. Each MAP Lender must develop and maintain an
acceptable QC Plan and conduct quality control using the guidelines below.
B. On December 30, 2016, the Department issued HUD Handbook 4000.1, Single Family Housing Policy,
in which Chapter 1A: Doing Business with FHA; FHA Lenders and Mortgagees, and Chapter V A-E: Quality
Control, Oversight and Compliance; Quality Control of Lenders and Mortgagees, apply to multifamily MAP
Lenders and are incorporated herein by reference. All MAP Lenders must also comply with the applicable
provisions of HUD Handbook 4000.1 and with the QC provisions in Chapter 2 and in this Appendix.
A.2.1.1.2
Submission and Compliance
A. A QC Plan is a required exhibit in the Lender’s application package for MAP approval and must be
included as Exhibit M and be submitted in electronic PDF format, signed by an authorized signatory of the
Lender. The MAP Lender must annually review and update its QC Plan and, whenever the plan is revised,
the Lender must send updated PDF copies to Counterparty Oversight Branch (COB).
B. The Lender must comply with its QC Plan and with the underwriting, monitoring and servicing
requirements of the MAP program on a continuous basis to maintain MAP eligibility. Failure to comply
with these requirements or with its QC Plan may result in revocation of MAP privileges and/or other
administrative sanctions.
A.2.1.1.3
Policy Objectives
A. The primary objectives of the QC Plan are to assure that:
1. The MAP Lender operates at a high-performance level in the origination, underwriting, closing,
construction loan administration and servicing (as applicable) of MAP processed loans.
2. The MAP Lender operates in full compliance with the National Housing Act (NHA), HUD-FHA and MAP
requirements, and with its own internal policies and procedures.
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3. The MAP Lender adheres to the MAP Guide policies and procedures, clarifications and revisions in
Frequently Asked Questions (FAQ), applicable regulations, Mortgagee Letters, HUD Notices and HUD
Handbooks, and its own internal controls. These policies and procedures must be distributed to and
consistently followed by the Lender’s personnel and must be supported internally by appropriate
training and staff development activities.
4. The MAP Lender’s third-party contractor(s) involved in a MAP loan are familiar with, understand and
adhere to the MAP Lender's own policies and procedures regarding quality control.
5. The MAP Lender's operating procedures are revised in a timely manner to:
Accurately reflect any changes in HUD-FHA and MAP regulations, policies, directives or
instructions;
Keep all affected, accountable personnel informed and trained so as to guarantee compliance
therewith; and
Assure that all employees and third-party contractors are held accountable for performance
failures, errors and omissions.
6. The MAP Lender utilizes a program of internal and/or external audits that provide for an independent
review by Lender’s staff and/or contractor(s) who are knowledgeable and have no direct MAP loan
origination, underwriting, construction loan administration, and/or loan servicing responsibilities, as
applicable.
A.2.1.1.4
General Requirements of a QC Plan
A. The QC Plan must clearly describe the requirements for MAP loan origination, underwriting, closing,
construction loan administration and loan servicing (as applicable), and must describe the actions the
MAP Lender will take to assure acceptable oversight of and risk management in the MAP lending process.
B. Each office of the MAP Lender, including its branches, must maintain or have direct access to copies of
the NHA and all HUD issuances, including Part 24 CFR regulations, HUD handbooks, Mortgagee Letters,
HUD Notices, the MAP Guide, MAP Frequently Asked Questions (FAQs), etc., which are relevant to the MAP
Lender's origination, underwriting, closing, construction loan administration and loan servicing activities
(as applicable). These documents must be accessible to all employees and third-party contractor(s) and
must be periodically reviewed with them.
C. The QC Plan must confirm that the Lender’s operations are conducted in a professional, business-like
environment, that its office is properly and clearly identified, it has adequate office space and equipment,
it is separated from any other business entity by walls or partitions and it is accessible to persons with
mobility impairments.
A.2.1.1.5
Required Notifications and Certifications
A. The MAP Lender must notify COB of any change in the MAP Lender’s:
1. Point-of-contact for the MAP procedures;
2. Contact information for Asset Management/Loan Servicer;
3. Name;
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4. Address;
5. Email address;
6. Telephone and/or FAX numbers;
7. MAP Underwriter(s);
8. Construction loan administrator(s), if applicable; and
9. Authorized signatory(s).
B. The MAP Lender must provide annual certifications signed by an authorized signatory of the MAP
Lender and submitted to COB electronically in PDF format no later than June 30th of each year. The
certification must include:
1. The names of the Lender’s approved MAP Underwriter(s), construction loan administrator(s) and
authorized signatory(s) to bind the Lender on MAP loan applications. Servicing Lenders must also list
the name(s) of the primary servicing point of contact.
2. The names of the Lender’s originators.
3. A statement that the MAP Lender is currently a HUD-approved multifamily mortgagee.
4. A description of any corrective actions taken as a result of its most recent QC reviews.
5. A summary of loans underwritten by new MAP Underwriters (who were approved within the last
fiscal year).
6. Contain the following language: “WARNING: Federal law provides that anyone who submits (or causes
to submit) a document containing any false, fictitious, misleading, or fraudulent
statement/certification or entry may be criminally prosecuted and may incur civil administrative
liability. Penalties upon conviction can include a fine and imprisonment, as provided pursuant to
applicable law, which includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802,
24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R. Parts 180 and 2424. The signatory certifies that the
information provided herein is true and accurate.”
A.2.1.1.6
Suspension, Debarment, and Limited Denial of Participation
1. The MAP Lender must maintain, have access to and regularly review the latest Limited Denial of
Participation
(LDP)
list,
which
is
available
at
the
following
website:
https://www5.hud.gov/Ecpcis/main/ECPCIS_List/main/ECPCIS_List.jsp.
The MAP Lender must also maintain, have access to and regularly review the government- wide list
of excluded parties for persons or entities who have been suspended or debarred by the federal
government. This information is found in the System for Award Management (SAM) online at the
following website: https://www.sam.gov/SAM/pages/public/index.jsf.
2. The MAP Lender may not:
Conduct FHA-HUD related business with any persons, as defined in 2 CFR Part 2424 and 24 CFR
Part 24, who are debarred, suspended or subject to a Limited Denial of Participation.
Employ or have contact with any individuals or firms to perform FHA-HUD related services in
origination, processing and underwriting or construction loan servicing who are restricted from
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participation in HUD/FHA programs. The MAP Lender must check their employee list and thirdparty contractors every six months to ensure compliance with this requirement.
A.2.1.1.7
Independence of QC Reviews and Reviewers
A. The QC review function must be independent of the Lender’s loan origination, processing and servicing
functions, and may be accomplished in several ways. QC review functions may be performed by using:
1. In-house staff. Lenders may establish a special unit that is dedicated solely to QC. Staff performing
QC reviews must not be involved in the day-to-day processes that they are reviewing.
2. Outside firms. MAP Lenders may use knowledgeable outside, independent firms to prepare the QC
reviews.
Services provided by an outside firm must comply with the Department's QC requirements and
must provide written reports to the MAP Lender’s senior management. The MAP Lender is
responsible for ensuring these requirements are met.
The firm working on the QC review may not be used by the Lender in underwriting MAP loans.
Certified Public Accounting (CPA) firms may perform the QC review, which would be considered
non-audit services. However, the same CPA firm cannot also provide auditing services for the
MAP Lender since the CPA firm will be reviewing its own work, in part, which is a violation of the
Independence standard of the Auditing Standards.
Any agreement with the outside review firm must be in writing, state the roles and
responsibilities of each party and be available for review by COB.
A.2.1.1.8
QC Reviews
A. The QC reviewing official(s) must document all positive and negative findings in writing and present
its QC Review at the Lender’s next designated senior management committee meeting.
1. The senior management committee must meet on a semiannual basis to hear the findings and
recommendations of the QC Review, or more frequently if serious quality control issues are present.
2. Committee members must receive written notification of any deficiencies found as a result of a QC
Review before the meeting.
3. At the meeting, the committee must carefully review and analyze the findings of the QC Review and
undertake corrective actions as necessary, including:
Prompt initiation of corrective actions to address all deficiencies, including any procedural
problems identified.
Formal documentation of the corrective actions taken by citing each deficiency, identifying the
cause of the deficiency and providing management's response or actions taken.
Notification, in writing, of affected third party contractor(s), employees and departments of such
findings and the corrective actions taken to assure senior management that repeated or recurring
actions will not reoccur.
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Prompt distribution to all MAP loan origination, underwriting, closing and construction loan
administration personnel and/or servicing personnel, as applicable, including contractor(s), of
the corrective instructions for the identified deficiencies.
Promptly implement training for the prevention of such activities in the future.
Review all remedial actions for compliance at the next regularly scheduled committee meeting.
4. The MAP Lender must report the results of its QC Reviews to COB, including the corresponding
corrective action plans, and must provide assurance that the information being reported is accurate,
complete and has been reported promptly. The MAP Lender must also report to COB the minutes of
the senior management committee meeting that reviewed the QC Review and of any follow up
meetings.
The MAP Lender must promptly notify COB of any violation of law or regulation, false statements or
program violations by the Lender, its employees, its contractors or any other party to the transaction
that was found during the QC Review. A MAP Lender’s QC Plan must ensure that findings discovered
by employees during the normal course of business and by the QC staff during reviews/audits of MAP
loans are reported to COB within 60 days of their initial discovery. If there is a finding of fraud or
other serious violation, the finding must be submitted in writing to COB. If HUD staff is suspected of
involvement, the Lender should refer the matter to the Office of Inspector General, Department of
Housing and Urban Development, 451 7th Street, SW, Room 8256, Washington, DC 20410.
5. The MAP Lender must retain any QC Reviews and follow-ups, including the review findings, corrective
actions taken and procedural information about the review (such as the percentage of loans reviewed,
the basis for the selected loans and who performed the review) for a period of 7 years and must be
made available to HUD on request. The MAP Lender must retain a copy of the entire case file
pertaining to each MAP loan origination, underwriting and/or construction loan administration, for
at least 7 years from the Final Endorsement date, either in hard copy or in a generally accepted
electronic storage format.
A.2.1.1.9
Specific Requirements of a QC Plan
A. For MAP origination and underwriting functions:
1. The QC Plan must address how quality control is integrated into the MAP Lender's loan production
process. For example, before sending the AE&C analyst and the appraiser out to perform a review, a
pre-performance meeting should be held, which is an important first step to document how the
Lender is enforcing QC in the production process. At a minimum, the following functions must be
addressed in the QC Plan and the loan file must include documentation supporting any decisions made
for these functions.
2. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that the mortgagor is an acceptable credit risk, and with the project’s ability to make
payments on the loan obligation.
3. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that the General Contractor, if applicable, is an acceptable credit risk, with a reasonable
expectation of completing construction of the project.
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4. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that the property’s estimated value, market demand, income potential, operating
expenses and warranted cost of the property will be analyzed to ensure that they are adequate to
support a long-term HUD insured mortgage.
5. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that new construction/substantial rehabilitation project’s design meets all applicable
design standards and usability by the intended resident population.
6. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that the project’s construction/rehabilitation or repair costs are reasonable.
7. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in assuring
that it has not established minimum loan amounts or "floors," below which they will not lend since
this is a violation of Section 535 of the National Housing Act.
8. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that it is in compliance with Chapter 2, Section 2.6 of the MAP Guide dealing with
prohibited Identity of Interest relationships. Identity of Interest relationships that have been
approved by COB must be properly documented in the QC plan, and evidence of the approvals must
be provided with the application for the HUD processing office’s review.
9. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in assuring
that the Lender’s loan originators cannot:
Perform the role of Underwriter for projects they originate.
Hire contractors on behalf of the Underwriter.
Interact with, or otherwise act to influence, the preparation or conclusions of third-party
contractors’ reports (including the Lender’s internal staff tasked with third-party like duties).
Have an Identity of Interest with a third-party contractor, the Borrower or Borrower entity.
10. The QC Plan shall require that all of the MAP Lender’s loan originators certify for each loan that no
conflicts-of-interest exist with the proposed mortgagor or other transaction participants.
11. The QC Plan must stipulate that all HUD approved MAP Underwriters are full-time employees of the
MAP Lender.
12. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in assuring
that the MAP Lender’s technical staff and/or third-party contractor(s) are knowledgeable about
HUD’s requirements. Where required by state or local law or regulation, the technical staff or thirdparty contractor must be properly licensed in the jurisdiction where the project is located.
B. For MAP construction loan administration function:
1. The QC Plan must address how the MAP Lender will exercise prudence and due diligence in
determining that construction loan administration is performed in accordance with accepted
practices of prudent lending institutions and with HUD’s requirements.
2. The QC Plan must stipulate that the HUD approved MAP construction loan administrator(s) is a fulltime employee of the MAP Lender.
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3. The QC Plan must provide for a review of the construction loan administration function in order to:
Determine that construction loan administration records are promptly established and
maintained after loan closing and that the servicing records contain the information necessary to
properly service the loan.
Determine that inquiries from Borrowers concerning their individual loan accounts are
responded to promptly.
A.2.1.1.10 Quality Control Reviews
A. Scope, timing and format of QC Reviews.
1. QC audits or reviews of the Lender’s MAP operation are to be performed annually. The review must
be a written, self-contained analysis prepared by a competent, knowledgeable and properly licensed
professional and should be sufficient in scope to enable the Lender to evaluate the performance of its
MAP operation and its compliance with MAP program requirements. The review should provide an
independent evaluation of the MAP Lender’s origination, underwriting, closing, construction loan
administration and loan servicing processes and procedures. The reviews must document whatever
deficiencies are found, as well as any significant oversights and/or deficiencies in loan servicing which
are found as a result of problem loan reviews. The scope of a QC review should be expanded where
instances of alleged misrepresentation or fraudulent activities by the Borrower team, or patterns of
serious deficiencies in the Lender’s underwriting, construction loan administration or loan servicing,
are identified. The annual QC review must also address the following:
Track all MAP loans presented by individual loan originators and Underwriters.
Evaluate the Lender’s overall QC Plan for adequacy and the Lender’s operation for compliance
with its QC Plan.
Perform audits of individual loan transactions.
2. The appraisal review must be prepared by a Certified General Appraiser who is competent and
licensed in the appropriate jurisdiction and must be prepared to USPAP review standards.
3. Cost/architectural reviewers must meet MAP experience requirements found in the Guide. The
underwriting and cost/A&E and loan servicing reviews should contain sufficient information to
ascertain the level of analysis performed and the conclusions reached by the reviewer.
4. The underwriting review must provide sufficient documentation to confirm that the reviewer has
evaluated the Underwriter’s analysis of the project strengths, weaknesses, risks and mitigants in all
technical areas, as well as an overall assessment.
B. Production tracking:
1. As part of the annual QC review, MAP Lenders must track all MAP loans presented or processed by
individual loan originators and Underwriters. The term loan originator includes mortgage broker,
loan correspondent or loan consultant. No later than June 30th of each year, the MAP Lender must
submit an electronic copy of its production tracking report to COB. Annual production tracking
reports for each Underwriter must include the following information:
FHA number;
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Project name (identification);
Initial/ Final Endorsement Dates;
Mortgage Insurance Program (MIP);
Original principal balance;
Loan Servicer;
Loan status;
Whether the loan has any of the following issues:
1) Waivers
2) Master Lease
3) Is located in an Underserved Area
4) Criterion 5 (debt service) controlled mortgages
5) Any government housing subsidies (i.e. LIHTC, Section 8, etc.)
C. QC Plan reviews
1. The QC Plan review must evaluate the Lender’s overall QC Plan for adequacy. It should include an
analysis of:
The Lender’s operation and its compliance with the QC Plan;
Whether the Lender’s QC Plan incorporates a system that is adequate to ensure that FHA
underwriting and servicing requirements are followed;
Whether the Lender is following the QC Plan it has adopted;
Whether the Lender has completed the correct number of loan audit reviews; and
Whether the Lender is adequately staffed to implement the QC Plan.
D. QC loan file and commitment reviews:
1. The QC review must include reviews of individual loan files and commitments, as follows:
For MAP Lenders with a total of 20 or more MAP Firm Commitments in the applicable year of
review, reviews must be completed for 5% of all closed loans. The maximum number of required
loan reviews will be the lesser of 5% of all closed loans or three reviews.
MAP Lenders with fewer than 20 Firm Commitments in the applicable year of review must
perform one QC loan review.
The required number of QC reviews will be performed on loans with the greatest Risk Assessment
Score as defined below.
2. MAP Lenders are not required to perform a QC review for each Section of the National Housing Act
used.
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3. MAP Lenders are not required to perform a QC review for each Underwriter, so long as the minimum
prescribed number of loans is reviewed. QC reviews shall evaluate the quality of work performed by
the MAP originators, Underwriters, and technical staff and/or third-party contractor(s).
4. All appraisals reviewed must receive a field review performed by either a qualified senior staff
member not involved in origination or underwriting or by a review appraiser employed on a contract
basis.
5. For QC reviews involving new construction/substantial rehabilitation projects, the review should
provide an analysis of whether MAP construction loan servicing policies and requirements have been
met.
6. The review appraiser or appraisal firm performing the QC appraisal review may not have provided
appraisal services for any MAP loans underwritten by the Lender.
E. QC loan ranking factors and review selection:
1. The QC reviewer will assign a risk assessment score to each loan originated in the previous reporting
cycle and loan reviews will be targeted to loans with the highest scores that therefore represent the
greatest degree of risk to the Department. Points are cumulative and will be assigned for the following
risk indicators:
Risk Indicators
Loans that are troubled, defaulted or assigned
Mortgage amounts over $15,000,000
Mortgage amounts over $10,000,000
Mortgage amounts over $5,000,000
Mortgage amount over $1,000,000
New Construction Loans
Substantial Rehabilitation Loans
Acquisition Loans
Refinance Loans
Loans that are not typical in size (low or high number
of units)
Loans in which Criterion 5, Debt Service Coverage,
established the Maximum Loan Amount
Loans underwritten by MAP Underwriters who were
initially approved within the last three years
Loans underwritten by MAP Underwriters with a loan
default in the previous three reporting cycles
Loans that have waivers
Unsubsidized, market rate properties
Properties with a Master Lease
Scores
20 Points
15 Points
10 Points
5 Points
1 Point
15 Points
10 Points
5 Points
1 Point
5 Points
5 Points
10 Points
10 Points
5 Points
5 Points
10 Points
F. QC Reviews of assigned or problem loans
1. In addition to the above review requirements, as part of the QC review process, the originating MAP
Lender must also undertake a comprehensive review and re-examination of any MAP loan it
underwrote that is assigned either during construction or within four years after Final Endorsement.
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This must be done in all cases, including those in which the MAP Lender no longer has the loan in its
portfolio. If the originating Lender does not initiate the review, COB may direct that the review be
performed. In addition to all other requirements of a QC review outlined herein, reviews of assigned
loans shall include the following:
A timeline spanning application engagement to assignment of the loan, and should identify the
dates of pertinent actions and events, such as the date of engagement, application submission,
firm commitment, initial endorsement and should identify the date of the events that are
determined to have contributed to the assignment (for ex, loss of the Management Agent,
contractor walk-off, etc.).
Identification of all parties or entities involved in preparing and processing the application,
including:
1) Principals of the Borrower, sponsoring entity(ies), and development team members;
a) The property Management Agent;
b) The Lender’s originator(s) or loan correspondent(s);
c) The Lender’s Underwriter(s); and
d) Third party contractors that worked on the application.
An analysis of the probable cause of the assignment, including identifying all relevant
contributory factors. To the extent possible, the reviewer should interview the project’s owner,
the originating Lender’s Underwriter and the HUD processing center familiar with the application
and include an analysis of each party’s opinion of the probable cause of default, reconciled with
the reviewer’s opinion of the cause. The review and re-examination must include a reunderwriting of the loan given the currently known facts and circumstances that contributed to
the assignment and discuss the lessons learned from the assignment.
G. Specific Requirements for QC Reviews of Loan Underwriting
1. Each individual loan review must be a written, self-contained analysis whose purpose is to determine
the accuracy and completeness of the underwriting conclusions, third-party deliverables and loan
documentation. Each portion of the review should contain sufficient information to ascertain the level
of analysis performed and the conclusions developed. The appraisal review is to be prepared to
USPAP review standards. The underwriting review must provide sufficient documentation to
ascertain that the reviewer has evaluated the Underwriter’s identification of the project strengths,
weaknesses, risks and mitigants in all technical areas and overall. For the underwriting portion of the
review, at a minimum, the following requirements must be met for loans underwritten using the MAP
procedures:
All processing and underwriting must comply with the applicable provisions of the NHA, Title 24
of the Code of Federal Regulations, the MAP Guide and MAP FAQs.
All Identity of Interest certifications were properly filed. Review the loan closing statement to
determine if any inappropriate inducements or prohibited IOI disbursements were paid.
Determine whether each loan file contains all HUD required loan processing, underwriting and
legal documents including supporting reports, and that all required documents were provided to
HUD with the application.
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Determine if there was a violation of the Department's prohibition of referral fees paid to a party
who is not a loan consultant, loan correspondent or mortgage broker.
Determine if anything of value was paid directly or indirectly to any person or entity who has
received any other compensation from the mortgagor, seller, builder or any other person for
services related to the transaction or related to the purchase or sale of the mortgaged property.
Exceptions can be made where services were actually rendered, the name of the broker is
furnished and there is no Identity of Interest between the mortgagee and the broker or the
mortgagor and the broker. The broker’s fee must be included on the Mortgagee Certificate.
Determine if staff allowed third parties to represent the MAP Lender in meeting(s) with the HUD
area office to discuss specific MAP project issues.
Determine if excess and unallowable fees are being charged to mortgagors. Examples include
charging discount points not disclosed on the Mortgagee’s Certificate, form HUD-2434, or at Firm
Commitment, or charging higher fees than are permitted by HUD/FHA.
If new construction or substantial rehabilitation, did the pre-application submission include an
acceptable narrative summary of the market study and the extent of market competition, and
describe any features of the proposal which may present issues, such as zoning, ground leases and
environmental conditions?
Did the Lender’s pre-application submission list the proposed MAP Lender reviewers? Were any
proposed reviewers rejected by the Regional Office, and, if so, why?
In the application for the Firm Commitment, did the Lender provide a narrative analysis which
discussed the characteristics of the project for which mortgage insurance was sought, presenting
the reasons that the Lender recommended the loan for mortgage insurance?
Did the Lender’s narrative analysis for the Firm Commitment application discuss the risk factors?
Did the narrative analysis for the Firm Commitment application properly evaluate the multifamily
housing experience and financial capacity of the principals of the Borrower?
If the application is for a refinancing or purchase loan, did the narrative provide a satisfactory
description of the property?
Did the Lender’s narrative provide a satisfactory analysis of the market, the rents, expenses and,
for new construction projects, the estimated rent-up costs and operating deficit?
Did the Lender determine the adequacy of the reserve for replacement?
Did the Underwriter recommend any changes to the appraisal or technical reports’ findings,
conclusions and/or recommendations? If so, what were they, what was the justification and was
it documented fully and supported by data?
At the Lender’s request, were any waivers requested from the HUD area office for any MAP
requirements? If so, was the request approved or rejected, what requirements were waived and
what were the justifications for the waivers?
Did the Lender obtain the necessary certifications from the individual reviewers?
Did the Lender certify that the proposed loan represented an acceptable risk to the Department
(Section 220, or 221d3, 221d4 or 231) or is economically sound (Section 223(f)), based upon the
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Lender’s analysis, and that the loan complied with all FHA statutory, regulatory and
administrative requirements?
Did the Lender prepare a Master HUD 92264 signed by the Lender’s Underwriter?
Did the Lender submit an application for a Firm Commitment within 120 days of the date of the
invitation letter? If not, did it request an extension and provide justification for the request?
Were credit reports obtained on all businesses, individuals and on all required principals who are
parties to the transaction?
1) Determine whether the loan file contains a comprehensive analysis of the borrowing entity
to identify the business and individual credit report(s) that are required on the appropriate
principals of the borrowing entity, Sponsor, mortgagor and General Contractor, if applicable.
2) Determine if more than one credit report was ordered on the same principal/company and, if
so, whether the most current credit reports were submitted with the loan application.
3) Determine whether any outstanding judgments shown on the credit report(s) were
accompanied by an explanation and supporting documentation. If delinquent Federal debt
existed, the Lender must have included a letter from the Federal agency in accordance with
Chapter 8, Section 8.3.3 of the MAP Guide.
Determine whether verifications of deposit and trade references were sent, received and
considered in the project underwriting.
Determine whether all conflicting information or discrepancies were reconciled and properly
documented in writing.
Determine that the loan file contains a financial statement(s) on the principals, Sponsor, and on
the mortgagor. If the project involved new construction or substantial rehabilitation, determine
if a financial statement was obtained from the General Contractor.
Determine that the financial statements were analyzed following generally accepted business
practices to determine financial capability.
Verify that the MAP Underwriter determined that the Sponsor and/or General Contractor had a
sufficient level of experience for the type and/or size of project that was approved.
Determine if all material negative information about the project and individuals or entities
involved in the transaction was disclosed to HUD in the Underwriter’s written summary.
Determine if the MAP Underwriter performed QC over the work of the MAP Lender’s other staff
and/or third-party contractors which participated in underwriting the project, and determine if:
1) The preparers of the forms/reports/reviews are qualified as required by the MAP Guide, and
have insurance, if required by the Guide.
2) The forms/reports/reviews were prepared in the manner required by the MAP Guide and
that the forms/reports/reviews are complete and accurate.
3) The proposed loan represents an acceptable risk based on the Underwriter’s review and
analysis.
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4) The required reports and documentation flowed in a timely manner from one discipline to
another.
Determine whether the Underwriter analyzed the project’s proposed management plan, including
a review of the Management Agent’s past experience, capacity and track record, to assure that the
development would be managed in a prudent, efficient and cost-effective manner.
Determine if the Underwriter verified that the professional used in the environmental review was
qualified for the assigned responsibilities.
Determine if the Underwriter provided HUD with a narrative report and supporting
documentation that addressed all HEROS (HUD Environmental Review Online System)
requirements, including the Phase I Environmental Site Assessment (ESA) and the Phase II ESA,
if required.
Determine if the loan met the criteria for a reduced MIP for Green Building loans.
Determine the scope of any deficiencies that were identified by the HUD review staff. Did the
initially submitted Firm Commitment and/or closing package substantially meet HUD’s
requirements or were significant revisions required? Did any deficiencies they identified
significantly impact the overall processing?
H. Specific Requirements for QC Reviews of Appraisals:
1. For the appraisal review portion of the QC review, the following must be performed:
Determine if the appraiser was properly certified in the appropriate jurisdiction where the
property is located. (Temporary certifications may be acceptable so long as the appraiser meets
all competency requirements).
Provide the review appraiser’s opinion as to the completeness of the material under review.
For Section 220, 221(d), 231 or 241 appraisal processing, determine the following:
1) Does the appraiser meet the qualification and competence requirements outlined in the MAP
Guide?
2) Is the appraisal a narrative self-contained report that is inclusive of and supportive of all
required HUD form Documentation (forms HUD-92264, HUD-92264-A, HUD-92264-T, HUD92273 and HUD-92274)?
3) Does the appraisal have an effective date within 120 days before the date of the Firm
Commitment?
4) Does the appraisal include the appraiser’s USPAP required certification?
5) Did the primary appraiser designated by the Lender perform the property inspection and sign
the appraisal report and supporting form documentation?
6) Did the appraisal include photographs of the subject, the comparable sales and comparable
rentals?
7) Does the appraisal adequately describe and analyze the geographic area, neighborhood,
rental competition, sales comparables, the site and the subject improvements?
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8) Does the appraisal establish the project’s “Replacement Cost” in accordance with Chapter 7,
Section 7.4 of the MAP Guide, and form HUD-92264?
9) For Substantial Rehabilitation projects, does the appraisal include a supplemental form HUD92264 that identifies the “As Is” and “As Complete” Values of the improvements, supported
by the income and direct sales comparison approaches, as defined in HUD Handbook 4465.1
and the MAP Guide?
10) For New Construction project, does the appraisal identify the “Warranted Price of Land” as
defined in HUD Handbook 4465.1 and the MAP Guide?
11) Does the appraisal identify the “Estimate of Market Rent by Comparison,” as of the appraisal
date, arrayed in the included form HUD-92273 and as defined in the Form’s instructions?
12) Does the appraisal identify the project’s estimated potential gross income and stabilized
occupancy ratio in the included form HUD-92264 ?
13) If commercial facilities are located within the project, does the appraisal include a separate
analysis of the effect the commercial space will have on the project, as outlined in the MAP
Guide, and does the commercial space meet the income and floor area limitations outlined in
the MAP Guide?
14) If any comparables have rent concessions, did the appraisal account for them in the market
rental analysis as required by the MAP Guide?
15) Does the appraisal identify the project’s estimated operating expenses, based upon at least
three expenses comparables arrayed in the included form HUD-92274 and as required by the
Form’s instructions?
16) Does the appraisal properly update the expense comparables, meet disclosure requirements
for the comparables, and have the subject property’s expenses been trended to the date of the
appraisal per form HUD-92274 instructions?
17) Does the appraisal identify the estimated operating deficit and replacement reserve
requirements, as defined in the MAP Guide?
I. Specific Requirements for QC Reviews of Section 223(f) appraisals include determination of the
following:
1. Does the appraiser meet the qualification and competence requirements outlined in the MAP Guide?
2. Is the appraisal a narrative self-contained report that is inclusive of and supportive of all required
HUD form Documentation (forms HUD-92264, HUD-92264-A, HUD-92264-T, HUD-92273 and HUD92274)?
3. Does the appraisal have an effective date within 120 days before the date of the submission of the
application?
4. Does the appraisal include the appraiser’s USPAP certification?
5. Did the primary appraiser designated by the Lender and approved by HUD perform the property
inspection and sign the appraisal report and supporting form documentation?
6. Did the appraisal include photographs of the subject, the comparable sales and comparable rentals?
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7. Does the appraisal adequately describe and analyze the geographic area, neighborhood, rental
competition, sales comparables, the site and the subject improvements?
8. Does the appraisal establish the project’s fair market value supported by reconciliation of the cost,
income and sales comparison approaches in accordance with the MAP Guide and Form HUD-92264?
9. Does the appraisal establish a total estimated replacement cost (if warranted due to the age of the
property) and apply all applicable forms of depreciation for use in the final reconciliation process?
10. Does the appraisal identify the “Warranted Price of Land” as defined in HUD Handbook 4465.1 and
the MAP Guide?
11. Does the appraisal identify the “Estimate of Market Rent by Comparison,” as of the appraisal date,
arrayed in the included form HUD-92273 and as defined in the form’s instructions?
12. Does the appraisal include the current rent roll, a statement of current occupancy and does it identify
the project’s estimated potential gross income and stabilized occupancy ratio in the included form
HUD-92264?
13. If commercial facilities are located within the project, does the appraisal include a separate analysis
of the effect the commercial space will have on the project and does the commercial space meet the
income and floor area limitations outlined in the MAP Guide?
14. If any comparables have rent concessions, did the appraisal account for them in the market rental
analysis as required by the MAP Guide?
15. Does the appraisal present at least three years of historic expenses and have the forecasted expenses
been based upon the historic operation of the property supported by at least three expense
comparables arrayed in the included form HUD-92274 and as required by the form’s instructions?
16. Does the appraisal properly update the expense comparables, meet disclosure requirements for the
comparables, and have the subject property’s expenses been trended to the date of the appraisal per
form HUD-92274 instructions?
17. If applicable, does the appraisal identify the estimated operating deficit and replacement reserve
requirements, as defined in the MAP Guide?
J. Specific Requirements for QC Reviews of Market Studies:
1. For the Market Study review, the review appraiser should provide their opinion as to the
completeness of the material under review and determination of the overall compliance with market
study processing requirements and determine the following:
Does the market analyst meet the qualification and competence requirements outlined in the MAP
Guide?
Is the market study a narrative self-contained report?
Does the market study have an effective date within 120 days before the date of submission of the
pre-application or, for a refinancing, within 120 days of submission of the application for a Firm
Commitment?
Does the market study adequately describe and analyze the geographic boundaries and general
characteristics of the market area, specific market conditions, characteristics of projects under
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construction and in the planning stages, and contain a supply and demand estimate and analysis
and estimated absorption time (if applicable)?
Is the market study prepared in accordance with the information supplied by the MAP Lender as
described in the appropriate MAP Guide Appendix?
Is the market study prepared in accordance with the format prescribed in the appropriate MAP
Guide Appendix?
Does the market study include the market analyst’s certification?
Provide the review appraiser’s opinion as to the adequacy and relevance of the market data and
the propriety of any adjustments made to the data.
Provide the review appraiser’s opinion as to the appropriateness of the analysis methods and
techniques used by the market analyst.
Provide the review appraiser’s opinion as to the market analyses, opinions and conclusions.
K. Specific Requirements for QC Reviews of the Architectural Review:
1. For the architectural portion of the QC review of Sections 220, 221(d), 231 or 241, Lender’s
Architectural Analyst review report, determine the following:
Does the Architectural Analyst meet the qualification and competence requirements outlined in
the MAP Guide?
Has the Architectural Analyst determined that the mortgagor’s Architect (or other persons or
organizations providing architectural services) is qualified to provide the design services to the
project and to administer the construction contract?
Review the Owner-Architect Agreement (AIA Document B108); indicate if separate Agreements
are required for design and construction services.
1) Are all necessary services included without deletion?
2) Is the compensation other than a fixed fee?
In review of Architectural Standards, does the Lender’s Architectural Analyst review report
address:
1) HUD minimum property standards?
2) Applicable building codes?
3) Accessibility laws: Fair Housing Act; UFAS (if Section 504 is applicable); 2010 ADA Standards
(if Title II or III of the ADA are applicable)?
4) Energy efficiency?
Does the report address the mortgagor’s A&E exhibits?
1) Are drawings and specs complete and correct?
2) Are utility services available?
In reviewing the experience and qualifications of the General Contractor:
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1) Did the Lender’s Architectural Analyst prepare a written review of the General Contractor?
2) Does the review indicate acceptance?
Did the Lender’s Architectural Analyst perform an IOI review as required by the MAP Guide?
1) Is there a description of any and all IOIs that exist between the owner’s Architect or engineer,
the owner and the General Contractor?
2) Is there a description of any and all IOIs that exist between the General Contractor,
subcontractor(s) and material supplier(s)?
3) If no IOIs exist, is this stated?
Does the site visit report address:
1) Physical features (existing construction, topography, drainage, etc.)?
2) Unusual site conditions, demolition, offsite construction?
3) Environmental conditions/hazards?
In establishing an architectural liaison with the mortgagor’s Architect:
1) Is there a processing record of architectural/engineering actions?
2) Is there an acceptable journal of architectural actions?
3) Is there an organized file of HUD applications, forms and documents?
4) Is there a record of meetings and contacts with the mortgagor’s Architect?
5) Is there clear documentation?
Did the liaison with HUD labor relations staff verify the applicable Davis-Bacon wage rates?
Was there a liaison established with the Lender’s cost analyst?
In reviewing the Firm Commitment architectural/engineering exhibits:
1) Is there a clear and complete exhibit review list?
2) Is there a statement indicating that the Firm Commitment architectural exhibits are
acceptable without condition, and that all deficiencies have been acceptably corrected?
3) Does the report address:
a) Completeness of contract documents?
b) Conformance to local building codes and HUD standards?
c) Accessibility for persons with disabilities?
d) Site design?
e) Building design?
In reviewing the preparation of the architectural portions of form HUD-92264:
1) Is there a form HUD-92264 with all architectural portions complete?
a) Section A – Architectural portions
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b) Section B - Architectural portions
c) Section C - Unit breakdown with net areas
d) Section D - Architectural portions
2) Has the Architectural Analyst signed the form?
In reviewing the report to the Lender’s Underwriter:
1) Has the Architectural Analyst submitted a report on the project to the Underwriter?
2) Does the report contain an analysis of the project?
3) Does the report recommend: acceptance or negotiated changes with the mortgagor or
rejection?
Did the Lender’s Architectural Analyst submit a Standard Certification (MAP Guide Chapter 11,
Section 11.2.3)?
Is there a Design Architect’s Certification (MAP Guide Appendix 5, Section A.5.8)?
For substantial rehabilitation projects:
1) Has the Lender’s Architectural Analyst submitted a report of the Joint Inspection?
2) Does the report indicate that a complete and thorough inspection was conducted on all
features of the project site and on a sufficient number of living units?
3) Has the Lender’s Architectural Analyst prepared a report on the mortgagor’s Architect’s
Detail Work Write-up?
4) Does the report address:
a) All general or specific work requirements?
b) Clarity or vagueness of work requirements?
c) Historic requirements?
5) Has the Lender’s Architectural Analyst indicated whether there are engineering reports?
6) Has the mortgagor been notified of any requirements?
7) Has the exact nature of the engineering report been covered?
8) Were there any special tests, such as seismic resistance in applicable seismic zones?
L. Specific Requirements for QC Reviews of the Lender’s Architectural Analyst review report:
1. Liaison with Lender’s cost analyst. Is there documentation of contacts regarding:
Nature and cost of repairs?
Replacement reserve items?
2. Lender review of property’s Capital Needs Assessment (CNA). Does the Physical Inspection Report
(PIR) address:
Adequacy of number of dwelling units inspected?
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Condition of project?
Repair work write-up?
Critical and Non-critical repairs?
Expected component replacement and major maintenance needs for the near term, long term and
remaining useful life?
Compliance with accessibility laws and standards, including the Fair Housing Act (for projects
designed and constructed for first occupancy after March 13, 1991 built after 3/13/1991); UFAS
(for projects with federal financial assistance); 2010 ADA Standards (for projects that are a
program or activity of a state or local government or a place of public accommodation)?
3. Statement of Resources and Needs. Does the statement address:
Review and possible adjustment to the PIR?
Identification of Critical and Non-critical repairs?
4. Critical repairs. Is there evidence that all Critical repairs have been adequately completed and
inspected?
5. Mortgagor’s exhibits. Note evidence of the following:
Has Lender’s Architectural Analyst prepared a review report of mortgagor’s exhibits?
Does the report indicate whether exhibits are complete and correct?
6. Preparation of architectural portions of form HUD-92264.
addressed:
Note whether the following were
Is there a form HUD-92264 with all architectural portions complete, including:
1) Section A – Architectural portions;
2) Section B - Architectural portions;
3) Section C - Unit breakdown with net areas; and
4) Section D - Architectural portions.
Has the Architectural Analyst signed the form?
7. Report to the Lender’s Underwriter. Note whether the following were addressed:
Has the Architectural Analyst submitted a report on the project to the Lender’s Underwriter?
Does the report contain an analysis of the project?
Does the report recommend acceptance, negotiated changes with the mortgagor or rejection?
8. Has the Lender’s Architectural Analyst submitted a Standard Certification (MAP Chapter 11, Section
11.2.4)
M. Specific Requirements for QC Reviews of the Cost Review.
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1. For the Cost Review of Sections 220, 221(d), 231 or 241 loans, Lender’s Cost Analyst review report:
Did the Lender hire a qualified construction cost estimator with experience in multifamily cost
estimating?
2. A detailed independent cost estimate must provide the following:
Documentation of the method of estimation and data source.
To be summarized on form HUD-92326:
1) Detailed structure(s) and land improvement cost estimates, and costs of any unusual site
development
2) Contractor’s general requirements
3) Contractor’s general overhead
4) Contractor’s profit (for non-BSPRA cases)
5) Architect’s design and supervision fees
6) Bond premium and mortgagor’s and contractor’s Other Fees
7) Onsite demolition costs
8) Offsite improvements costs
9) Project’s Cost Not Attributable (CNA) to dwelling use
10) For sub rehab projects, complete Rehab CNA Worksheet (MAP Guide Appendix 5, Section
A.5.10).
3. Preparation of cost portions of form HUD-92264:
Is there a form HUD-92264 with all cost portions completed?
1) Section G – Cost portions
2) Section M
Has the cost analyst signed the form?
4. Review of form HUD-2328, Contractor’s and/or Mortgagor’s Cost Breakdown:
Is form HUD-2328 complete and signed by all parties?
Has Lender’s cost reviewer prepared a comparison of HUD-2328 and the independent cost
estimate on form HUD-92326?
1) Line item comparison on form FHA-2331-B?
2) Written documentation of resolution of significant differences in Lender’s form HUD-92326
and contractor’s form HUD-2328 cost estimates?
3) Has Lender’s cost reviewer prepared a written recommendation of approval or disapproval
of contractor’s form HUD-2328?
5. Review of the Property Insurance Schedule, form HUD-92329:
Has form HUD-92329 been prepared and signed?
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Is there a backup worksheet indicating how the Insurable Value(s) of the project structure(s)
were determined?
N. Specific Requirements for QC Reviews of the Identity of Interest (IOI) Review should determine the
following:
1. Has the Lender’s cost reviewer been supplied with IOI information by Lender’s architectural
reviewer?
2. For an identified General Contractor:
Does the cost estimate indicate “BSPRA” under Builder’s Profit?
Has the 50-75% rule been applied to determine whether the contractor qualifies for general
overhead and profit or BSPRA, or should it be replaced by the dominant subcontractor?
3. For identified subcontractors and/or material suppliers:
Is there documentation that the IOI subcontract(s) were submitted to HUD for prior approval of
overhead and profit?
If any subcontract(s) were not submitted, has overhead and profit been deleted from the accepted
contract amount?
Have letter(s) of approval/disapproval been prepared for the mortgagor and General Contractor?
O. Specific Requirements for QC Reviews of the Report to the Underwriter should determine the
following:
1. Has the cost analyst submitted a report on the project to the Lender’s Underwriter?
2. Did the report contain an analysis of the project costs?
3. Did the report recommend acceptance, negotiated changes with the mortgagor or rejection?
4. Did the Lender’s cost analyst submit a Standard Certification (MAP Guide Chapter 11, Section 11.2.3)?
P. Specific Requirements for QC Reviews of Substantial Rehabilitation projects should include the
following:
1. Joint Inspection Report and Architect’s detailed work write-up, which should determine the following:
Does the Lender’s cost analyst have a copy of the Joint Inspection report?
Does the Lender’s cost analyst have a copy of the mortgagor’s Architect’s Detailed Work Writeup?
Do the Joint Inspection Report and Architect’s Detailed Work Write-up include Reserve for
Replacement (R4R) items?
Is there an itemized breakdown of R4R items?
Does the breakdown indicate the age and remaining useful life of the R4R items?
2. Detailed Cost Estimate, which should ascertain if the Lender’s cost analyst’s detailed cost estimate
clearly reflect all the scope of work items in the Detailed Work Write-up.:
3. Reserve for Replacement estimate:, which should determine the following:
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Has the Lender’s cost analyst provided an R4R cost estimate?
Is the R4R cost estimate itemized and incorporate the remaining useful life for the R4R items?
Is there a replacement schedule for the R4R items?
Q. Specific Requirements for QC Reviews of Section 223(f) loans should answer or include the following:
1. Are the qualifications of the Cost Analyst and Needs Assessor acceptable?
2. Is there documentation of contacts regarding the CNA?
3. Summary of cost estimate for hypothetical “as new” building:
Documentation of method of estimation and data source.
Summary “bottom-line” cost estimate:
1) Structure(s) and land improvement cost estimates, for hypothetical “as new” building;
2) Contractor’s General Requirements
3) Contractor’s General Overhead
4) Contractor’s Profit
5) Architect’s Design and Supervision fees; and
6) Bond premium and Mortgagor’s and Contractor’s Other Fees.
4. Preparation of cost portions of form HUD-92264:
Is there a form HUD-92264 with all cost portions complete?
1) Section G – Cost portions (hypothetical “as new” costs).
2) Section M must be blank.
3) Are Critical and Non-critical repair costs summarized in Section O?
4) Has the cost analyst signed the form?
5. Review of CNA.
Did the Lender’s cost analyst prepare a written report reviewing:
1) Cost portions of Project Inspection Report (PIR), including the costs of Critical and Noncritical repairs?
2) For all deferred non-Critical repairs, estimate the required escrow amount.
Expected cost of expected component replacement and major maintenance needs for:
1) Near term; and
2) Long term.
Statement of Resources and Needs recommending:
1) Initial Deposit to the Reserve for Replacement, if any;
2) Annual (or monthly) deposit to the Reserve for Replacement (RfR) account; and
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3) Near term replacement schedule indicating annual deposits, itemized expenditures and
remaining funds at the end of each year.
6. Documented advice to Lender concerning the PCNA, which should include:
The Lender’s cost analyst must provide opinions and recommendations for acceptance or change
to the PCNA regarding cost items:
1) Critical and Non-critical repairs; and
2) Funding schedules in near Term and long-Term items in the Reserve for Replacement
account.
7. Property Insurance Schedule, form HUD-9232:
Has the Lender’s cost analyst prepared and signed form HUD-92329?
Is there a backup worksheet indicating how the Insurable Value(s) of the project structure(s)
were determined?
8. Report to Lender’s Underwriter.
Did the cost analyst submit a report on the project to the Underwriter?
Does the report contain an analysis of the CNA?
Does the report recommend acceptance, negotiated changes with the mortgagor or rejection?
9. Has the Lender’s cost analyst submitted a Standard Certification (MAP Guide Chapter 11, Section
11.2.4)?
R. Specific Requirements for QC Reviews of Construction Loan Administration
1. The QC review of the Lender’s construction loan administration must, at a minimum, meet the
following requirements:
Analyze loans for general compliance with the construction loan administration requirements
found in the MAP Guide and MAP FAQs.
Analyze escrow administration to assure that the escrows are properly funded and that the funds
are only used for their intended purposes.
Analyze procedures for collection and recordation of payment receipts, escrow bills,
disbursements from escrow and claim submissions.
Analyze procedures that were used for handling any letters of credit.
Analyze procedures that were used for handling the investment of construction loan escrows.
Analyze the procedures for processing construction loan advances, change orders and notification
of surety, cost certifications and post endorsement escrows.
Analyze any delinquent loans and loans in foreclosure to determine compliance with HUD-FHA
fiscal requirements and procedures, such as timely assignments and extension requests, property
preservation requirements and inspections.
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A.2.2 Identity of Interest Examples
Review any claim submissions on projects that have not reached final endorsement to assure that
all efforts have been exhausted to “work-out” the loan and that all claims are properly
documented, supported and filed in accordance with HUD-FHA requirements.
A.2.2 Identity of Interest Examples
A.2.2.1
MAP Lender’s and Borrower’s Team
A. Example 1. The Borrower’s spouse is an employee of the MAP Lender. A prohibited IOI is created.
B. Example 2. The Management Agent is owned by the Borrower. A prohibited IOI is not created, but
the IOI must be disclosed.
C. Example 3. The General Contractor has an ownership interest in the Borrower. A prohibited IOI is
not created. The relationship must be disclosed, whether or not the loan includes BSPRA (versus Builder
Profit).
D. Example 4. A principal of the Borrower owns 1,000 shares of a large publicly traded bank at $50 per
share. A subsidiary of the bank is acting as the MAP Lender. This is not considered an IOI as the ownership
interest is de minimis.
E. Example 5. A MAP Lender recommends an attorney to Borrowers (as Borrower counsel) to facilitate
closing because of their familiarity with HUD requirements. The attorney has represented the Lender on
other transactions. This is not an IOI, unless the attorney is also advising the Lender on this transaction,
or has a direct financial or family relationship with, or is, an employee or principal of the Lender.
A.2.2.1.1
Secondary Financing Relationships
A. A Bank Holding Company that is an affiliate of the MAP Servicing Lender wants to offer a Borrower a
Letter of Credit to meet the cash requirements of an FHA insured new construction project. This creates
a conflict of interest: during the construction period, the MAP Lender’s responsibility is representing FHA,
not providing credit to meet Borrower cash requirements.
A.2.2.1.2
Bridge Loans and Balance Sheet Loans
A. An affiliate of a MAP Lender made a short-term loan to a Borrower on a property with a cap rate of 3
in a strong market. The market crashed, cap rates went up dramatically and vacancy rates skyrocketed.
The Borrower was not able to pay the debt off when it matured and it was extended indefinitely with a
high interest rate and unpaid amounts accruing. The MAP Lender has a conflict of interest in the
property’s valuation and thus has an IOI. The MAP Lender must disclose the relationship in the
underwriting to COB and particular attention will be paid to the valuation analysis.
A.2.2.1.3
Inducements
A. An IOI is created when there exists or comes into being any side deals, agreements, contracts or
undertakings entered into or contemplated, that would amend, alter, negate or cancel any provision of the
HUD-required closing documents.
MAP Guide, December 2020
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A.2.2.1.4
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Appendix 2 Quality Control Plans and Identity of Interest
A.2.3 MAP Lender Representation and Warranty
Gifts
A. Example 1. A bill at dinner celebrating a closing would not be considered a prohibited gift that could
create an IOI so long as the amount of the bill was customary and typical.
B. Example 2. A Non-Profit Borrower is considering proposals for refinancing their transactions. A MAP
Lender gives a board member of a Non-Profit Borrower an expensive Swiss wristwatch so the Borrower
will be influenced to select the Lender to process the MAP transaction. COB would conclude that this is a
prohibited inducement.
C. Example 3. For Christmas, the principals of a MAP Lender and of a Borrower exchange inexpensive
gifts because they have been friends for 20 years and often do activities together with their families. There
is an exemption for gifts that are clearly demonstrated to be based on a longstanding or purely personal
relationship, which would appear to be the situation here. Factors to be considered are the reciprocal
nature of the relationship, timing and whether the amounts involved are de minimis and typical of social
relationships outside of the industry.
A.2.2.1.5
Charitable Donations
A. Example 1. A $10,000 donation given by the MAP Lender to a charity run by the wife of a principal in
the Borrower’s entity around the time of a project’s application engagement or closing, would be
presumed to create a prohibited IOI. The MAP Lender would have to prove that such an IOI does not exist.
B. Example 2. A MAP Lender donated $5,000 to a charity run by the Borrower 10 years ago. An IOI
would likely not be created.
C. Example 3. A Map Lender donates money to a charitable foundation researching health care or seniors
aging issues. A Non-profit Borrower has a substantial interest in the foundations and its work. The
Lender’s contributions were $2,000 each of the past four years. The Lender intends to continue such
donations. Such a contribution would not be a prohibited IOI.
D. Example 4. A MAP Lender donated $100,000 to a museum. The MAP Lender made no prior donations
to the museum. The museum is a charitable organization in which a principal of the Borrower or one of
their close relations has an active and significant participation as a volunteer, board member or donor.
This would be presumed to create a prohibited inducement and a conflict of interest, which the MAP
Lender would have to prove does not exist.
A.2.3 MAP Lender Representation and Warranty
A.2.3.1.1
Instructions for Representations when the Lender and Syndicator
are Affiliated
A. The MAP Lender’s Representation and Warranty must state:
1. With respect to any tax credit project loan that it will process under MAP:
No officer or employee of _____________________ (insert the name of the affiliated tax credit equity
syndicator or investor) or any director or parent thereof will have any loan-specific or decision
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Appendix 2 Quality Control Plans and Identity of Interest
A.2.3 MAP Lender Representation and Warranty
making control or influence in ________________’s (insert the name of MAP Lender) underwriting of
the MAP loan except by providing factual information to __________________ (insert the name of MAP
Lender) in the same manner as would be provided by an unaffiliated syndicator).
_______________________ (insert name of MAP Lender) will not condition its agreement to provide such
financing on ______________ (insert the name of affiliated tax credit equity syndicator or investor)
being selected as the tax credit equity syndicator or investor for the project to be financed by the
MAP loan.
2. ___________________ (insert the name of MAP Lender) will notify HUD promptly, in writing, during
application processing of any change or event which causes the foregoing Representation or Warranty
to be materially untrue or inaccurate.
“WARNING: Federal law provides that anyone who submits (or causes to submit) a document
containing any false, fictitious, misleading, or fraudulent statement/certification or entry may be
criminally prosecuted and may incur civil administrative liability. Penalties upon conviction can
include a fine and imprisonment, as provided pursuant to applicable law, which includes, but is not
limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802, 24 C.F.R. Parts 25, 28 and 30, and 2 C.F.R.
Parts 180 and 2424. The signatory certifies that the information provided herein is true and accurate.”
B. The MAP Lender’s affiliated tax credit equity syndicator’s or investor’s Representation and Warranty
must state:
1. In the regular course of its business it syndicates or invests in tax credit equity investments in
multifamily affordable housing projects.
2. With respect to any project loan that is to be underwritten by _______________ (insert name of MAP
Lender) and in which _______________ (insert name of affiliated tax credit equity syndicator or investor)
intends to make an equity investment or sell equity to other investors:
No officer or employee _____________ (insert name of MAP Lender) will have any loan-specific
control or influence in _______________’s (insert name of affiliated tax credit equity syndicator or
investor) processing of the Sponsor’s application for tax credit equity syndication or investment
except by providing factual information to ________________ (insert the name of affiliated tax credit
equity syndicator or investor) in the same manner as would be provided to an unaffiliated MAP
Lender.
___________________ (insert the name of affiliated tax credit equity syndicator or investor) will not
condition its commitment to syndicate or invest in the project equity on debt financing for such a
project being provided by _________________ (insert name of MAP Lender).
Except during the interim period prior to the placed in service date during which _______________
(insert name of affiliated tax credit equity syndicator or investor) may make an equity bridge loan
to the project, neither ________________ (insert the name of affiliated tax credit equity syndicator or
investor) nor any affiliate or subsidiary thereof will hold greater than a 25 percent interest in the
99 percent investor limited partnership entity (or an equivalent percentage if owned as an LLC)
of the Borrower.
“WARNING: Federal law provides that anyone who submits (or causes to submit) a document
containing any false, fictitious, misleading, or fraudulent statement/certification or entry may
be criminally prosecuted and may incur civil administrative liability. Penalties upon
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A.2.3 MAP Lender Representation and Warranty
conviction can include a fine and imprisonment, as provided pursuant to applicable law, which
includes, but is not limited to, 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802, 24 C.F.R. Parts
25, 28 and 30, and 2 C.F.R. Parts 180 and 2424. The signatory certifies that the information
provided herein is true and accurate.”
MAP Guide, December 2020
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Appendix 3 Program Specifications and Limitations
A.3.1 Specifications and Limitations by Program
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Appendix 3 Program Specifications and Limitations
A.3.1 Specifications and Limitations by Program
A.3.1.1
New Construction/Substantial Rehabilitation
New Construction/Substantial Rehabilitation
Section of Act (SOA)
220
221(d)(4)
231
241(a)
Minimum # of Units
5
5
8
5
Criterion 3
(maximum % of cost
except as noted)
90% - Projects with 90% or
greater rental assistance.
87% - Projects meeting the
Affordable Housing definition
and for which the achievable
tax credit rents are at least
10% below market.
85% - Market rate projects or
tax credit projects without a
significant rent advantage (i.e.,
achievable rents are at least
10% below market.)
Same as Section
221(d)(4) except
for
Substantial
Rehabilitations,
which will be
controlled by the
applicable
percentage of “as
rehabilitated”
value.
90% of the HUD-estimated
value of the improvements,
additions or equipment.
The cost of the repairs and
transaction costs will be
recognized as the value, so
long as any additional land
purchased or contributed is
no more than the fair
market value (FMV).
Criterion 4
(Statutory Limit on
loan amount per
unit)
Where percentages are required, enter the same
percentage applied under Criterion 3. See Chapter 8
for complete details and the MF Housing website:
The Supplemental Loan,
when
added
to
the
outstanding balance of the
mortgage covering the
project or facility, may not
exceed
the
maximum
Statutory Limit Applicable
to the building and unit type
for the Section of Act (SOA)
under which the existing
first mortgage is insured.
http://portal.hud.gov/hudportal/HUD?src=/program_off
ices/housing/mfh/hicost/hicost on information for per
family unit limits and the high cost percentage (HCP)
by jurisdiction.
Criterion 5
(maximum % of NOI
allowed for debt
service incl MIP)
90% (1.11 DSCR) –Projects with 90% or greater
rental assistance.
87% (1.15 DSCR) –Projects that meet the Affordable
Housing definition and for which the achievable tax
credit rents are at least 10% below market.
85% (1.176 DSCR) –Market rate projects or tax
credit projects without a significant rent advantage
(i.e., achievable rents are at least 10% below
market.)
Minimum
Vacancy
and Collection Loss
Rates
3% - Projects with Housing Assistance Payments (HAP) contracts covering 90% or
more of the units.
5% - Properties meeting at least the minimum LIHTC set aside requirements with
or without income averaging, (20% of the units set aside for tenants earning not
more than 50% of area median income; 40% of the units set aside for tenants
MAP Guide, December 2020
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90% (1.11 DSCR) for
combined debt service.
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A.3.1 Specifications and Limitations by Program
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New Construction/Substantial Rehabilitation
Section of Act (SOA)
220
221(d)(4)
231
241(a)
earning no more than 60% of area median income), and attainable tax credit rents
at least 10% below market.
7% - LIHTC properties with any percentage of units set aside but without a 10%
discount to market; or market rate properties.
Occupancy
Restrictions
Section 231 insured mortgages are restricted to elderly person (aged 62 or older)
and/or persons with disabilities. See Chapter 3, Section 3.5 for definition of
disabled persons.
Age Restricted Projects Not Eligible for Section 220.
Underwritten
Commercial Physical
Occupancy
The lesser of 80% or that is indicated by market.
N/A
Commercial
Limit
Space
25%
25%
25%
25%
Commercial Income
Limit (% of effective
Gross Income)
30%
15%
15%
15%
BSPRA/SPRA
Allowances
⚫
⚫
HUD Application Fee
⚫
⚫
Available for Section 220, 221 and 231 for profit
motivated Borrowers and limited distributions
Borrowers
For Section 231, allowed on New Construction if
no Developer fee; n/a for Section 231 Substantial
Rehabilitation Deals.
BSPRA/SPRA
available.
is
not
$3.00 per $1,000 of required mortgage amount. For market rate projects, one
half of the application fee is due at pre-application and the other half is due with
the application for Firm Commitment.
For affordable projects the entire amount is paid at the Firm Commitment stage,
regardless of whether or not a Pre-Application is filed with HUD. Refer to
Chapter 3, Section 3.1.36. for Application fees for Opportunity Zone projects.
