Mortgagee Letter-2

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

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

MORTGAGEE LETTER 2022-XX

TO:

ALL FHA APPROVED MULTIFAMILY MORTGAGEES

SUBJECT:

Revised Method for Calculation of Cost Not Attributable to Dwelling Units

I.

BACKGROUND

This Mortgagee Letter implements a revised and greatly simplified method for calculating
Criterion 4 of HUD form 92264A, the appraisal supplement. The function of the HUD 92264A is to
calculate the several possible mortgage amounts for a proposed HUD FHA insured loan, thus
indicating which of these sums yields the lowest mortgage amount, which lowest sum is therefore the
maximum permitted amount of the loan. The form accommodates the multiple criteria that lenders and
HUD underwriters must apply in order to determine the permitted insurable loan. Most frequently,
loans are limited by one of three (of a total of ten) criteria on the HUD form 92264A. These are:
1.
2.
3.

The Loan to Value (or Cost) ratio, also identified as Criterion 3;
The Debt Service Coverage Ratio, also identified as Criterion 5;
Or the cost of refinance when this cost is greater than 80% of value, also identified as Criterion
10.

One of the other seven criteria prevails occasionally but less frequently depending on specific
circumstances applicable to each loan. Of these, Criterion 4 is unique because it applies a maximum
loan amount per dwelling unit test where the amounts per unit are established by statute for each unit
size where “size” means “number of bedrooms.” Accordingly Criteria 4 is generally referred to as the
“Statutory Limit” and on the HUD form 92264A as the “Amount Based on Limitations per Family
Unit.” Criterion 4 is also unique because it is not a direct measure of, nor a mitigant for financial risk
but rather the means mandated by Congress to assure that FHA mortgage programs finance
multifamily properties affordable to most Americans. See 12 U.S. Code 1713(c)(3).
The statutory limits are subject to three important adjustments generally described in the
statute. The first of these is related to changes in the Consumer Price Index which is used to adjust the
limits per family unit each year based on price changes. The second adjustment is geographically
specific by selected cities and their regions and accommodates regional variations in construction cost
changes over time based on region specific indices of construction costs. Both of these adjustments
are determined by and described in an annual “high cost factors” mortgagee letter and housing notice
published by HUD.
The third adjustment is the subject of this Mortgage Letter. It is a calculation of an increase to
the statutory limited costs of a specific project by the sub-total of costs that are not attributable to
dwelling units. This calculated sub-total is known as “cost-not-attributable.” This adjustment
recognizes that projects often include building elements (and therefore costs) that are not related to

dwelling use such as parking garages, commercial spaces, and often building features typical of high
density urban development. For example, central city locations favor high rise construction and rarely
favor first, and sometimes second or third floor level dwelling use for reasons of security, privacy,
street noise and street lighting. Owners find other uses for these low floor levels and these spaces
represent “costs not attributable” to dwelling use. There are numerous other spaces or features in
multifamily projects that may be necessary or beneficial but not attributable to dwelling use.
For decades HUD defined a procedure for calculating cost-not-attributable relying on detailed
cost estimates for specific portions of a property deemed not attributable to dwelling use. Though
laborious, this procedure worked well enough for construction projects where detailed cost estimates
were available as a function of cost estimating for the proposed construction. But in the 2020 MAP
Guide the use of cost-not-attributable was extended to applications for refinance under Section 223(f)
in part for the purpose of providing workable refinance options for multifamily properties in high cost
areas. This extension required rethinking of the customary method because of the absence of already
prepared cost data. In addition the former calculation methods generated excessive and frequently
arcane efforts to calculate the costs of non-building features such as special landscaping, monuments,
sports-courts, etc. The lender and HUD staff resources required to administer this labor intensive
methodology in contrast to the greatly increased need to manage quadrupled loan volume compelled
the design of a more efficient, simpler methodology.
Working with experienced HUD staff and Chief Underwriters from lenders with significant
volume in high cost areas (where cost not attributable calculations are most likely), HUD developed an
alternative calculation method which is dramatically simpler and applicable to all Sections of the Act.
The description of the method and its application to various circumstances common in HUD’s
mortgage insurance business practice is in the form of a new Appendix A.5.10 for the 2020
Multifamily Accelerated Processing (MAP) Guide. The new Appendix replaces the existing
Appendices A.5.10 and A.5.11 and is presented here together with all the necessary additional MAP
Guide changes needed to conform the new Appendix with other MAP Guide provisions.
These MAP Guide changes are effective immediately as of the date of this Mortgagee Letter
and will be or will have been incorporated into a revised MAP Guide to be published more or less
contemporaneously with this Mortgagee Letter.
II.

