Weekly Update, April 10, 2009/U.S. Department of Housing and Urban Development (HUD)

Weekly Update, April 10, 2009/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN

Underwriting Guidance/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

The Link to FHA 232 LEAN news letters and program changes

Previous E-Newsletters/U.S. Department of Housing and Urban Development (HUD)

FHA 232 LEAN Letter

LOW INCOME HOUSING TAX CREDITS AND SECTION 232 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION PROJECTS:

Provided the Firm Applications are submitted in a timely manner, HUD reserves the right to adjust its Other Queue to give preference to processing new construction and substantial rehabilitation Section 232’s that include Low Income Housing Tax Credits (LIHTC) to meet placed in service deadlines on specific projects.   We encourage lenders to submit the Firm Applications on these projects in such a manner that will allow as much time as possible for HUD to act on the applications – including reviewing whether our 2 Stage Firm Application process will provide for such.  

CHANGES TO OUR PROCEDURE FOR HANDLING SEASONING OF DEBT:

The April 10, 2009 Email Blast discussed our definition of Eligible Debt and the two and five year seasoning rules.  Although this language was silent on the date that the seasoning is based upon, we have consistently required that the two or five year period must have passed prior to the application being submitted (entering our queue).  Because of the length of time that projects are spending in our queues, we are changing how we will handle this.  Effective immediately, the two and five year time period will be based upon when a project is assigned to an OHP Underwriter (exits our queue).  Lenders may choose to submit a project prior to the seasoning period expiring, however, if the project reaches the top of the queue prior to the debt being properly seasoned, the project will be placed on hold.   Lenders submitting projects in such a manner must regularly monitor the project’s progression through the queue and contact a Workload Manager at HUD (prior to the project being assigned to an OHP Underwriter) if it becomes evident that the project will be assigned prior to the seasoning period expiring. 

REFUNDS OF HUD APPLICATION FEE:

We understand that HUD is no longer issuing refund checks  - all refunds are being handled by Direct Deposit.  To accommodate this procedure, when requesting refunds in the future, please use the attached document as a template for your letter requesting the refund.  This document will be posted to HUD.GOV in the future.

MANAGEMENT AGENT AND OPERATOR GRID:

Please see the attached grid.  This document addresses HUD’s closing document requirements for operators and management agents to ensure that HUD has a valid security and regulatory interest in the project assets of the healthcare facility.  Particularly of note, this grid addresses the document signing requirements of the operator and/or management agent for the operating lease, license, equipment, provider agreements, deposit accounts and facility repairs.  This document will be posted to “Sample Closing Documents” on HUD.GOV in the future.

STALE DATE ON PHASE I ENVIRONMENTAL REPORTS:

We have been asked numerous times in the past few months to waive the stale date on Phase I Environmental Reports – listed in the endnotes on our Checklists.  We have turned down all such requests as we are unable to waive this requirement. 

CLOSING QUEUE:

We will soon be posting our closing queues to HUD.GOV.  Until these are posted, please see the attached two spreadsheets, which list the projects in our closing queues.  Projects will be assigned from the top to bottom of the spreadsheets.  Currently we have three closing coordinators working on the non 223(a)(7) queue (one of these individuals concentrates on Insured Advances projects).

CLARIFICATION ON MINIMUM LEASE PAYMENTS:

During the closing of Section 232 loans, OHP and OGC have encountered confusion on the minimum lease payment required for closing documents and operating leases.  For the actual leases, we are requiring that the annual lease payment be calculated using a minium of a 1.05 coverage ratio - annual principal + annual interest + annual mortgage insurance premium + annual reserve for replacement deposit + annual property and liability insurance + annual property taxes times a multiplier of 1.05.  This minimum coverage level required for executed leases is different than the test measurement used in the 223 F Lender’s Narrative, which remains unchanged - it will continue at the 1.17 coverage level.

REVISED CONSTRUCTION SPECIFICATION TEMPLATE:

OHP will be following the revised construction specification template discussed in HUD Mortgagee Letter 2010-41 – see attached.  All Firm Applications submitted to HUD on or after April 25, 2011, must use the new CSI MasterFormat 2010.  Future revisions to our checklists and other documents posted to HUD.GOV will reflect this revised document. 

CHANGES TO OUR STANDARD DOCUMENTS:

Please do not change Lean Approved exhibits posted on HUD.GOV.  This includes, but is not limited to, submitting exhibits in MS Excel or QuattroPro when they are to be in original Word format, adding or subtracting fields of information in current documents, and changing language in Firm Commitments.  When these changes are made it takes Underwriters and Closing Coordinators extra time to identify and mitigate these unapproved changes and is contrary to the standardization required under Lean.  We will be following the February 19, 2010 Email Blast and requesting a revision to the Firm Application when this situation is present.

In addition, if a section of the Lender Narrative or an exhibit is not applicable to your project, please note that it is “not applicable” and explain why you believe this is not applicable.  No sections are to be left blank or deleted from the Template. Your cooperation with this request will help us process your application more quickly.