HUD Inspection Fee
$5 per thousand of the mortgage amount for new construction and $5 per thousand
of the total of all improvement costs for substantial rehabilitation. The inspection
fee is no longer calculated on BSPRA and SPRA.
Maximum
Lender
Fees and Charges
3.5% of the mortgage amount, (this calculation may consist of any combination of
origination, financing, and permanent placement fees as long as it also includes the
Lender’s legal fee). Financing and placement fees up to 5.5% are permissible in
bond transactions. Third party costs (e.g., appraisal, market study, capital needs
assessment, and other organization costs) may be included as mortgageable soft
costs in the mortgage calculations and are not included in the limitation on Lender
fees.
A.3.1.2
Refinance/Acquisitions
Refinance/Acquisitions
SOAs
223(f) Refinance
223(f) Acquisition
223(a7)
Minimum # of Units
5
5
8 for Section 231, 5 for all other
programs
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A.3.1 Specifications and Limitations by Program
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Refinance/Acquisitions
SOAs
223(f) Refinance
Criterion 2
N/A
Original principal amount of the
existing insured mortgage that is
to be refinanced (or the sum of the
original principal amount of all
mortgages to be refinanced if two
or more mortgages on one single
property are being refinanced).
Criterion 3
(maximum % of value)
90% -Projects with 90% or greater rental
assistance.
87% -Projects meeting the Affordable
Housing Definition and have achievable rents
10% below market rents.
85% -Market rate projects or LIHTC projects
without a significant rent advantage (i.e., the
achievable rents are at least 10% below
market.)
N/A
Criterion 4
(Statutory Limit on
Loan Amount per unit)
Where percentages are required, enter the
same percentage applied under Criteria 3.
See Chapter 8, Section 8.10.1.A for complete
details and the Multifamily Housing website
for the latest high cost factors:
https://www.hud.gov/program_offices/hou
sing/mfh/hicost/hicost
N/A
Criterion 5
(Maximum % of NOI
allowed
for
debt
service incl MIP)
90% of NOI (1.11 DSCR) –Projects with 90%
or greater rental assistance.
87% of NOI (1.15 DSCR) –Projects that meet
the definition of Affordable Housing and for
which the achievable Tax Credit rents are at
least 10% below market rents.
85% of NOI (1.176 DSCR) -Market rate
projects or tax credit projects without a
significant rent advantage (i.e., the
achievable rents are at least 10% below
market.)
95% of NOI (1.05 DSCR)⚫ Projects with greater than 90%
of units assisted by Projectbased Section 8 rental
assistance (PBRA) and
Cooperative Housing insured
under Section 213
90% of NOI (1.11 DSCR)⚫ All other projects.
Criterion 7
(maximum
%
acquisition cost)
For Acquisition Projects:
90% –Projects with 90% or greater rental
assistance.
87% –Projects meeting the Affordable
Housing Definition and for which the
achievable Tax Credit rents are at least 10%
below market rents.
85% –Market rate projects or Tax Credit
projects without a significant rent advantage
(i.e., the achievable rents are at least 10% below
market.)
N/A
For refinancing, the greater of:
80% of value, allowing cash out if mortgage
amount exceeds actual costs; or
Amount based on the cost to
refinance the existing insured
mortgage and other permitted
of
Criterion 10
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Appendix 3
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223(a7)
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A.3.1 Specifications and Limitations by Program
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Refinance/Acquisitions
SOAs
(actual
cost
or
maximum % of value
for cash out)
223(f) Refinance
223(f) Acquisition
Actual cost of refinancing eligible debt,
repairs and alterations, and loan origination
and closing charges.
223(a7)
debt, permitted repairs, and loan
origination and closing charges.
Cash out is not permitted.
Minimum Vacancy and
Collection Loss rates
3% -Projects with HAP contracts covering
90% or more of the units.
5% -Properties meeting at least the
minimum LIHTC set aside requirements with
or without income averaging, (20% of the
units set aside for tenants earning not more
than 50% of area median income; 40% of the
units set aside for tenants earning no more
than 60% of area median income); and
attainable tax credit rents at least 10% below
market.
7% -Market rate properties or LIHTC
properties with any percentage of units set
aside but without a significant rent
advantage (i.e., the achievable rents are at
least 10% below market.)
Actual Occupancy
Appraised Residential
Physical Occupancy
Based upon operating history and prevailing market conditions (See Chapter 7,
Section 7.5.7 for detailed discussion).
Underwritten
Commercial Physical
Occupancy
The lesser of 90%, the actual occupancy rate of the of the subject or that indicated
by market.
Appraised
Commercial Physical
Occupancy
Based upon operating history and prevailing market conditions.
Commercial
Limit
Space
25%
Existing commercial space only
Commercial Income
Limit (% of Effective
Gross Income)
20%
Existing commercial income only
Repair
threshold
calculations
Total aggregate cost of rehabilitation
(including contingencies or allowances) as
defined in Chapter 5, Section 5.1.2.
Repairs limited to $1,600 per
unit (Refer to Chapter 5, Section
5.1.5.D).
HUD Application Fee
$3.00 per $1,000 of requested mortgage
amount. Refer to Chapter 3, Section 3.1.36
for Opportunity Zone project fees.
$1.50 per $1,000 of requested
mortgage amount.
HUD Inspection Fee
For loans insured pursuant to Section
207/223(f), the inspection fee is the
following:
⚫ $30 per unit where the
repairs/improvements are greater than
$100,000 in total but $3,000 or less per
unit.
⚫ The greater of $30 per unit or 1% of the
cost of repairs or $1,500, where the
No Inspection Fee
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A.3.2 Developer Fees by Program
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Refinance/Acquisitions
SOAs
223(f) Refinance
223(f) Acquisition
repairs/improvements are more than
$3,000 per unit.
⚫ $1,500 where the total
repairs/improvements are less than
$100,000, which may be decreased by the
Regional Center or Satellite Office, if the
Lender elects to take responsibility for the
inspection.
223(a7)
Maximum Lender Fees
and Charges
3.5% of the mortgage amount, this
calculation may consist of any combination of
origination, financing, and permanent
placement fees as long as it also includes the
Lender’s legal fee. Financing and placement
fees up to 5.5% are permissible in bond
transactions.
Third party costs (e.g.,
appraisal, market study, PCNA, and other
organization costs) may be included as
mortgageable soft costs in the mortgage
calculations, and are not included in the
limitation on Lender fees.
See Chapter 18, Section 18.3.7.
A.3.2 Developer Fees by Program
A.3.2.1
Section 223(f) Program
Developer Fees – Section 223(f)
Development Type
Basis for Fee Calculation
Amount
Market
N/A
N/A
LIHTC
Allocation Agency Allowed
Fee
Agency
Limit
RAD - Non LIHTC
Total Budget
RAD - LIHTC
Allocation Agency Allowed
Fee
202 Refinance - Non
LIHTC
Total
Acceptable
Development Cost
202 Refinance
LIHTC
Allocation Agency Allowed
Fee
Agency
Limit
202 Re-Refinance Non LIHTC
N/A
N/A
202 Re-Refinance LIHTC
Allocation Agency Allowed
Fee
Agency
Limit
-
(Note 1)
Not Mortgageable
Fee
10%
Agency
Limit
(Note 2)
Mortgageable/
Non Mortgageable
Mortgageable
Mortgageable
Fee
15%
Mortgageable
Mortgageable
Fee
Mortgageable
Not Mortgageable
Fee
Mortgageable
NOTE 1 - Fee is based on total budget amount (not including acquisition, reserves or Developer fee).
NOTE 2- Acceptable Development cost includes cost of acquisition, rehabilitation, loan prepayment, reserves and
transaction costs.
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A.3.2 Developer Fees by Program
General Notes - For Section 236 or other assisted, non LIHTC Projects, follow general guidelines for Developer fee for both
223(f) and 221(d)(4) loan programs. The 223(a)(7) program prohibits a Developer fee in all cases.
A.3.2.2
New Construction/Substantial Rehabilitation Programs
Developer Fees – New Construction (NC)/Substantial Rehabilitation (SR)
Development Type
Basis
for
Calculation
Fee
Mortgageable/Non
Mortgageable
Market/For Profit Owner
BSPRA
10%
(Note 1)
BSPRA
Mortgageable
Market/
Non-profit
Owner as Single Asset
Mortgagor Entity
Mortgage Amount
8%
(Note 2)
Mortgageable
LIHTC
Allocation Agency
Allowed Fee
Agency Fee Limit
RAD - Non LIHTC
Total Budget
10%
(Note 3)
Mortgageable
RAD - LIHTC
Allocation Agency
Allowed Fee
Agency Fee Limit
(Note 4)
Mortgageable
202 Rehab - Non LIHTC
Total
Acceptable
Development Cost
15%
(Note 5)
Mortgageable
202 Rehab – LIHTC
Allocation Agency
Allowed Fee
Agency Fee Limit
Mortgageable
202
Rehab2nd
Refinance Non LIHTC
N/A
0%
N/A
202 Rehab-2nd Refinance
LHITC
Allocation Agency
Allowed Fee
Agency Fee Limit
Non-Mortgageable
Amount
is
Mortgageable
(so
long as no BSPRA or
SPRA)
General Note: For purposes of this Matrix, NC/SR includes 221(d)(4), 220, 231 NC and, except as to BSPRA, 241(a)
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Appendix 3 Program Specifications and Limitations
A.3.3 Sample Senior Housing Waiver Certification Form
A.3.3 Sample Senior Housing Waiver Certification Form
U.S. Department of Housing
and Urban Development
Office of Housing
Federal Housing Commissioner
Certification of Compliance with the Fair Housing Act
(For use only in conjunction with age restrictions in FHA-insured properties)
Applicant must check appropriate options (i.e., For a refinance, 1; For substantial rehabilitation, 2):
1. Refinance
______ If the application is for a refinance loan, Owner/Borrower certifies that the housing identified in the
application for FHA-insured financing is not required by a HUD program to provide housing to non-elderly
persons (including children and persons with disabilities), and meets all elderly and/or age use
restrictions imposed by the relevant federal, state or local program. In addition, Owner/Borrower
certifies that the housing is operated consistent with the Fair Housing Act, 42 U.S.C. §§ 3601-3619, and its
regulations, 24 C.F.R. parts 100 and 103. Owner/Borrower does not discriminate based on race, color,
religion, national origin, sex, or disability. Owner/Borrower is operating the housing as housing for older
persons, as defined in the Fair Housing Act, 42 U.S.C. § 3607(b)(2), allowing it to exclude families with
children under the age of 18. Owner/Borrower certifies that for at least 3 years the housing in its entirety
has been:
Intended and operated for occupancy by persons 55 years of age or older, pursuant to 42 U.S.C.
§ 3607(b)(2)(C); 24 C.F.R. § 100.304-100.307, specifically:
i.
at least 80% of the occupied units are occupied by at least one person who is 55 years of age
or older, pursuant to 42 U.S.C. § 3607(b)(2)(C)(i); 24 C.F.R. § 100.305; and
ii. the housing facility or community publishes and adheres to policies and procedures that
demonstrate the intent to be housing for persons 55 years or older, pursuant to 42 U.S.C.
§ 3607(b)(2)(C)(ii); 24 C.F.R. § 100.306; and
iii. the housing facility or community complies with HUD’s rules for verification of occupancy,
including conducting and maintaining a record of reliable surveys and affidavits at least once
every two years showing that at least 80% of the occupied units are occupied by at least one
person who is 55 years of age or older, and producing such surveys and affidavits upon
request, pursuant to 42 U.S.C. § 3607(b)(2)(C)(iii); 24 C.F.R. § 100.307.
2. Substantial Rehabilitation
______ If the application is for a substantial rehabilitation loan, Owner/Borrower certifies that the housing
identified in the application for FHA-insured financing is not required by a HUD program to provide
housing to non-elderly persons (including children and persons with disabilities), and meets all elderly
and/or age use restrictions imposed by the relevant federal, state, or local program. In addition,
Owner/Borrower certifies that the housing is operated consistent with the Fair Housing Act, 42 U.S.C. §§
3601-3619, and its regulations, 24 C.F.R. parts 100 and 103. Owner/Borrower does not discriminate
based on race, color, religion, national origin, sex, or disability. Owner/Borrower operates the housing as
MAP Guide, December 2020
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A.3.3 Sample Senior Housing Waiver Certification Form
housing for older persons, as defined in the Fair Housing Act, 42 U.S.C. § 3607(b)(2), allowing it to exclude
families with children under the age of 18. Owner/Borrower certifies that for at least 3 years the housing
in its entirety has been:
Intended and operated for occupancy by persons 55 years of age or older, pursuant to 42 U.S.C.
§ 3607(b)(2)(C); 24 C.F.R. § 100.304-100.307, specifically:
i.
at least 80% of the occupied units are occupied by at least one person who is 55 years of age
or older, pursuant to 42 U.S.C. § 3607(b)(2)(C)(i); 24 C.F.R. § 100.305; and
ii. the housing facility or community publishes and adheres to policies and procedures that
demonstrate the intent to be housing for persons 55 years or older, pursuant to 42 U.S.C.
§ 3607(b)(2)(C)(ii); 24 C.F.R. § 100.306; and
iii. the housing facility or community complies with HUD’s rules for verification of occupancy,
including conducting and maintaining a record of reliable surveys and affidavits at least once
every two years showing that at least 80% of the occupied units are occupied by at least one
person who is 55 years of age or older, and producing such surveys and affidavits upon
request, pursuant to 42 U.S.C. § 3607(b)(2)(C)(iii); 24 C.F.R. § 100.307.
(Type or clearly print the following information):
Owner/Borrower:
Project Name:
Location of the Project:
Section of the Act under
which FHA Insurance is
sought:
BY: Signature:
Authorized Agent:
Title:
Date:
Warning: Any person who knowingly presents a false, fictitious, or fraudulent statement or claim
in a matter within the jurisdiction of the U.S. Department of Housing and Urban Development is
subject to criminal penalties, civil liability, and administrative sanctions.
MAP Guide, December 2020
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A.3.4 Senior’s Housing: Definitions
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A.3.4 Senior’s Housing: Definitions
Term
Definition for Guidance Purposes (See Chapter 3, Section 3.11)
MixedPopulation
An occupancy scheme allowing for heads of household who are either 62 years of age or
older or non-elderly persons with disabilities. Used in the context of the age threshold
eligibility waiver for FHA refinancing.
Elderly
A general term referring to persons or households headed by persons who are over age
55 or 62, depending on the context of the reference.
“62+ HOH”
Refers specifically to households in which at least one person is or must be age 62 or
older and may include children. Properties operating under statutes or regulations
defining “elderly family” as 62+HOH cannot exclude families with children in their
admission and occupancy policies. “HOH” refers to “head of household” as shorthand,
but should be understood to encompass a head, co-head, or spouse member of the family,
any of whom are age 62 or older.
62+
restriction
“62+”
“55+”
ageand
Refers to restrictions imposed by statute or regulation that define “elderly person” as a
person who is 62 years of age or older, whereas the term “62+ HOH” refers to the
applicable definition of “elderly family.” When used in the guidance, these terms are
merely meant to convey that the applicable age restriction is 62 years of age or older
without conveying whether the property in question may exclude children in admission
and occupancy policies.
Refers specifically to properties or occupancy schemes that intend to limit eligibility to
households that meet the requirements of the Fair Housing Act’s exemption for persons
age 55 and older.
A.3.5 Details Required in Relocation Plans
A.3.5.1
Qualifications of Relocation Consultant
A. Given the importance of implementing tenant relocation properly and on schedule, and the risk to
tenants and the construction schedule if there is a failure to meet relocation obligations, a qualified
independent relocation consultant should be hired to plan, manage, and implement relocation of tenants.
B. If the Sponsor has a qualified relocation consultant on staff, the Sponsor may submit their experience
and qualifications to the Lender and HUD for consideration. To be approved, their experience, skills, and
credentials must be equivalent to a third-party relocation consultant. The relocation consultant shall have
a proven track record of successfully relocating residents and must exercise independent professional
judgment concerning the displacing effects of project activities on tenants both able bodied and those with
special needs.
C. Depending on the size and scope of the relocation, the relocation consultant must designate a relocation
liaison to be the point of contact at the property for tenants during relocation and rehabilitation. If
experienced, the liaison may be the property manager. The resident liaison and/or the relocation
consultant must attend the construction site meetings to facilitate communication and coordination.
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A.3.5 Details Required in Relocation Plans
Relocation Plans
A. The relocation plan must address specific details, schedule, funding, and management of the relocation
of residents. At the time of the loan application submission, a plan developed by a qualified relocation
consultant must be submitted for the Lender and HUD’s initial review and approval. After the Firm
Commitment is issued and prior to the Closing, final minor adjustments to the plan, schedule, or budget
may be considered.
B. For a relocation plan to be reliable and acceptable, it must adequately address and include the following
elements:
1. Communication: The plan must describe how the owner and/or property management will establish
and maintain timely and effective communication with the tenants and exactly who will be
responsible for such communications, both messages or announcements, to all tenants or groups of
tenants as well as one-on-one meetings or interviews with tenants. In addition, the plan must show
the form and manner of any notices, advisories or agreements proposed as a means of documenting
the information communicated to and received by tenants and tenants’ responses, or agreements
related to the date, time, and duration of displacement and tenant’s acceptance of owner provided
services or accommodations or tenant’s discretionary choice of alternative accommodations.
2. Resident Interviews: The plan must have specific information about the resident’s needs (medical,
disability, pets), based on up-to-date one-on-one interviews with the residents performed by the
relocation consultant. The plan must explain how these needs will be met.
3. Packing, Moving and Storage: The plan must describe how and who is responsible for any packing,
moving, and storage. A professional moving company that can be relied on to meet the relocation
schedule and having the appropriate workers compensation and damage and loss insurance, is
required.
4. Move-Out and Move-In Inspections: The plan must describe who on the relocation consultant’s
team will perform the move-out and move-in inspections to make sure the unit is ready for the
Contractor to begin work, and then ready for the tenant to return once work is complete.
5. Relocation Schedule: The plan must include a relocation schedule identifying which residents are
moving out or into which specific units and when. A detailed relocation schedule with specific dates
for each unit, sequenced and coordinated with the Contractor’s Construction Schedule, is required.
This schedule is required whether residents are relocated on site (in “vacant units”), offsite in a hotel,
or other offsite locations.
The relocation schedule must identify when (date & time) the units to be rehabilitated (by unit
number), and when any other common or project areas, will be turned over to the Contractor –
for their control and performance of the work. The schedule must also show when the units will
be inspected and reoccupied after rehabilitation by the Contractor is complete.
The relocation schedule and the construction schedule must be reviewed by the Lender to assure
that they are coordinated. Prior to closing, the Lender must provide a written acceptance by the
Contractor of the owner’s relocation schedule with a dated copy of the relocation schedule
attached to the letter.
The final approved relocation schedule, along with the final approved construction schedule, must
be attached to and made part of the relocation escrow agreement (see below).
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A.3.5 Details Required in Relocation Plans
6. Security and Safety: The plan must provide adequate security and safety during construction.
Typically, the Contractor is responsible for and focused on the safety and security of the property,
materials, equipment, employees, and subcontractors during construction. However, for construction
in occupied properties, the Owner is responsible for the security of tenants. Accordingly, safety and
security of tenants and their personal property must be addressed in the relocation plan. The
relocation plan should describe a comprehensive approach to tenant safety and security (appropriate
to the property location) in addition to measures normally provided. The relocation consultant
should be knowledgeable of the actual condition and safety of the premises for any housing or lodging
accommodations recommended to or arranged for displaced tenants. Such housing or lodging
accommodations must be decent, safe, and sanitary.
7. Claims and Complaints Procedures: The plan must describe how tenant claims or complaints, and
any damage to personal items, will be addressed in a timely manner.
8. Reimbursement Procedures: The plan must include the procedures for timely reimbursement to
tenants for per diem rates, all reasonable out of pocket expenses necessary to meet special needs of
tenants resulting from displacement, including but not limited to packing, moving, storage,
transportation, or increased housing costs. Reimbursement for relocation expenses must coincide
with the relocation and construction draw schedules.
9. Elderly Housing & Disabled: Temporary relocation of elderly or disabled residents and families
with young children must avoid unnecessary stress and protect their wellbeing, health, and safety.
The degree of the resident’s expressed preference to stay in the units during construction, while
considered, are not the only or principal indicators of the impact of the scope of rehabilitation
work on tenants. Rather, the qualified independent relocation consultant must objectively
evaluate the impacts of the scope of the work on the residents, and make determinations based
principally on resident safety and wellbeing.
The HUD Minimum Property Standards (MPS) requires elevators in housing of three stories or
more that serve the elderly. The resident relocation plan must take this into account and make
sure the elevator operation is maintained for the residents throughout the rehabilitation (and if
not, relocate the residents). The duration of the elevator outage based on the scope of the upgrade
or repairs, the identification of residents impacted and their relocation, need to be addressed well
in advance of construction by the development and relocation teams.
A.3.5.3
Resident Relocation Budget and Escrow
A. An acceptable relocation plan must provide accurate costs of the relocation. These costs are then
included in the loan and used to establish a relocation budget. The relocation plan and budget must align
with the approved relocation and construction schedule and both must be attached to the Relocation
Escrow Agreement (see Appendix 3, Section A.3.6).
B. Adequate budgets will ensure that the Lender will have enough funds to perform the planned
relocation should the owner fail to perform and prevent construction delays. Establishing accurate timing
and amount of costs of relocation is critical because if the relocation escrow becomes unbalanced or
proves insufficient to cover costs, the owner must fund any shortfall.
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Appendix 3 Program Specifications and Limitations
A.3.6 Tenant Relocation Escrow Agreement (guide form)
Resident Relocation – Implementation & Reporting
A. The relocation consultant is the lead for organizing and implementing the relocation plan. The
consultant must plan, manage, and implement the relocation of the tenants. The relocation plan and
schedule are reviewed during the HUD preconstruction conference. The HUD Inspector must report in
their HUD Trip Report the status of the approved relocation plan and schedule, the performance of the
relocation consultant, and sign the relocation escrow requests before the Lender submits them to HUD
for approval.
B. The Supervisory Architect and the HUD Inspector must report any delays to the construction schedule
in their Field Report/Trip Report respectively, including those resulting from lack of access to the units
or spaces to perform prescribed work due to the owner’s failure to relocate tenants in accordance with
the approved relocation schedule.
C. The Lender shall monitor these reports. If the tenant relocation is not adequately performed or is off
the relocation schedule, then the Lender must immediately notify HUD, promptly address these
performance problems with the owner, and work to get the relocation back on schedule.
A.3.6 Tenant Relocation Escrow Agreement (guide
form)
THIS TENANT RELOCATION ESCROW AGREEMENT entered into as of the ___ day of __________ by and
between _____________ (hereinafter called the “Borrower”); and ______________ (hereinafter called the
“Lender”).
W I T N E S S E T H:
WHEREAS, the Lender has made a mortgage loan to the Borrower in the original principal amount of
$________________ (hereinafter called the “Loan”), which Loan is insured by the Secretary of Housing and
Urban Development acting by and through the Federal Housing Commissioner (“HUD”) for the purpose
of refinancing and renovation or financing the acquisition and/or rehabilitation or renovation of a
multifamily housing rental apartment project known as “_______________” and located at
___________________________ (the “Project”) in the city and state of ________________________________; and
WHEREAS, on _________________, HUD issued a certain Commitment for Insurance or Commitment for
Insurance of Advances (as amended, the “FHA Commitment”) to insure the Loan under Section _______ of
the National Housing Act, as amended, pursuant to which FHA Commitment the Borrower is required to
provide from either its own funds and/or from loan proceeds a deposit with the Lender in the amount of
$_____________ to meet the cost of providing relocation services and other appropriate activities for tenants
of the Project (the “Relocation Deposit”) in accordance with the Relocation Plan attached as Exhibit “A”
hereto and made a part hereof (the “Relocation Plan”); and
WHEREAS, the Borrower has executed and delivered to the Lender a certain HUD Multistate Note (the
“Note”) in the principal amount of the Loan, a Multifamily Deed of Trust, Assignment of Leases and Rents
and Security Agreement (the “Mortgage”) securing the Note, a Regulatory Agreement, and certain other
agreements, documents and certificates (which Note, Mortgage, Regulatory Agreement, agreements,
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A.3.6 Tenant Relocation Escrow Agreement (guide form)
documents and certificates are hereinafter collectively called the “FHA Loan Documents”) in connection
with the Initial/Final Endorsement by HUD of the Note; and
WHEREAS, in order to induce the Lender to advance proceeds of the Loan and HUD to insure the Loan,
the Borrower provided said Relocation Deposit and Relocation Plan.
NOW, THEREFORE, in consideration of the foregoing, the terms, covenants and conditions set forth
herein, and other good and valuable considerations, the receipt and sufficiency of which is hereby
mutually acknowledged, the parties agree as follows:
1. In order to establish the Relocation Deposit, the Borrower has furnished or caused to be furnished to
the Lender cash in the amount of $______________ (the “Escrow Fund"), the receipt of which is hereby
acknowledged by the Lender. The Escrow Fund shall be held by the Lender for application or release
as hereinafter set forth.
2. The Escrow Fund shall be held by the Lender for a period beginning on the date hereof until the date
of completion of construction at the Project (as such date of completion may be extended by the
Lender or HUD, the “Escrow Period”). Upon the expiration of the Escrow Period, any balance
remaining in the Escrow Fund may be allocated with HUD’s approval to meet other program financial
requirements when funds available for such purposes have been exhausted. Thereafter any further
balance remaining which was not funded from mortgage proceeds shall be returned to the Borrower
and any additional remainder that was funded from mortgage proceeds shall be deposited into the
Project’s replacement reserve account. If the Relocation Deposit consisted of both the Borrower’s
funds and loan proceeds, then the Borrower’s funds shall be deemed as first used or disbursed.
3. Subject to the provisions of Paragraph 6 hereof, the Escrow Fund may be disbursed for meeting the
cost of providing certain relocation costs and other appropriate programs to residents of the Project
according to the Relocation Plan. In connection with any request by the Borrower for disbursement
of the Escrow Fund, the Borrower shall provide such documentation and information as the Lender
and HUD may require. Further, and to the extent the Lender deems it necessary, all disbursements
shall be subject to receipt by the Lender of satisfactory documentation evidencing HUD’s approval.
4. Any portion of the Escrow Fund consisting of cash shall be maintained in one or more accounts
insured or fully guaranteed as to principal by the United States of America, shall at all times be under
the control of the Lender, and shall be held by the Lender in a manner that conforms to standards
established by HUD.
5. This Agreement is entered into by the parties hereto for the benefit of the Lender (or any subsequent
holder of the Note) and HUD, either of which shall have the right to act as Depository and/or enforce
the provisions hereof.
6. The Escrow Fund shall be subject to immediate application to the mortgage debt in the event of a
default under the Note or Mortgage at any time prior to the expiration of the Escrow Period; provided,
however, that the Escrow Fund shall be subject to the control and direction of HUD in the event that
the Lender submits a claim to HUD for the payment of insurance benefits.
7. In the event of any conflict or inconsistency between this Agreement and the FHA loan documents,
rules, regulations, and administrative procedures, the FHA loan documents, rules, regulations, and
administrative procedures shall govern and be controlling.
8. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
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A.3.6 Tenant Relocation Escrow Agreement (guide form)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereinabove first
written.
[SIGNATURE PAGE]
(Type or clearly print the following information):
Owner/Borrower:
Project Name:
Location of the Project:
Section of the Act under
which FHA Insurance is
sought:
By Signature:
Authorized Agent:
Title:
Date:
Warning: Any person who knowingly presents a false, fictitious, or fraudulent statement or claim
in a matter within the jurisdiction of the U.S. Department of Housing and Urban Development is
subject to criminal penalties, civil liability, and administrative sanctions.
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A.3.6 Tenant Relocation Escrow Agreement (guide form)
EXHIBIT “A”
RELOCATION PLAN
INTENTIONALLY LEFT BLANK
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A.3.7 Opportunity Zone Map Locations
A.3.7 Opportunity Zone Map Locations
A. Lenders must provide a screen shot or other photo options that would capture a picture of the property
address located in the designated opportunity zone. Community Development Financial Institute (CDFI)
maintains a list of all of the designated opportunity zones. The CDFI has an interactive map of the
designated opportunity zones and a user guide for navigating the geographical map to locate a specific
property address.
B. For each property located in a qualified opportunity zone census tract, the Lender must submit a
picture to capture the property’s address and the eleven-digit census tract number. The tab that indicates
a YES for the census tract is a qualified opportunity zone.
C. The Lender may be able to capture the census tract name and the property address on the same tab,
otherwise it may require two separate tabs to capture the property address and the corresponding
qualified census tract number.
D. For Opportunity Zone locations refer to the following link: https://opportunityzones.hud.gov/
A.3.8 Affordable & Green MIP Rate Categories
A.3.8.1
General
A. FHA’s Mortgage Insurance Premium (“MIP”) rate categories changed under a final rule published in
the Federal Register dated March 31, 2016. The rule reduced MIP rates for projects meeting Broadly
Affordable Housing, Affordable Housing, and Green and Energy Efficient Housing definitions. These rate
categories aim to preserve and increase affordable, quality rental housing across the country by
encouraging capital financing of affordable and energy-efficient apartments. The effective date was April
1, 2016 for firm commitments issued or reissued. The definition of these categories and the corresponding
MIP rates are as follows:
A.3.8.2
Broadly Affordable Housing
A. Annual MIP is 25 basis points for all multifamily FHA-insured loan types that meet the criteria in this
section.
B. These projects must either:
1. Have at least 90 percent of units covered by a Section 8 Project Based Rental Assistance (PBRA)
contract or other federal rental assistance program contract serving very low-income residents, with
a remaining term of at least 15 years; or
2. Have at least 90 percent of units covered by an affordability use restriction under the Low Income
Housing Tax Credit (LIHTC) program or similar state or locally sponsored program, with achievable
and underwritten tax credit rents at least 10 percent below comparable market rents, and with a
recorded regulatory agreement in effect for at least 15 years after final endorsement and monitored
by a public entity.
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A.3.8 Affordable & Green MIP Rate Categories
C. To ensure that the benefits of these MIP rates directly benefit the affordable housing properties and
residents, Lenders submitting applications for loans using this MIP rate are limited in the total loan fees
they may charge on any loan greater than $2 million, to no more than 5 percent of the insured loan amount.
Loan fees include: (a) origination and placement fees as permitted by this MAP Guide; plus (b) trade profit,
trade premium, or marketing gain earned on the sale of the Government National Mortgage Association
(GNMA) security at a value above par, even if the security sale is delayed until after endorsement, minus
(c) loan fees applied by the Mortgagee to its legal expenses incurred in connection with loan closing.
However, Section 223(a)(7) applications are exempt from the Lender fee limitation to the extent that
trade premium is used to offset prepayment penalties on the existing insured loan.
D. Owners of properties that fall under the category of Broadly Affordable with voucher holding residents
must continue to accept vouchers. There is no requirement to sign a rider in this instance.
E. For Section 220, 221(d)(4) or 223(f) loans, the appraisal should evidence the market rents and confirm
the achievable Tax Credit results used in underwriting are at least 10% below comparable rents.
F. For a Section 223(a)(7) LIHTC refinance where there is no project-based Section 8 rental assistance, a
Rent Comparability Study is required including a form HUD-92273-S8 completed by an appraiser retained
as a third-party professional by the Lender. If the project is both LIHTC and Section 8 rental assisted, then
the requirements of the HAP contract or its renewal or amendment govern whether a Rent Comparability
Study is required.
A.3.8.3
Affordable Housing
A. Annual MIP for this category is 35 basis points for all multifamily FHA-insured loan types. To qualify,
the property must provide a set-aside of affordable units that meets one of the definitions below, and
agree to accept voucher holders.
1. Inclusionary Zoning, Density Bonus Set-asides, and Other Local Affordability Restrictions: Property
owners shall submit with the FHA mortgage insurance application evidence of a deed covenant or
housing ordinance on “inclusionary zoning” at the subject property to evidence the requirement for
affordable unit set-asides. A minimum of 10 percent of the units must be affordable to, at most, a
family at 80 percent AMI, with rents sized to be affordable at 30 percent of the income at that level.
The affordability set-aside must be on site, in effect for at least 30 years after final endorsement of the
FHA-insured mortgage, be monitored by public authority, be recorded in a regulatory agreement
addressing both the affordability requirements and on-going public authority monitoring, and must
be approved by the locality consistent with the specific zoning or local ordinances enacted to require
or support affordable multifamily housing.
For an owner to meet the public authority monitoring requirement, the owner should negotiate the
monitoring capability with the local Housing Authority and/or the local municipality that administers
the affordability restriction. This agency must provide the owner with formal written documentation
describing its agreement to monitor the property, which is then included in the recorded regulatory
agreement. A description of this arrangement must be provided in the Underwriter Narrative.
2. Project has between 10 percent and 90 percent of units covered by a Section 8 PBRA contract or other
state or federal rental assistance program contract serving very low-income residents, with a
remaining term of at least 15 years.
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A.3.8 Affordable & Green MIP Rate Categories
3. Project has between 10 percent and 90 percent of units covered by an affordability use restriction
under the Low Income Housing Tax Credit program or similar state or locally sponsored program,
with rents sized at no greater than 30 percent of the income eligible for occupancy under the Low
Income Housing Tax Credit program, with a recorded regulatory agreement in effect for at least 15
years after final endorsement and monitored by a public entity.
B. Any project that is neither subject to a LIHTC affordability restriction nor a Section 8 HAP Contract but
is subject to another federally-based affordable use agreement must meet or exceed the LIHTC
affordability requirements for not less than 10% up to 90% of the units.
C. The project owner must also agree to accept voucher holders under the Section 8 Housing Choice
Voucher program or other federal program voucher holders as residents for vacancies in units not
covered by project-based Section 8.
D. There is no affordable rent advantage evidence required, and Lender fees are not constrained by this
category’s requirements.
A.3.8.4
Green and Energy Efficient Housing
A. Green and Energy Efficient Housing has an annual MIP rate category of 25 basis points and applies to
projects committed to industry-recognized green building standards coupled with a commitment to
demonstrate continuing performance with an ENERGY STAR® score of not less than 75.
B. Detailed requirements for meeting the green building standard certification requirement and the
continuing performance requirement for this MIP Rate are described in MAP Guide Chapter 6.
C. To ensure that the benefits of this MIP rate directly benefit the properties and residents, Lenders
submitting applications for loans using this MIP rate are limited in the total loan fees they may charge on
any loan greater than $2 million, to no more than 5 percent of the insured loan amount. Loan fees include:
(a) origination and placement fees as permitted by this MAP Guide; plus (b) trade profit, trade premium
or marketing gain earned on the sale of the Government National Mortgage Association (GNMA) security
at a value above par, even if the security sale is delayed until after endorsement; minus (c) loan fees
applied by the Mortgagee to its legal expenses incurred in connection with loan closing. However, Section
223(a)(7) applications are exempt from the Lender fee limitation to the extent that trade premium is used
to offset prepayment penalties on the existing insured loan.
A.3.8.5
Calculating Upfront or Capitalized MIP
A. The upfront capitalized and annual MIP rate is applied to the full loan amount. Lenders and Borrowers
will calculate the appropriate MIP based upon the affordability/green and energy efficient standards
applicable to each specific project. The basis for the use of the selected MIP must be described in the
Underwriting Narrative.
B. Refer to the Federal Register Final Rule FR-5876-N-03, issued March 31, 2016, which describes the
upfront or capitalized MIP basis points per program type.
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Appendix 3 Program Specifications and Limitations
A.3.8 Affordable & Green MIP Rate Categories
Documentation Requirements
A. Form HUD-92013-D is a required document for any application proposing MIP rates for Broadly
Affordable, Affordable, and Green and Energy efficient housing. The purpose of the form is for the
Borrower to certify that it will comply with the qualifying requirements for the selected MIP category.
The Borrower’s election of one of these MIP rate categories and methods for meeting the specific
requirements should be described in the Underwriters Narrative.
B. In addition, at or before endorsement the Borrower must execute the Consolidated Certifications.
Included in the certification for the Affordable MIP rate category is a further requirement that the
Borrower execute a rider to the FHA Regulatory Agreement in a form acceptable to HUD evidencing the
Borrower’s agreement to accept Section 8 vouchers for the life of the Regulatory Agreement.
C. Any applicant for the Green and Energy Efficient Housing MIP rate category must execute a different
rider, form HUD-92466-R5, which details requirements for future achievement and delivery of an
identified green building certification as well as the requirements for demonstrating continuing
performance. (See MAP Guide Chapter 6.)
A.3.8.7
Other Considerations
A. Some properties may qualify for more than one MIP rate category, but Borrowers must elect only one
and must conform to the requirements of the category selected.
B. For Section 241(a) supplemental loan applications where the Borrower selects an MIP rate category,
the requirements associated with the selected category apply to the entire property notwithstanding
whether the intended use of the supplemental loan proceeds is limited to an addition, or some portion
rather than the whole of the property.
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Appendix 4 Application Processing Documents
A.4.1 General Application Submission Instructions
Appendix 4 Application Processing Documents
A. Appendix 4 provides application checklists and submission protocols for FHA multifamily mortgage
insurance program (excluding Risk Share programs) applications and concept meetings. Appendix 4 also
provides a sample MAP Invitation Letter, Firm Commitment templates, and instructions for requesting an
FHA Project Number and paying Multifamily program fees on the Pay.gov website.
A.4.1 General Application Submission Instructions
A.4.1.1
Application Submission Instructions
A. HUD is currently developing an online portal that will soon be used for electronic submissions of
applications and other documents to HUD. A Mortgagee Letter with details and revised application
submission instructions will be issued when the portal is ready for implementation. Until then, the
instructions in Appendix 4 should be followed.
B. All pre-applications and Firm Commitment applications submitted under Multifamily Accelerated
Processing (MAP) or Traditional Application Processing (TAP) must follow the below submission
protocol:
1. One electronic copy on a removable USB flash drive (encrypted, if possible) must first be submitted
via mail to the appropriate HUD Office
C. Once the application has been screened for completeness, accepted into processing, and assigned to a
HUD Underwriter, the HUD Office will provide instructions for mailing the following supplemental hard
copies:
1. One complete original
2. One additional hard copy with a separately-bound mortgage credit package
A.4.1.2
Application Exhibit Checklists
A. All MAP and TAP applications under Section 223(f), 223(a)(7), and the New Construction/Substantial
Rehabilitation programs must use the applicable application exhibit checklist below.
A.4.1.2.1
Instructions for Using the Checklists
A. Please indicate whether each application exhibit is included in the application or not applicable (N/A)
by placing a checkmark in the appropriate column. If the N/A column is grayed-out, that exhibit is
required for applications under that program and phase and must be submitted. For exhibits specified as
N/A by the Lender, please also place a filler page labeled “N/A” in that tab in the original and hard copy of
the application.
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Appendix 4 Application Processing Documents
A.4.2 Section 223(f) Refinance/Acquisition Checklists
Tabs and File Names
A. The original and hard copy of the application should be tabbed according to the tab numbering protocol
on the applicable checklist below. The electronic copy should also be organized with a folder structure
matching the tab numbering system.
B. Create as many additional Section 5: Mortgage Credit folders as needed for Principals, the General
Contractor, and/or Management Agent, and include the entity’s or individual’s name in the folder name.
C. Electronic files for each exhibit should be named according to the file naming convention specified in
the checklist (see the “File Name” column). If additional files must be included, please follow the
guidelines below for file names:
1. Use no more than 40 characters;
2. Avoid using special characters (e.g., \ / : * ? " < > | # { } % ~ &);
3. Avoid using spaces; use an underscore (“_”) or hyphen (“-“) instead;
4. Avoid adding the FHA # to the file name, as it only adds characters.
D. For example: Instead of “Tab 1-2.A. HUD-92013-A Lender’s Underwriter’s Narrative 171-22000” (65
characters), use “1-2A_LndrNarr” (only 13 characters).
E. See below in each section for screenshots of the checklist. Microsoft Excel versions of the below
application checklists can be downloaded at:
https://www.hud.gov/program_offices/administration/hudclips/guidebooks/hsg-GB4430.
A.4.1.3
Concept Meeting Checklists
A. Concept Meetings are discussed in Chapter 4. If a Concept Meeting is required or requested, use the
below Concept Meeting Checklists and follow the HUD Office’s instructions for submitting the required
Concept Meeting exhibits.
A.4.2 Section 223(f) Refinance/Acquisition Checklists
A.4.2.1
Concept Meetings
A. The following information/exhibits must be included in all Section 223(f) Concept Meeting packages:
1. HUD-92013 “Application for Multifamily Housing Project”, completed to the extent possible;
2. Project name and address;
3. Number of units (market-rate and affordable);
4. Section of the Act and activity (refinance or acquisition);
5. Projected mortgage amount;
6. Mortgage term and estimated remaining economic life;
MAP Guide, December 2020
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Appendix 4
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Appendix 4 Application Processing Documents
A.4.2 Section 223(f) Refinance/Acquisition Checklists
7. Basic information on developer and principals;
8. Management company;
9. Previous HUD experience;
10. Geographic location with map;
11. Photographs of the subject and immediate surroundings;
12. Actual and effective property age, class;
13. Physical condition (CNA e-Tool not required at this point);
14. Prior/proposed renovations (per unit cost);
15. Discuss eligibility for Section 223(f) versus substantial rehabilitation;
16. Amenities;
17. Existing debt/cash out;
18. Current occupancy (physical/economic);
19. Income and expenses;
20. Green/sustainability issues;
21. General market conditions, competitive properties and comparable;
22. Environmental issues;
23. Actual/potential risks and mitigating factors;
24. Any anticipated waiver requests.
A.4.2.2
Firm Applications
A. The following checklist should be used for all Section 223(f) Firm Applications:
Project Name:
FHA Project #:
Section 223(f) Refinance/Acquisition
Firm Application Exhibit Checklist
Tab No. Exhibit Name
Section 1: Underwriting
1-1. A.
Application Fee Pay.gov Receipt
B.
Transmittal Letter
C.
Completed Application Exhibit Checklist
1-2. A.
HUD-92013-A Lender’s Underwriter’s Narrative
B.
Lender Due Diligence Certification
C.
Lender’s Certification Regarding Lobbying (24 CFR Part 87
Appendix A), and Disclosure Form (Appendix B), if applicable.
D.
Lender Identity-of-Interest Disclosure
E.
HUD-92013-C FHA Summary Report (Excel)
1.3. Lender’s Underwriting HUD Forms
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
Page A4-3
File Name
Incl.
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TrsLtr
Chklst
LndrNarr
LndrCert
LndrByrdCert
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Appendix 4 Application Processing Documents
A.4.2 Section 223(f) Refinance/Acquisition Checklists
Section 223(f) Refinance/Acquisition
Firm Application Exhibit Checklist
Tab
No.
A.
B.
C.
Exhibit Name
HUD-92013 Application for Multifamily Housing Project
HUD-92013-D Reduced MIP Certification
HUD-92264 Multifamily Summary Appraisal Report (Lender’s
version)
D.
HUD-92264-A Supplement to Project Analysis
1. List of Borrower’s Other Fees
1-4. Wavier Requests
A.
HUD-2 Request for Wavier
B.
Supporting Documentation
1-5. Miscellaneous/Other Underwriting Documents
Section 2: Third Party Reports
2-1. Appraisal Report with Supporting Forms (HUD-92273 & 92274)
(Appraiser’s version)
A.
Hud-92264-T Rent Estimates for Low/Moderate Income
Units, if applicable
2-2. Market Study, if required
2-3. Environment Review
A.
HUD Environmental Review Online System (HEROS)
Submission Confirmation Email
B.
Phase I Environmental Site Assessment (ESA)
C.
Phase II ESA, if applicable
2-4. Capital Needs Assessment (CNA)
A.
CAN e-Tool Submission Confirmation E-Mail
B.
Plans and Specifications, if required
C.
Relocation Plan, if applicable
2-5. Specialty Reports, if any
Section 3: Management Agent
3-1. Organizational Chart (only if Identity-of-Interest)
3-2. HUD Management Forms
A.
Resume of Management Agent including Schedule of Managed
Properties
B.
HUD-9832 Management Entity Profile
C.
HUD-9839-A, B, or C Certification
D.
Management Plan and Sample Lease
E.
Management Agreement
F.
Evidence of Fidelity Bond Insurance
3-3. Miscellaneous/Other Management Documents
Section 4: Property Documents
4-1. A.
If Refinance:
1. Certification of Outstanding Obligations/Existing
Indebtedness
2. Pay-Off Statement for each Obligation
3. HUD-9807 Prepayment Authorization, if applicable
B.
If Acquisition
1. Purchase & Sale Agreement with Amendments and
Extensions
2. Last Arm’s Length Certification
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
Page A4-4
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92013
92013D
Lndr92264
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Appendix 4 Application Processing Documents
A.4.2 Section 223(f) Refinance/Acquisition Checklists
Section 223(f) Refinance/Acquisition
Firm Application Exhibit Checklist
Tab
4-2.
No. Exhibit Name
Title & Survey
A.
Preliminary Title Report
B.
Easement and Maintenance Agreements (Existing and
Proposed)
C.
ALTA/ACSM Land Title Survey
D.
HUD-91073M Surveyor’s Report
E.
Location Maps and Photographs
4-3. Evidence of Site Control (e.g. Deed, Lease)
4-4. Evidence of Zoning Compliance
4-5. Certificate of Occupancy or Final Inspection Report
4-6. Current Certified Rent Roll
4-7. Miscellaneous property documents, as applicable
A.
Section 8 HAP Contract and Rent Schedule
B.
Evidence of Real Estate Tax Abatement/Exemption
C.
Commercial Lease(s)
D.
Master Lease
E.
Report from Official if Private Water/Sewer
F.
Other property documents
Section 5: Mortgage Credit (separately bound)
MC Folder 1 – Borrower
5-1. Organizational Chart
A.
List of Principals
B.
Resumes
5-2. Organizational Documents (provide Draft if LIHTC)
A.
Articles of Incorporation/Organization, Partnership
Agreement, or Operating Agreement
5-3. Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
Form HUD-2530
5-4. Credit Report
A.
Credit Report
B.
HUD-92013-Supp Supplement to Application
C.
Verification of EIN/SSN
D.
Verification of Cash to Close
5-5. Property Financial Statements
A.
Audited/Certified Financial Statement (past 3 years)
B.
Certified YTD Financial Statement, if required
C.
CPA Review of most recent unaudited Financial Statements, if
required
5-6. HUD-91070M Consolidated Borrower Certifications
5-7. Other Funding Sources (Grants/Loans/Tax Credits), if applicable
A.
Commitment Letter(s)
B.
Tax Credit Equity Pay-In Schedule
C.
Executed Tax Credit Reservation Letter
D.
Source and Uses Statement
E.
HUD-2880 Applicant/Recipient Disclosure Report
MAP Guide, December 2020
Go to beginning of Appendix 4
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Appendix 4 Application Processing Documents
A.4.3 Section 223(a)(7) Refinance Checklists
Section 223(f) Refinance/Acquisition
Firm Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
F.
Bridge Loan Agreement(s)
Bridge
G.
Subsidy Layering Review, if required
SLR
5-8. Miscellaneous/Other mortgage credit documents
MicsMC
MC Folder 2 (create as many as needed) – Principal, GC, or Management Agent
5-1. Organizational Chart
OrgCht
A.
List of Principals
Princpl
B.
Resumes
Resume
5-2. Organizational Documents
A.
Articles of Incorporation/Organization, Partnership
OrgDocs
Agreement, or Operating Agreement
5-3. Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
APPS
Form HUD-2530
5-4. Credit Reports
A.
Credit Report
CrdtRpt
B.
HUD-922013-Supp Supplement to Application
92013S
C.
Verification of EIN/SNN
EIN
5-5. Financial Statements
A.
Audited/Certified (or CPA-Reviewed, if unaudited) Financial
FinSmt
Statement (most recent full year) or HUD-92417 for
individuals
B.
Certified YTD Financial Statement, if required
FinSMtYTD
C.
REO Schedule & Schedule of Mortgage Debt
REODebt
D.
Other Business Concerns
BusCncrns
5-6. Miscellaneous/Other mortgage credit documents
MicsMC
Incl.
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A.4.3 Section 223(a)(7) Refinance Checklists
A.4.3.1
Concept Meetings
A. Concept Meetings are generally not necessary for 223(a)(7) applications. See Chapter 4 for more
details, and contact the HUD Office with questions.
A.4.3.2
Firm Applications
A. The following checklist should be used for all Section 223(a)(7) Firm Applications:
Project Name:
FHA Project #:
Section 223(a)(7) Refinance
Firm Application Exhibit Checklist
Tab No. Exhibit Name
Section 1: Underwriting
1-1. A.
Application Fee Pay.gov Receipt
MAP Guide, December 2020
Go to beginning of Appendix 4
File Name
PayGov
Appendix 4
Page A4-6
Incl.
N/A
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Bookmarked Version
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Appendix 4 Application Processing Documents
A.4.3 Section 223(a)(7) Refinance Checklists
Section 223(a)(7) Refinance
Firm Application Exhibit Checklist
Tab
No.
B.
C.
A.
B.
C.
Exhibit Name
Transmittal Letter
Completed Application Exhibit Checklist
1-2.
Lender’s Underwriter’s Narrative Summary
Lender Due Diligence Certification
Lender’s Certification Regarding Lobbying (24 CFR Part 87
Appendix A), and Disclosure Form (Appendix B), if applicable.
D.
Lender Identity-of-Interest Disclosure
E.
Completed Project Analysis (Excel)
1.3. Lender’s Underwriting HUD Forms
A.
HUD-92013 Application for Multifamily Housing Project
B.
HUD-92013-D Reduced MIP Certification
1-4.
Wavier Requests
A.
HUD-2 Request for Wavier
B.
Supporting Documentation
1-5. Miscellaneous/Other Underwriting Documents
Section 2: Third Party Reports
2-1. Capital Needs Assessment (CNA)
A.
CAN e-Tool Submission Confirmation E-Mail
2-2. Specialty Reports, if any (i.e., LBP)
Section 3: Management Agent
3-1. Required Management exhibits, if new Management Agent
Section 4: Property Documents
4-1. Existing Indebtedness
A.
Certification of Outstanding Obligations/Existing
Indebtedness
B.
Pay-Off Statement for each Obligation
C.
HUD-9807 Prepayment Authorization, if applicable
D.
Current HUD-94001M Note
E.
Certified Statement of Escrow Balances
4-2. Title & Survey
A.
Current Tile Report
B.
Easement and Maintenance
C.
Survey Affidavit, if appliable
D.
ALTA/ACSM Land Title Survey, if required
E.
HUD-91073M Surveyors Report, if required
4-3. A.
Current and Prior Certified Rent Rolls (last 6 months)
B.
Occupancy History, by Quarter (last 3 years)
4-4. Miscellaneous property documents, as applicable
A.
Section 8 HAP Contract and Rent Schedule
B.
Evidence of Real Estate Tax Abatement/Exemption
C.
Commercial Lease(s)
D.
Other property documents
Section 5: Mortgage Credit (separately bound)
5-1. Identification of Principals for Regulatory Agreement Section 50
provision
5-2. HUD-92013-Supp Supplement to Application
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
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LndrNarr
LndrCert
LndrByrdCert
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IOIDiscl
FHARpt
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92013D
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HUD2Doc
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SpclRpts
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MiscMgmt
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CertOutOb
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PayOffStmt
MtgNote
EscrwBal
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EaseMainAgt
SurvAfdv
Survey
SurvRpt
RentRoll
OcpyHstry
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HAP
TaxAbtExp
CmlLse
MiscProp
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Sec50Reg
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
Section 223(a)(7) Refinance
Firm Application Exhibit Checklist
Tab
5-3.
5-4.
5-5.
No. Exhibit Name
Property Financial Statements
A.
Audited/Certified Financial Statements (past 3 years)
B.
Certified YTD Financial Statement, if required
HUD-91070M Consolidated Borrower Certifications
Required MC exhibits, if new Principal(s)
File Name
Incl.
FinSmt
FinSmtYTD
ConsolCert
MiscMC
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N/A
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A.4.4 Sections 221(d)(4), 220, 231, and 241(a)
Checklists
A.4.4.1
Concept Meetings
The following information/exhibits must be included in Concept Meeting packages for all New
Construction or Substantial Rehabilitation proposals:
1. Form HUD-92013 “Application for Multifamily Housing Project”, completed to the extent possible;
2. Project name and address;
3. Number of units (market-rate and affordable);
4. Section of the Act and activity (new construction or substantial rehabilitation);
5. Projected mortgage amount;
6. Mortgage term;
7. Basic information on developer and principals;
8. Management company;
9. General contractor;
10. Previous HUD experience;
11. Geographic location with map;
12. Photographs of the subject and immediate surroundings;
13. Site improvements (existing/proposed);
14. Commercial component – discuss potential tenants;
15. Amenities;
16. Community/city/state support;
17. Green/sustainability issues;
18. Development status (e.g., have any permits/approvals been obtained?);
19. General market conditions, competitive properties, and comparable;
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
20. Environmental issues;
21. Actual/potential risks and mitigating factors;
22. Any anticipated waiver requests.
A.4.4.2
Pre-Applications
A. The following checklist should be used for all New Construction or Substantial Rehabilitation:
Project Name:
FHA Project #:
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Pre-Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
Section 1: Underwriting
1-1.
A.
Application Fee Pay.gov Receipt
PayGov
☐
B.
Transmittal Letter
TrsLtr
☐
C.
Completed Application Exhibit Checklist
Chklst
☐
1-2.
A.
HUD-92013-A Lender’s Underwriter’s Narrative
LndrNarr
☐
B.
Lender Due Diligence Certification
LndrCert
☐
C.
Lender’s Certification Regarding Lobbying (24 CFR Part 87
LndrByrdCert
☐
Appendix A), and Disclosure Form (Appendix B), if
applicable.
D.
Lender Identity-of-Interest Disclosure
IOIDiscl
☐
E.
HUD-92013-C FHA Summary Report (Excel)
FHARpt
☐
1.3.
Lender’s Underwriting HUD Forms
A.
HUD-92013 Application for Multifamily Housing Project
92013
☐
B.
HUD-92013-D Reduced MIP Certification
92013D
☐
C.
HUD-92264 Multifamily Summary Appraisal Report
Lndr92264
☐
(Lender’s version)
1. Operating Deficit Calculation
IODCalc
☐
2. List of Borrower’s Other Fees
OtherFee
☐
3. List of Contractor’s Other Fees
GCOtherFee
☐
D.
HUD-92264-A Supplement to Project Analysis
92264A
☐
1-4.
Wavier Requests
A.
HUD-2 Request for Wavier
HUD2
☐
B.
Supporting Documentation
HUD2Doc
☐
C.
If Section 220, evidence of eligibility
220Elig
☐
1-5.
Miscellaneous/Other Underwriting Documents
MisUW
☐
Section 2: Third Party Reports
2-1.
Appraisal Report with Supporting Forms (HUD-92273 & 92274)
Appraisal
☐
(Appraiser’s version)
A.
Hud-92264-T Rent Estimates for Low/Moderate Income
99264T
☐
Units, if applicable
2-2.
Market Study
MktRpt
☐
2-3.
Environment Review
A.
HUD Environmental Review Online System (HEROS)
HEROS
☐
Submission Confirmation Email
MAP Guide, December 2020
Go to beginning of Appendix 4
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Page A4-9
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Pre-Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
B.
Phase I Environmental Site Assessment (ESA)
PhaseI
☐
C.
Phase II ESA, if applicable
PhaseII
☐
2-4.
Capital Needs Assessment (CNA)
A.
CAN e-Tool Submission Confirmation E-Mail
eTool
☐
B.
Relocation Plan, if applicable
ReloPlan
☐
2-5.
Architectural & Cost Analysis Report
ArchCostRpt
☐
2-6.
Engineer or Specialty Reports, if any
SpclRpts
☐
Section 3: Management Agent
3-1.
Organizational Chart (only if Identity-of-Interest)
MgmtOrgCht
☐
3-2.
HUD Management Forms
A.
Resume of Management Agent including Schedule of
MgmtRes
☐
Managed Properties
B.
HUD-9832 Management Entity Profile
9832
☐
C.
HUD-9839-A, B, or C Certification
9839
☐
D.
Management Plan and Sample Lease
MgmtPln
☐
E.
Management Agreement
MgmtAgmt
☐
F.
Evidence of Fidelity Bond Insurance
FidelityIns
☐
G.
HUD-935.2A Affirmative Fair Housing Marketing Plan
AFHMP
☐
(AFHMP)
3-3.
Miscellaneous/Other Management Documents
MiscMgmt
☐
Section 4: Property Documents
4-1.
A.
If Refinance:
1. Purchase & Sale Agreement with Amendments and
SaleCtrt
☐
Extensions
B.
If Purchased in the last 3 years
1. Purchase Contract or Settlement Statement
RecntPrch
☐
2. Last Arm’s Length Certification
LALStmt
☐
C.
Certification of Outstanding Obligations/Existing
CertOutOb
☐
Indebtedness
4-2.
Title & Survey
A.
Preliminary Tile Report
Title
☐
B.
Easement and Maintenance Agreements (Existing and
EaseMainAgt
☐
Proposed)
C.
ALTA/ACSM Land Title Survey
Survey
☐
D.
HUD-91073M Surveyor’s Report
SurvRpt
☐
E.
Location Maps and Photographs
MapPhoto
☐
4-3.
Evidence of Site Control (e.g. Deed, Lease)
SiteCtrl
☐
4-4.
Evidence of Zoning Compliance
Zoning
☐
4-5.
Multiple Services and Utility Assurance Letters (if New
Construction)
A.
Electricity
Electric
☒
B.
Natural Gas or Oil
Gas
☐
C.
Telephone
Phone
☐
D.
Cable Television
Cable
☐
E.
Internet
Internet
☐
F.
Water and Sewer Service, or Report from Official if Private
WtrSwr
☐
Water/Sewer
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Pre-Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
G.
Garbage Collection
Trash
☐
H.
Storm Sewer
StormSwr
☐
4-6.
Miscellaneous property documents, as applicable
A.
Section 8 HAP Contract and Rent Schedule
HAP
☐
B.
Evidence of Real Estate Tax Abatement/Exemption
TaxAbtExp
☐
C.