TEXT OF NEW APPENDIX A.5.10 to the 2020 MAP GUIDE

Delete the existing MAP Guide Appendices A.5.10 and A.5.11 and insert in lieu thereof the following:
A.5.10

Cost Not Attributable for Insured Mortgages
A. This appendix describes how to determine a cost for portions of structures which are
considered non-attributable to dwelling use. This cost can then be included in the statutory
limited mortgage amount per Criterion 4 of the HUD form 92264A. The calculations for
cost-not-attributable are intended to adjust the statutory loan-amount-per-unit limit for
properties with significant elements that are not immediately necessary for dwelling use.
B. The purpose of the statutory limit is to prevent use of mortgage insurance programs to
support luxury housing by applying a maximum mortgage amount per-unit for each
dwelling unit type, that is, 1-bedroom, 2-bedroom, 3-bedroom units, etc. Congress

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periodically establishes maximum mortgage amounts per unit for each unit type and
provides general instructions to HUD for periodic adjustments for inflation and regional
variation of costs. The statutory limits apply to costs per dwelling unit, but some projects
properly include commercial space or other spaces considered not attributable to dwelling
use. The cost of these non-attributable spaces may be added to the Criterion 4 maximum
mortgage calculation which is otherwise based only on the number of dwelling units
categorized by number of bedrooms in the unit.
C. The purpose of HUD form 92264A is to calculate the maximum insurable mortgage
consistent with various criteria, including the key risk-based criteria, such as Criterion 3
which calculates the maximum loan based on the permitted maximum loan to value or loan
to cost ratio and Criterion 5 which establishes the maximum mortgage based on the
required minimum debt service coverage ratio. Criterion 4 of the HUD form 92264A is the
maximum mortgage based on the statutory limit of costs per dwelling unit. Thus Criteria 4
is not a measure of or a mitigant for underwriting risk. Its sole function is to provide a
method for compliance with the statutory limits. Accordingly, a reasonably accurate,
consistent, and easily calculated approximation of cost-not-attributable is sufficient.
D. The basic approach described here is to identify the square-foot area of buildings which is
not attributable to dwelling use and then calculate this not attributable area as a percentage
of gross floor area (See A.5.10.1) as established on HUD form 92264, Section C, item 33.
This percent when applied to calculated costs results in a dollar amount, which is the costnot-attributable to dwelling use. (See A.5.10.2 and A.5.10.3.) Cost-not-attributable is
entered at line b of Section 4 of the HUD form 92264A. (See A.5.10.4)
E. To simplify both the definition of building spaces and the calculation of square footage of
such spaces which are not-attributable to dwelling units in the various circumstances that
will arise, HUD will use a standard percentage to augment the net residential square feet
(HUD form 92264, Section C, item 34). This augmented residential area is assumed
attributable to dwelling use. The difference between this augmented residential area and
gross floor area is the number of square feet which are not attributable to dwelling use. But
since net rentable commercial space (HUD form 92264, Section C, item 35) is always nonattributable area, while the difference between gross floor area and the augmented
residential area may be less than the net rentable commercial area, the area not attributable
will be the greater of these two: commercial area; or the difference between gross area and
the augmented net rentable area. The standard percentage increase of net rentable
residential area is 10%. This means that for each 1000 square feet of net residential
rentable area, 100 additional square feet are assumed necessary for residential circulation,
access, and related purposes attributable to dwelling units. The actual sum of each separate
area attributable to dwelling units may be more or less than 110% of net residential area.
But again, absolute accuracy is not required; a standardized, reasonable approximation is
sufficient, more efficiently achieved and eliminates dispute over which particular spaces are
or are not attributable to dwelling use.

