The Top 10 Things to Note from the New MAP Underwriting Guidelines Tracy W. Peters

Transcription

1 The Top 10 Things to Note from the New MAP Underwriting Guidelines Tracy W. Peters

2 10. Better Loan Parameters OLD NEW 223(f) Loan to Value DSCR 223(f) Loan to Value DSCR Market Rate 83% 1.20x Market Rate 85% x Affordable 85% x Affordable 1 87% 1.15x Subsidized 87% 1.15x Subsidized 2 90% 1.11x 221(d)(4) Loan to Cost DSCR 221(d)(4) Loan to Cost DSCR Market Rate 83% 1.20x Market Rate 85% x Affordable 87% 1.15x Affordable 1 No Change No Change Subsidized 90% 1.11x Subsidized 2 No Change No Change 1. Affordable; must meet minimum 20/50 or 40/60 restrictions for at least 15 years. 2. Subsidized; must have minimum of 90% units receiving project based rental assistance for at least 15 years.

3 9. Underwriting Lower Vacancies To underwrite to lower vacancies, achievable tax credit rents need to be discounted 10% or more to market. HUDassisted property with HAP contract on 90% or more of the units; or Minimum Vacancy & Collection 3% In-place rehab with greater than 90% occupancy and greater than 90% of the units set aside as LIHTC units, with attainable tax credit rents at least 10% below market (i.e. a "discount to market"). 5% 80% of the units are set aside as LIHTC units, with attainable tax credit rents at a 10% discount to market. LIHTC without a 10% discount to market; or 7% 20% or more of the units are Market Rate.

4 8. Underwriting of HAP Renewals 15+ year rental assistance contract post closing required to qualify for Subsidized loan parameters (90% LTV/1.11x DSCR). Timing of HAP renewals The Rent Comparability Study ( RCS ), if required as part of the renewal, must be completed well in advance of any loan application to justify requested rents. If the borrower commissions the RCS, the same firm cannot do the appraisal If the lender commissions the RCS, the same firm can also do the appraisal RCS for the Section 8 contract renewal must be submitted with the FHA loan application. Contracts with <15 years remaining can still leverage additional debt from tranche underwriting if rents are above market.

5 7. 223(f) Reserve/Repair Analysis Reference Material Base Unit Cost High Cost Factor (varies by region) 1 Max Repairs /Unit 2 OLD MAP Guide $6,500 x 270% = $17, (f) Pilot (Still active) N/A x N/A = $40,000 NEW MAP Guide $15,000 x 270% = $40, Factors are published annually by HUD with regions typically ranging from ~200%-270%. Contact your lender for details. 2. This repair limit includes any required contingency. HUD s minimum contingency for Affordable Housing is 10%.

6 6. Architect/GC Service Requirements for FHA Loans PROGRAM CLASS OF WORK SERVICES AND DOCUMENTS CNA DESIGN CONSTRUCTION 223(a)(7) Repairs & Level 1 Alterations not exceeding routine maintenance and <=$1,500 per unit Required n/a List of Immediate Repairs/Costs, bids for trade or component items >$25k, dimensioned sketches of accessibility remedies, and work by qualified tradesmen 223(f) Repairs & Level 1 Alterations <$15,000/unit* Required n/a Same as above 223(f) Level 2 Alterations or any repairs and alterations=>$15,000/unit* Required Project Architect Itemized Repairs/Costs, Dimensioned drawings of reconfigured spaces, GC and HUD 2328 needed as determined by Project Architect 223(f) Level 3 Alterations Required Project Architect Itemized Repairs/Costs, Dimensioned drawings of reconfigured spaces, GC and HUD 2328 required for Level 3 Alterations 220, 221, 231, 241(a) All classes of work Required Project Architect Full drawings and specifications, Architect administration of work, GC and HUD 2328, Davis-Bacon wage standard *$15,000/unit is a trigger to retain an architect and separate from the base unit cost listed on the previous slide.

7 5. 20% Tax Credit Equity Due at Closing Equity bridge loans are not considered part of the 20%. Benchmarks for Equity Installments On Or Before Closing (223f) or Initial Endorsement (221(d)4) Minimum Equity Installment (Percent of Total Equity) OLD Requirements Cumulative Equity Paid In NEW Requirements Minimum Equity Installment 20% 20% 20% of Total Equity 65% completion of repairs (223f) or construction (221d4) 30% 50% 37.5% of Net Equity At Stabilization 45% 95% Remove Benchmark 100% completion of repairs (223f) or Final Endorsement (221d4) N A N A 62.5% of Net Equity Delivery of IRS Form % 100% Remove Benchmark

8 4. Equity Bridge Loan (EBL) Terms Can be obligation of the project ownership entity/single-asset mortgagor. HUD guidance previously did not allow this which was the subject of many waivers. May not be secured by a lien on the real estate or on any other mortgaged property. 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, at 100% Completion of Repairs for 223(f) loans, or at Final Endorsement for 221(d)(4) loans (the time of final equity pay-in) EBLs provided by not-for-profit, public sector or quasi-public sector entities, no later than ten (10) years following 100% Completion of Repairs for 223(f) loans, or Final Endorsement for 221(d)(4) loans

9 3. Secondary debt requirements Section 223(f) limits the combination of FHA insured and private secondary financing to a LTV limit of 92.5%. However, for LIHTC projects HUD will not impose a LTV limit on secondary financing. This evolved as guidance through HUD s 223(f) pilot program. The maturity date of the secondary debt must be at least coterminous with the first mortgage and be subject to automatic re-subordination in any refinancing of the first mortgage. Secondary debt must be documented in HUD s form of Surplus Cash Note (92223M) with simple interest. HUD will consider waivers to allow compounding of interest if a thorough analysis is provided 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.

10 2. HUD Recognized Costs Defeasance Costs - HUD will now recognize costs associated with bond financing, yield maintenance, swap termination fees, or costs to satisfy similar derivative instruments up to 10% of the new FHA loan. Developer Fees Can 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.

11 1. Lower MIP Rates for Affordable Housing FHA INSURED PROGRAM OLD NEW 221(d)(4) with 90%+ LIHTC or 90% Section % 0.25% 223(f) with 90%+ LIHTC or 90%+ Section % 0.25% 221(d)(4) with 10% to 90% LIHTC or 10% to 90% Section % 0.35% 223(f) with 10% to 90% LIHTC or 10% to 90% Section % 0.35% The following conditions must be met or higher market rate MIP rates will apply; 15+ year Section 8 contracts and/or LIHTC LURA agreements If qualified via LIHTC the achievable and underwritten rents must have 10% discount to market Must accept voucher tenants as residents for vacancies in units not covered by project-based Section 8 assistance. A rider to the FHA regulatory agreement must be executed evidencing the owner s agreement.