Commercial Lease(s)
CmlLse
☐
D.
Master Lease
MstLease
☐
E.
Other property documents
MiscProp
☐
Section 5: Mortgage Credit (separately bound)
MC Folder 1 – Borrower
5-1.
Organizational Chart
OrgCht
☐
A.
List of Principals
Principal
☐
B.
Resumes
Resume
☐
5-2.
Organizational Documents (provide Draft if LIHTC)
A.
Articles of Incorporation/Organization, Partnership
OrgDocs
☐
Agreement, or Operating Agreement
5-3.
Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
Apps
☐
Form HUD-2530
5-4.
Credit Report
A.
Credit Report
CrdtRpt
☐
B.
HUD-92013-Supp Supplement to Application
92013S
☐
C.
Verification of EIN/SSN
EIN
☐
D.
Verification of Cash to Close
VOD
☐
5-5.
Property Financial Statements
A.
Audited/Certified Financial Statement (past 3 years)
FinSmt
☐
B.
Certified YTD Financial Statement with Supporting
FinSmtYTD
☐
Schedules, if required
C.
CPA Review of most recent unaudited Financial Statements, CPARvw
☐
if required
5-6.
HUD-91070M Consolidated Borrower Certifications
ConsolCert
☐
5-7.
Other Funding Sources (Grants/Loans/Tax Credits), if applicable
A.
Commitment Letter(s)
CmLtr
☐
B.
Tax Credit Equity Pay-In Schedule
TCEqSch
☐
C.
Executed Tax Credit Reservation Letter
TCRes
☐
D.
Source and Uses Statement
SUStmt
☐
E.
HUD-2880 Applicant/Recipient Disclosure Report
2880
☐
F.
Bridge Loan Agreement(s)
Bridge
☐
G.
Subsidy Layering Review, if required
SLR
☐
5-8.
Miscellaneous/Other mortgage credit documents
MicsMC
☐
MC Folder 2 (create as many as needed) – Principal, General Contractor, or Management Agent
5-1.
Organizational Chart
OrgCht
☐
A.
List of Principals
Princpl
☐
B.
Resumes
Resume
☐
5-2.
Organizational Documents
MAP Guide, December 2020
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Pre-Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
A.
Articles of Incorporation/Organization, Partnership
OrgDocs
☐
Agreement, or Operating Agreement
5-3.
Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
APPS
☐
Form HUD-2530
5-4.
Credit Reports
A.
Credit Report
CrdtRpt
☐
B.
HUD-922013-Supp Supplement to Application
92013S
☐
C.
Verification of EIN/SNN
EIN
☐
5-5.
Financial Statements
A.
Audited/Certified (or CPA-Reviewed, if unaudited)
FinSmt
☐
Financial Statement (most recent full year) or HUD-92417
for individuals
B.
Certified YTD Financial Statement, if required
FinSMtYTD
☐
C.
REO Schedule & Schedule of Mortgage Debt
REODebt
☐
D.
Other Business Concerns
BusCncrns
☐
5-6.
Miscellaneous/Other mortgage credit documents
MicsMC
☐
Section 6. Construction and Architectural Documents
6-1.
Plans and Specifications
A.
Plans (PDF)
Plans
☐
B.
Specification Manual
Specs
☐
6-2.
State, City, or County Approval of Plans, if available
PlnApprvl
☐
6-3.
Soils Report and Foundation Analysis
SoilRpt
☐
6-4.
A.
HUD-2328 Contractor’s Cost Breakdown
2328
☐
B.
Identity-of-Interest Disclosure and 50/75% Rule Disclosure IOIDis5075
☐
6-5.
Furniture, Fixtures & Equipment Schedule and Budget
FFE
☐
6-6.
Early Commencement Documents
ErlyStrt
☐
6-7.
Assurance of Completion
A.
Commitment Letter from Surety
SuretyLtr
☐
B.
Commitment Letter from Bank for Letter of Credit
LOCCmt
☐
6-8.
Owner-Architect Agreement (AIA Form B108) and HUD
Amendments
A.
Project Architect
B108
☐
B.
Supervisory Architect
SupvB108
☐
6-9.
A.
Off-site Storage of Approved Building Materials
OffSiteStg
☐
B.
Off-site Improvements/Construction
OffSiteImp
☐
6-10. Design Architect Certification
DsgnArchCert
☐
MAP Guide, December 2020
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A.4.4.3
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
Firm Applications
A. The following checklist should be used for all New Construction or Substantial Rehabilitation:
Project Name:
FHA Project #:
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Firm Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
Section 1: Underwriting
1-1.
A.
Application Fee Pay.gov Receipt
PayGov
☐
B.
Transmittal Letter
TrsLtr
☐
C.
Completed Application Exhibit Checklist
Chklst
☐
1-2.
A.
HUD-92013-A Lender’s Underwriter’s Narrative
LndrNarr
☐
B.
Lender Due Diligence Certification
LndrCert
☐
C.
Lender’s Certification Regarding Lobbying (24 CFR Part 87
LndrByrdCert
☐
Appendix A), and Disclosure Form (Appendix B), if
applicable.
D.
Lender Identity-of-Interest Disclosure
IOIDiscl
☐
E.
HUD-92013-C FHA Summary Report (Excel)
FHARpt
☐
1.3.
Lender’s Underwriting HUD Forms
A.
HUD-92013 Application for Multifamily Housing Project
92013
☐
B.
HUD-92013-D Reduced MIP Certification
92013D
☐
C.
HUD-92264 Multifamily Summary Appraisal Report
Lndr92264
☐
(Lender’s version)
1. Operating Deficit Calculation
IODCalc
☐
2. List of Borrower’s Other Fees
OtherFee
☐
3. List of Contractor’s Other Fees
GCOtherFee
☐
D.
HUD-92264-A Supplement to Project Analysis
92264A
☐
1-4.
Wavier Requests
A.
HUD-2 Request for Wavier
HUD2
☐
B.
Supporting Documentation
HUD2Doc
☐
C.
If Section 220, evidence of eligibility
220Elig
☐
1-5.
Miscellaneous/Other Underwriting Documents
MisUW
☐
Section 2: Third Party Reports
2-1.
Appraisal Report with Supporting Forms (HUD-92273 & 92274)
Appraisal
☐
(Appraiser’s version)
A.
Hud-92264-T Rent Estimates for Low/Moderate Income
99264T
☐
Units, if applicable
2-2.
Market Study
MktRpt
☐
2-3.
Environment Review
A.
HUD Environmental Review Online System (HEROS)
HEROS
☐
Submission Confirmation Email
B.
Phase I Environmental Site Assessment (ESA)
PhaseI
☐
C.
Phase II ESA, if applicable
PhaseII
☐
2-4.
Capital Needs Assessment (CNA)
A.
CAN e-Tool Submission Confirmation E-Mail
eTool
☐
B.
Relocation Plan, if applicable
ReloPlan
☐
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Firm Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
2-5.
Architectural & Cost Analysis Report
ArchCostRpt
☐
2-6.
Engineer or Specialty Reports, if any
SpclRpts
☐
Section 3: Management Agent
3-1.
Organizational Chart (only if Identity-of-Interest)
MgmtOrgCht
☐
3-2.
HUD Management Forms
A.
Resume of Management Agent including Schedule of
MgmtRes
☐
Managed Properties
B.
HUD-9832 Management Entity Profile
9832
☐
C.
HUD-9839-A, B, or C Certification
9839
☐
D.
Management Plan and Sample Lease
MgmtPln
☐
E.
Management Agreement
MgmtAgmt
☐
F.
Evidence of Fidelity Bond Insurance
FidelityIns
☐
G.
HUD-935.2A Affirmative Fair Housing Marketing Plan
AFHMP
☐
(AFHMP)
3-3.
Miscellaneous/Other Management Documents
MiscMgmt
☐
Section 4: Property Documents
4-1.
A.
If Purchase:
1. Purchase & Sale Agreement with Amendments and
SaleCtrt
☐
Extensions
B.
If Purchased in the last 3 years
1. Purchase Contract or Settlement Statement
RecntPrch
☐
2. Last Arm’s Length Certification
LALStmt
☐
C.
Certification of Outstanding Obligations/Existing
CertOutOb
☐
Indebtedness
4-2.
Title & Survey
A.
Preliminary Tile Report
Title
☐
B.
Easement and Maintenance Agreements (Existing and
EaseMainAgt
☐
Proposed)
C.
ALTA/ACSM Land Title Survey
Survey
☐
D.
HUD-91073M Surveyor’s Report
SurvRpt
☐
E.
Location Maps and Photographs
MapPhoto
☐
4-3.
Evidence of Site Control (e.g. Deed, Lease)
SiteCtrl
☐
4-4.
Evidence of Zoning Compliance
Zoning
☐
4-5.
Multiple Services and Utility Assurance Letters (if New
Construction)
A.
Electricity
Electric
☐
B.
Natural Gas or Oil
Gas
☐
C.
Telephone
Phone
☐
D.
Cable Television
Cable
☐
E.
Internet
Internet
☐
F.
Water and Sewer Service, or Report from Official if Private
WtrSwr
☐
Water/Sewer
G.
Garbage Collection
Trash
☐
H.
Storm Sewer
StormSwr
☐
4-6.
Miscellaneous property documents, as applicable
A.
Section 8 HAP Contract and Rent Schedule
HAP
☐
B.
Evidence of Real Estate Tax Abatement/Exemption
TaxAbtExp
☐
MAP Guide, December 2020
Go to beginning of Appendix 4
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Firm Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
C.
Commercial Lease(s)
CmlLse
☐
D.
Master Lease
MstLease
☐
E.
Other property documents
MiscProp
☐
Section 5: Mortgage Credit (separately bound)
MC Folder 1 – Borrower
5-1.
Organizational Chart
OrgCht
☐
A.
List of Principals
Principal
☐
B.
Resumes
Resume
☐
5-2.
Organizational Documents (provide Draft if LIHTC)
A.
Articles of Incorporation/Organization, Partnership
OrgDocs
☐
Agreement, or Operating Agreement
5-3.
Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
Apps
☐
Form HUD-2530
5-4.
Credit Report
A.
Credit Report
CrdtRpt
☐
B.
HUD-92013-Supp Supplement to Application
92013S
☐
C.
Verification of EIN/SSN
EIN
☐
D.
Verification of Cash to Close
VOD
☐
5-5.
Property Financial Statements
A.
Audited/Certified Financial Statement (past 3 years)
FinSmt
☐
B.
Certified YTD Financial Statement with Supporting
FinSmtYTD
☐
Schedules, if required
C.
CPA Review of most recent unaudited Financial Statements, CPARvw
☐
if required
5-6.
HUD-91070M Consolidated Borrower Certifications
ConsolCert
☐
5-7.
Other Funding Sources (Grants/Loans/Tax Credits), if applicable
A.
Commitment Letter(s)
CmLtr
☐
B.
Tax Credit Equity Pay-In Schedule
TCEqSch
☐
C.
Executed Tax Credit Reservation Letter
TCRes
☐
D.
Source and Uses Statement
SUStmt
☐
E.
HUD-2880 Applicant/Recipient Disclosure Report
2880
☐
F.
Bridge Loan Agreement(s)
Bridge
☐
G.
Subsidy Layering Review, if required
SLR
☐
5-8.
Miscellaneous/Other mortgage credit documents
MicsMC
☐
MC Folder 2 (create as many as needed) – Principal, General Contractor, or Management Agent
5-1.
Organizational Chart
OrgCht
☐
A.
List of Principals
Princpl
☐
B.
Resumes
Resume
☐
5-2.
Organizational Documents
A.
Articles of Incorporation/Organization, Partnership
OrgDocs
☐
Agreement, or Operating Agreement
5-3.
Previous Participation Certification
A.
Active Partners Performance System (APPS) Submission or
APPS
☐
Form HUD-2530
5-4.
Credit Reports
A.
Credit Report
CrdtRpt
☐
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
Page A4-15
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Appendix 4 Application Processing Documents
A.4.4 Sections 221(d)(4), 220, 231, and 241(a) Checklists
New Construction/Substantial Rehabilitation–Section 221(d)(4), 220, 231, and 241(a)
Firm Application Exhibit Checklist
Tab
No. Exhibit Name
File Name
Incl.
B.
HUD-922013-Supp Supplement to Application
92013S
☐
C.
Verification of EIN/SNN
EIN
☐
5-5.
Financial Statements
A.
Audited/Certified (or CPA-Reviewed, if unaudited)
FinSmt
☐
Financial Statement (most recent full year) or HUD-92417
for individuals
B.
Certified YTD Financial Statement, if required
FinSMtYTD
☐
C.
REO Schedule & Schedule of Mortgage Debt
REODebt
☐
D.
Other Business Concerns
BusCncrns
☐
5-6.
Miscellaneous/Other mortgage credit documents
MicsMC
☐
Section 6. Construction and Architectural Documents
6-1.
Plans and Specifications
A.
Plans (PDF)
Plans
☐
B.
Specification Manual
Specs
☐
6-2.
State, City, or County Approval of Plans, if available
PlnApprvl
☐
6-3.
Soils Report and Foundation Analysis
SoilRpt
☐
6-4.
A.
HUD-2328 Contractor’s Cost Breakdown
2328
☐
B.
Identity-of-Interest Disclosure and 50/75% Rule Disclosure IOIDis5075
☐
6-5.
Furniture, Fixtures & Equipment Schedule and Budget
FFE
☐
6-6.
Early Commencement Documents
ErlyStrt
☐
6-7.
Assurance of Completion
A.
Commitment Letter from Surety
SuretyLtr
☐
B.
Commitment Letter from Bank for Letter of Credit
LOCCmt
☐
6-8.
Owner-Architect Agreement (AIA Form B108) and HUD
Amendments
A.
Project Architect
B108
☐
B.
Supervisory Architect
SupvB108
☐
6-9.
A.
Off-site Storage of Approved Building Materials
OffSiteStg
☐
B.
Off-site Improvements/Construction
OffSiteImp
☐
6-10. Design Architect Certification
DsgnArchCert
☐
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
Page A4-16
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Appendix 4 Application Processing Documents
A.4.5 Sample MAP Invitation Letter
A.4.5 Sample MAP Invitation Letter
Mr./Ms.
<Address>
<
>
<
>
Dear Mr./Ms. <Name>.:
Subject:
MAP Invitation Letter
Project No:<XXX-XXXXX>
Section <SOA>
<Project Name>
<City, State>
This is to inform you that our staff has reviewed the Pre-application materials for the subject proposal
and finds it to be worthy of further consideration should you decide to submit a Firm Commitment
application for mortgage insurance. There is a market for the proposal based upon our review of the
appraisal and market study subject to updating all market assumptions before Firm Commitment. Subject
to later confirmation or completion of the HUD environmental review, the site appears acceptable based
on our preliminary inspection and the information provided.
In the event that you desire to continue with this project and submit an application for Firm Commitment,
it is understood that the project will have the following characteristics:
Type of Unit
Efficiency
Sq. Ft.
Number
Monthly Market Rental
One Bedroom
Two Bedroom
Three Bedroom
Four Bedroom
Total
Equipment and Services included in the rent are:
Number of Parking Spaces: Enclosed ____________________ Open ________________
Estimated Monthly Parking Rental $ ___________________
Residential Accessory Income $ ____________________
Commercial Area ____________ sq. ft. Estimated Monthly Rental $ _______________
The operating expense estimate of $___________ per unit per annum is preliminarily acceptable subject to
updated and relevant data before the Firm Commitment. The total for all improvements appears to be
within a reasonable range. Attached is the current wage decision for this area. Please go to
https://beta.sam.gov/for any updates while preparing your Firm Commitment application.
MAP Guide, December 2020
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Appendix 4
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Appendix 4 Application Processing Documents
A.4.5 Sample MAP Invitation Letter
Land value/as-is value will be determined at the Firm Commitment stage. Excess costs resulting from any
unusual site conditions identified in the construction cost estimate at the Firm Commitment stage will be
deducted from the land value fully improved (with offsite improvements installed). The HUD
environmental review and environmental assessment and HUD previous participation (Form HUD-2530)
will not be completed until the Firm Commitment package is submitted to HUD.
It is important to understand that this letter is not to be construed as a commitment on the part of FHA to
insure a mortgage for your proposal. It is intended only to establish general agreement on the basic
concept, market, rents, and expenses for your proposal. If the Firm Commitment application submitted is
consistent with the Pre-application submission, does not trigger the thresholds for a more extensive
review, and no problems arise because of environmental or previous participation issues, HUD should be
able to complete its review within the scheduled time. If there are significant changes from the concept
agreed to at the Pre-application submission, HUD will need more time to complete an extensive review
and will not be bound by the scheduled review time and could result in rejection of the Firm Commitment
application. Significant changes would include changes in location, building type, project market, rents,
unit number, unit mix or gross project area that could cause a change in income, expense and demand
assumptions and/or require a new market study and HUD review.
Therefore, you are invited to submit a Firm Commitment application for mortgage insurance on Form
HUD-92013, “Application for Multifamily Housing Project”, along with the required MAP lender
deliverables, by <insert date 120 days after the date of the letter>. Under MAP, HUD requires an application
fee of $3 (30 basis points) per thousand of the mortgage amount; $2 per thousand for market-rate and
affordable properties located in qualified opportunity zones, or $1.50 per thousand for broadly affordable
properties located in qualified opportunity zones69. The balance due for the application fee must be paid
at the Firm Commitment stage, with evidence of payment submitted with the Firm Commitment
application.
The lender must advise HUD in writing within 30 days of the date of this letter of invitation whether or
not it plans to submit an application for the particular project. If the lender fails to notify HUD within the
time required, the invitation letter expires, and the lender will be required to repeat the Pre-application
process.
The application for a Firm Commitment must be submitted within 120 days of the date of the letter of
invitation. The Regional or Satellite Office may authorize extensions of up to 90 days past this 120-day
limit, but there is no requirement that the extensions be approved. The HUD office will review the
circumstances reported by the lender to justify an extension of time. The lender must certify and the
Regional or Satellite Office must determine that the request to extend beyond 120-days is not likely to
change the underwriting data on which the invitation was based or to undermine the feasibility of the
project due to a change in the market or other factors determined at Pre-application. A request for an
extension of time beyond the 90-days may be allowed with justifiable cause. These requests must be
submitted by the Regional Director to the Director of the Office of Multifamily Development
(Headquarters) or his/her designee. The authorization request must provide the additional time
requested, the Regional or Satellite Office’s recommendation, and the reasons the extension is needed.
69 Housing Notice
2019-07 Incentives for FHA Mortgage Insurance for Properties Located in Opportunity Zones,
allows reduced application fees for properties located in qualified opportunity zones. Broadly affordable and
affordable in this context are defined in HUD’s Federal Register notice dated March 31, 2016 (81 FR 18473).
MAP Guide, December 2020
Go to beginning of Appendix 4
Appendix 4
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Appendix 4 Application Processing Documents
A.4.6 Firm Commitment Templates
Sincerely,
<Space for ink signature>
<
>
<
>
<Underwriter Name>
<Job Title>
<Office>
A.4.6 Firm Commitment Templates
A. HUD staff will use the most current versions of the standard Firm Commitment templates published
by HUD. Updated versions of the standard Firm Commitment templates for Sections 220, 221(4),
223(a)(7), 223(f), 231, and 241(a) can be found on HUDCLIPS in Housing Notice 2018-03. Further
changes to these templates will be announced in future HUD Notices.
A.4.7 FHA Project Number and Fees on Pay.gov
A.4.7.1
Requesting an FHA Project Number
A. To request an FHA Project Number for a new application for FHA multifamily mortgage insurance, the
Lender must email a completed FHA Project Number Request Form (see below) or the below information
on company letterhead to the appropriate HUD Office.
B. It is expected that the full application will be submitted within 30 calendar days of the request for the
FHA Project Number.
C. All requests must include the below information:
1. Application Purpose & Type;
Section of the Act – specify the applicable SOA/program (e.g., 221(d)(4), 223(f), 223(a)(7), etc.);
Activity – specify the applicable activity (e.g., new construction, substantial rehabilitation,
purchase, refinance, improvements, additions);
Timing of Insurance – specify Insurance of Advances or Insurance Upon Completion;
Application Phase – specify Pre-Application or Firm Commitment Application;
MAP or TAP – specify MAP or TAP;
If 223(f), provide the date of the final Certificate of Occupancy from the project’s construction or
most recent sub rehab;
If 241(a), provide the Parent/Primary FHA Project Number of the underlying insured first
mortgage loan;
Is the property currently HUD insured, held, or owned? – Yes or No;
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A.4.7 FHA Project Number and Fees on Pay.gov
1) If yes, provide the Superseded FHA Project Number(s) for the existing insured mortgage
loan(s) being refinanced;
Does the property have a current Section 8 HAP Contract or PRAC? – Yes or No;
1) If yes, provide the Section 8 HAP Contract or PRAC Number
2. Mortgage Information:
Borrower Type – specify the applicable borrower type (e.g., Profit-Motivated, Non-Profit,
Cooperative, etc.);
Lender Name – provide the Lender’s name;
Lender ID Number – provide the Lender’s 5-digit Lender ID Number;
Mortgage Amount – provide the proposed mortgage amount (subject to change);
Permanent Interest Rate – provide the proposed interest rate (subject to change);
If 223(f), is Cash Out being requested? – Yes or No;
1) If yes, provide the proposed Cash Out amount (subject to change).
3. Property Information:
Project Name – provide the project name (this is the name that will be used for loan closing and
servicing);
Primary Street Address – provide the primary street address of the project (if the proposed
project does not yet have a street address, specify the nearest intersection or provide another
location identifier);
City – provide the name of the city where the project is located;
State – provide the name of the state or commonwealth where the project is located;
ZIP Code – provide the ZIP Code where the project is located;
County – provide the name of the county where the project is located;
Is the project comprised of multiple/scattered sites? – Yes or No;
1) If yes, provide the number of sites and an address for each site;
Congressional District – identify the Congressional District where the project is located.
4. Unit Breakdown:
Revenue Units – provide the number of revenue units;
Non-Revenue Units – provide the number of non-revenue units;
Total Units – provide the total number of units;
Facility Type – specify Apartments or Cooperative.
5. Special Characteristics:
Is the project receiving a Low-Income Housing Tax Credit (LIHTC) equity investment or does it
currently have LIHTC use restrictions? – Yes or No;
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1) If yes, specify one:
a) 4% LIHTC/Tax Exempt Bonds; or
b) 9% LIHTC;
2) If yes, also specify one:
a) New credits; or
b) Existing/prior credits but still under use restriction;
3) If new credits, is the application being submitted under the LIHTC Pilot? (see Notice H 201903) – Yes or No;
a) If yes, specify one:
i.
Expedited Track; or
ii. Standard Track.
Is the project located in a qualified Opportunity Zone? (see Notice H 2019-10) – Yes or No;
1) If yes, is the project receiving an equity investment from a Qualified Opportunity Fund? – Yes
or No;
MIP Category – specify the applicable MIP category (refer to the Federal Register) by selecting
one:
1) Market;
2) Market/Green;
3) Affordable;
4) Affordable/Green;
5) Broadly Affordable;
6) Broadly Affordable/Green.
Upfront MIP % – specify the applicable Upfront MIP %;
Annual MIP % – specify the applicable Annual MIP %;
Is the project undergoing a simultaneous Rental Assistance Demonstration (RAD) conversion?
(see Notice H 2019-09) – Yes or No;
Is the project receiving HOME funds as a source of a financing? – Yes or No;
Is the project receiving CDBG funds as a source of a financing? – Yes or No;
D. A Microsoft Excel version of the FHA Project Number Request Form can be downloaded at:
https://www.hud.gov/program_offices/administration/hudclips/guidebooks/hsg-GB4430.
E. HUD is currently developing an online portal that will soon be used for FHA Project Number requests,
as well as electronic submissions of applications and other documents to HUD. A Mortgagee Letter with
details and revised instructions will be issued when the portal is ready for implementation. Until then,
the instructions in Appendix 4 should be followed.
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A.4.7.2
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Appendix 4 Application Processing Documents
A.4.7 FHA Project Number and Fees on Pay.gov
Paying Multifamily Fees on Pay.gov
A. Pay.gov must be used for the online payment of the following Multifamily Fees for all FHA multifamily
mortgage insurance applications:
1. Application/Exam Fee;
2. Reopening Fee, if required;
3. Upfront MIP;
4. Inspection Fee.
A.4.7.2.1
Creating a User Account
A. Lenders are to establish their own internal procedures for paying Multifamily Fees through Pay.gov.
These procedures will not be dictated by HUD; however, Lenders that are planning to access the Pay.gov
public form on a recurring basis may find it useful to create a Pay.gov user account through the selfenrollment process. To create an account, click the “Create an Account” button in the upper right corner
at the following website and follow the instructions: https://www.pay.gov/public/home
A.4.7.2.2
Completing the Payment Form
A. To pay a Multifamily Fee, visit the following website and complete the HUD Office of Multifamily
Production Programs Fees form: https://www.pay.gov/public/form/start/67950760.
B. The following fields must be carefully completed on the form:
1. Transaction Type – select “Lender”;
2. Transaction Date – this will be populated automatically;
3. FHA Lender Name – enter the Lender’s name (up to 200 characters);
4. FHA Lender Number – enter the Lender’s 5-digit Lender ID Number;
5. FHA Project Number – enter the 8-digit FHA Project Number;
6. Project Name – enter the project name (up to 200 characters);
7. Project City – enter the name of the city where the project is located;
8. Project State – enter the name of the state or commonwealth where the project is located;
9. Program Type – select the appropriate SOA/program type from the pull-down menu;
10. Project Type – select the appropriate activity/project type from the pull-down menu (Note: this
selection can only be made after the Program Type has been selected);
11. Does the project have new or existing Low-Income Housing Tax Credits (LIHTC)? – select one:
Yes – 4% LIHTC / Tax Exempt Bonds;
Yes – 9% LIHTC;
No.
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A.4.7 FHA Project Number and Fees on Pay.gov
12. Is the project located in an Opportunity Zone? – select one:
Yes – Market or Affordable;
Yes – Broadly Affordable;
No.
13. Section of the Act – this 3-digit SOA code will be populated automatically after the Program Type and
Project Type have been selected.
14. Fee Type – select the appropriate fee type from the pull-down menu:
Application/Exam Fee (fee type 7);
Reopening Fee (fee type 6);
Upfront Mortgage Insurance Premium (MIP) (fee type 2);
Inspection Fee (fee type 6).
15. Fee Amount – enter the correct fee or Upfront MIP amount;
16. Fund – this will populate automatically after the Program Type, Project Type, and Fee Type have been
selected.
C. After the information has been submitted and accepted, Pay.gov will provide the submitter a receipt of
the transaction which includes the information entered into the form and a Pay.gov Tracking ID. The
receipt confirms that a payment was processed through Pay.gov but does not confirm that the funds have
cleared. ACH transactions generally require one banking business day to settle. In instances of insufficient
funds, a supplemental payment will be required. A copy of the receipt must be included in the application
or closing package submitted to the HUD Office. If it is later discovered that any of the information that
was entered into Pay.gov is incorrect, the lender should notify the HUD Office so that it can be corrected.
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Appendix 5 Architectural and Construction Analysis
A.5.1 Property Standards and Survey Criteria
Appendix 5 Architectural and Construction Analysis
A.5.1 Property Standards and Survey Criteria
A.5.1.1
Minimum Property Standards (HUD Handbook 4910.1)
A. The Minimum Property Standards (MPS) for Housing requirements are applicable as follows:
1. New construction and Substantial Rehabilitation. design must meet all of the MPS.
2. Existing Buildings design must meet the requirements shown below.
Properties that were originally constructed or substantially rehabilitated under Section
221(d)(4) must meet all of MPS when being acquired or refinanced under Section 223(f),
refinanced under Section 223(a)(7) or altered or repaired under Section 241(a).
Other properties being acquired/refinanced under Section 223(f) or 223(a)(7), or submitted
under Section 241(a) may meet only the following sections of the MPS:
1) Chapter 1, Section 100-3, Requirements for Accessibility to Physically Disabled People;
2) Chapter 2, The General Acceptability Criteria (all of Chapter 2); and
3) No other sections of the MPS apply retroactively for existing buildings.
3. Local Building codes or nationally recognized building codes accepted or designated by the local HUD
Office are part of the MPS.
The Field Office enforces and interprets accepted local building codes for HUD; and
The Field Office does not enforce local building codes for the local Government.
4. Minimum Design Standards for Community Sewerage (HUD Handbook 4940.3) requirements must
be met for community sewage systems design and construction.
A.5.1.2
Commercial Use and Daycare Facilities
A. The term "Commercial" 70 is applied to any space or facility permitted and acceptable for
"Nonresidential Use" from which income is derived or anticipated. However, facilities such as swimming
pools and garages to be used solely by tenants are not considered commercial even though fees may be
collected.
1. Generally, the nature and extent of nonresidential uses should serve the commercial needs of tenants
and residents of the neighborhood in which the property is located.
2. The aggregate commercial floor area may not exceed the percentage limits established by program as
described in Chapter 3 of the MAP Guide. When calculating commercial space as a percent of floor
70 The term “Commercial” is not the same in definition or in reference
to the term used in International Building
Code or a term that may exist in other building standards.
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Appendix 5 Architectural and Construction Analysis
A.5.1 Property Standards and Survey Criteria
area, the numerator is the aggregate commercial area including corridors, stairs, elevators, lobbies,
garage parking, and other service areas used for commercial purposes, but excludes laundry space,
project storage space, and resident garage parking. The denominator is building area for all uses.
3. Design of commercial facilities must be harmonious with the project and conform to standards of
design and construction and local zoning and building codes.
4. Do not include fixtures, equipment, furnishings, or finish for commercial spaces in the mortgage
unless customarily provided in competitive projects. But a commercial lease build-out allowance may
be needed and may be required as a required escrow. In addition, future commercial tenant buildout costs (for releasing after initial lease-up) may be budgeted as part of future capital costs and
included in the Reserve for Replacements.
5. Space for day care facilities must be adequate, appropriate to the market need, and conform to local
and state requirements. In processing, it is considered as commercial space.
A.5.1.3
Equipment
A. Equipment included as part of the mortgage security must be acknowledged by the Borrower and
Lender to be part of the real estate and:
1. Be essential for successful operation and market acceptance.
2. Have qualities in design, construction, materials and finishes that are not subject to early
deterioration or obsolescence.
3. Be appropriate to the location, the design of the building, and the anticipated occupants.
B. Equipment needed for operation and market acceptance, such as ranges and refrigerators, should be
included. The equipment should be durable and selected to balance current capital cost against the need
to fund future replacements.
1. Replacement is paid for from a reserve for replacements account sized in the CNA prepared in the
CNA e-Tool and funded annually from project income.
2. Market-based expectations for Borrower-furnished equipment change over time. If doubts arise as
to legal precedent concerning whether an item is chattel or real estate, essential and required items
may be covered by a security agreement or chattel mortgage, as well as being covered by the mortgage
on the real estate if deemed necessary by the Lender and its attorneys.
A.5.1.4
Ineligible Equipment
A. Ineligible equipment includes supply items, utensils, tools, vehicles, mowers and tractors, portable
equipment, furniture, furnishings, or accessories normally provided by residents or management and
maintenance firms. But furniture, furnishings, and equipment (FFE) for tenant common use spaces (e.g.,
recreation and gym facilities, lobbies, tenant entertainment or hospitality spaces, etc.) may be allowed as
chattel items and budgeted as described in Chapter 5, Section 5.11.
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Appendix 5 Architectural and Construction Analysis
A.5.1 Property Standards and Survey Criteria
Air Conditioning
A. Air Conditioning of residential spaces is required for all properties except in markets located in climate
zones where new units without air conditioning are commonly accepted. Where air conditioning is
required to provide year-round indoor comfort, assure continued marketability, and prevent premature
obsolescence, projects must be air-conditioned. Particular attention should be given to the need for air
conditioning and ventilation in elevator structures, especially for senior citizens.
A.5.1.6
Water and Sewer
A. Public water and sewerage facilities are generally required for multifamily projects. Lack of public
water and sewer service is an indicator of the local jurisdiction’s inability or unwillingness to provide such
services and in most cases is a bar to new development. Construction of private water and sewer facilities
may be considered only when such services can be provided at reasonable rates including consideration
of long-term capital needs and when such facilities are supported and supervised by state or local
authorities with jurisdiction. Existing properties relying on private water and sewer facilities must meet
the same test of reasonable cost including long-term capital needs and local government support and
supervision.
B. Water and/or sewerage facilities must:
1. Provide a sufficient supply of water with adequate pressure and satisfactory purification, antibacterial and chemical qualities approvable by municipality; and
2. Provide a sanitary waste system with adequate collection, treatment and final disposal of domestic
waste that requires minimum maintenance and will not endanger the public health.
A.5.1.7
Duplicate Water and Sewerage Systems
A. Duplicate water and sewerage systems are not acceptable, except where it is determined that the
construction of a single system will be infeasible due to the topography of the site.
A.5.1.8
Individual Septic or Sewerage Systems
A. Individual septic systems or sewerage systems designed to dispose of effluent by subsurface soil
absorption methods are generally not suited for multifamily construction because of maintenance
problems. Satisfactory operation can be expected only under unusually favorable soil conditions. When
these methods of sewerage disposal are proposed, an environmental (sanitary) engineer, with no other
interest in the project, should be hired by the Borrower to investigate soil and site conditions and make
recommendations. A copy of the report must be available to the Project Architect and be included in the
exhibits submitted for review by the Lender’s Construction Analyst. When an existing property relies on
a septic system, the Lender and Needs Assessor must conduct an intrusive examination by a qualified
third party (environmental or sanitary engineer) who must investigate the maintenance history of the
septic system and recommend current and future repairs, alterations, or replacements needed to assure
continued satisfactory operation. An Operations and Maintenance Plan must be prepared as guidance to
management and tenants on routine care and maintenance of the septic system
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Appendix 5 Architectural and Construction Analysis
A.5.1 Property Standards and Survey Criteria
Privately Owned Offsite Water and Sewerage Systems
A. Evidence of acceptable control are:
1. Certificate of Convenience and Necessity from the State Utility Regulatory Commission;
2. Franchise from local unit of Government;
3. Trust Deed;
4. Third Party Beneficiary Agreement; and
5. An incorporated non-profit owner’s association.
B. If control of continuity of service and the equitability of the service rate schedule is other than (a)
above, all legal documents and other appropriate exhibits must be acceptable to HUD’s Counsel.
C. All community systems and privately-owned systems must meet local health authority or U.S.
Environmental Protection Agency Maximum Contaminant Level (EPA MCL) standards.
A.5.1.10 Subsurface Exploration
A. For new construction proposals, reliable information about subsurface conditions and foundation
recommendations must be available to the Project Architect and the Lender’s Construction Analyst prior
to foundation design. In some cases, subsurface exploration may be needed for existing buildings.
1. The Project Architect must advise the owner of the scope and type of soils information and/or
subsurface investigation required for structural design.
2. The Borrower must provide the services of a registered design professional for determining
subsurface conditions. These services shall be provided in accordance with the Owner-Architect
Agreement.
3. The Lender’s Construction Analyst will assess that the Architect has comprehensive, well documented
soils information and that project foundation design follows the report recommendations. When
necessary, the Lender’s Construction Analyst should consult an engineer specializing in reviewing soil
reports and related designs.
4. Soils investigation shall be in accordance with Chapter 18 of the International Building Code, except
that an investigation and report is required for every project involving new construction, whether or
not required by the building official.
5. In some cases, observed conditions at existing properties (e.g., foundation failure, history or
indications of sink holes in the immediate vicinity) may require subsurface exploration. In such cases
the Lender and Needs Assessor must retain the services of a licensed professional/engineer to
conduct intrusive examination to identify the nature of subsurface problems and recommend
appropriate action.
A.5.1.11 ALTA Survey General Requirements (see Chapter 19)
A. An ALTA/NSPS Land Title Survey is required and must conform to the instructions set forth on the
form HUD-91073M, HUD Survey Instructions and Surveyor’s Report (including the Table A items listed and
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Appendix 5 Architectural and Construction Analysis
A.5.2 Accessibility for Persons with Disabilities
certification set forth in the form), which instructions relate both to form HUD-91073M, HUD Survey
Instructions and Surveyor’s Report, and to the Survey that the surveyor must produce. The Survey shall be
dated, signed and sealed within 180 days before initial closing, meaning that the field work was performed
or updated no earlier than 180 days prior to closing. Local discretion, in accordance with local waiver
procedures as applicable, is given to the HUB Director to waive the 180-day limit. (Download the 2016
Minimum
Standard Detail
Requirements
for
ALTA/NSPS
Land
Title
Survey
at
https://cdn.ymaws.com/www.nsps.us.com/resource/resmgr/ALTA_Standards/2016_Standards.pdf ).
B. The Survey shall show all easements, apparent interests (including railroads), or encroachments upon
the property or from the property onto contiguous parcels of land. These easements or encroachments
must be acceptable to HUD.
1. All easements, restrictions and exceptions on the title policy shall be shown. Blanket easements that
cannot be plotted shall be listed with their recording information.
2. Maintenance, joint use, easement, and other agreements may be required. In cases where common
facilities exist between the insured parcel and an adjacent parcel, the Borrower must provide for
recordation of an agreement for the common use of land and facilities (e.g., common drives, common
lobbies, elevators, walkways, utility roads, parking structures, recreation facilities, storm water
management facilities (retention ponds, detention ponds, swales and culverts), or other common
facilities). The agreement must grant rights to the HUD project site and its tenants to use the common
facilities and provide for an equitable and certain method for funding shared costs for repair and
replacement of common facilities.
3. If the HUD project is subject to condominium and property/homeowner association documents, these
documents may provide for maintenance, access, and cost sharing.
4. All access roads must be labeled as public or private roads.
5. Lender must provide form HUD-91073M, HUD Survey Instructions and Surveyor’s Report, signed
within 180 days before initial closing by a licensed surveyor, not by an engineer, and bearing the
surveyor's original signature and professional seal. Local discretion, in accordance with local waiver
procedures as applicable, is given to the Regional Center/Satellite Office director to waive the 180day limit. The Surveyor’s Report supplements the ALTA/NSPS Land Title Survey and must describe
with specificity where the conditions described in the Surveyor’s Report are physically observed on
the property.
6. In the event that proposed alterations and repairs in a proposed refinancing include site grading or
site utility work to remedy an observed drainage or other problem related to site elevations, then the
HUD office may require Item 5 of Table A (topographic contour intervals) of the 2016 Minimum
Standard Detail Requirements for ALTA/NSPS Land Title Survey.
A.5.2 Accessibility for Persons with Disabilities
A.5.2.1
Statutory Requirements
A. Most properties proposed for multifamily mortgage insurance are subject to and must observe one or
more accessibility statutes and related regulatory and architectural requirements. Lenders must ensure
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A.5.2 Accessibility for Persons with Disabilities
that accessibility requirements are accurately applied to projects by Borrowers, design professionals,
Needs Assessors and Lender Construction Analysts and Underwriters. Persons engaged in preparing
applications must be knowledgeable in relevant Federal, State and local statutes and standards, which
include:
1. The Fair Housing Act Design and Construction requirements. These apply to all covered
multifamily dwellings built for first occupancy after March 13, 1991 (details in Section A.5.2.3).
2. Section 504 of the Rehabilitation Act of 1973. This applies to all Federally assisted programs,
services and activities, including housing (details in Section A.5.2.4).
3. The Americans with Disabilities Act of 1990 (ADA). Title III of the ADA applies to public
accommodations and commercial facilities and to any such portion of a multifamily property. Title II
obligates all state and local government organizations (including state and local housing and
community development agencies) to make their programs and facilities, including multifamily
housing programs and facilities, accessible in accordance with certain regulatory and architectural
requirements (details in Section A.5.2.5).
4. State and Local Accessibility Laws. State and Local codes and standards may require greater
accessibility than the Federal standards listed above. Where State or Local requirements exceed or
vary from the Federal standards, the provisions applicable to particular elements of facilities that
provide greater accessibility for persons with disabilities will prevail.
B. The following table summarizes the applicable Federal and HUD1 accessibility requirements applicable
to multifamily properties proposed for mortgage insurance.
Summary requirements for Insured Multifamily Properties
Activity & Year Built
Market Rate
Apartments
Affordable (not
assisted, e.g. LIHTC’s)
Projects built for 1st occupancy2
after 3/13/1991
Fair Housing Act
Requirements
Fair Housing Act
Requirements
Fair Housing Act
Requirements & Sec 504
(UFAS or Deeming Notice4)
None
Sec 504 (UFAS or Deeming
Notice 4)
Sub-rehab or Refinance of
projects built prior to 7/11/1988
None
or built prior to becoming
assisted5
None
Sec 504 (UFAS or Deeming
Notice4) (Load-bearing wall
and financial/administrative
burden exceptions)
All Public Accommodations
(Designed and built for 1st
occupancy2 or altered after
1/26/1993
ADA Title III
ADA Title III
ADA Title III & Sec 504
(UFAS or Deeming Notice4)
State or Local Government
Programs or Assistance, e.g.,
LIHTCs with construction start
after 1/26/1992
ADA Title II6
ADA Title II6
ADA Title II & Sec 504 (UFAS
or Deeming Notice4)
Projects built from 7/11/1988 to
None
3/13/1991
1
2
Federally Assisted3
Unlike the Fair Housing Act where Congress assigned regulatory and enforcement authority to HUD, Section 504 of the
Rehabilitation Act of 1973 obligates various Federal Agencies to develop implementing regulations.
1st occupancy means a building that was never used for any purpose.
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3
4
5
6
7
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Appendix 5 Architectural and Construction Analysis
A.5.2 Accessibility for Persons with Disabilities
“Federally assisted” projects include those financed or assisted by Project Based Vouchers, 202/811, HOME, HOPWA,
Rent Supplements, 236, TCAP, BMIR, etc. LIHTC alone does not constitute Federal assistance unless aforementioned
funds are utilized.
See HUD’s Alternative Accessibility Standard set forth in HUD's notice at 79 Fed. Reg. 29,671 (May 23, 2014) (“Deeming
Notice”), permitting HUD recipients of Federal financial assistance to use an alternative standard for purposes of
complying with Section 504 and HUD’s implementing regulation at 24 CFR part 8. The Deeming Notice provides HUD
recipients the option of using the 2010 ADA Standards (with certain exceptions) as an alternative to UFAS for new
construction or alterations commencing on or after May 23, 2014.
See Section A.5.2.4.5 for a discussion on projects built before July 11, 1988, or before the date of Federal assistance.
State and local governments are required to describe specific measures to make programs accessible. Such measures
vary especially in reference to existing properties. Appropriate state and local officials must be consulted, particularly in
reference to LIHTC transactions.
Adaptable Does Not Mean Deferrable. A common misinterpretation of the Fair Housing Act design and construction
requirements holds that the term “adaptable” contemplates a delay or deferral of the time when “features of adaptable
design” required by the statute or regulations may be completed. This is inaccurate. The “features of adaptable design”
described in the Fair Housing Act design and construction standards are required at original design and construction.
Adaptable for purposes of Section 504 is defined at 24 CFR 8.3 and contemplates limited future physical changes to meet
specific needs of particular persons with disabilities.
A.5.2.2
Implementing and Applying Accessibility Requirements
A. For new construction, all persons or parties involved in design and construction, including but not
limited to Borrowers, Project Architects, and General Contractors are jointly responsible for compliance.
When construction is proposed, design professionals, Lenders, and contractors are obligated to assure
that plans, specifications, and contract documents describe work that will result in such compliance.
B. When developing a scope of work for existing structures, Needs Assessors, registered Architects when
involved, and Lenders must identify the statutes and standards applicable to the property (or particular
buildings or spaces thereof) and describe all deficiencies and violations and specify the work needed to
remedy deficiencies.
C. Lenders must retain persons or firms with particular experience and expertise in the recognition and
evaluation of accessibility issues in the design of new construction or substantial rehabilitation projects
as well as in the preparation of the CNA for existing properties.
1. For substantial rehabilitation, observed deficiencies at existing properties must be itemized and
clearly listed in the Cover Sheet of the plans (or, where General Notes are listed). The plans and specs
must reflect proposed remedies addressing each of the deficiencies.
2. For other existing properties (e.g., Section 223(f) with repairs and alterations), observed deficiencies
and proposed remedies must be described as Accessibility Critical Repairs in the CNA e-Tool.
Accessibility Critical Repairs must:
Address all accessibility deficiencies.
Specify what accessibility requirement is not met in the ‘Scope of Accessibility Compliance’ field.
Describe the remedies with enough details demonstrating that the remedies are appropriate. The
description must be specific enough to be easily inspectable. Describe in the ‘Scope of Required
Replace/Refurbishment’ field.
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A.5.2 Accessibility for Persons with Disabilities
Describe when the work will be completed as ‘Months to Complete.’ When the work involves a
General Contractor, a detailed construction schedule must be submitted as an attachment in the
CNA e-Tool.
Provide any additional information and clarifications in the ‘Comments’ field. For example,
describe any circumstance where the implementation of a remedy to a deficiency would
compromise other architectural design requirements, (e.g., requires the elimination of closet
space).
The Lender must ensure that the schedule requested for corrective action is the minimum
possible given the physical characteristics of the remedies and the reasonably anticipated impact
of the repairs on tenants and or the costs of displacement.
D. In unusual circumstances (e.g., extensive displacement or large scope of work or excessive costs)
accessibility remedies may require more than 12 months to complete. Any corrective work requiring
more than 12 months for completion must be referred to HUD Headquarters to the attention of the
Director of Technical Support (in the case of new applications) or to the Director of the Office of Asset
Management and Portfolio Oversight (in the case of corrective action plans prepared after Endorsement).
E. When completion of remedies for accessibility deficiencies is deferred, the funds required (including
amounts assuring completion) should be provided and disbursed in accordance with the applicable
escrow requirements for Non-critical repairs for new applications under Sections 223(f) or 223(a)(7) of
the National Housing Act or, when no new insured financing is proposed, in accordance with HUD
Handbook 4350.1.
F. Where a deficiency is identified arising from a state or local accessibility requirement that exceeds the
applicable Federal standard(s) and the proposed corrective action does not result in full compliance with
that state or local requirement, it is the responsibility of the owner and/or the Lender to obtain written
confirmation that the proposed corrective work is acceptable to the state or local entity with enforcement
jurisdiction.
G. The Lender must ensure that the professional preparing the plan has skill and experience
commensurate with the scale of work required (see Chapter 5, Section 5.3.1). When compliance with
multiple statutes and standards is required or when design documents are needed, the scope of work
must be prepared by other qualified professionals (e.g., a registered Architect, engineer) retained either
by the owner or the Lender provided that the identity and qualifications of the author(s) are fully
disclosed. All resulting reports and drawings should be attached to the CNA when it is submitted via the
CNA e-Tool.
H. Accessibility Critical repairs listed in the CNA e-Tool does not constitute a safe harbor for compliance
with the Fair Housing Act, Section 504 of the Rehabilitation Act of 1973 or the ADA. Proposed remedies
in the CNA e-Tool do not preclude an individual from filing a fair housing complaint with the Department
and do not preclude the Department from investigating a complaint or pursuing administrative or legal
action under applicable civil rights accessibility laws and regulations to ensure full compliance. Similarly,
any corrective action described in the e-Tool does not preclude the Department of Justice from
investigating or filing a lawsuit for Fair Housing Act, Section 504, or ADA violations.
I. The Fair Housing Act, Section 504 of the Rehabilitation Act of 1973 and the American with Disabilities
Act require owners to make reasonable accommodations (that is, exceptions to or changes in rules,
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policies, practices, or services) and/or reasonable modifications (physical changes to premises) for
persons with disabilities. These requirements are separate and distinct from the requirement to address
accessibility deficiencies identified in a CNA. Reasonable accommodations and modifications will not be
addressed in CNA reports or corrective action plans. References to detailed guidance on reasonable
accommodations and modifications may be found in Section A.5.2.3.3.
A.5.2.3
Summary of Fair Housing Act Requirements
A.5.2.3.1
Fair Housing Act Design and Construction Requirements
A. The Fair Housing Act established certain design and construction requirements for covered
multifamily dwellings built for first occupancy after March 13, 1991. The obligation to comply is
permanent. Compliance must be maintained through any subsequent repairs, replacements, alterations,
or rehabilitation. If covered multifamily dwellings (and any associated common areas) are built for first
occupancy after March 13, 1991 as an addition to an existing property, the added dwellings and common
areas must meet the Fair Housing Act design and construction requirements.
B. Note that “first occupancy” means that the building has never before been used for any purpose. Thus,
the requirements do not apply to any building converted to multifamily use from any other use nor to any
substantial rehabilitation of multifamily buildings that were occupied before March 13, 1991. See 42 USC
3604(f)(3)(C), 24 CFR 100.205 and HUD’s Fair Housing Act Design Manual published at 56 Federal
Register 9472-9515 [Mar. 6, 1991]. “Covered multifamily dwellings” is defined at 42 U.S.C. 3604(f)(7) and
24 C.F.R. 100.201 and means all units in buildings consisting of 4 or more dwelling units if such buildings
have one or more elevators; and ground floor units in other buildings consisting of 4 or more units. A
“ground floor” is a floor of a building with a building entrance on an accessible route. A building may have
more than one ground floor. Buildings consisting of 1, 2 or 3 units do not contain any “covered multifamily
dwellings.”
C. All covered multifamily dwellings must be designed and constructed to have at least one building
entrance on an accessible route unless it is impractical to do so because of the terrain or unusual
characteristics of the site. The burden of establishing impracticality because of terrain or unusual site
characteristics is on the person or persons who designed or constructed the housing facility. Even if a
property meets the impracticability standard for some or all units, it is not wholly exempt from the design
and construction requirements. See24 CFR 100.205(a).
D. There are seven design and construction requirements under the Fair Housing Act as follows:
1. Accessible building entrance on an accessible route.
2. Accessible and usable public and common use areas.
3. Usable doors (all the doors allowing passage into and within the units are sufficiently wide to allow
passage by persons in wheelchairs).
4. Accessible route into and through the covered dwelling unit.
5. Light switches, electrical outlets, thermostats, and other environmental controls in accessible
locations.
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6. Reinforced walls for grab bars in bathrooms (i.e., to allow for later installation of grab bars around the
toilet, tub, shower, stall, and shower seat, where such facilities are provided).
7. Usable kitchens and bathrooms (i.e., such that an individual in a wheelchair can maneuver about the
space).
E. The Needs Assessor must measure clear door openings, wheelchair maneuverability areas, slopes and
cross slopes of sidewalks and other accessible routes, and other dimensioned aspects of the housing to
determine compliance with the Fair Housing Act Accessibility Guidelines or another identified safe harbor
standard recognized by HUD. Measurements should be made in typical or representative units of each
unit type and of typical common spaces and these must be noted and reported. The use of templates or
rods of fixed dimension to confirm measurements not less than (or greater than) required is acceptable.
Photographs are encouraged. It is insufficient to merely state that a project, building, or a particular
feature “appears to” or “seems to” meet (or not meet) the design and construction requirements.
A.5.2.3.2
HUD Recognized Safe Harbors
A. Presently there are ten HUD-recognized safe harbors for compliance with the Act’s design and
construction requirements as listed below. Any one of the referenced safe harbors may be relied upon,
but only when used in its entirety without the designer or builder selecting provisions from more than
one safe harbor or a variety of sources and without any waiver(s) of provisions as might be obtained from
a state or local agency. (See HUD’s final rule Design and Construction Requirements, Compliance with
ANSI A117.1 Standards, published in the Federal Register on October 24, 2008. See Resources, Section
5.2.3.2.A.5, below). When conducting an assessment for a building, the Needs Assessor should use the
safe harbor standard referenced in the original design documents whenever the identity of the standard
is known. If unknown, the Fair Housing Accessibility Guidelines (safe harbor # 1 below) should be used.
The Needs Assessor must name the standard used in the CNA Narrative Section 7.1 of the CNA e-Tool. The
ten safe harbors are as follows:
1. HUD’s March 6, 1991, Fair Housing Accessibility Guidelines and the June 28, 1994, Supplemental
Notice to Fair Housing Accessibility Guidelines: Questions and Answers About the Guidelines.
2. ANSI A117.1-1986 – Accessible and Usable Buildings and Facilities, used in conjunction with the Act,
HUD’s Regulations and the Guidelines.
3. CABO/ANSI A117.1-1992 – Accessible and Usable Buildings and Facilities, used in conjunction with
the Act, HUD’s Regulations, and the Guidelines.
4. ICC/ANSI A117.1-1998 - Accessible and Usable Buildings and Facilities, used in conjunction with the
Act, HUD’s Regulations, and the Guidelines.
5. HUD’s Fair Housing Act Design Manual published in 1996 and revised in 1998.
6. Code Requirements for Housing Accessibility 2000 (CRHA), approved and published by the
International Code Council (ICC), October 2000.
7. International Building Code (IBC) 2000, as amended by the IBC 2001 Supplement to the International
Codes.
8. 2003 International Building Code (IBC), with one condition. Effective February 28, 2005, HUD
determined that the IBC 2003 is a safe harbor, conditioned upon the International Code Council
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publishing and distributing the following statement to jurisdictions and past and future purchasers of
the 2003 IBC:
ICC interprets Section 1104.1, and specifically, the exception to Section 1104.1, to be read together
with Section 1107.4, and that the Code requires an accessible pedestrian route from site arrival
points to accessible building entrances, unless site impracticality applies. Exception 1 to Section
1107.4 is not applicable to site arrival points for any Type B dwelling units because site
impracticality is addressed under Section 1107.7.
9. ICC/ANSI A117.1-2003 - Accessible and Usable Buildings and Facilities, used in conjunction with the
Act, HUD’s Regulations, and the Guidelines.
10. 2006 International Building Code, published by ICC, January 2006, with the 2007 erratum (to correct
the text missing from Section 1107.7.5), and interpreted in accordance with relevant 2006 IBC
Commentary.
A.5.2.3.3
Resources for Fair Housing Act Requirements
A. The Fair Housing Act is codified at 42 U.S.C. §§ 3601-3619. It is posted at:
http://www.justice.gov/crt/about/hce/title8.php with implementing regulations, including 24 C.F.R.
Part 100, posted at: http://www.archives.gov/federal-register/index.html. In particular, see 24 C.F.R.
§§ 100.203-100.205 for the sections on reasonable modifications of existing premises, reasonable
accommodations, and the design and construction requirements.
B. Final Fair Housing Accessibility Guidelines, 56 Fed. Reg. 9472 (Mar. 6, 1991), is available at:
https://www.hud.gov/program_offices/fair_housing_equal_opp/disabilities/fhefhag.
C. Supplement to Notice of Fair Housing Accessibility Guidelines: Questions and Answers about the
Guidelines, 59 Fed. Reg. 33,362-68 (June 28, 1994), is available at:
https://www.hud.gov/program_offices/fair_housing_equal_opp/disabilities/fhefhasp.
D. Fair Housing Act Design Manual (August 1996, Revised April 1998), is available at:
https://www.huduser.gov/portal/publications/PDF/FAIRHOUSING/fairfull.pdf.
E. For how to use the safe harbor standards, see HUD’s final rule Design and Construction Requirements,
Compliance with ANSI A117.1 Standards, published in the Federal Register on October 24, 2008, Section
IV, HUD Policy Regarding HUD-Recognized Safe Harbors for Compliance with the Fair Housing Act’s
Design and Construction Requirements. See 24 CFR 100.205(e) for a list of safe harbors. See 73 Fed.REG.
63610-63616, October 24, 2008 which may be found at: http://www.gpo.gov/fdsys/pkg/FR-2008-1024/pdf/E8-23785.pdf.
F. For specific guidance on the Fair Housing Act’s design and construction requirements, see Joint
Statement of the Department of Housing and Urban Development and the Department of Justice,
Accessibility Design and Construction Requirements for Covered Multifamily Dwellings Under the Fair
Housing Act, April 30, 2013, available at: https://www.hud.gov/sites/documents/jointstatement.pdf.
G. For specific guidance on reasonable accommodations in rules, policies, practices, or services for
particular tenants, see Joint Statement of the Department of Housing and Urban Development and the
Department of Justice, Reasonable Accommodations under the Fair Housing Act (May 17, 2004), available
at: https://www.justice.gov/sites/default/files/crt/legacy/2010/12/14/joint_statement_ra.pdf.
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H. For specific guidance on tenant requests for physical modifications to premises see the Joint Statement
of the Department of Housing and Urban Development and the Department of Justice, Reasonable
Modifications under the Fair Housing Act (Mar. 5, 2008), available at:
https://www.hud.gov/sites/documents/reasonable_modifications_mar08.pdf
I. For Federally Assisted Housing or programs, see also 24 CFR §§ 8.20 to 8.33. For additional technical
assistance, see the Fair Housing Act Accessibility FIRST website at www.fairhousingfirst.org or call the
Fair Housing Accessibility First assistance line at 888-341-7781 on weekdays from 9 a.m. to 5 p.m. ET.
J. See also HUD Office of Fair Housing and Equal Opportunity’s disabilities website at:
https://www.hud.gov/program_offices/fair_housing_equal_opp
A.5.2.4
Section 504 Requirements for Assisted Housing
A.5.2.4.1
Definition of Assisted Housing
A. Section 504 of the Rehabilitation Act of 1973 applies to recipients of Federal financial assistance
(Assistance). The Section 504 regulations define "recipient" as any state or its political subdivision, any
instrumentality of a state or its political subdivision, any public or private agency, institution,
organization, or other entity or any person to which Federal financial assistance is extended for any
program or activity directly or through another recipient, including any successor, assignee, or transferee
of a recipient, but excluding the ultimate beneficiary of the assistance (24 CFR 8.3). Multifamily housing
facilities receiving Assistance from HUD (Assisted Housing) are subject to HUD’s Section 504 regulations,
including all program accessibility requirements.
1. “Federal financial assistance” is broadly defined to include, among many things, grants, loans,
contracts, or other arrangements which may take the form of funds, services from Federal personnel,
community development grants, and the use of real or personal property (24 CFR 8.3). A few but not
exhaustive examples of Assisted Housing subject to Section 504 requirements relevant to FHA loan
transactions include:
HUD funded Section 811 or Section 202 developments and any developments that have projectbased rental certificates or vouchers (i.e., rent supplement, rental assistance program, Section 8
project-based assistance).
