Mortgagee Letter-1

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000

OFFICE OF HOUSING

MEMORANDUM FOR:

Julia R. Gordon Assistant Secretary for Housing –
FHA Commissioner, H

THROUGH:

Janet M. Golrick, Acting, Chief of Staff for Housing, H

THROUGH:

Vance T. Morris, Associate General Deputy Assistant Secretary
for Housing, H
ETHAN
HANDELMAN

Digitally signed by ETHAN
HANDELMAN
Date: 2022.06.03 16:24:41 -04'00'

FROM:

Ethan D. Handelman, Deputy Assistant Secretary, Multifamily
Housing Programs, HT

SUBJECT:

Proposed Mortgagee Letter Amending the 2020 MAP Guide concerning
methods of calculating cost not attributable to dwelling use-Criterion 4 of
HUD Form 92264A, determination of maximum insured mortgage amount

I. OBJECTIVE
HUD proposes to simplify its method for calculating costs-not-attributable to dwelling use for
multifamily insured loan applicants where proposed loan amounts exceed the “Statutory Limits.” The
change reduces the time and effort by lenders and HUD staff to calculate and apply the statutory limits
for insured multifamily loans with no material impact on resulting loan amounts and with no increase in
risk. The change takes the form of a new Appendix A.5.10 replacing the current Multifamily
Accelerated Program (MAP) Guide Appendices A.5.10 and A.5.11 with additional minor changes in
related sections to conform all instructions to the new method.
II. BACKGROUND
Consideration of this simplification was initiated after publication of the 2020 MAP Guide which
among many changes, extended the concept of “cost-not-attributable” to refinance applications, an
expansion of the number of applications where the calculation is relevant. This earlier, 2020 MAP
Guide change was intended to expand the utility of HUD’s insured refinance program in high-cost

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metropolitan markets. The current proposed simplification is intended to improve underwriting
efficiency and to support the intended improved access to HUD’s refinance program in high-cost
markets. But the simplification is also needed to streamline multifamily underwriting processes in light
of the high business volume seen in recent years. The change also improves lenders’ ability to provide
customers with an accurate, early forecast of expected loan amount in cases where the statutory limits
may be a limiting factor.
There is no intent to materially change the underwriting results or loan amounts resulting from
costs-not-attributable. Testing indicates that use of the proposed methodology results in an average
modest increase in mortgage amounts for projects where Criterion 4 is the determining limitation with
no observed adverse impacts. For most insured loan applications, mortgage amount is determined by
risk-based criteria such as a minimum required debt-service-coverage-ratio (DSCR) or a maximum
allowed loan- to-value (or cost) ratio (LTV). But in high-cost markets, the statutory limits are relevant
in a greater minority of cases and the proposed change simplifies underwriting of those cases. When a
proposed mortgage is limited by Criterion 4-Statutory Limits, there is no implication of greater risk
because the prevailing criterion is always the lowest of all those calculated. This means that the same
project would have a larger loan if the amount were determined by the risk-based underwriting ratios.
III. BUSINESS JUSTIFICATION
HUD’s longstanding method for calculating cost-not-attributable was developed first in the early
years of HUD multifamily mortgage programs. For decades the procedure was only invoked for new
construction or substantial rehabilitation projects, typically higher cost proposals in high-cost markets. The
method relied on the availability of detailed cost studies usually available for construction loans. Even with
the availability of cost estimates, the method relied on an identification and itemization of spaces or costs
not attributable to dwelling units. The method was an excessively detailed recalculation of mortgageable
costs separating costs attributable to dwelling units from costs of spaces or project features not attributable
to dwelling use. The distinction between an attributable versus a non-attributable space or cost was often a
source of dispute. But, since costs not attributable applied to a small minority of construction loans, there
was little inclination to devise a less laborious method of estimating costs-not-attributable.
But the 2020 MAP Guide published December 18, 2020, extended the concept of costs-notattributable to refinancing of existing properties under Section 223(f). This extension recognized two facts:
1. In Mortgagee Letter 2020-03, HUD extended refinancing eligibility to newly built projects as soon
as the project achieved a minimum of one-month of underwritten debt service coverage.
Previously, refinancing was limited to projects with a minimum of three years of operating history.
2. Section 223(f) had limited utility in high-cost markets where Criterion 4 more frequently limited
mortgage amounts to sums less than those justified by risk-based criteria such as DSCR and LTV.
This restraint was (is) particularly burdensome on newly built projects now eligible for refinancing
per Mortgagee Letter 2020-03.
Once consultations with lenders and HUD staff yielded a workable revision for Section 223(f)
cases, HUD recognized that the same method readily applied to construction loans and if employed would
result in further simplification of instructions and further underwriting efficiencies. Accordingly, the
proposed new method wholly replaces former instructions for the calculation of costs-not-attributable for all
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insured mortgage programs. Note that Criterion 4 does not apply to refinancing of existing insured
mortgages under Section 223(a)(7) because in that program mortgage amount may not exceed the original
insured mortgage amount, which itself would have been underwritten consistent with the applicable
statutory limits.
IV. ANTICIPATED SAVINGS / COSTS / PUBLIC BURDENS
The proposed change reduces the number of pages of MAP Guide instruction concerning costnot-attributable from the present 10 pages to 4 pages. Anticipated savings are reduced time inputs for
lenders and HUD staff. Lenders we consulted advised that average time needed to calculate cost-notattributable would decrease by at least 4 hours in every instance in which the calculation is considered
material, which means whenever there is a possibility that the Criterion 4 calculation may be material to
determining the maximum mortgage on HUD form 92264A. The proposed method relies on figures or
values already established as standard underwriting practice for all insured loan applications. The
former method required additional detailed calculations for various project spaces and features.
We estimate that Criteria 4 is material in only about 10% of all applications which at current
volume would be 100 to 150 cases per annum. This results in an estimated 400 to 600 hours of reduced
lender time required to complete cost-not-attributable calculations generally with a corresponding equal
amount of staff time to confirm the same calculations. However, this does not account for those cases
where Criterion 4 is the lowest mortgage limit and therefore the prevailing limit. In these cases, lenders
invest significant additional time and, also, often retain additional third-party expertise to carefully
review and calculate every square foot of space and dollar of cost as may be considered “notattributable” to dwelling units. This is because every dollar of such costs identified results in a
corresponding increase in the allowed mortgage amount, until the calculated Criterion 4 amount equals
or exceeds one of the other Criteria, usually Criterion 3, loan to value, or Criterion 5, debt service
coverage. This concentrated effort can consume multiple days, additional thousands of dollars in thirdparty analysts costs as well as significant additional HUD staff time consumed to review these oftendisputed calculations. We estimate this intense use of time and money occurs in 50 cases per year
generating as many as 2,000 hours and $150,000 in lender resources.
A fundamental premise supporting the proposed revisions is that such focused attention on a few
cases is wasteful and unwarranted because it does not reduce risk and has little or no impact on the
general application of the statutory limits. Accordingly, the simplification of the method of calculating
cost-not-attributable, is of little concern for most applicants, but a significant savings to some. While
marginal in the context of HUD’s overall insured loan volume, improved efficiency at any scale is
highly desired in the present business environment of successive years of record loan volume and
lengthy queues.
IV. POSSIBLE CONTROVERSIES
There are no observed or likely controversies or objections to the proposed simplification.
FHA’s multifamily lenders are fully supportive, indeed enthusiastic, about the proposed new
methodology for calculating cost not attributable.