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F. To prevent excess, HUD limits the percent of gross floor area that may be considered nonattributable to dwelling use to 30%. This percentage applies only to the cost-notattributable calculations described in this Appendix. There are other program underwriting
limits on the proportion of space committed to or the percent of revenue obtained from
commercial uses which also serve to prevent excessive non-residential use.
A.5.10.1

Instructions for Calculating Building Area Not Attributable to Dwelling Use

A. Calculate the building area not attributable to dwelling use as follows:
Calculate the number of square feet assumed attributable to dwelling use:
1
Enter net residential area (HUD Form 92264, Section C,
line 34)
2
Multiply the result in step A1 by 1.1 (110%), rounding up
to the nearest whole number. This is total square feet
assumed attributable to dwelling use
Calculate the square foot area of buildings not attributable to dwelling use:
3
Enter the gross floor area of buildings (HUD form 92264,
Section C, item 33)
4
Subtract the result of Step A2 from the result of Step A3.
5
Enter the net rentable commercial area from HUD form
92264 Section C, item 35.
6
Enter the greater of the result of Step A4 or Step A5
7
Divide the result of Step A6 by the result of Step A3. Enter
the lesser of this calculation or 30%. (Round to the nearest
mil, i.e., XX.xx%) This is the percent of area not
attributable to dwelling use.
A.5.10.2

Instructions for Calculating Project Cost

A. Calculate the cost for new construction projects as follows:
1

Enter the Total Estimated Development Cost, HUD form
92264, Section G, Line 72

B. Calculate the cost for substantial rehabilitation projects as follows:
1
Enter the Total Estimated Development Cost, HUD form
92264, Section G, Line 72
2
Enter the “As Is” value of the property, HUD form 92264,
Section G, Line 73b
3
Enter the Estimated value of the land without
improvements, HUD form 92264, Section H, Note 2
4
Subtract the result of Step B3 from the result of Step B2
5
Add the results of Steps B1 and B4

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C. Calculate the cost for Section 223(f) transactions:
The lender has the option of establishing cost by one of two methods:
Option 1: Use the replacement cost (insurable value) as estimated by the needs assessor in
the Capital Needs Assessment (CNA e-Tool), HUD Form 92329; or
Option 2: If determined by the lender’s third-party appraiser on HUD form 92264 Section
L, the value by summation (less land).
Calculate cost for Section 223(f): Option 1 (skip Steps C2 thru C4)
1
Enter the estimated replacement cost of structures from the
Capital Needs Assessment (CNA e-Tool), HUD form
92329, ($X.xx)
Calculate cost for Section 223(f): Option 2 (skip Step C1)
2
Enter property value by summation, (HUD form 92264
Section L) only if determined by third-party appraisal.
3
Enter value of land fully improved (HUD form 92264,
Section J, item 9
4
Subtract the result of Step C3 from the result of Step C2
A.5.10.3

Calculate Cost-Not-Attributable

A. Calculate the Cost-Not-Attributable for the Insured Mortgage Project
1
2

3

A.5.10.4

Enter the percent of area not attributable to residential use
per the calculation described at A.5.10.1 Step A7
Enter the cost determined by the calculation described at
A.5.10.2, paragraph A for New Construction, paragraph B
for Substantial Rehabilitation, or Paragraph C for Section
223(f)
Multiply the result of Step A1 times the result of Step A2.
This is the cost-not-attributable for the project.
Complete Criterion 4 of the HUD form 92264A

A. Use the calculated cost-not-attributable for the project to complete the computation of the
Criteria 4 maximum insurable mortgage as follows:
Complete Criterion 4 Calculation on HUD Form 92264A
1
Enter the cost-not-attributable result of A.5.10.3 Step A3 in
HUD Form 92264A, Criterion 4, line b
2
Enter “100” as the percentage for HUD Form 92264A,
Criterion 4, line b
3
Enter the cost-not-attributable result of A.5.10.3 Step A3 in
HUD Form 92264A, Criterion 4, line b, column 1
4
Follow remaining instructions for HUD Form 92264A

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A.5.10.5

Cost-Not-Attributable for Supplemental Loans-Section 241(a)