A HUD mortgagor receiving a subsidy through the Section 221(d)(3) Below Market Interest Rate
Program or the 236 Rental Housing Program.
Any project assisted with Community Development Block Grant (CDBG), Neighborhood
Stabilization Program (NSP), HOME, or HOPWA (Housing Opportunities for Persons With AIDS)
funds or any contribution of Federal land or services.
As of 2009, the American Recovery and Reinvestment Act (ARRA) and the Tax Credit Assistance
Program (TCAP), which had become added sources of Federal financial assistance for some
multifamily properties.
2. Assistance is provided to the entire property and not to particular buildings or a subset of units, even
when the result of the Assistance is the designation of, or a set-aside of, portions of the property for
affordable housing or other federal objectives. Accordingly, Section 504 requirements apply to the
property as a whole. A property owner’s receipt of housing assistance payments from a recipient on
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behalf of eligible families under a housing assistance payment or voucher program, i.e., tenant-based
rental assistance, does not make a project assisted (24 CFR 8.3). However, a recipient of federal
financial assistance administering tenant-based assistance must, among other requirements, assist
tenants in locating accessible dwelling units (24 CFR 8.28).
3. Owners of Assisted Housing are required to make and pay for physical changes as reasonable
accommodations at the request of tenants or prospective tenants unless doing so would impose an
undue financial or administrative burden on the housing provider (24 CFR 8.4, 8.20, 8.21, 8.24, 8.33).
A.5.2.4.2
Section 504 Requirements for Assisted Housing
A. Federally assisted multifamily housing projects must comply with the requirements in 24 CFR Part 8.
Such properties include properties that were originally built with Assistance or became Assisted
regardless of the time of original construction or receipt of Assistance. HUD’s Section 504 regulations
require that periodic repair and replacement actions and alterations completed at such projects
contribute to a gradual process of change until such time that compliance is achieved. Given that a
significant number of years have passed since the enactment of the law, the assisted properties have had
much time to undergo a gradual process of change to be in full compliance, regardless the date of original
construction.
1. All Federally assisted properties must be either in full compliance with 24 CFR 8.22 requirements for
accessibility or brought to full compliance by remedying the deficiencies identified through the loan
transaction. Such properties must provide:
A minimum of 5% of the units or at least one unit, whichever is greater, for residents with mobility
disabilities;
An additional minimum of 2% of the units or at least one unit, whichever is greater, for residents
with sensory disabilities; and
Accessible common areas and facilities readily usable by persons with disabilities. See 24 CFR
8.21(b); 8.23(b)(1).
2. HUD may prescribe a higher percentage or number upon demonstration of greater need (see 24 CFR
8.22(c)). Compliance with the Uniform Federal Accessibility Standards (UFAS) is deemed to comply
with the accessibility requirements of Section 504 and 24 CFR §§ 8.21, 8.22, 8.23 and 8.25 (24 CFR
8.32). Departures from particular technical and scoping requirements of the UFAS by the use of other
methods are permitted where substantially equivalent or greater access to and usability of the
building is provided (24 CFR 8.32). Additionally, the Deeming Notice (79 Fed. Reg. 29,671 (May 23,
2014)) permits HUD recipients to use an alternative standard for purposes of complying with Section
504 by using the 2010 ADA Standards (with certain exceptions) as an alternative to UFAS for new
construction or alterations commencing on or after May 23, 2014.
3. An exception to the requirements stated above is that for existing properties, an owner is “never
required to undertake a degree of accessibility which would impose undue financial and
administrative burdens” but when alterations were (are) undertaken, accessibility was (is) required
“up to the point of infeasibility or undue financial and administrative burdens.” (53 Fed. Reg. 20216,
20224 (June 2, 1988)). In addition, measures to achieve compliance with UFAS which had “little
likelihood of being accomplished without removing or altering a load-bearing structural member,”
are not required. See 24 CFR 8.32(c).
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When considering the term “undue financial and administrative burden,” Borrowers and Lenders
should understand that the scope of the exemption is narrowly construed. Burden is measured
against the resources not only of the mortgagor entity but also of its Sponsors and members.
The term is also intended to exclude possible remedies that would require an owner to engage in
activities beyond those normal for an owner of multifamily property, e.g. hiring personal aides to
assist tenants in climbing stairs or overcoming similar obstacles to accessibility.
4. Accordingly, the Needs Assessor or inspector should identify deficient accessibility features as
measured against the requirements for new construction described at 24 CFR 8.22. The Lender must
review and evaluate the identified accessibility deficiencies and propose remedies unless the Lender
demonstrates that:
The remedy cannot be accomplished without “removing or altering a load-bearing structural
member”71 or;
The remedy would impose an “undue financial and administrative burden,”
A.5.2.4.3
When Both Section 504 and the Fair Housing Act Apply
A. With respect to physical accessibility requirements, both Section 504 (applies to programs or activities
that receive Federal financial assistance) and the Fair Housing Act (applies to covered multifamily
dwellings designed and constructed for first occupancy after March 13, 1991) may apply. Recipients
subject to both laws must be aware of, and comply with, the requirements of both laws and their
implementing regulations. (See Notice H 01-02).
A.5.2.4.4
ADA 2010 Standards as an Alternative to UFAS
A. In March 2011, the Department of Justice (DOJ), pursuant to its coordination authority under Section
504, advised Federal agencies that they may permit covered entities to use the 2010 ADA Standards for
Accessible Design (the “2010 Standards”) as an alternative to UFAS until such time as agencies update
their regulation implementing the Federally assisted provisions of Section 504. Accordingly, on May 23,
2014, HUD published a notice (the “Deeming Notice”) permitting HUD recipients of Federal financial
assistance to use the 2010 Standards (along with certain additional requirements found in 24 CFR Part 8)
for purposes of complying with Section 504 for new construction, substantial alterations, and other
alterations commenced on or after May 23, 2014. (See citation for the Deeming Notice in Subsection G,
Resources, #2, below.) The Deeming Notice is particularly useful for designers and owners of projects
required to meet both the requirements of Section 504 as well as the 2010 Standards under the ADA, (e.g.,
LIHTC deals with Federal assistance such as HOME or Section 8.)
A.5.2.4.5
Section 504 and UFAS Resources
A. The Uniform Federal Accessibility Standards may be found at United States Access Board:
http://www.access-board.gov/guidelines-and-standards/buildings-and-sites/about-the-abastandards/ufas#intro.
71 The Lender must consult with licensed structural engineer or an Architect
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B. The Deeming Notice was published in the Federal Register on May 23, 2014 at 79 Fed Reg. 29,671 and
may be seen at: https://www.regulations.gov/document?D=HUD-2014-0042-0001.
C. Further information on Section 504 may be found at:
https://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/disabilities/sect
504.
D. A useful Field Inspection checklist and guide may be found at:
https://www.hudexchange.info/resource/796/ufas-accessibility-checklist/.
A.5.2.5
The Americans with Disabilities Act (ADA)
A.5.2.5.1
Title III
A. Title III of the ADA applies to any portion of an insured multifamily property that is a public
accommodation, i.e., a portion of the facility owned, operated, or leased to or by a private entity for use
by, and open to, the general public. This includes any leasing office or facility together with public
restrooms and public lobbies.
1. Common areas available only for use by tenants or the guests of tenants are not subject to the ADA
(but are subject to the Fair Housing Act and/or Section 504).
2. Any commercial uses included in an insured multifamily property are also covered by the ADA. This
includes any retail, office, hotel, or special purpose facility, such as a day care center, senior center,
etc.
3. When evaluating physical characteristics of leased commercial space at insured multifamily projects,
tenant improvements and/or furnishings should not be considered, as they are not a responsibility of
the mortgagor. Particular attention should be given to aspects of accessibility related to the structure,
means of ingress, egress, and public safety (e.g., emergency warnings, exits, etc.).
B. The regulations implementing Title III of the ADA are found at 28 CFR Part 36 and extensive regulatory
and technical assistance is available at http://www.ada.gov/.
C. ADA information and technical assistance is available at 800-514-0301 (voice) and 800-514-0383
(TTY).
A.5.2.5.2
Title II
A. Title II of the ADA obligates state and local governments to make all public programs and facilities
readily accessible to and useable by persons with disabilities if construction or alteration of facilities
began on or after January 26, 1992. This includes the activities and programs of state and local
government housing and community development entities such as state housing finance agencies. A
significant factor is that state housing finance agencies allocate Low Income Housing Tax Credits (LIHTCs),
a funding resource common in the multifamily marketplace. For a time, state and local governments had
a choice of standards to be used to measure compliance but now are required to use the 2010 ADA
Standards. The change in options available over time has resulted in an inventory of LIHTC (and some
other properties) that may have different standards for compliance depending on the year built and the
state or local agency involved. The possible standards and dates are as follows:
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A.5.2 Accessibility for Persons with Disabilities
Date of Construction or Alteration
Applicable Standards
January 26, 1992 to September 15, 2010
1991 ADA Standards or UFAS
On or after September 15, 2010, and before
March 15, 2012
1991 ADA Standards, UFAS, or 2010 ADA Standards
On or after March 15, 2012
2010 ADA Standards
B. Current requirements for new construction are readily discernable: the 2010 ADA Standards. But
requirements that may apply currently to existing properties or that may have applied to existing
properties at the time of construction may be uncertain. When preparing a needs assessment for an
application for a property assisted by a state or local program, the Lender and Needs Assessor should
consult the relevant Qualified Allocation Plan (for LIHTCs) or other state/local program guidance to
determine the standard to be applied and/or directly inquire of the relevant agency concerning the
accessibility requirements applicable to the property.
C. In all cases involving the accessibility requirements of state and local programs, the role of the Lender
and Needs Assessor is to compare the conditions at a specific property to the requirements imposed upon
the state/local program. Whether or not the state or local program properly addresses the requirements
of ADA Title II is not an issue to be determined when underwriting or preparing a CNA for a particular
property.
A.5.2.6
Accessibility and Features of Adaptive Design
A.5.2.6.1
Definition of Accessible
A. For purposes of Section 504, “accessible,” when used with respect to the design, construction, or
alteration of a facility or a portion of a facility other than an individual dwelling unit, means that the facility
or portion of the facility can be “approached, entered and used by individuals with physical handicaps.
The phrase accessible to and usable by is synonymous with accessible”. 24 CFR 8.3.
B. In reference to the Fair Housing Act, 24 CFR 100.201 defines “accessible,” when used with respect to
the public and common use areas of a building containing covered multifamily dwellings, with the same
language as Section 504. However, the Fair Housing Act definition of “accessible” references different
standards (the safe harbor standards, not UFAS) and the premises within the dwellings must include
certain “features of adaptive design” as described in this Appendix 5, Section A.5.2.3 above.
A.5.2.6.2
Accessible Routes
A. For purposes of the Fair Housing Act, an accessible route is defined as a “continuous unobstructed path
connecting accessible elements and spaces in a building or within a site” negotiable by a person with a
severe disability using a wheelchair and that is also safe and usable by persons with other disabilities. 24
CFR 100.201. Any route that complies with ANSI A117.1-1986 or a comparable standard is an accessible
route. For Section 504, 24 CFR 8.3 defines an accessible route as a continuous unobstructed path
connecting accessible elements and spaces in a building or facility that complies with the space and reach
requirements of applicable standards prescribed by § 8.32. Currently UFAS is the standard under 8.32.
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A.5.2 Accessibility for Persons with Disabilities
Accessible Units
A. In regard to dwelling units, the Fair Housing Act requires that all “covered multifamily dwellings” (see
Section A.5.2.3) with a building entrance on an accessible route have accessible public and common use
areas and doors wide enough to allow passage into and within the premises by persons in wheelchairs.
Unit interiors must have the following “features of adaptive design:” an accessible route into and through
the dwelling; light switches, electrical outlets, thermostats and other environmental controls in accessible
locations; reinforcements in bathroom walls to allow later installation of grab bars; and usable kitchens
and bathrooms such that an individual in a wheelchair can maneuver about the space. 24 CFR 100.205(c).
B. By contrast, HUD’s Section 504 regulations require that multifamily housing projects contain a
minimum of 5% of units or at least one unit, whichever is greater, accessible for persons with mobility
impairments and an additional 2% of units or at least one unit, whichever is greater, accessible for persons
with hearing or vision impairments. In circumstances where greater need is shown, HUD may prescribe
higher percentages. Further, accessible units must, to the maximum extent feasible and subject to
reasonable health and safety requirements, be distributed throughout projects and sites and shall be
available in a sufficient range of sizes and amenities so that a qualified individual with disabilities’ choice
of living arrangements is, as a whole, comparable to that of other persons eligible for housing assistance
under the same program. 24 CFR 8.26. An accessible dwelling unit is defined as a unit “on an accessible
route and adaptable and otherwise in compliance with the standards set forth in Section 8.32”.
A.5.2.6.4
Adaptability
A. HUD’s Section 504 regulations permit recipients to construct or convert “adaptable” units. A dwelling
unit is “accessible” when: 1) is on an accessible route, as defined by HUD’s Section 504 regulations and
UFAS; and 2) is adaptable and otherwise in compliance with the standards set forth in 24 CFR § 8.32.
“Adaptable” or “adaptability” means the ability to add or alter certain building spaces and elements (e.g.,
kitchen counters, sinks, and grab bars) to accommodate the needs of either the disabled or nondisabled
persons, or to accommodate the needs of persons with different types or degrees of disability.
“Adaptability,” as defined for Section 504 purposes, does not contemplate adding or altering features in a
manner requiring construction. But for Section 504, “adaptable” does include the concept that a unit
designed in compliance with UFAS may lack certain particular items needed by a tenant (e.g. grab bars or
countertops at a different elevation) and when required by a tenant, such particular items must be
provided at no cost to the tenant.
B. As noted above, the Fair Housing Act requires that the interior of covered units have certain “features
of adaptive design”. The phrase “features of adaptive design” must not be confused with “adaptability” as
defined in HUD’s Section 504 regulations and UFAS. The “features of adaptive design” required by the
Fair Housing Act must be accomplished at the time of construction and not later as alterations or on an
“as needed” basis. Accordingly, needs assessors must not describe any construction required to remedy
accessibility deficiency as “adaptation” and thereby omit from the Critical repairs list, or defer to a later
or “as needed” time.
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Appendix 5 Architectural and Construction Analysis
A.5.3 Seismic Resistance and Fire Protection
A.5.3 Seismic Resistance and Fire Protection
A.5.3.1
Seismic Resistance Standards for Existing Buildings
A.5.3.1.1
General
A. To improve seismic safety in older buildings and to preserve existing housing, project applications for
substantial rehabilitation and refinance/acquisition must comply with the relevant standards published
by the American Society of Civil Engineers (ASCE) and its affiliate, the Structural Engineering Institute
(ASCE/SEI). The relevant standard is ASCE 41-13 Seismic Evaluation and Retrofit of Existing Buildings.
B. For all applications, the Earthquake Spectral Response Acceleration Parameters SXS and SX1 values for
hazard level BSE-1E must be entered in the CNA e-Tool. The values for SXS and SX1 may be obtained from
a Seismic Design Map obtained from tools available online. The US Geological Survey website lists thirdparty Graphical User Interfaces (GUIs) available to use: https://www.usgs.gov/naturalhazards/earthquake-hazards/design-ground-motions
C. The values generated should be entered in the identified spaces for SXS and SX1 in the CNA e-Tool and a
report printout in “.pdf” file format should be attached and uploaded in the e-Tool. The following are the
parameters for generating the SXS and SX1 values that will be used for determining whether a seismic
evaluation will be required:
1. Building Code Reference Document, which must be “ASCE 41-13”.
2. Earthquake Hazard Level analysis procedure, which should be “BSE-1E,” whereas the hazard level
applied in the seismic analysis shall be per ASCE 41-13 requirements.
3. Site Soil Classification, which should be entered as one of the five International Building Code defined
possibilities (1-hard rock, 2-rock, 3-very dense soil and soft rock, 4-stiff soil, 5-soft clay), which may
be obtained from the relevant local building code official with jurisdiction.
4. Latitude & Longitude (or site address) of the property.
D. A seismic hazard and building performance analysis report (Seismic Report) must be submitted with
the loan application unless the property is exempt as described in Section A.5.3.1.2 below.
1. The Seismic Report should include an examination of the structure for continuity, ductility, and
resistance to lateral forces.
2. The analysis shall assume a building performance objective of “life safety” as defined by ASCE 41-13.
3. Mitigation must be provided to meet minimum life safety requirements. In general, this means that
for a design earthquake (i.e. a measure of the anticipated event), the building may be expected to avoid
partial or total structural collapse, or damage to nonstructural components which damage would be
life threatening, e.g., damage leading to fire, blocked egress, release of hazardous materials, etc.
E. Section 223(a)(7) applications. A new Seismic Report is not required if such study was done as part of
the original insurance application. A new report must be submitted with the application if the property
site’s Design Earthquake Spectral Response Acceleration Parameters exceeds the threshold for exempt
buildings as defined below in Section A.5.3.1.2 and no Report was completed previously.
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Appendix 5 Architectural and Construction Analysis
A.5.3 Seismic Resistance and Fire Protection
Exempt Properties
A. Benchmark Buildings. A “benchmark building” is an existing building originally built to or later
retrofitted to an identified design code that equals or exceeds the standards defined by ASCE 41-13. A
licensed design professional experienced with lateral force design must determine whether a building is
a “benchmark building.” The design professional must review the plans (if available) and perform a site
visit to confirm that the building does, in fact, meet the benchmark building code. If a determination
cannot be made by this means, a Seismic Report must be completed.
B. Exempt Buildings. Many buildings are exempt from the seismic hazard and building performance
analysis required by ASCE 41-13. A property composed of exempt buildings as defined below do not
require a Seismic Report:
1. Any single-story, wood or steel frame building with total building area equal to or less than 3,000
square feet.
2. Any single-story accessory building (i.e., no dwellings in structure).
3. Any detached or semi-detached structure where the Design Earthquake Spectral Response
Acceleration Parameter SXS for hazard level BSE-1E is less than .400 g.
4. Any building on a site with both Design Earthquake Spectral Response Acceleration Parameters of:
SXS for hazard level of BSE-1E is less than .330 g; and
SX1 for hazard level of BSE-1E is less than .133 g.
A.5.3.1.3
Fire Protection
A. Fire/smoke detection, alarm, and communication systems must comply with the Life Safety Code,
NFPA 101, for the entire project.
1. The 2006 NFPA 101, paragraph 31.3.4.5.1, states that “approved single station smoke alarms shall be
installed outside every sleeping area in the immediate vicinity of the bedrooms and on all levels of the
dwelling unit, including basements”, and the regulation in 24 CFR 200.76 requires that smoke
detectors must also be installed inside each sleeping area.
2. Accordingly, smoke detectors must be installed:
Inside all bedrooms;
Outside every sleeping area in the immediate vicinity of the bedrooms,; and
On all levels of the dwelling unit, including basements.
3. For Section 223(f) & 223(a)(7) projects, installation of required smoke detectors is a Critical repair.
4. The regulation does not specify whether the required smoke detectors must be hard wired or battery
powered. However, Section 3.3.9.1 of NFPA 101 permits a battery-operated device.
For substantial rehabilitation projects, regardless of the scope of work, hard-wired (for power)
smoke detectors with interconnectivity are required.
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Appendix 5 Architectural and Construction Analysis
A.5.4 Construction/Architectural Documents for Firm Commitment
Considering the difficulty, time, and expense of feeding electrical wiring through the walls of
existing buildings, battery-operated smoke detectors are acceptable in Section 223(f) and
223(a)(7) projects.
If battery powered, the smoke detectors must have power cells with the following characteristics:
1) The cells must have a ten-year life.
2) The cells must be tamper resistant.
3) The cells cannot be used in any other toy or appliance.
4) The smoke detector may have a manual (but not automatic) silencing device to clear
unwanted alarms such as cooking smoke.
5) Smoke detectors as described above must appear to meet the intent of the smoke alarm
requirements in Section 9.6.2.10 of NFPA 101.
B. Any new construction must have a sprinkler system as required by NFPA 101.
C. For substantial rehabilitation, Level 3 Alterations must comply with NFPA 101 fire protection
provisions for new construction.
D. New additions must be separated from existing structures, even if the entire facility is included under
one mortgage. Separation must equal or exceed:
1. Two-hour rated firewall;
2. One and one half (1 ½) hour protected openings; and
3. Class B labeled fire doors;
E. New construction of additions in substantial rehabilitation projects must comply with standards for
new construction.
A.5.4 Construction/Architectural Documents for Firm
Commitment
A.5.4.1
Required Exhibits for New Construction
A. Property site related exhibits must include the following
1. Location map;
2. Aerial photograph or satellite images for each site showing existing conditions and full site labeled by
property name and site address;
3. Soils investigation, geotechnical and foundation design report.;
4. USGS Seismic Threshold Report;
5. Municipal and utility company letters of confirming availability of service; and
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Appendix 5 Architectural and Construction Analysis
A.5.4 Construction/Architectural Documents for Firm Commitment
6. Documents evidencing site ingress and egress and other general criteria per MPS (Handbook 4910.1)
Chapter 2.
B. Property legal exhibits must include the following:
1. Zoning compliance and Building Department Review permit, including Fire Department approval;
2. City/County Health Officer’s report/permit, where private water supply or sewage treatment systems
are involved; and
3. Drafts of proposed joint use, access, and maintenance agreements where common use easements are
anticipated.
C. Construction Documents must include:
1. Drawings and Specifications conforming to Section A.5.5; and
2. Offsite Construction descriptions conforming to Section A.5.5.
D. Contracts and Certifications must include:
1. AIA B108 with HUD Amendment to AIA Document B108 (form HUD-92408-M);
2. Section A.5.8.1 Architect’s Certification;
3. Form HUD-92442M, Construction Contract; and
4. AIA A201 with HUD Supplementary Conditions to the Contract for Construction (HUD 92554M).
E. Architectural and cost analysis report, with cost related exhibits must include:
1. Architectural Analysis Report;
2. Cost Analysis Report;
3. Form HUD-2328, Contractor’s and/or Mortgagor’s Cost Breakdown;
4. Form HUD-92326, Project Cost Estimate; and
5. Form HUD-92331-B, Cost Certification Review Worksheet.
F. The CNA e-Tool must include required data to produce the following:
1. Completed physical inventory of the property to be constructed (i.e., assessment entry screens for
Sites, Buildings, Unit Types, Units and Common Spaces, Parking, Components, Alternatives and
Recommendations, and Financial Factors).;
Units Inspected and Narrative Sections are not required to be completed.
TCO (Total Cost to Operate) and Energy-related fields are required only for Green MIP and
underwriting energy savings transactions.
2. Estimate of Replacement Costs (form HUD-92329, Schedule of Insurable Values Report) related
information; and
3. Financial Factors, Future Needs, and Financial Schedule/Estimate Period Recap for Reserve for
Replacement escrow deposit amounts.
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Appendix 5 Architectural and Construction Analysis
A.5.4 Construction/Architectural Documents for Firm Commitment
Required Exhibits for Substantial Rehabilitation
A. Property Site Related Exhibits must include the following:
1. Location map;
2. Aerial photograph or satellite images for each site showing all structures and full site labeled by
property name and site address.;
3. USGS Seismic Threshold Report; and
4. A seismic report per Section A.5.3 for existing properties if the values for SXS and SX1 exceed
prescribed parameters.
B. Property Legal Exhibits must include the following:
1. Certificate of Occupancy or Final Inspection Report, if available, or a statement from the jurisdiction
with building and/or zoning code enforcement authority recognizing any legal non-conforming use;
2. Municipal Code Violation Report/Clear Report, and Fire Marshall’s Report/Clear report;
3. City/County Health Officer’s report/clear report where private water supply or sewage treatment
systems are involved; and
4. Zoning compliance and Building Department Review permit, including Fire Department approval for
the proposed rehabilitation.
C. Property Physical Condition Related Exhibits must include the following:
1. Set of as-built plans, if available. This may be submitted separately if the file size is prohibitive or
included in the plans and specs;
2. Joint Inspection Report (per Chapter 5, Section 5.9.2.A.2) and Scope of Work Summary (per Chapter
5, Section 5.9.3.A.3);
3. Any O&M plans in use or proposed for use at the property (e.g., Lead Based Paint, Asbestos Containing
Material); and
4. The Borrower’s written narrative describing the operational policy to distinguish capital needs versus
operating expense items for maintenance (see Section A.5.7.1) when the Borrower proposes or claims
to include capital expenditure items in the operating expense.
D. Construction Documents must include:
1. Drawings and Specifications conforming to Section A.5.5; and
2. Offsite Construction descriptions conforming to Section A.5.5.
E. Contracts and Certifications must include:
1. AIA B108 with HUD Amendment to AIA Document B108 (form HUD-92408-M);
2. Section A.5.8.1 Architect’s Certification;
3. Form HUD-92442M, Construction Contract; and
4. AIA A201 with HUD Supplementary Conditions to the Contract for Construction (HUD 92554M).
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A.5.4 Construction/Architectural Documents for Firm Commitment
F. Architectural and Cost analysis report, with cost related exhibits must include:
1. Architectural analysis report;
2. Cost analysis report;
3. Form HUD-2328, Contractor’s and/or Mortgagor’s Cost Breakdown;
4. Form HUD-92326, Project Cost Estimate; and
5. Form HUD-92331-B, Cost Certification Review Worksheet.
G. The CNA e-Tool must include required data to produce the following:
1. Completed physical inventory of the property to be constructed (i.e., assessment entry screens for
Sites, Buildings, Unit Types, Units and Common Spaces, Parking, Components, Alternatives, and
Recommendations, and Financial Factors);
Units Inspected and Narrative Sections are not required to be completed.
TCO (Total Cost to Operate) and Energy-related fields are required only for Green MIP and
underwriting energy savings transactions.
2. Estimate of Replacement Costs (form HUD-92329, Schedule of Insurable Values Report) related
information; and
3. Financial Factors, Future Needs and Financial Schedule/Estimate Period Recap for Reserve for
Replacement escrow deposit amounts.
A.5.4.3
Required Exhibits for Refinance or Acquisition
A. Property site related exhibits must include:
1. Location map;
2. Aerial photograph or satellite images for each site showing all structures and full site labeled by
property name and site address;
3. USGS Seismic Threshold Report; and
4. A seismic report per Section A.5.3 for existing properties, if the values for SXS and SX1 exceed
prescribed parameters.
B. Property Legal Exhibits must include:
1. Certificate of Occupancy or Final Inspection Report, if available, or a statement from the jurisdiction
with building and/or zoning code enforcement authority recognizing any legal non-conforming use;
2. Municipal Code Violation Report/Clear Report, and Fire Marshall’s Report/Clear report; and
3. City/County Health Officer’s report/clear report where private water supply or sewage treatment
systems are involved.
C. Property Physical Condition Related Exhibits that must be attached to CNA e-Tool are as follows:
1. Set of as-built plans, if available. This may be submitted separately if the file-size is prohibitive;
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A.5.4 Construction/Architectural Documents for Firm Commitment
2. Supporting documents and Reports for describing the condition of the property such as Intrusive
Inspection Reports, etc., as relevant;
3. While photos or text documents may be attached to address a particular component or topic, it is
recommended that the Needs Assessor and/or Lender assemble photography and comments in a
single or multiple pdf documents organized by Need Category, i.e., by ASTM outline, e.g., 3.2 Site, 3.3
Mechanical & Electrical Systems, etc. These attachments should cover all Need Categories identified
at the property. See the Standard Estimated Useful Life Table for Need Categories. Annotated
photography for existing properties must show and be organized as follows:
Sites and buildings, unique and typical common spaces, each unit type (but not model units used
for marketing purposes), including all rooms and baths, and typical conditions together with any
photos necessary to document specific locations and/or the nature or content of immediate
repairs. Photos of unit types should include any common areas (hallway, breezeway, elevator)
that must be transited to access the unit;
If Fair Housing Act units or designated UFAS accessible units are present, photographs of one unit
of each unit type that is covered or designated. These photos should include documentation of
compliance (or not) with dimensional requirements;
Where distinct conditions characterize groups of units, (e.g., renovated units vs. un-renovated
units), photos of the unit of each distinct condition as though the distinct condition defined a
separate unit (e.g., 1-BR/1-BA renovated vs. 1-BR/1-BA unrenovated); and
Annotated or labeled photos indicating the location (building and/or unit or location on site) as
well as the description of the photographed object and relevant comments, if any.
4. Any O&M plans in use or proposed for use at the property (e.g., Lead Based Paint, Asbestos Containing
Material).; and
5. The Borrower’s written narrative describing the operational policy to distinguish capital needs versus
operating expense items for maintenance (see Section A.5.7.4.1), when the Borrower proposes or
claims to include capital expenditure items in the operating expense.
D. Hired Third-Party and Professionals Related Exhibits must include the following:
1. A statement of qualifications and experience for the Needs Assessor unless such a statement has been
entered on the “Narrative” section of the CNA e-Tool;
2. Third-party certifications for the Lender’s Needs Assessor consistent with Chapter 11, Section 11.2.3;
3. If a Project Architect has been retained, include:
The Architect’s resume and other supporting documents evidencing qualification
The Owner-Architect Agreement, AIA B104;
The Project Architect’s certification for a refinancing transaction substantially in the form of
Section A.5.8.2;
Plans and Specifications, file size permitting (otherwise, submit separately);
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
The plans and specifications, to be submitted at the time of closing in the same manner as the
requirements described for new construction or substantial rehabilitation applications. (See
Chapter 5, Section 5.8.3.A.4 and Section 5.8.3.A.5); and
Lender’s 223(f) Repairs & Alterations Cost Worksheet (See Section A.5.12).
4. If a General Contractor has been retained, submit the following:
The General Contractor’s resume and other supporting documents evidencing qualification;
The Owner-Contractor Agreement, AIA A104, which incorporates the lists of repairs and
alterations as well as the Project Architect’s plans and specs by reference;
Detailed Construction Schedule, in addition to the "Months to Complete" entries for the listed
repairs in the CNA e-Tool. Note that repairs that correct accessibility deficiencies must be
completed as soon as possible, notwithstanding the standard 12-month term of the Repair
Escrow; and
The contractor's cost breakdown of the total estimate that is consistent with Chapter 5, Section
5.3.3.5.
E. The CNA must be fully completed within the CNA e-Tool, per Appendix 5, Section A.5.7.
A.5.5 Firm Commitment Drawings and Specifications
A.5.5.1
New Construction and Substantial Rehabilitation
A. A cover sheet must include the following:
1. Project name and identification number;
2. Spaces for signatures of Project Architect, Architect administering contract, owner, contractor,
Lender, and bonding company;
3. Tabulation of units, buildings, and parking spaces with gross square footages and net rentable square
footages, including:
Number of units for each type;
Number of units and type in each building;
Non-rental living unit; and
Number of parking spaces, open, covered, common area garage spaces, in-unit garage spaces
(garage part of dwelling unit and available only to tenant of that unit), and accessible standard,
van and covered spaces.
B. The package must include an index of drawings by name, numbered consecutively, with date of
preparation and latest revision date. Consecutive numbering is required for each drawing category
(Architectural, Land Improvements, Structural, Plumbing, HVAC, Electrical, etc., shown as A-1, A-2, A-3…
L-1, L-2, L-3, etc.), but absolute consecutive numbering of the entire set is optional and would appear only
in addition to the categorical numbering.
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
C. ALTA/ACSM Land Title Survey including items 5 and 6a and 6b of Table A of the ALTA/ACSM Minimum
Standard Detail Requirements at a scale of 1” = 40’ dated not more than 6 months prior to the date of
application for Firm Commitment must also be included. Note that the survey and the HUD 91073M must
be updated and certified not earlier than 120 days before initial endorsement.
D. A proposed plot plan/site plan at a scale not less than 1” = 40’- 0” must be included, which shows the
following:
1. Land boundaries, dimensions, and North Point;
2. Streets, alleys, or roads adjacent or within the property boundaries, together with walks, curbs,
pavements, steps, ramps, play areas, parking areas, and drying yards, and utilities such as gas, water,
electric, and sewer lines:
Dimension or size with distance from location points, material indication for such items as walks
and pavements, and extent of each; and
Indications of “new” or “existing” and public dedication of any streets or alleys in the project;
3. Buildings, building designations, location dimensions, and overall dimensions;
4. Elevations of first floor, elevations of finish and existing grade at building corners and entrances,
elevations of curbs and streets, and invert elevations of main sewer and direction of flow;
5. Utilities servicing the property, or distance to point of connection and utility lead-ins of service
connections; yard lighting; lawn hydrants and lawn sprinkler systems with the pipe sizes and
controls; drains; and fire hydrants;
6. Retaining and garden walls, fences, guard rails, garages and accessory structures, with dimensions;
and
7. Existing trees and other natural features and whether they are to be removed or preserved.
E. Grading and drainage plan at a scale not less than 1” = 40’- 0” when essential information cannot be
clearly shown entirely on the plot plan/site plan must show the following:
1. Grade elevations at all building corners and at entrances, walks, drives, parking areas, terraces, yards,
walls and steps, and first floor elevations. Existing and proposed grading contours at appropriate
intervals; and
2. Yard and roof drainage with controlling grades and dimensions of drainage lines, culverts, catch
basins, drainage inlets, gutters, curbs, drainage disposals, and any existing facilities.
F. A planting plan at a scale not less than 1” = 20’- 0,” must include the following:
1. Outline of buildings and other improvements with physical features of the site to establish the location
and relationship of planting and landscape construction;
2. Distribution of plant material, location, quantity, and key number of each general species in each
group; outline of planting beds, primary lawn areas, secondary lawn areas, and existing trees to be
preserved or transplanted; and
3. List of plant material using English and Latin names, key number for each variety for reference to plan,
and the size, quality or other description.
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
G. Basement plans for each building type at a scale not less than 1/8” = 1’- 0” (foundation plans when no
basements) must include the following:
1. Dimensions and names indicating use of spaces, with the layout of permanent equipment;
2. Location of structural elements with dimensions or notes as to thickness and size; windows; vents;
areaways; doors; lights and switches; drains; sumps; etc. Unless there is a separate foundation plan,
this plan must show locations and size of footings, piling, and other substructure work; and
3. Large-scale drawings or details of spaces not clearly shown.
H. Floor plans must include the following
1. Unit floor plans at a scale not less than ¼” = 1’- 0” for each basic type living unit and any major
variation. Separate unit plans are not required when the general floor plans are provided at ¼-inch
scale and contain all essential information:
Partitions to scale; rooms, closets and hall dimensions; over-all dimensions; window locations
and type designations referring to schedule showing design, thickness, and size; and dimensioned
stair locations, runs and width, landings and handrails;
Plumbing fixtures; soil and vent stacks; kitchen cabinets and equipment; electric lights; switches,
receptacles, and special power outlets; closet shelving and clothes rods; radiators or other heating
devices, chimneys, and all other such items;
Location of structural elements such as columns, lintels, joists, beams, girders, and bearing
partitions. Show sizes, spacing and direction of members. Separate structural drawings are
required where the structural information would obscure other information;
All conditions where units are to join other units; end-unit conditions; and
Identification of living unit types by a number or letter.
2. General floor plans at a scale not less than 1/8” = 1’- 0.”must be included, which show the following:
Dimensional relation of living and building units with over-all dimensions of building units and
buildings, partition arrangement and fenestration of end units, units at corners and units at
offsets; other partitions as necessary to show variations from the typical unit plans and relation
of rooms in adjacent living units; wall separating building units;, and their material and thickness;
and
Buildings and those units identified by numbers or letters.
I. Roof plans at a scale not less than 1/8” = 1’ – 0” must include the relation of intersection of the various
building unit roofs; direction of slops; parapets, chimneys, vents, and other projections; and downspout
locations and sizes. Omit where the essential information can be shown clearly on the plot plan or other
drawings.
J. Elevations:
1. General elevations at a scale not less than 1/8” = 1’- 0.” Exterior design of all sides of buildings with
existing and proposed grades at buildings, floor lines and elevations, floor height dimensions, roofs,
attic vents, parapets, cornices, downspouts, openings, material notes, and other essential features.
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
2. Typical elevations at a scale not less than ¼” = 1’- 0” to show portions of facade with a special exterior
design. Show materials, jointing, special features, windows, doorways, cornices, parapets, and details.
K. Plans must describe sections as follows:
1. Outline sections at a scale not less than ¼” =1’- 0”. Show various height conditions, cross-sectional
characteristics, and floor level relations, when other drawing information is not adequate;
2. Detail sections at a scale not less than 3/8” =1’- 0”. Show each type of exterior wall and bearing wall
or partition, from footings to roof; and
3. Exterior wall sections at a scale not less than 3/8” =1’- 0”. Show complete construction of walls with
thickness at various stories, floors, furring, waterproofing, ceilings, roofs, including pitch and
flashings, room heights, anchorage and bearings, cornice and gutter, insulation, vapor barrier,
foundation walls and footings, conditions at various basement depths, basement floors or access
space, roof space, and attic and foundation vents.
L. Details at a scale not less than 3/8” =1’- 0” must be provided as shown below except where such
features do not occur:
1. Front and rear entrances, plan of each with elevations and sections;
2. Stair plans and sections showing stringers, treads, risers, newels, balusters, handrails, rise, run, and
headroom;
3. Kitchen cabinet plans, elevations, and sections;
4. Bathroom plans with elevations showing accessories and cabinets;
5. Standard location and elevation for electrical outlets, switches, and controls;
6. Entrance lobbies;
7. Platforms and areaways; and
8. Special exterior and interior details, such as bay windows, dormers, cupolas, vents, fireplaces, and
built-in furniture.
M. Schedules must include the following
1. Door schedule that indicates the size, thickness, material, and design of each door, with plan
identification. For fire doors, the rating must be shown;
2. Window schedule that indicates the size, thickness, materials and design of each window, with plan
identification; and
3. Finish schedule that indicates the material and type finish of floors, base or wainscot (with height),
walls, ceilings, and trim for various rooms or spaces.
N. Drawings and details as appropriate, with complete structural information, must be provided when
such information cannot be shown on general drawings without obscuring other information.
O. Mechanical/Electrical/Plumbing (MEP) plans must be provided, including for heating, , cooling,
plumbing and electrical layouts on separate drawings unless the systems are simple enough to be shown
on other drawings. Include all pertinent design data. Show special mechanical installations separately.
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
1. Heating drawings for each system:
Location and size of boilers, furnaces, or heaters; the make, model number or type of fuel input
and net heat output of each;
Layout, location, and sizes of supply and return piping, ducts, risers, and branches, and insulation
locations;
Location, sizes and output in BTU of radiators, registers, grille, and panel surfaces, valves, vents,
traps, dampers, and other accessories, as well as make, model number or type of each;
Make, model number, and firing rate of all firing equipment, and similar detailed data on other
components of each system, such as controls, pumps, blowers, and filters.
Location, type, manufacturer’s name, and model number of domestic water heating and related
equipment including storage, arrangement and sizes of connecting piping; make and model
number and other pertinent information for control equipment and safety devices;
Design data for the system, including outside design temperature, boiler operating temperature,
BTU output, pressure or temperature drops, air temperatures at registers, pump or fan capacities,
volumes, and velocities; heat loss of each building and total calculated heat load connected to each
heating system; net output in BTU of each boiler and system; and
Design data for each domestic hot water system and, when connected to a heating system, the
additional heat load included in the total for the connected system.
2. Plumbing drawings:
Horizontal sewer and drain systems with soil, waste, and vent stacks; branch wastes and vents;
drains, cleanouts, traps, sump pumps, etc., connections to sewer, sizes of lines and stacks.
Diagram of typical stack including soil, waste, and vents;
Cold water distribution system, size of mains and branches, location of hose bibs, valves, and
drains;
Hot water distribution system together with circulating lines and pumps, valves, sizes of mains,
and branches; and
Gas distribution system, size of mains and branches, meters, etc.
3. Electrical drawings:
Service lines, primary distribution and secondary distribution, service characteristics and wire
sizes;
Meter and panel locations and manner of mounting;
Interior distribution and wiring of typical units;
Lights, receptacles, switches, special purpose outlets, and connections to equipment if not on the
architectural plans;
Yard and grounds lighting and lighting of all public and common spaces and controls;
Power riser diagram and switchboard schedule;
Fire detection and alarm system riser diagram and schedule; and
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
Symbol list.
4. Air conditioning drawings:
Locations, cooling capacity, and horsepower of compressor; cooling tower condensing units; and
individual cooling units. Include make, model number, and rating of each;
Layout of system including ducts, grilles, registers, diffusers, pipe sizes, and location of valves,
vents, dampers and controls;
BTU load for each space, size, and rating of equipment;
Design data for the system, including: CFM space requirements; blower ratings, type condenser
cooling; inlet and outlet water temperature; and GPM water-flow rate; and
Electric wiring layout, location of motors, fans, pumps, switches, and their load requirements.
P. Drawings and specifications for any new construction and/or substantial rehabilitation projects
require at Firm Commitment must include other drawings required by Lender.
Q. Appropriate general and supplementary conditions and Davis-Bacon wage rates (where applicable)
must be included.
R. Contract specifications must be included, using a currently supported version of CSI Master Format
specifications of the Construction Specifications Institute (CSI):
1. Describe all materials, equipment, and construction and include two, and preferably three,
comparable products where practicable, or specify by performance characteristics;
2. Include the latest edition of the “General Conditions of the Contract for Construction”, AIA Document
A201;
3. Fully describe all materials, including alternatives, and do not use general references to HUD’s
Minimum Property Standards. Do not include the words “or equal”;
4. Divide into sections separately describing the work to be done by each trade essential to project
completion. Consecutive page numbering is required for each trade category (Concrete, Masonry,
Metals, etc.), but absolute consecutive numbering of the entire specification is optional and would
appear only in addition to the trade numbering. Include the following items:
A cover sheet including the title of project, the Lender, project number, project location, and a
signature block setting forth:
IDENTIFICATION
Architect
Owner
Contractor
Lender
Bonding Co.
Date
(Print Name) by (Signature)
Print Name) by (Signature and Title)
(Print Name) by (Signature and Title)
(Print Name) by (Signature and Title)
(Print Name) by (Signature and Title)
(Print Name) by (Signature and Title)
An index, including.
1) Divisions with name:
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Appendix 5 Architectural and Construction Analysis
A.5.5 Firm Commitment Drawings and Specifications
a) Trade, name and page number; and
b) Trade section, name and page number; and
2) Pages numbered consecutively.
Conditions, including:
1) General Conditions of the Contract for Construction, AIA Document A201, latest edition;
2) Supplementary Conditions of the Construction Contract, form HUD-2554, latest edition; and
3) Architect’s supplementary conditions, if any.
Trade sections, which must include:
1) Complete description of all work to be performed. This will include scope of work, materials,
and workmanship; and
2) Necessary specific instructions for coordinating the work with other trades.
Methods of Specifying the following
1) Performance. List required qualities of products and assemblies and end result.
2) Reference Standards. Incorporate references to nationally recognized standards published
by industry associations, testing organizations and government, such as American National
Standards Institute (ANSI), Underwriters’ Laboratories (UL), and Department of Commerce
(DOC).
3) Proprietary. List products and assemblies by manufacturer or brand name, and grade or
model.
a) Include at least two comparable.
b) Use a single brand only if there is no comparable.
Not acceptable.
1) Use of the words “or equal”.
2) Reference to HUD or HUD publications, such as:
a) Minimum Property Standards (MPS),
b) Materials Bulleting (UM),
c) Materials Releases (MR), and
d) Structural Engineering Bulleting (SEB).
3) Cash or lump sum allowances.
S. Offsite Drawings and Specifications
1. Offsite improvements are those required to service the project but outside of the property boundary
lines:
Include utilities, walks, curbs, gutters, streets, drainage structures, landscaping, and similar
improvements beyond the property lines; and
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
Do not include short extensions of utilities, walks, drives, drainage structures and similar
improvements beyond the property lines which connect with those next to the property lines.
2. Offsite improvements may be included in the overall contract drawings and specifications, but the
extent must be clearly defined on the plot plan and in the specifications.
3. While offsite information may be included in the overall contract drawings and specifications, a set of
complete separate offsite drawings and specifications are preferred.
T. For utility analysis, see Chapter 6.
A.5.6 HUD Architectural Review Report Format
A. The following review reports formats are to be used to document Technical Reviews. The Technical
Support Division Branch Chiefs and Production Division Directors have discretion to approve
modifications or alternative formats.
A.5.6.1
Pre-Application Exhibits
A. HUD Architectural Review Report for Pre-Application Exhibits
HUD Office Name:
Pre-Application Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
B. Summary of HUD Architectural Review:
1. Architectural/Engineering exhibits (including Project Architect’s draft Scope of Work Summary and
Joint Inspection Report per Chapter 5, Section 5.9.2 for substantial rehabilitation projects). If
incomplete or unacceptable, specify and indicate reasons.
2. Development team (e.g. Borrower, design professionals, General Contractor) experiences and
qualifications. If not acceptable, indicate reasons.
3. Conformance to HUD Standards as listed in Chapter 5, Section 5.4. If not acceptable, indicate reasons.
4. Site conditions:
Placement of residential building(s).
Site ingress and egress related issues, including easements.
Access to public utilities, including required offsite work.
Unusual site conditions.
Applicable accessibility requirements and any prohibitive conditions.
If not acceptable, indicate reasons.
5. Residential building(s):
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
Lobby floor.
Typical floor.
Typical apartment layout(s):
1) Size and marketability (determined by appraiser); and
2) Acceptability of design.
Structural system.
Exterior finish.
Rehabilitation of roof/roofing (for substantial rehabilitation).
Applicable accessibility requirements.
If not acceptable, indicate reasons.
C. I have reviewed the subject project and hereby make the following recommendation(s):
Reviewer:
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence:
Name of Team Leader:
Signature and Date of Concurrence:
Date:
A.5.6.2
Lender’s Architectural Analyst’s Report for Firm Exhibits
A.5.6.2.1
New Construction
A. HUD Architectural Review of Lender’s Architectural Analyst’s Report for Firm Exhibits–New
Construction.
HUD Office Name:
Firm Commitment Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
B. Include Section A.5.6.1 (Section A.5.6.1.B.2 and Section A.5.6.1.B.3) if processing direct to Firm
Commitment Application.
C. Summary of HUD Architectural Review:
1. Architectural/Engineering exhibits, per Section A.5.4.1. If incomplete or unacceptable, specify and
indicate reasons.
2. Architectural Analysis and Review Reports by Lender’s Construction Analyst (per Chapter 5, Section
5.7.3.A.16):
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
Site design and conditions;
Building and building systems design;
Design features unusual for the particular structure type and/or system; and
Accessibility:
1) Any noncompliance with Fair Housing Act Design and Construction requirements?
2) Any noncompliance with UFAS or the Deeming Notice for assisted housing?
3) Any noncompliance with Title III of the ADA?
If not acceptable, indicate reasons.
3. CNA e-Tool data entries (see Chapter 5, Section 5.7.3.A.11):
Review of Architecture and Engineering (A/E) portion of Lender’s completed form HUD-92264
and the CNA e-Tool entries for accuracy with respect to property characteristics and other A/E
related.
Physical inventory (e.g., sites, buildings, units, components, and replacement alternatives)
consistent with the Architect’s plans and specs.
Estimate of replacement costs (form HUD-92329, Schedule of Insurable Values).
Financial plan for funding future capital replacement needs, per Section A.5.7. Future
replacements are consistent with owners proposed distinctions between capital items and
operating expense.
If not acceptable, indicate reasons.
4. Review of Construction Contracts:
AIA B108 and Amendments and Project Architect’s certification, per Chapter 5, Section 5.2.3.
Owner Contractor Agreement, Supplementary Conditions, Construction Contract, per Chapter 5,
Section 5.5.
Identities of interest disclosed and acceptable.
If not acceptable, indicate reasons.
5. Energy related requirements per Chapter 6. If not acceptable, indicate reasons.
D. I have reviewed the subject project and hereby make the following recommendation(s).
Reviewer:
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence:
Name of Team Leader:
Signature and Date of Concurrence:
Date:
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
Substantial Rehabilitation
A. HUD architectural review of Lender’s Architectural Analyst’s report for firm exhibits – substantial
rehabilitation:
HUD Office Name:
Firm Commitment Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
NOTE: The following summary of Section 504 applies to any housing that has ever received
Federal assistance, such as Project-Based Section 8, CDBG, HOME funds, etc. (see Section A.5.2 for
definition of “Federally assisted.”)
B. Summary of Section 504 of the Rehabilitation Act of 1973 and 24 CFR Part 8 - Uniform Federal
Accessibility Standards (UFAS) Requirements or the Deeming Notice (See Section A.5.2):
Any property built with assistance, or became assisted prior to July 11, 1988 has been obligated since such
time to bring the property into compliance with UFAS or the Deeming Notice requirements (including 5%
of total units as mobility accessible and 2% of total units as sensory accessible units) through any
replacements and alterations that took place over time, unless particular elements of compliance required
alteration of a load-bearing wall or would have caused an undue financial and administrative burden (see
24 CFR 8.23).
In the decades since 1988 significant compliance should have been achieved. Some existing properties
may have become assisted after 1988 and compliance should, (but may not), have been achieved at the
time of assistance and these properties also must make all replacements and alterations conform so as to
achieve compliance over time as well as addressing the needs of disabled tenants. No assisted property is
exempt. All must either be in compliance or must be progressing toward compliance subject only to
forbearance for particular items of non-compliance by reason of the “load bearing wall” and the “undue
financial and administrative burden” exemptions.
C. If processing direct to Firm Commitment Application, include Section A.5.6.1 (Section A.5.6.1.B.2 and
Section A.5.6.1.B.3.
D. Summary of HUD Architectural Review:
1. Architectural/Engineering exhibits, per Section A.5.4.2. If incomplete or unacceptable, specify and
indicate reasons.
2. Review of Physical Conditions and Scope of Work.
Physical conditions:
1) Condition of project and assessed RUL of components justified; photography supports
assessment, level of investigation consistent with age, type of construction and condition of
the buildings.
2) If Seismic risk thresholds are exceeded and a seismic analysis and report are required per
Section A.5.3, recommended retrofits have been included in scope of work.
Rehabilitation Scope of Work:
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A.5.6 HUD Architectural Review Report Format
1) Proposed rehabilitation work as described in Scope of Work Summary address identified
deficiencies, repair needs, obsolescence and other improvement needs consistent with Joint
Inspection Report and other due diligence reports.
2) Plans and specs describe all the proposed work, consistent with Scope of Work Summary and
in compliance with Section A.5.5.
3) Expected future repair, replacement, and major maintenance needs account for proposed
rehabilitation as well as assessed condition of all other capital items not repaired or replaced
as part of the rehabilitation.
If not acceptable, indicate reasons.
3. Architectural Analysis and Review Reports by Lender’s Construction Analyst (per Chapter 5, Section
5.7.3.A.16).
Site design and conditions.
Building and building systems design.
Design features unusual for the particular structure type and/or system.
Accessibility:
1) Any noncompliance with Fair Housing Act Design and Construction requirements?
2) Any noncompliance with UFAS or the Deeming Notice for assisted housing?
3) Any noncompliance with Title III of the ADA?
If not acceptable, indicate reasons.
4. CNA e-Tool data entries.
Complies with the requirements in Chapter 5, Section 5.7.3.A.11.
Complies with the requirements in Chapter 5, Section 5.9.3.A.4 and Section 5.9.3.A.6.
Review of Architecture and Engineering (A/E) portion of Lender’s completed form HUD-92264
and the CNA e-Tool entries for accuracy with respect to property characteristics and other A/E
related exhibits.
Physical inventory (e.g., sites, buildings, units, components and replacement alternatives)
consistent with the Architect’s plans and specs.
Estimate of replacement costs (form HUD-92329, Schedule of Insurable Values).
Financial plan for funding future capital replacement needs, per Section A.5.7. Future
replacements are consistent with owners proposed distinctions between capital items and
operating expense.
If not acceptable, indicate reasons.
5. Review of Construction Contracts.
AIA B108 and Amendments and Project Architect’s certification, per Chapter 5, Section 5.2.3.
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
Owner Contractor Agreement, Supplementary Conditions, Construction Contract, per Chapter 5,
Section 5.5.
Identities of interest disclosed and acceptable.
If not acceptable, indicate reasons.
6. Energy related requirements per Chapter 6. If not acceptable, indicate reasons.
E. I have reviewed the subject project and hereby make the following recommendation(s):
Reviewer:
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence:
Name of Team Leader:
Signature and Date of Concurrence:
Date:
A.5.6.2.3
Section 223(f)
A. HUD Architectural Review of Lender’s Architectural Analyst’s Report for Firm Exhibits - Section 223(f)
HUD Office Name:
Firm Commitment Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
NOTE: The following summary of Section 504 applies to any housing that has ever received
Federal assistance, such as Project-Based Section 8, CDBG, HOME funds, etc. (see Section A.5.2 for
definition of “Federally assisted.”)
B. Summary of Section 504 of the Rehabilitation Act of 1973 and 24 CFR Part 8-Uniform Federal
Accessibility Standards (UFAS) or Deeming Notice Requirements (See Section A.5.2):
Any property built with assistance, or became assisted prior to July 11, 1988 has been obligated since such
time to bring the property into compliance with UFAS or the Deeming Notice requirements (including 5%
of total units as mobility accessible and 2% of total units as sensory accessible units) through any
replacements and alterations that took place over time, unless particular elements of compliance required
alteration of a load bearing-wall or would have an undue financial and administrative burden (see 24 CFR
8.23).
In the decades since 1988 significant compliance should have been achieved. Some existing properties
may have become assisted after 1988 and compliance should, (but may not), have been achieved at the
time of assistance and these properties also must make all replacements and alterations conform so as to
achieve compliance over time as well as addressing the needs of disabled tenants. No assisted property is
exempt. All must either be in compliance or must be progressing toward compliance subject only to
forbearance for particular items of non-compliance by reason of the “load bearing wall” and the “undue
financial and administrative burden” exemptions.
C. Summary of HUD Architectural Review:
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
1. Firm Commitment deliverables.
Lender’s Capital Needs Assessment with attachments delivered in the CNA e-Tool.
Attachments to the CNA:
1) Certificate of Occupancy or final inspection report, if available, or a statement from the
Building Code/Zoning Code official recognizing any non-conforming use.
2) Municipal code violation report, fire marshal’s report, both clear
3) Local health officer’s report/clear report for any private water supply or sewer treatment
system.
4) Property/site location map(s).
5) Aerial photography or satellite view of site.
6) As-built plans if available.
7) Annotated photography of property conditions and any other due diligence reports, e.g.
intrusive examinations by third parties, lead based paint, or asbestos.
8) O&M plans proposed or in place.
9) If a Project Architect is engaged:
a) The owner/Architect agreement, AIA B104.
b) The Project Architect’s certification, Section A.5.8.2.
c) Drawings/sketches for reconfigured spaces and/or altered site improvements.
10) If a General Contractor is engaged:
a) The owner contractor agreement, AIA A104.
b) The contractor’s cost breakdown, form HUD 92328.
11) The Borrower’s chart of accounts (or relevant portions) describing capitalized vs operating
expense items.
12) A seismic report per Section A.5.3.1, if threshold values for SXs and SX1 are exceeded.
13) A statement of the Needs Assessor’s and other third-party examiner’s (e.g. energy
professional, intrusive examiner, seismic engineer) qualifications (if not included in CNA eTool narrative screen).
14) Supporting energy reports and documents (e.g. ASHRAE Level 2 Energy Audit) required for
qualifying Green MIP projects, per Chapter 6, Section 6.6.
If incomplete or unacceptable, specify and indicate reasons.
2. Review of CNA.
Physical Inspection, which should include the following verification:
1) Accuracy of A/E portion of form HUD-92264 as reported in CNA e-Tool.
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Appendix 5 Architectural and Construction Analysis
A.5.6 HUD Architectural Review Report Format
2) Condition of project and assessed RUL of components justified, photography supports
assessment, level of investigation consistent with age, type of construction and condition of
the buildings.
3) Description of project replacement needs and repair scope of work must address and/or
include the following
a) Immediate repair needs, both Critical and Non-critical, are detailed, cost estimated, with
estimated months to complete for those which can be deferred beyond endorsement.
b) Dimensioned sketches or drawings are provided for reconfigured spaces sufficient to
confirm accessibility and to support inspection of completed work.
c) Expected future repair, replacement, and major maintenance needs reflect assessed
condition of all capital items at property consistent with owner’s distinction between
capital items and operating expense.
d) Scope of work described in CNA e-Tool addresses all accessibility deficiencies by
describing the deficiency, prescribing and costing a remedy, identifying the applicable
statute(s) and accessibility standard(s), and estimating the time in months for completion
of the remedy (corrective action plan).
e) Lender’s 223(f) Repairs and Alterations Cost Worksheet, per Chapter 5, Section 5.10.4.
Financial factors and 20-year RfR plan:
1) Inflation adjustments to capital costs, short-term interest rates on balances and percentage
changes in ADRR are realistic and consistent, with no large, lump sum increases in ADRR from
one year to the next.
2) Financial plan meets the requirements described in MAP Guide Section A.5.7.4.3.
Accessibility for persons with disabilities:
1) CNA identifies and documents accessibility deficiencies by describing the deficiency,
prescribing and costing a remedy, identifying the applicable statute(s) and accessibility
standard(s) and estimating the time in months for completion of the remedy, (corrective
action plan).
2) If time to complete exceeds 1 year or deficiencies cannot be corrected within the underwriting
parameters of Section 223(f), submit corrective action plan to Director of Technical Support
at HUD Headquarters in Washington, DC.
If not acceptable, indicate reasons.
D. I have reviewed the subject project and hereby make the following recommendation(s):
Reviewer:
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence:
Name of Team Leader:
Signature and Date of Concurrence:
Date:
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Appendix 5 Architectural and Construction Analysis
A.5.7 Capital Needs Assessments
A.5.7 Capital Needs Assessments
A.5.7.1
What is a Capital Needs Assessment?
A.5.7.1.1
General
A. A Capital Needs Assessment (CNA) is a due diligence report describing the physical inventory of
multifamily property and characterizing the condition and expected durability of that inventory for the
purpose of budgeting future capital repairs and replacements. A CNA includes a financial plan or annual
schedule of anticipated capital costs and corresponding funding needed to meet expected capital
expenses. The period of years covered by the financial plan is called the Estimate Period. The financial
plan should be periodically updated and revised to recognize actual results during the life of an asset, and
for this reason, a new CNA is required for insured properties at intervals of not greater than 10 years.