MARKET INTEREST RATE ABOVE RATE USED IN SECTION 223(A)(7) APPLICATIONS:

Given the recent rise in interest rates, interest rates proposed in applications under Lean Section 223(a)(7) may not longer be achievable.  Please advise your assigned OHP Underwriter if this is the case so you can work to ensure your application is consistently updated throughout to reflect a more accurate interest rate at the time of Firm Commitment issuance. For applications still in the queue that are no longer feasible due to interest rate hikes, lenders can opt to withdraw their application and have the application fee returned. 

Need to Reference Previous LEAN 232 Updates?

Previous E-Newsletters (Email Updates) can be found at:

http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/underwriting_guidance_home_page/previous_e_newsletters

FHA 232/223(f) LEAN Rates

The FHA 232/223(f) loan rates have been around 5% plus MIP.  New Construction Rates are closer to 6% plus MIP.

We are seeing more memory care facility new construction requests for FHA 232 LEAN new construction.

FHA 223(f) Waivers New Construction Take-outs Allowed

Effective now properties can request a waiver of the three year rule and refinance as soon as they receive a Certificate of Occupancy.

For more details see:http://www.kendallrealtyadvisors.com/FHA223F.html

Apartment and Healthcare Loans - Status April 24 2009

The State of Apartment and Healthcare Finance - by Kendall Realty Advisors, Scott Kendall VP-CFO

FHA 223(f) Rates in 5.25% to 5.75% range including MIP
Large Cash out Requests are getting looked at very carefully. 1.17 to DSC
80% cash out loans (Maybe) 85% loans to purchase or up to 85% refinance no cash out.


Fannie Mae Freddie Mac Multifamily Rates about 5.5% 75% loan to value cash outs.

80% Purchase transactions. 1.25 to 1 DSC

FHA 221(d)(4) - Affordable Deals more likely to be approved. Market Rate Deals ONLY IN VERY STRONG MARKETS (ex: Downtown Chicago new construction not likely to be approved).

In conclusion, refinance money is available but large cash outs transactions will not be approved above 75% Fannie Mae 80% FHA (Kendall Opinion)

New Construction Waivers and 85% loans will be approved for stabilized recent construction transactions as part of the emergency waiver.

All in All apartment lending even with more conservative lending practices is in the best shape of commercial lending programs due to the three agency programs.

FHA 232 Lean  The FHA 232 LEAN program is great for rehabilitation loans to meet new federal safety standards and for assisted living facilities.

FHA 242 Hospital Loans - Program much faster and streamlined. We are working on several transactions, the rates are low but higher than multifamily loan rates, since we can not use GNMA to provide a AAA rating.

New Lean Two Year Debt Rule

Project debt that is less than 24 months old will need to be investigated and must meet the definition of “Eligible Debt” below (See Section Below) if it is to be used in the calculation of the cost to refinance. No investigation is needed on project debt that is at least 24 months old prior to using it in the calculation of the cost to refinance,provided the identity of interest described in the next sentence is not present,provided the identity of interest described in the next sentence is not present.

Definition of Eligible Debt: Project debt that meets any of the below definitions, may be included in the cost to refinance – there is no seasoning required.

1. Outstanding mortgage(s) incurred in connection with the construction or purchase of the project, or with capital improvements made to the property as confirmed by the current mortgagee – provided it can be demonstrated that there was no cash out to the mortgagor of the proposed FHA Insured loan or its principals. However, if the debt was incurred as a result of an identity of interest ** purchase, the debt is not considered eligible debt and must meet the seasoning requirements described herein. Furthermore, if the debt was incurred as a result of buying out a partner, the debt is not considered eligible debt and must meet the seasoning requirements above.

2. Other recorded indebtedness such as mechanic's liens and tax liens provided they did not result from personal obligations of the mortgagor.

3. Unrecorded debt directly connected with the project supported by documentation from the mortgagor. If the indebtedness is not recorded, the mortgagor must provide the Lender with documentation that substantially verifies that the obligation is directly connected to the project. Examples include:

a. Indebtedness incurred in making needed improvements and betterments to the property.

b. Indebtedness incurred or advances made to cover operating deficits.

4. Other eligible costs associated with paying off the eligible debt. Examples are:

a. Reasonable delinquent and accrued interest,

b. Reasonable prepayment penalties on the mortgage,

c. Recording, release, and re-conveyance fees,

d. Documentation or processing fees,

Affordable Housing Transactions

Kendall Realty Advisors specialize in affordable rental housing loans.

FHA, Fannie Mae and Freddie Mac National Affordable Housing Lenders.

Credit enhancement of tax-exempt bonds with FHA, Fannie Mae and Freddie Mac.

New construction loans with FHA,

NEW
Equity to close can be provided in Installment Payments for tax-credit transactions.

Non-profit 501(c)3 Apartment financing also available using FHA 223(f) and FHA 221(d)(4).