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VI. HUD IT IMPACTS
There are no anticipated impacts on HUD information technology.
VII. TARGET PUBLICATION DATE: As soon as possible following completion of Paperwork
Reduction Act review. While the proposed MAP Guide changes are reviewed and given effect through
the proposed Mortgagee Letter, the actual changes to the MAP Guide text will be made, (along with
other errata corrections or changes approved in other Mortgagee Letters) and the MAP Guide
republished at a single point in time more or less contemporaneous with the date of the Mortgagee
Letter.
VIII. POINT OF CONTACT:
For questions about this Mortgagee Letter, Contact David B. Wilderman, Director of Technical
Support at (202) 402-2803 or Thomas A. Bernaciak, Deputy Director, Office of Multifamily Production
at (202) 402-3242.

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Internal HUD Distribution:
Chron :
HTET
HT
H

Identification Lines :

GDAS Summary Memo Cost Not Attributable – New Methodology
Correspondence
Code HTET
Name

Originator
D. Wilderman

Concurrence
T. Bernaciak

Concurrence
T. Butler

Concurrence
J. Little

DAVID
WILDERMAN

THOMAS
BERNACIAK

TIMOTHY
BUTLER

ETHAN
HANDELMAN

Digitally signed by: DAVID
WILDERMAN
DN: CN = DAVID WILDERMAN C =
US O = U.S. Government OU =
Department of Housing and Urban
Development
Date: 2022.05.23 17:29:10 -04'00'

Digitally signed by: THOMAS
BERNACIAK
DN: CN = THOMAS BERNACIAK C =
US O = U.S. Government OU =
Department of Housing and Urban
Development, Office of Housing
Date: 2022.05.24 13:10:02 -04'00'

Digitally signed by
TIMOTHY BUTLER
Date: 2022.06.03
15:12:21 -04'00'

Digitally signed by
ETHAN HANDELMAN
Date: 2022.06.03
16:24:57 -04'00'

Concurrence

Concurrence

Concurrence

Date
Official Record Copy

U.S. Department of Housing and Urban Development
Previous edition is obsolete.

form HUD-713.1 (02/03)

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