This “10-year update” requirement applies to all properties insured under Section 223(f) since the first
publication of the MAP Guide in 2002 and to properties insured under Sections 220, 221, 223(a)(7), and
231 since the effective date of Mortgagee Letter 2010-21 (Risk Mitigation, September 6, 2010).
B. When prepared for a property to be built as new construction or substantially rehabilitated, a CNA is
only an inventory of the proposed construction (buildings, units, components, quantities) and an estimate
of the expected durability of the proposed (and existing for substantial rehabilitation) construction
components with a corresponding plan to finance future capital needs as they are expected to occur.
C. When prepared for an existing property for which physical changes that are contemplated are
considered less than Substantial Rehabilitation, a CNA requires an on-site physical inspection.
Accordingly, it is the primary means of identifying immediate physical needs or deficiencies and
specifying the nature, location, and expected cost of the repairs, replacements and/or alterations required
to address immediate needs.
D. CNAs of existing buildings prepared for HUD must at a minimum meet the requirements of ASTM
E2018-15 for the preparation of needs assessments. Numerous additional requirements may apply to
particular properties or programs as described herein.
A.5.7.1.2
CNA e-Tool
A. CNA e-Tool is HUD’s current automated mechanism for preparation, submission, and review of CNAs.
HUD requires that all CNAs prepared for HUD-FHA insured multifamily properties be prepared,
submitted, and reviewed using the CNA e-Tool. See Chapter 5, Section 5.3 for the use of CNA e-Tool by
construction activity and program.
B. Technical information, instructions on how to access and use the CNA e-Tool, and related information
are published and periodically updated at HUD’s CNA e-Tool home page:
https://www.hud.gov/program_offices/housing/mfh/cna
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Appendix 5 Architectural and Construction Analysis
A.5.7 Capital Needs Assessments
A.5.7.2
When CNAs are Required
A.5.7.2.1
Applications for New Construction or Substantial Rehabilitation
A. Applications for projects to be insured under Sections 220, 221, and 231 (and any Section 241(a)
supplemental loan funding new construction or substantial rehabilitation) require a CNA, but except as
noted below, these CNAs are to be prepared by the Lender’s Construction Analyst in collaboration with
the Borrower’s Project Architect.
1. New Construction. The purposes of the CNA prepared for new construction are to provide a
permanent, standardized description of the physical inventory of the proposed project and to plan for
future repairs and replacements. Since the CNA is based on a physical inventory to be built, no onsite inspection of sampled units are required in the CNA e-Tool for new construction.
The Lender’s Construction Analyst completes the CNA (exclusive of the Financial Factors) based
on the construction drawings and specifications submitted and approved for Firm Commitment.
In the case of streamlined processing, the construction documents should be complete enough to
estimate future repairs and replacements.
The completion of the Financial Factors and the development of a balanced financial plan funding
anticipated capital repairs and replacements during the Estimate Period are the responsibilities
of the Lender’s Underwriter. This task must be completed prior to submitting a CNA to HUD for
review.
2. Substantial Rehabilitation. The purposes of the CNA prepared for substantial rehabilitation are
similar to new construction except that in substantial rehabilitation, significant portions of the
existing property may be retained, and the CNA must describe the existing components and their
conditions. The CNA also must account for any new components and construction as described in the
drawings and specifications.
A.5.7.2.2
Applications for Refinancing or Acquisition of Existing Properties
A. The purposes of the CNA prepared for refinancing or acquisition transactions (or for supplemental
loans funding repairs and alterations) are not only to describe the physical inventory and to plan for future
repairs and replacements but also to assess current conditions and identify, specify, and estimate
immediate repair needs. Immediate repairs must be classified as either Critical or Non-critical.
1. Critical repairs. Critical repairs are of two types.
Remedies that correct the following conditions that must be completed prior to initial
endorsement:
1) Endanger the health and safety of residents, visitor or passer-by.
2) Endanger the physical security of the property.
3) Pose obstacles to ingress or egress from units, buildings or the site.
4) Prevent the project from reaching sustaining occupancy.
5) Any deficiencies that are in violation with applicable and relevant building code, standards
and regulations.
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Accessibility remedies for noncompliance with of one or more of the accessibility statutes that
apply to the property or to any of the buildings. Such remedies must be completed as soon as
possible. The time period must be specified as a number of months ranging from “0” (which
indicates prior to endorsement) up to “12” (which means 12 months after endorsement). In rare
instances where accessibility remedies cannot be completed within 12 months, additional time
may be permitted only when explicitly approved by the Division of Technical Support in the Office
of Multifamily Production at HUD Headquarters. See Section A.5.2 for a description of
accessibility requirements.
2. Non-critical Repairs. Non-critical repairs are repairs, replacements or alterations that address
current and imminent physical needs, notwithstanding whether any such needs may be described as
deferred maintenance.
“Imminent,” in this context, means work reasonably expected to be needed within the first two
years of the mortgage, except that this shall not be construed as requiring as an immediate repair
any work that would normally occur at unit turnover.
Non-critical repairs may include work likely to restore, improve, or enhance the quality,
suitability, marketability, and operating efficiency of the property.
Non-critical repairs must be completed within 12 months after endorsement unless otherwise
specifically permitted by HUD.
A.5.7.2.3
10-Year Updates or Other CNAs Required by Asset Management
A. CNAs prepared to meet the periodic update requirement at intervals of not greater than 10 years or to
support other asset management functions are subject to guidance and supervision by the Office of Asset
Management and Portfolio Oversight (OAMPO), a division of the Office of Multifamily Housing, and are
subject to Handbook 4350.1, as amended. This includes the timing, funding, and management of any
Critical or Non-critical repairs identified. Such CNAs must be prepared by an independent third-party
Needs Assessor hired by the Servicing Lender72 consistent with the qualifications for assessors described
in Chapter 5, Section 5.2. The Servicing Lender is responsible for reviewing, certifying and submitting the
CNA for review by HUD-OAMPO account executives and/or HUD MF Production Technical Branch staff.
A.5.7.3
Guidance for Key Values on CNA e-TOOL Entries
A. For detailed instructions on how to use the CNA e-Tool software, see the instruction manual provided
on the CNA e-Tool home page. Section A.5.7 defines HUD policy requirements on specific values or
responses that CNA preparers and submitters must provide.
A.5.7.3.1
CNA Summary and Scope Information
A. Approving Agency. HUD is the approving agency for all CNAs prepared for properties with insured
mortgages. This includes RAD transactions with mortgage insurance.
72 The owner may hire and pay the third-party Needs Assessor when CNAs
are required for Asset Management
oversight of properties with no insured mortgage, such as budget-based rent increase events where no Servicing
Lender is involved.
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B. Property ID, FHA numbers. For existing FHA insured properties, enter the Property ID (commonly
referred to as “iREMS” number) in addition to FHA numbers. Lenders should verify that these numbers
are accurate prior to submission.
C. Seismic SXS, SX1 values. These values are required for all existing properties and should be obtained
and entered in accordance with the instructions in Section A.5.3. For new construction, enter zero (0) for
each value. For scattered sites, enter the values for the particular site with the highest values in the CNA
e-Tool. A seismic hazard and building performance analysis report must be submitted for all the buildings
on the sites that are not exempt, per Section A.5.3.1.2.
D. Federally Assisted. The Needs Assessor must answer this question “yes” or “no” and must know the
correct answer for the subject property prior to conducting any on-site inspection. It is the responsibility
of the Lender to know the correct definition of “assisted housing” (See Section A.5.2) and to apply the
definition to the subject property and advise the Needs Assessor accordingly. Failure to correctly identify
a federally assisted property and to document compliance with Section 504 of the Rehabilitation Act of
1973 is not acceptable.
E. Vacant Units. The actual number of vacant units at the time of the on-site visit should be entered. This
means all units present at the property, and not occupied by a tenant, resident manager, or management
employee, or in use by management as an office or display unit. Units used for storage or “offline” units
are “vacant units.” For new construction projects, enter zero “0”.
F. Minimum Sample. For existing properties under Section 223(a)(7), 223(f) and 241(a) programs, the
Needs Assessor must enter the minimum percentage of all units that must be inspected. HUD requires
the following:
1. For properties built and occupied as new construction within 10 years of the CNA, not less than 10
percent of units must be inspected.
2. For all other properties, not less than 25 percent of units must be inspected.
3. In all cases, the selection of units must be proportionally distributed among unit types, buildings, and
floor levels and otherwise random.
4. It is the Lender’s responsibility to examine rent rolls, operating statements, and due diligence reports
to determine whether excessive or disproportionate patterns of vacancy require that the Needs
Assessor inspect a greater sample of units and to advise the Needs Assessor accordingly. Minimum
percentage inspection requirements specified above do not relieve the Needs Assessor and Lender
from addressing circumstances where more units should be inspected, such as:
A property with a history of vacancy exceeding 15 percent. For such property, not less than 50
percent of vacant units, including those already selected for an inspection per Section
A.5.7.2.2.A.2.a-c above should be inspected.
A property with particular units, floors of buildings, or buildings vacant for 6 or more of the
previous 12 months. Such vacancy may be due to adverse physical conditions or to remodeling
and either circumstance requires inspection of the relevant units, floors, or buildings.
G. ASHRAE Energy Audit. Indicate “yes” or “no” whether an ASHRAE Energy Audit has been completed
and used to inform the utility usage characteristics of components and alternatives. If “yes,” identify the
name and relevant professional credential of the energy auditor. (For required credentials see Chapter 6,
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Section 6.4.10.) The Lender must attach the energy auditor’s report to the CNA at submission. See MAP
Guide Chapter 6 for instructions on energy and water utility conservation.
H. Additional Tests. Indicate “yes” or “no” whether the CNA relied upon or required any additional
testing or special inquiry. Name or identify the test, inquiry, or resulting report in the comment section.
Examples of an additional test in this context may include a seismic analysis, a radon test and report, an
intrusive examination by a professional or contractor other than the Needs Assessor, a lead-based paint
inspection or risk assessment report, a mold assessment report, or similar tests or reports. The Lender
must attach such results or reports to the CNA at submission
I. Date of Site Visit. This is the date the Needs Assessor intends as the time when observations of physical
conditions are represented as true and correct. This date is the commencement of any maximum shelf
life for a CNA report. For new construction or substantial rehabilitation proposals where the CNA is
prepared by the Project Architect or the Lender’s Construction Analyst, this date is the anticipated date of
the final endorsement.
A.5.7.3.2
Buildings – Year Built
A. The year built must be reported for each building. Generally, exact dates are not required, and year
built may be determined based on readily available, credible evidence. However, in some cases, exact
dates are critical because of the effective dates of statutory or regulatory requirements. Among such
requirements are those for design and construction of multifamily buildings in the Fair Housing Act (42
USC 3604(f)(3)(C), and 24 CFR 100.205). The design and construction requirements apply to any building
first occupied after March 13, 1991, unless a building permit for that building was issued on or before
June 15, 1990. Since these requirements apply to buildings and not properties, and properties often have
multiple buildings with different building permit and or occupancy permit dates, the e-Tool obligates the
preparer to identify a specific year built for each building. If the year built is outside the range of years
1990, 1991, and 1992, no specific dates for occupancy or building permits are required as entries on the
Buildings screen. However, if the year built is 1990, 1991, or 1992, then the Needs Assessor must confirm
and enter the actual date of the first occupancy, usually with an occupancy permit, as well as the date of
the building permit. The e-Tool uses this data together with other user responses to identify covered units
among those inspected and requires the Needs Assessor to determine (yes or no) whether the covered
units inspected conform to the design and construction requirements. (Note that these are not the only
requirements for which specific dates are consequential. For example, lead based paint testing is required
for buildings constructed before January 1, 1978. But accessibility requirements are the only rule based
and date related elements built into the logic of the CNA e-Tool.)
A.5.7.3.3
Buildings – Building/Construction Types & Replacement Cost
A. The “Buildings” screen requires the preparer to identify specific characteristics of each building. These
include the same characteristics and definitions of characteristics that are used on forms HUD-92013 and
HUD-92264.
1. Replacement Cost must be estimated for each building and provided by the user. Replacement cost is
expressed as dollars per square foot of building area, including all units and common areas. The eTool auto-calculates the building areas and apply the replacement cost per square foot estimate to
determine the estimated replacement cost for each building.
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2. The e-Tool auto-calculates the building area by aggregating the square footages of the unit types and
common spaces assigned to the building.
3. The preparer is required to justify or support the estimated replacement cost in the comment box
labeled “Source of Replacement Cost Data.” The replacement cost estimate for existing buildings
should be based on the current cost of replacing the building with current construction practices and
assemblies as nearly comparable to the existing building as possible, but not including any cost of
replicating obsolete methods, materials, or historic artifacts.
4. For new construction applications, the Lender’s Construction Analyst should use the estimated per
square foot cost of construction excluding site improvements.
5. The CNA e-Tool will use this input to generate results for the form HUD-92329, Schedule of Insurable
Values.
A.5.7.3.4
Standard Estimated Useful Life (EUL)
A. A key feature of CNA e-Tool is the Standard Estimated Useful Life Table of a typical site and building
components. The term “Estimated Useful Life” (EUL) refers to a period of years in which a given
component of standard quality under average conditions may be expected to remain serviceable for its
intended purpose. Remaining Useful Life (RUL) is the result obtained by subtracting the actual age of a
component from its EUL.
B. The Standard Estimated Useful Life Table is organized in accordance with the ASTM E2018-15 outline
for needs assessments. Each site or building component is identified with the following three subcategories in broad to narrower order: Need Categories; Need Items; Component Types. Each Component
Type is assigned a particular average standard EUL, depending on whether the property is designated as
“family” or “elderly.” Every component present or to be installed at the property must be associated with
a Component Type and given a specific name referred to as “Component ID” in the e-Tool.
A.5.7.3.5
Assessed Remaining Useful Life
A. When observing actual conditions at a property or specifying actual products or methods to be used in
construction, Needs Assessors may recognize any expected variations from the Standard EUL. For any
proposed or existing components with durability and/or quality yielding a useful life greater or lower
than the Standard EUL, the Needs Assessor should enter an “Assessed” RUL representing the assessor’s
best professional judgment concerning the number of years the component will be serviceable from the
date of the CNA. This method allows the preparer to recognize superior or inferior performance, local
conditions of use (e.g. climate, exposure, student occupancy, etc.), and maintenance or product quality of
the component. All Assessed RULs must be justified in the “Remaining Useful Life Comments” box with
adequate explanations.
A.5.7.3.6
Components with EUL or RUL Longer than the Estimate Period
A. Many building components are quite durable and, based on the date installed, may be expected to
remain in place without replacement in entirety well past the end of the Estimate Period. The CNA e-Tool
will schedule costs of repair or replacement of components only when the time for such capital expense
falls within the Estimate Period. Therefore, it is up to the discretion of the Needs Assessors to list durable
components in the e-Tool when it is beneficial to describe the construction and condition of the property.
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A.5.7 Capital Needs Assessments
Repair Replace Recommendation – When, Duration, and Action
A. An “Action” in the Recommendations screen for a component describes the action with which the
alternative to that component will be carried out. The choices for “Action” are “repair, “replacement,”
“one-time repair,” or “add new.” CNA preparers must determine “When” an action will occur for each
component and selected alternative in the e-Tool by choosing one of the two available options of “Now”
or “End of cycle” (End of cycle refers to the end of the default RUL of the component, or the Assessed RUL
if entered).
B. When installing a new component not currently existing at a property, the following steps are required:
1. The user first creates the item as a new Component ID and enters “0” as the assessed RUL in the
Components screen and adds an alternative for that component ID in the Alternatives screen.
2. In the Repair Replace Recommendation for, select “Add New” for the alternative recommended for
this component and enter the expected EUL for the added item.
3. The “When” response should be “End of cycle” for the new component/alternative, which permits a
component (e.g., a dishwasher) to be added as an Immediate Repair and then located among future
repairs and replacements as appropriate on the Estimate Period schedule.
C. A particular component (usually in quantities greater than 1) can be scheduled for replacement over a
span of time rather than in a single year by entering a number for “Duration” in the e-Tool. The whole
number entered for Duration indicates the number of years before and after the “End of cycle” year over
which the component will be replaced. (e.g., a Duration entry of 1 spreads the cost of a repair/replace
action equally over three years; 1 year before the end of a cycle; the indicated end of cycle year; and 1 year
after the end of a cycle.). Duration is intended to recognize that RUL and EUL periods are estimates of
average durability and that actual results will vary.
A.5.7.3.8
Repair Replace Recommendation for Existing Components
A. One-time repairs. Typically, “repairs” are actions applied to an existing component and therefore the
Component Type identifies the object of the repair (e.g., wood window) and the Component ID should
describe the actual repair needed for that window (e.g., replace broken sash).
1. Needs Assessors should identify all repairs or replacements that are immediate repairs even when
these might normally be treated as operating expense. For example, the Needs Assessor may observe
conditions that require a mere repair to restore a component to normal use (e.g., a broken
windowpane, or a tree that requires trimming, or a wiring repair, drywall damage or a broken lock in
particular units.)
2. When identifying the repair or replace recommendation, the Needs Assessor should identify “When?”
as “Now” and the “Action” as “One-time repair.”
3. The “One-time repair” action restores the component to the EUL/RUL that would otherwise prevail.
The repair will appear only once and only among immediate repairs. The Component Type name and
the Alternative replacement for that component should already have been identified and a separate
recommendation can be made to replace the component (e.g., windows, landscaping, wiring, wall
finish, or doors) in the future.
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B. Repeating or Periodic Repairs. Some repairs may be regular and periodic (e.g., water proofing or
tuckpointing exterior masonry). When a repair is periodic in nature, the Component ID describes the
repair, and an assessed RUL sets the time when the repair should first occur. The Alternative describes
the actual repair work and the EUL entered for the Alternative indicates the frequency of the repair (e.g.,
“5” means every 5 years). The “When” is “now” or “end of cycle” depending on the assessed RUL entered.
The Action is “Repair,” meaning a repeating repair.
A.5.7.3.9
Repair Replace Recommendation for Accessibility Deficiencies
A. Accessibility repairs may be prepared in the CNA e-Tool by using the Repair Replace Recommendation
screen as follows:
1. Accessibility Indicator. If a repair, replacement or alteration is recommended to correct an
identified accessibility deficiency, then this indicator should be answered “yes,” in which event items
2, 3, 4 and Section A.5.7.3.10 below must be completed. If the accessibility indicator is “no,” then these
entries may be left blank. A “yes” answer places the item on the Critical accessibility repairs.
2. Time to Complete. If accessibility indicator is “yes” then the time to complete must be entered as a
number of months that should be specific to the particular recommendation and not to all accessibility
remedies in general. Each remedy is to be implemented or completed as soon as possible,
notwithstanding any different schedule as may be necessary for other remedies.
3. Accessibility Statute. If the accessibility indicator is “yes” then the Needs Assessor must indicate
which statute defines the deficiency, or if the recommendation addresses a deficiency under multiple
statutes, identify the statute with the most stringent requirement.
4. Scope of Accessibility Compliance. If the accessibility indicator is “yes,” then the Needs Assessor
must provide a short text description of the particular accessibility requirement that is missing or
violated (e.g. usable kitchen). This description should include any relevant dimensions or physical
measurements. Sketches or drawings with appropriate photographs may be provided by the Needs
Assessor and attached to the CNA for submission.
A.5.7.3.10 Scope of Repair or Alteration
A. All Critical and Non-critical repairs and alterations must be described in detail sufficient to bid costs
accurately and to inspect work in progress or when completed. This scope should be described succinctly
in the text entry for Class of Work (Scope). In addition, the scope should indicate the class of work for the
item, that is, a “repair,” “Level 1 Alteration,” etc.
A.5.7.3.11 Repair Replace Recommendation for Time to Complete
A. For refinancing applications proposing immediate repairs, repairs and alterations must be scheduled.
Accordingly, the planned sequence and timing of immediate repairs should be described in the CNA eTool by using the “Time to Complete” entry, which should be a number of months (immediate repairs and
alterations are those for which the answer to the question “when?” equals “now.”) The entered number
of months to complete each task is reported on the List of Non-critical Repairs (as well as the list of
accessibility repairs). Critical repairs that must be completed prior to closing should show “0” for the
number of months entered as “Months to Complete.”
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A.5.7.3.12 Needs Assessor’s Narrative and Attachments
A. The Narrative screen of the e-Tool allows the user to enter a written narrative for each of the outline
topics as listed in ASTM E 2018-15. Brevity is encouraged, but other supporting documents, photography
or exhibits may be provided as attachments associated with specific outlined topics in the CNA when
submitted. See instructions to Lenders concerning attachments in Section A.5.7.4.4.B.
A.5.7.4
Lender Review of Capital Needs Assessments
A.5.7.4.1
Capital Costs vs. Operating Expense
A. A key principle of both financial accounting and planning for future capital costs is a clear, and
consistently applied distinction between items that are operating expense, and those that are capital costs.
While most work on building or site components is clearly one or the other, many work items may be
classified as either expense or capital depending on the Borrower’s policy. This policy should be in writing
and remain constant until amended in writing. Thus, for example, replacement of roofs, windows, siding,
and similar items on a building is always a capital cost and should be included in planning for future capital
needs. Meanwhile cleaning windows, changing air filters, cleaning or repairing carpets, and similar tasks
are always operating and maintenance costs. By contrast, repainting, re-carpeting, and similar renovation
of unit interiors at turnover or at standard time intervals may be treated as either operating expenses or
capital costs at the Borrower’s discretion.
B. The Lender must determine that the Borrower’s written policy defining capital costs and operating
expense is consistent with HUD’s Asset Management Handbook 4350.1, Chapter 4, Section 4.1 through
Section 4.3 and that all repair or replacement of components defined as capital costs are included in the
CNA by identifying them as components and recommending an alternative. The Lender must ensure that
any items (e.g., carpet, interior painting) not identified as components (i.e., not listed among components
on the components tab) in the CNA e-Tool are accounted for in operating expenses (i.e. if carpets exist and
are not listed among components, then carpet repair and replacement must be budgeted as an operating
expense). The Lender must compare the maintenance costs reported in the prior three years of project
operating history to the repairs and replacements described as future costs in the reserve for replacement
schedule. Costs omitted from the schedule should appear in the maintenance history.
A.5.7.4.2
Lender’s General Review and Underwriting Duty
A. Prior to submission of a CNA, it is the duty of the Lender to review, address, or correct each of the
following:
1. Complete CNA. Assure that the Preparer (generally the Needs Assessor or Lender’s Construction
Analyst) has completed the CNA e-Tool in accordance with the MAP Guide and that all the required
information is correct and complete.
2. Repair/Replace Recommendations and Decisions. Review and accept the CNA preparer’s Repair
Replace Recommendation, or if the recommendation is not accepted and requires modification,
specify a revised decision on the Repair Replace Decision screen.
3. Immediate Repairs. Assure that any immediate repair is described specifically with a quantity, cost,
and location, as well as any applicable and necessary qualitative or product specific information such
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as size, model, product performance standard, level or nature of the finish, and/or brand name, if
applicable. When useful to understanding and comprehension, annotated photography may be
attached to the CNA at the submission to pinpoint the nature, extent, or location of a
repair/replacement action.
4. Accessibility Critical repairs. Review the Accessibility Critical repairs and ensure that statutes and
regulations are correctly applied, deficiencies identified, appropriate remedies specified, and that
implementation of each remedy is scheduled for completion as soon as possible.
5. Utility Conservation Metrics. When proposing Green Mortgage Insurance Premium (MIP) rates or
reductions in historic operating expense resulting from proposed utility conservation measures, the
Needs Assessor and Lender must complete the utility rates, utility type and component consumption
fields of the CNA e-Tool. See MAP Guide Chapter 6 for instructions on energy and water conservation.
6. Financial Factors. Enter financial factors and variables and prepare a balanced financial plan for
funding anticipated capital costs. “Balanced,” in this context, means that the combination of any
existing Reserve for Replacement sums carried forward plus any initial and annual deposits plus
periodic interest earned on balances equals or exceeds the projected capital costs plus any minimum
balance requirement for years 3 through 10 in the Estimate Period. Also, in the second ten years, any
deficit below the required minimum balance does not exceed (in dollar amount) 50% of the
cumulative amortization of the insured loan balance for the year in which the deficit occurs. (See
“Lender’s Financial Plan”, Section A.5.7.4.3 below.)
7. Lender Validation and Submission. The Lender validates and submits CNAs by accessing the CNA
e-Tool for submission. The submission portal is a secured web address that may be accessed only by
authorized submitters using appropriate credentials (login IDs) and passwords. The website link to
the portal is provided on the CNA e-Tool Home Page. For applications for mortgage insurance, a
submitter should submit a CNA only at the time that a full application for mortgage insurance has
been filed and requisite fees paid.
8. Addressing Flags. Needs Assessors may send CNAs to Lenders even when there are flags upon
validation. Typically, the Needs Assessor will have already corrected any flags that do not involve
underwriting judgment. Flags that remain (other than severe flags that must be corrected) may not
require a change in the CNA if the Lender provides an appropriate explanation of why the matter
flagged is not a circumstance or result inconsistent with the MAP Guide or sound underwriting. Such
explanations are entered as the “Submitter Response” under flag notes (a text box) that the Submitter
may add next to each flag listed in the validation results. If after submission HUD disagrees with the
CNA as submitted, the objection will be expressed in a flag note. The CNA will be returned to the
Submitter, who will be notified by an automatic e-mail that the submitted CNA has been returned by
HUD. The Submitter may then address the flag notes and/or modify the CNA and submit the revised
CNA. The use of flags and flag notes enables HUD and Lenders to exchange comments and resolve
issues using successive versions of the same CNA.
9. Version Control for CNAs.
From application to Firm Commitment. Each CNA e-Tool submission is assigned with a systemgenerated unique identification number called “Assessment ID” as a way of version control. The
Assessment ID is a six-digit number composed of the calendar year followed by a six-digit number
(yyyy-######). At any point in time, only one CNA for a particular property (as identified by
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FHA # and/or REMS #) may have the status of “Submitted,” “Under Review” and “Saved as a Draft.”
An unlimited number of versions may have the status of “Returned,” but only one version will
advance from the “Under Review” status to “Approved.” The approved CNA is the version that
will be used at Firm Commitment to produce a list of required repairs, relevant construction
documents/schedules, amounts required for repair escrows and assurances of completion and
required initial and annual deposits to the Reserve for Replacement escrow.
Amendments after Firm Commitment. Sometimes unforeseen circumstances or uncorrected
errors require amendment of a Firm Commitment. If required changes concern aspects of the
CNA (e.g. the list of immediate repairs, the amount of the initial or annual deposit to the reserve
for replacements, etc.), HUD may authorize an amended CNA by choosing to “Undo Approval,”
changing the status to “Under Review,” whereupon HUD will return the CNA to the submitter. The
submitter will receive an e-mail message indicating the returned CNA. Then a revised CNA may
be resubmitted to be reviewed and approved by HUD. When again “Approved,” the resulting
version is the “Amended” CNA current as of the date of its amendment. It is the intent of the CNA
e-Tool to capture for a permanent record the CNA approved for Firm Commitment and any
amended CNA to reflect the actual requirements for Endorsement.
10. Intrusive Examination. The Lender must assure that the Needs Assessor has used a level of inquiry
appropriate to the age and condition of the property in order to report with confidence the nature of
existing components, their condition, and their assessed RUL even when the level of inquiry required
by observed circumstances exceeds the minimum “Non-Intrusive” standard of inspection defined by
ASTM E2018-15. If such intrusive examination is conducted by a third party other than the Needs
Assessor, the Needs Assessor must provide, and the Lender must submit any resulting reports or
observations as an attachment to the CNA.
A.5.7.4.3
Lender’s Financial Plan - the Financial Factors Screen
A. The Lender’s financial plan is developed by using the Financial Factors screen of the CNA e-Tool. The
first entry on this screen identifies the Estimate Period as a number of years. The financial factors enable
an auto-calculation of the financial plan for each year in the Estimate Period. Years are identified as
relative years (RY) beginning with “1” and ending with the number of years in the Estimate Period,
typically “20”. Calendar years are associated with the years following the date of inspection (for Section
223 applications) or the estimated date of final endorsement (for Sections 220, 221, 231 and 241(a)).
Other entries define two sets of parameters, which are external variables and property-specific variables.
1. Estimate Period. The Estimate Period for all HUD mortgage insurance programs is the lesser of 20
years or 2 years plus the remaining term of any insured mortgage.
2. External Variables. External variables are economic variables in the financial plan reflecting the
actual economic conditions. These are the annual rate of inflation of the costs of repairs and
replacements during the Estimate Period, and annual interest earnings on the balances held in reserve
for replacement escrow accounts. Because current economic conditions often depart from historical
norms or averages, the financial factors screen displays the current rate of inflation for capital needs
and a current interest rate on short-term deposits or certificates of deposit. These are called the
“initial” rates and will reflect current business conditions and indices. The Financial Factors screen
also provides for a second, or “additional” rate that reflects long-term averages for the particular rate
(inflation or short-term interest). As a practical matter, long-term rates are static since they reflect
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the average value for each rate over 40 or more years. Because these external variables are the same
for all CNAs at any given time, HUD’s Office of Multifamily Production will publish the values for these
variables from time to time based on the following sources for inflation rates. HUD will rely on price
indices published by the Department of Labor. HUD will determine short-term rates based on rates
for 90-day maturities as published by the Federal Reserve Board, the Wall Street Journal, or
comparable entities. The intent of this method of describing rates is to allow more realistic modeling
of economic projections. Note that any characterization of inflation used in the Financial Factors
screen should also be reflected in the Lender’s projections of operating expense.
3. Property-Specific Variables. Property-specific variables are values that are unique to the property.
Except for the required minimum balance calculation, it is expected that Lenders will make repeated
adjustments to these variables based on Validation Engine results as a means of perfecting an
optimum combination of factors needed to balance the financing plan consistent with other
underwriting considerations such as anticipated rents and operating expenses.
Initial Deposit. The initial deposit is the amount that may be carried forward from an existing
reserve for replacement escrow (e.g., in a 10-year update CNA or refinancing of an existing
insured asset) and/or the amount of any lump sum deposit that may be required at the
endorsement.
Year 1 Annual Deposit Per Unit. The sum estimated as the first annual contribution to the
reserve for replacement escrow divided by the number of units in the property. Expressing this
figure as an annual per unit number of dollars supports the common industry practice of
estimating operating expenses on a per unit per annum (PUPA) basis. In no event may this figure
be less than $250 for any property.
Per Annum Rate of Change in the Annual Deposit.73
1) The Lender will set the value of this rate of change in the annual deposits. The Lender may
propose an initial rate of change followed by an additional rate of change to be applied in a
specified relative year, which need not be the same relative year as indicated for either of the
external variables.
2) When proposing a rate of change for the annual deposit, the Lender must demonstrate by
means of a stress test that the expected rents and expenses (including the annual deposit) do
not reduce the debt service coverage ratio below underwriting requirements.
3) In no event may the proposed rate of change exceed the rate of inflation applied to capital
needs in any relative year of the Estimate Period.
Minimum Balance. When balancing the financial plan, the reserve account must maintain an
estimated minimum balance. The CNA e-Tool provides two methods for estimating the minimum
balance. The two methods are: a minimum balance as a number of dollars per unit; and a
73 Historically,
HUD has required or encouraged annual deposits in amounts fixed for long periods or even for the
term of a mortgage. While very safe and consistent with HUD’s long-term fixed rate mortgage programs, fixed
annual deposits do not support realistic assessments of physical conditions nor realistic financial planning to
address these conditions over time. Accordingly, graduated changes in annual deposits are encouraged and should
be expressed as annual percentage rates of change. Mathematically, the rate of change in the annual deposit is
similar to the external variables for inflation and short-term interest, but the Lender will set the value of this rate of
change in the annual deposits.
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A.5.7 Capital Needs Assessments
minimum balance expressed as a percentage of total uninflated needs for the Estimate Period.
Only the second is used for HUD purposes. In the latter case, the CNA e-Tool auto-calculates the
percentage as the inverse of the number of years in the Estimate Period (e.g., Estimate Period
equals “20” then the minimum balance equals “1/20” or 5%). The effect of this calculation is a
minimum balance equal to the average cost of needs for one year. It is important that all users
understand that the minimum balance is established only as a means of planning for an adequate
reserve. It is not intended as a limit on disbursements as repair and replacements actually occur.
The intent of the minimum balance is to provide a contingency for unanticipated costs and to
trigger an asset management review when actual needs result in a remaining balance that falls
below the planned minimum. When applying the minimum balance, the Lender should do or
consider the following:
1) Define a combination of Initial and/or Annual Deposits resulting in year-end balances that
equal or exceed the required minimum balance for each of the first 10 years in the Estimate
Period. When considering applications for mortgage insurance, a positive balance, but not
the minimum balance, is required in the first 2 years of the Estimate Period.
2) In any year after Year 10 of the Estimate Period, a remaining balance less than the minimum
balance, even a negative balance, may be allowed provided that the difference (a deficit)
between the required minimum balance and the projected remaining balance does not exceed
50% of the cumulative amortization of the proposed loan for the relevant year.
3) If the dollar amount of the projected deficit in any year after Year 10 exceeds 50% of the
cumulative amortization of the mortgage, then the deficit is excessive and must be mitigated
by increasing the funding proposed for the reserve for replacement escrow.
4) The Lender submits a CNA based on a 20-year Estimate Period using the proposed funding
(initial and annual deposits) determined in items “2” and “3” above. The result is that negative
balances, if any, may not exceed 50% of the accumulated amortization of the mortgage loan
balance.
5) The Lender should prepare and attach to the CNA at submission a spreadsheet comparing the
results of the reserve for replacement schedule and the amount of amortization on the
insured mortgage indicating the scale of any negative balance as a percentage of the
cumulative amortization for each year, 11 through 20. When considering applications for
mortgage insurance, the minimum balance is not required in the first 2 years of the Estimate
Period.
6) It is the Lender’s responsibility to perform the reserve analysis and set the funding schedule
that meets the requirements. The Needs Assessors prepare the components schedule of
replacements and the anticipated costs in the CNA e-Tool but not the funding schedule (i.e.
deposit amounts, etc.).
A.5.7.4.4
Validation and Submission of CNAs
A. After completing its review and financial planning tasks, the Submitter must validate the CNA a final
time as a requisite to submission, recognizing that any severe flags appearing on the final validation will
prohibit submission.
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A.5.7 Capital Needs Assessments
B. After correcting remaining severe flags and/or addressing any other flags, the Submitter should attach
documents that are either required or useful to communicate or document CNA information. Each exhibit
should be a separate file with a descriptive file name to make each attachment readily recognizable to the
reviewer. (See Chapter 5, Section 5.10.6 for detailed descriptions of the attachments.)
C. After validation and selection of attachments, the submitter must enter his/her name and e-mail
address. Submitters should exercise care when submitting inasmuch as the CNA e-Tool will permit only a
single CNA submitted for review for any property (i.e., for any FHA # or Property ID #). The CNA cannot
be amended or updated after submission unless it is first returned to the Submitter by HUD. The submitter
will see an immediate message indicating whether the submission is successful and will see the CNA
“assessment ID” number. The submitter should make a note of the assessment ID number as a means of
locating the CNA among those submitted by the same Lender and also as a means of locating the CNA in
the event that troubleshooting assistance is required. The submitter will also receive an automatic e-mail
response confirming that the CNA is successfully submitted and again providing the assessment ID
number. By submitting, the user certifies as follows:
By submitting this Capital Needs Assessment, I certify as follows:
I am authorized to bind my firm and to submit Capital Needs Assessments via the web portal for the CNA eTool. We have reviewed the Capital Needs Assessment and all relevant attachments submitted with it. Neither
my firm nor its employees have a financial interest, or family relationship with the principals, officers,
directors, stockholders, partners or affiliates of the Borrower/owner of the multifamily property which is the
subject of this Capital Needs Assessment or with any construction contractors or property managers employed
by the Borrower/owner or its principals. Our review included an evaluation of the qualifications and
experience of the Needs Assessor and the Needs Assessor firm (or Architect or engineer or other professional
evaluator or related firm as appropriate here and elsewhere in this Certification) retained to complete the
needs assessment or portions thereof and we conclude that these qualifications and experience are
appropriate for the size and location of the multifamily property and the construction technologies used at
the site. The needs assessment, together with all relevant forms, tables, and exhibits, has been prepared in the
manner required by the MAP Guide and is complete and accurate. The Needs Assessor and/or the Needs
Assessor firm are independent third parties whose compensation is not contingent upon any result except the
competent completion of the needs assessment in accordance with the MAP Guide. Except as disclosed, there
are no other side deals, agreements, or financial considerations between ourselves and the Needs Assessor or
Needs Assessor firm. We have no identity of interest with the Needs Assessor or the Needs Assessor firm, and
we have no business or personal relationships that might present a conflict of interest. The Needs Assessor
and/or the Needs Assessor firm have evidenced to us that they possess qualifications and experience
appropriate to the size, location and construction technology of the subject multifamily property and have no
identity of interest, financial or family relationship with the principals, officers, directors, stockholders,
partners or affiliates of the Borrower/owner or any construction contractors or property managers employed
by them.
A.5.7.5
Documents for Firm Commitment
A. After a CNA is approved by HUD, the following documents will be produced by the CNA e-Tool as
attachments to Firm Commitments and /or Regulatory Agreements:
1. Critical repairs for Existing Properties. A schedule of Critical repairs composed of two detailed lists of
repair/replacement items, described in quantities, location, cost, and relevant thumbnail
specifications.
One list will describe Critical repairs classified as “life safety.”
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A.5.8 Design Professional Certifications
The second will describe all remedies for accessibility deficiencies.
The accessibility deficiencies listed with “Months to Complete” greater than “0” may be
considered as the “Corrective Action Plan.”
2. Non-critical Repairs for Existing Properties. A schedule of Non-critical Repairs, Repairs, and
Alterations described in quantities, location, cost, and relevant thumbnail specifications, together
with such sketches or drawings as may have been determined necessary for clear communication and
adequate inspection
3. Simple Construction Schedules. For transactions where a construction schedule is useful, but the
critical path and/or task dependencies are not required, the lists of immediate repairs can be sorted
by “time to complete” resulting in a list of repairs grouped by the number of months required to
complete them. This simple construction schedule applies to Section 223(a)(7) and Section 223(f)
transactions where Project Architect or a General Contractor are not employed.
4. Form HUD-92329 Property Insurance Schedule. For existing, proposed, and substantial rehabilitation
properties a schedule of insurable values by building, i.e., replacement cost as new.
5. Schedule of Initial and Annual Deposits. For existing, proposed, and substantial rehabilitation
properties, a schedule of deposits to the reserve for replacement escrow account including both an
initial deposit, if any, and annual deposits.
A.5.8 Design Professional Certifications
A.5.8.1
Certification for New Construction and Substantial
Rehabilitation
A. Project Architect’s Certification for New Construction and Substantial Rehabilitation
HUD Project Name:
HUD Project Number:
Borrower:
B. I, the undersigned Project Architect, to the best of my knowledge, belief and professional judgment,
hereby certify that the proposed construction in accordance with the drawings and specifications
prepared for the subject Project:
1. Is permissible under the applicable zoning, building, housing, and other codes, ordinances and/or
regulations, as modified by any waivers obtained from appropriate officials;
2. Complies with the HUD Minimum Property Standards and meets or exceeds the HUD minimum energy
codes which are the International Energy Conservation Code (IEEC 2009), or for any buildings greater
than 3 stories above grade, the American Society of Heating, Refrigerating and Air Conditioning
Engineers Standard 90.1 (ASHRAE 90.1, 2007);
3. Allows for site soils limitations and incorporates design recommendations included in the foundation
soils report and any other geotechnical reports;
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4. For any structures first occupied or to be first occupied after March 13, 1991, the structures and site
improvements conform to the design and construction requirements of the Fair Housing Act (42 USC
3604(f)(3)(C), and 24 CFR 100.205);
5. For any portion of the construction that is a public accommodation, conforms with the requirements
of Title III of the Americans with Disabilities Act; and
6. Conforms with any state or local government requirements for accessibility for persons with
disabilities including state or local measures to implement Title II of the Americans with Disabilities
Act concerning state and local programs.
7. You have informed me that the project (check one):
______ has never been and will not be federally assisted or
______ has been/will be federally assisted
If the project has been or is proposed to be federally assisted the proposed construction meets the
requirements of Section 504 of the Rehabilitation Act of 1973 as implemented by 24 CFR Part 8;
8. You have informed me that the project must be designed to achieve a green building certification
consistent with Chapter 6 of the MAP Guide: Yes ___ or, No ___ (check one).
If no, enter “not applicable” in the next line and proceed to item (i) below, if yes enter the following:
Name of Certification:
Standard-keeper’s name:
Address of Standard-keeper:
Name of Standard-keeper’s Verifier:
Address of Verifier:
Proposed Level of Achievement74:
Point Score for Energy75:
out of a possible:
Is this certification a HUD recognized green building certification (see MAP Guide 6.3.A or 6.3.B)?
Yes _____, or No ______.
(check one).
If no, the following description of the certification must be true (see MAP Guide 6.3.C):
The certification requires the project design to achieve a 25% reduction in energy use when compared
to the same project designed to meet the applicable HUD minimum energy code or for an existing
property with benchmarked energy consumption history a 15% reduction in energy use compared to
the benchmarked use; and
74 e.g.,
bronze, silver, gold, or similar grades of achievement.
standard keepers assign a level of achievement based on numbers of points assigned to design
or siting features as part of a scoring system. Typically, categories of features have a total number of points possible
for the category. This question asks for the number of points scored for the category of energy use or efficiency and
the total number of points possible for that category.
75 If applicable, most
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The certification requires independent verification of energy conservation measures and sustainable
products and methods by the verifier’s review of plans and specifications at the conclusion of design,
by the verifier’s onsite inspection of all construction completed prior to closing cavity walls and by
the verifier’s onsite inspection of construction after completion; and
The standard keeper provides or requires the verifier to provide to me and to the Borrower timely
written documentation of results or conclusions resulting from the verifier’s review of plans and
specifications and each on-site inspection leading to and including the final award (or denial) of the
certification.
The selected certification and level of achievement is applicable to the design and construction
methods proposed for the project. The project design is consistent with all the requirements of the
selected certification at the specified level of achievement and the project is designed to achieve an
ENERGY STAR® Score not less than 75.
9. Waivers of codes etc., were obtained as listed in attachment (identify):
Signed by:
Date:
Architect’s Name:
Business Address:
License Number:
C. Warning: Title 18 U.S.C. 1001, provides in part that whoever knowingly and willfully makes or uses a
document containing any false, fictitious, or fraudulent statement or entry, in any manner in the
jurisdiction of any department or agency of the United States, shall be fined not more than $10,000 or
imprisoned not more than five years or both
A.5.8.2
Project Architect’s Certification for Refinancing
A. Project Architect’s certification for refinancing when a Project Architect is engaged.
HUD Project Name:
HUD Project Number:
Borrower:
B. I, the undersigned Project Architect, to the best of my knowledge, belief and professional judgment,
hereby certify that the proposed construction in accordance with the drawings and specifications
prepared for the subject Project:
1. Is permissible under the applicable zoning, building, housing, and other codes, ordinances and/or
regulations, as modified by any waivers obtained from appropriate officials;
2. Complies with the HUD Minimum Property Standards as applicable to existing buildings;
3. For any structures first occupied or to be first occupied after March 13, 1991, the reconfigured spaces
and/or alterations to site improvements (excluding spaces not reconfigured and unaltered
improvements) conform to the design and construction requirements of the Fair Housing Act (42 USC
3604(f)(3)(C), and 24 CFR 100.205) and if not, then any nonconforming elements have been identified
and described in the drawings and specifications;
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4. For any reconfigured portion of the construction, which is a public accommodation, conforms with
the requirements of Title III of the Americans with Disabilities Act, and if not, then any nonconforming
elements have been identified and described in the drawings and specifications; and
5. For any reconfigured spaces or alterations of site improvements conform with any state or local
government requirements for accessibility for persons with disabilities including state or local
measures to implement Title II of the Americans with Disabilities Act concerning state and local
programs, and if not, then any nonconforming elements have been identified and described in the
drawings and specifications.
6. You have informed me that the project (check one):
_____has never been and will not be federally assisted or
_____has been/will be federally assisted.
If the project has been or is proposed to be federally assisted the proposed reconfigured spaces or
alterations of site improvements meet the requirements of Section 504 of the Rehabilitation Act of
1973 as implemented by 24 CFR Part 8, and if not, then any nonconforming elements have been
identified and described in the drawings and specifications.
7. You have informed me that the repairs and alterations at the project must be designed to achieve a
green building certification consistent with Chapter 6 of the MAP Guide?
Yes _____, or No _____. (check one).
If no, enter “not applicable” in the next line and proceed to item (h) below, if yes enter the following:
Name of Certification:
Standard-keeper’s name:
Address of Standard-keeper:
Name of Standard-keeper’s Verifier:
Address of Verifier:
Proposed Level of Achievement76:
Point Score for Energy77:
out of a possible:
Is this certification a HUD recognized green building certification applicable to existing buildings (see
MAP Guide 6.3.B)? ______ Yes, or _____ No (check one).
If no, the following description of the certification must be true (see MAP Guide 6.3.C):
The certification requires the project design to achieve a 15% or greater reduction in energy use
compared to the benchmarked use; and
76 e.g.,
bronze, silver, gold, or similar grades of achievement.
standard keepers assign a level of achievement based on numbers of points assigned to design
or siting features as part of a scoring system. Typically, categories of features have a total number of points possible
for the category. This question asks for the number of points scored for the category of energy use or efficiency and
the total number of points possible for that category.
77 If applicable, most
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The certification requires independent verification of energy conservation measures and sustainable
products and methods by the verifier’s review of plans and specifications at the conclusion of design,
by the verifier’s onsite inspection of all construction completed prior to closing any opened cavity
walls and by the verifier’s onsite inspection of construction after completion; and
The standard-keeper provides or requires the verifier to provide to me and to the Borrower timely
written documentation of results or conclusions resulting from the verifier’s review of plans and
specifications and each on-site inspection leading to and including the final award (or denial) of the
certification.
The selected certification and level of achievement is applicable to the design and construction
methods proposed for the project. The project design is consistent with all the requirements of the
selected certification at the specified level of achievement and the project repairs and alterations will
earn the specified certification and are designed to achieve an ENERGY STAR® Score not less than 75.
8. Waivers of codes etc., were obtained as listed in attachment (identify):
Signed by:
Date:
Architect’s Name:
Business Address:
License Number:
C. Warning: Title 18 U.S.C. 1001, provides in part that whoever knowingly and willfully makes or uses a
document containing any false, fictitious, or fraudulent statement or entry, in any manner in the
jurisdiction of any department or agency of the United States, shall be fined not more than $10,000 or
imprisoned not more than five years or both.
A.5.8.3
Certificate of Professional Liability Insurance
A. Certificate of Professional Liability Insurance
HUD Project Name:
HUD Project Number:
Borrower:
B. To: Lender and Secretary of Housing and Urban Development
C. I certify that _______________________________________________(Name of Architect/ Engineer/ Design
Professional) is insured in the amount of
$____________________________________ under
____________________________(Name of Insurer) Policy No. _______________________ of Architect and/or Engineers
Professional Liability Insurance.
D. This Policy shall be maintained up through acceptance of the 12-month warranty inspection for the
subject HUD Project.
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A.5.9 HUD Cost Reviewer Reports Format
Signature:
Title:
Date:
Insurer’s Name:
Business Address:
E. Warning: Title 18 U.S.C. 1001, provides in part that whoever knowingly and willfully makes or uses a
document containing any false, fictitious, or fraudulent statement or entry, in any manner in the
jurisdiction of any department or agency of the United States, shall be fined not more than $10,000 or
imprisoned not more than five years or both.
A.5.9 HUD Cost Reviewer Reports Format
A. The following review reports formats are to be used to document Technical Reviews. The Technical
Support Division Branch Chiefs and Production Division Directors have discretion to approve
modifications or alternative formats.
A.5.9.1
Cost Review Report for Pre-Application
A. Cost Review Report for Pre-Application:
HUD Office Name:
Pre-Application Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
B. Summary of HUD cost review:
1. Cost exhibits. If not acceptable, indicate reasons.
Mortgagor’s Architect’s sketch plans
Form HUD-92013
2. For Substantial Rehabilitation projects, include the following. If not acceptable, indicate reasons.
Mortgagor’s Architect’s Scope of Work Summary
Mortgagor’s summary cost estimate for substantial rehabilitation (based on Scope of Work
Summary)
3. HUD Cost Estimate determination. If not acceptable, indicate reasons.
Structure type (from sketch plans):
Gross floor area (from sketch plans):
Estimated Total Structures cost (from cost data):
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A.5.9 HUD Cost Reviewer Reports Format
For Substantial Rehabilitation, indicate major trade item groups (if required), and subtotals:
Estimated Total Land Improvements cost (from cost data):
Estimated General Requirements (from cost data):
Estimated fee items (from cost data):
1) General Overhead
2) Builder’s Profit
3) Architectural Fees
4) Bond Premium
5) Other Fees
4. Review of mortgagor’s form HUD-92013. If not acceptable, indicate reasons.
Percentage difference between mortgagor’s Total Structures cost (Section G, Line 8) and HUD Cost
Estimator’s Total Structures cost:
Percentage difference between mortgagor’s Total Land Improvements cost (Section G, Line 3) and
HUD Cost Estimator’s Total Land Improvements cost:
Percentage difference between mortgagor’s General Requirements and fees (Section G, Lines 10
through 19) and HUD Cost Estimator’s General Requirements and fees:
C. I have reviewed the subject project and hereby make the following recommendation(s):
Reviewer
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence
Name of Team Leader:
Signature and Date of Concurrence:
Date:
A.5.9.2
Cost Review of Construction Analyst Cost Review
Report
A.5.9.2.1
New Construction and Substantial Rehabilitation
A. HUD cost review of Lender's Construction Analyst cost review report for firm exhibits new
construction and substantial rehabilitation:
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A.5.9 HUD Cost Reviewer Reports Format
HUD Office Name:
Firm Commitment Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
B. Summary of HUD cost review:
1. Firm Commitment deliverables (Review for completeness only). If not acceptable, indicate reasons.
Lender’s Cost Analyst Cost Review Report:
1) Lender’s detailed cost estimate
2) Comparison of Lender’s and General Contractor’s cost estimates
3) Prior approval of Identity of Interest subcontracts
4) Property Insurance schedule
5) For substantial rehabilitation projects, include the Lender’s estimate for Annual Deposit to
the Replacement Reserve.
Completed Forms with signatures:
1) Form HUD-92264
2) Form HUD-92326
3) Form HUD-92331-B
4) Form HUD-92329
5) Form HUD-2328
Subcontracts for Identity of Interest subcontractors
2. HUD Cost Review. If not acceptable, indicate reasons.
Comparison of Lender’s cost estimate and contractor’s form HUD-2328 with HUD cost data:
1) Total Structures
2) Total Land Improvements
3) General Requirements
4) Fee items
5) Cost Not Attributable items
Examination of Lender-contractor variance report (form HUD-2331-B)
Examination of:
1) Identity of Interest relationships
2) Applications for prior approval of Identity of Interest subcontractor overhead and profit
3) 50%-75% Rule compliance
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Examination of Property Insurance Schedule
C. I have reviewed the subject project and hereby make the following recommendation(s):
Reviewer
Name of Reviewer:
Signature and Date of Review:
Date:
Concurrence
Name of Team Leader:
Signature and Date of Concurrence:
Date:
A.5.9.3
Section 223(f) & 223(a)(7)
A. HUD cost review of Lender's Construction Analyst cost review report for firm exhibits, Section 223(f)
& 223(a)(7):
HUD Office Name:
Firm Commitment Submission Date:
Project Name:
Project Location (City, State):
MAP Lender Name:
B. Summary of HUD cost review:
1. Firm Commitment deliverables. If not acceptable, indicate reasons.
Lender’s Capital Needs Assessment and Replacement Reserve Escrow (CNA) Report
Completed form HUD-92264 with signatures
2. HUD cost review. If not acceptable, indicate reasons.
Examination of Lender’s CNA Report:
1) Critical repairs to be completed before endorsement
2) Non-critical repairs to be completed after endorsement and estimated repair costs
3) Expected repair replacement and major maintenance items over a specified period of time
4) Initial Deposit to Replacement Reserve, if any
5) Monthly Deposit to Replacement Reserve
6) Lender’s 223(f) Repairs & Alterations Cost Worksheet (See Section A.5.12), per Chapter 5,
Section 5.10.4.
Lender’s Property Insurance Schedule (form HUD-92329 from CNA e-Tool)
C. I have reviewed the subject project and hereby make the following recommendation(s):
HUD Office Name:
Project Name:
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Appendix 5 Architectural and Construction Analysis
A.5.10 Costs Not Attributable for New Construction
Project Location (City, State):
MAP Lender Name:
A.5.10 Costs Not Attributable for New Construction
A.5.10.1 Cost Not Attributable for New Construction
A. For new construction projects, costs not attributable is calculated as a percentage. The percentage
consists of the ratio of the cost of the non-attributable spaces and facilities (abbreviated “B”) to the total
cost of land improvements and structures (abbreviated “A”), known as the B over A ratio, or simply B over
A.
B. Costs are generally based on gross floor area of the building, area of exterior site improvements, and/or
lump sums.
1. To calculate “B” costs:
Prepare a worksheet describing by category each item considered in Cost Not Attributable,
showing the calculation of the cost of each item. Do not include General Requirements or fees in
the calculation.
Show the basis of measurement and the unit price.
Summarize the categories and total in form HUD-92326 and Section M of form HUD-92264.
2. To calculate “A” costs:
“A” is the sum of Total Structures and Total Land Improvements, before General Requirements or
fees are added. To calculate “A”, add the amounts in lines 36c and 41 in Section G of form HUD92264.
3. To calculate B over A:
Divide the “B” costs by the “A” costs. Express as a percentage and enter in Section M of form HUD92264.
C. There are two main categories of Costs Not Attributable: Residential and Commercial. Each is
calculated independently of the other and each has a maximum limit of 15%, resulting in a total cost not
attributable of up to 30% (see the example in Section A.5.10.1.C.2 below). Every use must be categorized
either as Residential or Commercial, but not both.
1. Residential Costs Not Attributable. This consists of non-attributable items solely for the use of
residents of the project. Items to consider as not attributable to dwelling use are:
Parking areas and the walks and driveways specifically leading to them and serving them. Do not
include public roads and streets or walks and driveways that lead to and serve the building
entrance.
Garages, garage spaces, and covered parking, and the walks and driveways leading to them,
excluding public roads and streets.
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A.5.10 Costs Not Attributable for New Construction
Other improvements include:
1) Community space, such as: multipurpose rooms, game rooms, lounges, libraries, and hobby
or craft rooms, including furniture or movable equipment.
2) Project administrative and maintenance spaces, such as: offices, repair shops, employee
toilets, and janitor or cleaning closets, including furniture or movable equipment.
3) Storage facilities that are not for tenant use.
4) Recreational facilities, such as: swimming pools, tennis courts, basketball courts, and tot lots,
including furniture or movable equipment.
5) Works of art that are fixed in place, such as wall murals or permanent ornamental fountains.
Special Exterior Land Improvements are features unusual or in excess of those typical in projects
for similar occupancy.
1) Include such items as patios, sitting areas, and gazebos for the use of all project occupants.
Include fountains and pools, exterior works of art, unusual trees and shrubs, and ornamental
lighting and fencing.
2) Do not include typical earthwork, roads and walks leading to and serving the dwellings,
typical lawns and plantings, private balconies and patios, utility lines, retaining walls, or
security lighting and fencing.
2. Commercial Costs Not Attributable. This consists of areas or buildings and improvements intended
for the use of the public as well as project residents. The most common commercial uses in residential
developments are:
Shops,
Offices, and
Public parking.
Include only the basic and permanent structural improvements typical in vacant commercial space.
Do not include equipment, fixtures, movable partitions, special finishes, etc., for a specific business.
D. Limitation on Cost Not Attributable
1. Residential: The B over A ratio for residential costs not attributable should not exceed 15%. This is
exclusive of any commercial space in the project, which will have a separate commercial cost not
attributable.
2. Commercial: Commercial costs not attributable applies to commercial space such as shops that are
in a residential structure but serve the general public as well as the residents. This is calculated
separately from residential costs. The B over A ratio for commercial costs not attributable should not
exceed 15 percent. The Lender’s Underwriter should be aware of the higher risk inherent in
commercial space and take special care to evaluate the commercial market in order to determine the
maximum commercial space that can be included in the project without imposing undue risk.
Example: A project has residential Cost Not Attributable of 12% and commercial Cost Not
Attributable of 7%. Each Cost Not Attributable category is within the 15% guidelines. Total Cost Not
Attributable for the project is 12% residential plus 7% commercial, equaling 19%.
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Appendix 5 Architectural and Construction Analysis
A.5.10 Costs Not Attributable for New Construction
E. Items not to be included in Costs Not Attributable:
1. Dwelling units. No portion of any dwelling unit, or any balcony or patio solely for the private use of
the resident of the individual dwelling unit, is to be included in costs not attributable.
2. Utility rooms. Do not include utility rooms or portions of basements devoted to utilities such as
boilers or furnaces, hot water heaters, water and sewer mains, gas mains, or electrical panels or
closets.
3. Circulation elements. Do not include entrances, lobbies, halls, corridors, stairs, and elevators used
by the occupants to enter and leave dwelling units. Do not include roads and walks that lead to and
serve the dwellings.
4. Prorating of circulation elements. A prorating of circulation elements between dwelling use and
any category in costs not attributable is not permitted.
5. Minor movable items that are not part of the real estate.
6. Commercial costs not attributable. Do not include equipment, fixtures, movable partitions, special
finishes, etc., for a specific business.