A. Cost-not-attributable may apply to supplemental loans when the combined balance of the
existing insured first mortgage plus the amount of the proposed insured Supplemental Loan
exceeds the statutory limit for the total number and type of units in the project upon
completion of construction. Calculating the amount of cost-not-attributable to be added to
the maximum mortgage calculation on HUD form 92264A (See A.5.10.4, above) follows
the procedures described in this appendix except when an addition is proposed, in which
event the calculation for the existing buildings must be separate from the calculation for the
addition with the two results added together before completing Criteria 4 on the HUD form
92264A. This separation accommodates the fact that procedures differ for new
construction/substantial rehabilitation versus financing for existing properties.
1. The building area not attributable is always calculated by the same method as described
at A.5.10.1 provided however that if an addition of new structures with dwelling units is
proposed, then the building area not attributable for the existing property and the
proposed new residential building(s) must be calculated separately.
2. The cost of area not attributable should follow the relevant instructions based on the
kind of construction activity proposed. If construction on the existing building area is
limited to activities that otherwise would be eligible in a Section 223(f) refinancing then
the cost estimating procedure at A.5.10.2, paragraph C should be used to determine the
cost. Or if the construction on the existing building area is work that otherwise would
be substantial rehabilitation, then paragraph B should be used. Meanwhile, the cost of
an addition, if any, should be calculated consistent with A.5.10.2 paragraph A.
3. If the supplemental loan does not include an addition, then the percent of area not
attributable and the relevant cost are multiplied as described in A.5.10.3 in order to
determine cost-not-attributable.
4. If the supplemental loan does include an addition, then the percent of area not
attributable and the relevant cost for the existing building area are multiplied to
determine cost-not-attributable for the existing structures while the percent of area not
attributable and the cost of the addition are multiplied to determine the cost-notattributable for the addition. The two cost-not-attributable results are added together
and entered on the HUD form 92264A consistent with the instructions at A.5.10.4.
Also, if additional land is acquired for the addition, the combined value of the improved
site or sites is added back on Criterion 4, line “c.”
5. With or without an addition, the entire number of units, both existing and proposed,
should be used in Criterion 4, line “a.”
End of Proposed Revised Appendix A.5.10 & A.5.11

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III.

Changes to Other MAP Guide Sections to Conform to the Revised Appendix A.5.10
A. Existing Text: 3.1.18

Conforming Revision:
Delete the chapter references in the box and insert the following:
“Chapter 5.12.2.B.3 and Appendix A.5.10.”

B. Existing Text: 3.7.15

Conforming Revision: Change chapter reference to “See Appendix A.5.10 and A.5.10.2.C
specifically for costs in a Section 223(f) transaction”

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C. Existing Text: Ch 5.6.1.D.2

Conforming Revision:
Delete the entire sub-paragraph “b.” and re-label the existing sub-paragraphs “c” to “b” and “d” to “c”.
Calculation of cost not attributable is simplified such that it is no longer a reason to prevent
streamlined processing.

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D. Existing Text: Ch 5.12.2.B.3

Conforming Revision:
Add appendix reference to end of first paragraph “For cost not attributable calculation See Appendix
A.5.10.”
Delete sub-paragraphs a., b., c., and d.

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E. Existing Text: Ch 5.14.1.B.4.b

Conforming Revision:
Replace underscored with “(on line 15 “Total” enter the costs not attributable to dwelling use
calculated consistent with Appendix A.5.10.)

F. Existing Text: Ch 5.14.2.A.5

Conforming Revision:
Delete enclosed text and substitute “is calculated using instructions described in Appendix A.5.10 and
specifically A.5.10.2.B for costs of rehabilitation where the residual cost of any existing improvements
is added to the cost rehabilitation.”