A.5.10.2 Example: Calculating Cost Not Attributable--New
Construction
A. A 50-unit apartment building has a gross floor area of 30,000 sf and a footprint of 7,200 sf. It has a
Total Structures cost of $1,665,000, and a Total Land Improvements cost of $250,000. It has a community
room on the ground floor, a parking lot, an exterior patio with benches, tables, and ornamental shrubs,
and a playground with swings and slides. Using the architectural drawings, determine the area of the
community room, parking lot, patio, and playground, and the number of benches, tables, ornamental
shrubs, swings and slides. Calculate the cost of each item.
B. Unit quantities:
Community room:
Asphalt parking lot for 50 cars:
Concrete Patio:
Playground:
5 ft concrete patio benches:
3 ft x 3 ft concrete patio tables:
Ornamental shrubs:
Playground swing sets:
Playground slides:
650 sf
15,000 sf
400 sf
900 sf
6 count
6 count
12 count
2 count
2 count
C. Unit costs:
1. The community room is part of the structure, while the rest of the non-attributable features are
exterior. The unit cost for the community room will be the Total Structures cost per gross square foot
of building area. In form HUD-92264, divide $1,665,000 (Line 41 of Section G) by 30,000 sf (Line 33
of Section C), giving a cost per gross square foot of $55.50.
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A.5.10 Costs Not Attributable for New Construction
2. Determine unit costs for exterior features from the Office benchmark data bank or a published data
source. The exterior unit costs used in this example are typical.
D. Parking lot:
Asphaltic concrete parking lot paving:
Concrete perimeter curbing (500 lin. ft.):
Concrete parking bumpers:
Stormwater catch basins (4):
Storm drain line (350 lin. ft):
Parking lot striping:
$1.25 per sf
$10.50 per lin. ft.
$30 ea.
$1,500 ea.
$27 per lin. ft.
$4 per car
E. Patio:
Concrete patio paving:
Concrete patio benches:
Concrete patio tables:
Ornamental shrubs:
$4 per sf
$500 ea.
$1,000 ea.
$100 ea.
F. Playground:
Asphalt paving:
Rubber safety surface:
Swing sets:
Slides:
$2 per sf
$3 per sf
$500 ea.
$1000 ea.
G. Cost Calculations:
1. “B” Costs. These are summarized according to category in Section M of the form HUD-92264.
M.10–Parking
Parking lot paving:
15,000 sf x 1.25
18,750
Parking lot curbing:
500 lin. ft. x 10.50
+5,250
Parking bumpers:
50 x 30.00
+1,500
Catch basins:
4 x 1500.00
+6,000
Storm drain:
350 lin. ft. x 27.00
+9,450
Striping:
50 x 4.00
+200
Summary Cost
=$41,150
M.13–Special Exterior Land Improvements
Patio paving:
400 sf x 4.00
1,600
Patio benches:
6 x 500.00
+3,000
Patio tables:
6 x 1000.00
+6,000
Ornamental shrubs:
12 x 100.00
+1,200
Playground paving:
900 sf x 2.00
+1,800
Safety surface:
900 sf x 3.00
+2,700
Swing sets:
2 x 500.00
+1,000
Slides:
2 x 1000.00
+2,000
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Summary Cost
M.14–Other
Community room:
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Appendix 5 Architectural and Construction Analysis
A.5.11 Costs Not Attributable for Existing Properties
=$19,300
650 sf x $55.50
=$36,075
Total Summary Costs = M.10 + M.13 + M.14 = Total “B” Costs = $96,525
Enter summary costs and breakdown in Section M.
2. “A” Costs
Total Structures (form HUD-92264, line
G.41)
Total Land Improvements (line G.3 5c)
TOTAL “A” COSTS
$1,665,000
+250,000
=$1,915,000
3. Cost Not Attributable (B over A):
“B” costs @ $96,525 divided by “A” costs @ $1,915,000 = 0.0504 = 5.04 percent
Enter the percentage in Section M of form HUD-92264.
A.5.11 Costs Not Attributable for Existing Properties
A.5.11.1 Instructions for Cost Not Attributable for Existing
Properties
A. Steps 1 through 8 of the Worksheet below are intended for determining Rehabilitation Cost Not
Attributable, and “As-Is” Cost Not Attributable, for existing building structures. If the building structure
contains a parking garage within its footprint, the cost and floor area of the garage should be included in
Steps 1 through 8. In addition, if the property contains a Cost Not Attributable use within an enclosed
building that is separate from the residential structure(s), e.g. a small community building, the cost and
floor area of such a Cost Not Attributable use should be included in Steps 1 through 8 of the Worksheet.
B. However, if there is no parking garage, but rather an open-air parking lot (and/or other open-air nonattributable use, such as a tennis court) separate from the building, the following procedure should be
used:
1. The cost to rehabilitate the parking lot (and/or other open-air use) should be included in Total Rehab
Cost (Step 1) and Rehab Cost Not Attributable (Step 2).
2. However, the area of the parking lot (and/or other open-air use) should not be included in the Project
Structures Not Attributable Square Feet nor the Total Project Structures Gross Square Feet (Step 3).
3. The area(s) of the parking lot (and/or other open-air use) will be entered in Step 9 and multiplied by
the Estimated Value of Land without Improvements and divided by the area of the project site.
4. Step 10 adds the amount in Step 9 to the subtotal in Step 8, to arrive at a total Rehabilitation Cost Not
Attributable to Residential Use.
C. Rehabilitation Cost Not Attributable to Residential Use Worksheet
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Appendix 5 Architectural and Construction Analysis
A.5.11 Costs Not Attributable for Existing Properties
1. Total Rehab or Repairs Cost:
Without fees - Lines G 36c + G41 from form HUD-92264); or (Critical
repairs
+
Non-critical repairs costs without fees
=$
2. Rehab/Repairs Cost Not Attributable*:
Dollar amounts without fees for Structures and Land Improvements
=$
* From Cost Analyst
3. Ratio of Not Attributable*
Project Structures Not Attributable Square Feet (Structure(s) only)
sf *
Total Project Structures Gross Square Feet (Structure(s) only)
÷
sf*
“3.a” divided by “3.b” = Ratio of Not Attributable
=
%
* From Cost Analyst
4. “As-Is” Not Attributable:
Total “As-Is” Value (from Line G.73b of form HUD-92264)
$
Ratio of Not Attributable (“3.c” above)
x
“4.a” multiplied by “4.b” = “As-Is” Not Attributable
=$
%
5. Total Cost Not Attributable:
“As-Is” Not Attributable (“4.c” above)
$
Rehab Cost Not Attributable (“2” above)
+$
“5.a” plus “5.b” = Total Cost Not Attributable
=$
6. Total Cost Without Fees:
Total Rehab Cost Without Fees (“1” above)
$
Total “As-Is” Value (from Line G.73b of form HUD-92264)
+$
“6.a” plus “6.b” = Total Cost Without Fees
=$
7. The Percentage Not Attributable:
Total Cost Not Attributable (“5.c” above)
$
Total Cost Without Fees (“6.c” above)
÷$
“7.a” divided by “7.b” = The Percentage Not Attributable
=
%
8. Rehab Cost Not Attributable for Project Structures
Total Estimated Replacement Cost of Project (Line G.74)
$
The Percentage Not Attributable (“7.c” above)
x
“8.a” multiplied by “8.b” = Rehab Cost Not Attributable for Project
Structures
=$
%
9. “As-Is” Not Attributable for Open-Air Parking Lots and Other Open-Air Uses
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A.5.11 Costs Not Attributable for Existing Properties
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Total Open-Air Non-Attributable Area
sf *
Estimated Value of Land Without Improvements
x$
Site Area
÷
“9.a” multiplied by “9.b” divided by “9.c” = “As-Is” Not Attributable for
Open-Air Parking Lots and Other Open-Air Uses
=$
sf *
* From Cost Analyst
10. Total Rehabilitation & Repairs Cost Not Attributable to Residential Use
Rehab Cost Not Attributable for Project Structures (“8.c” above)
$
“As-Is” Not Attributable for Open-Air Parking Lots and Other Open-Air
Uses (“9.d” above)
+$
“10.a” plus “10.b” = Total Rehab/Repairs Cost Not Attributable to
Residential Use
=$
A.5.11.2 Example of Calculating Cost Not Attributable for
Substantial Rehabilitation and Repairs
A. Apartment building containing community space and commercial space, a separate athletic club
building, and an open-air parking lot.
Units:
50
Gross Floor Area:
50,000 sf (residential structure)
1,000 sf (athletic club building)
Total Site Area:
25,000sf
B. Form HUD-92264 Section G:
Rehab/Repair cost for Structures:
$1,020,000
Rehab/Repair cost for Land Improvements:
+
$125,000
Rehab/Repair Gen. Requirements:
+
$225,000
Carrying Charges, Financing, Legal, Organizational, Audit.
+
$400,000
Contingency Reserve:
+
$100,000
Residential Structure:
+
$3,000,000
Athletic Club Building:
+
$50,000
Land (25,000 sf @ $20/sf):
+
$500,000
Soft Costs
“As-Is” Value
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A.5.11 Costs Not Attributable for Existing Properties
Total = Line G.74
=
$5,420,000
C. Non-attributable Areas:
Residential Structure
Community Room
=
1,000 sf
Commercial Space
=
2,000 sf
Athletic Club Building
=
1,000 sf
=
15,000 sf
Open-air Lot
Parking Lot for 50 cars
D. Rehabilitation/Repairs Cost Not Attributable (without Fees):
Residential Structure Rehab/Repair Costs
Community Room: 1,000 sf @ $20/sf
=
$20,000
Commercial Space: 2,000 sf @ $30/sf
=
$60,000
Athletic Club Building Rehab/Repair Cost: 1,000 sf @ $20/sf
=
$20,000
=
$15,000
Open-air Lot Rehab/Repair Costs
Patch and re-stripe parking lot: 15,000 sf @ $1/sf
A.5.11.2.1 STEP A:
“B” over “A” Test
A. “A” (Rehab/Repair Costs for Structures and Land Improvements:
Rehab/Repair cost for Structures:
$1,020,000
Rehab/Repair cost for Land Improvements:
Total
+
$125,000
=
$1,145,000
B. “B” for Non-commercial Uses:
Community Room Rehab/Repair Cost:
$20,000
Athletic Club Building Rehab/Repair Cost:
+
$20,000
Open-air Lot Rehab/Repair Costs:
+
$15,000
Total
=
$55,000
=
$60,000
C. “B” for Commercial Uses:
Commercial Space Rehab/Repair Cost:
D. “B” over “A” for Non-commercial Percentage
B divided by A ($55,000 / $1,145,000 = 0.048) = 4.80 Percent
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A.5.11 Costs Not Attributable for Existing Properties
E. “B” over “A” for Commercial Percentage
B divided by A ($60,000 / $1,145,000 = 0.0524) = 5.24 Percent
A.5.11.2.2 STEP B:
Acceptable
Rehab/Repairs Cost Not Attributable Worksheet
A. Step 1: Total Rehab/Repairs Cost:
Land and Structures
=
$1,145,000
B. Step 2. Rehab/Repairs Cost Not Attributable:
= $20,000 + 60,000 + 20,000 + 15,000
=
$115,000
C. Step 3. Ratio of Not Attributable:
Use only the areas within the residential structure and enclosed nonattributable buildings for project not attributable and project gross square
feet.
Project Structures Not Attributable Square Feet
Community Room
1,000sf
Commercial Space
+
2,000sf
Athletic Club Building
+
1,000sf
=
4,000sf
Gross Floor Area of Residential Structure
+
50,000sf
Athletic Club Building
+
1,000sf
=
51,000sf
=
7.84%
Total
Project Structures Gross Square Feet
Total
Ratio: [4,000 sf] divided by [51,000 sf] = 0.0784
D. Step 4. “As-Is” Not Attributable:
Total “As-Is” Value:
Residential Structure:
$3,000,000
Athletic Club Building:
+
$50,000
Land (25,000 sf @ $20/sf):
+
$500,000
=
$3,550,000
Total
“As-Is” Not Attributable:
Total “As-Is” Value:
$3,550,000
Ratio of Not Attributable (Step 3):
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A.5.11 Costs Not Attributable for Existing Properties
[Total “As-Is” value] multiplied by [Ratio of Not
Attributable]:
=
$278,320
E. Step 5. Total Cost Not Attributable:
“As-Is” Not Attributable (Step #4):
$278,320
Rehab/Repairs Cost Not Attributable (Step #2):
+
$115,000
[“As-Is” Not Attributable] plus [Rehab/Repairs Cost Not
Attributable]:
=
$393,320
F. Step 6. Cost Without Fees:
Total Rehab/Repairs Cost (without Fees) (Step #1):
$1,145,000
Total “As-Is” Value:
+
$3,550,000
[Total Rehab/Repairs Cost] plus [Total “As-Is” Value]:
=
$4,695,000
G. Step 7. The Percentage Not Attributable:
Total Cost Not Attributable (Step #5):
$393,320
Cost without Fees (Step #6):
÷
$4,695,000
[Total Cost Not Attributable] divided by [Cost without
Fees]:
=
8.38 %
H. Step 8. Rehab/Repairs Cost Not Attributable for Project Structures:
Total Estimated Replacement Cost of Project (Line G.74):
$5,420,000
Percentage Not Attributable (Step #7)
x
8.38 %
[Total Estimated Replacement Cost] multiplied by
[Percentage Not Attributable]:
=
$454,196
I. Step 9. “As-Is” Not Attributable for Open-Air Parking Lots and Other Open-Air Uses:
Total Open-Air Non-Attributable Area (parking lot):
15,000 sf
Estimated Value of Land Without Improvements:
x
Site Area:
÷
[Total Open-Air Non-Attributable Area] multiplied by
[Estimated Value of Land divided by Site Area]:
=
$500,000
25,000 sf
$300,000
J. Step 10. Total Rehabilitation Cost Not Attributable to Residential Use
Rehab/Repairs Cost Not Attributable for Project Structures
(Step #8):
“As-Is” Not Attrib. for Open-Air Parking Lots and Other OpenAir Uses (Step #9):
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$454,196
+
$300,000
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Appendix 5 Architectural and Construction Analysis
A.5.12 223(f) Repairs and Alterations Cost Worksheet
[Rehab/Repairs Cost Not Attributable] plus [“As-Is” Not
Attrib. Open-Air Parking Lot / Other Uses]:
=
$754,196
A.5.12 223(f) Repairs and Alterations Cost Worksheet
WORKSHEET FOR SUM OF COSTS OF REPAIRS & ALTERATIONS IN 223(f) APPLICATIONS
(When hard costs exceed $15,000/per unit or include Level 2 or Level 3 Alterations)
Project Name: Honest Acres
# All Units: 164
Address/City/State/Zip:
FHA #:
When Incurred
Category or Description of Cost
A
B
C
D
$ Before
Endorsement
(Note 1)
$ After
Endorsement
(Note 2)
$
Total Cost
% of
Total
Cost
A. REPAIRS HARD COSTS
1.
Critical Repairs
a.
b.
c.
Life Safety (see CNA e-Tool list of
repairs)
Accessibility (see CNA e-Tool list of
repairs)
Subtotal All Critical
7,600
$7,600
4,200
11,800
$17,000
$117,000
$121,200
$128,800
2.
Non-critical Repairs (see CNA e-Tool list
of repairs)
$-
2,587,000
$2,587,000
3.
Total Hard Costs
$11,800
$2,704,000
$2,715,800
$27,000
$270,000
$27,000
$270,000
0.99%
9.94%
$297,000
$ 297,000
10.94%
$20,600
$20,600
$15,000
$30,000
$15,000
B. REPAIRS SOFT COSTS
4.
General Contractor
a.
b.
c.
Overhead
Profit
Subtotal GC Fees (4a +
4b)
5.
GC's General Requirements (itemize,
Note 3)
6.
Architect's Fees (Note 4)
a.
b.
Design
Supervision
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Appendix 5 Architectural and Construction Analysis
A.5.12 223(f) Repairs and Alterations Cost Worksheet
When Incurred
Category or Description of Cost
Subtotal Architect's Fees
c. (6a + 6b)
A
B
C
D
$ Before
Endorsement
(Note 1)
$ After
Endorsement
(Note 2)
$
Total Cost
% of
Total
Cost
$30,000
$15,000
$45,000
1.66%
7.
Other Fees (itemize, Note 3)
$60,800
$325,000
$385,800
8.
Total Soft Costs
$90,800
$657,600
$748,400
$102,600
$3,361,600
$3,464,200
C. CALCULATIONS TOTAL
9.
TOTAL COSTS
10.
Total Cost per Unit
(Line 9/# units; Note 4)
$21,123
D. MISC. CALCULATIONS
11.
Assurance of Completion % (10%)
12.
Total Amount of Repair Escrow (line 9 + line 11, col. C)
13.
Section 223(f) Cost Ceiling: Sub Rehab+ Threshold
Enter Base $ Per Unit
a. Limit:
15,933
Enter Local High Cost
b. Multiplier:
262%
c.
Adjusted Per Unit Limit:
$346,420
$3,810,620
$41,744
Total cost/unit at completion, no matter how funded, may not exceed sum on line 13c, Col A.
Note 1: Mortgageable costs, reimbursable at Endorsement subject to available proceeds.
Note 2: Mortgageable costs, reimbursable only from Repair Escrow.
Note 3: Attach additional sheets as required.
Note 4: % calculated is fee/(hard costs + GC fees + General Requirements).
Note 5: May not exceed base cost per unit x area high cost factor.
MAP Guide, December 2020
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Appendix 6 Energy Modeling and Water Conservation
A.5.12 223(f) Repairs and Alterations Cost Worksheet
Appendix 6 Energy Modeling and Water Conservation
A. Building energy modeling, (BEM) also known as building performance simulation, refers to systematic
procedures for estimating the results of operating and maintaining a building for its intended use in the
environment at its location. Fundamentally, the object of BEM is to measure inputs necessary to maintain
a desired interior environment in a building given the use and location of the building and the siting,
design, equipment and construction methods employed in its construction. The U.S. Department of
Energy (DOE) and the American Society of Heating, Refrigerating and Air Conditioning Engineers
(ASHRAE) are primary sources of modeling standards and methods.
B. Any BEM software acceptable for use in modeling building performance in a mortgage application must
be industry recognized and must comply with industry standards, notably ASHRAE 90.1 Appendix G, for
any building where ASHRAE 90.1 is applicable, or for single family, townhouse or small structures with
no common space, the RESNET Home Energy Rating System (HERS). For modeling purposes, the guidance
for modeling in these referenced standards must be from the most recent available version. For example,
the current most recent version of ASHRAE 90.1 Appendix G is part of the ASHRAE 90.1 2016 version and
it is this version that must be used for modeling even though the HUD minimum code is ASHRAE 90.1
2007.
C. Building energy modeling is used for two main purposes:
1. Comparing a building to an alternative version of itself. This is the purpose of BEM when
perfecting a proposed building design or comparing the costs and benefits of alternative designs,
equipment and construction methods. The object is to answer the question: how much more (or less)
efficient is a building built per design “A” versus design “B.” BEM is essential to the use of
performance-based codes and standards as opposed to prescriptive codes. Prescriptive codes set
minimum performance, quality or construction methods for each component or assembly in a
building and each requirement must be met. Performance based codes allow the design to exceed
minimum prescriptions for some components or assemblies to compensate for less than the
prescribed performance of other components, a much more flexible approach to design and
construction. Many green building certifications have both performance-based and prescriptive
options. Choosing a performance option requires the use of building energy modeling.
2. Estimating expected results for a building in operation or after it is placed in service. This is
the purpose of BEM when estimating the energy usage and costs for a building when it is occupied
and operating normally.
While closely related, these two purposes embody a key distinction relevant to multifamily practice.
Estimating actual results for a property requires modeling no matter whether the design conforms to
a performance or a prescriptive code. When comparing a building to an alternative version of itself,
the comparison is valid as long as all the loads, environmental conditions, and anticipated uses, are
held constant (e.g. assumed interior hi/lo temperatures are fixed) with only alternatives for design,
construction and equipment changing from one modeled result to another. When estimating expected
results for an existing or designed building, all inputs are fixed and must be consistent with actual
conditions for the property in operation. Examples illustrate this distinction. Set temperatures for
heating and cooling seasons are inputs to a modeled result. When comparing a building to an
alternative of itself, these temperatures are set in accordance with modeling standards or guidance,
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A.5.12 223(f) Repairs and Alterations Cost Worksheet
e.g. ASHRAE 90.1 Appendix G. When estimating results for a building in operation or to be placed in
operation, these set temperatures may be different from Appendix G, reflecting actual tenant
behavior. When estimating energy use in an existing property or a designed building the heating
season set temperature should not be lower than 70° F versus the Appendix G minimum of 68°F.
Similarly, the cooling season set temperature should not be higher than 75°F, not the Appendix G
maximum of 78°F. In this example, Appendix G merely describes an acceptable range for comparative
modeling purposes, not a range most likely in an occupied multifamily unit. Another, similar example
is the different loads applicable to a family with children versus those likely for an elderly couple.
Modeling to estimate actual results in a multifamily property must reflect the expected tenant profile
and tenant behavior for the subject property.
BEM software is divided into two basic categories: simulation engines; and data entry and
consolidation forms. The Department of Energy has developed and provided free and foundational
simulation engines used by others to develop or elaborate copyrighted add-ons or overlays including
user friendly data entry user interface and reports generating features. DOE’s simulation engines are
known as EnergyPlus and Spawn-of-EnergyPlus. DOE has also published OpenStudio, an open source
software development kit for energy modeling with EnergyPlus. Information on these software
products, resources for modelers and stakeholders and many other aspects of building energy
modeling is available at DOE’s website for emerging technologies-building energy modeling website:
https://www.energy.gov/eere/buildings/building-energy-modeling
A complete and searchable inventory of energy modeling software is available at the Building Energy
Software Tools website: https://www.buildingenergysoftwaretools.com/
Modelers working with green MIP applications should use a software product listed on this website
selecting one of these products specifically identified as appropriate for “multifamily” properties. If
the proposed green MIP project is composed of single family, duplex, four family or other small
buildings with no common spaces, a software listed as appropriate for “residential” may be
appropriate.
Some listed software are narrow in scope, for example, limited to Manual J air conditioning load and
sizing calculations or to water consumption metrics. These may be useful for their limited purposes,
in particular water analytics, apart from water heating energy, may be severable from energy
efficiency.
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Appendix 7 Valuation Processing
A.7.1 HUD Review Appraiser Scope of Work
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Appendix 7 Valuation Processing
A.7.1 HUD Review Appraiser Scope of Work
A. SUBJECT: How the Uniform Standards of Professional Appraisal Practice (USPAP) Relates to HUD
Multifamily Appraisals, MAP Lenders, MAP Appraisers, and HUD Review Appraisers
A.7.1.1
Purpose
A. This appendix provides direction to HUD Appraisers, Underwriters, and other Production staff and
managers reviewing applications for multifamily mortgage insurance. It addresses USPAP and appraisals
completed for HUD-insured multifamily mortgage applications. The Appraisal Foundation was consulted
in the process of preparing this guidance.
A.7.1.2
USPAP Background
A. The purpose of USPAP is to promote and maintain a high level of public trust in appraisal practice by
establishing requirements for appraisers. USPAP is published by the Appraisal Standards Board (ASB) of
The Appraisal Foundation. It is revised every two years.
B. The Appraisal Foundation was formed by major appraisal professional associations in the 1980s as a
result of the savings and loan crisis which occurred in that decade. It is authorized by Congress as the
source of appraisal standards and appraiser qualifications. It is not a governmental body and has no
enforcement authority.
C. The Foundation’s activities are monitored and partially funded by a governmental agency known as
the Appraisal Subcommittee-Federal Financial Institutions Examination Council, more commonly known
as the ASC, whose members include representatives of the Federal Reserve System, Office of the
Comptroller of the Currency, Federal Housing Finance Agency, Consumer Financial Protection Bureau,
Federal Deposit Insurance Corporation, and the National Credit Union Administration. HUD is also a
member.
D. The ASC provides federal oversight of State appraiser regulatory programs and a monitoring
framework for the Appraisal Foundation and the Federal Financial Institutions Regulatory Agencies in
their roles to protect federal financial and public policy interests in real estate appraisals utilized in
federally related transactions. 78 Enforcement of Appraisal Standards (i.e., USPAP) is accomplished by
State Regulatory Agencies.
78 Although
it is possible that some HUD-insured mortgages may not technically be federally related, there is a
statutory requirement for the Department to evaluate collateral using licensed or certified appraisers. This
requirement can be met through the use of either licensed staff appraisers or third-party appraisers.
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A.7.1 HUD Review Appraiser Scope of Work
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A.7.1.3
Applicability of USPAP to HUD/FHA
A. The Department has statutory authority (12 USC 1708(g)) to prescribe standards for the appraisal of
all property to be insured by the Federal Housing Administration. Such appraisals shall be performed in
accordance with generally accepted standards79 by individuals who have demonstrated competence and
whose professional conduct is subject to effective supervision. Under the MAP Program, HUD relies on
the MAP Approved Lender to provide such supervision and their third-party appraisal may be relied upon
to meet the statutory requirement. Additionally, the Department requires a USPAP-Compliant appraisal
review by a HUD staff appraiser for all high- or medium-risk transactions.
B. The HUD Review Appraiser is required to opine on the quality of the appraisal and its reliability for
use in underwriting a HUD-insured mortgage. A concurrence with the value or the development of an
alternate value is not necessarily required.
C. USPAP consists of five sections: 1) Definitions, 2) Preamble, 3) Rules, 4) Standards and Standards Rules,
and 5) Statements on Appraisal Standards. The ASB also publishes Advisory Opinions, which although
are not a part of USPAP, provide illustrations of the applicability of Standards in specific situations and
offer advice from the ASB for the resolution of specific appraisal issues and problems. Advisory Opinions
3, 14, and 16 are cited in the MAP Guide.
D. All of the Rules in USPAP apply to MAP Appraisers and HUD Review Appraisers. They consist of the
Ethics Rule, Record Keeping Rule, Competency Rule, Scope of Work Rule, and Jurisdictional Exception
Rule.
A.7.1.3.1
Ethics Rule
A. This rule specifies the personal obligations and responsibilities of the individual appraiser as well as
an appraiser employed by a group or organization. The Ethics Rule is divided into three sections: Conduct,
Management, and Confidentiality. The Department has addressed the issue of confidentiality in Chapter
7, Section 7.6.12 of this MAP Guide. Management is addressed in the certification that the review
appraiser makes when completing a review assignment.
B. With respect to conduct, all employees are expected perform assignments with impartiality, objectivity,
and independence, and without accommodation of personal interests.
A.7.1.3.2
Record Keeping Rule
A. This rule specifies record-keeping procedures for appraisers. The rule does not mandate that an
appraiser have possession of assignment work files. The Department does not permit permanent or
personal possession of records relating to a Review Appraiser’s work. However, the Department retains
these records for far more than the time required under USPAP and will, with due process of law,
cooperate with appraiser regulatory agencies and professional peer review committees, and assist with
obtaining a professional designation.
The Statute states: “…in accordance with generally accepted appraisal standards, such as the appraisal standards
promulgated by The Appraisal Foundation.”
79
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A.7.1 HUD Review Appraiser Scope of Work
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A.7.1.3.3
Competency Rule
A. This rule essentially states that an appraiser must be competent to perform the assignment, acquire
the necessary competency to perform the assignment, or decline or withdraw from the assignment. In all
cases, the appraiser must perform competently when completing the assignment. Competency also
relates to familiarity with a given market.
B. Some assignments may raise concerns about the competency requirement. For example, a transaction
may have a large commercial space/income component, or a transaction may involve a project that is far
from the HUD Review Appraiser’s geographic area. A number of HUD’s appraisers have extensive
commercial experience and can be consulted.80 Reviewer Appraisers may be able to obtain sufficient
market information from other HUD staff and online sources of data (e.g., HUD and/or commercial) in
order to complete their review. In some cases, a site visit and/or additional time might be needed to
research an unfamiliar area.
C. The need to withdraw from an assignment should be rare and HUD Review Appraisers are expected to
work with management to arrange for timely completion of review assignments.
A.7.1.3.4
Scope of Work Rule
A. The Scope of Work Rule is essentially problem-solving guidance that includes property identification,
extent of inspection, the type and extent of data researched, and the kind of analysis needed to arrive at
opinions or conclusions. The rule also states that appraisers have broad flexibility and significant
responsibility in determining the appropriate scope of work for an appraisal or appraisal review
assignment.
B. According to USPAP, appraisers (including HUD Review Appraisers) are responsible for determining
the scope of work. However, as an employer who is also the client, the Department may issue guidance
as to what is the extent of an assignment for a review appraisal. It is not a violation of USPAP for an
appraiser to accept an assignment, in which a limited scope of work is appropriate, so long as the
assignment and scope of work are clearly defined, produces credible results, and is performed objectively
without bias.
C. HUD Review Appraisers may have to expand the scope of work and do additional research in
performing an assignment. The Review Appraiser should discuss such situations with management in
order to determine whether additional work by HUD staff is appropriate, or if the application should be
rejected or approved with conditions.
D. According to USPAP, if relevant information is not available because of assignment conditions that limit
research opportunities (such as conditions that place limitations on inspection or information gathering),
an appraiser must withdraw from the assignment unless the appraiser can still develop credible
assignment results. For example, they may be able to modify the assignment conditions to expand the
There may be times when consulting other appraisers rises to the level of “significant appraisal review
assistance” and the name of the person providing that assistance must be stated in the certification.
80
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scope of work to include gathering the information or use an extraordinary assumption 81 about such
information.
E. Workload Sharing arrangements may require HUD Review Appraisers to perform reviews without the
benefit of being able to do a physical inspection. In these cases, the assignment will generally be
completed with the Review Appraiser making certain assumptions, such as the condition to be consistent
with the photographs and other reports.
F. HUD Review Appraisers may be required to provide consultation with Senior Underwriters and other
staff who have been asked to review an appraisal.
A.7.1.3.5
Jurisdictional Exception Rule
A. This rule provides a saving or severability clause intended to preserve the balance of USPAP if
compliance with one or more of its parts is precluded by the law or regulation of a jurisdiction. When an
appraiser properly follows this rule in disregarding a part of USPAP, there is no violation of USPAP.
B. USPAP defines law as including constitutions, legislative and court-made law, administrative rules, and
ordinances. Regulations include rules or orders having legal force, which are issued by an administrative
agency (such as HUD.) This would include Handbooks, Notices, and the MAP Guide. Instructions from an
attorney or a client do not establish a jurisdictional exception
C. The need to exercise a Jurisdictional Exception should be rare. If it is needed, the appraiser or Review
Appraiser must specifically cite the law or regulation and the portion of USPAP that is affected. Verbal
direction from management is not sufficient to justify a Jurisdictional Exception. HUD Review Appraisers
must cite a citation from the MAP Guide or other appropriate authority.
A.7.1.4
USPAP Standards
A. The USPAP Standards that are the most applicable to HUD Multifamily are: Standard 1- Real Property
Appraisal Development; Standard 2- Real Property Appraisal Reporting; and Standard 3- Appraisal
Review, Development, and Reporting.
A.7.1.4.1
Standard 1
A. “….. an appraiser must identify the problem to be solved, determine the scope of work necessary to
solve the problem, and correctly complete research and analyses necessary to produce a credible
appraisal.”
An Extraordinary Assumption is an assumption, directly related to a specific assignment, as of the effective date
of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.
Extraordinary assumptions presume as fact otherwise uncertain information about: 1) physical, legal, or economic
characteristics of the subject property; or 2) conditions external to the property, such as market conditions or
trends; or 3) the integrity of data used in an analysis.
81
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A.7.2 HUD Review of Appraisal and Market Study
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A.7.1.4.2
Standard 2
A. “….In reporting the results of a real property appraisal, an appraiser must communicate each analysis,
opinion, and conclusion in a manner that is not misleading.” This standard also sets forth the required
format for the appraiser to certify his/her work.
A.7.1.4.3
Standard 3
A. This standard addresses the substantive aspects of developing a credible opinion about the quality of
another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.
B. This standard also addresses the content and level of information required in a report that
communicates the results of an appraisal review assignment. Standard 3 does not dictate the form,
format, or style of Appraisal Review Reports. The substantive content of a report determines its
compliance. Like Standard 1, Standard 3 requires the development of a work file.
C. When a HUD Review Appraiser changes rents or adjust values, he/she is producing an appraisal and
must develop a work file that complies with Standard 1. Generally, the HUD Review Appraiser is expected
to opine on the quality of the appraisal under review and determine whether or not it is suitable for use
in underwriting a HUD-insured mortgage.
D. The Multifamily Hub Director has waiver authority to rely on the Lender's appraisal review without a
HUD staff appraiser review. Exercise of such authority may be appropriate for low-risk transactions in
which the application is complete and reliable. The appraisal report must still be reviewed by a HUD staff
member. The staff assigned to this task must have adequate training and must ensure that the appraisal
report under review is USPAP-compliant and also follows the requirements outlined in Chapter 7 of this
MAP Guide.
A.7.1.5
Conclusion
A. HUD Review Appraiser assignments are to be completed in accordance with USPAP and in accordance
with workload norms to support production. HUD Review Appraisers are responsible for advising
management and documenting their findings and recommendations (including non-concurrences, if
applicable) as to the acceptability of MAP Lender third-party appraisals and applications.
A.7.2 HUD Review of Appraisal and Market Study
A.7.2.1
Technical Review of Multifamily Accelerated Processing
A.7.2.1.1
Pre-Application Section 220, 221(d)(4), and 231
A. This review of appraisal/consulting work product is to be completed in accordance with Standard 3 of
the USPAP currently in effect. The reviewer’s client and intended user is the U. S. Department of Housing
and Urban Development. The purpose of the review is to ascertain if the appraisal/consulting work
product under review meets the applicable requirements of the USPAP and HUD, and that the work
product has produced well-supported conclusions that can be relied on for the purpose of making a
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A.7.2 HUD Review of Appraisal and Market Study
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recommendation to issue, or not issue, an invitation to apply for a Firm Commitment for HUD mortgage
insurance. The sample format in this Appendix may be used in its entirety, modified by the HUD Review
Appraiser to reflect their scope of work on any particular transaction, or a field office may use their own
format so long as the reviewer’s signature and license number are included and their report is compliant
with USPAP.
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A.7.2 HUD Review of Appraisal and Market Study
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SAMPLE APPRAISAL REVIEW FORMAT
Month Day, Year
Memorandum For:
Underwriter Name, Senior Underwriter
Through:
Appraiser
From:
Technical Branch Chief
Project:
Name:
FHA #:
SOA:
Type:
NC or Sub-Rehab or Refi or Acquisition
Stage:
Firm or Pre-App
#Units:
Address:
City:
County:
State:
The review of the Project has been completed and the following text describes the review completed.
Client and Other Intended Users of the Review: The client is the United States Department of Housing
and Urban Development (HUD); the intended users are HUD staff involved in the FHA mortgage insurance
underwriting process, and no others.
Intended Use of the Reviewer: This assignment is intended to be used for mortgage insurance decision
making purposes, and no other use.
Purpose of the Review: To determine if the risks associated with the Project are acceptable to HUD.
Furthermore, and as a byproduct of the risk determination, the purpose is to determine acceptability of
the work under review for use in mortgage insurance underwriting purposes. The reviewer’s opinions
and conclusions are limited to the work under review. The review does not include a development of the
reviewer’s own opinion of value.
Hypothetical Conditions: The work under review (with the exception of the environmental documents)
and the review assignment both assume that all necessary property improvements and/or repairs are
complete, and that the property has stabilized occupancy as of the effective date of the appraisal.
Extraordinary Assumptions: There are no extraordinary assumptions specific to this assignment;
however, extraordinary assumptions were contained in the appraisal under review.
Jurisdictional Exception: Per Federal Register Volume 59, Number 190 (Monday, 10/3/1994), FR Doc
No: 94-24327, Part XI, Department of Housing and Urban Development, Office of the Assistant Secretary
for Housing--Federal Housing Commissioner, 24 Part 200 et al., Appraisals and Property Valuation; Final
Rule – (in summary) and OMB Bulletin No. 92-06 - Federal employees who are state-licensed or certified
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real estate appraisers need only be licensed or certified in one state or territory to perform real estate
appraisal duties as Federal employees in all states and territories.
Scope of work: A full or limited scope review was completed for the following:1
Appraisal2
Market Study
EMAD
Underwriting3
Phase I4
☐Full
☐Full
☐Full
☐Full
☐Full
☐Limited
☐Limited
☐Limited
☐Limited
☐Limited
☐None
☐None
☐None
☐None
☐None
The review would incorporate and include any and all follow-up or additional information submitted after the application
submission and prior to the completion of this review.
2 The ownership interest in the work under review is Fee Simple.
3 Includes Lender’s narrative, forms (i.e. 92264), and any other information supplied by the Lender.
4 Includes all other environmental reports (i.e. Phase II, various O&M Plans, etc.).
1
Work under review:
Work
Date of
Report
Person Completed
Date of Site
Inspection
Effective
Date
Appraisal
Market Study
EMAD
Phase I
Underwriting
As part of the review process the following has occurred:
☐I have
☐I have not
inspected the Project (consists of site, neighborhood, and improvements if applicable).
☐I have
☐I have not
inspected a sampling of the comparables (consists of random sampling of rent, expense,
land sale, and improved sale comparables).
☐I have
☐I have not
conducted any additional research (consists of iREMS, OPPIS, REIS, other HUD available
data, external websites, market professionals).
☐I have
☐I have not
other: N/A
The topics reviewed are identified in the left-most column and the remaining columns summarize the
conclusion(s) of the review completed. A narrative follows which covers the critical pieces and will assist
in the mortgage insurance decision making process:
Acceptable
Not
Acceptable
Mitigation
Recommended
Mitigation
Required
Not
Applicable
☐ Improvements
☐
☐
☐
☐
☐
☐ Rent Structure
☐
☐
☐
☐
☐
☐ Location
☐
☐
☐
☐
☐
Review Topic
Market Study and/or Appraisal
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Acceptable
Not
Acceptable
Mitigation
Recommended
Mitigation
Required
Not
Applicable
☐ Waivers
☐
☐
☐
☐
☐
☐ Housing Market Area
(“HMA”)
☐
☐
☐
☐
☐
☐ Economics and
Demographics
☐
☐
☐
☐
☐
☐ Competition/Comparables
☐
☐
☐
☐
☐
☐ Pipeline
☐
☐
☐
☐
☐
☐ Target Market
☐
☐
☐
☐
☐
☐ Demand (including any
commercial)
☐
☐
☐
☐
☐
☐ Absorption
☐
☐
☐
☐
☐
☐ Initial Operating Deficit
☐
☐
☐
☐
☐
☐ EMAD’s Review
☐
☐
☐
☐
☐
☐ Other – [Modify OR delete
this text]
☐
☐
☐
☐
☐
☐ Sales Comparison Approach
☐
☐
☐
☐
☐
☐ Land Comparison Approach
☐
☐
☐
☐
☐
☐ Remaining Economic Life
☐
☐
☐
☐
☐
☐ Cost Approach
☐
☐
☐
☐
☐
☐ Income Approach
☐
☐
☐
☐
☐
☐ Rents (including any
commercial)
☐
☐
☐
☐
☐
☐ Other Income
☐
☐
☐
☐
☐
☐ Vacancy (including any
commercial)
☐
☐
☐
☐
☐
☐ Expenses (including any
commercial)
☐
☐
☐
☐
☐
☐ NOI
☐
☐
☐
☐
☐
☐ Capitalization Rate
☐
☐
☐
☐
☐
☐ Value
☐
☐
☐
☐
☐
☐ Reconciliation of Value
☐
☐
☐
☐
☐
☐ Debt Service Analysis
☐
☐
☐
☐
☐
☐ Rents (including any
commercial)
☐
☐
☐
☐
☐
☐ Other Income
☐
☐
☐
☐
☐
☐ Vacancy (including any
commercial)
☐
☐
☐
☐
☐
Review Topic
Appraisal
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Acceptable
Not
Acceptable
Mitigation
Recommended
Mitigation
Required
Not
Applicable
☐ Expenses (including any
commercial)
☐
☐
☐
☐
☐
☐ NOI
☐
☐
☐
☐
☐
☐ Tax Abatement
☐
☐
☐
☐
☐
☐ Ground Lease
☐
☐
☐
☐
☐
☐ Other – Modify OR Delete
Text
☐
☐
☐
☐
☐
☐ Underwriting
☐
☐
☐
☐
☐
☐ Rents (including any
commercial)
☐
☐
☐
☐
☐
☐ Other Income
☐
☐
☐
☐
☐
☐ Vacancy (including any
commercial)
☐
☐
☐
☐
☐
☐ Expenses (including any
commercial)
☐
☐
☐
☐
☐
☐ NOI
☐
☐
☐
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☐
☐ Other
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Review Topic
Underwriting
Waivers: (Discuss any waivers that would be in the purview of the HUD appraiser and provide a
recommendation for approval or not.)
[Type the waiver narrative here.]
Market Narrative: (For all project types, describe: the Primary Market Area (PMA); demographic,
economic, and market trends; and demand. Also, discuss the subject property in relation to the competing
properties in the PMA and discuss the status of the overall sub-market.
For New Construction or Sub Rehab, also describe the material variances between the Market Study and the
Economic Market Analysis Division (EMAD); specifically address the differences in the conclusions of the two
reports and the reasons for conclusions contained in this review. Also discuss lease-up projections, including
the Absorption Period and Rate, Penetration Rate, and Capture Rate.
Generally, the narrative section should not exceed 1½ pages, the bulleted strength and weaknesses sections
should typically contain 2 to 4 bullets, respectively, and reflect the most important market-related strengths
or weaknesses.
The objective of the review is to provide a recommendation and provide the insight as to why the
recommendation was made, rather than to summarize the appraisal, market study, and/or the underwriting
[including the Lender’s narrative]. For example, explain why the market is acceptable or not acceptable.)
[Type the market narrative here.]
MAP Guide, December 2020
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Appendix 7 Valuation Processing
A.7.2 HUD Review of Appraisal and Market Study
Go to Table of Contents
Market Strengths:
⚫
[Type market strengths here.]
⚫
[Type market strengths here.]
⚫
[Type market strengths here.]
⚫
[Type market strengths here.]
Market Weaknesses:
⚫
[Type market weaknesses here.]
⚫
[Type market weaknesses here.]
⚫
[Type mitigants here, if applicable.]
[Type market weaknesses here.]
⚫
[Type mitigants here, if applicable.]
[Type mitigants here, if applicable.]
[Type market weaknesses here.]
[Type mitigants here, if applicable.]
Valuation Narrative: (Discuss all of the following that are applicable for the project type: the land value
analysis, cost approach, sales comparison approach, income approach to value [be sure to discuss the income,
vacancy, expenses, and capitalization rates in the income approach to value discussion], reconciliation of
value, and debt service analysis [be sure to discuss the income, vacancy, and expenses in the debt service
analysis discussion].
Furthermore, be certain to discuss any differences between the appraisal and the underwriting, especially in
regard to the value and debt service analysis, and provide an indication if the differences in the underwriting
are acceptable or not. Also, be sure to discuss tax abatements, ground leases, IOD’s, or any other topic [e.g.,
remaining economic life] where a concern may exist, if applicable.
Generally, the narrative section should not exceed 1½ pages, the bulleted strength and weaknesses sections
should typically contain 2 to 4 bullets, respectively, and reflect the most important value-related strengths
or weaknesses.
The objective of the review is to provide a recommendation and provide the insight as to why the
recommendation was made, rather than to summarize the appraisal, market study, and/or the underwriting
[including the Lender’s narrative].. For example, explain why the rents are acceptable or not acceptable.)
[Type valuation narrative here.]
Valuation Strengths:
⚫
[Type valuation strengths here.]
⚫
[Type valuation strengths here.]
⚫
[Type valuation strengths here.]
MAP Guide, December 2020
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A.7.2 HUD Review of Appraisal and Market Study
Go to Table of Contents
⚫
[Type valuation strengths here.]
Valuation Weaknesses:
⚫
[Type valuation weaknesses here.]
⚫
[Type valuation weaknesses here.]
⚫
[Type mitigants here, if applicable.]
[Type valuation weaknesses here.]
⚫
[Type mitigants here, if applicable.]
[Type mitigants here, if applicable.]
[Type valuation weaknesses here.]
[Type mitigants here, if applicable.]
Environmental Narrative: (Discuss all Reportable Environmental Conditions and discuss the mitigation
plan for each. Also, discuss any other environmental issue or concern such as radon, lead based paint,
asbestos, towers, wetlands, noise, adjacent site concerns, groundwater flow, flood plains, etc. and any
mitigation plan or processes undertaken [i.e. Section 106 process, 8-step Process, Operations & Maintenance
Plan, etc.] to mitigate the issue or concern. The narrative section should focus on the conclusion drawn and
any prominent concerns.
Generally, the narrative section should not exceed 1 page, the bulleted strength and weaknesses sections
should typically contain 2 to 4 bullets, respectively, and reflect the most important environmental-related
strengths or weaknesses.
The objective of the review is to identify any environmental concerns and discuss the mitigants. rather than
to summarize the Phase I and or the underwriting [including the Lender’s narrative]. For example, there are
noise concerns, but all interior space and common area exterior space has been mitigated to below
acceptable levels.)
Environmental
Consultant’s
Name:
Date of Assessment:
Report complete?
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A.7.2 HUD Review of Appraisal and Market Study
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Acceptable?
Potential Hazards
Mitigation or O&M
Plan Required5?
RECs?
Yes
No
Yes
No
Yes
No
Environmental setting
☐
☐
☐
☐
☐
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Airport Hazards
☐
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CBRS
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Flood Insurance
☐
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Air Quality
☐
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☐
☐
CZM
☐
☐
☐
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☐
Contamination and Toxic Substances
☐
☐
☐
☐
☐
☐
Endangered Species
☐
☐
☐
☐
☐
☐
Explosive and Flammable Hazards
☐
☐
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Floodplain Management
☐
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Historic Preservation
☐
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Noise
☐
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SSA
☐
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Wetlands
☐
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Wild and Scenic Rivers
☐
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Lead-Based Paint
☐
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Asbestos
☐
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Radon
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Environmental Justice
☐
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☐
5 If
mitigation or an O&M plan is required or occurred, provide a discussion below.
[Type environmental narrative here.]
Environmental Strengths:
⚫
[Type environmental strengths here.]
⚫
[Type environmental strengths here.]
⚫
[Type environmental strengths here.]
⚫
[Type environmental strengths here.]
Environmental Weaknesses:
⚫
[Type environmental weaknesses here.]
⚫
[Type environmental weaknesses here.]
⚫
[Type mitigants here, if applicable.]
[Type mitigants here, if applicable.]
[Type environmental weaknesses here.]
MAP Guide, December 2020
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A.7.2 HUD Review of Appraisal and Market Study
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⚫
[Type mitigants here, if applicable.]
[Type environmental weaknesses here.]
[Type mitigants here, if applicable.]
Certification: I certify that, to the best of my knowledge and belief:
⚫
The statements of fact contained in this report are true and correct.
⚫
The reported analyses, opinions, and conclusions are limited only by the reported assumptions and
limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, and
conclusions.
⚫
I have no present or prospective interest in the property that is the subject of the work under review
and no personal interest with respect to the parties involved.
⚫
I have performed no services, as an appraiser or in any other capacity, regarding the property that is
the subject of the work under review within the three-year period immediately preceding acceptance
of this assignment.
⚫
I have no bias with respect to the property that is the subject of the work under review or to the
parties involved with this assignment.
⚫
My engagement in this assignment was not contingent upon developing or reporting predetermined
results.
⚫
My compensation is not contingent on an action or event resulting from the analyses, opinions, or
conclusions in this review or from its use.
⚫
My compensation for completing this assignment is not contingent upon the development or
reporting of predetermined assignment results or assignment results that favors the cause of the
client, the attainment of a stipulated result, or the occurrence of a subsequent event directly related
to the intended use of this appraisal review.
⚫
My analyses, opinions, and conclusions were developed, and this review report was prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.
⚫
I have (have not) made a personal inspection of the subject of the work under review.
⚫
No one provided significant appraisal or appraisal review assistance to the person signing this
certification.
Substantive Review Appraiser Signature:
Substantive Review Appraiser Name:
State and Certification Number:
Certification Date:
Adapted from USPAP 2016-2017 Edition.
MAP Guide, December 2020
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Appendix 8 Mortgage Credit Requirements
A.8.1 Required Loan Application Documents
Appendix 8 Mortgage Credit Requirements
A.8.1 Required Loan Application Documents
A. The guidance provides instructions on the type of required financial documents the Underwriter must
prepare for the loan application. The collection of the applicable documents should meet the
requirements on the Underwriter checklist. A Borrower (if fully capitalized), principal(s), and a General
Contractor must furnish current financial statements. This includes: a balance sheet, income and expense
statement, supporting schedules, a Real Estate Owned (REO) schedule and a schedule of mortgage debt.
The most recent three years of federal tax returns may be required, if submitted financial statements are
determined to be underdeveloped or not acceptable.
1. Individuals must submit either:
Personal Financial and Credit Statement, form HUD-92417 shall cover a period of no less than the
most current 12-month period:
1) The spouse of married Sponsors or principals must also sign the form;
2) If a spouse’s signature cannot be obtained, the principal must prepare the form reflecting only
those assets that are solely in their name and any liability, including those joint liabilities, for
which they have any responsibility, or
A substitute statement, which contains at a minimum the information contained on form HUD92417. This form must contain the following certification and criminal warning:
1) I HEREBY CERTIFY that the foregoing figures and statements contained herein submitted by
me as agent of the Borrower [owner] for the purpose of obtaining mortgage insurance under
the National Housing Act are true and give a correct showing of _________________________’s (Name
of Borrower or owner) financial position as of _____________________________ (the financial
statement must include the most recent twelve month period).
2) Signed this ____ day of _______, 20___. Signature of authorized agent with name printed or typed
under signature ___________________________.
3) Warning – HUD will prosecute false claims and statements. Conviction may result in criminal
and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)
4) For married individuals, the spouse also must sign certification.
2. Business entities must submit the following separate statements and supporting documents for the
last 3-years or the length of their existence. If less than 3 years, an authorized officer of the
organization must provide the statements and supporting documents with a signed statement that
there has been no material adverse change since the date of the statements.
Balance Sheet which:
1) Provides a breakdown of current and non-current assets; a list of all other assets including
the market value of each asset, the basis for calculating value (for real estate owned assets
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Appendix 8 Mortgage Credit Requirements
A.8.1 Required Loan Application Documents
this will be shown on the schedule of real estate), and any notes receivable from related
entities;
2) Identifies restricted and non-restricted funds;
3) Provides a breakdown of current and non-current liabilities; identifies the current portion of
long-term debt; contingent liabilities, including debts under secured or unsecured lines of
credit or letters of credit, personal guaranties, obligations to limited partnerships and other
obligations payable in the future, including the amount and duration of the obligation; and
4) Lists details of any factors that may materially affect the Borrower’s or Sponsors financial
position now or during the term of the mortgage.
Income and Expense Statement that reflects:
1) Income from normal operations;
2) Investment income;
3) Other income; and
4) Total expenses.
For audited statements, a Statement of Changes in Financial Position (or if a fund accounting
system is used, a Statement of Changes in Fund Balance), and all notes.
Supporting Schedules:
1) An Aging Schedule of Accounts Receivable that provides the name, type of account (trade,
affiliate, employee, relative or other), payment terms, amount and aging information;
2) An Aging Schedule of Notes Receivable that provides the name, type of account, payment
terms, maturity date, current portion (due within 1 year or one operating cycle of the
business, whichever is less), past due amounts and non-current amounts;
3) Schedule of Pledged Assets, if applicable. Identify the pledged asset, the amount pledged and
the offsetting liability;
4) Schedule of Marketable Securities that provides name, number of shares, current market
values as of the date of the statement, and the exchange where the shares are listed;
5) Schedule of Accounts Payable that provides name, type of account (trade, affiliate, employee,
relative or other), payment terms, amount and aging information;
6) Schedule of Notes and Mortgages Payable that provides name, type of account, payment
terms, maturity date, current portion (due within 1 year or one operating cycle of the
business, whichever is less), past due amounts and non-current amount;
7) Schedule of Legal Proceedings, if applicable;
8) In addition to the applicable schedules in the above paragraphs, general contracting firms
must submit a schedule of jobs (work) in progress that identifies the:
a) Original contract price;
b) Construction start date;
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Appendix 8 Mortgage Credit Requirements
A.8.1 Required Loan Application Documents
c) Construction completion date; and
d) Percentage of completion.
The REO schedule must contain the following information for each physical property listed:
1) Borrower/ principal’s name;
2) Property name and address;
3) Type of property and number of units;
4) Property acquisition date;
5) Ownership role and interest;
6) Percent of current occupancy;
7) Annual net operating income;
8) Present market value;
9) Existing mortgage lien holder (FHA or Conventional) and maturity dates;
10) If FHA insured, project number;
11) Interest rate and dates;
12) Sum of existing loan balances of mortgages and liens;
13) Current property equity;
14) Annual effective gross rental and commercial income (after deducting concessions and
vacancy loss);
15) Annual operating expenses;
16) Annual debt service;
17) Debt service coverage ratio; and
18) Pending judgments, legal suits/actions or bankruptcy against the property.
A Schedule of Mortgage Debt is applicable only when the event of mortgage maturity is in the next
five (5) years or the property is a troubled asset. Provide the following for each property listed:
1) Name of creditor/ lien holder;
2) Type of debt (e.g. FHA mortgage (project number), conventional mortgage, bridge loan,
balloon);
3) Original mortgage amount or debt amount and origination date;
4) Interest rate and origination date (i.e. fixed, fixed bonds, variable, etc.);
5) Unpaid principal balance or current debt amount and origination date;
6) Maturity dates for all debt;
7) Monthly payment;
8) Balloon payment;
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Appendix 8 Mortgage Credit Requirements
A.8.2 How to Analyze Financial Statements
9) Collateral (describe the security type for repayment of the mortgage or debt); and
10) Status of debt as current or delinquent.
Combined or consolidated financial statement(s), if applicable:
Other financial data necessary to determine the financial responsibility and capacity of the
sponsorship or General Contractor:
An authorized official of the company must sign and date the certification. The certification must
reference the name of the business and the date of the financial statement(s).
A.8.2 How to Analyze Financial Statements
A. Please follow the instruction below to correctly analyze financial statement(s) when determining the
financial capability of the Borrower, Sponsor, General Contractor, and or Manager.
1. Current assets are cash and other assets convertible into cash during the normal operating cycle of
business operations or 1 year, whichever is less.
When reviewing cash, take into consideration compensating balances, which would limit the
amount of cash actually available.
Determine the current value of readily marketable stocks and bonds.
Evaluate the accounts receivable and classify the following as noncurrent.
1) Amounts due from officers and employees.
2) Amounts advanced to subsidiary, affiliated or associated companies.
3) Disputed accounts receivable.
4) Accounts receivable past due for more than 60 days. Funds from a local, State or Federal
source past due beyond this period may be considered if evidence is provided that source is
historically late, and it can be expected that these funds will be received before initial closing.
a) Using a Schedule of Accounts Receivable by Age determine if the amount allowed for
doubtful accounts, if any, is adequate.
b) Recognize only syndication proceeds from other projects and notes receivable to be
collected during the normal operating cycle or 1 year, whichever is less.
c) If the statement is audited, evaluate inventory and establish its liquidation value, relying
on the accountant's review. Do not consider inventory, if statement is unaudited.
d) Recognize only prepaid expenses for the project.
e) Do not include:
f)
Equity in the proposed site, since consideration is given on form HUD-92264-A, Part A.
g) Cash equity in land and/or properties unless they are readily marketable and intended
for the sale market.
h) Anticipated profits from business ventures.
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Appendix 8 Mortgage Credit Requirements
A.8.2 How to Analyze Financial Statements
Equity in real estate encumbered by high ratios of loan to value mortgages, unlisted
stocks, goodwill, and other intangible assets.
2. Current liabilities are payables due during the normal operating period or 1 year, whichever is less.
Include as current liabilities, regardless of term, those relating to marketable land and completed
properties that were treated as current assets.
NOTE: If the balance sheet does not reflect the amounts required to complete construction in
progress, the Sponsor/General Contractor must submit a supplementary statement of such
amounts, which contains the truth and accuracy certification. For a cross reference, see Chapter
8, Section 8.5.1.3.D-E.
Consider amounts due to officers, employees, affiliates or stockholders as current liabilities unless
the obligations have a definite long-term maturity.
Consider amounts needed to satisfy broker's margin account (brokerage account allowing
customers to buy securities with money borrowed from the broker).
Consider current portion of long-term liabilities.
Current year income tax payable. Normally, deferred income taxes are not considered current as
long as the economic outlook of company does not appear to be in an adverse trend.
Do not include the amount outstanding on the project land, since this obligation is considered on
form HUD-92264-A, Part A.
3. Working capital is the excess of current assets over current liabilities. If current liabilities exceed
current assets, precede the difference with a minus sign to show a deficit. The Underwriter must
adjust the net working capital to consider the following:
Effects of contingent liabilities.
Financial needs of other projects in the planning stage or under construction.
4. When a Sponsor's financial interests are represented by a number of corporations, the Underwriter
must do the following:
Require a certification from the Board of Directors, which evidences their willingness to make the
required funds available.
Establish the availability of funds from such corporations. Consider whether:
1) Individual corporations have any operating capital to spare.
2) Laws under which they are incorporated and/or their banks permit:
a) Withdrawals, loans or advances to owners or Sponsors.
b) Stock investment in affiliated corporations.
c) Guarantee of debts of associated corporations.
3) In analyzing financial statement:
a) Do not consider interlocking debts, receivables and investments between all affiliated
corporations.
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
b) Consider only those assets readily available for investment by the Borrower.
c) Do not consider the operating capital and/or net worth of rental project holding
corporations as assets available for closing.
5. If funds are being provided by a parent company or affiliate of the Sponsor, the Underwriter must do
the following:
Require a certification from the Board of Directors or authorized agent which specifies the funds
the parent company/affiliate is willing to commit.
Establish the availability of funds from parent company/affiliate.
Require the parent company/affiliate to submit a certification indicating that the lending
institution will not make any claim against the mortgaged property, mortgage proceeds, any
reserve or deposit required by HUD, or against the rents or other income from the mortgaged
property for payment of the loan. This certification must contain the criminal warning reflected
in Section A.8.1.
A.8.3 Prior Credit Approval
A.8.3.1
Determination
A. In determining whether a principal meets the threshold of insured loans totaling $500,000,000 or
more, lenders must include all FHA insured loans in the total, including healthcare loans, but excluding
any state or local housing finance agency or GSE Risk Sharing loans. Lenders should not adjust insured
loan balances to account for a principal’s fractional ownership interests. It is the lender’s responsibility
to determine whether a principal to a proposed transaction(s) has or will have insured principal balances
exceeding the threshold. This requirement for prior approval will not be waived.
A.8.3.2
Lender’s Analysis and Scope of Review
A. The lender must conduct a complete mortgage credit review of active principals and prepare an
analysis of the Sponsors’ character, capacity and creditworthiness, including a review of all observed risks
and prospective mitigating factors together with a recommendation for credit approval. The review must
describe any material changes in the active principals’ financial position expected during the 24 months
following the date of the credit submission as well as any additional periods of time required for the
stabilization of new developments or troubled assets. An essential element of the review is an assessment
of the Sponsors’ ability to meet reasonably anticipated financial and management demands during the
period when applications are under consideration and continuing through stabilization. HUD
consideration of requests for prior approval does not relieve the lender of the responsibility to submit a
properly underwritten MAP application for each project proposed for insured financing, nor does such
consideration obligate any Regional Center or Satellite Office to reach a conclusion on the merits of any
particular project application other than the creditworthiness of the active principals which already will
have been reviewed and approved.
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
Signatures for Prior Approval Decisions
A. HUD Headquarters’ Technical Support Division will review risk applications and the credit authority
to approve decision memorandums will be based upon the requested unpaid loan balance. The
signature(s) on the decision memorandum for risk reviews will be based upon the level of exposure. Risk
reviews approved:
1. Below $800 million are to be conducted by the Technical Support Division and the signature for each
decision memorandum may be signed by the Director of Technical Support.
2. Exceeding $800 million but less than $1.2 billion are to be jointly reviewed by the Technical Support
Division and the Multifamily Asset Counterparty Oversight Division (COB). The decision
memorandum and approval amount are jointly approved and signed by the Deputy Assistant
Secretary for Multifamily Programs and the Deputy Assistant Secretary for the Office of Risk
Management and Regulatory Affairs (ORM). In the event of a disagreement on an approval, the
Borrower’s request and review will be elevated to the FHA Commissioner or his or her Designee for
decision.
3. Exceeding $1.2 billion are to be jointly reviewed by the Technical Support Division, COB, and ORM
with the signature of the decision memorandum and approval authority reserved to the FHA
Commissioner or its Designee.
4. Exceeding $2.4 billion will be subject to additional levels of review and approval with the signature of
the decision memorandum and approval authority reserved to the FHA Commissioner or its Designee.
A.8.3.4
Maximum Insured Balance Limit
A. Maximum Insured Balance Limit. A maximum insured balance limit above $1.2 billion for any Borrower will
be determined on a case by case basis with criteria that include metrics such as the amount of loan balance of
existing, FHA insured projects as a percentage of a Borrower’s total portfolio, ratio of level of liquid assets to
overall net worth, equity, geographic concentration of insured assets, ranked performance metrics, and other
metrics as may be determined in the context of specific credit approval requests.
A.8.3.5
Submission
A. The lender should deliver the prior approval submission to the HUD Regional Center most relevant
current and future application activity. The Regional Center will then forward this presentation to HUD
Headquarters Office of Multifamily Housing Production for review.
B. Requests for prior approval may contemplate multiple project applications in varying locations over a
period of time. The following steps are required for submission:
1. Designation of lender, lead lender. The Sponsor must select a MAP lender to prepare and
underwrite its request for prior approval. If the Sponsor has or proposes to have individual project
applications prepared by more than one MAP lender, then the MAP lender preparing the request for
prior approval shall be the lead lender. The Sponsor must disclose the identity of the lead lender to
each of the other lenders and must authorize and direct the lead lender to share with any other lenders
its request for prior approval and any HUD response to such requests.
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
2. Form of submission. The lender shall provide an original (with original signatures), a hard copy and
a reproducible electronic version of the request for prior approval. REO and mortgage debt schedules
must be provided in both a fixed, not editable form as well as in a legible sortable excel spreadsheet
form allowing easy analysis of data.
3. Regional Center/Satellite administrative action. The office receiving the lender’s request for prior
approval shall retain the original and forward the hard copy and the reproducible electronic version
of the request to the Director, Technical Support Division of the Office of Multifamily Housing
Production. The Director of Technical Support will copy the office on all correspondence arising from
the request for prior approval. The office must retain the original of the lender’s submission together
with all relevant correspondence with the docket for the first project application it receives pursuant
to any prior approval, and if there is no approval, then the submission must be retained consistent
with the office’s practice for rejected project applications. The Technical Support Division will retain
the electronic version at headquarters.
A.8.3.6
Authority, Conditions and Duration of Prior Approval
A. The Technical Support Division of the Office of Multifamily Production will review lender requests for
prior approval. The Technical Support Division will notify Regional Center Directors of its determination
of the principal’s creditworthiness and will specify a date when the prior approval expires. Depending on
the applicant’s financial strength and credit history, the Director of Technical Support will approve the
request, approve with conditions, or disapprove the request. When appropriate to specific circumstances
the Director of Technical Support may condition an approval with conditions including, but not limited to,
one or more of the following:
1. A list of particular named projects for which new insurance applications may be submitted,
2. Certain types of projects (e.g., refinance, but not new construction) or to specific markets or particular
geography,
3. A maximum amount of new insurance commitments for which the principal may apply,
4. A maximum liquidity amount that may be required by new insurance commitments, or a minimum
liquidity amount that the Sponsor must maintain, or
5. Requirements for specific measures or remedies to address identified credit issues.
B. The principal’s continued credit worthiness will be confirmed during processing of each new Firm
Commitment application, but normally, and absent material and adverse changes in the principal’s
financial condition, the prior approval will be effective and may be relied upon for 24 months or lesser
period specified by HUD, from the date of the credit approval.
A.8.3.7
Process for Prior Approval
A. The lender’s request for prior approval should provide all the exhibits and analyses required for active
principals as described in 8.3 with the exception Previous Participation Certification (APPS/ form HUD2530) which must be provided with each individual insured application. Except in cases where a Sponsor
or their affiliate(s) propose to act as General Contractor, credit review for principals who are not Sponsors
(i.e., General Contractors, property managers) should be completed with individual applications.
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
Decision
A. Upon receipt of the request for prior approval, the Technical Support Division will review the
submission and within 45 days issue a decision that will:
1. Explain the reasons for the decision, identifying areas or issues of strength and/or weakness.
2. Define the terms and conditions, if any, which may attach to the decision.
3. If adverse, define remedies or conditions which would allow reconsideration.
4. Quantify the net worth and liquidity available to the principal(s) in light of analysis of the principal’s
existing business operations and pending transactions.
5. Identify specific projects proposed for insurance (or alternatively, when specific projects are yet to be
determined, the location(s) and kinds of insured transactions, e.g. refinancing, new construction, etc.)
which are given prior approval and the estimated aggregate sum of the principal’s cash or other liquid
assets required to close these transactions.
6. Identify FHA insured multifamily and/or healthcare projects currently in process within HUD’s
production offices indicating location, types of transactions, proposed loan amount and estimated
aggregate sum of the principal’s cash to close the transactions.
7. Identify steps, if any, that Regional/Satellite Offices and lenders must take to coordinate completion
of the proposed schedule of applications and resulting commitments and closings.
8. Describe the process to be followed by the lender in the event of any appeal of the decision on the
request for prior approval.
B. The Director of the Technical Support Division will send the written decision to the lender and to the
originating Multifamily Regional Center/Satellite office as well as to each other office with jurisdiction for
any of the named projects proposed for insurance. In addition, the decision will be made available to all
other Multifamily Regional Center/Satellite offices at the HUD Multifamily SharePoint site.
A.8.3.9
Project Applications after Prior Approval
A. Upon receipt of the prior approval, the lender(s) may file applications with the relevant Regional
Center/Satellite for projects consistent with HUD’s decision on the request. For each application, the
mortgage credit exhibits shall include:
1. A copy of the prior approval decision.
2. Original, written certification(s) signed by each principal who is a subject of the prior approval
decision stating that no material changes have occurred in the circumstances of the principal or the
portfolio as described in the request for prior approval except as are fully described. The Sponsor
must disclose any and all loan applications filed, commitments issued, and transactions closed as well
as loan delinquencies, modifications, settlements or forbearance agreements concluded or any other
change bearing on its ability to execute the transactions for which prior approval was requested. In
the event that material changes have occurred, the principal shall also certify to the accuracy and
completeness of the description of the material changes. The certification must contain the following
language: “HUD will prosecute false claims and statements. Convictions may result in criminal and/or
civil penalties. (18 U.S.C. 1001, 1010, 1012, 31 U.S.C. 3729, 3802)”.
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
3. The lender’s updated review and analysis of the creditworthiness of the principals in light of any
materially changed circumstances. This review must consider all changed circumstances and
describe how and why the lender concluded the changes were or were not material.
4. The lender’s updated or adjusted financing plan showing the Sponsors available liquidity and how the
Sponsor’s resources have been or will be used to meet cash requirements arising from existing or
proposed assets in accordance with HUD’s prior approval decision.
5. In the event of a material change arising only from changes in the capital requirements of pending
transactions, and not from altered and adverse performance of assets or the creditworthiness or
behavior of the principal(s), then the lender may reallocate the principal’s available resources to meet
the cash requirements for particular projects, provided that the aggregate cash requirements do not
exceed limits described in the prior approval. Any such reallocations must be documented in the
updated financing plan. Such adjustments may result in the deletion of a project(s) proposed for
financing and given prior approval, but additional or substitute transactions are not permitted unless
additions or substitutions are authorized in the prior approval decision.
6. In the event that material changes arise from altered and adverse performance of existing assets,
adverse credit behavior of the principal(s) or adverse events arising from Sponsors’ acts (or inaction),
or failure to meet terms and conditions of the prior approval decision, then the Regional
Center/Satellite shall refer the description of the material changes, the lender’s updated review and
updated financing plan to the Director, Technical Support Division. The Division of Technical Support
will:
Confirm or amend the prior approval decision in light of the material changes and allow the
subject application and/or further applications, to proceed in accord with the confirmed or
amended prior approval, or:
Terminate the prior approval, in which event, the subject application and any further applications
for mortgage insurance will require a new request for prior approval.
The Director of the Technical Support Division will send the lender and/or the lead lender and
the Regional Center/Satellite(s) written notice of any confirmed, amended or terminated prior
approval decision and any such notice will also be posted to the HUD Multifamily SharePoint site
at http://hudsharepoint.hud.gov/sites/DASMFH/OMHD/CRD/default.aspx.
In the event that the prior approval decision is terminated due to the behavior of the principal(s)
and such behavior gives rise to an enforcement action, no new request for prior approval will be
accepted until such enforcement action is resolved.
A.8.3.10 Prior Approval and Loan Committee Actions
A. Prior approval of principals does not alter thresholds for required Regional Center or National Loan
Committee review and approval of insurance applications for specific projects.
A.8.3.11 Lender Fees for Prior Approval
A. Lenders may charge a reasonable fee for preparing a Sponsor’s prior approval package for submission
to HUD. Subject to existing MAP limits on lender fees and charges on individual loan applications, the fee
charged by the lender for preparing a request for prior approval, together with any third-party costs
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
incurred, are mortgageable and may be allocated or prorated among one or more of the projects
submitted for new insurance commitments at the discretion of and subject to the mutual agreement of
the applicant and the lender(s).
A.8.3.12 Lender Appeals of Prior Approval Decisions
A. If the lead lender disagrees with HUD’s determination with respect to a prior approval decision, the
lender may appeal. Any such appeal must be filed within 30 days of the date of HUD’s written decision on
the prior approval request and must be documented with an electronic, a hard original and one hard copy
of the appeal.
1. The appeal should be filed with the same Regional Center/Satellite office to which the original request
for prior approval was submitted. The Regional Center/Satellite will retain the original appeal with
the docket file and forward the electronic and hard copies to the Director, Office of Multifamily
Housing Production.
2. The lender’s appeal shall:
Cite the specific cause or issue which is the occasion of the appeal.
State the specific change requested in the decision of the Technical Support Division.
Cite any published guidance, standard industry underwriting practice, or evidence of error which
supports the change.
Provide any other new or additional evidence not previously presented to HUD.
3. The Director of Multifamily Production must review the appeal and within 15 business days after
receipt by HUD of the lender’s appeal (30 days if the lender’s appeal offers new or additional evidence
not previously presented), the Director will prepare and send a written decision to the lender, with a
copy to the Regional Center/Satellite Director.
4. When conducting the review of the appeal, the Director of Multifamily Production must ensure a
wholly independent review and, except for ascertaining matters of fact, rely only on staff with no prior
engagement or participation in the initial decision on the request for prior approval.
5. The decision of the Director of Multifamily Production on the appeal shall be dispositive and shall
detail in writing the substance of and the reasons for any denial of the appeal or revision of any earlier
decisions and will be posted to the same HUD Multifamily SharePoint site as original prior approval
decisions.
6. The Multifamily Regional Center will retain the original of the appeal submission and related
materials. If a lender’s appeal is approved, then the Regional Center will retain the original materials
with the docket for the initial project application received pursuant to the prior approval. If denied,
the submission must be retained consistent with the Regional Center’s practice for rejected project
applications. The Office of Multifamily Production will retain the electronic version at headquarters.
A.8.3.13 Detailed Guidance for Exhibits and Analysis
A. The location of the required exhibits shall be identified by the Lender’s Table of Contents. The
following groups of items represent the suggested guidance for preparing a prior credit approval request:
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
1. Group 1: Lead Lender’s Request and Summary
A cover letter, signed by the lead lender, summarizing the request to HUD.
The letter should explicitly state the requested total dollar amount of authority, based on the
proposed FHA projects, rounded up to the nearest $5 million (i.e. existing balances are $450
million, proposed FHA loans are $67 million, then the request should be for $520 million).
The letter should identify each principal scoped within the request, and if the request is
mandatory or voluntary (see MAP Guide Chapter 8, Section 8.6).
2. Group 2: Role and Experience of Active Principal(s)
A narrative analysis of the Active Principal’s experience. The narrative should disclose exactly
what role causes the principal to be subject to mortgage credit analysis (e.g. managing member of
Borrower, etc.).
Include a description of expertise areas or resources the Active Principal contributes to the
portfolio (e.g. the principal is relied on for his expertise in acquisition sourcing, ownership
structuring, and affordable housing regulatory compliance).
Include a description of the Active Principal’s experience, emphasizing commercial/multifamily
real estate experience. Include summary metrics (e.g. developed 10 projects with 2,000 units
since 1995).
Include a description of the Active Principal’s high-level experience with HUD programs (i.e.
general experience is a given because this is prior credit review, so this should segment
experience such as construction, market rate vs affordable rents, FHA healthcare projects, etc.).
3. Group 3: Credit Analysis of Active Principal(s) and/or Related/Affiliated Organizations
A narrative analysis of the Active Principal’s and/or Related/Affiliated Organizations financial
history and strength, credit history and related credit worthiness (e.g. residential and/or business
credit reports, OFAC searches, etc.).
Include a specific conclusion as to the underwritten net worth, current liquidity and cash flow of
the Active Principal(s) and the Related/Affiliated Organization(s) and whether financial
resources are adequate to meet anticipated needs during the 24 month period following the
request for prior approval and any additional period required to stabilize new developments or
troubled assets.
Active Principals or Guarantors and/or Related/Affiliated Organizations providing the FHA
insured multifamily project with all or a sufficient portion of the required capital must submit
reviewed, compiled, and/or consolidated financial statements prepared in accordance with
Generally Accepted Accounting Principles (GAAP) financial statements for the most recent threeyear period and Y-T-D prepared by a third-party independent CPA Audited or certified financial
statements prepared by a third-party independent CPA may be submitted, but are optional and
not required.
Individual financial statements (form HUD-92417) must show a reporting period of no less than
the most recent twelve-month period, the reporting period shall be documented in the, "Date of
Statement" (e.g. 1/1/18 to 12/31/18). The most recent three years of federal tax returns may be
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Appendix 8 Mortgage Credit Requirements
A.8.3 Prior Credit Approval
required, if individual financial statements are underdeveloped and are not prepared by a thirdparty.
The Active Principal’s providing required capital into the proposed transactions should be able to
show at least a minimum of two percentage (2%) of working capital in relationship to the total
development costs of each proposed FHA-insured projects. Passive Principals contributing a
majority of equity to the Active Principal(s) and/or Related Entities/Affiliates shall be subject to
a financial and credit analysis.
4. Group 4: Succession Plan
A succession plan of the active principal(s), which should describe the provisions made by the
principals to assure continuity and orderly succession in leadership and/or orderly disposition of
assets in the event of any incapacity of the principal. This description must include a brief
summary of partner buy/sell agreements, provisions for key person insurance and/or similar
measures sufficient to evidence careful planning for these contingencies. Descriptions of prior
changes in leadership, if any, should be provided if they document how the principal would deal
with future changes.
5. Group 5: Ownership and Equity Analysis
Lender’s narrative describing the principal’s approach to ownership strategy and construct of this
strategy. The strategy described should be internally consistent with other exhibits, such as
affiliate entities and the source of revenue on financial statements.
Organizational Chart for the typical ownership entity and an Organizational Chart for the parent
company with the Active Principals identified with accompanying percentage of ownership and
roles clearly defined. See Chapter 8, Section 8.3.2.E-F for organization chart guidance.
6. Group 6: REO/Mortgage Debt Analysis
A REO schedule listing all FHA insured projects with accompanying project numbers, HUD’s
Section 8 subsidized/assisted projects, insured healthcare projects and conventional projects.
A status report for FHA insured projects currently in process with the local Regional/Satellite
Production Office, projects in lease-up and the percentage of completion of all FHA insured loans
in construction.
The REO must include a full year of operational history, a disclosure of mortgage debt, e.g. type,
maturity, age, interest rate, vacancy rate, NOI, LTV, DSCR and a financial plan for mortgage debt
maturing within five years of submission of the prior approval credit package. The REO schedule
must also include a financial chart indicating an analysis of the occupancy change, NOI change,
revenue change, expense change, the lowest 10% (DSCR) and the highest 10% (LTV) over the
latest 3-year period. (For an example of the suggested format for the analysis of the REO
schedules, see Section A.8.7)
A narrative addressing geographic concentration risk. Describe potential circumstances that
would impact the stability of the principals’ portfolio such as mitigating factors if the primary
market area is experiencing slower lease-up periods (longer than 18 months) or the over
saturation of available rental units in the primary market area because of new projects coming on
line, the existence of declining market values, or regional economic distress.
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A.8.3 Prior Credit Approval
7. Group 7: Proposed FHA Projects & Financing Plan
The project name or a description of properties that are proposed for FHA insurance with an
estimate of the cash requirements for closing each transaction and indicating whether the
properties proposed for insurance are already held in the principal’s portfolio, the purpose of the
anticipated financing (refinance, rehabilitation, new construction) and the rationale and criteria
used for selection of the proposed new insured properties (e.g. potential for cash flow or physical
improvement, asset type, size, target market, geography, etc.). Generally, proposed projects
should be specifically named and identified by address, but where acquisition, development or
refinancing targets are to be determined, tentative or contingent, projects may be described
generically.
Financing plan disclosing equity/cash requirements for new construction, acquisition and
substantial rehabilitation projects at the time of anticipated loan closing and future cash
requirements of the existing REO portfolio for the period of time covered in the prior approval
request.
8. Group 8: Management Agent Analysis & REAC Inspections
Narrative summary of the Management Agent of the Multifamily portfolio. If concentrated,
identify the firm of the Management Agent(s) representing the concentration. Describe the
Management Agent’s experience in high-level metrics (e.g. 5,000 units under management among
25 properties in 6 states) and key staff. If an Identity of Interest (IOI) relationship or an equity
interest exists between the management entity and the Active Principal(s) and/or Affiliates a
business credit report shall be required. A financial analysis may be required if there is a concern
about the capacity of the Management Agent to perform its assigned role.
Narrate the current physical condition and REAC scores in summary form (ranges, least favorable
scores, etc.) of the active Principal’s existing FHA insured and/or HUD’s assisted/subsidized
properties. Provide narrative explanations for any REAC scores of 65 or below.
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Appendix 8 Mortgage Credit Requirements
A.8.4 Mortgage Credit Underwriting Documentation Matrix
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A.8.4 Mortgage Credit Underwriting Documentation Matrix
Table A8-1. FHA/MAP Mortgage Credit documentation Matrix
REO/
Mortgage
Debt
Participant/Role
LLCI
Resume
Org. Docs.
(1)
Financial Stmts
VOD/Bank
Stmts
Mortgagor
N/A
No
Yes
Yes
No
N/A
Entity (Par 50)
N/A
Yes
Yes
Yes
Yes
Yes
Individual (Par 50)
N/A
Yes
N/A
Yes
Yes
Yes
Entity (Non-Par 50)
N/A
Yes
Yes
Yes
No (2)
No
Individual (Non-Par 50)
N/A
Yes
N/A
Yes
No (2)
No
Foreign National Non-Par 50 (entity or individual)
N/A
Yes
Yes
Yes
No (2)
No
Large Borrower Non-Par 50 (entity or individual)
N/A
Yes, if entity
Yes
Yes
No (2)
Yes
Board Members or Officers of Non-Profits
No
No
No
No
No
No
Public Housing Authority
No
No
No
No
No
No
Tax Credit Investor
Yes
No
No (3)
No
No
No
Special Limited Partner
Yes
No
No (3)
No
No
No
> 25% (or 10%, if Corp.) Interest with Passive Ownership
No
No
No
No
No
No
Foreign National Passive Principal (entity or individual) (5)
N/A
Yes
Yes
Yes
No
Yes
Large Borrower Passive Principal (entity or individual)
N/A
Yes
No
Yes
No
Yes
General Contractor
N/A
Yes (A305)
No
Yes, include work
in progress and
A/R Report
Yes
No
Management Agent (no Identity of Interest)
N/A
Yes (Company
Brochure)
No
No
No
No
Active Principal (5,6)
Passive Principal (5,6)
Other Deal Participants
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A.8.4 Mortgage Credit Underwriting Documentation Matrix
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Participant/Role
LLCI
Resume
Management Agent (Identity of Interest)
N/A
Yes (Company
Brochure)
Org. Docs.
(1)
Yes
Financial Stmts
VOD/Bank
Stmts
REO/
Mortgage
Debt
No
No
No
Table A8-2. Mortgage Credit Underwriting Documentation Matrix Continues
Other Business
Concerns
92013-Supp (4
questions only)
APPS/ 2530
EIN/SSN
Verification
Credit
Authorization
Credit Report
Trade References
N/A
Yes
Yes
Yes
Yes
Yes
See Credit Report
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
No (6)
Yes
Yes
Yes
Yes
Yes
See Credit Report
No (6)
Yes
Yes
Yes
Yes
Yes
See Credit Report
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
No
No
No (5)
No
No
No
No
No
No
No
No
No
No
No
No
No (3)
No (3)
No (3)
No (3)
No (3)
No (3)
No
No (3)
No (3)
No (3)
No (3)
No (3)
No (3)
No
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
Yes
Yes
Yes
Yes
Yes
Yes
See Credit Report
No
Yes
Yes
Yes
Yes
Yes
See Credit Report
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A.8.4.1
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Appendix 8 Mortgage Credit Requirements
A.8.5 Payoff Letter for Existing Mortgage
Mortgage Credit Underwriting Documentation Matrix
Legion
A. Organizational Documents include the following:
1. Corporation - Articles of Incorporation & Bylaws; Authorizing Resolution.
2. Partnership - Certificate of Partnership & Limited Partnership Agreement; Authorizing Resolution.
3. LLC - Articles of Organization & Operating Agreement; Authorizing Resolution.
4. Trust Documents. All Document Amendments are required.
B. VOD/ Bank Statements (must include a three-month average balance for VOD or three months of
consecutive bank statements) may be requested by the Lender’s Underwriter for the non-par 50
Participants to ensure there is enough cash to close, if required.
C. If a Passive Participant (Entity) does not want to provide an “Identification and Certification of Limited
Liability Investor Entities”(click to view Certification) they must submit in place of the certifications the
following items: Organizational Documents, form HUD-92013-Supp, Credit Authorization, EIN
Verification, Credit Report.
D. Board Members and Officers are not required to do 2530s unless the Board Member also has a
controlling role in the corporation (i.e. Executive Director, Manager, or Director of Non-Profit).
E. In addition to requirements applicable to all Active and Passive Principals, the MAP Lender must
perform a thorough and independent background evaluation of foreign national Principals and Domestic
Principals as described in Housing Notice 2019-01. II.A.2 and II.A.3, respectively.
F. Instructions for submission of concentrated risk or large Borrower review is found in Housing Notices
2018-09 and MAP Guide Section A.8.3 and Section A.8.6.
A.8.5 Payoff Letter for Existing Mortgage
Name and Address Bank:
Madam/ Sir:
Subject:
Name and Address of Project:
Borrower’s Account No.:
This office has received an application for FHA mortgage insurance for the subject project. We are advised
that your firm is the mortgagee. Please provide us with the following information.
Date of Mortgage:
Original Amount:
MAP Guide, December 2020
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$
Monthly Payment Amount:
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A.8.6 Subordination, Non-Disturbance and Attornment Agreements
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Next Payment Due:
$
Present Mortgage Balance:
$
Other Amounts Due:
As of (Date):
$
Interest:
Penalties:
Total Payoff Balance (Excluding Forgiven Indebtedness, Rebates, etc.):
Balance of Escrow, Reserves, etc. (Itemize):
Is Debt Current:
☐
Yes
☐
$
$
No
☐
Satisfactory
☐
Unsatisfactory
Other known Indebtedness against property (explain):
Remarks:
Signature
Date
Title
Information provided will be used solely for our evaluation and will otherwise be held in confidence. We
are enclosing a stamped, self-addressed envelope. Please replay at your earliest convenience.
Sincerely,
A.8.6 Subordination, Non-Disturbance and Attornment
Agreements
A.8.6.1
Purpose and Applicability
A. This Section provides guidance on the use of Subordination, Non- Disturbance and Attornment
Agreements (SNDA) for commercial leases in certain FHA insured projects and delegates approval
authority of SNDAs to Satellite Office and Regional Centers.
B. Applicability
1. Applicable in its entirety to non-assisted or non-subsidized FHA insured multifamily projects under
all Sections of the Act, except Section 232.
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A.8.6 Subordination, Non-Disturbance and Attornment Agreements
2. Section C.1 only is applicable to FHA insured projects that are subsidized under Section 202/811, 236,
221(d) (3) BMIR, or FHA insured projects with Project Based Rental Assistance.
C. A predictable, stable income stream from commercial leases with high quality, credit worthy
commercial tenants provides a benefit to a property’s operating stability, particularly if the commercial
tenants are nationally recognized or have national brands. FHA benefits by allowing Borrowers the
latitude to negotiate with the widest pool of credit qualified commercial tenants. A stronger tenant
increases the certainty of the commercial income stream, enhances the property’s marketability and
decreases risk to the FHA Insurance Fund.
D. Permitting the use of SNDAs is necessary to induce higher quality commercial tenants to rent in insured
properties. Therefore, guidance permits the use of SNDAs when a commercial lease is negotiated at a
property with an existing insured mortgage, for a new property with a newly originated insured loan, or
when a building owner with existing commercial tenants seeks an insured loan for refinancing.
A.8.6.2
Background
A. Prior to the issuance of Mortgagee Letter H 2011-14, HUD’s policy on SNDAs was based on a concern
over lack of flexibility in the event of a mortgage default, since an SNDA gives a commercial tenant the
right to remain in its space under the existing lease terms and conditions after a loan default and
foreclosure. If there were a Borrower approved SNDA, HUD would be bound to continue the commercial
lease even after assignment of the insured loan. Because of HUD’s prohibition on SNDAs, Borrowers were
negotiating into commercial leases the required lease termination language, were leasing to commercial
tenants that would not insist on an SNDA or were deciding not to apply for financing under the FHA
insurance programs.
B. In many cases, the tenant incurs costs to design and build out their unique tenant improvements, which
costs must be amortized over the lease term. Nor does the tenant want to lose the good will and customer
base associated with continuing to operate on the premises. Indeed, MAP lenders report that most
national retail chains require an SNDA and will not execute a long-term lease without the non-disturbance
assurance.
A.8.6.3
Implementation
A. A sample form of SNDA is attached. This form should be used for all SNDAs approved by Satellite Offices
and Regional Centers.
B. For guidance related to underwriting commercial rents and commercial tenants and the reviewing and
setting rents for commercial space in insured and assisted properties, see Chapter 7, Section 7.7.
1. SNDAs are permitted for Rooftop, Cell Phone Tower, Cable Television and Internet Access Leases on
all properties with an existing insured mortgage or on all properties applying for an insured mortgage
subject to the following:
New, existing or renegotiated rooftop leases (including for cell phone towers, cable television or
internet access) in all properties with currently insured mortgages, in all properties applying to
refinance, or in all new construction or substantial rehabilitation properties, may use an SNDA. In
those cases, the commercial lease and income that is or will be in place is a benefit to the property,
while imposing little or no additional property operating expense. The presence of a rooftop cell
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A.8.6 Subordination, Non-Disturbance and Attornment Agreements
phone tower or cable access to the building should not negatively affect the residents, the
marketability of the units or HUD’s recovery value on the note in the event of a default.
With respect to all such leases, the underwriting and review process should ensure that there are
no exclusivity requirements under the leases that would prevent the owner from attracting
competing services for the benefit of the residential tenants in the future.
2. SNDAs are permitted for Commercial Leases, other than Rooftop, Cell Phone Tower, Cable Television
or Internet Access Leases on all non-assisted or non-subsidized properties with an existing insured
mortgage or on all non-assisted or non-subsidized properties applying for an insured mortgage
subject to the following:
New, existing or renegotiated commercial leases with commercial tenants in properties with
currently insured mortgages, in properties applying to refinance, or in new construction or
substantial rehabilitation properties may use an SNDA.
A lease may be approved if the lease calls for a fair market rent in the local area and the activities
to be conducted by, or the structures and equipment to be installed by, the proposed tenant will
not have an adverse effect on the residents.
If any IOI relationship (defined as a financial interest or family relationship with the officers,
directors, stockholders, or partners of the Borrower) exists between the Borrower as lessor and
the commercial tenant as lessee, an SNDA is not permitted.
The commercial tenant must be appropriate for a residential building.
A.8.6.4
Approval
A. Satellite Offices and Regional Center Directors are authorized to approve all SNDAs for rooftop, cell
phone tower, cable television and internet access leases.
B. For any property applying for a new mortgage insurance commitment, the Satellite Offices and
Regional Center Directors will review and approve of the commercial lease terms and the form of SNDA
when processing the application for Firm Commitment.
C. For existing properties with insured mortgages, the Satellite Offices and Regional Center Directors may
approve the proposed SNDA between the property owner and the commercial tenant.
D. The following is the typical supporting documentation, although depending on the circumstances,
additional documentation may also be required:
1. Proposed commercial lease and SNDA agreement.
2. Forms HUD-92458 and HUD-92264.
3. Commercial market rent study.
4. Details of any proposed build out or finish of the commercial space or rooftop tower.
5. Disclose the existence of any related documents such as: Memorandum of Lease, Guaranty of Lease,
Tenant Estoppels’ Certificate, Lease Guaranties or Amendments, etc.
MAP Guide, December 2020
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Appendix 8 Mortgage Credit Requirements
A.8.6 Subordination, Non-Disturbance and Attornment Agreements
U.S. Department of Housing OMB Approval #2502-0029
and Urban Development Exp. (xx/xx/xxxx)
Office of Housing
Federal Housing Commissioner
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
_____________________________________________________________________
(Space above this line for Recorder’s Use)
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made as of this __ day of ______, 20_, by and between __________ (“Owner” or “Lessor”),
as lessor under the lease hereinafter described, and _________ (“Operator” or “Lessee”), lessee under the
aforementioned lease, in favor of _________ (“FHA Lender”), the owner and holder of the Mortgage
hereinafter described.
WITNESETH:
WHEREAS, Lessor has executed, or will execute that certain Mortgage/Deed of Trust with Assignment of
Rents, dated as of ________, 20 _, (the “Mortgage”), in favor of FHA lender and covering certain real property
(the “Property”) located in the City of _________ County of ________, State of ___________, with a legal description
as set forth in Exhibit “A” attached hereto and incorporated herein by this reference, and covering the
improvements situated thereon (the “Improvements”); and
WHEREAS, Lessor and Lessee entered into that certain unrecorded Lease dated _______, 20_, and all
amendments thereto (the “Lease”), covering the Improvements for the term and upon the conditions set
forth therein; and
WHEREAS, the parties hereto now desire to enter into this Agreement to establish certain rights and
obligations with respect to their interests, and to provide for various contingencies as hereinafter set
forth.
NOW, THEREFORE, in consideration for the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and of the mutual benefits to accrue to the
parties hereto, it is hereby declared, understood and agreed that the Lease, all terms and conditions set
forth in the Lease, the leasehold interests and estates created thereby, and the priorities, rights, privileges
and powers of Lessee and Lessor there under shall be and the same are hereby, and with full knowledge
and understanding of the effect thereof, unconditionally made subject and subordinate to the lien and
charge of the Mortgage, all terms and conditions contained therein, any renewals, extensions,
modifications or replacements thereof, and the rights, privileges and powers of the trustee and FHA lender
there under, and shall hereafter be junior and inferior to the lien and charge of the Mortgage. The parties
further agree as follows:
1. It is expressly understood and agreed that this Agreement shall supersede, to the extent inconsistent
herewith, the provisions of the Lease relating to the subordination of the Lease and the leasehold
interests and estates created thereby to the lien or charge of the Mortgage.
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A.8.6 Subordination, Non-Disturbance and Attornment Agreements
2. FHA lender consents to the Lease.
3. In the event FHA lender or any other purchaser at a foreclosure sale or sale under private power
contained in the Mortgage, or by acceptance of a deed in lieu of foreclosure, succeeds to the interest
of Lessor under the Lease by reason of any foreclosure of the Mortgage or the acceptance by FHA
lender of a deed in lieu of foreclosure, or by any other manner, it is agreed as follows:
Lessee shall be bound to FHA lender or such other purchaser under all of the terms, covenants
and conditions of the Lease for the remaining balance of the term thereof, with the same force and
effect as if FHA lender or such other purchaser were the lessor under such Lease, and Lessee does
hereby agree to attorn to FHA lender or such other purchaser as its lessor, such attornment to be
effective and self-operative without the execution of any further instruments on the part of any of
the parties to this Agreement, immediately upon FHA lender or such other purchaser succeeding
to the interest of Lessor under the Lease.
Subject to the observance and performance by Lessee of all the terms, covenants and conditions
of the Lease on the part of the Lessee to be observed and performed, FHA lender or such other
purchaser shall recognize the leasehold estate of Lessee under all of the terms, covenants and
conditions of the Lease for the remaining balance of the term (as the same may be extended in
accordance with the provisions of the Lease) with the same force and effect as if FHA lender or
such other purchaser were the lessor under the Lease and the Lease shall remain in full force and
effect and shall not be terminated, except in accordance with the terms of the Lease or this
Agreement; provided, however, that FHA lender or such other purchaser shall not be (i) liable for
any act or omission of Lessor or any other prior lessor, (ii) obligated to cure any defaults of Lessor
or any other prior lessor under the Lease which occurred prior to the time that FHA lender or
such other purchaser succeeded to the interest of Lessor or any other prior lessor under the Lease,
(iii) subject to any offsets or defenses which Lessee may be entitled to assert against Lessor or
any other prior lessor, (iv) bound by any payment of rent or additional rent by Lessee to Lessor
or any other prior lessor for more than one (1) month in advance, (v) bound by any amendment
or modification of the Lease made without the written consent of FHA lender or such other
purchaser, or (vi) liable or responsible for or with respect to the retention, application and/or
return to Lessee of any security deposit paid to Lessor or any other prior landlord, whether or not
still held by Lessor, unless and until FHA lender or such other purchaser has actually received for
its own account as lessor the full amount of such security deposit.
Lessee hereby agrees that it will not exercise any right granted it under the Lease, or which it might
otherwise have under applicable law, to terminate the Lease on account of a default of Lessor there under
or the occurrence of any other event without first giving to FHA lender prior written notice of its intent to
terminate, which notice shall include a statement of the default or event on which such intent to terminate
is based. Thereafter, Lessee shall not take any action to terminate the Lease if FHA lender (a) within thirty
(30) days after service of such written notice on FHA lender by Lessee of its intention to terminate the
Lease, shall cure such default or event if the same can be cured by the payment or expenditure of money,
or (b) shall diligently take action to obtain possession of the leased premises (including possession by
receiver) and to cure such default or event in the case of a default or event which cannot be cured unless
and until FHA lender has obtained possession, but in no event to exceed ninety (90) days after service of
such written notice on FHA lender by Lessee of its intention to terminate.
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A.8.6 Subordination, Non-Disturbance and Attornment Agreements
1. Lessor and Lessee hereby certify to FHA lender that the lease as previously submitted to FHA
lender has not been further amended.
2. For the purposes of facilitating FHA lender’s rights hereunder, FHA lender shall have, and for such
purposes is hereby granted by Lessee and Lessor, the right to enter upon the Property and the
Improvements thereon for the purpose of affecting any such cure.
3. Lessee hereby agrees to give to FHA lender concurrently with the giving of any notice of default under
the Lease, a copy of such notice by mailing the same to FHA lender in the manner set forth herein
below, and no such notice given to Lessor which is not at or about the same time also given to FHA
lender shall be valid or effective against FHA lender for any purpose.
4. Subordination of Lease to Mortgage and Regulatory Agreements and Regulation by the U.S.
Department of Housing and Urban Development (“HUD”).
The Lease and all estates, rights, options, liens and charges therein contained or created under
the Lease are and shall be subject and subordinate to the lien or interest of (i) the Mortgage on
the Lessor’s interest in the Property in favor of FHA lender, its successors and assigns insofar as
it affects the real and personal property comprising the Property (and not otherwise owned,
leased or licensed by Lessee) or located thereon or therein, and to all renewals, modifications,
consolidations, replacements and extensions thereof, and to all advances made or to be made
there under, to the full extent of amounts secured thereby and interest thereon, and (ii) that
certain Regulatory Agreement for Multifamily Housing Projects between Lessor and HUD to be
recorded against the Property.
The parties to the Lease agree to execute and deliver to FHA lender and/or HUD such other
instrument or instruments as the FHA lender and/or HUD, or their respective successors or
assigns, shall reasonably request from time to time to reconfirm the status of the lease and to
effect and/or confirm the subordination of the Lease to the lien of the Mortgage and the abovedescribed Regulatory Agreements. To the extent that any provision of the Lease shall be in conflict
with the HUD Program Obligations (as such term is defined below), the HUD Program Obligations
shall be controlling.
In the event HUD, at a foreclosure sale or sale under private power contained in the Mortgage, or
by acceptance of a deed in lieu of foreclosure, succeeds to the interest of Lessor under the Lease
by reason of any foreclosure of the Mortgage or the acceptance by HUD of a deed in lieu of
foreclosure, or by any other manner, it is agreed as follows:
1) HUD can terminate the Lease for any violation of the Lease that is not cured within any
applicable notice and cure period given in the Lease.
2) As used in this Agreement “Program Obligations” means (1) all applicable statutes and any
regulations issued by the Secretary pursuant thereto that apply to the Project, including all
amendments to such statutes and regulations, as they become effective, except that changes
subject to notice and comment rulemaking shall become effective only upon completion of
the rulemaking process, and (2) all current requirements in HUD handbooks and guides,
notices, and mortgagee letters that apply to the Project, and all future updates, changes and
amendments thereto, as they become effective, except that changes subject to notice and
comment rulemaking shall become effective only upon completion of the rulemaking process,
and provided that such future updates, changes and amendments shall be applicable to the
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Appendix 8 Mortgage Credit Requirements
A.8.6 Subordination, Non-Disturbance and Attornment Agreements
Project only to the extent that they interpret, clarify and implement terms in this Agreement
rather than add or delete provisions from such document. Handbooks, guides, notices, and
mortgagee
letters
are
available
on
HUD's
official
website:
(http://www.hud.gov/offices/adm/hudclips/index.cfm, or a successor location to that site).
To the extent there is any inconsistency between the terms of this Subordination, NonDisturbance and Attornment Agreement, and the Lease, the terms of this Subordination, NonDisturbance and Attornment Agreement shall be controlling.
5. For purposes of any notices to be given to FHA lender hereunder, the same shall be sent by U.S.
certified mail, return receipt requested, postage prepaid, to FHA lender at the following address:
[Insert Address] or to such other address as FHA lender may hereafter notify Lessee in writing by
notice sent to Lessee as aforesaid at Lessee’s address at the Property, or such other address as FHA
lender may hereafter be advised of in writing by notice sent to FHA lender as aforesaid.
6. The agreements contained herein shall run with the land and shall be binding upon and inure to the
benefit of the respective heirs, administrators, executors, legal representatives, successors and
assigns of the parties hereto.
7. This Agreement may be executed in one or more counterparts, all of which when taken together shall
constitute a single instrument.
8. This Agreement shall, in all respects, be governed by and construed and interpreted in accordance
with the laws of the ________________.
SIGNATURES
OWNER (or LESSOR)
OPERATOR (or LESSEE)
By:
By:
Name:
Name:
Title:
Title:
Date:
Date:
FHA LENDER
By:
Name:
Title:
Date:
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Appendix 8 Mortgage Credit Requirements
A.8.7 Financial & Performance Metrics for Concentrated Risk REO Schedules
A.8.7 Financial & Performance Metrics for
Concentrated Risk REO Schedules
A. Not all items apply to all financial situations and the order/sequence of items is for illustrative purposes
only.
Underwriting Factor
Yr X
Yr Y
%<>
YR Z
%<>
DSCR Insured Assets
#
#
%
#
%
DSCR All Assets
#
#
%
#
%
DSCR (lowest 10%)
#
#
%
#
%
LtV Insured Assets
#
#
%
#
%
LtV All Assets
#
#
%
#
%
LtV (highest 10%)
#
#
%
#
%
Quick Ratio
#
#
N/A
#
N/A
Projected Liquidity-Lowest Quick
Ratio
Comment/Conclusion
(applies only when
future cash projection
is deemed required
metric, only some
cases.)
#
Short-Term Maturities ($ owed)
$
$
N/A
$
N/A
Short-Term Maturities- Estimated
$ Surplus (deficit)
$
$
N/A
$
N/A
Occupancy % Insured Assets
%
%
N/A
%
N/A
Occupancy % All Assets
%
%
N/A
%
N/A
Occupancy (lowest 10%, 3 years)
%
%
N/A
%
N/A
NOI $
$
$
%
$
%
Revenue
$
$
%
$
%
Expense
$
$
%
$
%
Dev - Lease Up: Prior Targets Met
Yes or No
Comments?
Const: Prior Targets Met
Yes or No
Comment?
REAC Insp < 65
Yes or No
#
Comments?
Unfunded Repairs*
$
$/unit:
Comments
Character: Credit Events
Yes or No
#
If Yes, explain in narrative.
Full Disclosure
Yes or No
If no, explain in narrative.
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Appendix 8 Mortgage Credit Requirements
A.8.8 Addendum: Identification and Certification of Limited Liability Investor Entities (ILLC)
A.8.8 Addendum: Identification and Certification of
Limited Liability Investor Entities (ILLC)
The following certification is to be submitted as part of the FHA loan application from each entity which
claims to be a limited liability investor.
Project Name:
FHA Project #:
I, [name of authorized signer], am authorized to certify on behalf of [name of investor entity] to each
and every item stated below.
I certify that [name of investor entity] is:
1. Investing in [name of owner/mortgagor entity], which anticipates receiving [list applicable tax credits,
e.g.: Low-Income Housing Tax Credits pursuant to Section 42 of the Internal Revenue Code].
2. A limited liability company, an investor corporation, an investor limited partnership, an investor
limited liability limited partnership or other similar entity with limited liability; and
3. An investor with limited or no control over routine property operations or HUD regulatory and/or
contract compliance, unless it should take control of the ownership entity or assume the operating
responsibilities in the event of the default of the operating partner or upon specific events defined in
the [name of owner/mortgagor entity]’s [operating agreement / partnership agreement I
organizational documents].
I further certify that should any of the facts or circumstances that support the certifications above change
or the entity for which this certification is made withdraws from participation in the owner/mortgagor, I
will notify HUD immediately in writing, providing full disclosure and explanation of the change(s).
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Appendix 9 Environmental Analysis
A.9.1 Baseline Pipeline Impact Radius Tables
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Appendix 9 Environmental Analysis
A.9.1 Baseline Pipeline Impact Radius Tables
The following Baseline Pipeline Impact Radius tables are referenced in Chapter 9, Section 9.6.19.B.1.
A.9.1.1
High-Pressure Pipelines Transferring Flammable and
Combustible Liquids
Table A9-1. Diesel Thermal Radiation ASDs (feet)
Diameter (in)
ASD (feet)
4
536
6
634
8
713
10
782
12
843
14
898
16
949
18
996
20
1,040
22
1,081
24
1,121
Table A9-2. Gasoline Thermal Radiation ASDs (feet)
Diameter (in)
ASD (feet)
4
508
6
600
8
676
10
741
12
798
14
851
16
899
18
943
20
985
22
1,024
24
1,061
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Appendix 9 Environmental Analysis
A.9.1 Baseline Pipeline Impact Radius Tables
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Table A9-3. Crude Oil Thermal Radiation ASDs (feet)
Diameter (in)
ASD (feet)
4
521
6
616
8
693
10
759
12
819
14
872
16
921
18
967
20
1,010
22
1,050
24
1,089
26
1,125
28
1,160
30
1,193
32
1,225
34
1,256
36
1,286
38
1,315
40
1,343
42
1,369
44
1,397
46
1,423
48
1,448
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Appendix 9 Environmental Analysis
A.9.1 Baseline Pipeline Impact Radius Tables
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A.9.1.2
High-Pressure Pipelines Transferring Flammable and Combustible Gases (Thermal
Radiation)
Table A9-4. Natural Gas Pipeline Thermal Radiation ASDs (feet)
Diameter
(in)
Pipeline Pressure (psi)
60
120
240
360
480
600
720
840
960
1,080
1,200
1,320
1,440
1,560
1,680
1,800
4
71
100
142
173
200
224
245
265
283
300
317
332
347
361
375
388
6
106
150
212
260
300
336
368
397
425
450
475
498
520
541
562
581
8
142
200
283
347
400
448
490
530
566
601
633
664
693
722
749
775
10
177
250
354
433
500
560
613
662
708
751
791
830
867
902
936
969
12
212
300
425
520
601
671
736
794
849
901
950
996
1,040
1,083
1,124
1,163
14
248
350
495
607
701
783
858
927
991
1,051
1,108
1,162
1,214
1,263
1,311
1,357
16
283
400
566
693
801
895
981
1,059
1,132
1,201
1,266
1,328
1,387
1,444
1,498
1,551
18
318
450
637
780
901
1,007
1,103
1,192
1,274
1,351
1,424
1,494
1,560
1,624
1,685
1,744
20
354
500
708
867
1,001
1,119
1,226
1,324
1,415
1,501
1,583
1,660
1,734
1,804
1,873
1,938
22
389
550
779
953
1,101
1,231
1,348
1,456
1,557
1,651
1,741
1,826
1,907
1,985
2,060
2,132
24
425
601
849
1,040
1,201
1,343
1,471
1,589
1,699
1,802
1,899
1,992
2,080
2,165
2,247
2,326
26
460
651
920
1,127
1,301
1,455
1,594
1,721
1,840
1,952
2,057
2,158
2,254
2,346
2,434
2,520
28
495
701
991
1,214
1,401
1,567
1,716
1,854
1,982
2,102
2,216
2,324
2,427
2,526
2,622
2,714
30
531
751
1,062
1,300
1,501
1,679
1,839
1,986
2,123
2,252
2,374
2,490
2,600
2,707
2,809
2,907
32
566
801
1,132
1,387
1,601
1,790
1,961
2,119
2,265
2,402
2,532
2,656
2,774
2,887
2,996
3,101
34
602
851
1,203
1,474
1,702
1,902
2,084
2,251
2,406
2,552
2,690
2,822
2,947
3,067
3,183
3,295
36
637
901
1,274
1,560
1,802
2,014
2,207
2,383
2,548
2,702
2,849
2,988
3,121
3,248
3,371
3,489
38
672
951
1,345
1,647
1,902
2,126
2,329
2,516
2,689
2,853
3,007
3,154
3,294
3,428
3,558
3,683
40
708
1,001
1,415
1,734
2,002
2,238
2,452
2,648
2,831
3,003
3,165
3,320
3,467
3,609
3,745
3,876
42
743
1,051
1,486
1,820
2,102
2,350
2,574
2,781
2,973
3,153
3,323
3,486
3,641
3,789
3,932
4,070
44
779
1,101
1,557
1,907
2,202
2,462
2,697
2,913
3,114
3,303
3,482
3,652
3,814
3,970
4,120
4,264
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A.9.1 Baseline Pipeline Impact Radius Tables
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Pipeline Pressure (psi)
Diameter
(in)
60
120
240
360
480
600
720
840
960
1,080
1,200
1,320
1,440
1,560
1,680
1,800
46
814
1,151
1,628
1,994
2,302
2,574
2,819
3,045
3,256
3,453
3,640
3,818
3,987
4,150
4,307
4,458
48
849
1,201
1,699
2,080
2,402
2,686
2,942
3,178
3,397
3,603
3,798
3,984
4,161
4,331
4,494
4,652
50
885
1,251
1,769
2,167
2,502
2,798
3,065
3,310
3,539
3,753
3,956
4,150
4,334
4,511
4,681
4,846
Table A9-5. Hydrogen Pipeline Thermal Radiation ASDs (feet)
Pipeline Pressure (psi)
Diameter
(in)
60
120
240
360
480
600
720
840
960
1,080
1,200
1,320
1,440
1,560
1,680
1,800
4
58
83
117
143
165
185
202
219
234
248
261
274
286
298
309
320
6
88
124
175
215
248
277
304
328
350
372
392
411
429
447
464
480
8
117
165
234
286
330
369
405
437
467
496
522
548
572
596
618
640
10
146
207
292
358
413
462
506
546
584
620
653
685
715
745
773
800
12
175
248
350
429
496
554
607
656
701
743
784
822
858
894
927
960
14
204
289
409
501
578
647
708
765
818
867
914
959
1,002
1,042
1,082
1,120
16
234
330
467
572
661
739
809
874
935
991
1,045
1,096
1,145
1,191
1,236
1,280
18
263
372
526
644
743
831
911
984
1,051
1,115
1,176
1,233
1,288
1,340
1,391
1,440
20
292
413
584
715
826
924
1,012
1,093
1,168
1,239
1,306
1,370
1,431
1,489
1,545
1,600
22
321
454
643
787
909
1,016
1,113
1,202
1,285
1,363
1,437
1,507
1,574
1,638
1,700
1,760
24
350
496
701
858
991
1,108
1,214
1,311
1,402
1,487
1,567
1,644
1,717
1,787
1,855
1,920
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A.9.1 Baseline Pipeline Impact Radius Tables
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Table A9-6. Ethane Pipeline Thermal Radiation ASDs (feet)
Pipeline Pressure (psi)
Diameter
(in)
60
120
240
360
480
600
720
840
960
1,080
1,200
1,320
1,440
1,560
1,680
1,800
4
87
123
174
213
246
275
301
325
348
369
389
408
426
443
460
476
6
130
184
261
319
369
412
451
488
521
553
583
611
639
665
690
714
8
174
246
348
426
492
550
602
650
695
737
777
815
851
886
920
952
10
217
307
434
532
614
687
752
813
869
922
971
1,019
1,064
1,108
1,149
1,190
12
261
369
521
639
737
824
903
975
1,043
1,106
1,166
1,223
1,277
1,329
1,379
1,428
14
304
430
608
745
860
962
1,053
1,138
1,216
1,290
1,360
1,426
1,490
1,551
1,609
1,666
16
348
492
695
851
983
1,099
1,204
1,300
1,390
1,475
1,554
1,630
1,703
1,772
1,839
1,904
18
391
553
782
958
1,106
1,236
1,354
1,463
1,564
1,659
1,749
1,834
1,916
1,994
2,069
2,142
20
434
614
869
1,064
1,229
1,374
1,505
1,626
1,738
1,843
1,943
2,038
2,128
2,215
2,299
2,380
22
478
676
956
1,171
1,352
1,511
1,655
1,788
1,912
2,028
2,137
2,242
2,341
2,437
2,529
2,618
24
521
737
1,043
1,277
1,475
1,649
1,806
1,951
2,085
2,212
2,332
2,445
2,554
2,658
2,759
2,856
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A.9.1 Baseline Pipeline Impact Radius Tables
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A.9.1.3
High-Pressure Pipelines Transferring Flammable and
Combustible Gases (Blast Overpressure)
Table A9-7. Natural Gas Blast Overpressure ASDs (feet)
Pipeline Pressure (psi)
Diameter
(in)
60
240
600
720
840
960
1,200
1,560
1,800
4
42
87
141
156
168
180
204
234
252
6
96
147
237
261
282
303
342
390
423
8
144
318
525
555
603
645
729
834
906
10
186
429
705
774
840
894
1,005
1,131
1,209
12
237
546
888
981
1,056
1,119
1,239
1,398
1,488
14
288
666
1,080
1,170
1,257
1,338
1,479
1,662
1,767
16
345
798
1,254
1,365
1,464
1,551
1,716
1,923
2,046
18
390
930
1,434
1,554
1,668
1,770
1,950
2,184
2,328
20
465
1,056
1,611
1,749
1,866
1,983
2,187
2,454
2,610
22
525
1,173
1,788
1,938
2,073
2,196
2,424
2,721
2,898
24
585
1,293
1,965
2,127
2,274
2,415
2,664
2,991
3,192
26
660
1,416
2,139
2,319
2,481
2,631
2,904
3,270
3,492
28
720
1,530
2,316
2,508
2,685
2,853
3,153
3,558
3,804
30
780
1,653
2,493
2,703
2,895
3,078
3,408
3,852
4,125
32
840
1,770
2,673
2,901
3,111
3,306
3,669
4,161
4,461
34
915
1,887
2,856
3,102
3,330
3,546
3,939
4,479
4,815
36
975
2,007
3,042
3,309
3,555
3,789
4,221
4,815
5,184
38
1,050
2,127
3,234
3,519
3,789
4,041
4,512
5,163
5,808
40
1,110
2,244
3,429
3,738
4,029
4,302
4,818
5,808
6,336
42
1,170
2,370
3,630
3,963
4,278
4,575
5,133
6,336
7,392
44
1,230
2,493
3,837
4,194
4,533
4,854
5,280
7,392
8,448
46
1,290
2,616
4,047
4,434
4,800
5,148
6,336
7,920
9,504
48
1,350
2,742
4,266
4,683
5,076
5,280
6,864
8,976
10,560
50
1,470
2,871
4,491
4,938
5,280
6,336
7,920
10,032
11,616
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A.9.1 Baseline Pipeline Impact Radius Tables
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Table A9-8. Hydrogen Blast Overpressure ASDs (feet)
Pipeline Pressure (psi)
Diameter
(in)
350
800
1,100
1,400
1,700
1,800
4
300
465
549
621
687
708
6
510
792
924
1,038
1,137
1,167
8
747
1,119
1,296
1,458
1,593
1,635
10
981
1,452
1,680
1,881
2,055
2,109
12
1,212
1,788
2,070
2,316
2,535
2,604
14
1,449
2,130
2,475
2,778
3,048
3,135
16
1,686
2,493
2,907
3,270
3,603
3,711
18
1,935
2,874
3,366
3,804
4,209
4,338
20
2,187
3,279
3,858
4,380
4,866
5,022
22
2,454
3,711
4,389
5,004
5,808
6,336
24
2,730
4,167
4,956
6,336
7,392
8,448
26
3,018
4,656
5,808
7,920
8,976
9,504
Table A9-9. Ethane Blast Overpressure ASDs (feet)
Pipeline Pressure (psi)
Diameter
(in)
60
120
240
360
480
600
4
39
54
90
102
126
135
6
87
108
141
177
210
240
8
117
165
243
279
354
393
10
153
222
324
399
444
474
12
192
279
402
498
507
534
14
228
336
462
564
558
621
16
267
393
513
594
681
747
18
309
447
594
684
783
867
20
366
486
666
789
891
1,002
22
396
540
759
885
1,017
1,167
24
432
600
858
990
1,164
1,305
*Ethane is a liquid above 600 psi.
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Appendix 9 Environmental Analysis
A.9.2 Section 106 Delegation Memo
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A.9.2 Section 106 Delegation Memo
A. The following Section 106 Delegation Memo is referenced in Chapter 9, Section 9.6.4.E.2.
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Appendix 12 Construction Period
A.12.1 Approval of Advances
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Appendix 12 Construction Period
A.12.1 Approval of Advances
A. Insurance of advances is the process of releasing FHA-insured mortgage proceeds and other funds
necessary for the construction, acquisition, and/or refinancing of the project. Chapter 12, Section 12.7
Insurance of Advances and Related Matters explains the general criteria to advance the mortgage
proceeds and other funds. Section A.12.1 and Section A.12.2 provide the procedures and the HUD Forms
(form HUD-92403 and form HUD-92448) required to request the initial and interim monthly
advances of mortgage proceeds by the MAP Lender, Borrower, and the General Contractor.
A.12.1.1 Approving Advances
A. Before any FHA-insured mortgage proceeds are advanced, funds provided by the Borrower must be
disbursed in full for project work, material, and incidental charges, and expenses from other available
funding sources in the following order:
1. All funds from the cash escrow established by the Borrower for: onsite construction, fees, carrying
charges (e.g. taxes, insurance MIP, exam fee, inspection fee, Government National Mortgage
Association (GNMA) fee, title and recording), and financing (front money escrow).