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G. Existing Text: Ch 7.13.11

Conforming Revision:
Delete entire text and substitute “For calculation of substantial rehabilitation costs not attributable to
dwelling use as well as treatment of the calculated results in Criterion 4 of the HUD form 92264A, see
Chapter 8.10.1.A.1.c, Appendix A.5.10, and specifically A.5.10.2.B for substantial rehabilitation
costs.”
H. Existing Text: Ch 8.10.1.A.1.c

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Conforming Revisions:
Item “1)” is poorly worded, delete existing and insert: “The statutory limits are established by
Congress as cost limitations per dwelling unit (where units are categorized by number of bedrooms)
which amounts are adjusted by the High Cost Percentage (HCP) applicable to the location of the
project.”
Item “2)” delete existing and insert: “Enter the cost not attributable to dwelling use on Criterion
4, Line 4.b of HUD Form 92264A The cost not attributable is calculated per Appendix A.5.10 and
entered in HUD form 92264 Section M, line 15. Enter 100 as the percentage on line 4.b. and line 4.c.
Enter the full amount of cost not attributable on Line 4.b., column 1.”
Item “4)” delete existing and insert: “On line 4.d of HUD Form 92264A enter the sum of the
column 1 totals for lines 4.a, 4.b., and 4.c. This sum is the Criterion 4 maximum mortgage amount.
Strike out line 4.e “Total Number of Spaces” because this field is no longer used.”
I. Existing Text: Ch 8.11.1.A.1.c

Conforming Revision:
Enclosed text of sub-paragraph “c” is revised as follows: “The statutory limits are established by
Congress as cost limitations per dwelling unit categorized by number of bedrooms which amounts are
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adjusted by the High Cost Percentage (HCP) applicable to the location of the project. When
completing Criterion 4 on HUD form 92264A, follow Appendix A.5.10 and the same guidance for
Section 207 pursuant to Section 223(f) transactions as is stated for construction loans in chapter
8.10.1.A.1.c.”
J. Existing Text: Appendix A.2.1.1.10.M

Conforming Revision:
Revise item “9)” to read “Project’s Cost Not Attributable to dwelling use calculated consistent with
Appendix A.5.10.”
Delete Item “10)”
K. Existing Text: Appendix A.3.1.1 Program Specifications, New Construction/Substantial
Rehab

Conforming Revision:

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Delete the enclosed text and insert the following: “Where percentages are indicated on HUD form
92264A Criteria 4, enter 100%. See Chapter 8.10.1.A.1.c and Appendix A.5.10”….

L. Existing Text: Appendix A.3.1.2 Program Specifications, Refinance/Acquisition

Conforming Revision:
Delete the enclosed text and insert the following: “Where percentages are indicated on HUD form
92264A Criteria 4, enter 100%. See Chapter 8.10.1.A.1.c and Appendix A.5.10 for”….
M. Existing Text: Appendix A.5.9.2.1.B.2

Conforming Revision:
Delete item “5)” altogether.

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N. Existing Text: Glossary

Conforming Revision:
Add the following sentence to the existing text: “See Appendix A.5.10 for how to calculate Cost Not
Attributable.”
O. Existing Text: Index

Conforming Revision: Adjust enclosed Index references consistent with revised text sections, a task to
be executed by Training and Technical Assistance contractor following approval of all changes.

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P. Existing Text: Table of Contents

Conforming Revision: Adjust indicated Table of Contents references consistent with revised text
sections, and revise all text references to existing A.5.12 to A.5.11, a task to be executed by Training
and Technical Assistance contractor following approval of all changes.

End of Conforming Revisions

Julia R. Gordon Assistant Secretary for Housing –
FHA Commissioner

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Internal HUD Distribution:
Chron : 6134
HTEA T. Bernaciak
HT : Ethan Handelman
H : V. Morris

H:

Identification Lines:J :HMIP/Technical Support Div./HCF_HN-2021
2021-HTDP-HQ-

Correspondence
Code HTET
Name

Originator
D.Wilderman

Concurrence
T. Bernaciak

Concurrence
T. Butler

DAVID
WILDERMAN

THOMAS
BERNACIAK

TIMOTHY ETHAN
BUTLER 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 17:30:40 -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 13:09:02 -04'00'

Digitally signed by
TIMOTHY BUTLER
Date: 2022.06.03
15:15:01 -04'00'

Concurrence
J. Little

Concurrence
J. Golrick

Concurrence
V. Morris

Digitally signed by
ETHAN HANDELMAN
Date: 2022.06.03
16:26:12 -04'00'

Date

Official Record Copy

Mortgagee Letter 2022-##

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

Cost Not Attributable MAP Guide Revision

form HUD-713.1 (02/03)

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