2. Grant/loan proceeds furnished by a national, regional, or local community service organization or a
private source.
3. Grant/loan proceeds furnished by a government agency or instrumentality, low-income housing tax
credit syndication proceeds, historic tax credits syndication proceeds, or new market tax credit
proceeds, need not be fully disbursed before the disbursement of mortgage proceeds as long as the
Regional or Satellite Office Director has previously approved a pro-rata agreement for governmental
source funds and tax credits per 24 CFR 200.54. In the case of mortgage insurance for construction or
rehabilitation, and the purchasing or refinancing of a multifamily tax credit project, HUD may not
require the escrowing of tax credit equity or any other form of security, such as a letter of credit.
B. The amount approved for a requested item cannot exceed the amount claimed by the Borrower.
Release of the front money cash escrow may not be targeted to the completion of specific on-site
improvements.
C. The MAP Lender will state on form HUD-92403 the cumulative total of all advances made to the
Borrower, including the advance under consideration. Reconcile any discrepancies before recommending
approval of the advance.
D. MAP Lender-approved disbursement amounts shall not exceed the sum of the amounts approved:
1. For mortgage insurance;
2. For funding from the Borrower’s cash escrow; and
3. For funding from available grant/loan proceeds.
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A.12.1 Approval of Advances
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E. The Housing and Economic Development Recovery Act of 2008 (HERA) provides that if the project will
receive the benefit of equity from the sale of low-income housing tax credits (LIHTC) syndication
proceeds, historic tax credits syndication proceeds, or new markets tax credit proceeds, HUD may not
require the escrowing of the equity, or accept any form of security in place thereof, such as a letter of
credit. Therefore, the Borrower will deposit cash with the MAP Lender that is sufficient, when added to
the proceeds of the insured mortgage, to assure completion of the project and to pay the initial service
charge, carrying charges, and legal and organizational expenses pertaining to the construction of the
project. The Lender may accept a lesser cash deposit or an alternative to a cash deposit, where the
required funding is to be provided by a grant or loan from a Federal, State, or local government agency or
instrumentality.
1. As a special condition to the firm commitment, the Lender is required to provide HUD with the most
recently updated Equity Contribution Schedule. The Equity Contribution Schedule is a part of the
LIHTC Summary Report which is located at:
https://www.hud.gov/sites/dfiles/Housing/documents/LIHTCSummaryReport20AllDealTypes092
0.xlsx
2. A Disbursement Agreement that reflects the terms of the Limited Partnership Agreement or Operating
Agreement for the remaining outlay of tax credit equity contributions must also be provided prior to
Initial Closing.
3. The Borrower’s minimum initial equity installment is twenty percent (20%) of the total tax credit
equity allocated for mortgageable and nonmortgageable costs (10% may be funded with an equity
bridge loan). The initial installment shall be disbursed in accordance with the amounts approved by
the Regional or Satellite Office Director per the pro-rata agreement for governmental sources funds
and tax credits per 24 CFR 200.54.
4. Subsequent contributions should be made at a time and in a manner during construction to ensure
that the statutory limitations based on actual costs for the applicable FHA mortgage program are
maintained during construction.
5. Tax credit equity pay-ins related to Investor/Syndicator required reserves and/or escrows may be
made after construction completion pursuant to benchmarks established in the partnership or
operating agreement.
A.12.1.2 Architect’s Fees
A. The Architect’s cash fee is in AIA Document B108, Standard Form of Agreement Between Owner and
Architect for a Federally Funded or Federally Insured Project.
B. The Architect’s design cash fee may be released with the initial advance.
C. Design services provided by others as detailed in the B108 must be supported by contracts approved
by HUD during commitment processing before any funds may be advanced.
D. The Mortgagor’s and Architect’s Certificate, form HUD-92403.01, must accompany any request or
partial request for advance of the design fee.
E. The Architect’s supervisory cash fee is advanced based on a percentage of completion method. The
maximum amount that may be approved is computed by multiplying the Architect’s supervisory cash fee
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by the percentage of work completed and approved on form HUD-92448, then deducting the total of
installments previously paid.
F. There is no “holdback” applied to the disbursements approved from the Architect’s Cash Fee.
A.12.1.3 Interim Insurance of Advances
A. Approval. Interim Insurance of Advances, the Carrying Charges, Financing, Legal, and Audit Expense
must not exceed their allocations in the Building Loan Agreement. Approve items due or already paid by
the mortgagor that are supported by bills and/or paid invoices/receipts on the initial advance. Do not
approve costs for interest, taxes, and insurance incurred during early start period. At cost certification,
certify the actual cost without regard to release limitations imposed by the Building Loan Agreement
during the Construction period.
B. Interest. Interest is advanced only when and as earned. The MAP Lender must specify on form HUD92403, the period(s) for which interest is requested and the amount for each period.
1. At initial closing, check each interest request for accuracy, i.e. 360 factor, and the annual interest rate
approved at Initial Endorsement.
2. The MAP Lender is prohibited from drawing down interest and refunding a portion of the money to
the Borrower. Such practice constitutes a kickback and is not acceptable to HUD and will be treated
as a direct mortgage reduction. It is appropriate to allow amounts for fire, windstorm, extended
coverage, liability, and other risk insurance customarily insured against in the community.
3. Do not allow amounts that accrued before Initial Endorsement.
4. Do not approve bills, invoices/receipts for workmen’s compensation and/or public liability insurance
that are included in the cost estimate.
C. Taxes.
1. Do not allow amounts that accrued before Initial Endorsement.
2. Approve invoices that are payable during construction, even if a portion of the billing period will be
after an allowable cutoff date. Necessary adjustments will be made at the time of cost certification.
D. Insurance. Allow amounts for fire, windstorm, extended coverage, liability, and other risk insurance
customarily insured against in the community.
1. Do not allow amounts that accrued before Initial Endorsement.
2. Do not approve invoices/receipts for workmen’s compensation and/or public liability insurance that
are included in the cost estimate.
E. MIP. Mortgage Insurance Premium (MIP) may not exceed the amount due for 1 year.
F. Service Charge and Lender Fees. Initial service charge and permanent Lender fees are limited to:
1. The actual amount paid, or the amount stipulated in the Lender’s Certificate, form HUD-92434M,
whichever is less.
2. The initial service fee cannot exceed 2 percent.
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3. The combined amount may not exceed 3.5 percent of the mortgage.
4. If the 3.5% included in processing exceeds the financing fee charged by the mortgagee, identify the
excess as restricted funds. For bond financed projects it is capped at 5.5%. Amounts in excess of 5.5%
are not mortgageable.
G. Legal Fees. Legal fees may be allowed for:
1. Borrower’s Counsel to create the Borrower entity; however, do not allow the cost of legal services to
create tax shelters, trusts, etc.
2. Costs associated with a counsel’s review of initial and final closing documents.
3. Normal interim activities in creating a project.
4. Documented costs for items in Section A.12.1.3.G.1, Section A.12.1.3.G.2, and Section A.12.1.3.G.3
above that are due and payable before or at final closing may be approved in the initial advance,
provided the limitation in Section A.12.1.3.G.5 below is not exceeded.
5. Seventy-five percent may be disbursed at initial closing or during construction. The remaining 25
percent may not be released before final endorsement. Do not allow legal expenses of the MAP Lender
or legal services connected with land acquisition, title, and recording charges and/or obtaining zoning
as they are reflected in the land value. Amounts included in form HUD-92264 for legal and audit
expenses are not blanket allowances, but ordinarily set an upper limit on allowable amounts. Nontypical fees must be borne by the Borrower, unless in an exceptionally complex case, a higher fee is
proven by the Borrower to be necessary and reasonable. Detailed invoices and/or other
documentation is required as to the reasonableness, purpose, necessity, and proper classification of
all items in the category.
H. Organizational Fees:
1. The amount included in the replacement cost estimate for organizational fees is an allowance to
reimburse the Borrower for costs incurred to:
Initiate a project;
Organize the Borrower entity;
Organize its planning, financing, and construction;
Control and manage construction by a hired third party, through endorsement; and
Third Party costs (Appraiser, Environmentalist etc.)
2. Release based upon the following:
Disburse 65 percent at initial closing.
Disburse the remaining 35 percent at final endorsement.
MAP Lender’s Third-Party Costs, reflected in Organization Costs, are exempted from the 65% rule.
The rule applies only to the Borrower’s organizational costs.
3. This allowance may not be used to subordinate the cash requirements for closing.
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4. At cost certification allow only the amount included in Section G of form HUD-92264 for
organizational fees, unless fully supporting documentation is submitted by the Borrower that justifies
the need for and reasonableness of the additional expenditure. Any costs incurred in excess of this
allowance are not eligible for recognition in processing a mortgage increase or the equity computation
on form HUD-2580, Maximum Insurable Mortgage.
I. Audit Fees. Audit fees associated with obtaining an accountant’s opinion of the Borrower’s cost
certification may not be advanced until final endorsement.
J. Title and Recording.
1. Approve amounts typically incurred for titling and recording, including:
Title search and policy at the time of Initial Endorsement;
Recording fees at Initial Endorsement;
Mortgage and stamp taxes;
Survey recording fees;
Updating title policy during construction;
Final title policy and recording charges; and
Legal fees incurred with any of the above.
2. Do not fully disburse these funds at Initial Endorsement. Ensure that sufficient funds are maintained
in the account to cover title and recording costs required at final endorsement. This may require the
approval of an amount less than that requested in the initial draw.
3. Do not disburse funds for title and recording cost associated with acquisition of the land or property.
4. Legal, organizational, title, recording costs, and taxes incurred in connection with the site purchase
may be added to the cost of the land in establishing the latest arms’ length purchase price.
K. Developer’s Fee. Developer’s fee is provided in the estimated replacement cost of Sections 220, 221,
231 projects involving non-profit Borrower. A portion of the fee may be used to pay for transactional
costs associated with developing the project, including but not limited to:
1. Reduction of the estimated closing costs of the project;
2. Staff salaries;
3. Non-profit working capital deposit;
4. Relocation expenses;
5. Operating deficit escrow;
6. Financing fees over and above the 3.5 percent included in the estimated replacement cost of the
project;
7. Environment studies; and
8. Housing Consultant services provided by either in-house staff or contractor.
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L. Tap fees, Soil Testing and Other Fees. Approved disbursement of tap fees, soil testing, and other fees
must be fully supported and is not to exceed the amount estimated in the General Contractor’s or
Borrower’s list of other fees for requested items. Approve disbursement only for items actually due.
M. Contingency Reserve. The contingency reserve is included in the replacement cost of substantial
rehabilitation projects.
1. Use the contingency reserve for:
Unforeseen costs of necessary changes approved by the HUD Office.
Unanticipated soft costs associated with extension of time change orders approved by the HUD
Office.
2. Changes classified as betterments by Architectural and Cost staff are ineligible for funding.
N. Third-Party Expenses. Fees to be paid for third-party review costs of the MAP Lender including but
not limited to Architectural reviews, Cost reviews, appraisals, and market studies.
O. At Initial Endorsement, HUD fees for examination and inspection.
P. Sums allocated to acquisition cost of land or existing building.
A.12.1.4 Allocation of Cash Available to the Borrower
A. Allocation. Allocation of cash available to the Borrower listed on line 42 of form HUD-2283, Financial
Requirements for Closing (excess mortgage proceeds), may be allocated as described in this section.
B. New Construction.
1. Land value equity can be applied to fund operating deficit or working capital escrows, or other cash
requirements at Initial Endorsement. After Initial Endorsement, additional draws from mortgage
proceeds associated with the excess land value will be considered only after the designated escrow
accounts have been fully exhausted. The land value is HUD’s estimate of the “as-is” value of land or
the actual latest arms’ length purchase price, whichever is less. The latest arms’ length purchase price
may include the following costs incurred in connection with the site purchase:
Legal fees associated with negotiations for acquisition of land, zoning, and examination of title on
the purchase or defense of title after purchase;
Prepaid special assessments;
Interest on bridge loans to purchase property after the date of submission of the initial application
for mortgage insurance;
Taxes; and
Cost of improvements made to the project site by the Sponsor/Borrower.
2. Cash escrow to cover offsite construction cost.
3. Cost of any demolition reflected in the Fair Market Value of Land. Payment is approved as demolition
progresses.
4. Construction and/or permanent loan discounts required to be paid at initial closing.
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5. Cash to cover interest shortfall escrow, working capital deposit(s) (i.e. 2% escrow and 2%
construction contingency), initial operating deficit, non-realty items, and any permanent loan
discounts not required to be paid at initial closing.
6. Remaining balance may be used to fund any approved change orders or held until final endorsement.
C. Rehabilitation of Existing Construction.
1. HUD’s estimate of the “as-is” value by market comparison or the Borrower’s acquisition cost/existing
indebtedness, whichever is less.
2. Items in Section A.12.1.4.B.1 through Section A.12.1.4.B.6 above.
A.12.1.5 Restricted Excess Mortgage Proceeds
A. Restricted excess mortgage proceeds are those excess mortgage proceeds determined not to be
available to the Borrower during construction, i.e., the difference by which the HUD estimate exceeds
contract amounts.
B. These funds cannot be used to satisfy any escrow requirements and must be held until final
endorsement.
C. Identify these funds in an unused column of form HUD-92451, Financial Record of Mortgage Loan
Transaction, as restricted funds.
A.12.1.6 MAP Lender Duties for Processing Form HUD-92403
A. The Lender must review and approve form HUD-92403 conducting the following major
responsibilities:
1. Reconcile any discrepancies between the cumulative total for all advances, including the advance
under consideration, and conclusions reached in the processing before recommending the advance
for approval.
Enter any required adjustments in Column B and note, “No Adjustment Necessary, Except as
Indicated,” or “No Adjustment Necessary,” as appropriate.
Enter the approved amount in the “Certificate of Mortgage Insurance” on the face of the form, and
where the request is reduced; explain the disallowance on the form’s reverse side.
2. Determine monthly that advances are proportionate to construction progress.
Require the MAP Lender’s Underwriter to advise you where advances for “soft costs”, i.e.,
financing and carrying charges, are in excess of work progress as shown by the most current
Progress Schedule accepted by the HUD and the percentage of project completion reflected on
form HUD-92448.
Take action where the mortgage is not in balance due to the fault of the contractor.
3. The amount advanced for construction retainage items must be adjusted for a 10 percent holdback of
the construction contact amount from each advance. The standard 10% retainage will be required
until 50% completion. After the project is 50% complete, the retainage will be reduced to 5% until
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75% completion, and further reduced to 2.5% until the loan reaches the Final Endorsement. The
following conditions must be met to permit these reductions in retainage:
The Contractor has no identity-of-interest with the owner greater than a 5 percent equity interest;
If applicable, prior written consent from the surety company must be attached to the request for
release; and
There are no questions regarding the contractor’s performance concerning the quality of work,
compliance with the contract, and any change orders or work in progress.
4. Secure approval from HUD for any advance requesting release of any portion of the contractor’s 10
percent holdback.
5. Maintain a record of approved disbursements on form HUD-92451, Financial Record of Mortgage
Loan Transaction (or similar format in an Excel worksheet).
A.12.1.7 Certificate of Mortgage Insurance
A. Prepare Certificate of Mortgage Insurance when the advance is eligible for approval. The approved
sum is the total for the Contractor’s Requisition and other eligible line items.
B. The total approved for any item must not exceed the amount allocated to the item unless the MAP
Lender submits a written request to HUD for permission to reallocate funds between line items.
C. The sum approved for mortgage insurance is the amount approved for advance less any funds
remaining in the front money escrow and any grant/loan proceeds.
D. For interim advances, the Lender is to prepare this Certificate and sign for HUD, to increase the amount
of mortgage insurance.
E. After signing form HUD-92403 in the space for the Authorized HUD Official, and signing form HUD92448 for the Regional or Satellite Office Director, the MAP Lender sends a copy of forms HUD-92403,
HUD-92448, HUD-92451 (or similar format in an Excel worksheet), and supporting documentation to
HUD.
A.12.1.8 HUD Monitoring of Interim Draws
A. The HUD Single Underwriter will monitor interim draws. If a problem is encountered during an interim
draw, the HUD Underwriter will bring the problem to the Regional or Satellite Office Director’s attention
in order to:
1. Modify the next draw, or
2. Withdraw the MAP Lender’s authority to approve advances.
A.12.2 Contractor’s Monthly Requisition
A. Contractor’s monthly requisition must be made on form HUD-92448. The Contractor’s Prevailing Wage
Certificate on the form’s reverse side must be signed. (The HUD Construction Manager should contact
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HUD Labor Standards and Enforcement staff if there are any outstanding questions regarding Davis-Bacon
weekly payrolls and/or possible underpayment of Davis-Bacon prevailing wages.) The HUD Inspector
reviews for acceptability. If acceptable, forward to MAP Lender’s mortgage credit analyst for further
processing.
B. Eligible Items for Inclusion on form HUD-92448 include:
1. Acceptably completed onsite work, i.e. in full compliance with contract documents.
2. Materials acceptably stored onsite, itemized by quantity and cost, with supporting invoices.
3. Components acceptably stored offsite, where provisions are made at initial closing in accordance with
Chapter 12, and requirements of Section A.12.3 below are met.
C. The Architect determines amounts due by job site observation of acceptable work. (The HUD Inspector
makes the determination if there is no Architect.)
D. The HUD Inspector:
1. Checks the Architect’s determination using form HUD-2328, Schedule of Values, and trade item cost
breakdowns (guides) to assure that amounts are reasonable for acceptable work and that funds
remain for unacceptable and incomplete work;
2. Spot checks the count of stored onsite items, determines that storage is acceptable, and assures that
amounts are reasonable for approval;
3. Checks the invoice and certificate for stored onsite items and approves payment after assuring that
funds remain for transportation to the site and erection.
E. Ineligible Items for Inclusion on form HUD-92448 include:
1. Noncompliant work and work supported or dependent upon noncompliant work. Work
changes completed in anticipation of future change order approvals are noncompliant work.
2. Additive change orders. Refer all change orders to HUD for processing and payment.
3. Offsite work. See Section A.12.3.6 below for the contractor’s requisition of payment, and release of
funds to the Borrower for acceptably completed offsite work.
F. Where there is disagreement with the requisition, the HUD inspector may modify the contractor’s
requested amount by:
1. Entering trade item modification(s) on form HUD-92448;
2. Explaining the modification(s) in the HUD Representative’s Trip Report, form HUD-95379;
3. Completion of form HUD-92448, Items (1) through (13) are made by the MAP Lender.
H. Supporting Documentation includes:
1. In order to help the HUD Inspector, reconcile differences with contractor claims, the contractor will
submit receipts, bills of lading for onsite deliveries, billings for onsite work, evidence of onsite
payrolls, etc.
2. Surveys may be submitted with each contractor’s requisition for improvements not previously shown
on a survey, especially regarding:
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Where the siting of structures or setting of finished floor elevations are questioned and the
Location of materials stored onsite.
3. A survey is required for the next to last advance.
A.12.3 Components Stored Offsite
A.12.3.1 Eligible Building Components
A. Only “building components” qualify for insurance of advances when stored offsite.
B. An “eligible building component” is a manufactured or pre-assembled building element which, by
reason of bulk, size or weight, vulnerability to weather conditions or lack of space at the site, is impractical
to store at the site.
C. Eligible building components comprise, but are not limited to:
1. Precast concrete floor, wall, and roof panels;
2. Assembled bath and/or kitchen core units; and
3. Fully fabricated structural steel beams and columns.
D. Items that are not eligible “building components” are (but not limited to): kitchen appliances,
carpeting, wood roof trusses, etc.
A.12.3.2 Basic Requirements for Insured Advances
A. The MAP Lender must have agreed to the necessary provisions at initial closing. See Chapter 12,
Section 12.5 and Section 12.7.
B. The Construction Contract must include the rider “Amendment to the Construction Contract for
Components Stored Offsite.” See Forms Section A.12.4.
C. Payments are limited to the invoice value of the components.
D. The contractor and its surety bear full responsibility for fraudulent claims for payment and
fraudulent disposition of such payments. Safeguards are to protect against premature payments,
against materials that do not meet contract requirements, and against losses not covered by insurance.
E. The construction contract must be secured by a 100 percent performance and payment bond or a
cash deposit or Letter of Credit in the amount of 15% or 25% of the HUD estimated cost of
construction or rehabilitation for projects with four stories or less or five stories or more, respectively .
F. Components must be stored at a location approved by the Lender and HUD.
A.12.3.3 MAP Lender’s Responsibilities
A. File Uniform Commercial Code (UCC)-1 financing statements with the proper office in the proper
jurisdiction.
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B. Make whatever additional filings are necessary to maintain a first lien on the components until they
are incorporated into the building(s).
C. Release the financing statement filings as appropriate.
D. Unconditionally certify by letter to HUD that the security instrument(s) is (are) a “first lien” on the
components covered by the instrument(s). The MAP Lender’s certification must be supported by an
opinion from the Lender’s counsel.
E. In the event of default under the mortgage, either assign its security interest to HUD or acquire title
through foreclosure to the components intended for use or incorporation into the building(s) and convey
title to HUD.
A.12.3.4 General Contractors’ Responsibilities
A. All direct and indirect costs associated with the storage and transportation of components stored
offsite.
B. Obtaining a risk of loss insurance policy which covers the components. Evidence of this policy must
be submitted to the MAP Lender prior to approval of any advance for components stored offsite.
C. Assurance that there is a valid security agreement that is a first lien on the components.
A.12.3.5 Contractor’s Requisition
A. All requests for payment for components stored offsite must be submitted on form HUD-92448,
Contractor’s Requisition, accompanied by the following:
1. A statement from the Borrower’s Architect certifying that:
He/she has visited the storage site and inspected the components for which payment has been
requested;
The components are in good condition and they comply with the contract requirements;
The components are properly stored and protected; and
The components are segregated, in an easily identified manner from other materials stored at the
same site and are marked for identification.
2. A bill of sale accompanied by an itemized invoice transferring title of the components to the Borrower.
3. A copy of the security agreement provided to the mortgagee by the Borrower.;
4. A copy of the financing statement or statements filed by the MAP Lender in accordance with the
Uniform Commercial Code.;
5. A warrantee from the MAP Lender that the security instruments represent a first lien on the building
components.
6. An opinion from the MAP Lender’s attorney that he/she has reviewed the security agreement and
associated documents relative to the building components and that the security agreement creates a
valid security interest in the collateral and that when the financing statement or statements is (are)
duly filed, the secured party will have a first lien.
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Appendix 12 Construction Period
A.12.4 Amendment to the Construction Contract for Payment for Components Stored Offsite
A.12.3.6 Offsite Construction
A. Offsite construction is separate from work done under the Construction Contract for the project.
Where offsite work is completed by the Borrower, rather than by a municipality or utility company, a
separate construction contract is required, even if completed by the project contractor. Offsite work must
also be funded from sources outside the mortgage, except that an escrow for its completion may be funded
from available excess mortgage proceeds.
B. Completion Monitoring is performed by the HUD inspector and reported on the Trip Report, form HUD95379. See HUD Procedures.
C. Contractor’s Requisition is by letter to the Borrower. Do not use form HUD-92448 to reflect the value
of acceptably completed offsite work, even if completed by the project contractor. Request for Approval
of Advance of Escrowed Funds, form HUD-92464, is used.
D. Construction Changes for offsite work must be requested by letter. Form HUD-92437, Request for
Construction Changes, may be used as a guide, but the form itself must not be used for offsite change
orders.
A.12.4 Amendment to the Construction Contract for
Payment for Components Stored Offsite
A. The undersigned as Contractor and as Owner will abide by the following conditions to induce the
Commissioner to release mortgage proceeds for the payment of components stored offsite.
B. The components stored offsite that will be recognized for payment under Article 5 of the contract are
those listed and approved by HUD as an appendix to the Contractor’s and/or Mortgagor’s Cost Breakdown,
form HUD-2328, attached to the Contract as Exhibit “A”. The appendix must provide an inventory of the
“stored components” and a breakdown of the line item of which the stored components are a part. The
breakdown must state:
1. Cost of Components (Invoice Value),
2. Cost of transportation form the offsite storage location to the construction site,
3. Cost of Installation, and
4. Costs of any other items included in the line item.
C. The Contractor is responsible for:
1. All direct and indirect costs associated with the storage and transportation of components stored
offsite.
2. Obtaining a risk of loss insurance policy which covers the components during storage, in transit and
until installed at the project site. The policy must name the Borrower, the Mortgagee and the
Commissioner as their interest may appear. Evidence of the existence of this insurance must be
submitted to HUD prior to the approval of any advance for components stored offsite.
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A.12.4 Amendment to the Construction Contract for Payment for Components Stored Offsite
3. Assuring to the satisfaction of HUD proper identification and segregation of components while in
storage and protection of components while in storage and transportation.
4. Securing from the Borrower or mortgagee all necessary security agreements, copies of financing
statement, and documentation pertaining to first lien warranties, and submitting them with the
request for payment.
5. Providing corporate surety bonds for on-site improvements on form HUD-92452M for payment and
performance bonds, each equaling 100 percent of the HUD estimate of construction or rehabilitation
cost.
D. All requests for payment for components stored offsite must be submitted by the Contractor on form
HUD-92448, Contractor’s Requisition, accompanied by the following:
1. A statement from the Architect certifying that:
He/she has visited the storage site and inspected the components for which payment has been
requested;
The components are in good condition and they comply with the contract requirement;
The components are properly stored and protected; and
The components are segregated, in an easily identified manner from other materials stored at the
same site and are marked for identification.
2. A bill of sale accompanied by an itemized invoice transferring title of the components to the Borrower.
3. A copy of the security agreement provided to the mortgagee by the Borrower.
4. A copy of the financing statement filled by the mortgagee in accordance with the Uniform Commercial
Code.
5. A warranty from the mortgagee that the security instruments requested a first lien on the building
components.
6. An opinion from the mortgagee’s attorney that he/she has reviewed the security agreement and
associated documents relative to the components for which advance are sought and that the security
agreement creates a valid security interest in the collateral and that when the financing statement is
duly filed, the secured party will have first lien.
E. Restrictions:
1. Payments for components stored offsite shall be limited to the cost of components Invoice Value)
identified in the HUD approved appendix to the Contractor’s and/or Mortgagor’s Cost Breakdown,
form HUD-2328, attached to the Contract as Exhibit “A,” and shall be subject to a 10 percent holdback.
2. In no case shall a payment be approved for components stored offsite to a contractor whose
performance, in the judgment of the Regional or Satellite Office Director, is marked by serious
deviations from the contract documents.
3. Outstanding amount of insured advances for components stored offsite must not exceed 50 percent
of the total estimated construction costs specified in the construction contract at any point in time.
4. The minimum amount for any single advance is $10,000.
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A.12.5 Projects Experiencing Difficulties Before Final Closing
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Owner
Contractor
Date:
Date:
A.12.5 Projects Experiencing Difficulties Before Final
Closing
A.12.5.1 General
A. Additional attention must be given to projects that are experiencing difficulties that may lead to default
before reaching final closing. Diagnose problems and take immediate actions during critical periods of
project construction to avoid foreclosure or assignment, and to avoid serious hardship to Borrowers,
contractors, and mortgagees. See Chapter 19 for final closing procedures when the Borrower and General
Contractor are in dispute and closing without full participation of the contractor.
B. Prompt action must be taken to correct problems as they arise. Where requested relief cannot be
granted for statutory, regulatory or administrative reasons, however, a prompt and final disapproval must
be given.
A.12.5.2 Problems Leading to Default
A. Construction problems due to:
1. Work stoppage,
2. Contractor abandonment of job,
3. A change in the contractor, owner or Architect during construction,
4. Construction defects untreated for 30 days, and
5. Extended periods of bad weather, strikes, etc.
B. Financing problems due to:
1. Contractor's inability to complete construction because of under financing.
2. Cost overruns in carrying charges due to circumstances beyond the contractor's and Borrower’s
control.
3. Cost overruns in construction hard costs caused by:
Mandatory changes,
Voluntary changes, and
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Price escalation.
C. Inadequate project income due to:
1. Underestimated operating expenses,
2. Overestimated rents and long-term occupancy levels, and
3. or lack of initial operating deficit.
A.12.5.3 Defaults During Construction
A. HUD Construction Manager will consider alternative actions that can be offered to avoid foreclosure
and hardship to all concerned parties regardless of the cause.
B. Request field counsel to provide legal guidance and participate in meetings to discuss the consequences
of default and possible preventive actions.
C. Contact MAP Lender:
1. Speak to a responsible official and obtain an opinion on the cause of default, methods of cure, and
probability of cure.
2. Advise the Lender:
To preserve its rights against the surety by giving prompt oral and written notification of the
contractor's lack of performance or default, and by demanding performance under the contract
of surety (see Section A.12.5.3.D below),
To consult with its attorney and to secure HUD approval before entering into any formal or
informal agreement with the surety.
D. The MAP Lender must send a notice to the bonding company with a copy to the General Contractor for
all conditions affecting the bonding company's interests. The notice should be sent to the bonding
company's principal office, and its regional or branch office, attention: Claims Department.
1. Conditions requiring notification include:
A sustained work stoppage,
Nonpayment of subcontractors, suppliers, workmen, etc., and
Failure to maintain satisfactory progress.
2. Conditions that require obtaining surety's approval in advance include:
Approving a change order or aggregate of change orders that exceed 10 percent of the contract
price, and
Extension of the bond by surety where there is a compelling reason why the contractor cannot
remedy a latent defect before the bond's expiration date.
3. The Borrower is responsible for requesting the surety's performance, the MAP Lender must act to
protect its and HUD's interests, and HUD must take the final action to protect its interests under
conditions in Section A.12.5.3.D.1 above.
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E. Advise the Borrower of the contractor's violation, and/or lack of performance by the Architect or
Borrower and give 30 days for correction.
F. Assess the situation by considering:
1. Percentage of construction complete,
2. Occupancy (including current estimates of income, expenses and occupancy projections),
3. Type of assurance of completion (bonds, cash escrow),
4. Status of escrow deposits,
5. Undrawn dollar amount of letters of credit (including working capital), and
6. Any other pertinent information.
G. HUD staff should meet to assess available options and prepare a position to present to interested
parties. The meeting should include the Reginal or Satellite Office Director, Field Counsel, and a
representative from Asset Management. Separate meetings by staff with one or more of the non-HUD
parties may be helpful before holding a general meeting with all interested parties.
H. Convene a general meeting of all interested parties with either a direct or indirect interest in the project
to explain the consequences of default. Hold such meetings even where there is no possibility of HUD
granting a mortgage increase or other form of relief.
1. Emphasize that all non-HUD participants must make a meaningful contribution before HUD will
assume any additional risk. Such contributions include:
Infusion of new capital through adding partners, syndication or other investments, and/or
Concessions by the MAP Lender to avoid a loss (e.g., deferral or forgiveness of interest, taking a
partial assignment of the partnership interest, etc.).
2. State firmly and unequivocally that the non-HUD parties must work out the remedy if the default is to
be cured.
3. Clarify that unless a written firm proposal for a workout is developed; assignment or foreclosure of
the mortgage will be the consequence.
4. Address the remedies covered in Section A.12.5.4 below, as appropriate.
I. Extension of MAP Lender’s election period to assign a loan for insurance benefits should not be granted
where a workout proposal is not developed. Thirty days should be the maximum extension in most cases.
A.12.5.4 Remedies to Cure Defaults
A. Call on the Bonding Company to perform, where applicable.
1. Request field counsel to communicate with surety where it fails to perform to terms of the bond.
2. Where the Surety refuses to honor its obligations after communications by field counsel, request the
Department of Treasury to initiate procedures for removal of the surety from the Treasury Circular
570.
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3. List the surety, contractor, and project; describe the particulars, including nature of the problem,
length of delays and actions taken by Borrower, mortgagee and HUD to secure surety's performance;
and attach a copy of the bond(s).
4. Mail to:
U.S. Department of Treasury
Surety Bond Branch
Financial Management Service
Washington, D.C. 20227
5. Distribute copies of the letter to the Washington Docket, Field Office Docket and the Regional or
Satellite Office Director.
B. MAP Lender or Title Company control payments through issuance of two- or three-party checks to
assure that disbursed mortgage proceeds are applied for the intended purpose and not diverted to other
uses.
1. All money drawn for construction must be paid to subcontractors, suppliers, and workers on the job.
2. Money drawn for specified purposes, e.g., Architect's fees, insurance premiums, taxes, etc., must not
be diverted to other uses.
C. Transfer construction funds to soft cost expenses, i.e., keep the mortgage in balance. The liquidated
damages clause in the construction contract provides a source of funds for overruns in interest, taxes, MIP
and insurance (soft costs) that are due to construction delays that are the General Contractor's fault.
1. Authorize the transfer of funds from the construction contract for payment of soft cost overruns,
where it becomes apparent that the scheduled date for completion cannot be met due to the fault of
the contractor. The amount of transferred funds must be reflected on subsequent form HUD-92448,
as a decrease to item 7, Sum of Cost Breakdown Items Plus Inventories of Materials.
The transfer of funds will get the attention of the contractor, Surety (if any), Borrower and
mortgagee, as well as address any financial necessity.
Notify the contractor, Surety (if any), Borrower and mortgagee by certified mail of the amount
and the reason for the transfer.
Require written acknowledgement of the notification from the mortgagee and Surety, if any.
2. When the amount originally allocated to interest on form HUD-92451, Financial Record of Mortgage
Loan Transaction (or similar format in an Excel worksheet) is exhausted or near exhaustion, request
the Architect and HUD representative to estimate the earliest date of construction completion. Use
this date to:
Set an assumed completion date.
Compute the minimum liquidated damages for the period between the completion date specified
in the construction contract, as adjusted by approved change orders, and the assumed completion
date.
Transfer the computed amount from Column J, Construction, to Column G, Carrying Charges and
Financing, on form HUD-92451 (or similar format in an Excel worksheet).
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1) Allocate full amount to interest, initially.
2) Only use funds for MIP, taxes and insurance after funds for these line items, and the working
capital escrow have been exhausted.
D. Use contractor's holdback, subject to provisions of Section A.12.5.4.B above.
E. Release assurance of completion cash escrow where used in place of a performance and completion
bond for the construction contract.
1. The Regional or Satellite Office Director may authorize such release, where:
The project is nearly complete,
Project completion and final closing may not be attainable with the remaining mortgage proceeds
alone or in combination with the Borrower other available assets, and
Release of the funds will offer an excellent chance for project completion and final closing with
clear title.
2. The entire escrow may be released under such circumstances except for 2-1/2 percent of the contract,
which amount is needed to fund the latent defects escrow, subject to:
The MAP Lender must take steps to assure that all required payments by the contractor have been
made or will be met to preclude uncovered liens, and
Disbursement of such funds and Borrower’s additional contributions must be under strict control
of the mortgagee or a title company.
3. Distribute the Regional or Satellite Office Director's written authorization for release of the funds as
follows: original to the Washington Docket with copies to the Field Office Docket, Closing Attorney,
and Mortgage Credit Control File.
F. Infusion of new money. See Section A.12.5.3.H.1 above.
G. Deferment of principal payments where the project is complete and ready for occupancy but cannot
go to final closing.
H. Mortgage increase may be provided as discussed in MAP Guide Chapter 13, Section 13.23, where
economically feasible. Where the contractor is changed because the original contractor becomes
bankrupt, abandons the job, or the contract is terminated due to inadequate contractor performance, any
mortgage increase must also be processed in accordance with the following:
1. Reprocess the project.
Use rents, expenses, and occupancy ratios current as of the date of reprocessing.
Consider the new builder's cost to complete, amounts expended to date, and any increase in
carrying charges, financing, etc., due to increased mortgage amount and/or extra construction
time over the original estimate.
2. Mortgage increase conditions.
The Borrower provides any required front money.
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1) Any recovery from the original contractor or surety must be applied first to reduction of the
mortgage on a mandatory basis.
2) The balance of the net recovery after legal expense, if any, may be used to indemnify the
Borrower, MAP Lender, and others.
3) A legal document providing for Section A.12.5.4.A and Section A.12.5.4.B above must be
included as a rider to the Regulatory Agreement and Lender’s Certificate at final closing,
where such recovery has not been made before and considered in the cost certification.
I. Reanalyze the Cost Certification for inclusion of all allowable costs where final closing has not occurred.
J. Working capital deposit balance.
A.12.5.5 Reporting
A. Complete the Default report before final closing, form HUD-58047. Report monthly on the default and
describe the plan for curing it.
B. If default cannot be promptly cured, provide a current estimate of income, expenses, and occupancy
projections.
C. Distribute Report to:
1. Regional or Satellite Office Director, and the Director of the Office of Asset Management and Portfolio
Oversight Division, within two weeks of default.
2. Asset Management’s Account Executive staff for use with the Multifamily Default Status Report, form
HUD-92426.
A.12.5.6 Foreclosure
A. Decision to foreclose. Make a decision to foreclose where the contractor becomes bankrupt,
abandons the job, or the contractor is terminated due to inadequate contractor performance. Encourage
the MAP Lender to consider foreclosure and tender of the unfinished property to HUD, where the Regional
or Satellite Office Director agrees in writing that it would be advantageous to the insurance fund, e.g.,
instances where interruption of construction occurs at an early stage and market and/or economic
conditions have worsened to preclude attaining project viability. Consider surety's position in reaching
this determination.
B. MAP Lender tenders unfinished property. Where the Regional or Satellite Office Director agrees in
writing that accepting conveyance of such unfinished property would be more advantage to the insurance
fund than pursuing project completion:
1. Promptly convey the decision to all interested parties.
2. Request field counsel to maintain close communication with the Lender’s and Borrower’s counsel and
seek advice from the Office of General Counsel as necessary.
C. Estimate completion cost. Estimate completion cost for the unfinished project to support a
subsequent damage claim against the surety for damages due to contractor's failure to perform.
MAP Guide, December 2020
Go to beginning of Appendix 12
Appendix 12
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Appendix 12 Construction Period
A.12.5 Projects Experiencing Difficulties Before Final Closing
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D. Document distribution. Compile original documents, including the Regional or Satellite Office
Director's authorization to accept the unfinished project, in the Washington Docket with one copy to the
Field Office Docket, Field Counsel, and Mortgage Credit Control File.
A.12.5.7 Other Matters
A. In the event of a mortgage insurance claim before final closing, instruct the MAP Lenders to establish
communications with the Office of the FHA Comptroller regarding the surcharge of insurance benefits for
recovery of mortgage proceeds.
B. For tax-exempt bond funded projects in default before final closing, see Chapter 11 for additional
information and riders included in the “Note” and “Lender's Certificate” regarding a default.
1. Prepayment lock-out and/or penalty override. Consider exercising HUD authority to override
Lender’s prepayment lock-out and/or penalty provisions only where:
The project mortgage has defaulted, and HUD has received notice of such default, in accordance
with 24 CFR Section 207.256;
HUD determines that the project is experiencing a net income deficiency that is attributable to
more than management inadequacy or lack of owner interest, and that the deficiency's magnitude
leaves the Borrower unable to make required debt service payments, pay all project operating
expenses and fund all required HUD reserves;
HUD finds that there is a reasonable likelihood that the Borrower can arrange to refinance the
defaulted loan at a lower interest rate or otherwise reduce the debt service payments through
partial prepayment; and
HUD determines that refinancing the defaulted loan at a lower rate or partial prepayment is
necessary to restore the project to a financially viable condition and to avoid an insurance claim.
2. Deadline extension for filing claim intentions. MAP Lender must request a three-month extension
of the election notice filing deadline in the event of a default within the term of the prepayment lockout and/or penalty. See Chapter 11 and the Lender's Certificate.
Analyze the project's financial condition and assess the feasibility of arranging a successful
refinancing.
Recommend that the Regional Center or Satellite Office Director grant the 3-month extension or
a shorter extension of the election notice filing deadline, based upon positive conclusions reached
by the analysis in Section A.12.5.1.A above.
Do not consider additional extensions of the election notice filing deadline, unless specifically
requested by the MAP Lender.
C. In the event of a grant/loan project with a pro rata disbursement agreement that defaults before
completion of construction, the governmental entity must disburse the remaining funds where the
request for funds remains in the same ratio as previously authorized.
MAP Guide, December 2020
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Appendix 12
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Appendix 13 Cost Certification
A.13.1 Agreement Authorizing Reopening of Mortgage Transaction
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Appendix 13 Cost Certification
A.13.1 Agreement Authorizing Reopening of Mortgage
Transaction
(Insert Date)
(Insert Mortgagee’s Name and Address)
(Insert Project Number)
Madam/Gentlemen:
We have favorably considered your request to reopen this mortgage transaction to increase the maximum
insurable mortgage amount. An increase of $____________________ is approved making the new maximum
mortgage amount $_____________________. This increase will be insured pursuant to Section _________ of the
National Housing Act, and Regulations applicable to the original mortgage, provided all legal instruments
are modified in a manner satisfactory to the HUD closing attorney assigned to the case. It is understood
that no portion of this increase will become available before final closing.
(Insert the amount of additional fees required and the time of payment thereof in accordance with
appropriate Regulations.)
Please signify your acceptance of this agreement to modify by signing all five (5) copies of this letter in
the space provided and promptly returning originals (and an electronic version of the originally-signed
letter) to (Insert name and address of the Regional Director or Satellite Office Director of the Office of
Multifamily Housing Production ).
Sincerely,
Accepted HUD By:
Accepted Mortgagee By:
Name:
Name:
Title:
Title:
MAP Guide, December 2020
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Appendix 13
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Appendix 13 Cost Certification
A.13.2 Agreement Authorizing Deferment of Principal Payments for Level Annuity Monthly Payment
A.13.2 Agreement Authorizing Deferment of Principal
Payments for Level Annuity Monthly Payment
(Insert Date)
(Insert Mortgagee’s Name and Address)
(Insert Project Number)
Madam/Gentlemen:
This letter will serve as our approval of the request for a (further*) stay in the commencement of principal
payments on the mortgage covering the subject project. In this agreement, the following stipulations are
pertinent:
It is agreed that principal payments shall be (further*) deferred for the period beginning
__________________ to _________________.
The Level Annuity Monthly Payment (Principal and Interest) required to amortize the amount of
$___________________ at _______% in _______ payments from ________________ through
____________________________ is $______________________________.
These changes will not affect the eligibility of the mortgage for insurance under the provisions of Section
_________ of the National Housing Act, as amended, and applicable FHA regulations, provided that before
final endorsement of the Mortgage Note, the Building Loan Agreement, the Construction Contract and the
mortgage instruments are all modified in a manner satisfactory to the Department of Housing and Urban
Development’s closing attorney assigned to the case.
In the event of a subsequent claim against the mortgage insurance, insurance benefits will be computed
on the basis of the date of default as determined under the terms of the modified mortgage. For the
purpose of determining such date, all funds collected during the period of the modification agreement and
before your election to claim mortgage insurance benefits will be applied to full monthly installments in
the order in which they fall due under the mortgage as modified. The date of default will be the due date
of the first installment not fully paid when the funds are so applied.
* Insert when applicable.
Evidence your acceptance of this agreement to modify by signing all five (5) copies of this letter in the
space provided and promptly returning originals (and an electronic version of the originally-signed letter)
to (Insert name and address of the Regional Director or Satellite Office Director of the Office of Multifamily
Housing Production).
Sincerely,
Accepted HUD By:
Accepted Mortgagee By:
Name:
Name:
Title:
Title:
MAP Guide, December 2020
Go to beginning of Appendix 13
Appendix 13
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Appendix 15 Lender Compliance, Loan Underwriting and Application Processing Deficiency Taxonomy
A.15.1 Background and Purpose
Appendix 15 Lender Compliance, Loan Underwriting and
Application Processing Deficiency
Taxonomy
A.15.1 Background and Purpose
A. HUD must manage a variety of risks in the Multifamily Accelerated Processing (MAP) FHA Insurance
Program and must maintain an appropriate balance between managing these risks and achieving its
mission under the National Housing Act. The MAP Guide, and the regulations and statutes on which it is
based, sets forth standards and requirements for all active MAP lenders under the program, as well as the
loans they underwrite and applications they submit. By referencing examples of noncompliance and
deficiencies from the MAP Guide and identifying their relative severity, this taxonomy gives lenders
greater clarity on HUD’s risk management process and better advises them of what compliance risks and
what loan underwriting or application processing deficiencies may result in sanctions and an enforcement
action under Chapter 15 of the MAP Guide.
B. The bases for issuing a Letter of Caution, a Warning Letter or other sanction are set forth in this
Appendix and in Chapter 15, Section 15.6 and Section 15.7 of the MAP Guide. Note that any specific
sanctions or enforcement actions will be based on the facts and circumstances of the individual lender’s
actions or inactions and of the specific MAP transaction.
C. The taxonomy does not limit HUD’s remedies for fraud or misrepresentation in the MAP program or
preclude HUD from referring lenders to the MAP Lender Review Board, the Mortgagee Review Board or
the Departmental Enforcement Center for noncompliance or deficiencies which, in HUD’s judgment,
warrant such a referral. Nor does it establish any new standards for administrative or civil enforcement
actions, which are currently set forth in law.
A.15.2 MAP Lender Compliance
A. Chapter 2 sets forth various standards and obligations for lender compliance with MAP program
requirements. The list of lender standards and obligations, below, indicates whether a noncompliance is
of high or low severity and the likely sanctions for a noncompliance under Chapter 15.
B. Instances of lender noncompliance which are of low severity and for which a Letter of Caution may be
issued include, but are not limited to:
1. Failure to seek or obtain COB’s approval for administrative matters requiring its review, including
lender change of control, sale, merger or license transfers, as is required by Chapter 2, Section 2.8.
2. Failure to notify COB of changes in, or transfers of, key MAP personnel, including MAP approved
underwriters and chief underwriters, as is required by Chapter 2, Section 2.10.2 and Section 2.10.3
and Section 2.12.
MAP Guide, December 2020
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Appendix 15 Lender Compliance, Loan Underwriting and Application Processing Deficiency Taxonomy
A.15.2 MAP Lender Compliance
3. Failure to notify COB of changes in the lender’s Quality Control plan, failure to conduct an annual
Quality Control review, failure to notify COB of the results of the review or to submit an annual QC
certification or a transaction tracking report, or failure of the lender to comply with its own Quality
Control plan, as is required by Chapter 2, Section 2.9.
4. Material failure to comply with any agreement, certification, undertaking or condition of approval
listed in a MAP Lender’s application for approval.
5. Failure: a) to respond in a timely manner to inquiries from; b) to comply with any requirement or
directive of; or c) to cooperate with an inquiry, review, audit or investigation into the conduct of the
MAP Lender, its MAP applications or its FHA insured mortgages by, the Director of OMP, COB, the DAS
for Multifamily Housing, the MAP Lender Review Board, the Mortgagee Review Board, the
Departmental Enforcement Center or the Office of Inspector General.
C. Instances of lender noncompliance which are of high severity and for which a Warning Letter may be
issued and Targeted Enforcement Actions or other sanctions may be imposed include, but are not limited
to:
1. Identities of Interest or conflicts of interest between the parties to a MAP transaction which are not
disclosed to or approved by HUD prior to or during application processing and are discovered after a
Firm Commitment has been issued, as is prohibited by Chapter 2, Section 2.6.5.
2. Providing prohibited inducements to a borrower in exchange for their agreeing to engage the lender
to process a MAP application, as is prohibited by Chapter 2, Section 2.6.4.7.
3. Payment of referral fees to persons or firms which are not actively engaged in the mortgage
origination business and are not mortgage brokers, correspondents or consultants, as is prohibited
by Chapter 2, Section 2.4.
4. Payment of refunds or kickbacks to a borrower which are prohibited by the MAP Guide and are not
disclosed to HUD, as is prohibited by Chapter 2, Section 2.6.1.
5. Payment by or receipt of a payment by a MAP Lender of any kickback, referral fee or other
consideration, directly or indirectly from the sponsor or from any other participant in the transaction,
that would affect the lender’s independent evaluation or represent a conflict of interest, in connection
with any insured mortgage transaction, as is prohibited by Chapter 2, Section 2.6.1.
6. Entering into a side agreement with a borrower or other parties to the transaction which is not
disclosed to HUD and is intended to circumvent MAP requirements, as is prohibited by Chapter 2,
Section 2.6.4.7.
7. Failure to administer rehabilitation or construction escrow disbursements and site inspections in
accordance with the requirements of the MAP Guide, as is required by Chapter 2, Section 2.5.2.
8. Employing or retaining an employee, officer, partner, director, principal or third party firm and who
is or will be working on MAP program matters at the time when the person or firm was suspended,
debarred, ineligible, subject to an LDP or otherwise prohibited from participation in HUD programs,
when the MAP Lender knew or should have known of the prohibition, as is prohibited by Chapter 2,
Section 2.6.3.
9. A violation of any Federal Statutes or Regulations or of the requirements of any contract with HUD.
MAP Guide, December 2020
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Appendix 15 Lender Compliance, Loan Underwriting and Application Processing Deficiency Taxonomy
A.15.3 Loan Underwriting or Application Processing Deficiencies
10. Fraud or material misrepresentation on the part of the lender in its participation in any FHA
multifamily programs. Note, a lender convicted of fraud may be subject to further action under Public
Law 111-22.
11. Indictment or conviction of a MAP Lender or any of its officers, directors, principals or employees for
an offense that reflects on the responsibility, integrity or ability of the lender to participate in the MAP
program.
A.15.3 Loan Underwriting or Application Processing
Deficiencies
A. The MAP Guide has many requirements for lender underwriting and application processing, and it
imposes a wide range of responsibilities on the lender. A lender’s deficient performance of necessary due
diligence or market analysis, or failure to adequately identify, assess and mitigate loan transaction issues
and risks, may increase risk to the FHA insurance fund.
B. HUD will review the quality of the lender’s underwriting analysis in the 5 technical disciplines of MAP
underwriting, including:
1. Borrower mortgage credit and REO analysis under Chapter 8;
2. Valuation and market analysis under Chapter 7;
3. Architectural and cost analysis under Chapter 5;
4. Cash flow analysis of project income and expenses under Chapter 3 and Chapter 7;
5. Synthesis of all technical disciplines to evaluate risk under Chapter 3.
C. The list of MAP underwriting and processing standards and obligations, below, indicates whether a
deficiency is of low or high severity, whether a deficiency will result in referral to COB for a lender
monitoring review or an enforcement action, and the likely sanctions for a deficiency under Chapter 15.
For purposes of this Taxonomy, a material underwriting deficiency is an omission or representation by
the lender that would significantly alter the underwriting conclusion and result in increased risk to HUD.
A significant finding of underwriting deficiencies is a weakness in the lender’s risk analysis which the HUD
underwriter identified and addressed during processing but which would not alter the underwriting
conclusion or result in increased risk to HUD.
D. Deficiencies in application processing which are of low severity and for which a Letter of Caution may
be issued include, but are not limited to:
1. Repeated failure to submit with its applications the required exhibits or certifications, repeated
submission of incomplete or inaccurate exhibits or certifications, or inadequate disclosure of material
facts affecting the loan application as evidenced by multiple deficiency letters issued to the lender
during application processing in response to the missing, incomplete or inaccurate exhibits or
certifications or inadequate disclosures.
2. Identification of 2 or more material underwriting deficiencies in any of the 5 technical disciplines
during processing of any single application, or repeated material underwriting deficiencies in any of
the 5 technical disciplines for all applications submitted by the lender within any 12 month period,
MAP Guide, December 2020
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Appendix 15 Lender Compliance, Loan Underwriting and Application Processing Deficiency Taxonomy
A.15.3 Loan Underwriting or Application Processing Deficiencies
whether or not the lender was notified of the underwriting deficiencies via deficiency letters issued
during application processing.
3. Repeated failure to complete application processing to a Firm Commitment, unrelated to the project
underwriting analysis, which demonstrates that the application process should not have been
initiated.
4. Failure to notify the HUD processing office promptly of material changes in the application for a Firm
Commitment that has been submitted, such as changes in rents, unit count or configuration, or gross
project area.
5. Repeated failure to meet MAP closing requirements or construction loan administration
requirements.
6. A violation of MAP procedures or requirements by a third party contractor (appraisers, PCNA
inspectors, cost analysts, architectural and engineering studies, etc.) that the MAP Lender knew, or
should have known, was occurring and that, if performed by the MAP Lender itself, would constitute
grounds for sanctions under this Appendix.
7. Submission of an application which is not signed by an authorized MAP underwriter or chief
underwriter, as required by Chapter 2, Section 2.10 and Section 2.5.1, unless the failure to sign the
application was inadvertent and the result of an oversight that is immediately corrected.
E. Deficiencies in loan underwriting or application processing which are of high severity and for which a
Warning Letter may be issued and Targeted Enforcement Actions or other sanctions may be imposed
include, but are not limited to:
1. Any early claims, loan assignments or loan defaults occurring within the first 5 years after Final
Endorsement which indicate that the claims, loan assignments or loan defaults were likely due to
deficiencies in the lender’s loan underwriting and risk analysis.
2. Evidence that a lender’s improper, inadequate, inaccurate or negligent underwriting was a likely
cause for a serious loan delinquency, default, assignment of an insured mortgage or a claim for
insurance benefits to HUD, including a material failure to perform appropriate due diligence and
quality oversight over third party contractors.
3. Submission of 2 or more applications within any 12 month period which are subsequently rejected
by HUD due to noncompliance with MAP standards.
4. Identification of 3 or more instances of material underwriting deficiencies in any of the 5 technical
disciplines during processing of any of the lender’s applications within any 12 month period, whether
or not the lender was notified of the underwriting deficiencies via deficiency letters issued during
application processing.
5. Identification of continued material underwriting deficiencies in any of the 5 technical disciplines
during processing of any of the lender’s applications within any 12 month period after receipt of a
Letter of Caution under Section A.15.3.D.2, above, whether or not the lender was notified of the
underwriting deficiencies via deficiency letters issued during application processing.
6. Issuance of 2 or more Warning Letters within any 24 month period will result in the lender being
referred to the MAP Lender Review Board or the Mortgagee Review Board.
MAP Guide, December 2020
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Appendix 15 Lender Compliance, Loan Underwriting and Application Processing Deficiency Taxonomy
A.15.3 Loan Underwriting or Application Processing Deficiencies
7. Lender collusion with or influence upon third party contractors to modify reports prepared by the
contractor that affect the contractor’s independent evaluation.
8. Knowingly submitting false information or a false certification to HUD in connection with any MAP
application or mortgage transaction.
9. Failure to fund an FHA insured mortgage loan or any misuse of mortgage loan proceeds.
F. Deficiencies in loan underwriting for which the lender may be referred to COB for a lender monitoring
review include, but are not limited to:
1. HUD will use the following process to review and assess the quality of a lender’s underwriting for each
Firm Commitment that has been issued, which review may result in a referral to COB for a lender
monitoring review under Chapter 15, Section 15.2.3. Each Region will maintain a record which
summarizes the HUD underwriter’s determinations of any significant findings of underwriting
deficiencies in a lender’s risk analysis in each of the 5 technical disciplines for all transactions on
which Firm Commitment were issued.
2. HUD will review annually each Region’s records for all Firm Commitments issued to the lender during
the previous 12 months to identify significant findings of underwriting deficiencies in any of the 5
technical disciplines. HUD will compare the average number of the lender’s significant findings in any
individual discipline to the average number of significant findings in that same discipline for all
lenders which were issued Firm Commitments in that Region during the 12 month review period.
Lenders whose average number of significant findings of underwriting deficiencies in any of the 5
technical disciplines were higher than the average number of findings in that discipline for all lenders
which were issued Firm Commitments by that Region will be referred by to COB for a full or limited
lender monitoring review.
MAP Guide, December 2020
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Appendix 16 Organizational Chart for Lease Structure
A.16.1 Sample Master Lease Ownership Structure
Appendix 16 Organizational Chart for Lease Structure
A.16.1 Sample Master Lease Ownership Structure
A. MF Housing currently requires the MAP Lender to provide a rendering of an organizational structure
in the Underwriter Narrative for a loan application. Examples of two structures are below.
Example 1: Organization Structure/Transaction Chart
(Federal Historic, State Historic, New Markets Tax Credits)
State Historic Tax
Credit Investor 0.1%
Managing Member (Building
Manager, LLC) 99.99%
Owner/Landlord Singe
Asset Mortgagor Entity
(Owner, LLC)
Managing Member 94%
Member 1%
Member 1.6665%
Member 1.667%
Member 1.6665%
HUD Insured Loan
Master Lease
Master Commercial SubLessor (Operating Company,
LLC)
Property Management
Agreement
Managing Member
(Building Manager,
LLC) 0.01%
Apartment Manager
New Markets/Federal
Historic Tax Credit
Investor Member
99.99%
Residential Leases with
Tenants
Managing Member
(Building Manager,
LLC) 100%
Commercial Master Tenant
(Commercial Sub-lessor, LLC)
Leases with
Commercial Tenants
MAP Guide, December 2020
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Appendix 16 Organizational Chart for Lease Structure
A.16.1 Sample Master Lease Ownership Structure
Example 2: Organization Structure/Transaction Chart
(Federal Historic, State Historic, New Markets Tax Credits)
State Historic Tax
Credit Investor 0.1%
Managing Member (Building
Manager, LLC) 99.99%
Owner/Landlord
(Owner, LLC)
Managing Member 94%
Member 1%
Member 1.6665%
Member 1.667%
Member 1.6665%
HUD Insured Loan
Master Lease
MASTER TENANT –
Operating Company/Tenant
(Operating Company, LLC)
Property Management
Agreement
Managing Member
(Building Manager,
LLC) 0.01%
Apartment Manager
New
Markets/Federal
Historic Tax Credit
Investor Member
99.99%
Residential Leases with
Tenants
Managing Member
(Building Manager,
LLC) 100%
Commercial Master Tenant
(Commercial Sub-lessor, LLC)
Leases with
Commercial Tenants
MAP Guide, December 2020
Go to beginning of Appendix 16
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</pre><Table class="table"><tr><Td>File Type</td><td>application/pdf</td></tr><tr><Td>File Title</td><td>Multifamily Accelerated Processing (MAP) Guide</td></tr><tr><Td>Author</td><td>U.S. Department of Housing and Urban Development</td></tr><tr><Td>File Modified</td><td>2020-12-17</td></tr><tr><Td>File Created</td><td>2020-12-16</td></tr></table></div></div></div><hr>
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